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Memorandum and article


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Memorandum and article

  1. 1. MEMORANDUM OF ASSOCIATION Definitions“Memorandum of Association of a company asoriginally framed or as altered from time to time inpursuance of any previous companies law or of thisAct” Sec.2 (28)
  2. 2. MEMORANDUM OF ASSOCIATION“Memorandum of Association of acompany is its charter & defines thelimitations of the powers of a company. Itcontains the fundamental condition uponwhich alone the company is allowed to beincorporated” - Lord Cairns
  3. 3. MEMORANDUM OF ASSOCIATION“The purpose of Memorandum of Association is toenable the share holders, creditors and those whodeal with the company to know what its permittedrange of enterprise is.” - Lord Macmillan
  4. 4. FORM OF MEMORANDUM OF ASSOCIATION• Form as given in table B, C, D, & E in Schedule I• Printed• Divided into paragraphs• Numbered consecutively• Signed by at least 7 persons for public & 2 for private company. Signatures attested by one witness. Subscribers shall at least take one share
  5. 5. CONTENTS OF MEMORANDUM OF ASSOCIATION Six Clauses Name Registered Objects office AssociationLiability Capital or subscription
  6. 6. DOCTRINE OF ‘ULTRA VIRES’The words : • Ultra means beyond • Vires means the powers • Ultra Vires means beyond the powersA company which owes its incorporation to statutoryauthority cannot effectively do anything beyond thepowers expressly or impliedly conferred upon it by thestatute or Memorandum of Association.
  7. 7. ASHBURY RAILWAY CARRIAGE & IRON COMPANY LTD. Y. RICHEThe company has been formed with the object :• To make and sell, or lend or hire railway carriage and wagons and all kinds of railway plants, to carry on the business of mechanical engineers and general contractors etc.• The company contracted with Riche to finance the construction of Railway line in Belgium. The company repudiated the agreement and was sued for breach of contract.
  8. 8. ASHBURV RAILWAY CARRIAGE & IRON COMPANY LTD. Y. RICHERich Contended :• Firstly, that the contract in question came well within the meaning of the words ‘general contractors’, and, was therefore, within the powers of the company, secondly, that the contract was ratified by the majority of the shareholders.
  9. 9. EFFECTS OF DOCTRINE OF ULTRA VIRES• Void ‘Ab Initio’• Injunction• Personal Liability of Directors• Acquisition of Property that is Ultra Vires• Directors personally liable to third parties
  10. 10. ALTERATION OF NAME CLAUSE• Special Resolution.• Written Approval of Central Government.• No Approval of Central Government is necessary if the change of name involves only the addition or deletion of the word “Private”.• Change by ordinary resolution and approval of Central Government when name is identical or too closely resembles the name of an existing company.
  11. 11. CHANGE OF REGISTERED OFFICEFrom one premises to another premises in thesame city, town or village• By passing a resolution of Board of Directors
  12. 12. CHANGE OF REGISTERED OFFICEFrom one town or city or village to another townor city or village in the same state 1. Special Resolution. 2. Confirmation of Regional Director — when jurisdiction of Registrar of companies is changed. 3. Copy of (i) & (ii) to be filed with ROC. 4. Notice of new location to ROC within 30 days.
  13. 13. CHANGE OF REGISTERED OFFICEFrom one state to another state1. Special Resolution2. Confirmation of Central Govt.3. For certain Purposes only (As given in section 17)
  14. 14. ALTERATION OF OBJECTS CLAUSEA. Special ResolutionB. Alteration is sought on any of these grounds: • To carry on its business more economically & more efficiently • To attain its main purpose by new or improved means • To enlarge or change the local area of its operations • To carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company • To restrict or abandon any of the objects specified in the memorandum • To sell or dispose off the whole or any part of the undertaking • To amalgamate with any other companyC. Copy of (A) is filed with ROC within 30 days
  15. 15. ALTERATION OF LIABILITY CLAUSE• The liability of a member of a company cannot be increased unless the member agrees in writing.• From unlimited liability, it can be made limited by re-registration of the company.
  16. 16. ALTERATION OF CAPITAL CLAUSE• Increase of authorized share capital.• Consolidation and subdivision of shares.• Conversion of shares into stock & vice versa.• Diminution of share capital.
  17. 17. ARTICLES OF ASSOCIATIONDefinition‘Article’ means the articles of association of acompany as originally framed or as altered fromtime to time in pursuance of any previouscompanies laws or of this Act’ Sec.2 (2)
  18. 18. ARTICLES OF ASSOCIATION“…. The articles proceed to define the duties, theright and the powers of the governing body asbetween themselves and the company at large andthe mode and form in which the business of thecompany is to be carried on and the mode and formin which changes in the internal regulations of thecompany may from time to time be made. - Lord Cairns
  19. 19. CONTENTS OF ARTICLES1. The extent to which Table ‘A’ is applicable2. Different classes of shares and their rights3. Procedure of making an issue of share capital and allotment thereof4. Procedure of issuing share certificates and share warrants5. Forfeiture of shares and the procedure of their re-issue6. Procedure for transfer and transmission of shares
  20. 20. CONTENTS OF ARTICLES7. The time lag in between calls on shares conversion of shares into stock8. Directors, their appointment, remuneration, qualifications, etc.9. Account and audit10. Lien of shares11. Payment of commission on shares and debentures to underwriters12. Rules for adoption for ‘preliminary contracts’ if any
  21. 21. CONTENTS OF ARTICLES13. Re-organization and consolidation of shares capital14. Alteration of share capital & Buyback of shares15. Borrowing power of directors16. General meeting, proxies and polls17. Voting rights of members18. Winding up
  22. 22. ALTERATION OF ARTICLES (SEC 31)Procedure :• Alteration by passing a special resolution.• Copy of resolution to be sent to registrar within 30 days.• Copy of altered articles to be registered within 3 months of passing of resolution.
  23. 23. LIMITATIONS REGARDING ALTERATION OF ARTICLES1. Alteration should not be inconsistent with a. Provisions of Company Act or any other statute b. Conditions contained in memorandum2. Approval of govt. to be obtained in certain cases3. Alteration must not deprive any person of his rights under a contract4. Alteration must not constitute a fraud on the minority5. Alteration must be bonafide for the benefit of the company as a whole
  24. 24. BINDING FORCE OF MEMORANDUM AND ARTICLES (SEC 36)The following are the legal implications:• Company is bound to its members• Each member is bound to the company• Each member is bound to other members in exceptional case only• Neither the company nor the members are bound to outsiders
  25. 25. Memorandum of Articles of Association AssociationCharter of Company Regulations for interal managementDefines the scope of the activities Rules for carrying out the objects of company.Supreme document Subordinate to the memorandum.Must for every company Company limited by shares need not have it (Table ‘A’ applies)Strict restrictions, alteration only Can be altered by specialwith sanction of central govt./ resolution.tribunal.Act, ‘Ultra Vires’ is wholly void & Act ‘Ultra Vires’ (but intra vires thecannot be ratified. memorandum) can be ratified.
  26. 26. DOCTRINE OF CONSTRUCTIVE NOTICE• Documents are open & accessible to all.• Presumption that any outsider dealing with company has read & understood the documents.• It is a negative doctrine, acting only against the outsiders & not the company.
  27. 27. DOCTRINE OF INDOOR MANAGEMENT• Persons dealing with the company in good faith have a right to assume that the internal requirements prescribed in public documents have been observed• Persons are not bound to enquire into regularity of internal proceedingsExceptions :• Knowledge of irregularity• Negligence on part of the outsider• Forgery• Acts outside scope of apparent authority