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Memorandum, articles & prospectus


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Memorandum, articles & prospectus

  2. 2. MEMORANDUM A document in relation to the proposed company. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. It is the charter of the company and defines its raison d’etre. It also regulates the external affairs of the company in relation to outsiders. Its purpose is to enable shareholders and those who deal with the company to know what its permitted range of enterprise is.
  3. 3. PURPOSE OF MEMORANDUM The prospective share holders shall knowthe field in, of the purpose for, which theirmoney is going to be used by the companyand what risk they are undertaking inmaking investment. The outsiders dealing with the companyshall know with certainty as to what objectsof the company are and as to whether thecontractual relation into which theycontemplate to enter with the company iswithin the objects of the company.
  4. 4. PRINTING & SIGNING OF MEMORANDUM Printed Divided into paragraphs numbered consecutively Signed by seven subscribers
  5. 5. CONTENTS OF MEMORANDUM Name of the company State Objects of the company Main objects Other objects Limited liability Share capital
  6. 6. THE NAME CLAUSE Undesirable name to be avoided. Too similar to the name of another company Misleading Injunction if identical name adopted. Limited or Private Limited Prohibition of use of certain names Use of key words according to authorised capital
  7. 7. THE REGISTERED OFFICE CLAUSE Registered office is compulsory from the day of it carries on business
  8. 8. THE OBJECTS CLAUSETo enable subscribers to the memorandumto know the uses to which their money maybe putTo enable the creditors and persons dealingwith the company to know what itspermitted range of enterprise or activities is.Main objects and other objects
  9. 9. OTHER CLAUSES OF MEMORANDUM • The capital clause • The liability clause • The association clause
  11. 11. ALTERATION OF CONDITIONS Contd.. Change of name By special resolution By ordinary resolution • Change of registered office From one place to another place From one town to another town From one state to another state
  12. 12. PROCEDURE OF ALTERATION Special resolution Confirmation by the company law board Notice to affected parties Notice to registrar Power of the company law board to confirm change discretionary Rights and interests of members and creditors to be taken care of Copy of special resolution and the order of the company law board to be filed with the registrar
  13. 13. ALTERATION OF OBJECTS Substantive limit Procedural limit
  14. 14. ALTERATION OF OBJECTSSubstantive limit – To carry on its business more economically or 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 may conveniently or advantageously be combined with the objects specified in the memorandum – To restrict or abandon any of the objects specified in the memorandum – To sell of dispose of the whole, or part, of the undertaking, or of any of the undertakings of the company or – To amalgamate with any other company of body of persons
  15. 15. PROCEDURE OF ALTERATION Special resolution Copy of special resolution to be filed Certification of registration.
  16. 16. Change in liability clauseChange in capital clause
  17. 17. DOCTRINE OF ULTRA VIRES A company has the power to do all such things as : Authorized to be done by the companies Essential to the attainment of its objects specified in the memorandum Reasonably and fairly incidental to its objects Everything else is ultra vires
  18. 18. PURPOSE OF ULTRA VIRES Investors in the company so that they may know the objects in which their money is to be employed Creditors by ensuring that the company’s funds are not wasted in unauthorized activities Ultra vires act is void Ultra vires the directors Ultra vires the articles
  19. 19. Effects of the ultra vires transactions Injunction Personal liability of directors Breach of warranty of authority Ultra vires contracts Ultra vires acquired property Ultra vires torts
  20. 20. EXCEPTIONS OF ULTRA VIRESIf an act is ultra vires the directors of a companybut is intra vires the company, the companymay ratify itIf an act is ultra vires the articles of company,the articles may be altered to include the actwithin the powers of the companyIf an act is intra vires a company, but isirregularly done, the shareholders may ratify itIt is important to protect the company’screditors and shareholders against ultra virestransactionsThe rights over the property acquired by ultravires expenditures are protected
  21. 21. EXCEPTIONS OF ULTRA VIRES Contd.. If a company has purchased some property from a third party…….. Ultra vires loan Ultra vires loan through some misrepresentation If a director makes payment ultra vires the company….
  23. 23. ARTICLES OF ASSOCIATIONThe articles of association are the rules, regulations and bye-laws for he internal management of the affairs of a company. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association.
  24. 24. CONTENTS OF ARTICLES Share capital, rights of shareholders, variation of these rights, payment of commissions, share certificates Lien on shares Calls on shares Transfer of shares Transmission of shares Forfeiture of shares Conversion of shares into stock Share warrants Alteration of capital
  25. 25. CONTENTS OF ARTICLES Contd..General meetings and proceedings thereatVoting rights of members, voting and poll,proxiesDirectors, their appointment, remuneration,qualifications, powers and proceedings ofboard of directorsManagerSecretaryDividends and reservesAccounts, audit and borrowing powersCapitalization of profitsWinding up.
  26. 26. Companies which must have their own Articles Unlimited companies Companies limited by guarantee Private companies limited by shares
  27. 27. REGULATIONS REQUIREDUnlimited company The number of members with which the company is to be registered and If it has a share capital, the amount of share capital with which the company is to be registeredCompany limited by guarantee The number of members with which the company is to be registeredPrivate company Restrict the right to transfer shares Limit the number of its members to 50 Prohibit any invitation to the public to subscribe for any shares in, or debentures of, the company
  28. 28. STATUTORY REQUIREMENT Printed Divided into paragraphs Signed by each subscriber of the memorandum
  29. 29. ALTERATION OF ARTICLES Wide powers of alteration Any clause in the articles that restricts or prohibits alteration of Articles is invalidProcedure of alteration • Special resolution • Lawfully included originally • A copy of every special resolution altering the Articles shall be filed with the Registrar
  30. 30. LIMITATIONS TO ALTERATION Must not be inconsistent with the act Must not conflict with the Memorandum Must not sanction anything illegal Must be for the benefit of the company Must not increase liability of members Alteration by special resolution only Approval of Central Government when a public company is converted into a private company Breach of contract
  31. 31. ARTICLES & MEMORANDUM –RelationsThe articles are subordinate to MemorandumThe Memorandum must be read in conjunctionwith Articles To explain any ambiguity in the terms of the Memorandum, orThe terms of the Memorandum cannot bemodified or controlled by the Articles
  32. 32. Articles & Memorandum - DistinctionMemorandum of Association Articles of AssociationCharter of the company RegulationsDefines the scope They are the rulesSupreme Document SubordinateMust own Memorandum Need not have Articles of its ownStrict regulation in alteration Altered by a special resolution
  33. 33. Legal effect of Memorandum and Articles The Memorandum and Articles, when registered, bind a company and the members thereof to the same extent as it they Had been signed by the company and each member and Contained covenants by the company and each member to observe all the provisions of the Memorandum and of the Articles
  34. 34. Legal effect of Memorandum and Articles The legal implications of these documents bind Members to the company Company to the members Members inter se Company to the outsiders.
  35. 35. Constructive notice of Memorandum and Articles Every outsider dealing with a company is deemed to have notice of the contents of the Memorandum and the Articles of Association. These documents, on registration with the registrar, assume the character of public documents. This is known as constructive notice of Memorandum and Articles.
  36. 36. Constructive notice of Memorandum and Articles Office of Registrar is a public office Presumption that outsider has read Memorandum and Articles
  37. 37. Constructive notice of Memorandum and Articles Contd...Limitation The outsiders dealing with the company are entitled to assume that as far as the internal proceedings of the company are concerned; everything has been regularly done. They are presumed to have read these documents and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the Memorandum and the Articles. They can presume that all is being done regularly. This limitation of the doctrine of constructive notice is known as ………
  38. 38. Doctrine of Indoor ManagementDoctrine of Indoor Management or the rulein Royal British Bank or just Turquand Rule,seeks to protect outsiders against thecompany.The gist of the rule is that persons dealingwith limited liability companies are notbound to inquire into the regularity of theinternal proceedings and will not beaffected by irregularities of which they hadno notice.
  39. 39. Exceptions to the doctrine of Indoor Management Knowledge to irregularity Negligence Forgery Acts outside the scope of apparent authority
  40. 40. PROSPECTUS
  41. 41. PROSPECTUS Prospectus is any document describedor issued as a prospectus and includes anynotice, circular, advertisement or otherdocument inviting deposits from the publicor inviting offers from the public for thesubscription or purchase of any shares in, orinviting offers from the public for thesubscription or purchase of any shares in, ordebentures of, a body corporate.
  42. 42. PROSPECTUSProspectus to be in writingSubscriptionInvitation to publicOffer to the public
  43. 43. PROSPECTUS Dating of prospectus Signing of prospectus Registration of prospectus
  44. 44. PROSPECTUS Contd…Copy of registration must be accompanied with the following document Consent of the expert of the issue A copy of every contract, appointing or fixing remuneration of a managing director or manager A copy of every material contract, not being a contract entered into in The written statement The consent in writing of the person
  45. 45. PROSPECTUS Contd…Objects of registration of prospectus To keep an authenticated record of the terms and conditions of issue of shares or debentures and To pinpoint the responsibility of the persons issuing the prospectus for statements made by them in the prospectus
  46. 46. PROSPECTUS Contd…When prospectus is not required to be issued Where an offer is made in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debentures Where the shares or debentures are not offered to the public. Where the shares or debentures are offered to the existing members or debenture holders of the company. Where the shares or debentures offered are uniform in all respects with shares or debentures previously issued and quoted on a recognized stock exchange.
  47. 47. CONTENTS OF PROSPECTUSMatters to be stated and reports to be set out in prospectus State the matters specified in part I of Schedule II and Set out the reports specified in part II of schedule II
  48. 48. PART I OF SCHEDULE II General information Capital structure of the company Terms of the present issue Particulars of the issue Company, management and project Particulars in regard to the company and other listed companies under the same management Outstanding litigation Management perception of risk factors
  49. 49. PART II OF SCHEDULE IIGeneral information Consent of directors, Auditors, Solicitors… Expert’s opinion Change Authority for the issue Procedure and time schedule for allotment and issue of certificates Names and addresses
  50. 50. Part II of Schedule II Financial information Report by the auditors Report by the accountants
  51. 51. PART II OF SCHEDULE IIStatutory and other information Minimum subscription Previous issue for cash Date of allotment Commission or brokerage on previous issue Issue of shares otherwise Option to subscribe Restrictions Revaluation of assets
  52. 52. Offer for sale Deemed Prospectus Prospectus by implication Intention to offer shares or debentures to the public Additional information
  53. 53. Misstatements in prospectus and theirconsequences Those who issue prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting the to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent and quality of the privileges and advantages which the prospectus holds as inducement to take shares.
  54. 54. Differences between the position of underwriters and brokers Underwriters BrokersThey give an undertaking to take up shares or They give no such undertaking to take up sharesdebentures if the issue is under-subscribed or debentures if the issue is under-subscribedThey get underwriting commission on the entire They get brokerage only on those shares orissue which is underwritten by them. debentures for which they procure subscription.They are entitled to underwriting commission at a They are entitled to get such brokerage as hasrate not exceeding 5% of the issue price of shares been recognized or usual for the companies to payand 2.5% percent of the issue price of debentures. such brokerage/Underwriting commission is payable only on Brokerage is payable on the shares or debenturesthose shares or debentures which are offered to for which subscription is procured even where thepublic. shares or debentures are not offered to the public.Underwriters are entitled to get underwriting The brokers are entitled to brokerage even if thecommission only if the Articles authorize its Articles are silent regarding its payment.payment.The name, address, and occupation of each There is no such requirement in case of brokers.underwriter has to be disclosed in the prospectus.
  55. 55. TEAM MEMBERS Vanathu Chinnapan Teja G Raghavender Girish P L Rajesh T G Rajesh Kumar