The Company Act of India : Articles and Memorandums


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Legal Aspect of Business

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The Company Act of India : Articles and Memorandums

  1. 1. .Articles and Memorandumsthe Company Act 1956<br />
  2. 2. The Company ACT of INDIA 1956<br />Prepared by<br />AbhinavMohan(10DCP-052)<br />AdeshMittal (10DCP-053)<br />AdhipVarma(10DCP-054)<br />AkankshaPandit(10DCP-055)<br />AkashJauhari(10DCP-056)<br />Alok Kumar Mishra (10DCP-057)<br />AlokMunjal(10DCP-058)<br />AniketPandey(10DCP-059)<br />AnkitBhardwaj (10DCP-060)<br />Under the guidance of<br /> Prof CMD P.K.Goel<br />
  3. 3. Contents of Memorandum Of Association<br /><ul><li>Name clause
  4. 4. Registered office clause
  5. 5. Capital clause
  6. 6. Liability Clause
  7. 7. Objects clause
  8. 8. Association Clause</li></li></ul><li>Name clause<br />Avoid Undesirable Names <br /><ul><li>Too similar to the name of another company
  9. 9. Misleading </li></ul>Prohibition of use of certain names<br /> Ex: Name, emblem or official seal of<br /> UNO<br /> WHO <br /> Central and State government <br /> President and Governor <br />Limited Public Company<br />Private Limited  Private Company <br />If the company is promoting art, science, religion etc Limited and Private Limited can avoided with the permission of central government. <br />
  10. 10. Registered office clause<br /><ul><li>State in which Registered office will be situated.
  11. 11. Exact location of registered office should be intimated within 30 days
  12. 12. Rs. 500 fine everyday </li></li></ul><li>Capital Clause<br /><ul><li>Share capital amount should be specified
  13. 13. Cannot issue more shares for the time being
  14. 14. Equity or Preference shares
  15. 15. Private company can issue any type of shares </li></ul>Object Clause<br /><ul><li>Divided in main objects
  16. 16. Company should commence its business with the main object
  17. 17. In case of non-trading companies ,state to which the objects extend should also be mentioned
  18. 18. In case of trading companies, this need not be mentioned </li></li></ul><li>Liability Clause<br />MOA of company <br />Limited by shares or Limited by guarantee<br />Association Clause<br /><ul><li>Subscriber’s name, address should be mentioned in the MOA
  19. 19. Each subscriber must take at least 1 share
  20. 20. MOA should be signed by
  21. 21. At least 7 subscriber for Public company
  22. 22. At least 2 subscriber for Private company
  23. 23. Attested by at least 1 witness </li></li></ul><li>Alteration or change in memorandum of Association<br />"Memorandum of Association is an unalterable document alterable only in accordance with the provisions of law." <br />According to Section 16 of the Company's Act 1956, "A company shall not alter the conditions contained in its memorandum of association except in the cases, in the mode, and to the extent for which express provision is made in this Act" <br />Any alteration in the memorandum, as such, is a difficult and complicated process.<br />
  24. 24. ALTERATION OF NAME CLAUSE<br />By special resolution <br /><ul><li>With approval from Central Govt. of India
  25. 25. For deletion or addition of Private, Central government approval is not necessary</li></ul>Ordinary resolution<br /><ul><li>Similar name (Approval By Central Govt.)
  26. 26. Change within 12 months of registration
  27. 27. Rs100 is punishing amount for everyday for every responsible in case of default</li></ul>Fresh certificate of incorporation (Sec 23).<br /><ul><li>the registrar shall enter the new name
  28. 28. issue a fresh certificate of incorporation.
  29. 29. alter the Memorandum of Association of the company</li></li></ul><li>Change of registered office<br />Within a State (Special resolution)<br />Outside the state<br />(Special resolution, Confirmation by Central Govt.)<br />
  30. 30. Alteration of objects<br />Special Resolution<br />Conditions<br /><ul><li>To carry out business more economically or more efficiently
  31. 31. To attain its main by new improved means
  32. 32. To enlarge the area of operation
  33. 33. Adding to objects of MOA
  34. 34. To restrict or abandon a object
  35. 35. To sell or dispose
  36. 36. To amalgamate </li></ul>Procedure<br />
  37. 37. Change in Liability Clause<br /><ul><li>The liability of a member of a company cannot be increased unless the member agrees in writing.
  38. 38. From unlimited liability, it can be made limited by re-registration of the company</li></ul>Change in Capital Clause<br /><ul><li>Increase of authorized share capital.
  39. 39. Consolidation and subdivision of shares.
  40. 40. Conversion of shares into stock & vice versa.
  41. 41. Diminution of share capital</li></li></ul><li>Articles of Association<br />Simple Definition: - A document describing the purpose, place of business and detail of a nonprofit organization<br />Explanatory Definition: - The Articles of Association contain, as per the law requires, provisions on the company name, address and domicile, the purpose of the company, the amount of share capital and the contributions made thereto, the number, the par value and the type of shares, the calling of a general meeting of shareholders and the voting rights of them, the bodies for the administration and the audit, and the form in which the company shall publish notices.<br />
  42. 42. Essential constituents of Article of Association:-<br />Provision on the company name<br />Address and Domicile<br />Purpose<br />Share Capital<br />Numbers<br />Type of Shares<br />General meeting of shareholders<br />Voting rights<br />Administration and Audit body<br />Form of publishing notice<br />
  43. 43. Provisions for Article of Association<br />The name of Association<br />The Registered office of the Association<br />Purpose which includes the various verticals in which the business is going to be there with the objectives and long term goal of the company. <br />Details of Share’s of Company and there classification and distribution. The rights of owner and the shareholder<br />Details of all the Shared Certificates and Intermediated securities<br />Share Register<br />Power of general meetings which includes the duration of Annual general meeting , the voting rights and the weighted of each vote <br />Presiding officers and the minutes of general meeting<br />
  44. 44. Provisions for Article of Association<br />Number of directors<br />Term of office<br />Organization of board , Remunerations<br />Powers of board in general<br />Delegations of Powers<br />No of Auditors and Rights and Duties of Auditors<br />Details of financial year of the company<br />Business Report<br />Appropriation of profit resulting from the balance sheet<br />Notices<br />Winding up.<br />
  45. 45. Alterations of Articles<br />Every company has the power to alter its articles of association by a special resolution.<br />Limitations on the power of alteration<br />1) It must not be in contravention of the provisions of the Act.<br />2) The power of Alteration in the article is subject to the conditions contained in the MoA.<br />3)An Alteration cannot require a member to purchase more shares or increase his liability in any way except with his consent in writing.(s.38- effect of alteration in the MoA or AoA)<br />4)Alteration must not constitute a fraud on the Minority <br />
  46. 46. Differences betweenMemorandums of Association and Articles of Association<br />
  47. 47. Differences betweenMemorandums of Association and Articles of Association<br />
  48. 48. Differences betweenMemorandums of Association and Articles of Association<br />
  49. 49. Effects of Memorandum and Articles<br />1. Members bound to Company<br /> Each Member must observe the provisions of articles and memorandum.<br />In Boreland Trustee vs. Steel Brothers – it was held that a even a insolvent member is bound to articles.<br />Shareholders therefore cannot among themselves enter into an agreement which is contrary to articles.<br />
  50. 50. Effects of Memorandum and Articles<br />2. Company bound to members<br />A company is bound to its members by whatever is contained in its memorandums and articles.<br />A member can restrain a company for spending money beyond its powers.<br />A member can breach company for enforcement of personal right like voting in general meeting.<br />Action of breach of article against company can be brought only by a majority of members. <br />
  51. 51. Effects of Memorandum and Articles<br />3. Members bound to members<br />Rights and duties as stated in articles binds members.<br />Articles do not create a express contract between members. <br />It is a company alone which can sue the offender so as to protect the aggrieved member.<br />
  52. 52. Doctrine of constructive notice :<br />A companies memorandum and article of association become a public documents on registration with the Registrar of companies .<br />These doc’s are available for public inspection in the registrar’s office of fees prescribed<br />Every person who deals with the company is deemed to know the content of these two doc’s—this is known as Doctrine of constructive notice.<br />It is presumed that the person who deals with the company have not only read these doc’s but also understood their clear meaning.<br />Therefore if a person enters into a contract , which is beyond the power of the company, he cannot acquire any rights under the contract against the company <br />
  53. 53. Case:<br />Case-kotla venkatswami v ram murthi-here all deeds were to be signed by the managing dir. The secretary ,and a working dir as per article of the company .<br /> Now Ram accepted deeds from the company which was signed by only two of them on behalf of the company . therefore ram could not claim under this deed<br />
  54. 54. Statutory reform of constructive notice<br /><ul><li>The ‘doctrine of constructive notice’ is more or less an unreal doctrine. It does not take notice of the realities of business life. People know a company through its officers and not through its documents. </li></ul>Conclusion:<br /><ul><li>Thus, the doctrine of constructive notice seeks too protect the company against the outsider by deeming that such an outsider had the notice of the public documents of the company. However, in India the courts with a view to protect the innocent third parties acting in good faith have not relied upon the doctrine seriously.</li></li></ul><li>Doctrine of Indoor Management<br />The doctrine of indoor management is an exception to the rule of constructive notice. According to this doctrine, a person dealing with a company is bound to read only the public documents. He will not be affected by any irregularity in the internal management of the company.<br />The rule of indoor management had its genesis in Royal British Bank v. Turquand- The directors of the company borrowed a sum of money from the plaintiff<br />-The company was however held bound for the loan. Once it was found that the directors could borrow subject to a resolution, the plaintiff had the right to assume that the necessary resolution must have been passed.<br />
  55. 55.  -The rule is based on public convenience and justice and the following obvious reasons:<br />The internal procedure is not a matter of public knowledge. An outsider is presumed to know the constitution of a company, but not what may or may not have taken place within the doors that are closed to him.     2. The lot of creditors of a limited company is not a particularly happy one; it would be unhappier still if the company could escape liability by denying the authority of officials to act on its behalf<br />   -  The rule/doctrine is applied to protect persons contracting with companies from all kinds of internal irregularities<br />
  56. 56. Exceptions to the rule:<br /> Knowledge of irregularity <br />Negligence and suspicion of irregularity<br /> Representation through articles<br />
  58. 58. Memorandum Of Association<br />Last amended<br />Organization’s objective<br />Core Members<br />Share Capital<br />
  59. 59. Article Of Association<br />Rules And Regulations of the Organization<br />Board Of Directors<br />Audit Mechanism<br />