Memorandum of Association Flashcards
what is the memorandum
- doc containing fundamental conditions upon which co is allowed to be incorporated
- defines OBJECTS and area of operation beyond which company cannot go and within which shareholders can make regulations for internal affairs e.g. procedure for AGM
- regulates external affairs with outsiders to the company and ensures they know the company’s scope of operations when dealing with it
purpose of memorandum
- show prospective shareholders how their money will be used and the risk they undertake by investment
- outsiders dealing with company will know what objects of the company are and whether contract to be entered into is within these objects
printing and signing of memorandum
must be:
- printed
- divided into paragraphs numbered consecutively
- signed by 2 subscribers if private and 7 if public along with their particulars in the presence of at least 1 witness with their particulars
- will accepted if printed with computer laser if legible printed
- in the form of one of the tables A, B, B, D, or E in schedule 1 of CA
contents of memorandum - necessary clauses
these are known as conditions of incorporation:
- name with last word Ltd if public and Private Limited if private
- state in which registered office is situated
- objects
- if limited by shares, state that this liability is limited to the unpaid value of shares. If by guarantee, must state that each member undertakes to contribute a certain amount to assets upon winding up
- amount of share capital to be registered (IF ANY) and division into fixed amounts. Each subscriber must take at least one share and sign next to the number taken
- concludes with an ‘association clause’ - states subscribers desire to form company and take shares in it
explain the name clause
- establishes identity and symbol of existence and may be anything except:
1) undesirable names - as per central govt, must not be identical to any existing registered company; wrongly suggesting that it is connected to any national government; search word/expression;
2) also includes name/emblem of the UN/WHO/UNESCO; indian flag; name/emblem/seal of centre or state govts, president of india or governer of any state
- keywords or terms that the central government or relevant authority may check when evaluating whether a proposed company name might be undesirable.
- such as using terms like “State,” “National,” or similar terms that mislead the public into thinking the company is government-owned or affiliated.
explain clause related to publication of name
- fixed with address of registered office outside every place of business in a local language
- engraved on seal
- name, address of RO and CIN with phone, fax, email, website on all business letterheads/publications
- on bills of exchange
if name has been changed in the last 2 years, must fix the former name alongside new one
if one person company, these words must be mentioned in brackets below the name
explain registered office clause
- on and from the 15th day of incorporation, must have a registered office capable of receiving all comms
- must verify registered office with registrar within 30 days of incorp
- location of registered office determines business’ domicile
explain the objects clause
- defines scope of powers and may only be altered by special resolution
- specified powers must not be construed strictly
- purpose:
1) enable subscribers to know how their money will be used
2) to enable creditors and other outsiders to know permitted range of activities
explain the capital clause
- if co has share capital, must state the registered amount and the division of it into shares - this is known as registered, authorised or nominal capital
- cannot issue more shares than are authorised for by the memorandum
- can only be equity (with either voting or differential rights to dividends/voting/etc) or preference shares
- private company not subsidiary to a public one may issue shares of any kind with disproportionate rights
explain the association clause
- is a declaration by subscribers that they desire to form into a company pursuing the objects in the memorandum and that they agree to take shares in it
- must followed by particulars of subs and number of shares taken by each (At least 1)
- must be signed by at least 7 if public and 2 if private, and each signature to be attested by at least 1 witness that is not a subscriber
limits to alteration of objects of memorandum
may be altered by special resolution at general meeting subject to 2 limits:
- substantiative
- procedural
substantiative limit
a) to carry out business more economically or efficiently - Scientific Poultry Breeders Assn
* company was forbidden by articles from remunerating managers and altered its object clause to pay them to increase efficiency
b) attain main purpose by new or improved means (purpose rather than one of the objects)
c) enlarge or change area of operations - Egyptian Delta Land and Investment Co
* company formed to acquire land in Egypt wanted the power to acquire land in Sudan, so it altered objects subject to adding the words ‘and Sudan’ after ‘Delta’ in its name
d) carry out business which can be conveniently combined with objects in Memorandum without being inconsistent with existing business:
1) restrict/abandon any object
2) sell whole/part of company’s undertakings
3) merge with any other company
procedure of alteration
- pass special resolution at general meeting
- copy of resolution to be diled with registrar within 1 month from date of resolution with printed copy of altered memorandum
- registrar registers and certifies special resolution within 1 month from filing
- if limited by shares or guarantee, cannot impose additional liability on members unless all agree in writing before or after change
- change in capital clause if any increase, reduction or reorganisation of capital
doctrine of ultra vires
- actions beyond the legal powers of the company are void and not binding on the company
- Shareholders cannot ratify, even if not illegal. –> Ashbury Rly Carriage and Iron v Riche
- company being separate entity should not be punished for its own ultra vires acts/those of its agents.
- Act is good as to the extent of authority and ultra vires as to the excess unless the excess is inseparable from the good
- there is nothing preventing a company from protecting its property –> National Telephone Co v St Peter Port Constables
Purpose: protect shareholders and creditors by ensuring the company does not use their money to engage in activities beyond scope. Otherwise, would expose shareholders’ investments and creditors’ loans to unforeseen risks.
Ashbury Rly Carriage and Iron v Riche
A’s objects:
- make/sell/lease railway carriages and wagons
- carry out business of mechanical engineers and general contractors
- trade and work mines, minerals, land and buildings
entered into contract with Riche to finance construction of railway line
since this act is not within scope of objects, the contract is ultra vires the company and void
