After reading this article you will learn about:- 1. Definition of Memorandum 2. Forms of Memorandum 3. Contents or Clauses 4. Importance 5. Alteration.
Definition of Memorandum:
According to Sec. 2 (28) of the Companies Act, “Memorandum means the Memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act.”
This definition of Act does not throw any light on the scope, use and importance of the memorandum of association in a company. We shall, therefore, examine some better definitions given by judges.
Lord Cairns in the leading case of Ashbury Railway Carriage Co. V. Riche observed that “The Memorandum of Association of a company is its charter and defines the limitation of the powers of a company.” “The memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated.”
According to Lord Macmillan, “The purpose of the memorandum is to enable the shareholders, creditors and those who deal with the company, to know what is its permitted range of enterprise.”
According to Lord Salborne, “The memorandum of association is an important and unalterable (excluding a few conditions) charter. The company is incorporated only for such objects which are given in the Memorandum.”
Forms of Memorandum:
The Memorandum of Association of a company should be divided into paragraphs, numbered consecutively and printed.
The memorandum shall be such in one of the forms in Table B, C, D, and E in Schedule I of the Act.
The prescribed forms are as follows:
1. Table B. Memorandum of Association of a company limited by shares.
2. Table C. Memorandum of Association of a company limited by guarantee and not having a share capital.
3. Table D. Memorandum of Association of a company limited by guarantee and having a share capital.
4. Table E. Memorandum of Association of an unlimited company.
At least seven persons in the case of a public company and at least two in the case of a private company must subscribe to the memorandum.
Contents or Clauses or Subject Matter of Memorandum:
The Memorandum of Association of a company limited by shares must contain the following contents or clauses:
1. The Name of the Company: The Name Clause:
The first clause of Memorandum of Association requires a company to state its name. The company being a legal person, must have a name to establish its identity.
The Memorandum of Association of every company must state the name of company with the word ‘Limited’ as the last word of the name in case of a public limited company and with “Private Limited” as the last word of the name in case of private limited company.
2. The Registered Office of the Company – Registered Office Clause or Situation Clause:
This clause of Memorandum states the name of the State where the registered office of the company is to situate. This is required in order to fix the domicile of the company, that is, the place of its registration. The actual address of the registered office is not required to be stated in the Memorandum of Association of the Company. But it is enough to mention in the Memorandum the name of the State in which the registered office is to be situated.
3. The Objects of the Company – The Object Clause:
This is the most important clause in the memorandum because it not only shows the object for which the company is formed but also determines the extent of the powers which the company can exercise in order to achieve the object or objects. Stating the objects of the company in the Memorandum of Association is not a mere legal technicality but is a necessity of great practical importance.
The objects clause must state separately:
(i) Main Object:
This sub-clause has to state the main object to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of main objects.
(ii) Other Objects:
This sub-clause shall state other objects which are not included in the above clause.
4. The Liability of Shareholders – The Liability Clause:
This clause of Memorandum of Association has to state the nature of liability that the members incur. In case of a company limited by shares, the members are liable only to the amount unpaid on the shares taken by them. In the case of company limited by guarantee the members are liable to the amount undertaken to be contributed by them to the assets of the company in the event of its winding up.
5. The Capital Clause:
Every limited company having a share capital must state the amount of its share capital with which the company is proposed to be registered and the division thereof into shares of a fixed denomination, in this clause This capital is described as “registered”, “authorised” or “nominal” capital and the stamp duty is payable on this amount. There is no legal limit to the amount of share capital.
It may be any amount running into crores of rupees but denomination of each share should be Rs. 10 or 100 in the case of equity shares and Rs. 100 in the case of preference shares. The amount of authorised capital should be sufficiently high so that further issue of shares may easily be done to finance the expanding business.
An unlimited company having a share capital is not required to have the capital clauses in its Memorandum of Association.
6. The Association or Subscription Clause:
Under this clause we have the “declaration of association”, which is made by the signatories of the Memorandum of Association under their signatures duly attested by witness, that they desire to be formed into a company and that they agree to the purchase of qualification shares, if any. Each subscriber must take at least one share.
The statement reads as follows:
“We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance to the Memorandum of Association and we agree to take the number of shares in the capital of the company shown against our names.”
Importance of Memorandum:
1. An unalterable charter of the company:
Until the year 1890, it was regarded as an unalterable charter of the company. That, however, led to a number of difficulties in the working of the companies. Consequently, a provision had to be made in the Act itself for altering it in certain cases. Except for this provision the Memorandum of Association is still regarded as an unalterable charter. Section 16 of the Companies Act recognises this unalterable character of this document.
2. Base of incorporation:
In order to get the company incorporated, Memorandum of Association is to be filed with the Registrar of Companies. It is signed by at least seven persons in case of public company and signed by two person in case of a private company.
3. It determines the area of operation of the company:
It lays down the activities to be undertaken by the company. Any action outside the scope of Memorandum of Association will be void.
4. It defines the relationship of company with the outsiders:
It defines the relationship of company with the outsiders. Its purpose is to enable the shareholders and creditors and those who deal with the company to know what is its permitted range of enterprise and powers.
Alteration of Memorandum:
Section 16 of the Act provides that a company shall not alter the conditions contained in its memorandum except in the case, in the manner and to the extent provided in the Act. The intention of the Legislature is to prevent too easy an alteration of the conditions contained in the Memorandum of Association.
Alteration of matters other than conditions in the memorandum may be effected in the same manner as the alternation of articles, or in any other manner provided by the Act.