MEMORANDUM OF ASSOCIATION

Introduction to Memorandum -
The formation of a company under the Companies Act, 2013 states that any 7 people or more in case
of a public company, 2 people or more in case of a private company a and a person alone in case of a
one-person company can form such company by subscribing their names to a memorandum provided
they comply with the requirements of registration under the Act.

Memorandum has been defined u/s 2(56) of the act which says that –
“Memorandum means the memorandum of association of a company as originally framed or as
altered from time to time in pursuance of any previous company law or of this Act.”

WHAT IS AN MOA?
A memorandum thus is an essential prerequisite for forming a company. It is the charter of the
company, laying down the constitution of the company, the object it strives for, the share capital it
has (if any), the name of its directors and so on. It is an open-to-access document from which a person
interested in the company may gather all essential information about the company and its business
before deciding whether to be associated with it or not. It is the self-defined limits of the company and
shall operate only within its confines. It is the document that regulates the company’s external
affairs, and complements the articles of association which cover the company’s internal constitution.
It contains the fundamental conditions under which the company is allowed to operate. In the India, it
has to be filed with the Registrar of Companies during the process of incorporating a company. It
serves the following two purposes –
(i) It allows the prospective shareholders to get a basic idea about the company and
understand the risks involved with their investments.
(ii) The outsiders dealing with the company can obtain the objects of the company and
understand whether the contract between them fall within the object of the company.

Components of Memorandum:
There are certain fixed clauses in a memorandum, as discussed in Section 4 read with Schedule

1. Name clause [§4(1){a} and §4(2){a} and {b}]

- The name of a private company limited by shares, must end with ‘Pvt. Ltd.’ whereas a public
company ends with just ‘limited’. An unlimited company does not have the need to do so. A
company formed with the purpose of charitable objects also does not need to use such words.
- No company will have the name which is undesirable in the opinion of the government.
 - The name of the company must not be offensive or unlawful in any nature. Thus, in R v.
Registrar & Co. – two women forming a company for their personalized services were not
allowed the name Prostitutes Ltd.
- The name must not be misleading. A company cannot use a name which is prohibited under
the Emblems and Names (prevention of Improper Use) Act, 1950.
- The company must not use any names which suggest any connection with the government or
state patronage without the prior approval of the government.
- The name of the company must not be identical with an existing company.
UNDESIRABLE NAMES:

Ewing v. Buttercup Margarine Co. Ltd. [(1917) 2 Ch 1 (CA)]

Facts - The plaintiff one Andrew Ewing had since 1904 carried on a business dealing
with Margarine under the name and style of 'Buttercup Dairy Company'. The business was largely
carried on in Scotland and to some extent in the North of England but it was gradually extending
southwards. The defendant company was registered in November 1916 and as soon as the plaintiff
heard of it he complained promptly and sought an injunction to restrain the defendant from carrying
on business under the name 'Buttercup Margarine Co. Ltd.' He argued that such a name would likely
cause confusion and serious injury to his business.

Held - The name chosen by the defendant so nearly resembled that under which the plaintiff was
trading that people who had dealings with the plaintiff were likely to believe that the
defendant's business was a branch of or was connected with the plaintiff's business. The court held
that, it will restrain the defendant from causing injury to the plaintiff as a trader by adopting a name
which will cause confusion leading to people to conclude that the defendant is connected in some way
with the plaintiff or are carrying on a branch of the plaintiff's business. Therefore, the plaintiff with an
old established business trading under the name of 'Buttercup Diary Company' was held entitled to
an injunction restraining the defendant company which had not yet started business from using the
name of 'Buttercup Margarine Co. Ltd.'

2. Registered Office Clause [§4(1)[b] and §12]

This clause requires the MoA to mention the name of the state in which the registered office of the
company is to be situated. A company must have its registered office reading within 15 days from its
incorporation and within 30 days of its incorporation, the verification of its registered office should be
done [§12(1) and (2)].
This is done in order to fix the domicile of the company. It must be noted that the domicile is the
place of the registration of the company and may/may not be the residence of the company. Residence
of the company will be the place from where the management and control of the business is carried
out.
In, IN Re Mackinnon Mazkenzie & Co., when a company changes its registered office from one State
to another, the State from which the office is transferred has no locus standi and cannot be treated as a
person whose interest shall be affected by change of office.

1. Objects Clause [§4(1)[c]]

It is the third clause in the memorandum of association. It determines the purpose for which the
company has been set up and it determines the capacity of the company. A company is not legally
entitled to conduct any business activity that is not specifically mentioned in its object clause.
Purpose of the Object Clause:
The objects are classified into three categories – main, ancillary and other objects that will be

pursued to accomplish the main object.

Following points are to be considered –

- The objects of the company must be stated specifically and must not be ambiguous statement.
- Objects cannot be illegal.
- They cannot be against any provisions of the companies act
- Must not be against public policy.
In Ashbury Railway and Carriage and Iron Co. Ltd. v. Riche: The company had been formed with the
object of carrying on business as mechanical engineers and general contractors. The contractors
entered into an agreement for financing the construction of a railway line in Belgium & there was
evidence that the agreement had been ratified by all the members. The company repudiated the
contract and was sued. Riche sued on the grounds that their object clause mentioned “mechanical
engineers and general contractors” and thereby also includes railway line. The Hon’ble Judge denied
this and said that the main object of the company was to make, sell, and it is not possible to give such
a wide meaning or amplitude to “general contractors”, and if done so, the whole object clause would
be frustrated.

4. Liability Clause [§4(1)(d)]

It states the liability of its members, i.e. whether the liability is limited by shares, or guarantee or is
unlimited.
- In case of a company limited by shares, members cannot be called upon to pay more than
what remains unpaid. If his shares are fully paid, the liability of shareholders is nil.
- In case of a company limited by guarantee, the liability clause must state the amount each
member has to pay at the time of the liquidation of the company.
 - In case of a unlimited company, the personal assets of the members can be used as the
liability is unlimited.

5. Capital Clause [§4(1)(e)]

It requires all companies limited by liability to mention the amount of capital with which the company
is formed. The capital of the company must be divided into smaller fixed value units called shares and
it cannot be less than one. There is no legal limit on the amount of share capital. A company cannot
issue share capital exceeding the amount mentioned in this clause.
The minimum paid-up share capital requirement of INR 100,000 (in case of a private company) and
INR 500,000 (in case of a public company) under CA 2013 has been done away with.

6. Subscription Clause [schedule 1] -

This is a statement of declaration that the subscribers whose names and addresses are mentioned agree
to subscribe to the prescribed number of shares stated against their name in the memorandum. The
statutory requirements regarding the subscription of the memorandum are that each subscriber must
take at least one share and he should mention the number of shares he agrees to take against his name
in the memorandum. This part is followed by the names, addresses and occupations of all subscribers,
the number of shares taken, and their signature.
7. Succession Clause [Only in case of One Person Company] –
Memorandum must state the name of the person who, in the event of death of the subscriber, shall
become the member of the company.

DOCTRINE OF ULTRA VIRES

Purpose of Doctrine of Ultra Vires:

The doctrine of Ultra Vires was particularly introduced to protect the interests of creditors and
shareholders, the object clause is considered the preamble of the company, and therefore anything was
done which is not inconsistent with the preamble will definitely be termed as void. It also helps the
creditors to see whether their money is invested in an appropriate way and place.
Illustrative cases:
1. Ashbury Railway Carriage & Iron Co. Ltd. v. Riche:
FACTS:

MAJOR PRINCIPLE:
Other observations of the court:
 2. Attorney General v. Great Eastern Railway Co.:
Facts of the case
In the given case, an appeal was filed before the House of Lords regarding the fact that the Great
Eastern Railway Company entered into an agreement with two other companies (London and
Blackwall Railway Companies) for the construction and extension of the railways. The agreement
could be formed by taking a lease or transferring an existing lease. The Southend Company is the
owner of the railways and the contract of the railways’ owner with the lessees is mentioned in the
preamble of the company. It is mentioned in their preamble that the companies can enter into any
agreement for the purpose of construction and extension of railways. The Great Eastern Railway
Company entered into an agreement with the other companies for supplying or manufacturing of
rolling stock, carriages locomotive power to the Tilbury Company. Therefore, the case filed questions
whether the respondent company supplying locomotives is doing a valid act or not in conformity with
the memorandum of the company.
Issues
 Whether the respondent company is authorised and has the power to hire any other company
for supplying the locomotives and rolling stock?
 Whether if the acts performed are dependent upon the provisions of the object clause of
memorandum are ultra vires or not?
Summary of the Judgement
It held that a company had an implied capacity and power to enter into transactions that were
necessarily incidental to the carrying out of the authorized objects, even if they do not fall strictly
within he objects expressly provided for in the company’s MoA.
The House of Lords held that the act is not ultra vires. Powers granted by law shall include the right to
take all the appropriate measures to achieve the statutory purpose: whatever may be considered fairly
incidental or consequential to those items which the legislature has approved, unless prohibited. The
court is also of the view that no company can devote any part of its funds too an object which is
neither essential nor incidental to the fulfilment of its objects, how beneficial that act might seem to
be. Lord Selborne LC is of the opinion that doctrine can be applied whenever the acts are not
performed in uniformity or dependency on the object clause of memorandum. Lord Watson opined
that the principles of Ashbury case are equally applicable to any company incorporated under the Act
of Parliament. Lord Blackburn said that any company incorporated for certain specified reasons and
under the act given certain rights for the same, the acts performed by the company cannot be
prohibited if performed within the ambit. The bench is of the opinion that the Eastern Company can
provide locomotive power and carriages to the Tilbury Company as it is working by depending of the
provisions mentioned in MoA.
3. A Lakshmanaswami Mudailar v. LIC:
Major Principle:
FACTS:

Other observations:
4. Attorney General v Great Eastern Railway Co.:
Consequences of Ultra Vires Act:
https://thefactfactor.com/facts/law/civil_law/company-law/consequences-of-ultra-vires-
transactions/13368/
Content not copyable

ALTERTION OF MEMORANDUM OF
ASSOCIATION
Alterations in the MoA [§13] –
 Alteration to the Name Clause:  A company desiring to change its name may do so in
accordance with the provisions of Section 13 read with Section 4 of the Act by
passing Special Resolution and the name approved by the Ministry of Corporate Affairs
(MCA) on prescribed application. The power of the Central Government under Section 13(2)
to approve change in name has been delegated to Registrar of Companies (ROC). Approval of
the Central government is needed, except in case of a private company converting to a public
company, the approval to delete the word “private” is not needed. An alteration of name does
not create a new entity. However, a suit in the former name of a company after the alteration
has come to effect is not valid. It needs to be substituted by the new name, and then can be
continued. These were held in Malhati Tea Syndicate Ltd. v. Revenue Officer [4],
and Solvex Oils and Fertilizers v. Bhandari Cross-Fields 
 Alteration to registration Clause[§13(4)-(6)]:  A change in the registered office address has
different procedure depending on the exact nature of change. For a change of address within
local limits, a Board resolution and a Special resolution is to be passed, and a notice of the
change is to be served to the Registrar under INC-22 within 15 days. In case of change of
address to a different State, approval of Central Government under INC-23 is required. This
approval is to be filed and registered with the Registrar.
The registrar of the state to which the office is being shifted has to issue a fresh certificate of
incorporation indicating the alteration [§13(7)] and such a certificate is a conclusive evidence of
the alteration.
The court held in Mackinnon v. Mackenzie & Co [6] that in case of transfer of office from a State,
the State has no inherent power to intervene. The loss of revenue that will happen because of a
company
 Alteration to Objects clause – A special resolution has to be passed and filed with the
Registrar. The registrar should certify the special resolution within 30 days of filing. The
earlier requirement for seeking confirmation of the CLB has been dispensed with. The
alteration of objects has become an internal matter and no outside confirmation is required.
However, Section 13 (8) restricts the change in object of a company which has raised money from
public through prospectus and still has any unutilised amount out of the money so raised unless a
special resolution is passed by the company and the details of such resolution shall be published in
one vernacular language and one English language newspaper in circulation at the place of registered
office of the company as well as on the website of the company indicating the justification for such
change in the object.
 Alteration of authorized capital –
Company may alter its Authorized Capital i.e. Capital Clause by virtue of Section 13 read with
Section 61 by passing an Ordinary Resolution.
The Capital Clause will be altered by prescribed process as per the applicable rules and payment of
relevant stamp duty as may be applicable and levied by concerned state in which the registered office
of the Company is situated.
 Alteration in Liability –
A special resolution is to be passed, and filed with the Registrar under Form MGT 14.