COMPANY LAW

TUTORIAL

TOPIC- MEMORANDUM OF
ASSOCIATION AND
DOCTRINE OF ULTRA
VIRES

HARSH VARDHAN RAJPUT

19BALLB228, GL6495
 CONTENTS

 INTRODUCTION

 MEMORANDUM OF ASSOCIATION

 DEFINITION OF MEMORANDUM OF ASSOCIATION

 MEANING

 PURPOSE

 IMPORTANCE

 FORM OF M/A

 CONTENT OF M/A

 DOCTRINE OF ULTRA VIRES WITH CASE LAWS

 CONCLUSION

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 INTRODUCTION

Companies are generally formed to earn profit from business

activities. While submitting the document of incorporation of a company,
an important document is requiring which is called “memorandum of
Association”. The memorandum of association of a company is an
important corporate document in India. It is often simply referred to as
the memorandum. In the India, it has to be filed with the Registrar of
Companies during the process of incorporating a company.

Memorandum of Association

The Memorandum of Association is a document which sets out the

constitution of the company and is therefore the foundation on which the
structure of the company is based. It defines the scope of the company’s
activities and its relations with the outside world. It is a foundation on which
the company is made. The entire structure of the company is detailed in the
Memorandum of Association.
Definition of Memorandum of Association
Section 2(56) of the Companies Act, 2013 defines Memorandum of
Association. It states that a “memorandum” means two things:
• Memorandum of Association as originally framed— Memorandum as
originally framed refers to the memorandum as it was during the
incorporation of the company.
• Memorandum as altered from time to time— This means that all the
alterations that are made in the memorandum from time to time will also be
a part of Memorandum of Association.
In addition to this, according to Section 399 of the Companies Act, 2013,
any person can inspect any document filed with the Registrar in pursuance
of the provisions of the Act. Hence, any person who wants to deal with the

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company can know about the company through the Memorandum of
Association.
MEANING
It is mandatory for every company to have a Memorandum of
Association which defines the scope of its operations. Once prepared, the
company cannot operate beyond the scope of the document. If the company
goes beyond the scope, then the action will be considered ultra vires and
hence will be void.
The memorandum is a public document. Thus, if a person wants to
enter into any contracts with the company, all he has to do is pay the required
fees to the Registrar of Companies and obtain the Memorandum of
Association. Through the Memorandum of Association, he will get all the
details of the company. It is the duty of the person who indulges in any
transactions with the company to know about its memorandum.

PURPOSE OF MEMORANDUM OF ASSOCIATION

The purpose of the object clause in the memorandum is twofold.
First, the intending shareholder before making investment in the company
should know the field in, or the purpose for which it is going to be used and
what risk he is taking in making the investment. The second purpose is that
anyone dealing with the company will know without doubt what is the
permitted range of activities of the company.

IMPORTANCE OF MEMORANDUM OF ASSOCIATION

Determines the area of operation
It provides a list of activities that an organization can undertake. Apart from
this list, any other operation will be void.
Determines the relationship of the company with outsiders

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The sole purpose of this document is to disperse the necessary information
to the shareholders, creditors and other stakeholders. It showcases the range
of enterprise and the powers of it

FORM OF MEMORANDUM OF ASSOCIATION

Section 14 of the Companies Act provides that the memorandum of
association should be in any one of the Forms specified in Tables A, B, C,
D and E of Schedule I to the Companies Act, 1956, as may be applicable in
relation to the type of company proposed to be incorporated or in a Form as
near thereto as the circumstances admit.
The Form in Table A is applicable to a company limited by shares;
Table B is applicable in the case of companies limited by shares; the Form
in Table C is applicable to companies limited by guarantee and not having
a share capital; the Form in Table D is applicable to the companies limited
by guarantee and having a share capital; whereas the Form in Table E is
applicable to unlimited companies. A company may either adopt any of the
model Forms of the memorandum of association mentioned above, as may
be applicable to it, or it may prepare it in any other Form, but the same
should be as near thereto as the circumstances may admit.

CONTENTS OF MEMORANDUM OF ASSOCIATION

 Name Clause: As the Company is a juristic person, it should have a

name to establish it identity. It is the symbol of its existence.
The name of the Company must be stated with the last word ‘Limited’ in
case of public companies and with the last two words ‘Private Limited’ in
case of private companies.
The Companies Act provides that a company should not be registered with
an undesirable name. The question of desirability, or otherwise, of a name
can only be decided from the facts and circumstances of each case.

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A name which is identical with or too nearly resembles, the name by which
a company in existence has been previously registered, will be deemed to
be undesirable.
A company registering its name gains a monopoly of the use of that name
since no other company can be registered under a name identical with it or
so nearly resembling it as to be calculated to deceive. [Society of Motor
Manufacturers & Traders Limited v. Motor Manufacturers & Traders
Mutual Assurance Limited [1925] 1 Ch. 675].

 Registered office- The second clause of the memorandum must

specify the State in which the registered office of the company is to
be situate. [under S. 12] Within 30 days of incorporation or
commencement of business, whichever is earlier, the exact place
where the registered office is to be located must be decided and notice
of the location must be given to the Registrar who has to record the
same.

 Object Clause: Any number of lawful objects can be stated and

included in this objects clause, whether the company engages in all
those activities or not. From legal view-point, this clause is ascribed
the highest importance. Any activity which offends the objects clause
and is not expressly stated in the Memorandum of Association would
be considered ultra vires, i.e beyond the powers of the company.

 Liability Clause: A company limited by shares or by guarantee must

state that liability of its members is limited. This clause mainly affects
the members. A company cannot increase the liability o a member
without his / her written consent.

 Capital Clause: The MOA of the company having a share capital is

required to show the amount of share capital with which the company

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 is going to be registered, and the division thereof into shares of a fixed
value.

 Association and Subscription Clause: An association clause

signifying the desire of subscribers to form themselves into a body
corporate should be appended in all cases at the foot of the
Memorandum. The subscription clause provides that each subscriber
is to take at least one share in the company and is required to state the
number of shares taken by him along with his signature.

DOCTRINE OF ULTRA VIRES

"Ultra" means beyond, "vires" means powers. An action outside the

memorandum is ultra vires the company.
Consequences of Ultra Vires
1. Liability of Directors: The directors of the company have a duty to ensure
that company’s capital is used for the right purpose only. If the capital is
diverted for another purpose not stated in the memorandum, then the
directors will be held personally liable.
2. Ultra Vires Borrowing by the Company: If a bank lends to the company
for the purpose not stated in the object clause, then the borrowing would be
Ultra Vires and the bank will not be able to recover the amount.
3. Ultra Vires Lending by the Company: If the company lends money for an
ultra vires purpose, then the lending would be ultra vires.
4. Void ab initio – Ultra Vires acts of the company are considered void from
the beginning.
5. Injunction – Any member of the company can use the remedy of
injunction to prevent the company from doing ultra vires acts

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CASE LAWS

The leading case is Ashbury Railway Carriage Co. V. Riche1. In this

case, the Memorandum of Association stated the objectives as “to make and
sell Railway Wagons and General Contractors”. The co. entered into a
Contract with Riche, to finance a Railway line in Belgium.
The company, later repudiated stating it as ultra vires. Riche sued for
damages. Held, the contract was ultra vires and hence void. It has no powers
to finance railway line.

In Lakshmanaswami Mudaliar v LIC2

The directors of a company were authorised "to make payments
towards any charitable or any benevolent object, or for any general public,
general or useful object". In accordance with a shareholders' resolution the
directors paid two lakh rupees to a trust formed for the purpose of promoting
technical and business knowledge.
The payment was held to be ultra vires. The court said that the
directors could not spend the company's money on any charitable or general
object which they might choose.

CONCLUSION
So Memorandum of Association is a legal document which defines or
restrict the scope and functioning of a company. Any Act beyond which
mentioned in Memorandum of Association is held the be ultra vires.

1
(1875) 44 LJ Exch 185: (1875) LR 7 HL 653.
2
AIR 1963 SC1185: