Memorandum of Association

And
Articles of Association

By- Deep Sehgal

Section A,
Roll No.: 22
EIILM
 INTRODUCTION
In order to run a business legally in the
company form of organization, a large
number of legal documents and papers are
prepared and are submitted to or filed with the
Registrar of Companies. Among various kinds
of documents the following documents are
considered to be the most important:
 Memorandum of Association
 Articles of Association
MEMORANDUM OF
ASSOCIATION
 The Memorandum of Association of a company is
nothing but a document which lays down the objects and
scope of activities of a company, in other words it
contains the fundamental rules regarding the constitution
and activities of a company. A memorandum also defines
the limits to which a company can move. If a company
moves beyond the limits mentioned in the memorandum,
it shall be considered ultra vires. Thus we can say that
Memorandum of Association is the charter of a company.
 In simple words we can say that the memorandum
governs the relationship of the company with the outside
world. The company has to work within the limits laid
down in the memorandum. The memorandum is the
foundation upon which the super structure of the
company is built.
 Definitions given by eminent jurists:

 “The Memorandum of Association of a company is its

charter and it defines the limitations of the powers of the
company. The memorandum contains the fundamental
conditions upon which alone the company is allowed to
be incorporated.” [Lord Cairns]

 “The purpose of memorandum is to enable the

shareholders, creditors and those who deal with the
company to know its permitted range of activities.”
[Lord Macmillan]

Definitions According to the Indian

Companies Act

 “Memorandum means Memorandum of Association of a

company, as originally framed or as altered from time to
time in pursuance of any previous Companies Act.”
[Section 2(28) of Indian Companies Act, 1956]
 IMPORTANCE OF MEMORANDUM
OF ASSOCIATION:
 Basis of Incorporation: A company cannot get itself registered
without filing this document. Hence it is the basis of
incorporation of a company.
 Helps others to get information about the company: The
Memorandum of Association of a company helps others or
outsiders to get information about the company regarding its
name, address, object, capital, and liability etc.
 It lays down the extent of working of the company:
Memorandum of Association lays down the objects and scope of
activities of the company. It also states the limits up to which a
company can move. Any activity done by the company beyond
the scope of the memorandum will be considered as ultra vires
and void.
 Unalterable document: The provisions of this document cannot
be changed without passing a special resolution (passed by 75%
of the majority). In certain cases, the changes can be made by
seeking permission from the Company Law Board or Central
Board.
 Determining the relationship between the company and
others: It helps others or outsiders to know whether the
company is authorized to enter into a particular transaction or
not.
CONTENTS (OR CLAUSES) OF
MEMORANDUM OF ASSOCIATION

There are total six contents or clauses of

Memorandum of Association and these
Are:
I. Name Clause [Section 13(1)(a)]
II. Registered Office [Section 13(1)(b)]
III. Object Clause [Section 13(1)(d)]
IV. Liability Clause [Section 13(2)]
V. Capital Clause [Section 13(4)(a)]
VI. Association Clause [Section 13(4)(c)]
 Name clause [Section 13(1)(a)] : This clause contains the name
of the proposed company.In case of a public company the name
of the company must end with the word “Limited” and in case of
a private company the name of the company must end with the
words “Private Limited”. The name should not be identical with
the name of any existing company. The name should not create
an impression that the company is carrying on the business of
some other existing company. The name should not be
misleading (i.e. creating confusion regarding its nature of
business)

 Registered Office (i.e. domicile) clause [Section 13(1)(b)]: In

this clause the name of the ‘State’ in which the registered office
of the company is to be situated is mentioned. This clause
determines the jurisdiction of the Registrar of Companies and the
court. This clause also speaks about the nationality of the
company. The full address of the registered office must be
communicated to the registrar of Companies for future
communication.
 Object clause [Section 13(1)(d)]: The objects of the proposed
company are mentioned in this clause. A company is not
legally permitted to do any kind of business other than that
specified in its object clause.
The object clause should include:
i. Main objects to be pursued after incorporation;
ii. Incidental objects ancillary to the attainment of the main
objects;
iii. Other objects not included in (i) & (ii) above.
The object clause must not include:
i. Illegal or opposed to the public interest;
ii. Against the general law of the country; and
iii. Contradictory to the Companies Act itself.
 Liability clause [Section 13(2)]: The liability clause states the
nature of liability of the members/owners of the company (i.e.
whether limited by shares or limited by guarantee or
unlimited)
Limited by shares: In this case, members’ liability is limited
to the face value of the shares
Limited by guarantee: In this case, the liability clause must
state the extent of liability of each individual member in the
event of its being dissolved.
Unlimited liability: In this case, the liability clause does not
appear in the memorandum of association.
 Capital clause [Section 13(4)(a)]: This clause states the
total and maximum authorized capital of the proposed
company. A company cannot raise funds more than the
authorized capital. The division of capital into equity and
preference share capital should also be mentioned. The
number of shares in each category and their value should
be given in the memorandum.

 Association (or subscription) clause [Section 13(4)(c)]:

The names, address, signatures and descriptions of the
members to the proposed company are given in this
clause. This clause also states the amount and number of
shares taken by the members of the company. In case of
public company there should be at least seven members
and in case of a private company there should be at least
two members.
ALTERATION OF MEMORANDUM
OF ASSOCIATION
 The Companies Act 1956 lays down the mode and
procedure to alter the different clauses in the
Memorandum of Association. The Act says that it can be
altered by passing an ordinary or special resolution. Under
certain cases, the approval of the Government is necessary
to alter the memorandum.

 Alteration of name clause: A company can change its

name in the following ways:
(i) By a special resolution at a general meeting with
the written approval of the Government.
(ii) If the name registered by a certain company is
identical to the name of an existing company, the
registered name can be changed by passing an
ordinary resolution and by obtaining a written
consent of the Central Government.
 ALTERATION OF MEMORANDUM
OF ASSOCIATION
 Alteration of registered office: A company may change its registered
office within the same city, one city to another city within the same
State, and from one state to another.
(i) If the registered office is to be shifted from one locality to
another within the same city, an ordinary resolution will be
sufficient.
(ii) If the registered office is to be shifted from one city to another
city within the same state------- a special resolution is required.
(iii) If the registered office is to be shifted from one state to
another state------ a special resolution as well as sanction of
the court is required.
 Alteration of the object clause: The object of a company may be
changed by passing a special resolution and by obtaining the sanction
of the court on the following grounds:
(i) To carry on its business more economically or efficiently;
(ii) To enlarge the area of its main purpose by new or improved
means;
(iii) To attain its main purpose by new or improved means;
(iv) To sell the whole or part of the company’s property;
(v) To amalgamate with any other company;
(vi) To restrict any of the objects specified in the memorandum.
 ALTERATION OF MEMORANDUM
OF ASSOCIATION
 Alteration of capital clause: A limited company, having a share
capital, may alter its capital clause by passing an ordinary resolution in
the general meeting for the following purposes:
(i) Increasing its share capital;
(ii) Consolidating and dividing its capital into shares of
larger amount;
(iii) Converting its fully paid up shares into stock;
(iv) Reconverting stock into fully paid up shares;
(v) Sub dividing its shares into shares of smaller amounts.
(vi) But, for the deduction of share capital, a special resolution
and confirmation by the court are necessary.

 Alteration of liability clause: The liability clause cannot be changed so

as to make the liability of the members unlimited. However, if the
members of a public limited company are reduced to below seven, the
liability of the members automatically becomes unlimited. Liability of
the Directors, and Managing Director may be made unlimited by
altering the articles of associations.
 ARTICLES OF ASSOCIATION

 The Articles of Association is a document which

contains the rules and regulations for the internal
management of the company. It prescribes bye-
laws for the general management of the company.
It lays down the rules by which the objects of the
company are to be carried out. The articles define
the duties, the rights and the powers of the
governing body as between themselves and the
company at large. Every company is required to
file its Articles of Association along with its
Memorandum of Association with the registrar of
Companies at the time of its registration.
 Definitions given by eminent jurists:

 “Articles are the internal laws of a company. Articles

devise ways for the internal management of the company.”
[Lord Brobene]
 “Articles are supplementary document to the
memorandum. Articles proceed to define the duties rights
and powers of the governing body as between themselves
and the company at large.”
[Lord Cairns]

Definition according to the Indian Companies

Act 1956:

 “Articles mean the Articles of Association of a company as

originally framed or as altered from time to time in
pursuance of any previous Companies Act.”
[Section 2(2) of Indian Companies Act, 1956]
CONTENTS OF ARTICLES OF
ASSOCIATION
Some of the important contents of Articles of Association
are as follows:
 Matters relating to shareholders:
(i) Types , number and denominations of shares;
(ii) The respective rights of different types of shares;
(iii) Methods of making an issue of share capital;
(iv) Procedure for making calls and allotment of shares;
(v) Procedure for issue of share certificate and share
warrants;
(vi) Conversion of shares into stock, lien of shares etc.;
(vii) Alteration of share capital;
(viii) Voting powers of the shareholders;
(ix) Procedure for forfeiture, reissue and surrender of
shares;
(x) The amount of minimum subscription;
(xi) Procedure regarding company meetings;
(xii) Procedure for transfer and transmission of shares.
 Matters relating to Directors:
(i) Rules regarding appointment, re-appointment,
remuneration, reward, etc., of the Directors;
(ii) Rules regarding qualification and disqualification of
directors;
(iii) Procedure for retirement and removal of Directors;
(iv) Rules regarding borrowing power of Directors;
(v) Rules regarding conducting meetings of Directors;
(vi) Rights and liabilities of Directors;
(vii) Rules for fixation of maximum and minimum Directors,
etc.
 Other matters:
(i) Procedure for audit of company accounts;
(ii) Procedure of winding up of the company;
(iii) Rules regarding keeping of books of accounts;
(iv) Borrowing of funds from the public and the rate of
interest thereon;
(v) Commission and brokerage for selling shares to
underwriters;
(vi) Rules regarding declaration of dividends and
capitalisation of reserves;
(vii) Interest rates on calls-in-advance and calls-in-arrear.
ALTERATION OF ARTICLES OF
ASSOCIATION
 Articles of Association is related to the internal management of
the company. These matters are not permanent in nature and it
gets altered from time to time depending upon the changing
situation of the company. The company may alter its Articles by
passing a special resolution:
(i) The alteration must be made for the benefit of the company;
(ii) The alteration can only be made by a special resolution;
(iii) The alteration must not sanction anything illegal;
(iv) The alteration must not in any way increase the liability
of the existing members;
(v) The alteration must not constitute a fraud on the minority;
(vi) The alteration must not be detrimental to the provisions
of the Companies Act;
(vii) The alteration must not cause any breach of contract with
an outsider;
(viii) The alteration must not contravene any clause of the
memorandum.
 Sample of
Memorandum of Association
and
Articles of Association

To view the sample

click here
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