What Is Memorandum Of Association And How To Alter It

Definition of Memorandum of Association

According to Section 2(56) of the Companies Act, 2013,

"Memorandum means the memorandum of association as originally framed or as altered from time to time in pursuance of any previous companies law of of this Act

Features of Memorandum of Association

The memorandum of association is the basic charter on which the company is based and is mandatory for a company

The memorandum of association is the constitution of the company because it delines its limitations and the sphere of its activities

The memorandum cannot be altered by the company, except try fulfilling the conditions laid down in the Companies Act and for specific activities and situations

It defines the scope of the company's activity, and all acts beyond the scope are deemed to be ultra vites

It is a public document, and is open to inspection by those who deal with the company

It defines the company's relations with outside individuals and its activities in relation to them

Purpose and Importance of Memorandum of Association

(1)It is a fundamental document

(2) it can be altered under the strict provisions of Companies Act

(3) It defines the limitation of the company's operations

(4) It forms the basis of relationship between the company and outsiders

(5) It contains clauses that give important information about the company

(1) It is a fundamental document

• It is the basic and mandatory charter without which the company cannot be incorporated. Every company-public or private is required by law to have its memorandum of association

(2) It can be altered under the strict provisions of Companies Act

Till 1890, in England, the memorandum of association of a company could not be altered

• But considering the changed circumstances and conditions prevailing in today's business scenario, it is possible-within specified limits and under the strict provisions of the Companies Act that define the method of alteration of the memorandum of association.

(3) It defines the limitation of the company's operations

• The memorandum of association defines the nature of the company's business and the scope of the company. The company cannot go beyond the limitation defined in the memorandum.

• Any transaction which is not within the powers of a company shall be ultravires and void and cannot be validated on any ground.

(4) It forms the basis of relationship between the company and outsiders

• It is a public document that tells others of the company's financial capacity, its capacity to make contracts, its alms, objectives and field of activity.

Those who deal with the company are expected to know what the company's memorandum of association contains. Any contract made with the company that goes beyond the scope of the memorandum is not binding on the company.

(5) It contains clauses that give important information about the company

The relevant information includes the name of the company, the address of its registered office, the company's share capital and whether it is limited by shares or by guarantee, the objects of the company, its sphere of activities and its limitations. In short, it gives the viewer a picture of the company.

Forms of Memorandum of Association

Memorandum of Association may be in the the Form of Table A,B,C.D.E Schedule I as may be applicable for the following companies

1. The form in Table 'A' is applicable in the case of companies limited by shares:

2. The form in Table 'B' is applicable to companies limited by guarantee and having a share capital.

3. The form in Table 'C' is applicable to companies limited by guarantee and not having a share capital:

4. The form in Table 'D' is applicable to unlimited companies not having share capital

5. The form in Table 'E' is applicable to unlimited companies having share capital.

Legal Requirements of Memorandum of Association

As per the provisions of The Companies Act, the memorandum of association shall

(i) be printed and divided into paragraphs consecutively

(ii) be signed by each subscriber, who shall add his address, description and occupatien

(iii) be signed in the presence of at least one witness, who shall attest the signature, and shall likewise add his address, description and occupation

The witness, can be the same for all members of the company, but one member cannot be a witness for another

A minimum of seven members of a public company and two members of a private company must be the signatories to the memorandum of Association.

Contents/Clauses of Memorandum of Association

(1) Name Clause

(2) Situation or Registered Office Clause

(3) Object Clause

(4) Liability Clause

(5) Capital Clause

(6) Association Clause

(1) Name Clause (Section 4(1)(a)}

This clause of the memorandum of association of the company states the name of the proposed company. Every company must have its separate name because company is a legal person in the eyes of law separate from every other company and even separate from its members.

There is no restriction on a company on the selection of its name it can choose any name but the following legal formalities must be kept in mind while naming a company.

(a) Must Not be Undesirable in the Opinion of the Central Government

If the name of the company is identical or similar to the name of an existing company, the Government considers it to be inappropriate.

Such names are considered undesirable because they are likely to confuse the public as to the company's identity

Case: North Cheshire and Manchester Brewery Co. Vs. Manchester Brewery Co.

In this case, Manchester Brewery Co., Ltd. had been trading for many years. Another company-North Cheshire Brewery Co. Ltd-wanted to change its name to North Cheshire and Manchester Brewery Co. Ltd., which was opposed by Manchester Brewery Co. Ltd. It was held that North Cheshire Brewery Co. Ltd. could not adopt the new name because it would lead to confusion among the public about the company's identity and no company could be allowed to create such confusion.

(b) It must not be prohibited under Emblems and Names (Prevention of Improper Use) Act, 1950

A company should not use or adopt a name which is prohibited under the Emblems and Names (Prevention of Improper use) Act, 1930, such as United Nations, World Health Organisation, Name of any State or the Central Government, Indian National Flag Mahatma Gandhi, President and Prime Minister of India etc.

• Every Public Company must write the word "Limited" after its name and every Private Company must write the word "Private Limited" after its name.

(d) Licence to Drop the Word Limited 'Ltd

• According to Section 8 of the Companies Act, 2013, A licence may be granted by the Central Government by which, it shall not be necessary for a body to which a licence is so granted to use the word 'Limited' or the words 'Private Limited' as a part of its name.

• Any company which is incorporated with the object of developing trade, science and technology, art, culture or religion, or with the objective of making public donations, and bars its members for making any personal profit, or uses its profits for public welfare may be exempted from using the word 'Limited' or the words 'Private Limited' at the end of its name.

(e) Presentation and Publication of the name of the Company

• Every company is required to write its name outside its registered office and outside every place of its business in English and in the local language of the State in which they are situated.

(2) Situation or Registered Office Clause

{Section 4(1)(b)}

The memorandum of association of a company must contain the complete address of the registered office of the company. In case it is not given in the memorandum of association, the relevant information must be sent to the office of the Registrar of Companies within 30 days of the date of incorporation.

The registered office of the company is the place where all the legal documents and books of account of the company are kept, and where the necessary legal notices or information can be sent to the company

The company shall get its name, address of its registered office and the Corporate Identity Number (CIN) along with telephone number, fax number if any. e-mail and web-site address, if any, printed in all its business letters, bill-heads. letter papers and in all its notices and other official publications

(3) Object Clause (Section 4(1)(c)}

The most important clause of Memorandum of Association is the objects clause which actually establishes scope of its operations and the basis of the relationship of the company with the outsiders

The shareholders of the company must know that where the company is going to Invest their money and what type of risks they are taking in making the Investment in the company, and

The outsiders must know the area of operation. They are supposed to know the scope of the company and any contract with the company outside its scope shall not be binding on the company and they themselves shall to responsible for the loss suffered by them on account of such contracts.

Example

A company's object clause defined its activity as manufacturing and selling railway wagons. The directors of the company made a contract to construct a railway track. The Board of Directors of the company, by a special resolution, had authorised the company to undertake the construction of the railway track.

• It was held that the contract made by the company was void Inspite of the unanimous resolution of the Board of Directors since the objects clause did not specify this activity as a part of the company’s business.

(4) Liability Clause (Section 4(1)(d)}

The Memorandum of Association of the company states the liability of members of the company is limited by shares or guarantee or the liability is unlimited

In the case of companies limited by shares, the members are liable to the unpaid amount due on the shares taken by them. Where the shares are fully paid up, the liability of the shareholders shall be NIL

A member of a company limited by guarantee, not having share capital, cannot be called upon to contribute an amount more than his guarantee in the event of winding up of the Company.

In case of unlimited liability companies, the members are personally liable if company suffers any losses

(5) Capital Clause (Section 4(1)(e)}

In this clause the company must state the amount of its authorised capital with which the company is being registered.

It shall also state the kinds and amount of nominal value of its shares. The company shall not be allowed to issue shares more than its authorised share capital and the shares can be be equity shares and/or preference shares.

(6) Association/ Subscription Clause

The Memorandum of Association shall be signed by at least 7 subscribers in the case of a Public Company and at least by 2 members in the case of a Private Company.

This should be followed by the names and addresses of the subscribers and the number of shares taken by each one of them. The signatures of each subscriber shall be attested by at least one witness. One subscriber cannot attest the signatures of the other subscriber.

Alteration of MOA

• For the alteration of Memorandum of Association of a company. There are rigid conditions and procedures which should be followed by every company for the alteration of its memorandum.

• The idea behind the strict conditions/procedure is to prevent alteration of memorandum too easily.

• Memorandum is altered and permitted only to the extent necessary for efficient and fair working of the company.

(A) Change of Name Clause [Section 13(2)]

Name Clause of a company can be altered in the following two ways -

(1) By Special Resolution Where a company want to change its name it can do so by passing a Special Resolution and it shall also obtain the approval of the Central Government in writing The approval of Central Government is not required merely for conversion or the addition/ deletion of the word "Private."

(2) By Ordinary Resolution Where a company is registered with a name which in the opinion of the Central Government is identical with or resembles the name of an existing company, the company may change its name by.

a. On its own, by passing an ordinary resolution with the approval of the Central Government.

b. On the directions of Central Government, Company must change its name within 3 months by passing ordinary resolution under Section 16(1)

• Section 16(2): The company within 15 days of changing its name shall inform ROC with the orders of the Central Government so passed u/s 16(1)

• Section 16(3), (from 1 Sept 2021)- The Central Government.has been empowered to allot a new name to the company, in case of default in complying with its direction instead of imposing punishment for non-compliance for such default.

Defaulting Companies Prohibited to Change the Name: Change of name shall not be allowed to a company which is defaulting in filing its due Annual Returns or Balance Sheets or which has defaulted in repayment of matured deposits and debentures and/or Interest thereon.”

New Certificate of Incorporation: Where the company has changed its name, the Registrar shall register its new name in place of the old name in the register of companies and a fresh certificate of incorporation shall be issued to the company.

Rights and obligations to remain unaffected: The rights and obligations of a company and creditors will not be affected on the change of its name. is name

(B) Change Of Registered Office

Change within The City

Change within The State

Change from one State/Ut To another

Change within The City:

a. Special Resolution If a company wants to change its Registered Office from one city to another city within the same state than, a Special Resolution is required to be passed in the general meeting of the shareholders of the company and a copy of the resolution is to be filed in e-form 18 with the Registrar within 30 days.

b. Non compliance shall render the company and its every officer liable to punishment of fine of Rs.1000 per day of default, not exceeding 1 lakh.

Change within The State:

a. Special Resolution- Where the registered office is to be changed outside the local limits of any city, town or village in the same state under the jurisdiction of same ROC, a Special Resolution shall be passed by the company in the general meeting of shareholders and a copy of the resolution shall be sent to the Registrar within 30 days.

b. Confirmation by Regional Director The confirmation by the Regional Director will be necessary for_changing registered office of a company from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of the Companies within the same state.

Change from one State/Ut To another

(a) Special Resolution - A Special Resolution shall be passed by the company in the general meeting of shareholders and a copy of the resolution shall be sent to the Registrar within 30 days.

(b) Confirmation by Central Government Confirmation from the Central Government is required to change the registered office of the company from one State to another State.

The Central Government shall pass the order within the period of 60 days and copy of the order passed by Central government confirming the resolution shall be filed with the registrar of both the States involved. All the records of the company shall be transferred to Registrar of the State in which the registered office is shifted by the Registrar of the State from which the registered office was shifted.

Change outside India: A Company cannot change its registered office from India to another country and the Central Government has no power to sanction such alteration of the memorandum.

According to Section 13(8), a company which has raised money from public through prospectus ang still has any unutilized amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless it satisfies the following conditions

The company may change its objects if the following conditions (requirements of the Act) are fulfilled

a) Special resolution: The company must pass a special resolution through Postal Ballot (as per Rule 32 of Companies Incorporation Rules. 2014) in regard to change of objects

b) To publish in newspapers and it's website: The details as may be prescribed in respect of such resolution must also be published in the newspapers (one in English and one in Local Language) which is in circulation at the place where the registered office of the company is situated and changes shall also be placed on the website of the company.

c) Opportunity to exit: The company, that is, the promoters and shareholders having control, shall give to the dissenting shareholders an opportunity to exit (the right to leave company) in accordance with regulations to be specified by the Securities and Exchange-Board.

d) Certificate from Registrar: The company shall file the special resolution in regard to change of objects with the Registrar. He shall register any alteration of the Memorandum with respect to the objects of the company and certify the registration within a period of 30 days from the date of filing of such special resolution.

No such alteration of objects shall have any effect until it has been registered in the said manner by the Registrar.

(D) Change Of Liability Clause

Limited Company

Ordinarily liability clause cannot be altered so as to make the liability of members unlimited but if still company wants to change the liability than it can do so by passing special resolution but it has to take member's consent either before or after the alteration. A copy of the resolution shall be sent to the Registrar.

• Any alteration in the memorandum will be void if the effect of the alteration is the enhancement of the liability of members. This provision, will not apply to a case where the members agree in writing to be bound by the alteration.

Unlimited Company

Section 18 permits unlimited company to register as a limited company by passing a special resolution. A copy of the resolution shall be sent to the Registrar. On alteration, the Registrar shall close the former registration of the company and new registration shall take effect as if it were the first registration.

The registration of an unlimited company as a limited company shall not affect any debts, liabilities obligations or contracts entered into before the conversion.

(E) Change Of Capital Clause U/S 61(1)

.Ordinary Resolution- A limited company, having a share capital may alter its capital clause subject to the provisions of its articles by an ordinary resolution in the general meeting.

The confirmation of the Court is not required if alteration is made for any of the following purposes:

1. To increase its authorised share capital

2. To consolidate and divide its share capital into shares of larger amount

3. To convert its fully paid shares into stock and reconvert the stock into fully paid up share

4. To sub-divide its shares into shares of smaller amount

5. To cancel its shares.

.If the alteration relating to consolidation and division which results in changes in the voting percentage of shareholders the prior approval of Tribunal will be required.

Special Resolution- In case of reduction of share capital, special resolution is necessary.

Filing With ROC [Sec. 64]

(a) Where a Company has done any of the above alterations with regard to its Share Capital, it shall give notice to the ROC within 30 days specifying the Alteration.

(b) Upon such Notice, the Registrar shall record the same and make any alterations that may be required in the Company's MOA and AOA

(c) Default in giving Notice to Registrar shall render the Company and every Officer of the Company liable to fine up to Rs. 1000 per day of continuing default or Rs. 5 lakhs, which ever is less.