The Importance of Memorandum of Association
Introduction
One of the essentials for the registration of a company is a memorandum of association (Sec 33). It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.
A Memorandum of association is divided into 5 clauses:
- 1) Name clause
- 2) Registered office clause
- 3) Objects clause
- 4) Liability clause and
- 5) Capital clause
Name clause
The first clause states the name of the proposed company. The name of a corporation is the symbol of its personal existence. The name should not be, in the opinion of the Central Government, undesirable. Generally, it is so when it is identical with or too nearly resembles the name of another company. If the company is with “limited liability” the last word of the name should be “limited” and in the case of a private company “private limited”. The Central Govt. may permit a company to drop the word limited from its name, if
- a) If the company is formed for the promotion of arts, commerce, religion, science, charity, or any other useful object.
- b) The company is to apply its income to promoting its objects and prohibits the payment of dividends to its members.
The name of a company must be painted outside of every place where the company carries on a business and printed on every business document and official letter of the company. Misdescription entails personal liability (S-147).
Registered office clause
The second clause of the memorandum must specify the State in which the registered office of the company shall be situated (sec 146). 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 sent to the Registrar for the recording of the same.
Objects clause
The third clause states the objects of the proposed company. The objects clause s divided into two sub-clauses (sec 13):
- a) Main objects clause: states the main objects to be pursued by the company and the objects incidental or ancillary to the main objects.
- b) Other objects: states any other objects which are not included in the main objects clause.
The essence of this clause is that the investors must be informed of the objects of the company in which their money is going to be employed and the creditors must feel protected when they know the assets are being used for the authorized objects.
Liability clause
The fourth clause states the nature of liability the members incur. The clause will state whether the liability of the members shall be limited by shares or by guarantee or unlimited.
Capital clause
The last clause states the amount of capital with which the company is proposed to be registered and the kinds, number, and value of shares into which the capital is to be divided.
After the Companies (Amendment) Act, 2000, the minimum paid-up capital of a public company must be five lakh rupees or more and one lakh or more for a private company.
The Procedure for Alteration of Memorandum of Association.
Alteration of name (sec 21)
A company may change its name at any time by passing a special resolution and with the prior approval of the Central Government. Where a company has been registered with a name that is undesirable, the same may be changed by an ordinary resolution and with the prior approval of the Central Government. In such a case the central government may also within 12 months of registration direct the company to rectify its name and the company must change the name within 3 months from the date of direction unless the time is extended. The new name would also require the prior approval of the Central Govt. The British Diabetic Society was compelled to change its name to something that would not impinge on the goodwill of the British Diabetic Association (British Diabetic Association v. The Diabetic Society).
When a company changes its name, the Registrar of Companies has to enter the new name in the register and a new certificate of incorporation must be issued with necessary alterations.
However, it should be noted that no approval will be required if the change consists merely addition or deletion of the word “private” consequent on the conversion of a public company into a private company or vice versa.
Effect of such change: The old name of the company will stand abolished and the new name will come into existence from the date of passing such resolution. However, it does not affect the rights and obligations of the company (sec 23).
Alteration of registered office clause (sec 17)
Shifting registered offices from one State to another is a complicated affair. For this purpose, sec 17 requires
- a) A special resolution of the company.
- b) The sanction of the Company Law Board.
The Board can confirm the alteration only if the shifting of the registered office from one state to another is necessary for any purposes detailed in sec 17(1).
Alteration of objects (sec 17)
A company may alter its objects with the passing of a special resolution. The confirmation of the Company Law Board is not required for this purpose. An alteration of the objects is allowed only for the purposes mentioned in sec 17(1).
Registration of alteration (sec 18)
In case of alteration of objects, a copy of the resolution should be filed with the Registrar of Companies within one month from the date of resolution. In the case of inter-state shifting of the registered office, a certified copy of the Board’s order and a printed copy of the altered memorandum must be filed with the Registrar within three months of the Board’s order. Within one month the Registrar will certify the registration. Alteration takes effect when it is so registered.
Keywords: Importance of Memorandum of Association, Memorandum of Association, Importance of Memorandum of Association in India, Importance of Memorandum of Association in Companies Act, Importance of Memorandum of Association.
Click here to read the Bare Act of Companies Act 2013
