All-About the Memorandum of Association

Table of Contents

1. Memorandum of Association [Sec. 2(56)]
2. Contents of Memorandum of Association (Sec. 4)
3. Model Form of Memorandum of Association [Sec. 4(6)]
4. Alteration of Memorandum of Association
5. Difference Between Diminution of Capital & Reduction of Capital

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MoA and AoA are the documents required for formation of company. While prospectus is drafted for issue of securities as per the requirements of law. The blog discusses the meaning, contents and provisions regarding alteration in Memorandum of Association.

1. Memorandum of Association

As per Sec. 2(56), “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. The definition given under the Act does not throw any light on the nature of M/A, therefore, reference is made to following definitions:

According to Palmer,

“The Memorandum of Association contains the objects for which the company is formed. It defines the boundary beyond which the company cannot go.”

According to Lord Cairns,

“The Memorandum defines the limitations of the powers of the company …….. it contains in it, both that which is affirmative and that which is negative ………”.

M/A defines and confines (sets limits to) the powers of the company. It is clear from above definitions that M/A is a document of prime importance. This document tells the permitted range of activities of the company.

Memorandum is rightly called the ‘Charter’ of the Company as it specifies the objectives of the Company. This document provides the foundation on which the company is built.

2. Contents of Memorandum of Association (Sec. 4)

The memorandum of association of a company shall state-

2.1 Name Clause:

The name of the company with the last word

(a) “Limited” in the case of a public limited company,

(b) “Private Limited” in the case of a private limited company.

(c) Sec. 8 company is exempt from the requirement of adding ‘Limited’ or ‘Private Limited’ to its name.

(d) ‘OPC’ – in case of One person company.

(e) A specified IFSC private company and specified IFSC public company shall have the suffix International Financial Service Company or IFSC as part of its name (notification dated 4-1-2017).

(f) In case of Government company, it must end with ‘limited’ (whether it is a private company or public company), (notification dated 5-6-2015).

2.2 Restrictions regarding Name of the Company

The name stated in the memorandum shall not-

1. be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or

Case Laws:

Ewing (Trading as Buttercup Dairy Company) vs. Buttercup Margarine Company Ltd. (1917)

The plaintiff had been carrying on business under the name of Buttercup Dairy Company. He filed a suit against a newly registered company Buttercup Margarine Company Ltd. restraining it from carrying business with the said name on the ground that the name resembled their company’s name. He alleged that public might think that the two businesses were connected. The plaintiff succeeded in getting the injunction.

Society of Motor Manufacturing & Traders Ltd. v. Motor Manufacturers & Traders Mutual Assurance. (1925)

It was held that the plaintiff was a trade protection society for motor manufacturers and traders while defendant company was an insurance company for motor manufacturers and traders. So no one could conclude that the two were connected, therefore both the companies could continue with their respective names.

2. be such that its use by the company-

(a) will constitute an offence under any law for the time being in  force; or

(b) is undesirable in the opinion of the Central Government.

3. A company shall not be registered with a name which contains-

(a) any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government, any State Government under any law for the time being in force, or

(b) such word or expression, as may be prescribed e.g., National, Authority, Republic, Bureau, etc. unless the previous approval of the Central Government has been obtained for the use of any such word or expression. The Companies (Incorporation) Fifth Amendment Rules w.e.f. 10-5-2019 explain restrictions regarding name of the company.  These amended rules provide ample illustrations to avoid ambiguity in name reservation. As a result of it, name rejection rate has fallen drastically.

Approval based words such as insurance, bank, stock exchange etc. cannot be used without the approval of concerned authority. Word ‘Insurance’ can be used only with approval from Insurance Regulatory and Development Authority (IRDA), word ‘Bank’ can be used only with approval of Reserve Bank of India (RBI). Similarly word ‘Stock Exchange’ can be used only with the approval of Securities and Exchange Board of India (SEBI).

The name shall be considered undesirable if it is prohibited under the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950 unless a previous permission has been obtained under that Act. The name shall also be considered undesirable if it includes a trade mark registered under the Trade Mark Act, 1999 without the consent of the owner of the trade mark.

2. Domicile Clause or Registered Office Clause: It shall specify the State in which the registered office of the company is to be situated;

3. Objects Clause: It states the objects for which the company is proposed to be incorporated and any matter considered necessary for furtherance thereof;

4. Liability Clause: It states the liability of the members of the company, whether limited or unlimited, and also state,-

(a) in the case of a company limited by shares, the liability of its members is limited to the amount unpaid, if any, on the shares held by them; and

(b) in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute-

(i) to the assets of the company in the event of its being wound-up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company or of such debts and liabilities as may have been contracted before he ceases to be a member, as the case may be; and

(ii) to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

5. Capital Clause (only in case of company having share capital): The amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share;

6. Nomination Clause (only in case of OPC): In the case of One Person company, the name of the person who in event of death of the subscriber, shall become member of the company; and

7. Subscription or Association Clause: The number of shares each subscriber to the memorandum intends to take is indicated opposite his name.

3. Model Form of Memorandum of Association [Sec. 4(6)]

The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable to such company.

 Doctrine of Ultra Vires: Term ‘Ultra Vires’ means ‘beyond power’. In the context of company ultra vires acts may be of following types:

1. Acts ultra vires the M/A or objects clause of the memorandum or ultra vires the company (used interchangeably).

2. Acts ultra vires the A/A but intra vires (within power) the company.

3. Acts ultra vires the directors but intra vires the company.

It needs to be noted that acts which are ultra vires the company can never be made intra vires even by unanimous consent, while the acts in second and third points above can be made intra vires if the consent is obtained later.

The concept of ‘ultra vires’ if nothing ‘additional stated’ is construed as to be ultra vires the company. It was established in Ashbury Railway Carriage Co. Ltd v. Riche case that ultra vires acts shall not be binding on the company. Directors shall be themselves liable for such contracts. In the above case where the company was authorized to ‘construct the railway lines’ when diverted from its objects and started ‘financing of construction of railway lines’ this act was held to be ultra vires the company, therefore, the directors were held liable for such acts and not the company.

In Lakshmanaswamy v. LIC of India (1963) the Apex Court held that the company cannot go beyond the objects. Such an act is absolutely void and cannot be ratified even if all the shareholders agree.

Ultra-vires acquired property – If company’s money has been spent ultra-vires in acquiring some property, the right of the company on that property is held secure, as it represents the corporate capital.

4. Alteration of Memorandum of Association

Note: Rule 33A w.e.f. 1-9-2021.

*&**Do not amend the M/A as it (M/A) mentions only the name of the State. These points are covered here only for the sake of convenience.

***Change in jurisdiction of RoC: The State of Maharashtra has 2 RoCs (Mumbai and Pune) and the State of Tamil Nadu has 2 RoCs (Chennai and Coimbatore). Therefore, change in registered office from one place to another place within the same State in above mentioned States may involve change in jurisdiction of RoC.

****Consolidation shall require approval of Tribunal if it results in changes in voting percentage of shareholders (notified on 11-06-2016)

Note: Whenever an alteration is made it needs to be intimated to RoC along with relevant resolutions and approvals. RoC shall certify the registration within particular time frame and alteration shall become effective.

5. Difference Between Diminution of Capital & Reduction of Capital