A PROJECT ON MEMORANDUM OF ASSOCIATION OF A COMPANY

Submitted to the University of Calicut in partial fulfillment of the requirement for the award of Bachelor of Commerce (B.Com) BY Under the supervision and guidance of K. H JASMIN
LECTURER DEPARTMENT OF COMMERCE

FAROOK COLLEGE, CALICUT

FAROOK COLLEGE, CALICUT 2008-2009

DEPARTMENT OF COMMERCE FAROOK COLLEGE

CERTIFICATE
This is to certify that the project report entitled MEMORANDUM OF ASSOCIATION OF A COMPANY is an authentic report prepared by in partial fulfillment of the requirements for the award of degree of bachelor of commerce under my guidance and supervision.

K.H. JASMIN Lecturer Department of Commerce

DECLARATION
We here by declare that the project report entitled MEMORANDUM OF ASSOCIATION OF A COMPANY is an authentic and original work done by us under the guidance and supervision of lecturer K.H. JASMIN, in partial fulfillment of the requirements for the award of degree of Bachelor of Commerce (B.Com) of university of Calicut. We further declare that, project report or any part there of has not been submitted for the award of any degree, diploma, title recognition before.

ACKNOWLEDGEMENT
This project entitled Memorandum of Association of a Company is the outcome of valuable suggestions of ideas, encouragements and motivation, which we acquire in various stages of our study. We highly indebted to Mr. E.P. Imbichikoya, H.O.D of Commerce &Mgt Studies, and to Mrs. K.H JASMIN, my project guide for their immense help in completing this project. We make this opportunity to thank our teachers, friends and all our well wishers. Above all, we thank to god the almighty for his blessings on to complete this work successfully.

RELATED CASES
SL. NO 1 2 3 4 5 6 7 8 9 10 11 12 NAME OF THE CASES Madame Tussaud & Sons Vs Tassaud(1890) Huntley & Palmer Vs. Reading Biscuit Company (1842) Ewing vs. Buttercup Margarine Co. Ltd (1917) Basudeo Lal Vs. Madanlal A.I.R (1969) Orissa Daimler co. Ltd Vs Continental Tyre $ Rubber Co. Ltd, (1916) 2.A.C 307 The Orissa paper mills Ltd. VS The state. Forrest VS Manchester etc.Rly.co: (1861) 4 L.T. 666 London county council VS Attorney general (1902) A.C. 165 CROWN BANK, RE (1890) 44CH.D.634 Scientific Poultry Breeders Assn., Re (1933) Ch.227 Indian mechanical gold extracting co. Re (1891) 3 Ch. 538 Mutual Property Insurance Co. Ltd., petitioners, (1934) S.C.61.

INTRODUCTION
The Memorandum of Association is the principle document of the company. It is the constitution or charter and sets on the limits within which the company must always function. The purpose of the memorandum is to enable the shareholders and outsiders who deal with the company to know the range of activities of the company. The memorandum contains the fundamental conditions upon which a company is allowed to be incorporated. It is the public document and parties dealing with a company may ask for its copies on payment of a nominal charge. In this project we try to make a detailed study on the contents of Memorandum of Association and its alteration with the help of various cases related to them.

MEMORANDUM OF ASSOCIATION
The first step in the formation of a company is to prepare Memorandum of Association. Meaning and Definition The Memorandum of Association of a Company is the fundamental document of the company. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. Its the charter of the company and defines its raison detre. It lays down the area of operation of the company. It also regulates the external affairs of the company in relation to outsiders. Its purpose is to enable shareholders, creditors and those who deal with the company to know what its permitted range of enterprise is. It not only shows the formation of the company but also utmost scope of it. CONTENTS OF MEMORANDUM OF ASSOCIATION (Sec 13) The Memorandum of every company shall contain the following clauses. 1) The name of the company with Limited as the last word of name in case of a public limited company and with Private Limited as the last word of the name in the case of private limited company. 2) The state in which the registered office of the company is situated. 3) The object of the company which shall be classified asa) The main object of the company to be persuaded by the company on its

incorporation. b) Objects incidental or ancillary to the attainment of the main object. c) Other objects of the company not included in (a) and (b) above.
4) In case of companies (other than trading corporations) with objects not

confined to one state, the states whose territories the objects extend. 5) In the case of a company limited by shares or by guarantee the liability of its members is limited.

6) In the case of a 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. In such a company each subscriber shall take at least one share and shall write opposite his name the number of shares he takes.

THE NAME CLAUSE

The first clause of Memorandum shall be the name of the proposed company. The name of a company essentially its identity and is the symbol of its existence. Rules regarding the name A company may, subject to the following conditions to select any suitable name. 1. Undesirable name to be avoided A company can not be registered by a name which in the opinion of the central government is undesirable [Sec 20(1)]. Broadly speaking, a name is undesirable and therefore rejected if it is either a) Too similar to the name of another company A company should not adopt a name which is identical with, or too closely resembles, the name by which a company in existence has been previously registered [Sec 20(2)]. Madame Tussaud & Sons Vs Tassaud(1890) Huntley & Palmer Vs. Reading Biscuit Company (1842) b) Misleading That is suggesting that the company is connected with a particular business or that it is an association of a particular type when this not the case. 2. Injunction if identical name adopted If a company gets registered with a name which resembles the name of an existing company, the other company with whom the name resembles can apply to the court for an injunction to restrain the new company from adopting the identical name.
Ewing vs. Buttercup Margarine Co. Ltd (1917)

Ewing carried on business under the name of the Buttercup Dairy Company as a wholesale and retail provision merchant. The defendant company was incorporated with the main object of manufacturing and selling margarine in wholesale under the name Buttercup Margarine Company Limited. Ewing sought and injunction restraining the use of the name which the defendant company had adopted for its incorporation on the ground that it was calculated to deceive the public into thinking that the two business were one or were closely connected. The court of appeal granted the injunction.

3. Limited or Private Limited as the last word or words of the name. The Memorandum shall state the name of the company with Limited as the last word of the name in case of public company, and with Private Limited as the last word of the name in case of a private limited company. In case the company has been formed for the promotion of art, science, religion etc... The Central Government may permit by a license, the omission of the word Limited or the words Private Limited Omission of the word Limited makes the name incorrect. Where the word Limited forms part of a companys name, omission of this word shall make the name incorrect. If the company makes the contract without the use of the word Limited, the officers of the company who make the contract would be deemed to be personally liable. Basudeo Lal Vs. Madanlal A.I.R (1969) Orissa.
R executed and signed a promissory note as Noperam Ramgopal, Sd. Ram Kumar, Noperam Ramgopal was a Limited company, but the word Limited was not used as part of the companys name to signify that the note was being executed for and on behalf of the company. Held, R was personally liable.

4) Prohibition of use of certain names The emblems and names (Prevention of Improper Use) Act, 1950 prohibits, except with the previous permission of the central government, the use of, or registration of a company or firms which bears, the following names

that is the name, emblem or official seal of the UNO and the WHO, the Indian National Flag, the name, emblem or official seal of Central or State Government, the name and pictorial representation of Mahatma Gandhi and Prime Minister of India. ALTERATION OF NAME CLAUSE In order to alter the name clause of the company it should satisfy the following conditions, or it can be altered through the following way.
1. By special resolution

A company may change its name by a special resolution and with the approval of the central government signified in writing. But a change of name which merely involves the deletion or addition of the word Private on the conversion of a private company into a public company or vice versa does not require the approval of the central government (section 21). 2. By ordinary resolution If through inadvertence or otherwise, company is registered by a name which, in the opinion of the central government, is identical with, or too merely resembles, the name of an existing company, the companyi. ii. May change its name, by ordinary resolution and with the previous approval of the central government. Shall change its name if the central government so directs within twelve months of its first registration by its new name, as the case may be.

THE REGISTERED OFFICE CLAUSE

Every company shall have a registered office from the day on which it carries on business, or as from the thirtieth day after the date of its incorporation, whenever is earlier. All communications and notice are to be addressed to that registered office [section 146(1). Notice of the situation of that every registered and every change shall be given to the Registrar within thirty days after the date of incorporation of the company or after the date of change [section 146(2)]. The situation of the registered office of a company determines its domicile. Daimler co. Ltd Vs Continental Tyre $ Rubber Co. Ltd, (1916) 2.A.C 307 ALTERATION OF REGISTERED OFFICE This may involve
a) Change of registered office from one place to another place in the

same city, town or village. b) Change of registered office from one town to another town in the same state.
c) Change of registered office from one state to another.

a) First situation In case, a notice is to be given within 30 days after the date of the change to the registrar who shall record the same [section 146(2)]. b) Second situation In case, a special resolution is required to be passed at the general meeting of the share holders and a copy of it is to be filed with the Registrar within 30 days. Then within the 30 days of the removal of the office, a notice has to be given to the Registrar of the new location of the office. d) Third situation

The change of registered office from one state to another is subject to the provision of section 17. According to it, a company may, by special resolution, alter the provision of its Memorandum so as to change the place of its registered office from one state to another for certain purposes referred to in section 17. The alteration shall take effect only when it is confirmed by the company law board. Where the alteration involves a transfer of the registered office from one state to another, a certified copy of the order confirming the alteration shall be filed by the company with the Registrar of each of the states and the Registrar of each state shall register the same. All the record of the company then shall be transferred to the Registrar of the state in which the registered office of the company is transferred [section 18(3)]. Loss of revenue to state, if relevant consideration At one time, the shifting of the registered office of certain companies to place out side a state was opposed by the state on the grounds of loss of revenue and employment opportunities and the courts( now the company law board) were indulgent in declining confirmation.
The Orissa paper mills Ltd. VS The state. The state, the court declined confirmation of change of registered office from Orissa to another state on the ground that in a federal constitution every state has got the right to protect its revenue and, therefore the interest of the state must be taken into account.

THE OBJECT CLAUSE

The object of a company shall be clearly set forth in the memorandum, for a company can do what is within, or incidental to, the objects stated in the Memorandum. The objects clause both defines and confines scope of the companys power, and once registered, it can only be altered as provided by the act. The purpose of objects clause is to enable subscribers to the memorandum to know the user to which their money may be put and to enable creditors and persons dealing with the company to know what its permitted range of enterprise or activities is. The power specified in the memorandum must not be construed strictly. The company may do anything which is fairly incidental to these powers. Forrest VS Manchester etc.Rly.co: (1861) 4 L.T. 666
A railway company had the authority to keep boats to be supplied for a ferry. It employed the boats for excursion trips to the sea when these were not wanted for the ferry. Held, the use of the boat was incidental to the main purpose and was within the powers of the company.

The court have been generally liberal in employing powers appropriate or incidental to the carrying on of business such as (a) Appointing agents and hiring servants (b) Borrowing money and giving security for loans. (c) Paying gratuities to employees.
(d) Paying pension to former officers and employees or their dependants on

the footing that such payment encouraged person to enter the employment of the company. But the following acts have been held not to be incidental the main object. London county council VS Attorney general (1902) A.C. 165

The council had the power to run tramways. It ran omnibuses to feed the tramways. Held, this was outside its powers as the omnibuses business was in no way incidental to the business of working tramways.

But now the objects clause in the memorandum of every company has to state 1) Main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main object, and 2) Other of the company not included in the above clauses. NB:-A company, which has a main object together with number of subsidiary objects, cannot continue to pursue the subsidiary objects after the main object has come to an end. CROWN BANK, RE (1890) 44CH.D.634
A companys object clause enabled it to act as a bank and further to invest its securities and land and underwrite issue of securities. The company abandoned its banking business and confined itself to investment and financial speculations. Held, the company was not entitled to do so.

ALTERATION OF OBJECTS CLAUSE The objects clause is the most important clause in the memorandum of association. The legal personality of a company exists only for the particular purpose of incorporation as defined in the objects clause. The alteration objects clause is, therefore, subject to many safeguards which are intended to protect the interest of shareholders and creditors. The power of alteration of object is subject to two limits namely(a) Substantive or physical limit (b) Proceedural limit (a)Substantive limit

By section 17(1), the objects of a company may be altered by a special resolution so as to enable the company1. To carry on its business more economically or more efficiently: The alteration which is contemplated in this clause seems to be an alteration which will leave the business of the company substantially what it was before, with only such changes in the mode of conducting it as will enable it to be carried on more economically or more efficiently. Scientific Poultry Breeders Assn., Re (1933) Ch.227
A company which was formerly forbidden by its Articles of Association from paying remuneration to its managers wanted to after its objects clause so as to acquire power to pay this remuneration to carry on its business more economically or efficiently. The alteration was allowed.

2. To attain its main purpose by new or improved means: The emphasis here is on attaining the companys main purpose. The word Purpose is more restricted than Objects, and consequently the alteration must be one to carry out the main purpose of the company rather than one of the objects of the company, although that object may be described in the Memorandum as a main object. 3. To enlarge or change the local area of its operations: An alteration of this nature may necessitate an alteration in the name of the company. Indian mechanical gold extracting co. Re (1891) 3 Ch. 538
The memorandum of a company required it to continue its business to the Empire of India. It wanted to change its memorandum so as to enlarge the area of its operation. Held, it could do so provided it dropped the word Indian from its name.

4. To carry on business (some) which under existing circumstances may conveniently or advantageously be combined with the objects specified in the memorandum. In deciding as to whether a company should be allowed to start some other business, an application made in this behalf is not to be disallowed merely

because the new business is wholly different from and bears no relation to the existing business of the company. A company may be allowed to carry on some business which is a departure from the business already carried on provided such business is one which can conveniently or advantageously be combined with the existing business of the company and is not destructive of or inconsistent with the existing business. Mutual Property Insurance Co. Ltd., petitioners, (1934) S.C.61.
A company which had the power to carry on any kind of insurance business except life insurance wanted to add life insurance to its objects. Held, the company could do so provided it included the words and life in its name.

5. To restrict or abandon any of the objects specified in the memorandum. 6. To sell or dispose of the whole, or any part of the undertaking of the company. 7. To amalgamate with any other company or body of persons. PROCEEDURE OF ALTERATION A special resolution shall be passed to alter the objects clause [section 17(1)] The alteration shall be confirmed by the company law board on petition [section 17(2)]. Before confirming the alteration, the company law board shall be satisfied that sufficient notice has been given to every person whose interest will be affected by the alteration [section 17(3).
The company law board shall cause notice of the petition for confirmation

of the alteration to be served on the Registrar who shall also be given a reasonable opportunity to appear before the company law board and state his objections and suggestions, if any, with respect to the confirmation of alteration [section 17(4)].

 The company law board may make an order confirming the alteration, either wholly or in part, and on such terms and conditions, if any, as it think fit [section 17(5)]. The company law board shall have regard to the rights and interest of every class of members and the creditors of the company [section 17(6)].
A certified copy of the order of the company law board confirming the

alteration, together with a printed copy of memorandum as altered, shall, with in three months from the date of the order, be filed by the company with the Registrar [section 18(1)].

THE CAPITAL CLAUSE

The capital in the memorandum of a company, having a share capital, shall state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount. The capital with which a company is registered is called registered. authorized or nominal capital. A company cannot issue more shares than are authorized for the time being by the memorandum. ALTERATION OF CAPITAL CLAUSE A company limited by shares can alter the capital clause of its memorandum of association if it is so authorized by its articles of association. If its articles dont contain any provision for the alteration of the capital clause the article must be altered first by passing a special resolution to authorize the alteration of capital clause. The capital clause of a company can be altered for the following purposes:(a) Increase its capital by issue of new shares. (b) Consolidate its shares into shares of large amount. (c) Subdivide its shares into shares of small value.
(d) Convert its fully paid shares into stock or vice versa.

(e) Cancel any shares which have not been taken up by any person. (f) Variation of the rights of any class of share holders. (g) Reduction of its share capital. NB:-The above given (a),(b),(c),(d) and(e) can be effected by an ordinary resolution without the confirmation of the court. To alter the above (f) and (g) a special resolution must be passed and confirmation of court is needed.

THE LIABILITY CLAUSE

The memorandum of a company limited by shares or guarantee shall also state that the liability of its members is limited [section 13(2)]. This means that the member can only be called upon to pay to the company at any time the uncalled or unpaid amount on the share held by them, or unto the maximum of the amount which they have guaranteed. There is, however, one exception to the above rule. If at any time the number of members of a company falls below the statutory minimum and the company carries on business for more than six month while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months is severely liable for the payment of the whole of the debts of the company contracted during that time and can be severely sued therefore [section 45]. ALTERATION OF LIABILITY CLAUSE A company limited by shares or guarantee cannot change its memorandum so as to impose any additional liability on the members or to compul them to buy additional shares of the company unless all the members agree in writing to such change either before or after the change [section 38]

THE ASSOCIATION CLAUSE

The association clause states: we, the several persons whose name and addresses are subscribed, are desirous of being formed into a company in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names. This is followed by the names, addresses and the description of the subscribers and the number of shares taken by each of them. Each subscriber has to take at least one share. The memorandum has to be signed by at least seven (7) subscribers in the case of a Public company, and by at least two (2) subscribers in the case of a Private company. The signature of each subscriber shall be attested by at least one witness who cannot be any of the other subscribers.

CONCLUSION
The Memorandum of Association of a Company is the fundamental document of the company. It contains the fundamental conditions upon which alone the company is allowed to be incorporated. Its the charter of the company and defines its raison detre. It lays down the area of operation of the company. It also regulates the external affairs of the company in relation to outsiders. The contents of the Memorandum of Association includes (a)Name Clause (b)Domicile Clause (c)Object Clause (d)Capital Clause (e)Liability Clause and (f)Association Clause. These clauses can be altered or changed by following some procedures.