This article has been written by Ms.Anita Mariya,student studying BBA LLB from Government Law College Thrissur.The Author is a 5th year Law student.

Introduction

The Memorandum of a Company is the charter and outlines the restrictions of powers of the company. It is the fundamental instrument for establishing the powers and purposes of the business, and all members are expected to abide by them.

1) Investors need to know how their money will be spent once they put it into a company’s stock.

2) Informs prospective contracting parties whether their proposed agreements fall within the company’s stated goals.

The Memorandum of a Corporation is the organization’s founding document, outlining the parameters within which it will conduct business and with whom. The Memorandum was the Company’s charter in Ashbury Railway Carriage and Iron Co. v. Riche (1857). The court determined that the Memorandum of Agreement had a dual function in Cotman V. Brougham (1918).

A company’s Memorandum must be drawn out using the forms in Schedule 1. Schedule includes a table with sample Memorandum formats from various firms.

The Memorandum of Association for a Share Limited Corporation is shown in Table A.

 Corporation limited by guarantee and not having a share capital should have the form of Memorandum of Association set forth in Table B.

The Memorandum of Association for a corporation limited by guarantee with a share capital may be found in Table C.

The Memorandum of Organization for a firm without shareholders and limitless liability is shown in Table D.

An unlimited business with share capital can use the Memorandum of Association format shown in Table E.

Memorandum Contents

According to Section 4 of the Companies Act, 2013, the following information must be included in the Company’s Memorandum.

Name

Company names should end in “Limited” or “Private Limited” for a public limited company and “Limited” or “Limited” for a private limited company in the Memorandum.

(a) sound too similar to an already established business.

(b) be of a type that would be frowned upon by the federal government if used by a business.

(c) be a violation of any existing law if used by the corporation.

The criteria for determining whether or not a proposed name is similar to an existing one are laid forth in Rule 8 (1) of the Companies (Incorporation) Regulations, 2014. Whether a name is inappropriate is further defined in Rule 8(2).

The Emblems and Names (Prevention of Illegal Use) Act of 1950 prohibits the usage of the following names:

1.Group of Nations,

2.The government of India

3. Management by the government.

a.the Federal Administration,

4. any Government of a State, or
5. any regional or municipal government agency, board, or commission chartered by the Federal or State government.

Registration of a company with such a name requires prior approval from the Central Government for the use of a term or word. A preexisting corporation may seek an injunction from the court to prohibit a new company from using a name that is too similar to its own. Companies cannot be prevented from using the same or similar terms in their names. A court may find in favour of an established firm and force a new company to alter its name if the two companies’ names are too similar and might lead to customer confusion. To minimise any legal issues, businesses should do their homework before registering a name.

ButterCup Margarine Co. v. Ewing (1917)

The complainant, formerly known as Buttercup Dairy Co., has changed its name to Buttercup Margarine Company. The plaintiffs filed a lawsuit seeking an injunction. The judge issued a temporary restraining order.

Name Change

A corporation has the legal right to amend its memorandum under Section 13 of the Companies Act of 2013.

At any time, a company may choose to change its name; the necessary procedures are:

1) The formalities required a special resolution, which needs to be adopted by three-fourths of the company’s members at the annual general meeting, and 2)

2) Formal approval from the national government in writing.

When a corporation’s name changes, the registrar must reflect the change on the Register and issue a new certificate of incorporation. Changes to the Company’s name will not impact its legal standing or liabilities. Like “old wine in a fresh bottle,” commerce continues as if nothing has changed.

Business Name Change Finalized

According to section 16(1) of the Act, 2013, if a business is registered, either initially or after a name change, with a name that –

• If the Central Government determines that a company’s name is identical to or too similar to the name under which it was originally registered, it may direct the company to change its name. If so, the company must adopt an Ordinary Resolution to change its name within three months of the date of the direction.

Within fifteen days of the name change, the company must submit a notice to the Registrar along with a copy of the Central Government’s order. The Registrar is in charge of making any necessary changes to the company’s memorandum and certificate of formation.

Company must be fined one thousand rupees per day for each day that it fails to comply with any directive given by the Central Government; any official who fails to comply shall be punished not less than five thousand rupees but not less than one lakh rupees.

The Workplace Provision

The Memorandum of Organization must specify the state where the company’s principal office will be situated. The company’s domicile and nationality are determined by the location of its registered office.

It is optional to specify the company’s physical location in the MOA. However, beginning on the fifteenth day following its creation and continuing at all times afterwards, a company must have a registered office capable of receiving and acknowledging any messages and notices sent to it in accordance with Section 12 of the Act.

The company’s registered office must be “verified” by the Registrar (address) within 30 days of the company’s formation, along with supporting documentation. Documentation No. The registered office address must be verified using Form INC-22. Please include the following documents with your form submission:

a.The official record that proves the company owns the building that serves as its headquarters.

1. A copy of the most recent month’s rent receipt and a notarized copy of the lease or rental agreement in the company’s name.
2. The owner’s consent to the company using the space as its registered office and verification of the company’s ownership of the property.

d.Two months’ worth of utility bills (telephone, gas and electric) in the owner’s name, with the address of the property clearly displayed.

Every company is required to prominently display its name and the address of its registered office on the exterior of any building from which it does business.

Every firm must prominently display its name and registered office address on the exterior of any office or other location from which it does business. The seal, if any, must have the name clearly etched on it (Now seal is not compulsory. If there is a seal, the name should be engraved in legible characters on it).

When a “One Person Company” is involved, the phrase “One Person Company” needs to be included in brackets under the business name whenever and whenever the name is printed, attached, or engraved.

Relocation of the Principal Office

A corporation’s official place of business may be –

1) Relocate to a new location inside the same urban core.

2) Relocate to a different municipality within the same state

Third, relocate to a new state

.

A verification must be submitted to the Registrar within 15 days following a change of office from one location to another within the same city, town, or village.

Within 15 days of a change of office location, proof (including proof of address and title papers) must be filed with the Registrar and a special resolution must be passed at a shareholders’ meeting.

If the move would cause the office to fall under the jurisdiction of a different Registrar of Companies in the same State, an application must be submitted to the Regional Director for approval. The Regional Director is obligated to confirm the business’ application within 30 days. A copy of the Regional Director’s confirmation must be filed with the Registrar of Companies within sixty days of the company receiving it. When the business files its confirmation, the Registrar has 30 days to register it and provide a certificate.

To move the company’s headquarters from one state to another, shareholders must approve a special resolution at an annual meeting. The change cannot go into effect without the approval of the Federal Government. A certified copy of the order certifying the change will be lodged with the Registrars of both states once it has been confirmed by the Central Government. When a company moves its registered office, all of its documents must be submitted to the state’s registrar.

Reason for Clause

Every corporation must specify its goals in its Memorandum of Association.

A proper object clause must specify:

1) The purposes of the proposed business entity (main objects).

2) What is deemed essential to the advancement of primary goals (incidental or ancillary matters to the attainment of main objects).

A declaration of objects in the Memorandum contains two parts, as was determined by the court in Ashbury Railway Carriage Iron Company V. Riche (1875).

Purposes.

1.It makes a bold assertion about the breadth and depth of the company’s life and strength.

2.It expressly forbids any action outside of its scope.

Ultra vires doctrine

A company is authorised to do any action permitted by law and its Articles of Organization.A company’s action that goes beyond the authority granted to it by the Companies Act or its Articles of Incorporation is said to be “ultra vires.” Any such action is null and invalid. No amount of shareholder approval will make it legally binding on the Corporation.

The Ashbury Group, Inc. was established for the express purpose of engaging in the “Mechanical Engineers and General Contractors” trade. The board of directors of the corporation reached an agreement with Riche to secure funding for the building of the Belgian railway. The Business ultimately decided to back out of the arrangement. For violation of contract, Riche decided to sue. While the shareholders accepted the contract, the House of Lords ruled that it was extra vires, meaning that it was outside the scope of the Memorandum and hence not binding on the firm.

LIC v. Lekshmana Swamy Mudaliar (1963)

The board of directors has approved a donation of two million rupees (about $40,000) to a Memorial Trust. A resolution was voted by the shareholders affirming the board’s choice. The company’s major focus was on the life insurance industry. The purpose of the firm is not to make charitable contributions to the Memorial Trust. The court agreed, finding that the decision to give money to the Memorial Trust went beyond its authority. The scope of the company’s authority is limited to the activities listed in the Memorandum, and it has no authority to engage in any activities outside of those listed.

Substituted Objects

According to section 13(8) of the Act, a business that has issued a prospectus to the public in order to raise capital must not alter the purposes for which it issued the prospectus unless the shareholders approve the change by a special resolution. Voting on the special resolution will take place through mail. The following information must be included in the notification of the resolution for changing the objects:

1. .Quantity of Funds Received
2. The sum of money spent on the prospectus’s designated purposes. (iii) The sum of money not yet spent from the capital raised via the Prospectus.
3.  Specifics on the proposed adjustments to the items.
4. The rationale for the adjustments made to the items. The sum intended for the brand-new assets.
5. How much money the change is expected to take out of the company’s earnings and cash flow.
6. Any other material considerations that may help the members make an educated judgement on the proposed Resolution.
7.  The location where interested parties can pick up a hard copy of the resolution’s notification.

 

Details of the proposed resolution must be announced in two local newspapers (one in English and one in vernacular language) and posted on the company’s website, if any, with an explanation of why the change is necessary, as required by section 13(8) of the Act, 2013.

Promoter and controlling shareholders must provide dissident shareholders a chance to sell their shares in compliance with Securities and Exchange Board rules.

Within thirty days of the date the special resolution is filed, the Registrar must register any change to the memorandum of the company’s purposes and certify the registration.

Warranty of No Harm

If the firm runs into financial trouble or legal trouble, the shareholders’ liability under the memorandum of incorporation is limited. The shareholders’ personal assets are safeguarded and investor confidence is boosted by this provision. The absence of this provision might subject stockholders to personal liability for the company’s obligations, which could result in losses greater than their initial investments. A declaration relating to the liabilities of members of the firm should be included in the Memorandum to prevent potential investors from being turned off. Shares, guarantees, or limitless liability restrict member responsibility. Under the Memorandum of a company limited by shares, members’ responsibility is restricted to any unpaid shares. In a corporation limited by guarantee, the Memorandum must indicate each member’s contribution to the firm’s assets if it dissolves. The difference between limited by shares and limited by guarantee affects members’ liabilities if the firm goes bankrupt or dissolves. It is vital while picking a business structure.

Capital clause

The Memorandum would list the company’s intended share capital and its partition into fixed-amount shares. Registered, Authorized, or Nominal Capital is the company’s capital.

Capital Clause Change

If authorised by the Articles of Organization, a company limited by shares can change its share capital under section 61 of the Act, 2013. Increase its permitted capital, consolidate and split its share capital into larger shares, or convert fully paid shares into stock.

The general assembly will adopt an ordinary resolution to change. The Business must notify the Registrar of changes within 30 days (section 64)

Association/Subscription Clause

A public company’s Association and subscription clause requires at least seven signed subscribers and witnesses. Private companies must have two subscribers and signatures. This clause should provide subscriber names and addresses. Subscribers should have promised to buy firm shares. This clause should list each subscriber’s share commitment. A subscriber must pay the company’s winding-up value even if he hasn’t accepted the promised share.

Conclusion

When consenting to this condition, subscribers should carefully evaluate how many shares they will take, as they may be financially liable if the firm folds. This emphasises the necessity of comprehending all contractual duties before engaging into any business arrangement. Every organisation needs a Memorandum of Association. Print and number this text in paragraphs. Rules cannot exceed corporate powers stated in Memorandum of Agreement. Regulations must match the company’s Memorandum of Agreement. Regulations exceeding the Memorandum of Association’s authority are invalid.

References 

1. Ashbury Railway Carriage and Iron Co Ltd v Riche (1875) LR 7 HL 653
2. Cotman v Brougham [1918] AC 514
3. Ewing v. Buttercup margarine Co. Ltd.(1917) 2Ch.1(CA),
4. Lakshmana Swami Mudaliar and Ors. Vs. Life Insurance Corporation of India and Ors. AIR 1963 SC 1185
5. Ipleader.in
6. Clear tax.com
7. Taxguru.com