OTHER CONCEPTS

important documents issued by a company

Memorandum of Association: It is the constitution as well as the foundation upon which the whole structure of the company is built. It is the principal document without which a company can’t be registered. It defines the company’s scope of activities as well as its relation with the outside world. The purpose of the memorandum is to enable the shareholders, creditors, and those who deal with the company to know what the permitted range of the enterprise is. A company cannot do anything contrary to the memorandum. It cannot enter into a contract or engage in any trade or business which is not permitted by the memorandum. If any action is done by the company which is not permitted by the memorandum, it is known as Ultravires (which means beyond the powers).

Importance

(i)       It defines the limitations of the company.

(ii)      It is the foundation upon which the whole structure of the company is built.

(iii)     It explains the scope of activities of the company.

(iv)     It is the constitution of a company.

(v)      It is a charter of the company.

CLAUSES

(1)      The Name Clause: The name of the company is mentioned in this clause. A company should select a name that does not violate the Emblems & Names Act, 1950. The words ‘Pvt Ltd’, “(P) Ltd” or only “Ltd’ must be attached after its name in the case of private or public companies respectively. The name of the company must be engraved on its official seal & also mentioned in the letterheads, bills & other official publications.

(2)      Registered Office Clause: This clause consists of the registered office address of the company. It is mandatory for every company to have a registered office where necessary documents like notices, letters etc may be sent. It is also important for inspection purposes. A company must have a registered office from the day on which it commences business. If the office is shifted within the town, a special resolution is passed but if the office is shifted from one town to another, it requires an alteration in the memorandum.

(3)      Object Clause: This clause determines the rights, powers and objectives of the company. The powers of the company are limited to the object clause in the memorandum. This clause enables the shareholders, creditors & all other members who deal with the company to know what its range of activities are. It should be decided carefully because it is difficult to change later on.             

(4)      Liability Clause: This clause mentions the shareholders liability. The liability may be up to the unpaid amount on shares or it may also be limited by a guarantee (in the case of a guarantee company). It also mentions the amount to be contributed by the members towards the assets of the company in case of its winding up. In the case of unlimited companies, the liability of the members is unlimited.

(5)      Capital Clause: This clause states the amount of total capital of the company. The maximum amount of capital that can be issued/raised by a company from the market is known as nominal or authorized capital.  This clause also mentions the division of capital into equity and preference shares.

(6)      Association Clause: This clause contains the names of signatories to the memorandum. The memorandum must be signed by at least 7 persons in case of public and 2 persons in case of a private company.

 (ii)    Articles of Association: This is a document in which the rules and regulations regarding the internal management of the company are framed. It cannot contain anything contrary to the companies, Act, 2013, as well as MOA. It contains all the provisions related to day to day working of the business. Any act done violating the provisions of articles can be ratified by passing a resolution in a general meeting. It contains provisions related procedure of issuing share capital, procedure for conducting a general meeting, minimum members required to be present (Quorum) in order to conduct a meeting etc. Every company limited by a guarantee or an unlimited company needs to register its articles along with the memorandum of association with the ROC. If a public company does not register its articles, the regulation contained in Table A would be applicable.

Contents

(i)       The amount of share capital issued, different types of shares, forfeiture of shares etc.

(ii)      Power to alter as well as reduce share capital.

(iii)     Appointment of directors, powers and their remuneration etc.

(iv)     Appointment of manager, managing directors

(v)      Procedure for holding a meeting.