Contents of Memorandum of Association
Memorandum of association must mandatory consist of following clauses as per the Companies act: –
- Name Clause
- Situation Clause
- Objects Clause
- Liability Clause
- Capital Clause
- Association Clause
Name clause must denote the name of company. Any name can be chosen by company with condition that it should not be similar to other company’s name which are already registered. A name of a company first requires approval from registrar before getting it registered. In case of public limited company, the name shall end with word ‘Limited’ and for private limited company, it shall end with word ‘Private Limited’. However, the word limited and private limited is not applicable to non-profit company or companies created under section 8. Words like king, queen, Emperor and world bodies names such as W.H.O., U.N.O., World bank etc. should not be used as a company name.
Situation clause specify the state in which registered office of company is located. It also denotes the registrar of companies who have jurisdiction control over the company’s registered office. Registered office is a place where statutory books, common seal etc. of company are kept. Location of registered office need to be intimated to registrar within the time period of 30 days from date of business commencement or date of incorporation.
Shifting of registered office from one location to another within the town can be done by giving a simple intimation to registrar. If a company want to shift its registered office to some other town within the state, a special resolution is required to be passed. Whereas, a memorandum of association should be altered accordingly for shifting the registered office to other state.
Object clause states the objectives for which the company is incorporated. This clause should be drafted carefully by promoters as altering the object clause is a difficult task. Object clause specifies all the business activities in which a company may engage in future. Company’s object should be in accordance with activity words in name of company. It specifies all main objectives and ancillary objectives.
Liability clause specifies the liability of every member of company whether it is limited or unlimited. The liability may be limited by shares or limited by guarantee. In case, the liability of company is limited by shares, it is limited equal to amount which is unpaid on the shares held by members. In case of liability limited by guarantee, it is limited to the amount undertaken by each member in case the company is winded up. However, liability clause is omitted if it is a company with unlimited liability.
Capital clause specifies the authorized capital of company along with its bifurcations into various categories of shares, number of shares and their face value. Authorized capital is the maximum limit of capital that a company can raise by issuing its shares. No amount can be raised by company in addition to mentioned capital amount in this clause.
This clause of memorandum of association specifies the name, address and other details of first subscriber to company. Subscription clause states the number of shares held or amount contributed by each shareholder as initial capital of company. Subscribers to memorandum of association are company’s initial subscribers. For public companies, the subscriber to memorandum must take at least 7 shares and for private companies he must take at least 2 shares.
Alteration of Memorandum of Association
A special resolution is required to be passed by company in shareholders meeting for bringing alterations in memorandum of association. It is a difficult and lengthy process and therefore it should be drafted with utmost care at beginning itself. There are different provisions related to alterations which are discussed below: –
Alteration of Name Clause
A company can alter its name by passing a special resolution and getting an approval from central government. Sometimes a government may even ask a company to change its name if it resembles to another existing company and an ordinary resolution is needed for bringing such alteration. Central government have a power to approve change in company’s name under section 13(2) and such power has been delegated to ROC (Registrar of companies). However, the permission of central government is not required if company alters its name to public limited or private limited. A registrar of companies must be informed about such alteration for getting a fresh certificate of incorporation.
Alteration of Situation Clause
If a company is willing to shift its registered office within the same town, village or a city then a notice need to be given to registrar within the time period of 30 days from such change. If a registered office need to be shifted form one city to another city or from one town to another town, then a company should pass a special resolution. However, if a company want to move its office to some other state then a special resolution should be passed along with the approval from company law board. Companies are required to furnish details of their registered office as mentioned in INC-22 under company’s act, 2014. The altered memorandum should be filed with registrar of both states from where company is moving and where it has moved.
Alteration of Objects Clause
A special resolution is required to be passed by company for altering the objects clause. Following are the reasons for which objects clause is altered by company:
- For enlarging or altering local area of operations by company.
- For the motive of acquiring company’s main business by innovative and improved means.
- For selling the part or whole of the undertaking.
- For operating business of company in more efficiently or economically.
- In case of amalgamation with other companies.
- For involving some more business to existing business of company, which may be more advantageous and convenient.
- For abandoning any of the objects mentioned by company in its memorandum of association.
Alteration of Liability Clause
No alterations can be made in liability clause of memorandum unless and until a public company is altered into a private company. Liability of members cannot be increased without their consent as per the section 34. It states that a member cannot be made responsible for taking more shares by altering articles or memorandum. Member must agree to do so by giving his written consent.
Alteration of Capital Clause
A company need to pass an ordinary resolution in its general meeting for bringing any alterations in its capital clause. Limited company can bring alterations in capital clause by raising their share capital via issuing new shares, sub-division of their shares into smaller amount, consolidation of shares into large amount shares and canceling those shares that have not been taken.
Company limited by shares may altered it by reducing its share capital. However, a company need approval from court for by applying to it for such reduction. Share capital can be reduced through following ways: Paying off the paid up capital that exceeds the company needs and reducing member’s liability for uncalled capital. The altered Memorandum or article of association should be submitted to registrar within the 30 days of passing a such resolution.
Alteration of Subscription Clause
Subscription clause of memorandum cannot be altered. It comprises the name of one who subscribes to memorandum of association of company at the time of its incorporation. Life of subscribers do not affect the continuity of company as it attains a separate entity that is distinct from its owners soon after its incorporation. As a result of all this, subscription clause is not affected at all. However, the company can alter subscription clause for making directors’ liability that are appointed subsequent to alteration as unlimited.