UNIT – II Memorandum of Association DEPARTMENT OF MANAGEMENT STUDIES UNIT – II Memorandum of Association 7/2/2018 Dr. G. MAHESWARAN/AP

MEMORANDUM OF ASSOCIATION “Memorandum of Association of a company is its charter & defines the limitations of the powers of a company. It contains the fundamental condition upon which alone the company is allowed to be incorporated” - Lord Cairns 7/2/2018 Dr. G. MAHESWARAN/AP

MEMORANDUM OF ASSOCIATION Definitions “Memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this Act” Sec.2 (28) 7/2/2018 Dr. G. MAHESWARAN/AP

MEMORANDUM OF ASSOCIATION “The purpose of Memorandum of Association is to enable the share holders, creditors and those who deal with the company to know what its permitted range of enterprise is.” - Lord Macmillan 7/2/2018 Dr. G. MAHESWARAN/AP

MEMORANDUM OF ASSOCIATION FORM OF MEMORANDUM OF ASSOCIATION Form as given in table B, C, D, & E in Schedule I Printed Divided into paragraphs Numbered consecutively Signed by at least 7 persons for public & 2 for private company. Signatures attested by one witness. Subscribers shall at least take one share 7/2/2018 Dr. G. MAHESWARAN/AP

CONTENTS OF MEMORANDUM OF ASSOCIATION Six Clauses Registered office Name Objects Association or subscription Liability Capital 7/2/2018 Dr. G. MAHESWARAN/AP

DOCTRINE OF ‘ULTRA VIRES’ The words : Ultra means beyond Vires means the powers Ultra Vires means beyond the powers A company which owes its incorporation to statutory authority cannot effectively do anything beyond the powers expressly or impliedly conferred upon it by the statute or Memorandum of Association. 7/2/2018 Dr. G. MAHESWARAN/AP

The company has been formed with the object : ASHBURY RAILWAY CARRIAGE & IRON COMPANY LTD. Y. RICHE The company has been formed with the object : To make and sell, or lend or hire railway carriage and wagons and all kinds of railway plants, to carry on the business of mechanical engineers and general contractors etc. The company contracted with Riche to finance the construction of Railway line in Belgium. The company repudiated the agreement and was sued for breach of contract. 7/2/2018 Dr. G. MAHESWARAN/AP

ASHBURV RAILWAY CARRIAGE & IRON COMPANY LTD. Y. RICHE Rich Contended : Firstly, that the contract in question came well within the meaning of the words ‘general contractors’, and, was therefore, within the powers of the company, secondly, that the contract was ratified by the majority of the shareholders. Dr. G. MAHESWARAN/AP 7/2/2018

EFFECTS OF DOCTRINE OF ULTRA VIRES Void ‘Ab Initio’ Injunction Personal Liability of Directors Acquisition of Property that is Ultra Vires Directors personally liable to third parties 7/2/2018 Dr. G. MAHESWARAN/AP

ALTERATION OF NAME CLAUSE Special Resolution. Written Approval of Central Government. No Approval of Central Government is necessary if the change of name involves only the addition or deletion of the word “Private”. Change by ordinary resolution and approval of Central Government when name is identical or too closely resembles the name of an existing company. 7/2/2018 Dr. G. MAHESWARAN/AP

CHANGE OF REGISTERED OFFICE From one premises to another premises in the same city, town or village By passing a resolution of Board of Directors Dr. G. MAHESWARAN/AP 7/2/2018

CHANGE OF REGISTERED OFFICE From one town or city or village to another town or city or village in the same state Special Resolution. Confirmation of Regional Director — when jurisdiction of Registrar of companies is changed. Copy of (i) & (ii) to be filed with ROC. Notice of new location to ROC within 30 days. 7/2/2018 Dr. G. MAHESWARAN/AP

CHANGE OF REGISTERED OFFICE From one state to another state Special Resolution Confirmation of Central Govt. For certain Purposes only (As given in section 17) 7/2/2018 Dr. G. MAHESWARAN/AP

ALTERATION OF OBJECTS CLAUSE A. Special Resolution B. Alteration is sought on any of these grounds: To carry on its business more economically & more efficiently To attain its main purpose by new or improved means To enlarge or change the local area of its operations To carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company To restrict or abandon any of the objects specified in the memorandum To sell or dispose off the whole or any part of the undertaking To amalgamate with any other company C. Copy of (A) is filed with ROC within 30 days 7/2/2018 Dr. G. MAHESWARAN/AP

ALTERATION OF LIABILITY CLAUSE The liability of a member of a company cannot be increased unless the member agrees in writing. From unlimited liability, it can be made limited by re-registration of the company. 7/2/2018 Dr. G. MAHESWARAN/AP

ALTERATION OF CAPITAL CLAUSE Increase of authorized share capital. Consolidation and subdivision of shares. Conversion of shares into stock & vice versa. Diminution of share capital. 7/2/2018 Dr. G. MAHESWARAN/AP

ARTICLES OF ASSOCIATION Definition ‘Article’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies laws or of this Act’ Sec.2 (2) 7/2/2018 Dr. G. MAHESWARAN/AP

ARTICLES OF ASSOCIATION “…. The articles proceed to define the duties, the right and the powers of the governing body as between themselves and the company at large and the mode and form in which the business of the company is to be carried on and the mode and form in which changes in the internal regulations of the company may from time to time be made. - Lord Cairns 7/2/2018 Dr. G. MAHESWARAN/AP

The extent to which Table ‘A’ is applicable CONTENTS OF ARTICLES The extent to which Table ‘A’ is applicable Different classes of shares and their rights Procedure of making an issue of share capital and allotment thereof Procedure of issuing share certificates and share warrants Forfeiture of shares and the procedure of their re-issue Procedure for transfer and transmission of shares 7/2/2018 Dr. G. MAHESWARAN/AP

Directors, their appointment, remuneration, qualifications, etc. CONTENTS OF ARTICLES The time lag in between calls on shares conversion of shares into stock Directors, their appointment, remuneration, qualifications, etc. Account and audit Lien of shares Payment of commission on shares and debentures to underwriters Rules for adoption for ‘preliminary contracts’ if any 7/2/2018 Dr. G. MAHESWARAN/AP

Re-organization and consolidation of shares capital CONTENTS OF ARTICLES Re-organization and consolidation of shares capital Alteration of share capital & Buyback of shares Borrowing power of directors General meeting, proxies and polls Voting rights of members Winding up 7/2/2018 Dr. G. MAHESWARAN/AP

ALTERATION OF ARTICLES (SEC 31) Procedure : Alteration by passing a special resolution. Copy of resolution to be sent to registrar within 30 days. Copy of altered articles to be registered within 3 months of passing of resolution. 7/2/2018 Dr. G. MAHESWARAN/AP

LIMITATIONS REGARDING ALTERATION OF ARTICLES Alteration should not be inconsistent with Provisions of Company Act or any other statute Conditions contained in memorandum Approval of govt. to be obtained in certain cases Alteration must not deprive any person of his rights under a contract Alteration must not constitute a fraud on the minority Alteration must be bonafide for the benefit of the company as a whole 7/2/2018 Dr. G. MAHESWARAN/AP

The following are the legal implications: BINDING FORCE OF MEMORANDUM AND ARTICLES (SEC 36) The following are the legal implications: Company is bound to its members Each member is bound to the company Each member is bound to other members in exceptional case only Neither the company nor the members are bound to outsiders 7/2/2018 Dr. G. MAHESWARAN/AP

Memorandum of Association Articles of Association Charter of Company Regulations for interal management Defines the scope of the activities Rules for carrying out the objects of company. Supreme document Subordinate to the memorandum. Must for every company Company limited by shares need not have it (Table ‘A’ applies) Strict restrictions, alteration only with sanction of central govt./ tribunal. Can be altered by special resolution. Act, ‘Ultra Vires’ is wholly void & cannot be ratified. Act ‘Ultra Vires’ (but intra vires the memorandum) can be ratified. 7/2/2018 Dr. G. MAHESWARAN/AP

DOCTRINE OF CONSTRUCTIVE NOTICE Documents are open & accessible to all. Presumption that any outsider dealing with company has read & understood the documents. It is a negative doctrine, acting only against the outsiders & not the company. 7/2/2018 Dr. G. MAHESWARAN/AP

DOCTRINE OF INDOOR MANAGEMENT Persons dealing with the company in good faith have a right to assume that the internal requirements prescribed in public documents have been observed Persons are not bound to enquire into regularity of internal proceedings Exceptions : Knowledge of irregularity Negligence on part of the outsider Forgery Acts outside scope of apparent authority 7/2/2018 Dr. G. MAHESWARAN/AP