What is Memorandum of Association? How will you make alteration in Memorandum?
One of the most important steps in the formation of a company is to prepare the documents called the memorandum of Association. It is a life-giving document, because no company can be registered without the memorandum.
The memorandum sets out the constitution of the company, which contains the fundamental conditions upon which alone the company is registered. It is described as the charter of the company, which defines the company’s objectives and powers. Its purpose is to enable shareholders, creditors and those who deal with the company to know the scope of the Company’s operations. The importance of the memorandum lies in the fact that it defines the scope of company’s activities as well as its relation with the outside world. It is a public document to the concerned persons.
According to Section 2(28) of the Companies Act, 1956, “memorandum means the memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous company laws or of this Act.”
The Memorandum of Association must be a
a) Printed
b) Divided into paragraphs, numbered consecutively and
c) Signed by each subscriber in the presence of at least one witness, who shall attest his signature. [Sec.15]
The purpose of a Memorandum
The prospective share holders know the field in which or the purpose for which their money is going to be used by the company and what risk they are undertaking in making the investment.
Outsiders who deal with the company can know the objects of company and whether the objects and powers of the company are favor to them.
Procedure for Alteration of Memorandum
Since it is a document of fundamental importance, the Memorandum of Association of a Company can not be altered easily. The Companies Act lays down that the matters contained in the Memorandum shall not be altered except in case in the mode and to the extent for which express provision is made in the act-Se.. 16.
The provisions are as follows
1. Alteration of Name clause
A company may after its name by passing a special resolution and with the approval of the Central Govt. in writing. But no approval of the Central Government is needed where the only change in the name is the addition there to or deletion there from, the world ‘private’ consequent on the conversion of a public company into a private company or vice versa – Sec.21. However if through inadvertence a company is registered under a name similar to or identical with that of an existing company, the alteration can be effected by passing an ordinary resolution and with previous consent of the Central Govt. Similarly, if the Central Govt. directs the company to change its name within 12 months of its registration with a new name the company must do so within three months of that direction by passing an ordinary resolution. If a direction is issued, the company must change its name within 3 months from the date of direction. If the company makes default in complying with the direction, every officer who is in default in punishable with a fine up to Rs.100/- per day of the period of default – Sec. 22.
Within 30 days of passing the resolution, a copy of the same shall be filed with the Registrar. A copy of the Central Govt.’s order of approval shall also be filed with the Registrar. In all the cases, the change of name will be effective only after the Registrar issues a fresh certificate of incorporation altering the name of the company – Sec.23.
2. Alteration of Domicile Clause
The procedure laid down in the act changing the location of the company’s registrar’s office is as follows.
a. To shift the Registered Office from one state to another, the company must pass a special resolution and obtain the confirmation of the change from the Company Law Board. Before confirming the alteration, the Company Law Board satisfies itself that sufficient notice has been given to the creditors and other persons, whose interest may be affected by the alteration and they have given their consent. Then a notice of the proposed change will be served to the registrar. Then the Registrar will appear before the Company Law Board, and state his objections or suggestion, if any with regard to the change. Then the Company Law Board may issue the confirmation order on such terms and conditions as it may think fit within 3 months from the date of the Company Law Board’s confirmation, the company must file with the Registrar of each state a certified copy of the order along with a printed copy of the altered Memorandum. The Registrar of each state registers and certified the change. Then the Registrar of the state from which the office is shifted sends to Registrar of other state all the documents relating to the company with in 30 days of the change, the company must give notice of the new location of its registered office to the Registrar of the state to which the office is shifted- Sec-17 (1)
b. If it is intended to shift the office from one city to another with in the same state, passing a Special resolution and filing the copy of the resolution with the Registrar with in 30 days can bring about the change. Notice of the new location must be given to the Registrar with in 30 days after the office has been shifted.
c. If the company intends to change the location of its registered office from one locality to another of the same city or town, it can be affected by a resolution of the Board of Directors. There is no need of s resolution of the shareholders. The notice of such change must be given to the registrar with in 30 days. A public notice is also issued communicating the change to shareholders and the general public.
3. Alteration of object clause
According to Sec. 17(1) a company will be allowed to alter the objects clause of its Memorandum only if the alteration is necessary to enable it:
(a) to carry on its business more economically or more efficiently.
(b) To attain its main purpose by new or improved means.
(c) To enlarge or change the local area of its operation.
(d) To carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company.
(e) To restrict or abandon any of the objects specified in the Memorandum.
(f) To sell or dispose of the whole or any part of the undertaking of the company.
(g) To amalgamate with any other company or body of persons.
The company effects the alteration by passing a special resolution and submitting it for the confirmation of the Company Law Board. The company Law Board may allow the alterations either wholly or in part and on such terms and conditions as it may think proper – Sec.17 (5). A certified copy of the boards order confirming the special resolution together with a printed copy of the memorandum as altered must be filed with the registrar with in three months of the order. On receipt of these, the Registrar will issue a certificate giving validity to the alteration.
4. Alteration of liability clause
the clause limiting the liability of the members is the essence of the limited companies. The alteration of this clause for the purpose of making unlimited the liability of the members is therefore not permissible unless each and every member concerned expressly agrees the same to. Sec. 38. The liability of directors and other officers can be made unlimited by passing a special resolution, if the articles so permit. Sec.323. The change becomes effective from the date of passing the resolution.
But shareholders of unlimited liability company can make their liability limited by passing a special resolution and obtaining the court’s Sanction. A copy of the resolution must be filed with in 30 days of its passing and a copy of the courts confirmation order with in three months of the order with the Registrar. Alteration is effective from the date of Registration by the Registrar.
5. Alteration of Capital clause
The procedure for alteration of capital and power to make such alteration are generally provided in the Articles of Association. If they are not laid down in the Articles the company must alter the Articles first by passing a Special Resolution. Under Sec. 94,95 and 97 of the Act, a company is given power to alter its capital in the following ways.
a. By increasing its share capital
b. By consolidating its share capital in the shares of higher denomination.
c. By sub dividing its share capital in to shares of lower denomination.
d. By converting its fully paid-up shares into stock and re converting that stock into fully paid up shares of any denomination.
e. By canceling the un issued capital and
f. By reducing the amount of its share capital.
The company can effect alteration of share capital by passing an ordinary or special resolution in the general meeting as provided in the Articles of Association. However if it is a case of reduction of subscribed capital the company must pass a special resolution and obtain the confirmation of the court within 30 days after passing the resolution notice must be given to the Registrar together with the copy of the resolution and altered memorandum specifying the nature of alteration, who will register the altered memorandum. It is from the date of passing the resolution that the change becomes effective. If there is a default in giving notice to the Registrar, every officer of the company who is in default is punishable with a fine up to Rs.50/- per day of such default.
In the end it may be noted that where an alteration is made in the memorandum of the company, every copy of the memorandum subsequently issued must be in accordance with the alteration.
One of the most important steps in the formation of a company is to prepare the documents called the memorandum of Association. It is a life-giving document, because no company can be registered without the memorandum.
The memorandum sets out the constitution of the company, which contains the fundamental conditions upon which alone the company is registered. It is described as the charter of the company, which defines the company’s objectives and powers. Its purpose is to enable shareholders, creditors and those who deal with the company to know the scope of the Company’s operations. The importance of the memorandum lies in the fact that it defines the scope of company’s activities as well as its relation with the outside world. It is a public document to the concerned persons.
According to Section 2(28) of the Companies Act, 1956, “memorandum means the memorandum of Association of a company as originally framed or as altered from time to time in pursuance of any previous company laws or of this Act.”
The Memorandum of Association must be a
a) Printed
b) Divided into paragraphs, numbered consecutively and
c) Signed by each subscriber in the presence of at least one witness, who shall attest his signature. [Sec.15]
The purpose of a Memorandum
The prospective share holders know the field in which or the purpose for which their money is going to be used by the company and what risk they are undertaking in making the investment.
Outsiders who deal with the company can know the objects of company and whether the objects and powers of the company are favor to them.
Procedure for Alteration of Memorandum
Since it is a document of fundamental importance, the Memorandum of Association of a Company can not be altered easily. The Companies Act lays down that the matters contained in the Memorandum shall not be altered except in case in the mode and to the extent for which express provision is made in the act-Se.. 16.
The provisions are as follows
1. Alteration of Name clause
A company may after its name by passing a special resolution and with the approval of the Central Govt. in writing. But no approval of the Central Government is needed where the only change in the name is the addition there to or deletion there from, the world ‘private’ consequent on the conversion of a public company into a private company or vice versa – Sec.21. However if through inadvertence a company is registered under a name similar to or identical with that of an existing company, the alteration can be effected by passing an ordinary resolution and with previous consent of the Central Govt. Similarly, if the Central Govt. directs the company to change its name within 12 months of its registration with a new name the company must do so within three months of that direction by passing an ordinary resolution. If a direction is issued, the company must change its name within 3 months from the date of direction. If the company makes default in complying with the direction, every officer who is in default in punishable with a fine up to Rs.100/- per day of the period of default – Sec. 22.
Within 30 days of passing the resolution, a copy of the same shall be filed with the Registrar. A copy of the Central Govt.’s order of approval shall also be filed with the Registrar. In all the cases, the change of name will be effective only after the Registrar issues a fresh certificate of incorporation altering the name of the company – Sec.23.
2. Alteration of Domicile Clause
The procedure laid down in the act changing the location of the company’s registrar’s office is as follows.
a. To shift the Registered Office from one state to another, the company must pass a special resolution and obtain the confirmation of the change from the Company Law Board. Before confirming the alteration, the Company Law Board satisfies itself that sufficient notice has been given to the creditors and other persons, whose interest may be affected by the alteration and they have given their consent. Then a notice of the proposed change will be served to the registrar. Then the Registrar will appear before the Company Law Board, and state his objections or suggestion, if any with regard to the change. Then the Company Law Board may issue the confirmation order on such terms and conditions as it may think fit within 3 months from the date of the Company Law Board’s confirmation, the company must file with the Registrar of each state a certified copy of the order along with a printed copy of the altered Memorandum. The Registrar of each state registers and certified the change. Then the Registrar of the state from which the office is shifted sends to Registrar of other state all the documents relating to the company with in 30 days of the change, the company must give notice of the new location of its registered office to the Registrar of the state to which the office is shifted- Sec-17 (1)
b. If it is intended to shift the office from one city to another with in the same state, passing a Special resolution and filing the copy of the resolution with the Registrar with in 30 days can bring about the change. Notice of the new location must be given to the Registrar with in 30 days after the office has been shifted.
c. If the company intends to change the location of its registered office from one locality to another of the same city or town, it can be affected by a resolution of the Board of Directors. There is no need of s resolution of the shareholders. The notice of such change must be given to the registrar with in 30 days. A public notice is also issued communicating the change to shareholders and the general public.
3. Alteration of object clause
According to Sec. 17(1) a company will be allowed to alter the objects clause of its Memorandum only if the alteration is necessary to enable it:
(a) to carry on its business more economically or more efficiently.
(b) To attain its main purpose by new or improved means.
(c) To enlarge or change the local area of its operation.
(d) To carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company.
(e) To restrict or abandon any of the objects specified in the Memorandum.
(f) To sell or dispose of the whole or any part of the undertaking of the company.
(g) To amalgamate with any other company or body of persons.
The company effects the alteration by passing a special resolution and submitting it for the confirmation of the Company Law Board. The company Law Board may allow the alterations either wholly or in part and on such terms and conditions as it may think proper – Sec.17 (5). A certified copy of the boards order confirming the special resolution together with a printed copy of the memorandum as altered must be filed with the registrar with in three months of the order. On receipt of these, the Registrar will issue a certificate giving validity to the alteration.
4. Alteration of liability clause
the clause limiting the liability of the members is the essence of the limited companies. The alteration of this clause for the purpose of making unlimited the liability of the members is therefore not permissible unless each and every member concerned expressly agrees the same to. Sec. 38. The liability of directors and other officers can be made unlimited by passing a special resolution, if the articles so permit. Sec.323. The change becomes effective from the date of passing the resolution.
But shareholders of unlimited liability company can make their liability limited by passing a special resolution and obtaining the court’s Sanction. A copy of the resolution must be filed with in 30 days of its passing and a copy of the courts confirmation order with in three months of the order with the Registrar. Alteration is effective from the date of Registration by the Registrar.
5. Alteration of Capital clause
The procedure for alteration of capital and power to make such alteration are generally provided in the Articles of Association. If they are not laid down in the Articles the company must alter the Articles first by passing a Special Resolution. Under Sec. 94,95 and 97 of the Act, a company is given power to alter its capital in the following ways.
a. By increasing its share capital
b. By consolidating its share capital in the shares of higher denomination.
c. By sub dividing its share capital in to shares of lower denomination.
d. By converting its fully paid-up shares into stock and re converting that stock into fully paid up shares of any denomination.
e. By canceling the un issued capital and
f. By reducing the amount of its share capital.
The company can effect alteration of share capital by passing an ordinary or special resolution in the general meeting as provided in the Articles of Association. However if it is a case of reduction of subscribed capital the company must pass a special resolution and obtain the confirmation of the court within 30 days after passing the resolution notice must be given to the Registrar together with the copy of the resolution and altered memorandum specifying the nature of alteration, who will register the altered memorandum. It is from the date of passing the resolution that the change becomes effective. If there is a default in giving notice to the Registrar, every officer of the company who is in default is punishable with a fine up to Rs.50/- per day of such default.
In the end it may be noted that where an alteration is made in the memorandum of the company, every copy of the memorandum subsequently issued must be in accordance with the alteration.
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