Wednesday, 25 March 2020

Memorandum of Association


Memorandum of Association

The memorandum serves a two-fold purpose. It enables shareholders, creditors and all
those who deal with the company to know what its powers are and what is the range of its
The memorandum is to be printed, divided into paragraphs, numbered consecutively and
signed by at least seven persons (two in case of private company) in the presence of at least
one witness.
The objects clause defines the objects of the company and indicates the sphere of its activities.
Liability clause states the nature of liability of the members.
The company’s activities are confined strictly to the objects mentioned in its memorandum
and if they go beyond these objects, then such acts will be ultra vires.
In case a company is about to undertake an ultra vires act, the members of a company can
get an order of injunction from the court restraining the company from going ahead with
the ultra vires act.
The liability of a member of a company cannot be increased unless the member agrees in
writing. The consent of the member may, however, be given either before or after the
Section 17 empowers a company by a special resolution duly confirmed by the Central
Government, to alter the objects or to change the place of its registered office from one
State to another.
If the proposed name of a company differs from the name of an existing company merely
in the addition or subtraction of word like New, Modern etc., then the new name should
not be allowed.
Any name for the proposed company which connotes government participation or
patronage is considered undesirable unless circumstances justify.

Capital Clause: This clause deals with alteration of share capital.
Liability Clause: A clause in the memorandum of association that states the nature of liability of
the members.
Memorandum of Association: The document that governs the relationship between the company
and the outside and one of the documents required to incorporate a company.
Objects Clause: The objects clause defines the objects of the company and indicates the sphere of
its activities.
Public Company: It means a company which is not a private; has a minimum paid-up capital of
` 5 lakhs.
Ultra Vires: The Company’s activities are confined strictly to the objects mentioned in its
memorandum and if they are beyond these objects, then such acts are known as ‘ultra vires’.
9.7 Review Questions
1. Define memorandum of association and state its contents.
2. State the rule laid down in ‘Ashbury Railway Carriage Co. vs. Riche’s case.
3. Explain the various clauses included in the memorandum of:
(i) A limited company and
(ii) An unlimited company.
4. Discuss the legal significance of the different clauses in the memorandum of association.
5. Describe the steps to be taken by a company to effect changes in the location of its registered
office from:
(i) One place to another place in the same city;
(ii) One city to another city in the same state;
Notes (iii) One state to another state.
6. Describe the circumstances under which the alteration of objects clause is permissible.
Also describe the formalities to be complied with for changing the objects clause. [Para
7. How are alterations made in a memorandum of association?
8. Write explanatory notes on:
(i) Doctrine of ultra vires and its implications.
(ii) Change of name clause.
9. M/s XYZ Ltd., a company having its registered office at Mumbai (Maharashtra State),
desires to shift its registered office to Pune (Maharashtra State). Describe the procedure
applicable in this case under the Companies Act, 1956.
10. The main object of a company is to manufacture cement. Seeing the potential for new
business the board of directors decided to go in for manufacture of steel and steel related
products. These are included in the ‘other objects’ of the company. Can the company
undertake the aforesaid new business?
11. Advise Asiatic Government Security Life Assurance Co. Ltd. whether it can seek injunction
against the New Asiatic Insurance Co. Ltd. which was subsequently formed, restraining it
from having in its name the word ‘Asiatic’ on the ground that it has caused confusion and
can deceive the public.
12. The directors of a company registered and incorporated in the name ‘Mars Textile India
Ltd.’ desire to change the name of the company entitled ‘National Textiles and Industries
Advise as to what procedure is required to be followed under the Companies Act, 1956.
13. The directors of a company borrow ` 50,000 from A on a transaction which is ultra vires
the company. Discuss the rights of A against the company and its directors. [Hint: A can
hold directors personally liable. The company can be held liable only if the money has
been used to pay ultra vires debts of the company or in case any assets have been purchased
for the company, these may be attached. Also see Para 6.3]
14. The objects clause of the memorandum of XYZ Pvt. Ltd. New Delhi authorised to do
trading in mangoes. The company, however entered into partnership with Mr. A and
traded in mangoes and incurred liabilities to Mr. A. The company, subsequently, refused
to admit the liability to A on the ground that trading in mangoes was ultra vires the
company. Advise, whether stand of the company is legally valid and if so, give reasons in
support of your answer.
15. ABC Ltd., wishes to shift their registered office from Nehru Place, New Delhi to a new
premises at 81, Kasturba Gandhi Marg, New Delhi. State the procedure.

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