Sunday, May 11, 2014

Memorandum of Association: Contents and Its Alteration

Memorandum of Association
Memorandum of association is the document which contains the rules regarding constitution and activities and objects of the company. It is fundamental charter of the company. Its relation towards the members and the outsiders are determined by this important document.
Section 2 (56) of the Companies Act, 2013 defines Memorandum as “Memorandum means the 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”.
One of the essentials for the registration of a company is memorandum of association. It is the first step in the formation of a company. Its importance lies in the fact that it contains the fundamental clauses which have often been described as the conditions of the company’s incorporation.
Memorandum of association is divided into 5 clauses/contents [Sec. 4 of the Companies Act, 2013]:
1.       Name clause
2.       Situation or Registered office clause
3.       Objects clause
4.       Liability clause and
5.       Capital clause
6.       Subscription or Association Clause
1. Name clause: This clause state the name of the company. Name of every company limited by shares or by guarantee must end by the word 'Ltd.' or 'Pvt. Ltd.' except companies exempted u/s 8.  The name must not be undesirable or most not resemble the name of any other registered company.

2. Situation or Registered office clause: Must contain the name of state is which registered office is situated.  Actual address of registered office is notified to ROC with in 30 days of in corporation.
3. Object clause: It sets out object or vires of the company. The objects must be legal and not be against the provision of the companies Act, 2013. It is divided into two parts:
(a) The main objects and Objects incidental or ancillary to the main objects.
(b) Other objects.
4. Liability clause: States that liability of members is limited to the amount unpaid on their shares and in case of company limited by guarantee the amount which every member undertakes to contribute to the assets of the company in the even of its winding up.
5. Capital clause: Every company having a share capital, the amount of share capital with which the company is proposed to be registered and the division of its shares into a fixed denomination.
6. Subscription clause: This clause shall state the number of shares that each subscriber to member has agreed to subscribe. Every subscriber shall agree to subscribe for at least one share.
ALTERNATION OF MEMORANDUM (Sec. 13 of the Companies Act, 2013)
1. Alteration of name: A company may change its name at any time by passing a special resolution and with the prior approval of the Central Government. The company shall file with the registrar a copy of special resolution and a copy of the order of the central government approving the change of name. The registrar shall enter the new name of the company in the register of companies and issue a fresh certificate of incorporation to the company. The change in the name shall become complete and effective from the last date of issue of fresh certificate of incorporation.  However, it should be noted that no approval of central government will be required if the change consists merely addition or deletion of the word “private” consequent on the conversion of a public company into a private company or vice versa.
2. Alteration of registered office clause: A company may change the place of its registered office from one state to another state by passing a special resolution and obtaining approval of central government.  For obtaining the approval of central government (CG), the company shall make an application to CG in such form and manner as may be prescribed. CG shall dispose of the application within 60 days. Before passing any order, CG shall satisfy itself that the creditors and lenders have consented to such alterations. After obtaining the approval, the company shall file with the registrar a copy of special resolution and a copy of the order of the central government approving the change of the address. The registrar shall enter the new address of the company in the register of companies and issue a fresh certificate of incorporation to the company. The change in the address shall become complete and effective from the last date of issue of fresh certificate of incorporation.
3. Alteration of objects:  A company may alter its objects with the passing of a special resolution. The confirmation of the central government is not required for this purpose. Alteration of object clause is not permitted if any company has raised money from the public by issue of a prospectus, and any part of such money remains unutilised with the company.
4. Alteration of liability clause: Liability of shareholders can be increased by express approval of each and every member. However in case the company is a club or similar association and alteration in the memorandum requires the member to pay recurring charge at a higher rate, although he does- not agree in writing to be bound by the alteration.  Liability of directors, MD or managers can be made unlimited by passing a special resolution if the article so permit and getting consent of such officer.  Unlimited liability of shareholders can be made limited by:
a)      Pass a special resolution and fill it within 30 days.
b)      Obtain tribunal sanction and fill it within 3 months of the date of order.
c)       Alteration will be effective from date of registration.
5. Alteration of capital clause [Sec. 61 of the Companies Act, 2013]: If article provides, by passing an ordinary resolution in the general meeting, a company can:
a)      Increase in authorised capital by such amount as it may think fit.
b)      Consolidate or sub-divide the whole or any part of existing shares into shares of larger or smaller denominations.
c)       Convert its fully paid up shares into stock or vice-versa.
d)      Cancel its unsubscribe shares by diminishing authorised capital.
As per sec. 64 of the Companies Act, 2013, notice of alternation of share capital is to be given to the ROC within 30 days along with a copy of altered memorandum. Alteration of share capital does not require any confirmation by the court, CG, CLB or any other authority.
6. Alteration of subscription clause: This clause can be altered by passing a special resolution and complying with the procedure as specified in the sec. 13 for alteration of name clause and registered office clause.

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