MEMORANDUM OF

ASSOCIATION
PROF. SNEHA ANIL KUMAR
 Every legal/juristic entity needs a constitution for its
governance.
 A company has two important documents for its governance
– MoA & AoA.
 MoA - constitutes the basic structure of the company
 Formation of a company begins with the preparation of MoA.
In Ashbury Railway Carriage & Iron Co. Ltd. V. Riche

Lord Cairn observed that “the MoA of a company is its

charter and defines the limitations of the powers of the
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company as it contains both affirmative and negative
power.”
FEATURES
 Fundamental document
 Charter – defines reason for existence
 Lays down area of operation
 Regulates external affairs of company – in relation with outsider
 Actions in a company cannot go beyond MoA.

PURPOSE : - 2 FOLD

 1) to inform prospective & current stakeholders – purpose for

which capital will be used & risk of undertaking investment.
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 2) for outsiders – to know with certainty objects of co. & any
contracts they are entering into is within the objects of the Co.
DEFINITION

As per section 2(56) “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 law
or of this Act.
SECTION 4 of CA 2013 prescribes very clearly what should
be the form & content of MoA.
CONTENTS OF MoA
As per section 4 (1) an MoA must contain the
following clauses.
Name Clause
Registered office Clause
Object Clause
Capital Clause
Liability Clause
Subscription Clause / Association Clause
5 Nomination Clause - OPC
 NAME CLAUSE
S.4 (1)(a)

A co. has to have a name to establish its identity.

Symbol of existence.

Public Co – ltd
Private Co. – Pvt. Limited
OPC - OPC

Acc. To S. 4(2) – name stated in MoA shall not

- be identical/resemble/similar to an existing Co. registered
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under 2013 or previous act.
 - if use of name – 1) will constitute an offence under any law in
in force.
2) is undesirable in the opinion of central govt.

EWING v. Buttercup Margarine Co. ltd.

The plaintiff carried on business under the name of Buttercup Dairy

Co. obtained an injunction against defendant who registered the
company with the name buttercup margarine co. ltd. on the
grounds that public might think that the two businesses were linked.

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 In the case Mahendra and Mahendra
Paper Mills Ltd. v. Mahindra and Mahindra Ltd., the Supreme Court
decided in 2001 that the name “Mahendra & Mahendra” infringed
the earlier business name “Mahindra” which had been in use for
over five decades and had acquired distinctiveness and a secondary
meaning as a result, basing this on phonetic similarity.

CADILA HEALTHCARE LIMITED V. CADILA

PHARMACEUTICALS LIMITED (falcitab & falcigo)

8 ADD A FOOTER MM.DD.20XX

 S.4 (3) – Company cannot register a name which contains:
- Any word/expression likely to give impression that the
company is connected to the CG/ST.G or local authority under
CG/ST.G

- Any word /expression that requires previous approval of CG.

Section 4(4) read with 2014 rules prescribes form of application for
registration of proposed name or proposed changes in its existing
name.

Additional power has been given to the CG to ask company to rectify

its name.
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Rule 8(1) provides that before granting any name, it will be examined
whether name is identical with name of any other company/LLP or any
other name already allowed to a company/LLP.

According to Rule 8(2) (a), the Name shall be considered undesirable, if

(i) It attracts the provisions of S.3 of the Emblems and Names (Prevention
and Improper Use) Act, 1950.
(ii) It includes the name of a registered trade mark or a trade mark which is
subject of an application for registration, unless the consent of the
owner or applicant for registration, of the trade mark, as the case may
be, has been obtained and produced by the promoters, and
(iii) it includes any word or words which are offensive to any section of the
people.
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When an application for name is given to RoC if approved the name
shall be reserved for a period of 60 days.

If a company is changing its name it has to inform RoC within 15 days
of such change.

According to Rule 8(7), for the Companies under section 8 of the Act,
the name shall include the words foundation, Forum, Association,
Federation, Chambers, Confederation, council, Electoral trust and the
like etc. – principle of ejusdem generis shall apply.

Every company incorporated as a “Nidhi” shall have the last words

‘Nidhi Limited’ as part of its name.
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 Publication of Name The name of the company and the address of its
registered office must be painted or displayed outside every office or
place at which its business is carried on, in a conspicuous position and in
legible letters in English and in the language in general use in that locality.

 where a company has changed its name or names during the last two
years, it shall display along with its name, the former name or names so
changed during the last two years.

 Along with the name the following details also have to be displayed:
-CIN
-Address
- telephone no. / fax / email / website etc.
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REGISTERED OFFICE CLAUSE
 S.4(1) (b) of 2013 Act – provides that MoA must contain the name of the
state in which the registered office of the company is to be situated.

 Exact address is not the necessary requirement – but within 15 days of

incorporation intimation to RoC of registered office address has to be
made – to which letters and notices may be sent. (s12) & within 30 days
verification of registered office must be done.

Provisions: Section 12, 13 of Companies Act, 2013

Rule 25, 27, 28, 30, 31 Companies (Incorporation) Rules, 2014

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 OBJECT CLAUSE
The third compulsory clause in the memorandum sets out the objects
for which the company has been formed.

Under section 4(1)(c) of the Act, all companies must state in their
memorandum the objects for which the company is proposed to be
incorporated and any matter considered necessary in furtherance
thereof.

Acts beyond the ambit of objects clause are ultra vires and hence
void.
Even the entire body of shareholders cannot ratify such acts.
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 Although express powers are necessary, a company may do anything
which is incidental to and consequential upon the powers specified –
such acts will not be ultra vires.

 Attorney General v. G.E. Rly. Co., (1880) 5 A.C. 473

Thus, a trading company has an implied power to borrow money, draw
and accept bills of exchange in the ordinary form.

Cotman v. Brougham 1918 AC 514,

MoA’s purpose is ‘to enable the shareholders, creditors and those dealing
with the company to know what is the permitted range of the enterprise;
& the objects clause or clauses in the memorandum are to be so
construed as to confer on the company all powers reasonably required to
the attainment of the objects.’
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 Doctrine of Ultravires
In the case of a company whatever is not stated in the memorandum
as the objects or powers is prohibited by the doctrine of ultra vires.

The general rule is that an act which is ultra vires the company is
incapable of ratification. An act which is intra vires the company but
outside the authority of the directors may be ratified by the company
in proper form [Rajendra Nath Dutta v. Shilendra Nath Mukherjee,
(1982) 52 Com Cases 293 (Cal.)].
Ashbury Railway carriage & iron Co v. Riche
The company was established to make and sell or lend or hire railway plants …. And
to carry out business of mechanical engineers and general contractors….
In this case the company entered into a contract with riche a firm of railway
contractors to finance construction of a railway line…
Effects of an ultravires contract

• Void ab initio – The ultra vires acts are null and void ab initio. The company is not bound by
these acts. Even the company cannot sue or be sued upon [Ashbury Railway Carriage and
Iron Company v. Riche ].
Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of
estoppel or ratification.

• Injunction: The members can get an injunction to restrain a company wherein ultra vires act
has been or is about to be undertaken [Attorney General v. Gr. Eastern Rly. Co., (1880) 5 A.C.
473].

• Personal liability of Directors:

Jehangir R. Modi v. Shamji Ladha, [(1866-67) 4 Bom. HCR (1855)], the Bombay High Court held,
“A shareholder can maintain an action against the directors to compel them to restore to the
company the funds of the company that have by them been employed in transactions that they
have no authority to enter into, without making the company a party to the suit”.
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In case of deliberate misapplication, criminal action can also be taken for fraud.
 Where a company’s money has been used ultra vires to acquire some property,
the company’s right over such property is held secure and the company will be
the right party to protect the property. This is because, though the property has
been acquired for some ultra vires object, it represents the money of the
company.

Ultra vires borrowing does not create the relationship of creditor and debtor [In
Re. Madras Native Permanent Fund Ltd., (1931) 1 Com Cases 256 (Mad.)].

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LIABILITY CLAUSE
 Section 4 sub-section 1(d) of the Act, states that the liability of members of the company is to
be specifically mentioned in the MoA.

 It is provided that the liability of member may either be limited or unlimited, further it shall
also state that,—

 (i) in the case of a company limited by shares, the liability of its members is limited to the
amount unpaid, &,
 (ii) in the case of a company limited by guarantee, the amount up to which each member
undertakes to contribute

A) to the assets of the company in the event of winding up when he is a member/

within one year after he ceases to be a member, for payment of the debts and liabilities of
the company or of such debts and liabilities as may have been contracted before he ceases
to be a member, as the case may be; &
21B) to the costs, charges and expenses of winding-up and for adjustment of the rights of

the contributories among themselves;

CAPITAL CLAUSE:

S.4(1)(f) - This clause shall state the amount of the capital with which the company is registered.
The shares into which the capital is divided must be of fixed value, which is commonly known
as the nominal value of the share.

The amount of nominal capital is determined having regard to the present as well as future
requirements of the company with reference to its objects.

FOR EG. The usual way to state the capital in the memorandum is: “The capital of the company
is `10,00,000 divided into 1,00,000 equity shares of `10 each”.
This amount lays down the maximum limit beyond which the company cannot issue shares
without altering the memorandum as provided by Section 61 of the Companies Act, 2013.

The number of shares each subscriber to the MoA intends to take must also be mentioned .

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SUBSCRIPTION CLAUSE
The subscribers to the memorandum declare:

“We, the several persons whose names and addresses are subscribed below,
are desirous of being formed into a company in pursuance of this
memorandum of association, and we respectively agree to take the number of
shares in the capital of the company set opposite our respective names”.

Then follows the names, addresses, description, occupations of the subscribers,

and the number of shares each subscriber has agreed to take and their
signatures attested by a witness.
The statutory requirements regarding subscription of memorandum are that: •
each subscriber must take at least one share; • each subscriber must write
opposite his name the number of shares which he agrees to take. [Section 4(1)
(e))]
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 ARTICLES OF ASSOCIATION
According to Section 2(5) of the Companies Act, 2013, ‘articles’
means the articles of association of a company as originally
framed or as altered from time to time or applied in pursuance
of any previous company law or of this Act

#The articles play a very important role in the affairs of a company.

#It deals with the rights of the members of the company inter se.

#They are subordinate to and are controlled by the memorandum of

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association.
The general functions of the articles have been aptly summed up by Lord Cairns, L.C. In
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1875) L.R. 7 H.L. 653 as follows:

“The articles play a part that is subsidiary to the memorandum of association. They accept the
memorandum of association as the charter of incorporation of the company, and so accepting
it, the articles proceed to define the duties, rights and powers of the governing body as
between themselves and the company at large, and the mode and form in which 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... The memorandum, is as it
were... the area beyond which the action of the company cannot go; inside that area
shareholders may make such regulations for the governance of the company as they think fit”.
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 All kinds of companies are required to file articles of association along with MOA with
ROC.

 Content of Articles – provided under Section 5

 Generally should contain the following
# Adoption of preliminary contracts
# number and value of shares
# issue of preference shares
# Allotment of shares
# Call on shares
# Transfer & transmission of shares
# Nomination
# Voting rights
# directors and their appointment
# audit committee
# Borrowing powers
# winding up procedure
27 #etc.
 Alteration of Articles of Association:

A company has statutory right to alter its articles (S.14)

Certain conditions:

1. Only a Resolution of the shareholders of the company can make alteration of Articles.
2. No alteration of articles will be allowed which will violate the provisions of the
companies act or general law or MOA.
3. Alteration must not be a fraud on minority.
4. Must be in bona-fide interest of the company.
5. AOA may be altered retrospectively.

A new copy of altered AOA must be given to ROC.

Section 5 (3) states entrenchment as “the articles may contain provisions for entrenchment to the effect that
specified provisions of the articles may be altered only if the conditions or procedures as that are more
28 restrictive than those applicable in the case of special resolution are met or complied with.
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 MOA AOA
1) Fundamental doc. Internal regulation

2) Dominant instrument Subordinate instrument

3) S. 13 alteration of object clause & Article 14 – simple and spl. Resolution

registered office cannot be done with for alteration.
out spl. Resolution & CG approval.
4) Acts contravening - void Can be ratified by share holders

Both public documents – and plea of ignorance cannot be raised.

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DOCTRINE OF CONSTRUCTIVE NOTICE
PROTECTS COMPANY FROM OUTSIDERS

KOTLA VENKATA SWAMY v. RAMMURTHY (1934)

In this case the AOA provided that all the documents should be
signed by the MD, secretary and one working director on behalf of
the company.

A deed of mortgage was executed by the secretary and the working

director only.

void
• Protects company from outsiders
• MoA & AoA of the company are public documents
therefore any person who deals with the company are
presumed to have read and understood the same.

• No plea of ignorance of AoA and MoA

• Unreal doctrine – rule has been diluted – outsiders

deal in good faith with persons having ostensible
authority – co. is held liable
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 DOCTRINE OF INDOOR MANAGEMENT

Turquand Rule – protects outsiders from company

Royal british bank v. turquand

Outsiders are bound to know the external position of the company not its
indoor management.

Exceptions
• Knowledge of internal regularities of the company
• Acts void ab –initio
• Acts outside apparent authority
• Negligence of outsider