MOA and AOA

Memorandum of Association and
Articles of Association
Prepared by Dr. Seema H.
Kadam,Associate Prof.,TMES-
MBA,GTU

Memorandum of Association
 Memorandum of Association is the main document of
the company, which defines its constitution and objects
and lays down the fundamental conditions upon which
alone the company is allowed to be formed.
 It is correctly termed as the charter of the constitution of
the company as he defines the scope of its activity and
also states that anything beyond it is unauthorized and
illegal.
 According to Section 2(28) of the Companies Act,
Memorandum of Association is defined as
"Memorandum of Association as originally framed or as
altered from time to time in pursuance of any previous
Companies Law or of this Act."
MBA,GTU

Contd..
 Memorandum of Association is a public document
binding on the company and the members specifying the
scope of the activities of the company and also anything
beyond which is illegal or unauthorized.
 The memorandum shall be one of the forms given in
Tables B, C, D, and E in schedule 1 of the Act.
 The Memorandum of Association must be printed,
divided into paragraphs, numbered consecutively and
signed by each subscriber (seven or more in case of a
public company), who must add his name, address and
description in the presence of at least one witness who is
to attest the signature.
MBA,GTU

Clauses of Memorandum of Association
 Memorandum of Association must have the
following clauses:
 Name clause.
 Registered office or Situation clause.
 Object clause.
 Liability clause.
 Capital clause.
 Subscription clause.
MBA,GTU

Name Clause
 The Company is a legal entity. Therefore, it must have
its name to establish its identity.
 The name of the company should not be similar to the
name of the another company nor in the opinion of
Central Government be undesirable or which will
mislead the public and its use has been, therefore,
prohibited by the Government under the Emblems and
Names (Prevention of Improper Use) Act, 1950.
 The company's name must display prominently the
suffix 'Ltd.' Or ‘Pvt. Ltd.'
 The company can change its name by passing a special
resolution and obtaining the approval of the Central
Government. Prepared by Dr. Seema H.
MBA,GTU

Registered Office Clause
 Memorandum of Association must state the name of the
State in which the registered office of the company is
situated.
 This clause is important as it mentions the residence for
the purpose of the communication with the company.
 It determines the jurisdiction of the company and also
mentions the place where all the records of company are
maintained.
 Where the company wants to change its registered office
from one state to another then it can do so by passing a
special resolution as well as by confirmation of
Company Law Board. Such confirmation will be given
provided debenture holders and creditors are satisfied
and such alteration is fair.
MBA,GTU

Object Clause
 It is the most important clause in the Memorandum of Association.
It defines and limits the scope and sphere of the operation of the
company.
 It explains to the members the scope of activities of the company. It
affords protection of its funds.
 It states the main objects as well as incidental objects of the
company. The transaction which does not fall within the scope of
the main objects of the company will not be valid and binding on
the company simply because it is not beneficial for the company.
 As regards to the alteration of object clause a special resolution
must be passed and the confirmation by the Company Law Board
must also be obtained.
 The alteration is done to obtain a main purpose by new means or to
enlarge the area of its operation, or to restrict the objects or sell or
dispose of or amalgamate the undertaking.Prepared by Dr. Seema H.
MBA,GTU

Liability Clause
 The liability clause states that the member or the
shareholder will be liable to pay only the unpaid
value of shares held by him.
 If it is a company limited by guarantee,
Memorandum of Association must further state
that each member undertakes to contribute to the
assets of the company at the time of the winding
up while he is a member.
 Ordinarily this clause cannot be altered except
that the liability of the directors may be made
unlimited under certain circumstances.Prepared by Dr. Seema H.
MBA,GTU

Capital Clause
 Amount of share capital with which the
company is to be registered and its division into
shares of a fixed amount must be stated in the
Memorandum of Association of a company
limited by shares.
 Capital clause can be varied or capital can be
reduced (by special procedure) or the rights of
the shareholders are varied or create 'reserve
liability.'
MBA,GTU

Subscription Clause
 Maximum seven members in a public company
and two members in a private company are
shown in a Memorandum. A declaration is to be
given.
 Such declaration is to be signed by a member in
presence of a witness.
 The details as regards to name, address, age, and
business of the promoters are also recorded
under this clause.
MBA,GTU

Doctrine of ultra vires
 A company has power to do all such things as are-
1. Authorized to be done by the Companies Act, 1956;
2. Essential to the attainment of its objects specified in the
Memorandum;
3. Reasonably and fairly incidental to its objects.
Everything else is ultra vires. The term ultra vires for a
company means that the doing of the act is beyond the legal
power and authority of the company.
 The purpose of this restriction is to protect-
1. Investors in the company so that they may
know the objects in which their money is to be employed;
2. Creditors by ensuring that the company’s funds are not
wasted in unauthorized activities.
MBA,GTU

Contd..
 Ultra vires act is void-If an act is ultra vires the company, it
does not create any legal relationship.
 Ultra vires is absolutely void and even the whole body of
shareholders cannot ratify it and make it binding on the
company.
 It is not necessary acts in ultra vires are illegal.
 Case: Ashbury Rly. Carriage & Iron Co. Ltd. V. Riche, (1875)
L.R.7 H.L.653. A company was incorporated with the
following objects:
a) To make, sell, or lend on hire, railway carriages and
wagons;
b) To carry on the business of mechanical engineers and
general contractors;
c) To purchase, lease, work, and sell mines, minerals, land and
buildings.
MBA,GTU

Contd..
 The company entered into a contract with Riche for the
financing of the construction of a railway line in
Belgium. The question raised was whether that contract
was covered within the meaning of ‘general
contractors’. The House of Lords held that the contract
was ultra vires the company and void so that not even
the subsequent assent of the whole body of shareholders
could ratify it.
MBA,GTU

Contd..
 The main feature of Doctrine of ultra vires is that a
company being a corporate person should not be fined or
punished for its own acts or acts of its agents, if that are
beyond its powers and privileges.
 Case: National Telephone Co. v. St. Peter Port
Constables, (1900) A.C. 317- A telephone company put
up telephone wires in a certain area. The company had
no power in the Memorandum to put wires there. The
defendants cut them down. Held, the company could sue
for damages to the wires.
 Ultra vires the directors.
 Ultra vires the Articles.
MBA,GTU

ARTICLES OF ASSOCIATION (AOA)
 The Articles of Association of a company contains the
various rules and regulations for the day to day
management of the company. These rules are also called
the bye-laws.
 It covers various rights and powers of its members,
duties of the management and the manner in which they
can be changed.
 It defines the relationship between the company and its
members and also among the members themselves.
 The rules given in the AOA must be in conformity with
the Memorandum of Association.
MBA,GTU

Contd..
 Articles of Association of a company generally contain
rules and regulations with regard to the following
matters:
1. Preliminary contracts
2. Use and custody of common seal
3. Allotment, calls and lien on shares
4. Transfer and transmission of shares
5. Forfeiture and re-issue of shares
6. Alteration of share capital
7. Issue of share certificates and share warrants
MBA,GTU

Contd..
8. Conversion of shares into stock
9. Procedure of holding and conducting company
meetings
10. Voting rights and proxies of members
11. Qualification, appointment, remuneration and power
of Directors
12. Borrowing powers and methods of raising loans
13. Payment of dividends and creation of reserves
14. Accounts and audit
15. Winding up.
MBA,GTU

Contd..
 A company can register its own Articles of Association
or adopt Table A, which contains a model set of rules as
given in the Schedule I of the Companies Act.
 Regulations Required in case of an unlimited company,
a company limited by guarantee and a private company-
a) Unlimited company- no. of members and amount of
share capital
b) Company limited by guarantee-no. of members
c) Private company- restrict the transfer of share, limit the
no. of members to 50, prohibit any invitation to the
public to subscribe for any shares in, or debentures of,
the company.
MBA,GTU

Contd..
 Procedure of alteration: A company may, by passing a
special resolution, alter its Articles any time. A copy of every
special resolution altering the articles shall be filed with the
Registrar within 30 days of its passing.
 Limitations to alteration-
1. Must not be consistent with the Act.
2. Must not conflict with Memorandum.
3. Must not sanction anything illegal.
4. Must be for the benefit of the company.
5. Must not increase liability of members.
6. Alteration by special resolution only
7. Approval of central government when public company is
converted to private.
8. Breach of contract
MBA,GTU

Legal effect of Memorandum and Articles
 Memorandum and Articles when registered , bind a
company and the members thereof to the same extent as
if they had been signed by the company and each other.
Extent to which this document bind-
1. Members to the company.
2. Company to the members.
3. Members inter se
4. Company to the outsider.
MBA,GTU

Constructive notice of
Memorandum and Articles
 Office of registrar is a public office.
 Presumption that the outsiders has
read Memorandum and Article.
MBA,GTU

Doctrine of Indoor
Management
 There is limitation to the doctrine of the Memorandum
and the Articles of a company. The outsiders dealing
with the company are entitled to assume that as far as
the internal proceedings of the company are concerned,
everything has been regularly done.
 Case: Royal British bank v. Turquand- The directors of
a company had issued a bond to T.They had the power
under the Articles to issue bond provided they were
authorized by a resolution passed by the shareholders at
a general meeting of the company. No such required
resolution was passed by the company. Held, T could
recover the resolution had been passed.
MBA,GTU

Exceptions to doctrine of indoor management
 Knowledge of irregularity.
 Negligence.
 Forgery.
 Acts outside the scope of apparent
authority.
MBA,GTU

MBA,GTU

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