What is Memorandum of Association? What is its importance? What are its contents? Or “Memorandum of Associations the first step in the formation of a company”. Examine its importance.
Ans. Memorandum of Association-Definition.- Section 2 (56) says, “Memorandum” means 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. The Memorandum of Association of a company is its charter and defines the limitation of the powers of the company, established under the Act”. Lord Cairns states in the case of Ashbury Railway Company y. Riche: “Memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated.” Importance.- Every company incorporated under the Act generally has two documents concerning it, the ‘Memorandum of Association’, and the ‘Articles of Association’. A memorandum of association is a document which sets out the constitution of a company. It is the foundation of which the whole structure of the company is built up. It informs members, creditors and all other persons dealing with the company as to its name, purpose, its capital, its form (public or private) its liability and its nationality (in case of a foreign company). The memorandum regulates the company’s external affairs, to show a prima facie picture of the affairs of the company. Its contents.-Memorandum contains the following fundamental clauses:-
1. Name.- The first clause of the memorandum is required to state the name of the proposed company. A company being legal person, must have a name to establish its identity. If the liability of the members is limited, the last word of the name must be “Limited” and in the case of a private company. “Private Limited”. The name of the company must not be identical with or so nearly to resemble the name of another registered company as to be calculated to deceive.
2. Registered office.- The second clause of the memorandum must specify the State in which the Registered office of a company is to be situated. The exact location of the registered office must be intimated to Registrar within thirty days of incorporation or commencement of business whichever is less.
3. Objects.- In the third clause the memorandum must state the objects of a company, and except in the case of trading corporations, the State or States to whose territories the objects extend. The memorandum of a company limited by shares or not limited by shares should state clearly the principal and ancillary objects which the company intends at the time of its incorporation to pursue; and should also state all other objects which are separate from the principal and ancillary one.The memorandum must state that the company shall not engage itself in any activities within the scope of the objects other than the principal and ancillary ones, unless such activities are sanctioned by a special resolution of the company in a general meeting.
4. Limited liability clause.- The memorandum of a company limited by shares or the guarantee shall also state that the liability of its members is limited.
5. Guarantee on being wound up.- The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to assets of the company in the event of its being wound up while he is a member or within one year after he ceases to be a member.
6. Capital clause.- In case the company is limited by shares:-
(a) It shall state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount;
(b) The number of shares taken by each subscriber mentioned opposite to his name. (No subscriber shall take less than one share).