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6 Clauses of the Memorandum of Association

6 Clauses of the Memorandum of Association

6 Clauses of the Memorandum of Association : Memorandum of association must have the following clauses:

6 Clauses of the Memorandum of Association

6 Clauses of the Memorandum of Association

6 Clauses of the Memorandum of Association

Name Clause

Situation Clause

Objects Clause

Liability Clauses

Capital Clause

Association Clause

6 Clauses of the Memorandum of Association

1. Name Clause:

A Company is a legal entity. So, it must have a name to establish its identity. Name Clause in the Memorandum of Association confers protection against subsequent company registration in the same or closely similar name. It secures to the company de facto monopoly of corporate trading under a particular name. A company may have any name except:

(a) A name which is identical with or which closely resembles the name of another company so as to deceive or mislead the prospective customer of one, trading with the other.

(b) A name, which in the opinion of the Central Government is undesirable or 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. (Sec. 20)

(c) The last word of the name must be ‘limited’ in the case of companies with the limited liability and ‘private limited’ in the case of private limited companies. It is not necessary that the word ‘company’ should form part of the name. [Sec. 13 (1)]

The name of every company together with the address of its Registered Office must be painted or affixed outside the premises wherever its business is carried on, in a conspicuous position, in letters easily legible in one of the local languages. [Sec. 147 (1) (a)]

The name of the company including the registered office must also be mentioned in all letters, negotiable instruments, orders, receipts and other documents written or executed by the company. [Sec. 147 (c)]

Every company must have its name together with the address of its Registered Office engraved on its seal and have it mentioned on all official papers and publications. [Sec. 147 (b)]

In case a company fails to observe the provisions of Section 147, it may have very serious consequences for its officers. For example, an officer signing, on behalf of the company, any bill of exchange, promissory note or cheque on which name of the company does not appear as per the above provisions, shall be personally responsible to the holder of such an instrument in case the company fails to make payment. Besides that, he can also be subject to a fine which may extend up to Rs. 5,000.

2. Situation Clause:

Memorandum of Association must state the name of the State in which the registered office of the company is to be situated. It will fix up the domicile of the company. Address of the registered office of the company need not be mentioned in the Memorandum of Association.

But, every company must have a registered office either from the day it begins to carry on business or within 30 days of its incorporation, whichever is earlier.

Registered office of a company is the place of its residence for the purposes of delivering or addressing any communication, service of any notice or process of Court of Law and for determining the question of jurisdiction in any action against the company. It is the place where all the statutory books, records and registers of the company shall be maintained.

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3. Objects Clause:

It is the most important clause in the Memorandum of Association. It defines and limits the scope of operations of the company. It explains to the members the scope of activity of the company where their capital will be employed. It gives protection to the shareholders by ensuring that the funds raised for specified businesses are not going to be risked in another.

The outside public dealing with the company is informed of the extent of the powers of the company. A company can exercise only such powers as are either expressly stated therein or as May fairly be implied there from, including matters incidental or consequential to the powers so conferred.

The words “incidental or consequential to the powers so conferred” do not add any more to the objects of the company, but covers operations of a similar nature to the business specified. The objects clause must be constructed independently of each other so as to give full effect to each one of them.

A transaction which cannot reasonably be regarded as arising from the main objects of the company will not become valid and binding upon the company only because it is for the benefit of the company.

Several decided cases have clearly established that if the main purpose of the company has either been achieved or cannot be achieved because of impossibility, the company may be wound up.

The company shall not be allowed to continue in existence merely because the secondary objects are still possible, unless the Memorandum provides that the several objects are to be constructed as independent objects.

The objects of the company must be lawful and well defined. The objects must not be against the provisions of the Companies Act. The memorandum should state the objects of the company and not its powers.

According to Section 13(1) the Memorandum of Association of a company must state the following:

  1. In case of a company in existence immediately before the commencement of the Companies (Amendment) Act, 1956 the objects of the company;
  2. In the case of a company formed after such commencement –

(i) Main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects;

(ii) Other objects of the company not included in sub-clause (i).

The Act also requires non-trading companies, with objects not confined to one State, to mention the names of those States to whose territories the objects of the company will extend. [Sec. 13(1) (e)]

4. Liability Clauses:

Liability clause mentions the liability of members of the company- In case of a company limited by shares, Memorandum of Association must have a clause to the effect that the liability of the members is limited to the extent of the amount of the unpaid portion of the shares held by him.

The Memorandum of Association a company limited by guarantee must state the amount which each member undertakes to contribute to the assets of the company in the event of its being wound up. [Sec. 13 (2)]

In a limited company, however, the liability of the directors or any director or manager may be unlimited, if so provided by the memorandum. (Sec. 322)

Also Read: Now you can e-Verify already uploaded Income Tax Return

5. Capital Clause:

Memorandum of Association of a limited company having share capital (i.e. company limited by shares or company limited by guarantee having share capital) must also state the amount of share capital with which the company is to be registered which is usually called authorized or nominal capital.

Further, division of registered share capital into shares of a fixed amount is also required to be given in the memorandum. Each subscriber must take at least one share and write opposite his name the number of shares he takes.

6. Association Clause:

This clause states that the persons subscribing their signatures at the end of the Memorandum are desirous of forming themselves into an association in pursuance of the Memorandum.

Memorandum of Association must be signed by seven or more persons in the case of a public company and by two or more persons in the case of a private company. Signatures shall be attested by witnesses.

There may be one witness for all signatures but one subscriber cannot be a witness to the signatures of another. Full description, address, occupation, etc. of the subscribers and witnesses must be written.

In the case of a company having share capital, each subscriber is also required to take at least one share and to write opposite his name the number of shares he agrees to take. Subscribers are required to pay for these shares after the company is incorporated. They must also sign articles of association of the company.

It is not necessary that all signatories should have any personal beneficial interest in the shares subscribed for by them. They need not be independent or unconnected.

All of them may be nominees of a single person and their subscribing names may be merely a formality. Subscribers to the Memorandum should, however, be competent to contract.

A minor or a partnership firm cannot be a subscriber to the Memorandum. A company may be a subscriber of another company. No subscriber can withdraw his name on any ground whatsoever once a company has been incorporated even on the ground that he/she was induced to sign the memorandum by misrepresentation.

Recommended Read: Procedure for Appointment of Auditor under Companies Act- 2013

 6 Clauses of the Memorandum of Association
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