MOA

Memorandum of Association

MEMORANDUM OF ASSOCIATION

The Memorandum of Association is a document which sets out the constitution of the company and is therefore the foundation on which the structure of the company is based. It defines the scope of the company’s activities and its relations with the outside world.

Purpose of Memorandum
The purpose of the object clause in the memorandum is two-fold.

  • First, the intending shareholder before making investment in the company should know the field in, or the purpose for which it is going to be used and what risk he is taking in making the investment.
  • The second purpose is that anyone dealing with the company will know without doubt “what is the permitted range of activities of the company”.

 Content of Memorandum of Association
According to Section 4(1), the memorandum of a company shall state—

  1. the name of the company with the last word “Limited” in the case of a public limited company, or the last words “Private Limited” in the case of a private limited company (except in case of Section 8 Companies)
  2. the State in which the registered office of the company is to be situated;
  3. the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;
  4. the liability of members of the company, whether limited or unlimited, and also state,—
    • in the case of a company limited by shares, that liability of its members is limited to the amount unpaid, if any, on the shares held by them; and
    • in the case of a company limited by guarantee, the amount up to which each member undertakes to contribute—
      • to the 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, 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; and
      • to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;
  5. in the case of a company having a share capital,—
    • the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount and the number of shares which the subscribers to the memorandum agree to subscribe which shall not be less than one share; and
    • the number of shares each subscriber to the memorandum intends to take, indicated opposite his name;
  6. in the case of One Person Company, the name of the person who, in the event of death of the subscriber, shall become the member of the company

Form of MOA
According to Section 4(6), the memorandum of a company shall be in respective forms specified in

  • Tables A (for Company limited by shares),
  • Tables B (for Company limited by guarantee not having share capital)
  • Tables C (for Company limited by guarantee having share capital)
  • Tables D (for limited Company not having share capital)
  • Tables E (for limited Company having share capital)

in Schedule I as may be applicable to such company.

Clauses of MOA as per Section 4(1)

According to Section 4(1), the memorandum of a company shall have following clause:

  • Name Clause
  • Situation Clause
  • Objects Clause
  • Liability Clause
  • Capital Clause
  • Subscription Clause

Alteration of MOA

MOA may be altered

  • By changing its name [Sections 13(2)]
  • By altering it in regard to the State in which the registered office is to be situated [Section 13(4) & (7)]
  • By altering its objects [Section 13 (1) & (9)]
  • By altering its share capital (Section 61)

So here we have to deal with 2 Sections

  • Section 13 (related to alteration of name, situation and objects of company)
  • Section 61 (related to alteration of share capital of company)

General Provisions
According to Section 13(1),

  • a company may, by a special resolution and after complying with the procedure specified in this section, alter the provisions of its memorandum.
  • Thus for alteration of name, situation or objects of company, special resolution is required.

 According to Section 13(6),

  • a company shall, in relation to any alteration of its memorandum, file with the Registrar—
    1. the special resolution passed by the company;
    2. the approval of the Central Government, if the alteration involves any change in the name of the company.

According to Section 13(10),

  • no alteration made under section 13 shall have any effect until it has been registered in accordance with the provisions of this section.

Name Clause

Section 4(2) – Name not to be identical/offensive/undesirable

Section 4(3) – Company shall not be registered with certain names

Display and Publication of name and registered office of company [Section 12(3)]

Every company shall—

  • paint or affix its name, and the address of its registered office, and keep the same painted or affixed, on the outside of every office or place in which its business is carried on, in a visible position, in legible (readable) letters, and if the characters employed therefor are not those of the language or of one of the languages in general use in that locality, also in the characters of that language or of one of those languages;
  • have its name engraved in legible characters on its seal, if any;
  • get its name, address of its registered office and the Corporate Identity Number along with telephone number, fax number, if any, e-mail and website addresses, if any, printed in all its business letters, billheads, letter papers and in all its notices and other official publications; and
  • have its name printed on hundies, promissory notes, bills of exchange and such other documents as may be prescribed.

Provided that where a company has changed its name or names during the last two years, it shall paint or affix or print, as the case may be, along with its name, the former name or names so changed during the last two years as required under clauses (a) and (c).

Provided further that the words ‘‘One Person Company’’ shall be mentioned in brackets below the name of such company, wherever its name is printed, affixed or engraved.

Ministry of Corporate Affairs (MCA) has clarified that display of its name in English in addition to the display in the local language will be a sufficient compliance with the requirements of the section.

The MCA has also clarified that a share certificate is not an official publication of a company within the meaning of Section 147 of the Act [Corresponds to section 12 of the Companies Act, 2013] [Circular No. 3/73/8/10(147)/ 72-CC-V dated 3.2.1973].

Publication of Name by Company
(Rule 26 of Companies (Incorporation) Rules, 2014)

  1. Every company which has a website for conducting online business or otherwise, shall disclose/publish its name, address of its registered office, the Corporate Identity Number, Telephone number, fax number if any, email and the name of the person who may be contacted in case of any queries or grievances on the landing/home page of the said website.
  2. The Central Government may as and when required, notify the other documents on which the name of the company shall be printed.

 

Alteration of Name of Company

Special Resolution required to change name
According to Section 13(1),

  • a company may change its name by passing Special Resolution.

Approval of the Central Government
According to Section 13(2),

  • any change in the name of a company shall not have effect except with the approval of the Central Government (ROC) in writing (INC 24).
  • no such approval shall be necessary where the only change in the name of the company is the deletion therefrom, or addition thereto, of the word “Private”, consequent on the conversion of any one class of companies to another class in accordance with the provisions of this Act.

According to Section 13(3),
when any change in the name of a company is made under sub-section (2), the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name and the change in the name shall be complete and effective only on the issue of such a certificate.

Alteration of MOA by Change of Name
(Rule 29 of Companies (Incorporation) Rules, 2014)

The change of name shall not be allowed to a company which has defaulted in filing its annual returns or financial statements or any document due for filing with the Registrar or which has defaulted in repayment of matured deposits or debentures or interest on deposits or debentures.

Provided that the change of name shall be allowed upon filing necessary documents or payment or repayment of matured deposits or debentures or interest thereon as the case may be.

An application (to central government) shall be filed in Form No.INC.24 along with the fee for change in the name of the company and a new certificate of incorporation in Form No.INC.25 shall be issued to the company consequent upon change of name.

Change in name of the listed entity [Compliance as per Regulation 45 of SEBI (LODR) Regulation, 2015
The listed entity shall be allowed to change its name subject to compliance with the following conditions:

  • a time period of at least 1 year has elapsed from the last name change;
  • at least 50% of the total revenue in the preceding one year period has been accounted for by the new activity suggested by the new name; or
  • the amount invested in the new activity/project is atleast 50% of the assets of the listed entity

If any listed entity has changed its activities which are not reflected in its name, it shall change its name in line with its activities within a period of 6 months from the change of activities in compliance of provisions as applicable to change of name prescribed under Companies Act, 2013.

Rectification of name of company (Section 16)

Power of Central Government to order company for Rectification of name [Section 16(1)]
If, through inadvertence or otherwise, a company on its first registration or on its registration by a new name, is registered by a name which,—

  1. in the opinion of the Central Government (RD),
    • is identical with or too nearly resembles the name by which a company in existence had been previously registered,
      • CG may direct the company to change its name and
        • the company shall change its name
          • within a period of three (3) months from the issue of such direction, after adopting an ordinary resolution for the purpose;
  • on an application made to the Central Government within 3 years of incorporation or registration or change of name of the company, by a registered proprietor of a trade mark that
    • the name is identical with or too nearly resembles to a registered trade mark of such proprietor under the Trade Marks Act, 1999,
    • in the opinion of the Central Government,
      • is identical with or too nearly resembles to an existing trade mark,
        CG may direct the company to change its name and
          • the company shall change its name within a period of three (3) months from the issue of such direction, after adopting an ordinary resolution for the purpose.

Notice of rectification of name to ROC[Section 16(2)]
Where a company changes its name or obtains a new name under sub-section (1),

  • it shall within a period of fifteen (15) days from the date of such change,
    • give notice of the change to the Registrar along with the order of the Central Government, who shall carry out necessary changes in the certificate of incorporation and the memorandum.

Rule 33A of Incorporation Rules

Allotment of a new name to the existing company under section 16(3) of the Act

(1) In case a company fails to change its name or new name, as the case may be, in accordance with the direction issued under Section 16(1) of the Act within a period of 3 months from the date of issue of such direction, the letters “ORDNC” (which is an abbreviation of the words “Order of Regional Director Not Complied”), the year of passing of the direction, the serial number and the existing Corporate Identity Number (CIN) of the company shall become the new name of the company without any further act or deed by the company, and the Registrar shall accordingly make entry of the new name in the register of companies and issue a fresh certificate of incorporation in Form No.INC-11C.

(2) A company whose name has been changed under sub-rule (1) shall at once make necessary compliance with the provisions of section 12 of the Act and the statement, “Order of Regional Director Not Complied (under section 16 of the Companies Act, 2013)” shall be mentioned in brackets below the name of company, wherever its name is printed, affixed or engraved:

Provided that no such statement shall be required to be mentioned in case the company subsequently changes its name in accordance with the provisions of section 13 of the Act.

Punishment in case of default[Section 16(3)]
If a company is in default in complying with any direction given under sub-section (1), the Central Government shall allot a new name to the company in such manner as may be prescribed and the Registrar shall enter the new name in the register of companies in place of the old name and issue a fresh certificate of incorporation with the new name, which the company shall use thereafter:

Provided that nothing in this sub-section shall prevent a company from subsequently changing its name in accordance with the provisions of section 13.

EFFECT OF CHANGE

  • The change of name shall not affect any rights or obligations of the company or render defective any legal proceedings by or against it, and any legal proceedings which might have been continued or commenced by or against the company in its former name may be continued by or against the company in its new name.
  • Where a company changes its name and the new name has been registered by the Registrar, the commencing of legal proceedings in the former name is not valid [Malhati Tea Syndicate Ltd. v. Revenue Officer]
  • The courts have held that proceedings commenced by the company in its former name can be continued under its new name [Solvex Oils and Fertilizers v. Bhandari Cross-Fields (P) Ltd.]

Registered office of Company

Registered office means that office which is registered with ROC for the purpose of receiving and acknowledging all communications and notices as may be addressed to company. It may be different from the corporate address or head office of company.

 State clause in MOA
State clause is the second clause of MOA. According to Section 4(1), MOA of every company shall mention the state in the registered office of the company is situated.

It should be noted that we need not to mention the entire address of the registered office in the MOA. We have to tell the name of state only. For example if the registered office of company is situated in Haryana than in MOA we have to write a simple line:

“The registered office of the company is situated in the state of Haryana.”

Registered office of company within 30 days
It is not compulsory for a company to have registered office at the time of incorporation. According to Section 12(1) of Companies Act, 2013

  • a company shall within 30 days of its incorporation and at all times thereafter, have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

Verification of Registered office of company within 30 days
According to Section 12(2) of Companies Act, 2013

  • the company shall furnish to the Registrar verification of its registered office within a period of thirty (30) days of its incorporation in such manner as may be prescribed.

 

Verification of Registered Office
(Rule 25 of Companies (Incorporation) Rules, 2014)

  1. The verification of the registered office shall be filed in Form No.INC.22 along with the fee, and
  2. There shall be attached to said Form, any of the following documents, namely :-
    • the registered document of the title of the premises of the registered office in the name of the company; or
    • the notarized copy of lease or rent agreement in the name of the company along with a copy of rent paid receipt not older than one month;
    • the authorization from the owner or authorized occupant of the premises along with proof of ownership or occupancy authorization, to use the premises by the company as its registered office; and
    • the proof of evidence of any utility service like telephone, gas, electricity, etc. depicting the address of the premises in the name of the owner or occupant, as the case may be, which is not older than two months.
  1. According to Section 12(9), if the Registrar has reasonable cause to believe that the company is not carrying on any business or operations, he may cause a physical verification of the registered office of the company in such manner as may be prescribed and if any default is found to be made in complying with the requirements of sub-section (1) initiate action for the removal of the name of the company from the register of companies.

Alteration in of Situation of Registered office of Company

There may be 4 cases in case of alteration of situation of registered office of company

  • shifting of registered office within the local limits of same city, town or village
  • shifting of registered office from one city, town or village to another city, town or village within same state
  • shifting of registered office from jurisdiction of one ROC to the jurisdiction of another ROC with in same state
  • shifting of registered office from one state to another state

Shifting of registered office within the local limits of same city, town or village

[No alteration of MOA – Only board resolution is required + Form No. INC 22 to ROC]

A company may change it registered office within the local limits of any city, town or village where such office is situated

  • without passing special resolution
  • without taking any approval from any authority like ROC, RD, MCA or CG.

It means company has to pass only board resolution in this regard.
Company shall verify the new address of registered office of company to ROC in Form No. INC 22 as per Rule 25 of Companies (Incorporation) Rules, 2014.

Shifting of RO from one city, town or village to another city, town etc. within same state

[No alteration of MOA – Board Resolution + Special Resolution is required + Form No. INC 22 to ROC (notification of change in the situation of registered office) + Form No. MGT 14 to ROC (filing of Special Resolution with ROC u/s 117)]

According to Section 12(5) of Companies Act, 2013, a company may change it registered office outside the local limits of any city, town or village where such office is situated only by

  • passing special resolution in this regard
  • without taking any approval from any authority like ROC, RD, MCA or CG.

Company shall verify the new address of registered office of company to ROC in Form No.INC 22 as per Rule 25 of Companies (Incorporation) Rules, 2014.

Further, company shall file Special Resolution with ROC in Form No. MGT 14 to ROC as per Section 117 of Companies Act, 2013

Shifting of RO from jurisdiction of one ROC to the jurisdiction of another ROC with in same state

No alteration of MOA – Board Resolution + Special Resolution + Form No. INC. 23 (Approval of Regional Director) + Form No. INC 22 to ROC (notification of change in the situation of registered office) + Form NO. MGT 14 to ROC (filing of Special Resolution with ROC u/s 117)] + Form No. INC. 28 (Intimation of Approval of Regional Director to ROC)

This case is applicable only if there are 2 or more ROC in any state. For example

  • there are 2 ROC in the state of Maharashtra (one in Mumbai and another in Pune)
  • there are 2 ROC in the state of Tamil Nadu (one in Chennai and another in Coimbatore)

As stated above, according to Section 12(5) of Companies Act, 2013,

  • a company may change it registered office outside the local limits of any city, town or village where such office is situated only by passing special resolution in this regard

Further, according to the proviso to Section 12(5),

  • no company shall change the place of its registered office from the jurisdiction of one Registrar to the jurisdiction of another Registrar within the same State unless such change is confirmed by the Regional Director (INC 23).

According to Section 12(6) of Companies Act, 2013,

  • RD shall communicate the confirmation to the company within a period of thirty days from the date of receipt of application by the Regional Director and
  • the company shall file the confirmation with the Registrar within a period of sixty days of the date of confirmation who shall register the same and certify the registration within a period of thirty days from the date of filing of such confirmation.

According to Section 12(7) of Companies Act, 2013,

  • the certificate of ROC shall be conclusive evidence that all the requirements of this Act with respect to change of registered office have been complied with and the change shall take effect from the date of the certificate.

Shifting of Registered Office within the same State
(Rule 28 of Companies (Incorporation) Rules, 2014)

An application seeking confirmation from the Regional Director for shifting the registered office within the same State from the jurisdiction of one Registrar of Companies to the jurisdiction of another Registrar of Companies, shall be filed by the company with the Regional Director in Form No.lNC.23 along with the fee and following documents,-

  •  Board Resolution for shifting of registered office;
  • Special Resolution of the members of the company approving the shifting of registered office;
  • a declaration given by the Key Managerial Personnel or any two directors authorised by the Board, that the company has not defaulted in payment of dues to its workmen and has either the consent of its creditors for the  proposed shifting or has made necessary provision for the payment thereof ;
  • a declaration not to seek change in the jurisdiction of the Court where cases for prosecution are pending;
  • acknowledged copy of intimation to the Chief Secretary of the state as to the proposed shifting and that the employees interest is not adversely affected consequent to proposed shifting”.

The Regional Director shall examine the application and the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within 15 days of the receipt of application complete in all respects.

The certified copy of order of the Regional Director, approving the alternation of memorandum for transfer of registered office company within the same State, shall be filed in Form No.INC-28 along with fee with the Registrar of State within 30 days from the date of receipt of certified copy of the order.

Further, company shall

  • verify the new address of registered office of company to ROC in Form No.INC 22 as per Rule 25 and 27 of Companies (Incorporation) Rules, 2014.
  • file Special Resolution with ROC in Form No. MGT 14 to ROC as per Section 117 of Companies Act, 2013

Penalty in case of Default in complying with the requirements of Section 12

 According to Section 12(8) of Companies Act, 2013, if any default is made in complying with the requirements of Section 12, the company and every officer who is in default shall be liable to a penalty of

  • Rs. 1000 for every day during which the default continues but not exceeding one lakh rupees.

Shifting of registered office from one state to another state

Alteration of MOA – Board Resolution + Special Resolution + Form No. INC. 23 (Approval of Central Government) + Form No.INC.26 (advertisement of application) + Form No. INC 22 to ROC (notification of change in the situation of registered office) + Form NO. MGT 14 to ROC (filing of Special Resolution with ROC u/s 117) + Form No. INC. 28 (Intimation of Approval of Regional Director to ROC)

 

According to Section 13(4) of Companies Act, 2013,

  • the alteration of the memorandum relating to the place of the registered office from one State to another shall not have any effect unless it is approved by the Central Government (RD) on an application in such form and manner as may be prescribed.

Section 13(5) of Companies Act, 2013
The Central Government shall

  • dispose of the application under sub-section (4) within a period of sixty days and
  • before passing its order may satisfy itself that
    • the alteration has the consent of the creditors, debenture-holders and other persons concerned with the company or
    • the sufficient provision has been made by the company
      • either for the due discharge of all its debts and obligations or
      • that adequate security has been provided for such discharge.

Shifting of Registered Office from One State or Union Territory to another State
(Rule 30 of Companies (Incorporation) Rules, 2014)

Documents to be attached with application in Form INC 23
An application under section 13(4), for the purpose of seeking approval for alteration of memorandum with regard to the change of place of the registered office from one State Government or Union territory to  another, shall be filed with the Central Government in Form No. lNC.23 along with the fee and shall be accompanied by the following documents, namely:-

  • a copy of Memorandum of Association, with proposed alterations;
  • a copy of the minutes of the general meeting at which the resolution authorising such alteration was passed, giving details of the number of votes cast in favour or against the resolution;

a copy of Board Resolution or Power of  Attorney or the executed vakalatnama, as the case may be

List of creditors and debenture holders with application
There shall be attached to the application, a list of creditors and debenture holders, drawn up to the latest practicable date preceding the date of filing of application by not more than 1 month, setting forth the following details, namely:-

  • the names and address of every creditor and debenture holder of the company;
  • the nature and respective amounts due to them in respect of debts, claims or liabilities:

Affidavit from CS and 2 Directors (1 shall be MD if any)
The list of creditors and debenture holders, accompanied by declaration signed by the Company Secretary of the company, if any, and not less than 2 directors of the company, one of whom shall be a managing director, where there is one, stating that

  1. they have made a full enquiry into the affairs of the company and, having done so, have concluded that the list of creditors are correct, and that the estimated value as given in the list of the debts or claims payable on a contingency or not ascertained are proper estimates of the values of such debts and claims and that there are no other debts of or claims against the company to their knowledge, and
  2. no employee shall be retrenched as a consequence of shifting of the registered office from one state to another state and also there shall be an application filed by the company to the Chief Secretary of the concerned State Government or the Union territory.

List of creditors shall be kept at the RO of the company
A duly authenticated copy of the list of creditors shall be kept at the registered office of the company and any person desirous of inspecting the same may, at any time during the ordinary hours of business, inspect and take extracts from the same on payment of a sum not exceeding ten rupees per page to the company.

Copy of application to ROC and Chief Secretary of the State or UT
There shall also be attached to the application a copy of the acknowledgment of service of a copy of the application with complete annexures to the Registrar and Chief Secretary of the State Government or Union territory where the registered office is situated at the time of filing the application.

Advertisement of application and individual notice to creditors and authorities
The company shall, not more than 30 days before the date of filing the application in Form No. INC.23 –

  1. advertise in the Form No.INC.26 in the vernacular newspaper in the principal vernacular language in the district and in English language in an English newspaper with wide circulation in the State in which the registered office of the company is situated:
    Provided that a copy of advertisement shall be served on the Central Government immediately on its publication.
  2. serve, by registered post with acknowledgement due, individual notice, to the effect set out in clause (a) on each debenture-holder and creditor of the company; and
  3. serve, by registered post with acknowledgement due, a notice together with the copy ofthe application to the ROC and to the SEBI, in the case of listed companies and to the regulatory body, if the company is regulated under any special Act or law for the time being in force.

Copy of objection to CG
There shall be attached to the application a duly authenticated copy of the advertisement and notices issued above, a copy each of the objection received by the applicant, and tabulated details of responses along with the counter response from the company received either in the electronic mode or in physical mode in response to the advertisements and notices issued.

Where no objection has been received from any person in response to the advertisement or notice or otherwise, the application may be put up for orders without hearing and the order either approving or rejecting the application shall be passed within fifteen days of the receipt of the application.

Where an objection has been received,

  • the Central Government shall hold a hearing or hearings, as required and direct the company to file an affidavit to record the consensus reached at the hearing, upon executing which, the Central Government shall pass an order approving the shifting, within sixty days of filing the application.
  • where no consensus is reached at the hearings the company shall file an affidavit specifying the manner in which objection is to be resolved within a definite time frame, duly reserving the original jurisdiction to the objector for pursuing its legal remedies, even after the registered office is shifted, upon execution of which the Central Government shall pass an order confirming or rejecting the alteration within 60 days of the filing of application.

Powers of CG to put terms & conditions|
The order passed by the Central Government confirming the alteration may be on such terms and conditions, if any, as it thinks fit, and may include such order as to costs as it thinks proper:

Provided that the shifting of registered office shall not be allowed if any inquiry, inspection or investigation has been initiated against the company or any prosecution is pending against the company under the Act.

On completion of such inquiry, inspection or investigation as a consequence of which no prosecution is envisaged or no prosecution is pending, shifting of registered office shall be allowed

Section 13(7) of Companies Act, 2013 (read with Rule 31 of Incorporation Rules, 2014)
Where an alteration of the memorandum results in the transfer of the registered office of a company from one State to another,

  • a certified copy of the order of the Central Government approving the alteration shall be filed by the company in Form No. INC 28 with the Registrar of each of the States within 30 days of the receipt of certified copy of order.

Registrars shall register the same, and the Registrar of the State where the registered office is being shifted to, shall issue a fresh certificate of incorporation indicating the alteration.

Objects of Company

Objects of company means objectives (purpose/activities/work/field/area) for which company

  • is incorporated or
  • is in existence.

Objects clause is the 3rd mandatory clause of MOA of every company. According to section 4(1)(c) of the Companies Act, 2013, 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 (fulfillment) of such objects.

It defines the scope of activities of company. No company can do any work outside its objects clause. The activities beyond the objects clause are ultra vires and hence void. Even the entire body of shareholders cannot ratify such acts.

 The purpose of the object clause in the memorandum is two-fold.

  • First, the intending shareholder before making investment in the company should know the field in, or the purpose for which it is going to be used and what risk he is taking in making the investment.
  • The second purpose is that anyone dealing with the company will know without doubt “what is the permitted range of activities of the company”.

Concept is very clear. The management (directors) and owners (shareholders) of a company may be different. Shareholders/creditors/investors invest funds and directors dispose/utilize those funds in the name of company for achieving its objectives. Therefore, they must know

  • where their funds can be utilized by directors
  • what activities company (directors) can do with their funds
  • what are the scope and risk in such activities

Objects shall not illegal
It should be noted that according to Section 3(1) of Companies Act, 2013, a company can be created only for lawful objects. Therefore, objects of company shall not be illegal or forbidden be any law for the time being in force.

Further, according to Section 6 of Companies Act, 2013, provisions of MOA & AOA shall not override provisions of Companies Act, 2013 and any rules & regulations made thereunder.

Matter considered necessary in furtherance (fulfillment) of main objects
Although express powers are necessary, a company may do anything which is incidental to and consequential upon the powers specified, and the act will not be ultra vires.
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The term ‘furtherance’ means activity arising out of or directly connected to the main activity. For example teaching is the main object and publishing books for the purpose of teaching is the object incidental or ancillary to the attainment of the main objects.

Power to borrow money
A trading company has an implied power to borrow money, draw and accept bills of exchange in the ordinary form, but a manufacturing company or service company (like railway company) cannot issue bills without expressed authority although it may borrow money.

Powers which are not implied
The following powers have been held not to be implied and it is, therefore, prudent to include them expressly in the objects clauses:

  • acquiring any business similar to the company’s own business.
  • entering into an agreement with other persons or companies for carrying on business in partnership or for sharing profit, joint venture or other arrangements. Very clear powers are necessary to justify such transactions;
  • taking shares in other companies having similar objects.;
  • taking shares of other companies where such investment authorizes the doing indirectly that which will not be intra vires if done directly;
  • promoting other companies or helping them financially
  • a power to sell and dispose of the whole of a company’s undertaking;
  • a power to use funds for political purposes;
  • a power to give gifts and make donations or contribution for charities not relating to the objects stated in the memorandum;
  • acting as a surety or as a guarantor

Doctrine of Ultra Vires

Ultra vires means an act or transaction of a company, which though it may not be illegal, is beyond the company’s powers by reason of not being within the objects of the memorandum of association.

According to Doctrine of Ultra Vires, every activity of company which is beyond the ambit of MOA (objects clause) is ultra vires and hence beyond the powers of company. Therefore such activity is void (not having any existence or effect in the eyes of law). Such activity cannot be rectified (allow) even if all the shareholders give their consent to such activity.

Company cannot be made liable for any such activities. Neither the company nor the other contracting party can sue on it.

Leading Case Law: Ashbury Railway Carriage and Iron Co. Ltd. v. Riche

Ultra Vires acts can be of 2 types:

  • Ultra Vires the company
  • Ultra Vires the directors

Ultra Vires the company
Ultra Vires the company means any activity beyond the powers (object clause of the MOA). Such act is void and has no legal effect in the eyes of law. Even the entire body of shareholders cannot ratify such acts in the general meeting.

Ultra Vires the directors but Intra Vires the Company
Ultra Vires the directors but Intra Vires the Company means any activity beyond the powers of Board of Directors (BOD) but within the powers of company. The shareholders can ratify such acts in the general meeting by passing proper resolution in this regard.

Effects of ultra vires Transactions

  1. 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. Ultra vires contracts are void ab initio and hence cannot become intra vires by reason of estoppel or ratification.
  2. Injunction
    The members can get an injunction to restrain the company wherein ultra vires act has been or is about to be undertaken
  3. Personal liability of Directors
    It is one of the duties of directors to ensure that the corporate capital is used only for the legitimate business of the company and hence if such capital is diverted to purposes which are not allowed in the memorandum, the director will be personally liable to replace it.
    In case of deliberate misapplication, criminal action can also be taken for fraud.
  4. Company’s right to the property acquired for Ultra Vires purpose
    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.
  5. Only jus in rem remedy is available
    Ultra vires borrowing does not create the relationship of creditor and debtor and the only possible remedy in such case is jus in rem (against any property or thing) and not jus inpersonam (against any person).

Questions

  • A company made ultra vires allotment of shares to Mr. Ram. Whether Mr. Ram can get back the money paid by him to the company? (Yes)
  • Ram transferred those shares (ultra vires allotment) to Mr. Shaym. Whether Mr. Shaymcan get back the money from the company which he paid to Mr. Ram? (No)

Refer case law – Margarate Linz v. Electric Wire Co. of Salestine Ltd.

Change/Alteration of Objects Clause

Alteration of MOA – Board Resolution + Special Resolution + Form NO. MGT 14 to ROC (filing of Special Resolution with ROC u/s 117)

According to Section 13(1) of Companies Act, 2013, a company may change it objects clause only by

  • passing special resolution in this regard
  • without taking any approval from any authority like ROC, RD, MCA or CG.

Further, company shall file Special Resolution with ROC in Form No. MGT 14 to ROC as per Section 13(6) read with Section 117 of Companies Act, 2013.

Change of Objects for which Money is raised through Prospectus(in case of Listed Company only)

According to Section 13(8) of Companies Act, 2013, a company,

  • which has raised money from public through prospectus and
  • still has any unutilised amount out of the money so raised,

shall not change its objects for which it raised the money through prospectus unless

  • a special resolution is passed by the company and
  1. the details, as may be prescribed (in Rule 32 of Companies incorporation rules), in respect of such resolution shall
    • be published in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and
    • shall also be placed on the website of the company, if any, indicating therein the justification for such change;
  2. the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board.

Change of Objects for which Money is raised through Prospectus
[Rule 32 of Companies (Incorporation) Rules, 2014]

Where the company has raised money from public through prospectus and has any unutilised amount out of the money so raised, it shall not change the objects for which the money so raised is to be applied unless

  • a special resolution is passed through postal ballot and
  • the notice in respect of the resolution for altering the objects shall contain the following particulars, namely:-
  1. the total money received;
  2. the total money utilized for the objects stated in the prospectus;
  3. the unutilized amount out of the money so raised through prospectus,
  4. the particulars of the proposed alteration or change in the objects;
  5. the justification for the alteration or change in the objects;
  6. the amount proposed to be utilised for the new objects;
  7. the estimated financial impact of the proposed alteration on the earnings and cash flow of the company;
  8. the other relevant information which is necessary for the members to take an informed decision on the proposed resolution;
  9. the place from where any interested person may obtain a copy of the notice of resolution to be passed.

The advertisement giving details of each resolution to be passed for change in objects which shall be published simultaneously with the dispatch of postal ballot notices to shareholders.

The notice shall also be placed on the website of the company, if any.

Following companies are required to pass special resolution for alteration of Object clause of Memorandum of Association by means of Postal Ballot only:

  • All Companies having more than 200 members. [Section 110 read with Rule 22 of Companies (Management and Administration) Rules, 2014,
  • Company which has raised money from public through prospectus and still has any unutilized amount out of the money so raised. [Section 13(8) read with Rule 32 of the Companies (Incorporation) Rules, 2014]

Registration of Change of object clause with ROC
According to Section 13(9) of Companies Act, 2013, the Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty (30) days from the date of filing of the special resolution.

Liability Clause of MOA

According to Section 3 of Companies Act, 2013, a public company, private company or one person company may be incorporate as

  • company limited by share; or
  • company limited by guarantee; or
  • unlimited company

According to Section 4(1)(d) of Companies Act, 2013,

  • memorandum of association of every company shall state whether the liability of the members of the company is limited or unlimited.

In case of company limited by shares
Further, if the liability of the members is limited by shares, MOA shall state that

  • liability of its members is limited to the amount unpaid, if any, on the shares held by them.

In case of company limited by guarantee
Also, if the liability of the members is limited by guarantee, MOA shall state the amount up to which each member undertakes to contribute—

  • to the 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,

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; and
  • to the costs, charges and expenses of winding-up and for adjustment of the rights of the contributories among themselves;

Alteration of Liability Clause of MOA

Alteration of liability clause means

  • conversion of limited company to unlimited company or vice-versa
  • conversion of company limited by shares to company limited by guarantee or vice-versa

According to section 13(1), a company may,

  • by a special resolution and
  • after complying with the procedure specified in this section,

alter the provisions of its memorandum.

According to section 13(6)(a)

  • a company shall, in relation to any alteration of its memorandum, file with the Registrar the special resolution passed by the company under section 13(1).

It means that a company can change the liability clause of its memorandum of association by passing a special resolution.

Section 18 of Companies Act, 2013 (Conversion of companies already registered)

  1. A company of any class registered under this Act may convert itself as a company of other class under this Act by alteration of memorandum and articles of the company in accordance with the provisions of this Chapter (Chapter II of Companies Act, 2013 containing Section 3 to 22).
  2. Where the conversion is required to be done under this section, the Registrar shall on an application made by the company,
    • after satisfying himself that the provisions of this Chapter applicable for registration of companies have been complied with,

close the former registration of the company and after registering the documents of new company, issue a certificate of incorporation in the same manner as its first registration.

  1. The registration of a company under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into, by or on behalf of the company before conversion and such debts, liabilities, obligations and contracts may be enforced in the manner as if such registration had not been done.

Share Capital Clause of MOA

According to Section 4(1)(e)(i) of Companies Act, 2013, memorandum of association of every company limited by shares shall state

  • the amount of share capital with which the company is to be registered

This capital is known as authorized capital of the company. This capital is also known as

  • nominal capital of company because no premium or discount is included in this capital or
  • registered capital of company as this capital is registered with ROC in MOA.

This is the maximum amount of capital which company can raise by issuing shares. It should be noted that the registration fee of a company limited by shares depends upon this capital. More the authorized capital more the registration fee [prescribed in Companies (Registration of Offices and Fees) Rules, 2014].

According to Section 4(1)(e)(ii) of Companies Act, 2013, memorandum of association of every company limited by shares shall state

  • the division of authorized capital into shares of a fixed amount.

For example, the authorized capital of company is Rs. 1,00,000 and 1 share is of Rs. 10. MOA of such company shall state

“The share capital of company is Rs. 1,00,000 divided into 10,000 shares of Rs. 10 each.”

Subscription Clause of MOA

According to Section 4(1)(e)(ii), in the case of a company having a share capital

  • each subscriber (person who intends to become one of the first members of the company) of the memorandum shall write opposite to his name the number of shares he intends to takes; and
  • no subscriber of the memorandum shall take less than one share;

Subscription clause shows that all the subscribers have read all the provisions of MOA and are agreed on all terms and conditions of MOA.

Example:

Sl. No.

Name, Description, Occupation and Address of Subscribers

Number of Equity Shares taken

Signature of subscribers

Signature of witness with address and occupation

1

Anurag Jain
S/o S.K. Jain
West Patel Nager
(Business)

 

50000

 

Sd/-

 

 

 

 

GurpreetRoopRai Kaur

 

2

Neetu Jain
D/o S.K. Jain
West Patel Nager
(Housewife)

 

50000

Sd/-

Note:

  • Subscription clause cannot be altered.

Declaration by Subscribers to MOA
Subscribers to MOA shall make a declaration that:

“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.”

Power of limited company to alter its share capital (Section 61)

  1. A limited company having a share capital may, if so authorised by its articles, alter its memorandum in its general meeting (by passing ordinary resolution) to—
    • increase its authorised share capital by such amount as it thinks expedient;
    • consolidate and divide all or any of its share capital into shares of a larger amount than its existing shares:
      Provided that no consolidation and division which results in changes in the voting percentage of shareholders shall take effect unless it is approved by the Tribunal on an application made in the prescribed manner;
    • convert all or any of its fully paid-up shares into stock, and reconvert that stock into fully paid-up shares of any denomination;
    • sub-divide its shares, or any of them, into shares of smaller amount than is fixed by the memorandum, so, however, that in the sub-division the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived;
    • cancel shares which, at the date of the passing of the resolution in that behalf, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the shares so cancelled.
  2. The cancellation of shares under sub-section (1) shall not be deemed to be a reduction of share capital.

Notice to be given to Registrar for alteration of share capital (Section 64)

  1. Where—
  • a company alters its share capital in any manner specified in section 61(1);
  • an order made by the Government under section 62(4) has the effect of increasing authorised capital of a company; or
  • a company redeems any redeemable preference shares,

the company shall file a notice in the Form No. SH. 7 with the Registrar within a period of 30 days of such alteration or increase or redemption, as the case may be, along with an altered memorandum.

2. Where any company fails to comply with the provisions of sub-section (1), such company and every officer who is in default shall be liable to a penalty of Rs. 500 for each day during which such default continues, subject to a maximum of Rs. 5 lakh in case of a company and Rs. 1 lakh in case of an officer who is in default.

 Points to Note:

  • Where shares were issued beyond the authorised amount and a resolution was subsequently passed at a general meeting ratifying the issue, it was held that although the original issue was not in accordance with the articles, the ratification was effective and the allottees were bound.
  • Consolidation and sub-division may be effected by the same resolution [North Cheshire Borewery Co. Ltd.]
  • Fee paid to the ROC for registering increase of capital is in the nature of capital expenditure irrespective of the fact whether an increased capital will lead to increase in profits. [Punjab State Industrial Development Corpn. Ltd. v. CIT]
  • In order to alter its capital clause in the Memorandum, the company requires authority in its articles. But if the articles give no power to this effect, the articles must be amended by a special resolution before the power to alter the capital clause can be exercised by the company [Re. Patent Invert Sugar Co. (1885) 31 Ch. D. 166].

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