Memorandum of Association Introduction: Under the existing law a limited company can be formed by preparing certain legally specif specified ied docume documents nts and fillin filling g the same same with with the regist registrar rar of compan companies ies.. The first first essential document to be prepared and filled with registrar and without which a company canno cannott be inco incorp rpor orat ated ed is name named d as memo memora rand ndum um of asso associ ciat atio ion, n, brie briefl fly y calle called d memorandum. The preparation of this document is the starting point in the formation of a company. (Luqman Baig-2005)
Memorandum of association is one of the basic documents of the company, it is known as chart charter er of the the comp compan any. y. It sets sets out out the the limi limits ts outs outsid idee whic which h compan company y canno cannott go. go. Memorandum of association defines the constitution of the company. It contains the fundamental condition upon which a company is registered. (Notes provided by Ms. Faiza Khan)
It is the document that governs the relationshi relationship p between between the company and the outside. It is one of the documents required to incorporate a company in the United Kingdom, Ireland, India, Bangladesh, Pakistan and Sri Lanka, and is also used in many of the common law jurisdictions of the Commonwealth. (wikipedia.org)
Etymology: •
Memorandum word is derived from Latin word verbal phrase memorare means 'something to be brought to mind'
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Association word is also derived from Latin word associare means 'join'
So the meaning of memorandum of association is a written message in business or diplomacy for a group of people organized for a joint purpose. (Oxford English dictionary)
History: When a company is incorporated it requires a constitution which basically records the purposes for which the company is incorporated, and which regulates the distribution of power in the company and its internal procedural matters. Before 1856, under the Joint Stock Companies Act 1884, a company was incorporated on the basis of single document
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called the; Deed of Settlement.” The Joint Stock Companies Act 1856 introduced a new constitutional framework for incorporation in 1888.Under the 1856 Act, two documents were required: the memorandum of association and article of association. This structure was followed in successive Companies Acts until the Co mpanies Act 2006. (Hicks, Goo-2008)
Definition: General definition of memorandum of association is as follow: “It is a document which sets out the constitution of the company. It is the foundation on which the structure of company is based.” (Notes provided by Ms. Faiza Khan)
Definition under company ordinance 1984 is as follow: “Memorandum means memorandum of association of company as originally framed or as altered in pursuance of the provisions of this ordinance.” (Notes provided by Ms. Faiza Khan)
Explanation: The promoters of the company prepare the memorandum of association. The memorandum of association is the charter of company, and so to say, a statutory deed of partnership. It contain the fundamental conditions upon which alone company is granted incorporation. (Luqman Baig-2005)
Memorandum binds the company and the members as if each member had signed and covenanted as regards himself, his heirs and legal representatives to observe and abide by all its provisions and conditions. Memorandum regulates the company’s external affairs is that the relation of company with outside world. It informs all persons what the company is formed to do and what capital it has to play with. (Luqman Baig-2005)
Memorandum of association is a public document, and every person who deals with company is presumed to have a sufficient knowledge of its contents and provisions. (Luqman Baig-2005)
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Requirements: It is basically a statement that the subscribers wish to form a company under the 2006 Act, have agreed to become members and, in the case of a company that is to have a share capital, to take at least one share each. It is no longer required to state the name of the company, the type of company (such as public limited company or private company limited by shares), the location of its registered office, the objects of the company, and it’s authorized share capital. Companies incorporated prior to 1 October 2009 are not required to amend their memorandum. Those details which are now required to appear in the Articles, such as the objects clause and details of the share capital are deemed to form part of the Articles. (wikipedia.org)
Form of memorandum of association: The memorandum of association of a company must be in the prescribed form. Memorandum of association should be in printed form and divided into various paragraphs and signed by the prescribers in the presence of witness. (Notes provided by Ms. Faiza Khan)
Capacities: The memorandum no longer restricts what a company is permitted to do. Since 1 October 2009, if a company's constitution contains any restrictions on the objects at all, those restrictions will form part of the articles of association. (wikipedia.org)
Historically, a company's memorandum of association contained an objects clause, which limited its capacity to act. When the first limited companies were incorporated, the objects clause had to be widely drafted so as not to restrict the board of directors in their day to day trading. In the Companies Act 1989 the term "General Commercial Company" was introduced which meant that companies could undertake "any lawful or legal trade or business." (wikipedia.org)
Purpose: The memorandum of association records the agreement of the first subscribers to form a company under the 2006 Act, to become members and, in the case of a company that is to have a share capital, to take at least one share each. (wikipedia.org)
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Restriction on alteration of memorandum: A company shall not alter the conditions contained in its memorandum except in the cases and in the mode and to the extent specified in this Ordinance. (www.secp.gov.pk)
Alteration of Memorandum: (1) Subject to the provisions of this Ordinance, a company may, by special resolution alter the provisions of its memorandum so as to change the place of its registered office from one Province to another, or from one city or town in a Province to another, or from a part of Pakistan not forming part of a Province to a Province or from a Province to a part of Pakistan not forming part of a Province, or with respect to the objects of the company, so far as may be required to enable it— •
To carry on its business more economically or more efficiently; or
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To attain its main purpose by new or improved means; or
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To enlarge or change the local area of its operations; or
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To carry on some business, not being a business specified in its memorandum, which may conveniently or advantageously be combined with the business of the company; or
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To restrict or abandon any of the objects specified in the memorandum; or
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To sell or dispose of the whole or any part of the undertaking of the company; or
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To amalgamate with any other company or body of persons. (2) The alteration shall not take effect until and except in so far as it is confirmed by the Commission on petition: Provided that an alteration so as to change the place of registered office of a company from a place in the Province of the Punjab to the Islamabad Capital Territory or from the latter to a place in the Province of the Punjab, or from one city in a Province to another shall not require confirmation by the Commission. (3) Before confirming the alteration, the Commission must be satisfied—
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that, sufficient notice has been given to every holder of debentures of the company and to any person or class of persons whose interest will, in the opinion of the Commission, be affected by the alteration; and
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that with respect to every creditor who in the opinion of the Commission is entitled to object, and who signifies his objection in manner directed by the Commission, either his consent to the alteration has been obtained or his debt or claim has been discharged or determined, or has been secured to the satisfaction of the Commission. (www.secp.gov.pk)
Powers of Commission when conforming alteration: The Commission may make an order confirming the alteration either wholly or in part, and on such terms and conditions as it thinks fit, and make such order as to costs as it thinks proper. (www.secp.gov.pk)
Time, place for filing memorandum of association: Memorandum of association is to be filed with the registrar at the time of formation of company. (Notes provided by Ms. Faiza Khan)
Clauses of memorandum of association: The mandatory contents of the memorandum of association are as follows:
1. The name clause This clause states the name of company. A company may select any name, but it should not resemble the name of any other company. The name clause must include: a) The word “Limited” as the last word in case of a Public Limited Company. b) The words “(Private) Limited” as the last words in the case of a Private Limited Company. c) The words “(SMC-Private) Limited” as the last words of a Single Member Private Limited Company. These end words show that all persons dealing with the company must know that their liability is limited to the extent of their shares. (www.iin.com.pk)
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2. Registered Office Details It is known as domicile clause. The memorandum of association must state the name of the place of business of the company. The company must have a registered office and its place must be notified to the registrar. Change of place of registered office:
Place of registered office may be change from province to province or town to town; •
From province to province:
Registered office of the company may be changed by passing special resolution and obtaining the confirmation of the commission. •
From town to town:
The place of registered office of the company may be changed from one town to another town within the same province by passing special resolution and notice to the registrar without any confirmation of the commission. (Notes provided by Ms. Faiza Khan)
3. Object Clause This is the most important part of the memorandum of association and is to be worded immensely carefully. A company cannot legally take up any business that is not authorized by its object clause. The object clause cannot contain any thing contrary to the provisions of the Companies Ordinance, 1984. It is generally very lengthy and the Registration Procedure for A Company Legal Services Cell 9 scope of the company’s activities is widened by including the words “and the doing of all such other things incidental or conductive of the environment of the above objects.” (www.iin.com.pk) The statement of object defines the sphere of company activities. It determines and restricts the power of company. •
Scope of object:
The company can have any object provided that it is not contrary to law. •
Act done outside the objects:
The company can not do any thing outside the powers specified in the object clause. (Notes provided by Ms. Faiza Khan)
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4. Liability Clause The clause must include whether the company is limited by share or guarantee. The effect of this statement is in the event if the company is wound up, the members of the company will not be liable to contribute more than the amount, if any, unpaid on their shares, in case of a company limited by shares. In the case of a company limited by guarantee, the members undertake to contribute a specific amoun t to the assets of the company. (www.iin.com.pk) •
Exceptions:
If however the number of members of company is reduced in case of private company below 2 and incase of public company below 7 and the business is carried on for more than six months, thereafter every member who knows this fact is personally liable for the all debts contracted during that period. (Notes provided by Ms. Faiza Khan)
5. Share Capital Clause The following information is provided in this clause, except for guarantee companies having no share capital and unlimited companies: a) The amount of share capital with which the company is formed and registered. b) The division of share capital into shares of fixed amounts. The memorandum of association must be signed by the subscribers i.e. the first members of the association.
(www.iin.com.pk) 6. Subscriber clause: Association and subscription clause contains declaration by the subscriber that they are desirous of forming a company and agree to have number of shares written against their respective names. •
Signature and attestation:
Each subscriber must sign the memorandum in the presence of at least one witness who shall attest the signature. (Notes provided by Ms. Faiza Khan)
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Difference between memorandum of association and article of association: The Memorandum of Association sets out the company's name, where its registered office is situated, the fact that the liability of members is limited, its share capital and the purpose for which the company is set up (its objects and its powers). (www.blurtit.com) Contents of memorandum of association are as follow; • • • • •
Name of company Place of registered office Objects of company Liability of shareholders Registered capital (Notes provided by Ms. Faiza Khan)
The Articles of Association of the company are the internal rules of the company. They create a contract between the members or owners of the company and the company itself. If no Articles of Association are filed when the company is incorporated a statutory standard form of articles will apply. In practice, the statutory articles are amended to suit a company's specific requirements. The Articles deal with such matters as the creation, issue, allotment and transfer of shares, the company's borrowing limits and the powers and duties and regulations of directors. (www.blurtit.com)
Contents of article of association are as follow; • • • • • • • • • • •
Amount and division of share capital Rights of shareholders Rules for transfer of shares Appointment of directors Power and duties of directors Alteration of capital Functions and powers of managing agent Stamp of company Voting rights of shareholders Declaration of dividend Procedure of winding up of company (Notes provided by Ms. Faiza Khan)
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The difference between memorandum of association and article of association is as follow:
1. As to alteration: Memorandum of association is regarded unalterable document, company cannot change the conditions mentioned in it. Whereas article of association is regarded alterable document, company can change the conditions mentioned in it at any time.
2. As to subordinate: Memorandum of association is like a controller of company. Whereas article of association is the subordinate to memorandum of association.
3. As to importance: Memorandum of association has primary importance. Article of association has secondary importance.
4. As to compulsion: Memorandum of association is a compulsory document for the formation of company. Article of association is optional document for the company.
5. As to clauses: Memorandum of association has usually six clauses. Article of association has many clauses.
6. As to legal effect: Any act beyond the limit of memorandum of association is illegal. Any act beyond the limit of article of association is legal.
7. As to object: Memorandum of association lays down the objects of company
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Article of association contains the procedure for ach ieving objects
8. As to nature: Memorandum of association is the charter of the company which defines the external power of company. Article of association contains the rules and regulation for internal management.
9. As to certificate of commencement: Memorandum of association is essential for getting certificate of commencement. Article of association is not essential for getting certificate of commencement. 10. As to incorporation: Memorandum of association contains the conditions upon which the company is granted incorporation. Article of association gives up final touch to the condition described in it. 11. As to scope: Memorandum of association has wider scope. As to permission for alteration: Alteration of Memorandum of association prior permission is to be given by federal government. There is no need of permission for alteration in article. 12. As to Status: Memorandum of association is the basic document of the company. Article of association is the supplementary document or secondary document of the company.
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Conclusion: Both the Memorandum of Association and the Articles of Association are very important documents for any type of company be it a public-limited company or a private-limited company. For a company, a Memorandum is the constitution of the charter of the company. In other words, a Memorandum defines and confines the power of the company. As for the Articles of Association, they are the by-laws of the company that give an explanation to the Memorandum. While the Memorandum regulates the interaction of the company with the external world, the Articles of Association are responsible for the internal conduct of the company. Also registration of the Memorandum is compulsory for every company. In addition to that, a Memorandum is sub-ordinate to only the Company's ordinance 1984.
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References: Links:
http://en.wikipedia.org/wiki/Memorandum_of_association http://www.iin.com.pk/IINSiteData/images/grrsection/pdf/Regulatory %20Procedures/Business%20Registration/Company%20Registration %20Process.pdf http://www.secp.gov.pk/corporatelaws/pdf/Comp_Ord1984.pdf http://www.blurtit.com/q590878.html
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Books: •
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Cases and materials on company law by Andrew Hicks, S. H. Goo Oxford University Press, 2008 Company law by Luqman Baig 2005 Concise Oxford English dictionary ninth edition
Notes: •
Notes dictated in class by Ms Faiza Khan
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