Memorandum of Association & Articles of Association Both the Memorandum of Association and the Articles of Association are very important documents for any type of company whether it a public-limited company or a privatelimited company.
Memorandum of Association
Memorandum of association is a basic document of the joint stock company .It is also known as Charter of company . It sets out the limits outside which the company cannot go. Its main purpose is to enable shareholders, creditors and all those who deal with the company to know what is permitted range of enterprises. It is a document which sets out the constitution of the company and as such, is really the foundation on which the structure of the company rests.
Clauses of Memorandum of Association: The main clauses of memorandum have been described in sections 16,17 and 18 of the companies ordinance 1984 as under :
1-Name Clause According to this we have to state the name of the company. A company may adopt any name but it should not be identical to the name of an existing company registered with the registrar of the company.
Conditions: a) It should should not not resembl resemblee the name of any other company company b) It should should not contain contain the word like like king, queen, queen, emporer, emporer, government government bodies bodies c) The name should should not be be objectionab objectionable le in the opinio opinion n of government government.. The companies ordinance provides that the name of the company must end with the words “Limited”.
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2- Situation Clause As the name indicates indicates it describes describes the different different situations. situations. This clause a company company must have a registered office at which all the communications and notices are to be addressed. The memorandum will only state the name of the province where office is situated and not the address where office is situated.
Advantages: a) A person can can know through through this this clause, clause, the jurisdi jurisdiction ction of the the court under under which which the company operates. b) It also also indicates indicates the place place for holding holding the annual annual meeting meeting of the the company. company. c) The creditor creditors, s, customers customers,, government government know know the whereab whereabouts outs of the company company
3-Object Clause This is the most important clause in the memorandum. It clearly defines the sphere of the company's activities. It indicates the series of objects for which the company is started .object clause should be drafted carefully.
4-Liability Clause This This clau clause se of memo memora randu ndum m conta contain inss the the decl declar arat ation ion that that the the liab liabil ilit ity y of the the shareholders is limited to the extent of the value of shares held by them. In case the shareholder is to pay the unpaid calls on the shares, he can be compelled to pay up to the extent of unpaid amount on the shares and beyond that nothing more.
5-Capital Clause
This clause is required to specify the amount of share capital with which the company proposes to be registered and secondly the divisions of that capital into shares of a fixed amount. The capital as mentioned us called Authorized Capital
6-Subscription Clauses This clause contains a statement by the subscribers that they are eager of forming themselves into a company and agree to have a number of shares written against their respective names. Each signature of the subscriber must be supported b the signature if a witness with his address. The subscriber is required to take at least one sh are each. 2
Depe Depend ndin ing g on the the type type of the the comp compan any y othe otherr clau clause sess can can be incl includ uded ed in the the memorandum:
Form 10: In this form the details of the first director, secretary and the address of the registered office is required. Also the directors have to give their birth and occupation details, as well as the details of the directorships they held within the last five years.
Form 12: 12: Form 12 must be signed at the last when all the registration requirements have been completed and this form is signed in the presence of commissioner.
Alternation of Memorandum
1. Chan Change ge of of name name:: Name of the company can be changed either by passing special resolution or ordinary resolution. 2.
Change of registered office:
If the company wants to change registered office from one place to another board of directors will pass a resolution and the registrar must be informed about it within 30 days. 3.
Change of object clause:
A company has no limited right to alter the object clause of memorandum. The power of alternation of object clause is subject to substantive limit and procedural limit. A company shall pass a special resolution sanctioning the alternation to that affect and file it with the registrar.
4. Change Change of liab liabili ility ty clause clause Ordinarily liability clause cannot be altered so as to make the liability of members unlimited. Any alternation in the memorandum will be void if the affect of the alternation is enhancement of liability of members.
Articles of Association
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Article of association is a legal document second in importance to the memorandum. The arti articl cles es of asso associ ciat atio ion n are are the the regu regula lati tions ons or byla bylaws ws whic which h gover govern n the the inte intern rnal al organization organization and conduct of company .in other word it is concerned with the procedural procedural matters in the routine of the affairs of the company. Articles deal with internal matters such such as gene genera rall meet meetin ings gs,, appo appoin intm tment ent of dire direct ctor ors, s, issu issuee and and tran transf sfer er of shar shares es,, dividends, accounts and deposits.
Contents of Articles 1) Sh Shar aree cap capit ital al
Amount of shares capital issued, transmission of shares 2) Share Shareho holde lders rs right rightss
Rights of shareholders regarding voting, dividend and return of capital. 3) Rule Ruless for for issu issuan ance ce
Rules regarding the issue of shares and debentures deb entures 4) Call Call on sha share ress
Procedure as well as regulations in respect of making calls on shares 5) Tr Tran ansf sfer er of sha share ress
Manner of transfer of shares 6) Rules Rules reg regar ardin ding g direc director torss
Rules regarding the appointment of directors, managing directors, agents, secretaries and treasuries. 7) Power and qualification of directors Number, qualifications, remuneration, powers and liabilities of directors,
8) Meet eetings ings Conven Convening ing and conduct conduct of meetin meetings gs with with refere reference nce to notice notice,, quorum quorum,, poll, poll, proxy, proxy, resolutions etc
9) Altern Alternati ation on of of capita capitall
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Articles of association empower the company to change the capital. It will alter either by resolution or by meeting. 10) Dividend Declaration of dividend. 11) Forfeitures of shares Rules regarding surrender or forfeitures of shares . 12) Account and audit Matters relating to account and audit. 13) Wind up Rules regarding winding up of company 14) Managing agents Functions and powers of managing agents
Alternation of article of Association According to section 28 of companies ordinance, a company may alter or add to its articles by special resolution. The alternation made in the articles should not conflict with the memorandum.
Difference between Memorandum and Article of Association Basi Basiss of diff differ eren ence ce
Registration
Importance
Memo Memora rand ndum um of asso associ ciat atio ion n It is prep prepar ared ed at the time of registration it is must for getting the company registered
Arti Articl cles es of asso associ ciat atio ion n Publ Public ic comp compan anie iess may may not not have have thei theirr art articl icles bef before ore registration. It can adopt table A in its place It is the primary document of the It is the 2nd most important important com company pany.. It is a subsi ubsidi diar ary y document to be filed with the docum documen entt to memo memora rand ndum um of registrar. association.
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Subject Matter
Provisions
Relationship
Legal status
Ratification
Changes
It contain containss inform informati ation on capita capitall It contains rules and regulation liability sphere of the activities of framed for the internal the company. management of the company It canno nnot contain anything It is subordinate to contrary to the companies memorandum and ordinance. it ordinance cannot contain anything contrary to both. It is the the natur naturee of the the cont contra ract ct It creates creates relationshi relationship p between between betw betwee een n the the compa company ny and and the the the members of the company. outside world dealing with it It has more legal sanctions than articl articles. es. an agreem agreement ent which which is not permitted by the memorandum cannot be enforced by law. If the com company pany viol violat ates es the memo memora randu ndum m it is abso absolu lute tely ly void void.. it cann cannot ot be made made vali valid d even by the unanimous consent of all the shareholders. The cha changes in the vari arious ous clauses can only be made under exceptional circumstances.
If viol violat atio ion n of arti articl cles es take take pla place ce,, it is not not void void unle unless ss othe otherr part party y is awar awaree of this this violation If the company does anything beyond the scope it is not void. It can be made valid later.
Alternatio Alternation n is not difficult. difficult. It can can be chan change ged d by pass passin ing g special resolution
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