The first step is the formation of a company is
to prepare memorandum of association.
This is also known as constitution of the
company.
It defines the relationship of a company with
the outside world.
Unalterable charter. (can be altered by
manner provided by law)
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“It contains fundamental conditions upon
which alone the company is allowed to be
incorporated. They are conditions introduced
for the benefit of creditors and the outside
public as well as the shareholders.”
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The memorandum is , as it were, the area
beyond which the action of the company can
not go; inside that area the shareholders may
make such regulation for their own
government as they think fit.
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Provide the structure of the company
To provide objects of company
Provide power of company and its extended
limit
Define the power of directors as well as
shareholders.
To make outside known about authorized
capital , the liability of company.
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Name Clause
Registered office Clause
Liability Clause
Capital Clause
Association or subscription Clause
Objects Clause
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Add “limited” after the company name.
Government can give license to drop the
word “limited”.
Undesirable name to be avoided.
Government company, international
organization, immoral or indecent name.
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What you will do, if there is company
name similar to the name of your
company?
How the dispute will be resolved?
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Address of the registrar office must be
communicated to the registrar within 28 days
of its incorporation or from the date of its
commencement of business.
All notices and communication to the
company to be made.
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Liability by share
Liability by guarantee
Any other provisions relevant to liability
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This clause states that amount of the capital
with which the company is to be registered
This clause should also state the number and
face value of shares into which the capital of
the company is divided
The capital with which the company is
‘registered’ or ‘nominal’ or ‘authorized’.
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This clause is quite important and must be
very carefully drafted as it determines the
activities of the company.
In the object clause each and every detail of
activities of the business to be carried out
must be laid down.
Main object
incidental or ancillary Objects
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Main object: this sub-clause contains the
main objects of the company to the pursued
on its incorporation
Objects incidental or ancillary : it covers the
objects which are incidental or ancillary to the
attainment of the main object
Other objects: this sub-clause will cover any
objects which are not included in the ‘main
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“to do all such things as are incidental or
ancillary to the attainment of main objects”.
Any acts done by the company which are not
specifically provided by the objects clause but
are helpful to attain the purpose mentioned
in the object clause.
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Main object was to conduct business of
chemical manufacturing
But it expended money on scientific
research.
It was held that the act was within the power
of the company and it was an attempt to
attain the main object of the company.
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Main object was to supply boats for ferry
Used in excursion purpose when not
required for business purpose.
Held it was within power of company.
It must kept in mind that a company’s object
shall not be incidental merely on the ground
that it is for the benefits of the company.
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Subscription of members.
Name and number of share takes.
Signed by each subscriber
Witness
Details address.
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Form of memorandum
Gist of memorandum
Signing and attestation of memorandum
Signature of each subscriber must be attested by
at least two witnesses.
But a subscriber himself can’t sign as a witness as
a person who is a party to a deed can’t be a
witness to that very deed.
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Legal Relationship [sec 22]
Ultra vires activities
( Ashbury Railway Carriage and Iron Co vs Riche) (1887)
Alteration of memorandum
Abridge document
Liability of third Party
Conflict between memorandum and articles
Constructive Notice
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Ultra means beyond and vires means power.
Whenever, a company does any act which is
not authorized by the object clause of its
memorandum or when it practices in access
of its power, it is called activity ultra vires.
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The doctrine is early found in the case
Ashbury Railway Carriage and Iron Co. Ltd Vs Riche
(1875)
Facts of the case: to make and sell, or lend or hire,
railway carriages and wagons all kinds of railway plants,
etc. .. To carry on business of mechanical engineers, and
general contractors…” – mechanical engineering
But later, enter into contract with Riche for railway line
constrcution which is civil engineering in nature.
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The contract was ultra vires and so, null and
void.
Lord Cairns LC, stated as follows:
The subscribers are to state the objects for which
the proposed company is to be established and
then and the company comes into existence for
those objects and those only.
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Such a statement of objects has a two- fold
operation:
i) It states affirmatively the ambit and
extent of powers of the company; and
ii) It states negatively that nothing shall be
done beyond that ambit.
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Injunction
any member can seek remedy.
Ultra vires acquired Property
Company have the right to protect the ultra vires
acquired property.
Personal liability of directors for ultra vires
payments.
Personally liable to make goods the funds ultra
vires used.
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Ultra vires contracts
has no legal force.
Ultra vires torts - Company is not liable. Only liable:
Tort is committed in pursuance of its stated object.
It is committed within the course of their business.
Breach of warranty of authority
Being a company agent, a director must act within
his authority. In case of doing anything ultra vires
to authority, he will be liable.
Any Question?
