Friday, January 27, 2017

Memorandum of association of a company

Memorandum of association of a company in Corporate law

LLB student notes, company law guide, Memorandum of association

1. INTRODUCTION And importance of memorandum of association:

The memorandum of association is the most important document as it forms the charter of the company and is so to say, the statutory deed of partnership. It contains the fundamental conditions upon which alone the company is granted incorporation. Its purpose is to enable shareholders, creditors, and those who deal with the company to know what is its permitted range of enterprise. It informs all persons what the company is formed to do and what capital it has to do with. This document regulates the company’s external affairs. Sections 16,17 and 18 lays down the contents of a memorandum of association.  

2. DEFINITIONS: 

Some definitions are as follows: 
(1) Lord Cairns: The memorandum of association of the Company is its charter and defines the limitations of the powers of the company established under the Ordinance.
(2) Lord Mcmillan: The purpose of memorandum is to enable the shareholders, creditors and those who deal with the company to know what is permitted range of enterprise. 

3. FORM OF MEMORANDUM (Section 29):

The form of
a. The memorandum of association of a company limited by shares; 
b. The memorandum of association of a company limited by guarantee and not having a share capital
c. The memorandum of association of a company limited by guarantee and having a share capital.
d. The memorandum of association of an unlimited company having a share capital.
shall be respectively in accordance with the forms set out in Table B, C, D and E in the First Schedule or as near thereto as circumstances admit, Section 29. 

4. CONTENTS OR CLAUSES OF Memorandum of association (Sections 16,17 and 18):

Sections 16,17 and 18 of the Companies Ordinance lay down the particulars that are to be mentioned in the memorandum of association of a company. 

A. Limited by Shares: 

In the case of a company limited by shares, the memorandum must state.  
i. Name of the company.  
ii. Place of its registered office. 
iii. Objects of the company. 
iv. That the liability of the members is limited. 
v. Amount of capital and the division thereof into shares of a fixed amount. 
vi. The association clause and subscription Section 16. 

B. Limited by Guarantee: 

In the case of a company limited by guarantee and having a share capital, all the above mentioned facts should be stated. Where such a company does not have a share capital item (v) above shall be omitted. In the case of a company limited by guarantee, whether or not the company has a share capital, the memorandum shall state that 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 afterwards, for payment of the debts and liabilities of the company contracted before he ceases to be a member, and of the costs, charges and expenses of winding up and for adjustment of rights of contributors. Section 18(a)(v).

C. Unlimited Company: 

In the case of an unlimited company, clauses (iv) and (v) out of the above mentioned clauses have to be omitted (Section 18).Each of these clause is briefly discussed as follows: 

(1) Name Clause:

According to Sections 16, 17 and 18,. the memorandum of a company must state:  
(a) In the case of a public company limited by shares, word ‘limited’ as the last word of the name
(b) In the case of a private company limited by shares, the words (Private) Limited as the last words of the name. (c) In the case of a company limited by guarantee, the words ‘(Guarantee) Limited’ as the last words of the name.  

(2) Situation Clause. Section 16 (a)(ii), 17(a)(ii) and 18 (a)(ii): 

By situation clause is meant the place of the registered office. The memorandum of every company, whether limited by shares, or limited by guarantee or unlimited company must state:
(a) The province, or (b) The part Of Pakistan not forming part of province as the case may be, in which the registered office of the company is to be situated. 

(3) OBJECT CLAUSE. Section 16(a)(iii), 17(a)(iii) & 18 (a)(iii): 

The memorandum of a company must state: (a) The objects of the company, and (b)The territories to which they extend. However, the territories need not be mentioned in the memorandum of a trading corporation. 

(4) Liability Clause: Sections 16(a) (iv), 17 (a)(iv): 

Whether the liability of the members is limited by shares, Section 15(2)(a), or by guarantee, Section 15(2)(b), the memorandum merely states that the liability of the members is limited, Section 16(a) (iv) and Section 17(a) (iv). Where a company has obtained a license of the authority under Section 42(1) to dispense with the word ‘Limited’ as part of its name, memorandum must contain a statement, that the liability of the members is limited (Section 42). If a company carries on business for more than six months with less than the statutory minimum of members (two in the case of a private company and seven in the case of a public company) Section 15(1), every person who is member during the time that it carries on business after such six months and who knows that it is carrying on business with less than the statutory minimum of members is severally liable for all its debts contracted during that time, and may severally be sued.  

(5) Capital Clause: Sections 16(a)(v) 17(a)(v) and 18(b): 

The memorandum of each company must state:  
(a) In the case of a company limited by shares. 
i. The amount of share capital with which company proposes to be registered, and ii. The division thereof into shares of a fixed amount. 
(b) In the case of a company limited by guarantee whether or not it has a share capital: 
i) That 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 afterwards for payment of:  
(a) debts and liabilities of the company contracted before he ceased to be a member, and (b) of the costs, charges and expenses of winding up, and (c) for adjustment of rights of the  contributors, not exceeding a specified amount.
ii) If the guarantee company has a share capital, the memorandum must state:
a. The amount of share capital with which the company proposes to be registered, and (b) The divisions thereof into shares of a fixed amount, Section 17 (b)(1).
(c) In the case of an unlimited company, the memorandum must state: 
i. The amount of share capital with which the company proposes to be registered, and ii. The division therefore, into shares of a fixed amount. 

(6) Association Clause and Subscription: Sections 16,17, 18 and 19:

The association clause is a clause of the memorandum by which the subscribers to the memorandum (two in the case of a private company and seven in the case of a public company) declare that they desire to be formed into a company in pursuance of the memorandum and agree to take the number of shares set opposite their respective names such subscription contains: 
(a) The name of subscribers (b) Addresses of subscribers (c) Description of subscribers (d) Number of shares which each has subscribed. The subscribers must take at least one share each, whether the company is limited by shares, or by guarantee and having a share capital, or an unlimited having a share capital, Sections 16(b),17(b)(ii), and 18(b)(i). In the case of all these companies, each subscriber must write opposite his name the number of shares he takes, Sections 16 (c) 17(b) (iii) and 18(b)(ii). The memorandum must be signed by each subscriber, in the presence of at least one witness Section 19(c). The signature must be attested and it is Permitted that only one witness may attest both or all the signatures, Section 19(c). The date of execution must be mentioned, Section 19(d). Section (19)c places no restriction on the registration of a company whose all the signatories are foreigners resident abroad. 

5. SIGNATURE AND ATTESTATION OF MEMORANDUM:  

The memorandum of every company must be printed, divided into paragraphs numbered consecutively and signed by each subscriber in the presence of at least one Witness. 

6. REGISTRATION OF MEMORANDUM: 

The memorandum of association is filed with the registrar in which the registrar of the company will be situated. 

7. EFFECTS OF REGISTRATION: 

The effects of registration of memorandum are as under  
a. The registrar certifies that the company is incorporated 
b. The subscribers become the members of the company 
c. The company enjoys perpetual succession and a common seal. 
d. The members of company become responsible to pay on Winding up.


Related important Questions:

What is the memorandum of association? and what is the procedure adopted for the alteration of memorandum of association of a company? for this part see my next post.
Discuss in detail the memorandum of association.
Define memorandum of a company. Discuss its essential clauses.

This Post includes:

Complete Explanation of memorandum of association of a company under commercial law.
Memorandum of association, clauses of memorandum of association ,contents of memorandum of association, importance of memorandum of association.
Procedure of Registration, attestation and effects of registration of memorandum of association of a company are also included in this post.

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