Memorandum of Association :
The Memorandum of Association of company is in fact its charter; it defines its constitution and the scope of the powers of the company with which it has been established under the Act. It is the very foundation on which the whole edifice of the company is built.
“Fundamentally, there are two objects in registering the memorandum. First, that the intending corporator who contemplates the investment of his capital may know within what fields it will be incurring risks. Secondly, that anyone dealing with the company may know without reasonable doubt whether the contractual relationship which he is proposing to enter into with the company is one relating to matters within its corporate objects”. A company cannot depart from the provisions contained in the memorandum however imperative may be the necessity for the departure. It cannot enter into a contract or engage in any trade or business, which is beyond the power confessed on it by the memorandum. If it does so, it would be ultra vires the company and void. A memorandum is a public document under Section 399 of the Companies Act, 2013. Consequently, every person entering into a contract with the company is presumed to have the knowledge of the conditions contained therein.
Section 4 of the Companies Act, 2013 seeks to provide for the requirements with respect to memorandum of a company.
(i) Content of the memorandum: The memorandum of a company shall state—
(a) 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. This clause is not applicable on the companies formed under section 8 of the Act.
The name including phrase ‘Electoral Trust’ may be allowed for Registration of companies to be formed under section 8 of the Act, in accordance with the Electoral Trusts Scheme, 2013 notified by the Central Board of Direct Taxes (CBDT). For the Companies under section 8 of the Act, the name shall include the words foundation, Forum, Association, Federation, Chambers, Confederation, council, Electoral trust and the like etc. [The Companies (Incorporation) Rules, 2014]
(b) the State in which the registered office of the company is to be situated;
(c) the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;
If any company 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 six months from the change of activities after complying with all the provisions as applicable to change of name.
(d) the liability of members of the company, whether limited or unlimited, and also state,—
♦ in the case of a company limited by shares, that the 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;
(e) 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;
(f) in the case of OPC, the name of the person who, in the event of death of the subscriber, shall become the member of the company.
(ii) Applying for the name of the company: The name stated in the memorandum shall not—
(a) be identical with or resemble too nearly to the name of an existing company registered under this Act or any previous company law; or
(b) be such that its use by the company—
♦ will constitute an offence under any law for the time being in force; or
♦ is undesirable in the opinion of the Central Government.
As per the Notification S.O. 1353(E), dated 9th Of July, 2014. In exercise of powers conferred by Section 458 of the Companies Act, 2013 & in supersession of the notification of the Government of India, MCA, dated the 10.07.2012 published in the Gazette of India, Extraordinary, Part-II, Sec-3, sub-sec (ii) vide no. S.O. 1538(E), dated 10.07.2012, in so far as it relates to items (a) to (b) & items (d) to (e), except as respect things done or omitted to be done before such supersession, the Central Government. hereby delegates to the ROC the power & functions vested in it under the this section[i.e. section 4(2)] of the said Act, subject to the condition that the Central Government may revoke such delegation of powers or may itself exercise the powers & functions under the said sections, if in its opinion,such course of action is necessary in the public interest.
(iii) Registration of name of the company: Without effecting the above provisions, a company shall not be registered with a name which contains—
• any word or expression which is likely to give the impression that the company is in any way connected with, or having the patronage of, the Central Government, any State Government, or any local authority, corporation or body constituted by the Central Government or any State Government under any law for the time being in force; or
• such word or expression, as may be prescribed, unless the previous approval of the Central Government has been obtained for the use of any such word or expression. Vide General Circular No. 02/2014, dated 11.02.2014 a clarification was issued on the use of word ‘National’ in the names of Companies or LLP. According to which no company should be allowed to be registered with the word ‘National’ as part of its title unless it is a government company & the Central/State govt. has a stake in it.
Similarly, the word ‘Bank’ may be allowed in the name of an entity only when such entity produces a ‘No Objection Certificate’ or ‘Exchange’ should be allowed in the name of a company only where ‘No Objection Certificate’ from SEBI in this regard is produced by the Promoters.
(iv) Requirement for the reservation of the name of the company: (a) A person may make an application, in such form and manner and accompanied by such fee, as may be prescribed, to the Registrar for the reservation of a name set out in the application as—
• the name of the proposed company; or
• the name to which the company proposes to change its name.
(b) Upon receipt of an application under sub-section (4), the Registrar may, on the basis of information and documents furnished along with the application, reserve the name for a period of sixty days from the date of the application.
(c) Where after reservation of name it is found that name was applied by furnishing wrong or incorrect information, then,—
• if the company has not been incorporated, the reserved name shall be cancelled and the person making application shall be liable to a penalty extending to one lakh rupees;
• if the company has been incorporated, the Registrar may, after giving the company an opportunity of being heard—
♦ either direct the company to change its name within a period of three months, after passing an ordinary resolution;
♦ take action for striking off the name of the company from the register of companies;
or
♦ make a petition for winding up of the company.
As per the General Circular No.29/2014, dated11th of July, 2014 , Government hereby directed that while allotting names to Companies/Limited Liability Partnerships, the Registrar of Companies concerned should exercise due care to ensure that the names are not in contravention of the provisions of the Emblems and Names (Prevention of Improper Use) Act, 1950. It is necessary that Registrars are fully familiar with the provisions of the said Act.
(v) Forms and schedule related to memorandum: The memorandum of a company shall be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable to such company.
(vi) Any provision in the memorandum or articles, in the case of a company limited by guarantee and not having a share capital, shall not give any person a right to participate in the divisible profits of the company otherwise than as a member. If the contrary is done, it shall be void.
Doctrine of ultra vires: The meaning of the term ultra vires is simply “beyond (their) powers”. The legal phrase “ultra vires” is applicable only to acts done in excess of the legal powers of the doers. This presupposes that the powers are in their nature limited. To an ordinary citizen, the law permits whatever does the law not expressly forbid. It is only when the law has called into existence a person for a particular purpose or has recognised its existence- such as in the case of a limited company – that the power is limited to the authority delegated expressly or by implication and to the objects for which it was created. In the case of such a creation, the ordinary law applicable to an individual is somewhat reversed, whatever is not permitted expressly or by implication, by the constituting instrument, is prohibited not by any express prohibition of the legislature, but by the doctrine of ultra vires.
It is a fundamental rule of Company Law that the objects of a company as stated in its memorandum can be departed from only to the extent permitted by the Act – thus far and no further [Ashbury Railway Company Ltd. vs. Riche]. In consequence, any act done or a contract made by the company which travels beyond the powers not only of the directors but also of the company is wholly void and inoperative in law and is therefore not binding on the company. On this account, a company can be restrained from employing its fund for purposes other than those sanctioned by the memorandum. Likewise, it can be restrained from carrying on a trade different from the one it is authorised to carry on.
The impact of the doctrine of ultra vires is that a company can neither be sued on an ultra vires transaction, nor can it sue on it. Since the memorandum is a “public document”, it is open to public inspection. Therefore, when one deals with a company one is deemed to know about the powers of the company. If in spite of this you enter into a transaction which is ultra vires the company, you cannot enforce it against the company. For example, if you have supplied goods or performed service on such a contract or lent money, you cannot obtain payment or recover the money lent. But if the money advanced to the company has not been expended, the lender may stop the company from parting with it by means of an injunction; this is because the company does not become the owner of the money, which is ultra vires the company. As the lender remains the owner, he can take back the property in specie. If the ultra vires loan has been utilised in meeting lawful debt of the company then the lender steps into the shoes of the debtor paid off and consequently he would be entitled to recover his loan to that extent from the company.
An act which is ultra vires the company being void, cannot be ratified by the shareholders of the company. Sometimes, act which is ultra vires can be regularised by ratifying it subsequently. For instance, if the act is ultra vires the power of the directors, the shareholders can ratify it; if it is ultra vires the articles of the company, the company can alter the articles; if the act is within the power of the company but is done irregularly, shareholder can validate it.