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MBL1 contact class

Ms. Arpitha H.C
Assistant Coordinator
Distance Education Department
National Law School of India University
Bangalore-560 072.
email- arpithahc@nls.ac.in
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Overview of the syllabus
Unit 2 - Characteristics of corporate personality
Memorandum of association
Doctrine of ultra vires
Articles of association
Doctrine of constructive notice
Doctrine of indoor management
Prospectus
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Memorandum of Association
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Meaning and Importance
One of two official documents that describe the company's constitution
First step in the formation of a company.
Contains the fundamental conditions as to upon which the company is
incorporated.
Section 2(28)- Memorandum of a company as originally framed or
altered from time to time in pursuance of any previous companies law
or of this act. - Under Section 2(56) of the Act of 2013.
What is the Purpose of MOA?
Defines and confines the powers.
Anything done beyond the powers is ultra vires and void.
Ashbury Railway Carriage & Iron Co. Ltd. v. Riche[1875]L.R. 7
H.L.653- Two Purposes
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Form and contents
To be printed, divided into paragraphs and signed by the
subscribers.
To be in the format and order given in the Tables of
Schedule I.[ Section 14]- Section 4( 6) of the 2013 Act.
Signatures of subscribers to be attested by a witness.
Incase of One person Companies
- The MOA of a one person company shall indicate the
name of the person who shall, in the event of the
subscribers death, disability or otherwise, become the
member of the company.
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Six clauses
Compulsory Clauses of Memorandum of
Association
Name
Registered
office
Liability Capital
Association
or subscription
Objects
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Requirements with respect to Memorandum
(1) Nameclause(section13(1) (a))- Nowunder Section4(1) (a) of the
2013Act.
Nameof thecompany- Itssignificance
A company being alegal person must haveanameto establish
itsidentity.
The name of the company ,with Limited or Private
Limited as thelast words of anameinthecaseof aPublic
companyor aprivatecompanyasthecasemaybe.
Licensetodrop Limited
Incaseof aOnePersonCompany?
TheMOA of acompany shall statethelast letters andword
OPC Limited in the case of a One Person limited
company.
But certainrestrictions
1. Opinionof thecentral government is undesirableif identical
name[Section20]- Section4(2) of the2013Act.
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Guidelines for deciding the availability of
names
According to the clarification issued by the department of
company affairs:
Identical names
Society of motor manufacturers and traders Ltd v Motor
Manufacturers and traders Mutual Assurance Ltd.[1925]
1 ch.675.
Identical to the company in liquidation.
Additionandsubtractionof words.
Resemblance with abbreviated companies, for example, TISCO.
Attracts the provisions of emblem and names (Prevention of
Improper Use) Act, 1950.
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Guidelines for deciding the availability of
names
If it connotes Government participation unless circumstances justify
(National, President, Central).
Association of a national hero or any person of High esteem.
Name of a Registered Trademark
If the name suggests a business that is not to be undertaken by a
company
If thenameisaexact Hindi translationof anexistingcompany.
Wordsoffensivetoanysectionof thepublic
Phoneticresemblance
J .K Industries, J ayKay
Publicationof Name[ Section147]
Reservationof Name- Section4(4) of the2013Act
Penalty- FineuptoRs500per daytill thedefault continues.
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Change of name (section 21)- Section 13 of
the Act of 2013
Change name by special resolution at a general meeting
with the approval of the Central Government signified in
writing.
But by ordinary resolution if the company is registered
and it resembles the other co.
1965 Amendment Dispenses with the approval of the
central Govt when the only change occurring in the
name is the deletion or addition of the word Pvt.
Consequent upon the conversion of the company from
Pvt to Public and vice versa.
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Rectification of Name
In such case, within 12 months it should rectify its
name.
The company should change the name within 3 months.
Penalty- upto Rs 1000 everyday
Change of name by a Banking Company Sec 49B of
the Banking (Regulation) Act,1959- A non objection
certificate is required from the RBI before the approval
by the central Govt.
Reasonable opportunity to defend in case of change of
name- Sholay Comp. (P.) Ltd. v. Regional Director,
Govt. Of India[2004] 53 SCL 460 (Mad.)
Change of Name during Legal Proceedings
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Registered Office Clause (Section 13(1)(b))-
Section 12 of the Act of 2013
Name of the state in which the registered office of the
company is situated and not the place
Changes made in the 2013 Act
Notices and communications are sent here.
The exact address of the registered office should be
given to the ROC in Form no.18,within 30 days from the
date of incorporation {section 146} determines its
domicile for all the purposes and determines the court
which will have jurisdiction over it.
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A company is required to keep variety of registers and
records at its registered office.
Register of members(163)
Register of directors(303)
Accounts books(209)
Register of mortgages and charges and the copies of
registered documents(s.143)etc
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Change of Registered office
a) Change of registered office from one premise to another premise in
the same city, town or village (sec 146)
- By passing a resolution of the Board of Directors.
- Within 30 days to be filed with the registrar as in Form no. 18.
- No alteration in the memorandum
b) Change of registered office from one town or city or village to
another town or city or village in the same state
- Special resolution
- Confirmation of Regional Director
- Both the copies to be filed with ROC within 30 days
- Notice of new location
c) Change of registered office from one state to another
Special resolution and confirmation of central government
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Lossof revenueor employment of state, whether relevant
consideration
- OrientPaper MillsLtd. v. StateAIR 1957Ori,232
- Minerva Mills Ltd. v. Govt. of Maharashtra [ 1975] 45
Comp. Cas.1(Bom.)
- Registeredofficecanbechangedonlyfor somepurposes.
( Same as Alteration of Objects- grounds being common)
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Objects Clause (section 13(1)(c) &(d))
Defines the Objects of the company and the
spheresof itsactivities.
Anythingdonebehindthecompanys objects is
Ultravires and void and cannot beratified even
bytheassent of thewholebodyof shareholders.
Choice of the objects lies in the subscribers to
thememorandum
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The objects clause must be divided in to three sub-clauses,
namely:
(i) Main Objects- It has to state the main objects to be pursued
by the company on its incorporation and objects incidental
or ancillary to the attainment of the main objects. (Sec. 13
(d))
(ii) Other Objects- This must state other objects which are not
included in the above clause.
(iii) State to which objects extend- In the case of non-trading
companies, whose objects are not confined to one state,
this sub-clause has to mention the states to whose
territories the objects extend.
.
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Why objects?
1) Protection to the shareholders by ensuring that
the funds raised for one undertaking are not
riskedbyanother.
2) Offers a certain degree of protection to the
creditorsalso
3) Servesthepublicinterest also
Cotman V. Brougham [(1918) A.C. 514], :gives protection to subscribers
who learn from it the purposes to which their money can be applied. In the
second place it gives protection to persons who deal with the company and
who can infer from it the extent of the companys powers
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Which is prohibited by the General Law. For
example, Business in gambling
Which is prohibited by the Companies Act.
Eg- Power to purchase its own shares by the company
may lead to reduction of capital which is prohibited by
S.77A,77AA etc.
Which is beyond the objects of the Company-
Ultravires
The objects of the company must
not include
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Both are objects of the company
If the main objects are not commenced within
one year of the incorporation then a petition may
be filed for winding up of the company( see s.
433(c) ).
In case of other objects no consequences if not
implemented.
Main objects vsOther Objects
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Alteration of objects
A company may change its objects only in so far as the
alterationisnecessaryfor anyof thefollowingpurposes:
To carry on its business more economically or more
efficiently; or
To attain its main purpose by new or improved means; or
To enlarge or change the local area of its operation; or
To carry on some business which under existing
circumstances 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
To sell or dispose of the whole or any part of the
undertaking, or of any of the undertakings, of the
company; or
To amalgamate with any other company or body of
persons.
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Doctrine of Ultra Vires
Ultra means beyond and Vires means powers
Object of the Doctrine laid in Ashbury Railway Carriage
and Iron Company Ltd v. Riche[1875]LR 7 HL 653
To protect investors and creditors
Lakshmanaswami Mudaliar v. Life Insurance Corporation
Of India.AIR 1963 SC 1185
Doctrine- AnIllusoryprotection
- Belhouse Ltd v. City Wall Properties Ltd [(1966)36 Comp. Cases 779] In this case, the
object clause included the power to carry on any other trade or business whatsoever,
which can, in the opinion of Board of Directors, be advantageously carried on by the
Company
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Effects of ultra vires transactions
1) Void ab initio
Ashbury Railway carriage and Iron Company v. Riche and NEPC India
Ltd v. Registrar of Companies[1999]22 SCL 94- Conflicting decisions.
2) Injunction
- Attorney General v. G.E. Rly.Co.[1980]S.A.C. 473
3) Personal Liability of Directors
It is the duty of the director to ensure that the corporate capital is used only for the legitimate
business of the company, In case of such capital being diverted, the directors are
personally liable to replace it. The directors and other officers are personally
accountable to third parties in case of ultra vires transactions.
- Distinction between Ultra vires the Company and Directors
4) Acquisition of property that is ultra vires
Where a companys money has been used ultra vires to acquire some property, the
companys right over such property is held secured.
2) Directors personally liable to third parties
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Liability clause[ sec. 13 (2)]
A declaration that the liability of the members is
limited.
Alteration of Liability clause[ Sec 38]
- The liability of a member of a company cannot be
increased unless the member agrees in writing.
- From unlimited liability, it can be made limited by re-
registration of the company.
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Capital clause
The amount of authorized share capital (in the
case of a company having share capital) divided
into shares of fixed amount.
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Alteration of capital clause [sec 94]
- Increase of Authorised share capital
- Consolidation and sub-division of shares
- Conversion of shares into stock and vice versa
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Subscription clause (section 13(4)(c))
We the several persons whose name and addresses are
subscribed, are desirous of being formed in to a
company, in pursuance of this memorandumand we
respectively agreeto takethenumber of shares in the
capital of the company set opposite our respective
names
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Subscription clause (cont)
1. Signed by each subscriber in the presence of at
least one witness who must attest the signature.
2. Must take at least one share.
3. Opposite his name the no. of shares taken.
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Articles of Association
Definition
Article means thearticles of associationof acompany
as originally framed or as altered fromtime to time in
pursuance of any previous companies laws or of this
Act
Sec.2 (2) of the Companies Act, 1956
Sec.2(5) of the Companies Act, 1956
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Articles of Association (cont)
Management of the Internal regulations of a
company
Next important to MOA But must not violate the
memorandum and the Act.
Optional for company limited by shares
Compulsory for company limited by guarantee
and unlimited company.
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Form and Contents of AOA
Should be in Table F,G,H,I and J of Schedule I
AOA provide information on:
a. Adoptions or execution of pre-incorporation contracts.
b. Alteration of Authorised Capital.
c. Shares-issue, transfer, transmission, buy-back etc.
d. Mode and limit of Borrowings.
e. General Meetings-Notice etc.
f. Directors-appointment, remuneration etc..
g. Dividend, reserves etc.
h. Accounts and audit.
i. Amalgamations, mergers etc.
j. Common seal-use and custody.
k. Managers and Secretaries.
l. Winding up.
Relationship between memorandum and Articles Of
Association
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Section 30- to be printed , divided into paragraphs,
numbered consecutively and signed by the
subscriber.
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Alteration of Articles (sec 31) ( Section 14 as
per the Act of 2013)
Procedure:
Alteration by passing a special resolution.
Copy of resolution to be sent to registrar within 30
days.( Now within 15 days as per the 2013 Act)
Copy of altered articles to be registered within 3
months of passing of resolution.
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Limitation on power to alter Articles
Must not be inconsistent with the Act
Must not conflict with Memorandum
Must not be inconsistent with an order of the Tribunal
under section 397 or 398 of the companies Act.
Must not sanction anything illegal
Must be bonafide for the benefit for the company.
- Allen v. Gold Reefs of West Africa Limited [1900] 1 Ch.656
Approval of govt. to be obtained in certain cases
Alteration must not constitute a fraud on the minority
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Binding force of Memorandum and articles
(sec 36)
The following are the legal implications:
Company is bound to its members
Each member is bound to the company
Each member is bound to other members in exceptional
case only
Neither the company nor the members are bound to
outsiders
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Difference between MOA & AOA
MOA
Lays down the main
objects
Bound by Company Law
Requires special
procedures
Must for every company
Governed by Doctrine of
Ultravires
Act, Ultra Vires is
wholly void & cannot be
ratified.
AOA
Lays down the rules and regulations of the
company regarding the internal administration
of the company.
Bound by MOA.
simpler procedure.
for its endorsements
Company limited by shares need not have it
(Table A applies)
Governed by Doctrine of Indoor
Management
Act Ultra Vires (but intra viresthe
memorandum) can be ratified.
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DOCTRINE OF CONSTRUCTIVE NOTICE
[ Section 610]
Documents are open & accessible to all.
Presumption that any outsider dealing with
company has read & understood the documents.
It is a negative doctrine, acting only against the
outsiders & not the company.
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DOCTRINE OF INDOOR MANAGEMENT
Persons dealing with the company in good faith
have a right to assume that the internal
requirements prescribed in public documents have
been observed
Persons are not bound to enquire into regularity of
internal proceedings
Royal British Bank v. Turquand [1856]6 327.
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Exceptions
Knowledge of irregularity
No knowledge of Articles
Forgery
Negligence
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Prospectus (Section 2(36))
Any document described or issued as prospectus and
includes any notice,circular,advertisement or other
document inviting deposits from the public for the
subscription or purchase of any shares or debentures of a
body corporate.
Section 2(70) of the 2013 Act- Any document described or
issued as a prospectus and includes a red herring
prospectus referred to in section 32 or shelf prospectus
referred to in section 31 on any notice, circular,
advertisement or other document inviting offers from the
public for the subscription or purchase of any securities of
a body corporate.
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Contents of the Prospectus
General Information of the Company
Capital structure of the company
Terms of the present issue
Particulars of the issue
Company management and project
Particulars in regard to the company
Outstanding litigation pertaining to matters
Management perception of risk factors
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Experts consent to the issue of prospectus
When prospectus is not to be issued?
Statutory requirements in relation to a prospectus.
- Dating of Prospectus
- Registration of a prospectus
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Shelf prospectus (section 60 A)
Information memorandum (section 60 B)
Statement in lieu of Prospectus( Section 70)
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Misstatements in a Prospectus and their
Liabilities
Q&A
Clarifications
Suggestions for improvements
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Thank You!