General meaning of Memorandum of Association

The memorandum of association of company, generally called the memorandum is the document that
governs the relationship between the company and the outside.
Definition according to Companies Act, 2013

Memorandum of association is one of the documents which have to file with the registrar of companies at
the time of incorporation of a company. Section 2(56) defines a memorandum to mean “the
memorandum of association of a company as originally framed or as altered from time to time in
pursuance of any previous company law or of this act.” The definition, however, either does not give us
any idea as to what a memorandum of association really is nor does it point out the role which it plays in
the affairs of the company. Memorandum of association is one of the documents which has to filed
with the registrar of companies at the time of incorporation of a company. Section 2(28)defines a
memorandum to mean “the memorandum of association of a company as originally framed or as
altered from time to time in pursuance of any previous company law or of this act.” The definition,
however, either does not give us any idea as to what a memorandum of association really is nor does
it point out the role which it plays in the affairs of the company.

The memorandum of association is an extremely important document in relation to the affairs of the
company. It is a document which sets out the constitution of the company and is really the
foundation on which the structure of the company is based. It contains the fundamental conditions
upon which alone the company is allowed to be incorporated. A company may pursue only such
objects and exercise only such powers as are conferred expressly in the memorandum or by
implication therefore i.e. such powers as are incidental to the attainment of the objects. A company
cannot depart from the provisions contained in its memorandum, however, great the necessity may
be. If it does, it defines its relation with the outside world and the scope of its activities. The purpose
of the memorandum is to enable shareholders, creditors and those who deal with the company to
know what is the permitted range of the enterprise.

Purpose of memorandum
1. The intending share holder who contemplates the investment of his capital shall know within
what field it is to be put at risk.
2. Anyone who shall deal with the company shall know without reasonable doubt whether the
contractual relation into which he contemplates entering with the company is one relating to a matter
within its corporate objects.
Contents of Memorandum
According to section 4, the memorandum of association of every company must contain the following
clauses:
1. The name of the company with ‘limited’ as the last word of the name in the case of a public
limited company and with ‘private limited’ as the last word in the case of a private limited company.
2. The state in which the registered office of the company is to be situated.
3. The objects of the company to be mentioned.
4. In the case of companies with object not confined to one state, the states to whose territories
the objects extend.
5. The liability of members is limited if the company is limited by shares or by guarantee.
6. In the case of a company having a share capital, the amount of share capital with which the
company proposes to be registered and its division into shares of a fixed amount.
Procedure to alter Memorandum of Association through Special
Resolution & Confirmation by Central Government (Section 13)
 A Company may, by Special Resolution alter  its MOA so as to change the place of its Registered
Office from one State to another, or with respect to the objects of the Company so far as may be
required to enable it-
(a) to carry on its business more economically or more efficiently; or
(b) to attain its main purpose by new or improved means; or
(c) to enlarge or change the local area of its operations; or
(d) to carry on some business which under existing circumstances may conveniently or advantageously
be combined with the business of the Company; or
(e) to restrict or abandon any of the objects specified in MOA; or
(f) to sell or dispose of the whole or any part of the undertaking, or of any of the undertakings, of the
Company; or
(g) to amalgamate with any other Company or body of persons.
 The alteration of the provisions of MOA relating to the change of the place of its Registered
Office from one State to another shall not take effect unless it is confirmed by the Central Government on
petition.
 The application shall be filed with Central Government in Form No. INC 23 along with fee and
other necessary documents.
 Before confirming the alteration, the Central Government must be satisfied-
 that sufficient notice has been given to every debenture holder & to every other person or class
of persons whose interests will (in the opinion of the Central Government) be affected by the alteration;
&
 that, with respect to every creditor who, in the opinion of the Central Government, is entitled to
object to the alteration, & who signifies his objection in the manner directed by the Central Government,
either his consent to the alteration has been obtained or his debt or claim has been discharged or has
been determined, or has been secured
 Central Government may make an order confirming the alteration on such terms & conditions, if
any, as it thinks fit, and may make such order as to costs as it thinks proper.
 The certified copy of the order of the Central Government approving the Alteration of
Memorandum for transfer of registered office from one state to other shall be filed in Form No. INC 28
along with fee as with the Registrar of the State within 30 days from the date of receipt of certified copy
of the other.
Change of Registered Office within a State
 An application seeking confirmation from Regional Director shall be filed in Form No. INC 23
along with fee.
 No Company shall change the place of its Registered Office from one place to another within a
State unless such change is confirmed by the Regional Director
 Confirmation of change of Registered Office shall be communicated to the Company within 4
weeks.
 Co shall file, with Registrar of Company a certified copy of the confirmation by the Regional
Director for change of its Registered Office within 2 months from the date of confirmation, together with
a printed copy of MOA as altered & the Registrar of Company shall register the same & certify the
registration under his hand within 1 month from the date of filing of such document.
 Alteration has to be registered within three months.
Alteration of Memorandum by Change of name
An application shall be filed in Form No. INC 24 along with fee for change in name of the company and a
new certificate of incorporation in Form No. INC 25 shall be issued to the company.
Effect of failure to register
If company fails to register within the time prescribed then all such alterations made and the orders of
Central Government shall become void and inoperative.

General meaning of Article of Association

The Articles of Association is a document that contains the purpose of the company as well as the duties
and responsibilities of its members defined and recorded clearly. It is an important document which
needs to be filed with the Registrar of Companies.
Definition according to Companies Act 2013
“Articles” means the articles of association of a company as originally framed or as altered from time to
time (section 2 (5) )

Definition: The Articles of Association or AOA are the legal document that along with the
memorandum of association serves as the constitution of the company. It is comprised of rules and
regulations that govern the company’s internal affairs.

Purpose of Article of Association

Articles of Association of a company governs the running of a company; setting out voting rights of
shareholders, conduct of shareholders’ and directors’ meetings, powers of the management. The articles
contain regulations for the internal affairs and management of the company (section 5).

The articles of association are concerned with the internal management of the company and aims
at carrying out the objectives as mentioned in the memorandum. These define the company’s
purpose and lay out the guidelines of how the task is to be carried out within the organization.
The articles of association cover the information related to the board of directors, general
meetings, voting rights, board proceedings, etc.

The articles of association are the contracts between the shareholders and the organization and
among the shareholder themselves. This document often defines the manner in which the shares
are to be issued, dividend to be paid, the financial records to be audited and the power to be
given to the shareholders with the voting rights.

The articles of association can be considered as the user manual for the organization that
comprises of the methodology that can be used to accomplish the company’s day to day
operations. This document is a binding on the shareholders and the organization and has nothing
to do with the outsiders. Thus, the company is not accountable for any claims made by any
external party.

The articles of association is comprised of following provisions:

 Share capital, call of share, forfeiture of share, conversion of share into stock, transfer of shares,
share warrant, surrender of shares, etc.
 Directors, their qualifications, appointment, remuneration, powers, and proceedings of the
board of directors meetings.
  Voting rights of shareholders, by poll or proxies and proceeding of shareholders general
meetings.
 Dividends and reserves, accounts and audits, borrowing powers and winding up.
It is mandatory for the following types of companies to have their own articles:

1. Unlimited Companies: The article must state the number of members with which the company
is to be registered along with the amount of share capital, if any.
2. Companies Limited by Guarantee: The article must define the number of members with which
the company is to be registered.
3. Private Companies Limited by Shares: The private company having the share capital, then the
article must contain the provision that, restricts the right to transfer shares, limit the number of
members to 50, prohibits the invitation to the public for the further subscription of shares in the form of
shares or debentures.

Note: In the case of a public company limited by shares, the articles may be framed by the
company itself or in case company does not register articles then it might adopt all of any
of the regulations as contained in Table A in the Companies Act.

Alteration of AOA by Special Resolution- Section 14

 Company by special resolution alters its article including alterations of Public Company into
Private Company or vice versa, for effecting such conversion an application shall be filed in Form No. INC
27 with fee. No alteration of converting a public company into private company shall take effect unless
approved by the central government.
 Alteration once approved by the Central Government, the printed copy of such approval shall be
filed in Form No. INC 27 with Registrar of Company within one month of the date of receipt of the order
of approval.

Doctrine of Ultra Vires

 The object clause of the Memorandum of the company contains the object for which the
company is formed. An act of the company must not be beyond the objects clause, otherwise it
will be ultravires and, therefore, void and cannot be ratified even if all the members wish to
ratify it. This is called the doctrine of ultra vires, which has been firmly established in the case of
Ashtray RailwayCarriage and Iron Company Ltd v. Riche. Thus the expression ultra vires means
an act beyond the powers. Here the expression ultra vires is used to indicate an act of the
company which is beyond the powers conferred on the company by the objects clause of its
memorandum. An ultra vires act is void and cannot be ratified even if all the directors wish to
ratify it. Sometimes the expression ultra vires is used to describe the situation when the directors
of a company have exceeded the powers delegated to them. Where a company exceeds its power
as conferred on it by the objects clause of its memorandum, it is not bound by it because it lacks
legal capacity to incur responsibility for the action, but when the directors of a company have
exceeded the powers delegated to them. This use must be avoided for it is apt to cause confusion
between two entirely distinct legal principles. Consequently, here we restrict the meaning of
ultra vires objects clause of the company’s memorandum.

Doctrine of ultra vires has been developed to protect the investors and creditors of the company.
The doctrine of ultra vires could not be established firmly until 1875 when the Directors, &C.,
of the Ashbury Railway Carriage and Iron Company (Limited) v Hector Riche, (1874-75) L.R. 7
H.L. 653 was decided by the House of Lords. A company called “The Ashbury Railway Carriage
and Iron Company,” was incorporated under the Companies Act, 1862. Its objects, as stated in
the Memorandum of Association, were “to make, and sell, or lend on hire, railway carriages and
waggons, and all kinds of railway plant, fittings, machinery, and rolling-stock; to carry on the
business of mechanical engineers and general contractors ; to purchase, lease, work, and sell
mines, minerals, land, and buildings; to purchase and sell, as merchants, timber, coal, metals, or
other materials, and to buy and sell any such materials on commission or as agents.” The
directors agreed to purchase a concession for making a railway in a foreign country, and
afterwards (on account of difficulties existing by the law of that country), agreed to assign the
concession to a Société Anonyme formed in that country, which société was to supply the
materials for the construction of the railway, and to receive periodical payments from the English
company.

The objects of this company, as stated in the Memorandum of Association, were to supply and
sell the materials required to construct railways, but not to undertake their construction. The
contract here was to construct a railway. That was contrary to the memorandum of association;
what was done by the directors in entering into that contract was therefore in direct contravention
of the provisions of the Company Act, 1862

It was held that this contract, being of a nature not included in the Memorandum of Association,
was ultra vires not only of the directors but of the whole company, so that even the subsequent
assent of the whole body of shareholders would have no power to ratify it. The shareholders
might have passed a resolution sanctioning the release, or altering the terms in the articles of
association upon which releases might be granted. If they had sanctioned what had been done
without the formality of a resolution, that would have been perfectly sufficient. Thus, the
contract entered into by the company was not a voidable contract merely, but being in violation
of the prohibition contained in the Companies Act , was absolutely void. It is exactly in the same
condition as if no contract at all had been made, and therefore a ratification of it is not possible.
If there had been an actual ratification, it could not have given life to a contract which had no
existence in itself; but at the utmost it would have amounted to a sanction by the shareholders to
the act of the directors, which, if given before the contract was entered into, would not have
made it valid, as it does not relate to an object within the scope of the memorandum of
association.

  To ascertain whether a particular act is ultra vires or not, the main purpose must first be
ascertained, then special powers for effecting that purpose must be looked for, if the act is neither
within the main purpose nor the special powers expressly given by the statute, the inquiry should
be made whether the act is incidental to or consequential upon. An act is not ultra vires if it is
found:
(a) Within the main purpose, or

(b) Within the special powers expressly given by the statute to effectuate the main purpose, or

(c) Neither within the main purpose nor the special powers expressly given by the statute but
incidental to or consequential upon the main purpose and a thing reasonably done for

effectuating the main purpose.

Over time a body of principles developed that prevented the application of the ultra vires
doctrine. These principles included the ability of shareholders to ratify an ultra vires transaction;
the application of the doctrine of estoppel, which prevented the defense of ultra vires when the
transaction was fully performed by one party; and the prohibition against asserting ultra vires
when both parties had fully performed the contract. The law also held that if an agent of a
corporation committed a tort within the scope of the agent’s employment, the corporation could
not defend on the ground that the act was ultra vires.

EFFECT OF ULTRA VIRES TRANSACTIONS

A contract beyond the objects clause of the company’s memorandum is an ultra vires contract
and cannot be enforced by or against the company as was decided in the cases of In Re, Jon
Beaufore (London) Ltd ., (1953) Ch. 131, In S. Sivashanmugham And Others v. Butterfly
Marketing PrivateLtd., (2001) 105 Comp. Cas Mad 763,

A borrowing beyond the power of the company (i.e. beyond the objects clause of the
memorandum of the company) is called ultra vires borrowing.

However, the courts have developed certain principles in the interest of justice to protect such
lenders. Thus, even in a case of ultra vires borrowing, the lender may be allowed by the courts
the following reliefs:

(1) Injunction — if the money lent to the company has not been spent the lender can get the
injunction to prevent the company from parting with it.

(2) Tracing— the lender can recover his money so long as it is found in the hands of the
company in its original form.

(3) Subrogation—if the borrowed money is applied in paying off lawful debts of the company,
the lender can claim a right of subrogation and consequently, he will stand in the shoes of
thecreditor who has paid off with his money and can sue the company to the extent the money
advanced by him has been so applied but this subrogation does not give the lender the same
priority that the original creditor may have or had over the other creditors of the company.

 
EXCEPTIONS TO THE DOCTRINE OF ULTRA VIRES

  There are, however, certain exceptions to this doctrine, which are as follows:

1. An act, which is intra vires the company but outside the authority of the directors may be
ratified by the shareholders in proper form.

2. An act which is intra vires the company but done in an irregular manner, may be validated by
the consent of the shareholders. The law, however, does not require that the consent of all the
shareholders should be obtained at the same place and in the same meeting.

3. If the company has acquired any property through an investment, which is ultra vires, the
company’s right over such a property shall still be secured.

4. While applying doctrine of ultra vires, the effects which are incidental or consequential to the
act shall not be invalid unless they are expressly prohibited by the Company’s Act.

5. There are certain acts under the company law, which though not expressly stated in the
memorandum, are deemed impliedly within the authority of the company and therefore they are
not deemed ultra vires. For example, a business company can raise its capital by borrowing.

6. If an act of the company is ultra vires the articles of association, the company can alter its
articles in order to validate the act.

Difference between MOA and AOA

Comparison Chart

BASIS FOR COMPARISON MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION

Meaning Memorandum of Association is a document Articles of Association is a

that contains all the fundamental information document containing all the
which are required for the incorporation rules and regulations that
of the company. governs the company.

Defined in Section 2 (56) Section 2 (5)

Type of Information Powers and objects of the company. Rules of the company.

Status It is subordinate to the Companies Act. It is subordinate to the memorandum.

Retrospective Effect The memorandum of association of The articles of association can

the company cannot be amended be amended retrospectively.
retrospectively.
Major contents A memorandum must contain six clauses. The articles can be drafted as per the
choice of the company.

Obligatory Yes, for all companies. A public company limited by shares can
adopt Table A in place of articles.

Compulsory filing at the Required Not required at all.

time of Registration

Alteration Alteration can be done, after passing Special Alteration can be done in the Articles
Resolution (SR) in Annual General Meeting by passing Special Resolution (SR)
and previous approval of Central Government at Annual General Meeting (AGM)
or Company Law Board (CLB) is required.

Relation Defines the relation between company Regulates the relationship

and outsider. between company and its members
and also between the members inter se