MEMORANDUM

OF

ASSOCIATION

MEMORANDUM

A document in relation to the proposed company.It contains the fundamental conditions upon which alone the company is allowed to be incorporated.It is the charter of the company and defines its raison d’etre.It also regulates the external affairs of the company in relation to outsiders.Its purpose is to enable shareholders and those who deal with the company to know what its permitted range of enterprise is.

PURPOSE OF MEMORANDUM

The prospective share holders shall know the field in, of the purpose for, which their money is going to be used by the company and what risk they are undertaking in making investment.

The outsiders dealing with the company shall know with certainty as to what objects of the company are and as to whether the contractual relation into which they contemplate to enter with the company is within the objects of the company.

PRINTING & SIGNING OF MEMORANDUM

Printed

Divided into paragraphs numbered consecutively

Signed by seven subscribers

CONTENTS OF MEMORANDUM

Name of the companyStateObjects of the company

Main objectsOther objects

Limited liabilityShare capital

THE NAME CLAUSE

Undesirable name to be avoided.Too similar to the name of another

companyMisleading

Injunction if identical name adopted.Limited or Private LimitedProhibition of use of certain namesUse of key words according to authorised capital

THE REGISTERED OFFICE CLAUSE

Registered office is compulsory from the day of it carries on business

THE OBJECTS CLAUSE

To enable subscribers to the memorandum to know the uses to which their money may be put

To enable the creditors and persons dealing with the company to know what its permitted range of enterprise or activities is.

Main objects and other objects

OTHER CLAUSES OF MEMORANDUM

• The capital clause

• The liability clause

• The association clause

ALTERATION OF MEMORANDUM

Conditions

Other provisions

PROVISIONS OF THE MEMORANUM

ALTERATION OF CONDITIONS Contd..

Change of nameBy special resolutionBy ordinary resolution

• Change of registered officeFrom one place to another placeFrom one town to another townFrom one state to another state

PROCEDURE OF ALTERATION

Special resolutionConfirmation by the company law boardNotice to affected partiesNotice to registrarPower of the company law board to confirm change discretionaryRights and interests of members and creditors to be taken care ofCopy of special resolution and the order of the company law board to be filed with the registrar

ALTERATION OF OBJECTS

Substantive limit

Procedural limit

ALTERATION OF OBJECTS

Substantive limit– To carry on its business more economically or more

efficiently– to attain its main purpose by new or improved

means– To enlarge or change the local area of its

operations– To carry on some business which may conveniently

or advantageously be combined with the objects specified in the memorandum

– To restrict or abandon any of the objects specified in the memorandum

– To sell of dispose of the whole, or part, of the undertaking, or of any of the undertakings of the company or

– To amalgamate with any other company of body of persons

PROCEDURE OF ALTERATION

Special resolutionCopy of special resolution to be filedCertification of registration.

Change in liability clauseChange in capital clause

DOCTRINE OF ULTRA VIRES

A company has the power to do all such things as : Authorized to be done by the companiesEssential to the attainment of its objects specified in the memorandumReasonably and fairly incidental to its objectsEverything else is ultra vires

PURPOSE OF ULTRA VIRES

Investors in the company so that they may know the objects in which their money is to be employed

Creditors by ensuring that the company’s funds are not wasted in unauthorized activities

Ultra vires act is void Ultra vires the

directors Ultra vires the articles

Effects of the ultra vires transactions

InjunctionPersonal liability of directorsBreach of warranty of authorityUltra vires contractsUltra vires acquired propertyUltra vires torts

EXCEPTIONS OF ULTRA VIRES

If an act is ultra vires the directors of a company but is intra vires the company, the company may ratify itIf an act is ultra vires the articles of company, the articles may be altered to include the act within the powers of the companyIf an act is intra vires a company, but is irregularly done, the shareholders may ratify itIt is important to protect the company’s creditors and shareholders against ultra vires transactionsThe rights over the property acquired by ultra vires expenditures are protected

EXCEPTIONS OF ULTRA VIRES Contd..

If a company has purchased some property from a third party……..Ultra vires loanUltra vires loan through some misrepresentationIf a director makes payment ultra vires the company….

ARTICLES

OF

ASSOCIATION

ARTICLES OF ASSOCIATION

The articles of association are the rules, regulations and bye-laws for he internal management of the affairs of

a company.

They are framed with the object of carrying out the aims and objects as

set out in the Memorandum of Association.

CONTENTS OF ARTICLES

Share capital, rights of shareholders, variation of these rights, payment of commissions, share certificatesLien on sharesCalls on sharesTransfer of sharesTransmission of sharesForfeiture of sharesConversion of shares into stockShare warrantsAlteration of capital

CONTENTS OF ARTICLES Contd..

General meetings and proceedings thereatVoting rights of members, voting and poll, proxiesDirectors, their appointment, remuneration, qualifications, powers and proceedings of board of directorsManagerSecretaryDividends and reservesAccounts, audit and borrowing powersCapitalization of profitsWinding up.

Companies which must have their own Articles

Unlimited companies

Companies limited by guarantee

Private companies limited by shares

REGULATIONS REQUIRED

Unlimited companyThe number of members with which the company is to be registered andIf it has a share capital, the amount of share capital with which the company is to be registered

Company limited by guaranteeThe number of members with which the company is to be registered

Private companyRestrict the right to transfer sharesLimit the number of its members to 50Prohibit any invitation to the public to subscribe for any shares in, or debentures of, the company

STATUTORY REQUIREMENT

Printed

Divided into paragraphs

Signed by each subscriber of the memorandum

ALTERATION OF ARTICLES

Wide powers of alteration

Any clause in the articles that restricts or prohibits alteration of Articles is invalid

Procedure of alteration• Special resolution• Lawfully included originally• A copy of every special resolution

altering the Articles shall be filed with the Registrar

LIMITATIONS TO ALTERATION

Must not be inconsistent with the actMust not conflict with the MemorandumMust not sanction anything illegalMust be for the benefit of the companyMust not increase liability of membersAlteration by special resolution onlyApproval of Central Government when a public company is converted into a private companyBreach of contract

ARTICLES & MEMORANDUM –Relations

The articles are subordinate to Memorandum

The Memorandum must be read in conjunction with Articles

To explain any ambiguity in the terms of the Memorandum, or

The terms of the Memorandum cannot be modified or controlled by the Articles

Articles & Memorandum - Distinction

Memorandum of Association

Articles of Association

Charter of the company Regulations

Defines the scope They are the rules

Supreme Document Subordinate

Must own MemorandumNeed not have Articles of its own

Strict regulation in alteration Altered by a special resolution

Legal effect of Memorandum and Articles

The Memorandum and Articles, when registered, bind a company and the members thereof to the same extent as it they

Had been signed by the company and each member and

Contained covenants by the company and each member to observe all the provisions of the Memorandum and of the Articles

Legal effect of Memorandum and Articles

The legal implications of these documents bind

Members to the companyCompany to the membersMembers inter seCompany to the outsiders.

Constructive notice of Memorandum and Articles

Every outsider dealing with a company is deemed to have notice of the contents of

the Memorandum and the Articles of Association.

These documents, on registration with the registrar, assume the character of public documents. This is known as constructive

notice of Memorandum and Articles.

Constructive notice of Memorandum and Articles

Office of Registrar is a public office

Presumption that outsider has read Memorandum and Articles

Constructive notice of Memorandum and Articles Contd...

Limitation The outsiders dealing with the company are

entitled to assume that as far as the internal proceedings of the company are concerned; everything has been regularly done. They are presumed to have read these documents and to see that the proposed dealing is not inconsistent therewith, but they are not bound to do more; they need not inquire into the regularity of the internal proceedings as required by the Memorandum and the Articles. They can presume that all is being done regularly. This limitation of the doctrine of constructive notice is known as ………

Doctrine of Indoor Management

Doctrine of Indoor Management or the rule in Royal British Bank or just Turquand Rule, seeks to protect outsiders against the company.

The gist of the rule is that persons dealing with limited liability companies are not bound to inquire into the regularity of the internal proceedings and will not be affected by irregularities of which they had no notice.

Exceptions to the doctrine of Indoor Management

Knowledge to irregularityNegligenceForgeryActs outside the scope of apparent authority

PROSPECTUS

PROSPECTUS

Prospectus is any document described or issued as a prospectus and includes any notice, circular, advertisement or other document inviting deposits from the public or inviting offers from the public for the subscription or purchase of any shares in, or inviting offers from the public for the subscription or purchase of any shares in, or debentures of, a body corporate.

PROSPECTUS

Prospectus to be in writingSubscriptionInvitation to public Offer to the public

PROSPECTUS

Dating of prospectusSigning of prospectus

Registration of prospectus

PROSPECTUS Contd…

Copy of registration must be accompanied with the following document

Consent of the expert of the issueA copy of every contract, appointing or fixing remuneration of a managing director or managerA copy of every material contract, not being a contract entered into in The written statementThe consent in writing of the person

Objects of registration of prospectus

To keep an authenticated record of the terms and conditions of issue of shares or debentures andTo pinpoint the responsibility of the persons issuing the prospectus for statements made by them in the prospectus

PROSPECTUS Contd…

When prospectus is not required to be issued

Where an offer is made in connection with a bona fide invitation to a person to enter into an underwriting agreement with respect to the shares or debenturesWhere the shares or debentures are not offered to the public.Where the shares or debentures are offered to the existing members or debenture holders of the company.Where the shares or debentures offered are uniform in all respects with shares or debentures previously issued and quoted on a recognized stock exchange.

PROSPECTUS Contd…

CONTENTS OF PROSPECTUS

Matters to be stated and reports to be set out in prospectus

State the matters specified in part I of Schedule II and

Set out the reports specified in part II of schedule II

PART I OF SCHEDULE II

General informationCapital structure of the companyTerms of the present issueParticulars of the issueCompany, management and projectParticulars in regard to the company and other listed companies under the same managementOutstanding litigationManagement perception of risk factors

PART II OF SCHEDULE II

General information

Consent of directors, Auditors, Solicitors…Expert’s opinionChange Authority for the issueProcedure and time schedule for allotment and issue of certificatesNames and addresses

Part II of Schedule II

Financial information

Report by the auditorsReport by the accountants

PART II OF SCHEDULE II

Statutory and other information

Minimum subscriptionPrevious issue for cashDate of allotmentCommission or brokerage on previous issueIssue of shares otherwiseOption to subscribeRestrictionsRevaluation of assets

Offer for sale Deemed Prospectus

Prospectus by implication

Intention to offer shares or debentures to the public

Additional information

Misstatements in prospectus and their consequences

Those who issue prospectus holding out to the public the great advantages which will accrue to persons who will take shares in a proposed undertaking, and inviting the to take shares on the faith of the representations therein contained, are bound to state everything with strict and scrupulous accuracy and not only to abstain from stating as fact that which is not so, but to omit no one fact within their knowledge, the existence of which might in any degree affect the nature or extent and quality of the privileges and advantages which the prospectus holds as inducement to take shares.

Differences between the position of underwriters and brokers

Underwriters Brokers

They give an undertaking to take up shares or debentures if the issue is under-subscribed

They give no such undertaking to take up shares or debentures if the issue is under-subscribed

They get underwriting commission on the entire issue which is underwritten by them.

They get brokerage only on those shares or debentures for which they procure subscription.

They are entitled to underwriting commission at a rate not exceeding 5% of the issue price of shares and 2.5% percent of the issue price of debentures.

They are entitled to get such brokerage as has been recognized or usual for the companies to pay such brokerage/

Underwriting commission is payable only on those shares or debentures which are offered to public.

Brokerage is payable on the shares or debentures for which subscription is procured even where the shares or debentures are not offered to the public.

Underwriters are entitled to get underwriting commission only if the Articles authorize its payment.

The brokers are entitled to brokerage even if the Articles are silent regarding its payment.

The name, address, and occupation of each underwriter has to be disclosed in the prospectus.

There is no such requirement in case of brokers.

TEAM MEMBERS

Vanathu Chinnapan

Teja

G Raghavender

Girish P

L Rajesh

T G Rajesh Kumar