THE MEMORANDUM AND ARTICLES OF ASSOCIATION

1. THE MEMORANDUM AND ARTICLES OF ASSOCIATION Definition of Memo: The purpose of the memorandum is to enable the members of the company, its creditors, and the public to know what its powers are and what is the range of its activities. The memorandum contains rules regarding the capital structure, the liability of the members, the objects of the company, and all other important matters relating to the company. Definition of Articles: The Articles of Association is a document which contains rules, regulations and bye-laws regarding the internal management of the company. Articles must not violate any provision of the memorandum or any provision of the Companies Act. Relationship: Lord Cairns in Riche, described the relationship between the memorandum and the articles in this language: "The memorandum is as it were, the area beyond which the actions of the company cannot go; inside the area, the shareholders may make such regulations for their own government as they think fit". The Articles are subordinate to Memorandum. The Memorandum must be read in conjunction with the Articles. The terms of the Memorandum cannot be modified or controlled by the Articles.

2. Public Documents: The Memo and Articles are public documents, which may be inspected by anybody at the office of the Registrar of Companies. Differences: • The distinction between the memorandum and the articles of association can be summed up as follows: • The memorandum is determining the company’s constitution and objectives; the articles are rules regarding internal management. • Any rule in the articles contrary to the memorandum is invalid. • Articles can be altered easily, the memorandum can be altered only after the adoption of certain formalities. • Certain clauses of memo cannot be altered without the sanction of the Central Government and of the Court e.g., the object clause and the liability clause. Other clauses can be altered easily e.g., the name clause. Articles can be altered by passing a special resolution. • The memo defines the powers of the company and the relationship between the company and the members and-also non members, Articles define and regulate the relationship between the company and the members. • Acts beyond the powers of memo (ultra vires) are void Such an act cannot be ratified by the members. But acts done by a company beyond the articles can be ratified by the shareholders provided they are within (intra vires) the powers of Memo. • If an act is within the powers given by the memo (irrtra vires the memo) but contrary to some provision of the articles (ultra vires the articles) the members can change the articles and ratify the act.

3. The form and contents of the Memorandum: The Act lays down that the memorandum of a association of every company shall contain the following particulars : • Name Clause; • Situation Clause; • Objects Clause; • Area of Operation Clause; • Liability Clause; • Capital Clause; • The Association and Subscription Clause Form and contents of the Articles: The Articles of Association contain rules, regulations and bye-laws regarding the internal management of companies. An unlimited company, a company limited by guarantee and a private company limited by shares must file their articles of association at the time of registration of the company.

4. Form of Articles: The Articles shall: • be printed ; • be divided into paragraphs numbered consecutively ; and • be signed by each subscriber of the memorandum of association, in the presence of at least one witness who shall attest the –signature. Contents of Articles: Articles usually contain provisions in respect of the following matters : • share capital, rights of shareholders, payment of commissions, share certificates; • lien on shares; • calls on shares; • transfer of shares; • transmission of shares; • forfeiture of shares; • conversion of shares into stock; • share warrants; • alteration, of capital; • general meetings and voting rights of members; • appointment and remuneration of directors, board of directors, managers and secretary; • dividends and reserves; • accounts and audit and borrowing powers; • capitalisation of profits; and • winding up.

5. Alteration of the Memorandum: For the purpose of alteration, the provisions of the memo can be divided into two classes : (i) provisions the inclusion of which is made compulsory by the Act (e.g., the name, objects, place of registered office etc.) (ii) other provisions which the organisers of the -company have thought it desirable to include. Provisions coming under the first category are called "Conditions contained in the Memorandum". The "conditions" can be altered in the manner stated below: 1.Change of name: • A company may change its name by special resolution provided the Company Law Board approves of the change • When the name is validly changed, the Registrar shall enter the new name in the Register of companies and shall issue a fresh Certificate of Incorporation. • Change of name does not affect the rights and obligations of the company and pending suits by or against the company.

6. 2. Change of Object: The object clause of the memo can be changed for the purpose of enabling the company, for example : • 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 operation; The following procedure must be adopted for changing the object clause : • A special resolution must be passed. • A petition must be filed to the Company Law Board for confirmation of the change. • Notice must be given to all persons whose interests will be affected by the change. • The consent of the creditors of the Company must be obtained or other claims paid off or secured; etc. 3. Change in the location of the registered office from one State to another The procedure to be adopted is the same as in the case of alteration of object. The alteration must be registered with the Registrar of Companies of the 'State in which the registered office of the Company was originally situated and also the Registrar of the 'State to which the office is being transferred.

7. 4. Alteration of the Capital Clause Alteration of the capital clause can be done in the following methods (i) Alteration, including Increase of Capital: (ii) Reduction of Capital (iii) Variation of Shareholders' Rights (iv) Creation of Reserve Capital. Alteration of the Articles Of Association: Although alteration of articles is permitted, there are certain restrictions on the nature and extent of the alterations that can be made, for example: • Articles can be altered by special resolution only. If the articles of the company prescribed a different procedure, e.g., an ordinary resolution, it will not be followed. Confirmation by the Court is not necessary. • No change is permitted which will violate the provisions of the Companies Act. • No change is permitted which is contrary to the conditions contained in the Memorandum of Association of the Company. • The alterations must not 'contain anything illegal. • The liability of the members or any class of members, cannot be increased without their consent. • But any alteration made bona fide, in the interests of the company as a whole, is valid and binding even though the private interests of some members may be affected.

8. The legal effects of the Memorandum: The Contractual Powers of a Company A Company or a Corporation is a legal person capable of suing and of being sued. But the contractual powers of a company are limited in two ways : (i) natural possibility and (ii) legal possibility. Forms of Contracts and Deeds of a Company • The Doctrine of Ultra Vires • The Memorandum of Association determines the constitution and the powers of 'the Company. • The important rules concerning the legal effects of the memorandum can be summed up as follows, for example: • The terms of the memorandum constitute a binding contract between the Company and the members. • All acts done by the directors or members beyond the powers given in the memo, are ultra vires and not binding on the Company. • The members cannot ratify ultra vires acts, even by an unanimous resolution. • If an act is within the powers given by the memo (intra vires the memo) but contrary to some provision of the articles (ultra vires the articles) members can change the articles and ratify the act. • Directors entering into ultra vires contracts may be liable to the third party for breach of warranty of authority.

9. Legal effect of the Articles: Binding Contract • The articles constitute a binding contract between the company and its members. • The articles come within the definition of public documents. • All persons dealing with the company are presumed to know the provisions of the articles. So if anything is done contrary to or beyond the provisions of the articles, the company is not bound. Doctrine of indoor management: The Doctrine of indoor management does not apply in certain cases : (a) Void Acts Where the act is void ab initio, the company is not bound, e.g., forgery. (b) Knowledge of irregularity Where the person dealing with the company has notice, actual or constructive, that the prescribed procedure has not been complied with the company is not bound. (c) Lack of authority If an agent of a company makes a contract with a third party and if the act of the agent falls outside the ordinary authority of the agent, the company