Section 13 sets out the contents of the Memorandum. The document must contain the following clauses: (I) the name clause, (2) the registered office clause, (3) the objects clause, (4) the liability clause, (5) the capital clause, and (6) the association clause or subscription clause. We shall now consider each of these clauses in detail.
1. The name clause :
Under this clause the corporate name of the company is stated. Any suitable name can be chosen by a company; subject, however, to the following restrictions:
(a) The word “Limited” or “Private Limited” must be the last word in the name of every ‘public or private company limited by shares respectively. There is, However, one exception to this rule as provided in Section 25 of the Act, which permits charitable companies formed to promote art, science, religion, etc., (prohibiting the payment of dividends and applying all the profits to the promotion of their objects) under a license granted by the Central Government, to register with limited liability, but without the word “limited” as part of its name. In the case of companies limited with guarantee, the name should end with these words. In the case of unlimited companies, only the name is to be given. It should be noted that the inclusion of the word “company” is not essential in the proposed name of the company.
(b) As per Section of the name chosen must not be undesirable in the opinion of the Central Government. The Act does note state what names shall be considered undesirable and as such gives very wide discretion to the Central Government. Ordinarily a name is considered undesirable and therefore not allowed if it is either:
- too identical or similar to the name of another existing company or firm (whether registered or unregistered) so as to lead to confusion (British Vacuum Cleaner Co. vs. New Vacuum Cleaner Co. Ltd., 1907). The reason for this rule is that the reputation of a company may be injured, if a new company adopts an allied name; or
- misleading, e.g., suggesting that the company is connected with a government department or any municipality or other local authority, or that it is an association of a particular type, e.g., “Cooperative Society”, “Building Society”, when this is not the case.
If, however, through inadvertence or otherwise, a company is registered by an almost .identical name, the court will grant an injunction restraining it from using the name. An injunction will not be granted, however, to prevent the use of purely descriptive word with a definite meaning and in common use. Thus, in Aerators Ltd. vs. Tolling the plaintiff was not granted an injunction restraining the defendant from using the name of Automatic Aerators Ltd., because both companies were manufacturers of apparatus for the instantaneous automatic aeration of liquids under distinct patents.
Once the name is chosen and the company is registered in that name, Section 147 requires that it, along with the address of registered office, must appear on the outside of every office or place of business (though inside the building) of the company in a conspicuous manner in one of the local languages and on all cheques, bills, letters, notices and other official publications, etc., of the company.
2. The registered office clause.
The second clause of the memorandum must mention the State in which the registered office of the company is to be situated [Sec. l3(l)(b)]. This is required in order to fix the domicile of the company, i.e. the place of its registration. Domicile must be distinguished from residence. While domicile is the place of its registration, residence is the place of its management and control, i.e., where the board of directors meets (Damiler Co. Ltd. vs. Continental Tyre Rubber Co.}.
3. Although the actual address of the registered office of the company is not required to be stated in the memorandum, every company must have specified premises in a town fixed as its registered office either from the day on which it begins to carry on business or as from the 30th day after the date of its incorporation, whichever is earlier [Sec. 146(1)]. Notice of the situation of the registered office and of every change therein is to be given to the Registrar for record within 30 days of incorporation or date of change, as the case may be [Sec. 146(2)]. Usually the notice of the situation of registered office is filed at the same time as the memorandum.
The importance of the registered office is that it is the address of the company where all communications and notices are to be sent and where register of members, register of debenture holders, register of charges, minute books of general meetings etc., are kept.
3. The objects clause.
It is the most important clause .of the memorandum because it sets out the objects or varies of the company. A company is not legally entitled to do any business other than “that specified in its objects clause. This rule is meant to protect first, the know the purpose for which their money is to be employed and can be sure hat their money is not going to be restricted for an unknown activity or project and secondly, the public at large, who deal with the company, can at once know the extent of company’s powers and whether a particular transaction which is to be entered into with them is ultra vires the company or not. Moreover, the fact that the company’s capital cannot be spent on any project outside the objects clause of the company gives a feeling of security to the creditors.
Although the subscribers to the memorandum are free to choose the objects of the proposed company, the following points should be kept in mind while drafting the objects clause of a company:
- The objects of the company must not be illegal, e.g., to carry on the business of lottery.
- They must not be against the provisions of the Companies Act, such as buying its own shares (Sec. 77), declaring dividend out of capital, etc.
- They must not be against public policy, e.g., to carry on trade with an enemy country.
- They must be stated clearly and definitely. An ambiguous statement like “company may take up any work which it deems profitable” is meaningless.
- They must be quite elaborate also. Not only the main objects, but the subsidiary or incidental objects too should be stated because it is very difficult to alter them. The narrower the objects expressed in the memorandum, the less is the subscriber’s risk, but the wider such objects the greater is the security of those who transact business with the company. It is, therefore, of utmost importance that the objects clause be drafted with the greatest care.
After the passing of the Companies (Amendment) Act, 1965, the objects clause of a company, to be registered after the amendment, i.e., after 15th October 1965, must be divided into two sub-clauses:
- The main objects. Under this sub-clause the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects must be stated.
- Other objects. Under this sub-clause other objects of the company not included in the above clause must be stated [Sec. 13(l)(d)].
In the case of ‘non-trading companies’ the objects clause should also mention the names of those States to whose territories the objects of a company will extend. The main objects shall be pursued by the company immediately on its incorporation. But if a company wishes to start a business included in other objects, it shall have to obtain either the authority of a special resolution or an ordinary resolution and Central Government’s sanction. Similarly, when an existing company [i.e., a company in existence before the commencement of the Companies (Amendment) Act, 1965] wants to commence any new business, which though included in its objects, is not closely related to the business which it has been carrying on at the commencement of the Amendment Act, it shall also have to pass either a special resolution or an ordinary resolution together with Central Government permission.
In addition to the above, the secretary or a director must file with the Registrar, a declaration that the requirement as to resolution, etc., has been complied with. It must, however, be observed that by virtue of this provision additional protection has been provided to the shareholders of the company because now the management cannot risk the, capital of the company in entirely new projects, without giving any notice to them, under the pretext of pursuing objects subsidiary or incidental to the main objects.
Implied powers Further, apart from the powers expressly provided in the objects clause, a trading company has also certain implied powers. These are: (i) to borrow money; (ii) to act by agents; (iii) to compromise disputes; and (iv) to mortgage or sell land. In general it may be said that a company authorized by its objects clause to carry on the business of making and selling cotton textiles would possess implied powers for the purpose of carrying on that business, to purchase or take on lease premises for factories, warehouses, offices and shops, to engage employees, to borrow money and so on; because all these matters are fairly incidental (naturally attached) to the carrying out of the company’s main objects.
4. The liability clause :
The clause states that the liability of members is limited, to the amount, if any, unpaid on their shares. If the memorandum so provides, the liability of the directors may be unlimited (Sec. 322). If it is proposed to register the company limited by guarantee, this clause will state the amount which every member undertaking contribute to the assets of the company in the event of of its winding up. A company registered with unlimited liability need not give this clause in its memorandum of association.
5. The capital clause :
Every limited company (whether limited -by shares or whether limited by guarantee), having a share capital must state the amount of its share capital with which the company is proposed to be registered and the division thereof into shares of a fixed denomination, in this clause. It is usually expressed as follows: “The share capital of the company is Rs 10,00,000 divided into 1,00,000 shares” of Rs 10 each.”
This capital is variously described as “registered”, “authorized” or “nominal” capital and the stamp duty is payable on this amount. There is no legal limit to the amount of share capital or of each share. It may be any amount running into crores of rupees and the denomination of each share may be rupee one or rupees one thousand. The amount of authorized capital should be sufficiently high so that further issue of shares may easily be done to finance the expanding business. It is optional for a company to state the divisions of the authorized capital into different glasses of shares, if any, and the rights of various classes of shareholders in this clause. Usually such details are described in the articles of the company.
Note that an unlimited company having a share capital, is not required to have the capital clause in its memorandum. In the case of such a company Section 27 (1) provides that the amount of share capital with which the company is to be registered must be stated in the articles of association of the company.
6. The association or subscription clause.
Under this clause we have the declaration of association”, which is made by the signatories of the memorandum under their signatures duly attested by witness that they desire to be formed into a company and that they agree to the purchase qualification shares, if any. Each subscriber must take at least one share.
The statement reads as follows: “We, the several persons whose names and addresses are subscribed, are desirous of being formed into a company in pursuance to the Memorandum of Association and we agree to take the number of shares in the capital of the company shown against our names,” There must be at least seven signatories in case of a public company and at least two in case of a private company. The subscribers usually act as first directors of the company. In the case of a company which is limited by guarantee or is having unlimited liability, and which has no share capital, the legal provision regarding the purchase of at least one share by each subscriber does not apply.
Above mentioned clauses are referred to as the compulsory clauses of the memorandum as per Section 13. Other provisions relating to Managing Director or Manager, etc., may also be given in the memorandum but they can be altered in the same manner as the articles of the company [Sec. 16(3)].