COMPANY LAW NOTES PDF

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INTRODUCTION The memorandum of association is a document of great importance 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 company and it defines the companies reason for existence.it laid down the area of operation of the company. 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 is permitted range.it not only shows the object of the formation of a company but also the utmost passible scope of it. MEMORANDUM OF ASSOCIATION Memorandum of Association is simply the constitution or charter of a company. According to the companies Act, 2013, “memorandum” means “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 memorandum of association contains the fundamental provisions of the company’s constitution and all those essential conditions upon which the company can be incorporated. It determines the powers and limitations of the company and determines the scope beyond which company`s operations cannot go. It is the fundamental document 2.It is the Charter of the company. 3.It dictates external and internal affairs of the company. 4. It has effects on the members as well as the outsiders. 5. Ratification: No act can be ratified which is done beyond the memorandum: This is called as “Doctrine of Ultra Vires”. 100% members of the company also cannot ratify such ultra virus acts. 6. The memorandum of association is bound to observe.

PURPOSE OF MEMORANDUM The purpose of the memorandum is two fold The prospective shareholders shall know the field in, or 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 not with certainty as to what the objects of the company are and as to whether the contractual relation into which the contemplate to enter with the company is within the objects of the company. Clauses: 1. Name Clause – According to the first clause the memorandum must state the name of the company by which it wants to be known subjected to the following restrictions: The name of the company must not be identical with an existing company. No company will have the name which is undesirable in the opinion of the government. The name must not mislead the public. For example, a company will not be allowed to use a name, which is prohibited under the Emblems and Names (Prevention of Improper Use) Act, 1950. The company must not use any names which suggest any connection with the government or state Patronage without the prior approval of the government. The name of a private company limited by shares, must end with ‘Private Limited

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2. Situation or Registered Office Clause – This clause requires the memorandum to mention the name of the state in which the registered office of the company is to be situated. A company must have its registered office ready within 15 days from its incorporation and within 30 days of its incorporation, the verification of its registered office should be done. This is done in order to fix the domicile of the company. It must be noted that the domicile is the place of registration of the company and may or may not be the residence of the company. Residence of the company will be the place from where the management and control of the business is carried out 3.Objects Clause – The object clause determines the purpose for which the company has been set up and it determines the capacity of the company. A company is not legally entitled to conduct any business activity that is not specifically mentioned in its object clause. The objects are classified into three categories: main object, ancillary object, and other objects that will be pursued to accomplish the main object. However, the following points must be noted while preparing Objects clause: The objects of the company must be stated specifically and must not be ambiguous statements. The objects of the company must not be illegal They must not be against the provisions of the companies act They must not be against the public policy of the country 4. Liability Clause – The fourth clause of memorandum of every company states the liability of its members, i.e. whether the liability of its members is limited by shares, or limited by guarantee or is unlimited. In case of company limited by shares, members cannot be called upon to pay more than what remains unpaid. If his shares are fully paid, the liability of shareholders is nil. In case of company limited by guarantee, the liability clause must state the amount each member has to pay at the time of the liquidation of the company. In case of unlimited company, the liability of members is unlimited and personal assets of the members can be used. 5. Capital Clause (only in case of a company having share capital)- This clause requires all companies limited by liability to mention the amount of capital with which the company is formed. The capital of the company must be divided into smaller fixed value units which are known as shares. There is no legal limit on the amount of share capital. A company cannot issue share capital exceeding the amount mentioned in the capital clause 6. Association and Subscription Clause – According to this clause the memorandum must mention the amount of authorized share capital and the amount of shares taken by each subscriber/member. The following are the statutory requirements regarding subscription. The memorandum must be signed by each subscriber in the presence of at least one witness who attest the signatures. Each subscriber must take at least one share; and Each subscriber must write the number of shares held by him. 7. Succession Clause (only in the case of OPC) – According to this clause the memorandum must state the name of the person who shall become the member of the company in the event of death of the subscriber. FORM OF MEMORANDUM Table B relates to memorandum of association of a company limited by shares. Table C relates to memorandum and articles of association of a company limited by guarantee and not having a share capital.

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Table D relates to memorandum and articles of association of a company limited by guarantee and having a share capital. Table E relates to memorandum and articles of association of an unlimited company. ALTERATION OF MEMORANDUM Alteration of conditions: change of names. A company may change its name by a special resolution and with the approval of the central government signified in writing but the change of name which nearly involves the deletion or addition of the word private on the conversion of a public company into a private company or vice versa does not require the approval of the central government. Change of registered office this main involves: change of registered office from one place to another place in the same city or village.in this case a notice is to be given within the 30 days after the date of the change to the registrar who shall record the same. change of registered office from one town to another town in the same state. In this case a special resolution is required to be passed and the general meeting of the shareholders and a copy of it is to be filled with the registrar in 30 days then within 30 days of the removal of the office but notice has to be given to the registrar of the new location of the office. Change of registered office from one state to another state. A company may by special resolution change the place of its registered office from one state to another state for certain purposes refer to in PROCEDURE OF ALTERATION Special resolution. A special resolution shall be passed at a general meeting so as to change the place of registered office from one state to another. Confirmation by the company law board. The alteration shall not take effect until it is confirmed by the company law board on petition Notice to affected parties. Before confirming the alteration, the company law board shall be satisfied that sufficient notice has been given to every person whose interest will be affected by the change and that the consent of the creditors of the company has been obtained or debts or claims have been discharged or secured Notice to registrar. The company law board shall cause notice off the petition for confirmation of the change to be served on the registrar. The registrar shall also be given a reasonable opportunity to appear before the company law board and state his objections and suggestions if any with respect to the confirmation of the change Power of the company law board to confirm change discretionary. The company law board may confirm the change on such terms and conditions as it thinks fit. Rights and interests of the creditors to be taken care of. The company law board shall have regard to the rights and interests of every class of the members and the creditors of the company. Article of association: The articles of association of a company are its by-laws or rules and regulations which govern the management of its internal affairs and the conduct of its business. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. According to Section 2(2) 3

of the Companies Act, 1956 ‘articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous company’s laws or of the present Act, i.e. the Act of 1956. Articles are like the partnership deed in a partnership. They set out provisions for the manner in which the company is to be administered. In particular, they provide for matters like the making of calls, forfeiture of shares, directors’ qualifications, appointment, powers and duties of auditors, procedure for transfer and transmission of shares and debentures. 1. It is the subsidiary document. 2. These are me regulations of the company. 3. It dictates only internal affairs and management of the company. 4. It has effects on the members and employees of company.5. Ratification: An act covered by articles of association can be ratified by majority principle. It is called ‘Indoor Management’.6. The Articles of Association are bound to observe,—(a) The provisions of the Companies Act, 1956 and Rules;(b) Any other law in force; and(c) The memorandum of association of the company. Contents of article of association: Articles usually contain provisions relating to the following matters1. Share capital including sub division thereof, rights of various shareholders, the relationship of these rights, payment of commission, share certificates, Lien of shares ,Calls on shares, Transfer of shares, Transmission of shares, Forfeiture of shares ,Surrender of shares, Conversion of shares into stock, Share warrant, Alteration of capital, General meetings and proceedings thereat, Voting rights of members, voting by poll, proxies, Directors, including first directors or directors for life, their appointment, remuneration, qualifications, powers and proceedings of Board of directors’ meetings, Dividends and reserves, Accounts and audits, Borrowing powers, Winding up Utmost care must be taken to prepare the articles of association of the proposed company. They are certain matters in respect of which powers can be exercised by the company only if the articles so provide and in the manner provided therein. Therefore, the articles must contain provisions in respect of all matters which are required to be contained therein so as not to hamper the working of the company later. At the same time, the articles of association should not provide for matters in respect of which it has no powers to exercise. It cannot, for example, provide for expulsion of a member, as such a power is opposed to the fundamental principal of company jurisprudence and, therefore, ultra vires the company

Difference Between Moa And Aoa 1. Denes the constitution of a company. 2. A set of rule and regulations governing the company’s working. 3. Denes the objectives, powers and constraints of the organization. 4. Describe powers, duties, rights and liabilities of individuals associated with the organization. 5. Six clauses are mandatory. 6. Its drafting is as per the requirements of the organization.

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7. It is a mandatory document for all the companies. 8. Can opt for Table A instead of AoA in public limited company by shares 9. Filing at the time of company registration. 10. Filing at the time of company registration is optional. 11. 12. 13. 14. 15. 16. 17. 18. 19. 20. 21. 22.

A supreme legal document for company and subordinate to Companies Act. A subordinate to the MoA A dominant document that helps drafting AoA. Any article in this document that contradicts to the MoA is considered null and void. Cannot be amended with retrospective eect. Can be amended retrospectively. Section 2 (28) of the Companies Act 1956 denes it. Section 2 (2) of the Companies Act 1956 denes it It is subordinate to the Companies Act. Subordinate to the Companies Act, as well as is memorandum. Denes the objectives of a company. Denes regulations with which the company will achieve objectives dened in MOA.

Conclusion Memorandum of Association and Articles of Association are very important documents. They help the owners to run the company with ease and helps in streamlining the business. Properly dened functions and rules increase eciency and transparency. Hence, they are indispensable for any private or public limited company.

Prospectus: Section 2(70) of the Companies Act, 2013 defines a prospectus as ““A prospectus means Any documents described or issued as a prospectus and includes any notices, circular, advertisement, or other documents inviting deposit fro the public or documents inviting offer from the public for the subscription of shares or 5

debentures in a company.” A prospectus also includes shelf prospectus and red herring prospectus. A prospectus is not merely an advertisement. A document shall be called a prospectus if it satisfy two things: 1. It invites subscription to shares or debentures or invites deposits. 2. The aforesaid invitation is made to the public. Contents of a prospectus: 1. Address of the registered office of the company. 2. Name and address of company secretary, auditors, bankers, underwriters etc. 3. Dates of the opening and closing of the issue. 4. Declaration about the issue of allotment letters and refunds within the prescribed time. 5. A statement by the board of directors about the separate bank account where all monies received out of shares issued are to be transferred. 6. Details about underwriting of the issue. 7. Consent of directors, auditors, bankers to the issue, expert’s opinion if any. 8. The authority for the issue and the details of the resolution passed therefore. 9. Procedure and time schedule for allotment and issue of securities. 10. Capital structure of the company. 11. Main objects and present business of the company and its location. 12. Main object of public offer and terms of the present issue. 13. Minimum subscription, amount payable by way of premium, issue of shares otherwise than on cash. 14. Details of directors including their appointment and remuneration. 15. Disclosure about sources of promoter’s contribution. 16. Particulars relation to management perception of risk factors specific to the project, gestation period of the project, extent of progress made in the project and deadlines for completion of the project. Various Categories of Prospectus 1. Statement in lieu of Prospectus: A public company, which does not raise its capital by public issue, need not issue a prospectus. In such a case a statement in lieu of prospectus must be filed with the Registrar 3 days before the allotment of shares or debentures is made. It should be dated and signed by each director or proposed director and should contain the same particulars as are required in case of prospectus proper. 2. Deemed Prospectus: Section 25 of the companies Act, 2013 provides that all documents containing offer of shares or debentures for sale shall be included within the definition of the term prospectus and shall be deemed as prospectus by implication of law. Unless the contrary is proved an allotment of or an agreement to allot shares or debentures shall be deemed to have been made with a view to the shares or debentures being offered for sale to the public if it is shown a. That the offer of the shares or debentures of or any of them for sale to the public was made within 6 month after the allotment or agreement to allot; or b. That at the date when the offer was made the whole consideration to be received by the company in respect of the shares or debentures had not been received by it. All enactments and rules of law as to the contents of prospectus shall apply to deemed prospectus. 3. Abridged Prospectus [Sec. 2(1)]: Abridged prospectus means a memorandum containing such salient features of a prospectus as may be specified by the SEBI by making regulations in this behalf. No form of application for the purchase of any of the securities of a company shall be issued unless such form is

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accompanied by an abridged prospectus. A copy of the prospectus shall, on a request being made by any person before the closing of the subscription list and the offer, be furnished to him. Legal requirement regarding issue of prospectus: (Sec. 26 of the Companies Act, 2013) The Companies Act has defined some legal requirements about the issue and registration of a prospectus. The issue of the prospectus would be deemed to be legal only if the requirements are met. 1. Issue after the incorporation: As a rule, the prospectus of a company can only be issued after its incorporation. A prospectus issued by, or on behalf of a company, or in relation to an intended company, shall be dated, and that date shall be taken as the date of publication of the prospectus. 2. Registration of prospectus: it is mandatory to get the prospectus registered with the Registrar of Companies before it is issued to the public. The procedure of getting the prospectus registered is as under: A. A copy of the prospectus, duly signed by every person who is named therein as a director or a proposed director of the company must be filed with Registrar of Companies before the prospectus is issued to the public. B. The following document must be attached thereto: i) Consent to the issue of the prospectus required under any person as an expert confirming his written consent to the issue thereof, and that he has not withdrawn his consent as aforesaid appears in the prospectus. ii) Copies of all contracts entered into with respect to the appointment of the managing director, directors and other officers of the company must also be filed with Registrar. iii) If the auditor or accountant of the company has made any adjustments in the company’s account, the said adjustments and the reasons thereof must be filed with the documents. iv) There must be a copy of the application which is to be filled for the issue of the company’s shares and debentures attached with the prospectus. v) The prospectus must have the written consent of all the persons who have been named as auditors, solicitors, bankers, brokers, etc. C. Every prospectus must have, on the face of it, a statement that: i) A copy of the prospectus has been delivered to the Registrar for registration. ii) Specifies that any documents required to be endorsed by this section have been delivered to the Registrar. D. A copy of the prospectus must be filed with the Registrar of Companies. E. According to the Section 26, no prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration. If a prospectus issued in contravention of the above –stated provisions, then the company and every person who knows a party to the issue of the prospectus shall be punishable with a fine. Misleading Prospectus or Mis-statement in prospectus: A prospectus is said to be misleading or untrue in two following cases: 1. A st...