M.o.a(liability,capital,subscription clause)
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Querist : Anonymous
Querist :
Anonymous
(Querist)
19 July 2013
Dear Sir,
What is Liability , Capital and Subscription clause in memorandum of association?
Simple and short answer would be appreciated.
Regards,
JAGJEETT SIINGH
What is Liability , Capital and Subscription clause in memorandum of association?
Simple and short answer would be appreciated.
Regards,
JAGJEETT SIINGH
19 July 2013
Hi
Clauses of Memorandum of Association:
Section 13 of the Companies Act, 1956 contains provisions as regards to contents of Memorandum of Association, it has been classified into six clauses and these clauses defines the constitution of the company and its features. These clauses are:
1 Name clause:
This clause contains the name of a company as confirmed by the MCA/Registrar of Companies. The name should be followed by the word "Limited" in the case of a public company and "Private Limited" if the company is proposed to be registered as a private company. However, section 25 Company has been exempted from this requirement.
Proper care should be taken in selection of name and confirmation of name must be obtained from the Registrar before making any exercise.
Clauses of Memorandum of Association:
Section 13 of the Companies Act, 1956 contains provisions as regards to contents of Memorandum of Association, it has been classified into six clauses and these clauses defines the constitution of the company and its features. These clauses are:
1 Name clause:
This clause contains the name of a company as confirmed by the MCA/Registrar of Companies. The name should be followed by the word "Limited" in the case of a public company and "Private Limited" if the company is proposed to be registered as a private company. However, section 25 Company has been exempted from this requirement.
Proper care should be taken in selection of name and confirmation of name must be obtained from the Registrar before making any exercise.
19 July 2013
2 Domicile clause/Registered Office clause
This clause of the Memorandum shall state the State in which the registered office of the company is situated. There is no requirement to mention the address of the Registered Office here. The address of the company is required to be given in e-Form 18, which is required to be filed with the ROC at the time of registration or within 30 days thereof.
Dr. J. J. Irani Committee has recommended that every company should be obliged to have a registered office and to disclose it correctly along with proof of address, in a manner that enables access physically and by service of post. The companies should also be made to register their websites and e-mail addresses.
3 Objects clause
As already stated above, the objects of the business and operations of an organisation form the core matter of the Memorandum of Association. It sets out the objects and is the most important of all clauses. It indicates the extent of company's power and the sphere of its activities. It defines the limit of operations to be carried on by the company.
However, all the objects as mentioned in the document are not meant to be pursued immediately after its incorporation. It thus become difficult to define objects being presently pursued by the company and those which the company had no intention of pursuing. It is required to state separately the main objects, which the company will basically undertake on incorporation and the incidental or ancillary objects for the attainment of the main objects. These objects are enumerated later in a concise manner.
This implies that any business carried on by the company should be stated in the Memorandum of Association hence the business activities not mentioned in the Objects Clause of the Memorandum shall be ultra vires and therefore, void. (Doctrine of Ultra Vires) The Memorandum should be stated in the following manner:
(a) the main objects of the company to be pursued by the company on its incorporation;
(b) objects incidental or ancillary to the attainment of the main objects.
(c) other objects not included in (a) or (b) above.
This clause of the Memorandum shall state the State in which the registered office of the company is situated. There is no requirement to mention the address of the Registered Office here. The address of the company is required to be given in e-Form 18, which is required to be filed with the ROC at the time of registration or within 30 days thereof.
Dr. J. J. Irani Committee has recommended that every company should be obliged to have a registered office and to disclose it correctly along with proof of address, in a manner that enables access physically and by service of post. The companies should also be made to register their websites and e-mail addresses.
3 Objects clause
As already stated above, the objects of the business and operations of an organisation form the core matter of the Memorandum of Association. It sets out the objects and is the most important of all clauses. It indicates the extent of company's power and the sphere of its activities. It defines the limit of operations to be carried on by the company.
However, all the objects as mentioned in the document are not meant to be pursued immediately after its incorporation. It thus become difficult to define objects being presently pursued by the company and those which the company had no intention of pursuing. It is required to state separately the main objects, which the company will basically undertake on incorporation and the incidental or ancillary objects for the attainment of the main objects. These objects are enumerated later in a concise manner.
This implies that any business carried on by the company should be stated in the Memorandum of Association hence the business activities not mentioned in the Objects Clause of the Memorandum shall be ultra vires and therefore, void. (Doctrine of Ultra Vires) The Memorandum should be stated in the following manner:
(a) the main objects of the company to be pursued by the company on its incorporation;
(b) objects incidental or ancillary to the attainment of the main objects.
(c) other objects not included in (a) or (b) above.
19 July 2013
4 Liability clause:
Section 13(2) provides that companies limited by shares or by guarantee shall also contain in their Memorandum of Association a 'Limited Liability clause', which shall state that "liability of members is limited". It means that no member can be called upon to pay more than the amount that remains unpaid on his shares; and if his shares are already fully paid up, his further liability to pay is nil, even if the company owes huge debts. Similarly, in case of a company limited by guarantee the liability of a member is limited to the amount which he has agreed to contribute to the assets of the company in the event of its liquidation, while he is a member or within one year after he ceases to be a member for payment of the debts and liabilities of the company contracted before he ceased to be a member and of the cost and expenses of winding-up, such amount does not exceed a specified amount.
4 Liability clause:
Section 13(2) provides that companies limited by shares or by guarantee shall also contain in their Memorandum of Association a 'Limited Liability clause', which shall state that "liability of members is limited". It means that no member can be called upon to pay more than the amount that remains unpaid on his shares; and if his shares are already fully paid up, his further liability to pay is nil, even if the company owes huge debts. Similarly, in case of a company limited by guarantee the liability of a member is limited to the amount which he has agreed to contribute to the assets of the company in the event of its liquidation, while he is a member or within one year after he ceases to be a member for payment of the debts and liabilities of the company contracted before he ceased to be a member and of the cost and expenses of winding-up, such amount does not exceed a specified amount.
19 July 2013
5 Capital clause
This clause is required to state the authorised or nominal capital with which the company having a share capital is to be registered and the division thereof into shares of a fix amount. This capital is variously described as 'registered', 'authorised' and 'nominal' capital. In this connection the authorised capital should not be less than the minimum paid-up capital required Rs. 5,00,000 for public company and Rs. 1,00,000 for private limited company.
In case of an unlimited company, the liability of the members towards the outsiders is unlimited in the event of winding up of the company, while it remains limited to the value at which the shares are subscribed by them and remain unpaid, so long as the company is a going concern. However, the same should be specifically stated in the Memorandum. The requirement of section 13(4)(a) is not mandatory in such case.
4.5.1 Requirements of minimum paid-up capital
Every private company requires minimum paid up capital of Rs. 1 lakh and public company requires minimum paid up capital of Rs. 5 lakhs. Now new company cannot be registered which is having less than the minimum paid-up capital required
However, as per section 3(6) no criteria for minimum paid up capital is applicable for the Companies registered under the provisions of section 25 of the Act. It is not stated in this provision when the new companies should issue the minimum shares after incorporation and make them paid-up to the extent required under the law. However the promoters shall undertake to subscribe in the Memorandum and Articles, the minimum amount of capital as required and should allot the same at the first Board meeting of the company.
5 Capital clause
This clause is required to state the authorised or nominal capital with which the company having a share capital is to be registered and the division thereof into shares of a fix amount. This capital is variously described as 'registered', 'authorised' and 'nominal' capital. In this connection the authorised capital should not be less than the minimum paid-up capital required Rs. 5,00,000 for public company and Rs. 1,00,000 for private limited company.
In case of an unlimited company, the liability of the members towards the outsiders is unlimited in the event of winding up of the company, while it remains limited to the value at which the shares are subscribed by them and remain unpaid, so long as the company is a going concern. However, the same should be specifically stated in the Memorandum. The requirement of section 13(4)(a) is not mandatory in such case.
4.5.1 Requirements of minimum paid-up capital
Every private company requires minimum paid up capital of Rs. 1 lakh and public company requires minimum paid up capital of Rs. 5 lakhs. Now new company cannot be registered which is having less than the minimum paid-up capital required
However, as per section 3(6) no criteria for minimum paid up capital is applicable for the Companies registered under the provisions of section 25 of the Act. It is not stated in this provision when the new companies should issue the minimum shares after incorporation and make them paid-up to the extent required under the law. However the promoters shall undertake to subscribe in the Memorandum and Articles, the minimum amount of capital as required and should allot the same at the first Board meeting of the company.
19 July 2013
6 Association clause
The last clause in the Memorandum is 'Declaration of Association' or the Association Clause. This is a very important clause in the Memorandum of Association, by which it shall be ascertained, who are the real promoters of the company. This decides the authenticity of the Association being formed into a company. The fact that the particulars of this clause are written in own handwriting and signed by the subscribers and witnessed, makes it a binding contract on the subscribers to abide by the clauses specified in the Memorandum. It reads as under:
"We, the several persons, whose names and addresses are subscribed, are desirous of being formed into a company, in pursuance of the Memorandum of Association and respectively agree to take the number of shares in the capital of the company set opposite our respective names". Generally, this clause is given in a proper table which contains the names, father's name, addresses, occupations and age of subscribers and the number of shares has been undertaken to be subscribed by them.
Where a person signs in a language other than the language of the Memorandum, or an illiterate person, it has to be ensured that he/they is conversant with the contents of the documents. Hence, the contents of the same have to be fully communicated to such persons, in his/their language, to enable him/ them to understand it in the same sense as it is meant in the Memorandum. The signatures/thumb impressions are required to be authenticated by a witness. The person witnessing the signature of the subscriber shall make an endorsement to this effect on the document with signature and in case of a professional, his membership number of the professional body should also be stated.
Where a company is having share capital, such subscribers shall take not less than one share and he shall write opposite his name the number of share he agree to takes. It is advisable that all the subscribers shall take such number of shares whose value aggregates not less that the minimum paid up capital required under the Act.
6 Association clause
The last clause in the Memorandum is 'Declaration of Association' or the Association Clause. This is a very important clause in the Memorandum of Association, by which it shall be ascertained, who are the real promoters of the company. This decides the authenticity of the Association being formed into a company. The fact that the particulars of this clause are written in own handwriting and signed by the subscribers and witnessed, makes it a binding contract on the subscribers to abide by the clauses specified in the Memorandum. It reads as under:
"We, the several persons, whose names and addresses are subscribed, are desirous of being formed into a company, in pursuance of the Memorandum of Association and respectively agree to take the number of shares in the capital of the company set opposite our respective names". Generally, this clause is given in a proper table which contains the names, father's name, addresses, occupations and age of subscribers and the number of shares has been undertaken to be subscribed by them.
Where a person signs in a language other than the language of the Memorandum, or an illiterate person, it has to be ensured that he/they is conversant with the contents of the documents. Hence, the contents of the same have to be fully communicated to such persons, in his/their language, to enable him/ them to understand it in the same sense as it is meant in the Memorandum. The signatures/thumb impressions are required to be authenticated by a witness. The person witnessing the signature of the subscriber shall make an endorsement to this effect on the document with signature and in case of a professional, his membership number of the professional body should also be stated.
Where a company is having share capital, such subscribers shall take not less than one share and he shall write opposite his name the number of share he agree to takes. It is advisable that all the subscribers shall take such number of shares whose value aggregates not less that the minimum paid up capital required under the Act.
19 July 2013
Name, address, description and occupation of each subscriber:
Subscribers shall sign and write in the Memorandum and Articles of Association his/her own hand, his/her name, father's/husband's name, address, age and occupation, if any, and shall also write against his name the number of shares he/she proposes to subscribe. Subscribers can be either literate or illiterate, either man or woman, either resident or non-resident, either Indian national or foreign nationals. In any case they must be competent to enter into an agreement.
Dr. J.J. Irani Committee has proposed in its Report that the promoters and directors should also disclose information that establishes/authenticates their proof of residence and identity through supporting documents such as Photographs, PAN Number, Passport, affidavits etc. that may be prescribed.
The subscription to a memorandum of association means not merely signing at every one of its pages but signing their names in token of entering into an agreement both as to signatories forming themselves into a company but also their undertaking to take number of shares indicated against their names. [Arthanari Transports (P) Ltd. v K.P. Swami Gounder (1965) 35 Comp Cas 930 (Mad)].
The signatures of the subscribers must be authenticated by a witness who is not a subscriber himself. He shall likewise add his name, father's name, address, age and occupation, if he is a member of the professional body, membership number with shall also be written if any. If attestation of Memorandum of Association which has been registered turns out to be irregular, it does not render the same void [Chotalal v Dal Sukram (1892) ILR 17 Bom 472].
Name, address, description and occupation of each subscriber:
Subscribers shall sign and write in the Memorandum and Articles of Association his/her own hand, his/her name, father's/husband's name, address, age and occupation, if any, and shall also write against his name the number of shares he/she proposes to subscribe. Subscribers can be either literate or illiterate, either man or woman, either resident or non-resident, either Indian national or foreign nationals. In any case they must be competent to enter into an agreement.
Dr. J.J. Irani Committee has proposed in its Report that the promoters and directors should also disclose information that establishes/authenticates their proof of residence and identity through supporting documents such as Photographs, PAN Number, Passport, affidavits etc. that may be prescribed.
The subscription to a memorandum of association means not merely signing at every one of its pages but signing their names in token of entering into an agreement both as to signatories forming themselves into a company but also their undertaking to take number of shares indicated against their names. [Arthanari Transports (P) Ltd. v K.P. Swami Gounder (1965) 35 Comp Cas 930 (Mad)].
The signatures of the subscribers must be authenticated by a witness who is not a subscriber himself. He shall likewise add his name, father's name, address, age and occupation, if he is a member of the professional body, membership number with shall also be written if any. If attestation of Memorandum of Association which has been registered turns out to be irregular, it does not render the same void [Chotalal v Dal Sukram (1892) ILR 17 Bom 472].
19 July 2013
Department's circular of subscription through Attorney or Agent
The Department has issued a Circular No. 8/15/8, dated 1-9-1958 that an agent may sign the Memorandum on behalf of a subscriber, if he is authorised to do so by a power of attorney. Department Circular No. 1/95, dated 16th February 1995 states that only one power of attorney on usual stamp paper from all subscriber or directors is enough. The Registrar of Companies should not insist upon any authorisation from the Board of directors for appointing a power of attorney. Such type of authorisation are commonly used in three types of situations:—
(1) Corporate Subscriber: A company being an artificial and legal person may be a subscriber to the Memorandum and Articles of Association. In order to subscribe for the Memorandum and Articles of Association, the Board of directors of the company shall by resolution under section 292(1)(d) authorise a person as its attorney to sign the various documents for and on behalf of the company. The Board shall also authorise for execution of a Power of Attorney in favour of the said person. Since it is required for every subscriber having a share capital to take at least one share, therefore it should be mentioned in the resolution of the Board that how many shares the company proposes to take. Provisions of section 372A shall also be considered.
(2) Where any of the subscribers is not available: In such a situation, he may constitute an attorney and authorise any person capable of entering into contract, to sign the documents on his/her behalf. The said Power of Attorney is required to be executed on non-judicial stamp paper of such value as per the Stamp Rules, applicable in the State where the registration of the company shall take place.
(3) Subscription by illiterate person: An illiterate person subscribing the Memorandum can also authorise an agent to write for him and sign the Memorandum and Articles on his behalf through a power of attorney. Alternatively, he can put his left hand thumb impression on the column for signature and his name, address and occupation and the number of shares agreed to be taken by him be written by the person writing for him. The latter person should read and explain the contents of the documents to the illiterate person and make an endorsement to that effect on the document at the appropriate place.
Department's circular of subscription through Attorney or Agent
The Department has issued a Circular No. 8/15/8, dated 1-9-1958 that an agent may sign the Memorandum on behalf of a subscriber, if he is authorised to do so by a power of attorney. Department Circular No. 1/95, dated 16th February 1995 states that only one power of attorney on usual stamp paper from all subscriber or directors is enough. The Registrar of Companies should not insist upon any authorisation from the Board of directors for appointing a power of attorney. Such type of authorisation are commonly used in three types of situations:—
(1) Corporate Subscriber: A company being an artificial and legal person may be a subscriber to the Memorandum and Articles of Association. In order to subscribe for the Memorandum and Articles of Association, the Board of directors of the company shall by resolution under section 292(1)(d) authorise a person as its attorney to sign the various documents for and on behalf of the company. The Board shall also authorise for execution of a Power of Attorney in favour of the said person. Since it is required for every subscriber having a share capital to take at least one share, therefore it should be mentioned in the resolution of the Board that how many shares the company proposes to take. Provisions of section 372A shall also be considered.
(2) Where any of the subscribers is not available: In such a situation, he may constitute an attorney and authorise any person capable of entering into contract, to sign the documents on his/her behalf. The said Power of Attorney is required to be executed on non-judicial stamp paper of such value as per the Stamp Rules, applicable in the State where the registration of the company shall take place.
(3) Subscription by illiterate person: An illiterate person subscribing the Memorandum can also authorise an agent to write for him and sign the Memorandum and Articles on his behalf through a power of attorney. Alternatively, he can put his left hand thumb impression on the column for signature and his name, address and occupation and the number of shares agreed to be taken by him be written by the person writing for him. The latter person should read and explain the contents of the documents to the illiterate person and make an endorsement to that effect on the document at the appropriate place.
19 July 2013
Signature in any other language:
Where a person signs in a language other than the language of the Memorandum, it has to be ensured that he is conversant with the contents of the document. Hence, the contents have to be fully and properly communicated to such person, in his language, to enable him to understand it in the same sense as it is meant in the Memorandum. The signatures are required to be authenticated by a witness. The person witnessing the signature of the subscriber shall make an endorsement to this effect on the document at the appropriate place.
Signature in any other language:
Where a person signs in a language other than the language of the Memorandum, it has to be ensured that he is conversant with the contents of the document. Hence, the contents have to be fully and properly communicated to such person, in his language, to enable him to understand it in the same sense as it is meant in the Memorandum. The signatures are required to be authenticated by a witness. The person witnessing the signature of the subscriber shall make an endorsement to this effect on the document at the appropriate place.
19 July 2013
Important points which must be considered while drafting Association clause of Memorandum
(1) According to section 12, there should be at least two persons subscribing to Memorandum of Association in case of private company and seven in case of public company.
(2) The names of subscribers to Memorandum of Association must tally with the names of promoters as given in application for availability of name. (See the Circular No. 1/90, dated 5-1-1990).
(3) In case one or more of the promoters, whose name have been included in application for availability of name, are no more interested in incorporation of the Company, no-objection letter from such promoter should be obtained and made available to MCA/ROC at the time of registration of the company.
(4) The Registrars have also been told that in case if there is any change in the names of the subscribers from what was given in e-Form 1A for availability of name, the changed subscribers should be asked to make a fresh application for availability of names. However, the names in instances of the above nature will be valid for six months, the MCA/Registrar will have no objection to allow the said name in response to the fresh application if the name is not utilised for six months in terms of the original application.
Important points which must be considered while drafting Association clause of Memorandum
(1) According to section 12, there should be at least two persons subscribing to Memorandum of Association in case of private company and seven in case of public company.
(2) The names of subscribers to Memorandum of Association must tally with the names of promoters as given in application for availability of name. (See the Circular No. 1/90, dated 5-1-1990).
(3) In case one or more of the promoters, whose name have been included in application for availability of name, are no more interested in incorporation of the Company, no-objection letter from such promoter should be obtained and made available to MCA/ROC at the time of registration of the company.
(4) The Registrars have also been told that in case if there is any change in the names of the subscribers from what was given in e-Form 1A for availability of name, the changed subscribers should be asked to make a fresh application for availability of names. However, the names in instances of the above nature will be valid for six months, the MCA/Registrar will have no objection to allow the said name in response to the fresh application if the name is not utilised for six months in terms of the original application.
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