CS Executive:Setting Up & Closure [Ch-3 Charter Documents]

MEMORANDUM OF ASSOCIATION (MOA) 

• A doc which sets out the constitution/foundation of co. defines the scope of co. activities and it's relations with outside world. 
• Section 3 of co. act, states an MOA is the first step of incorporation where subscribers are registered. 
• Section 4 defines content and/or objects of co. 
• Charter of a company and defines limitations, contains affirmative and negative, ambit and extent of vitality/powers. 

• FORMS 

  • Form A: applicable to ltd. By shares. 

  • Form B: applicable to ltd. By guarantee not having share capital. 

  • Form C: applicable to ltd. By guarantee having share capital 

  • Form D: applicable to unlimited. Co. not having share capital. 

  • Form E: applicable to unlimited. Co. having share capital. 

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• Contents 

• "ltd." in name of public co. "pvt. Ltd." in pvt. Co.; shan't apply to section 8 co. and govt. co. 
• Situation of the registered office. 
• Objects the co. proposed to be incorporated and any matter considered necessary. 
• The liabilities of co. members: unpaid shares in co. ltd. By shares and to the assets,costs,charges of co. when the person's a member or within 1 year after which they cease to be a member. 
• Capital In case a co. has 1, divided as shares of fixed amt. 
• Subscription: no. Of shares agreed to be subscribed, not less than 1. 
• In case of OPC, the nominee for the owner's death. 
• Co. act will override the MOA and AOA if they contain anything contrary (6). 
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NAME CLAUSE 

1. Not Be identical/resemble too nearly to the name.the co. should change it's name within 3 months from above direction issue after passing an ordinary resolution. 
2. Not Be such that its use constitutes an offence or is undesirable in the govt.'s opinion. 
3. No expression of being connected to govt. or such prescribed in rule 8 of co. incorporation rules, 2014 unless previous approval of CG is obtained.4(2). 
4. 4(4) app in web-based form RUN (reserve unique name)in prescribed manner accompanied by a prescribed fee for the name and 2nd proposal to change of name. 
5. The registrar will reserve name for 20(60 in case of existing co.) days on the basis of info and docs given above. 4(5). 
6. Registrar not supposed to carry an investigation. 

SITUATION CLAUSE 

1. Exact address not required, within 30 days of incorporation [inc-22 verification of registered office, within 30 days]. 
2. 12(3) every co. is required to display name/address in it's business letters,bill heads, letter papers. 
3. The co. shall: name painted/affixed in the prevalent language and English , name engraved in the seal, get its CIN along comm. Details in all notices/official publications, name printed on hundi, BoE, promissory note, etc. 
4. Former name in last 2 years, OPC mentioned. 
5. Share certificate not an official publication. 

OBJECT CLAUSE 

1. Purpose/capacity of the co.and to let people dealing with the co, know about it. 
2. acts beyond this are ultra vires=void and even shareholders can't ratify it. 
3. Subscribers enjoy unrestricted freedom to choose objects. 

LIABILITY CLAUSE 

1. {1(d) of (4)} members liability specifically mentioned in MoA (ltd. Or unlimited) 

CAPITAL CLAUSE 

1. Amt. of capital co. is registered. 
2. Nominal capital: for example - the capital 10,00,000 rupees ÷ into 1,00,000 equity shares @10 each". Max. limit Of the capital.  
3. The amt. actually paid by the shareholders is called the paid-up capital. 

SUBSCRIPTION CLAUSE

 

" The subscribers to the memorandum declare: “We, the several persons whose names and addresses are subscribed below, are desirous of being formed into a company in pursuance of this memorandum of association, and we respectively agree to take the number of shares in the capital of the company set opposite our respective names”. Then follow the names, addresses, description, occupations of the subscribers, and the number of shares each subscriber has agreed to take and their signatures attested by a witness. "

1. Each subscriber must take at least one share, 
2. Each subscriber must write opposite name, the no. of shares greed to take. 

 ARTICLES OF ASSOCIATION (AoA) 

• Regulations for the mgmt. Of the co. bye-laws, govern the internal affairs and conduct of business,  
• Rights of the co. members inter se. 
• Subordinate to MoA. 
• Duties, rights and powers of the governing body. 
• Execution of achievement of objects. 
• [7(1)] the MoA and the AoA shall be filed with registrar at time of incorporation duly signed by all subscribers to the memorandum. 

• Entrenchment provisions: specific provisions altered only if conditions/procedures more restrictive than those applicable in case of an SR are complied with.  

  Acts as protection to minority shareholders. 
• Made at formation,amendment in articles agreed by all members (pvt.) and by an SR (public). 
• Must be printed,divided into pars, no. consecutively, stamped adequately, signed by each subscriber and duly witnessed with the MoA. 
• Contents 

 

CONSISTENCY OF AoA WITH CO.ACT,2013:it can't prevail the act so any contravention will be void unless specifies otherwise by various governing acts. 

ULTRA VIRES: non-binding acts, neither the co. nor the contracting party can sue on it.if a transaction is in excess/abuse of the co. powers, it's ultra vires and shareholders wouldn't be able to validate the acts done beyond the authority of co. 

IMPLIED POWERS: objects are specified but powers may be express/implied. Every co. has certain implied powers such as power to appoint and act through agents, in case of a trading company;a power to borrow and give security for business and also power to self. Incidental/consequential things must be pursued by the company. 

 Shareholders can get back the money paid by him to co. under ultra vires allotment. Transferee from him wouldn't have been so allowed. 

EFFECTS OF ULTRA VIRES TRANSACTION  

• Void ab initio. 
• Injunction: members can get an injunction to restrain a co. wherein ultr vires has happened. 
• Personal liability of directors: duty of director to maintain ethical character of capital usage.ultra vires the co.= unverifiable, ultra vires directors= ratified by shareholders. 
• If a property through ultra vires co, the co. keeps the right to secure the property, as it represents co.'s money. 
• Ultra vires borrowing ≠ relationship of dr. and cr.

DOCTRINE OF INDOOR MANAGEMENT 

1. Doctrine of "constructive notice" seeks to protect co. from outsiders and this doctrine the "vice versa"."constructive notice" can be invoked by the co.and doesn't operate against co. but operates against who has failed to inquire; "indoor mgmt." can be invoked by person dealing with co. and nt the co. 
2. ROYAL BRITISH BANK V. TURQUAND (1856) 119 E.R. 886. 
3. Shouldn't be inconsistent with MoA or AoA, but internal proceedings are irrelevant for outsiders.  
4. An outsider entitled to act on a certified copy of resolution of BoD delegating borrowing powers to MD subject to limitation. 

5. Exceptions 

1. Outsider had known of irregularity. 
2. No knowledge(no "constructive notice" of contents) of MoA and AoA 
3. Forgery: title not defective but nonexistent, discharge of personal liability instead of co. liability. 
4. Negligence. 
5. Not applicable where pre-condition supposedly fulfilled.not compliance of this makes an act ultra vires co. 
6. Both MoA and AoA read together 

 

DOCTRINE OF ALTER EGO 

• Not liable in reference to co. but personally liable when have acted fraudulently or unjustly. 
• Distinguished from vicarious liability. 

• 	MoA	AoA
  1.	charter	Defines the fundamental conditions/objects
  2.	Can't be easily altered	Right to alter by SR
  3.	No contravention to co. act	No contravention to act & MoA
  4.	Relation with outsiders	Relation with members and within members inter se
  5.	Beyond the scope acts are void/ultra vires.	Can be ratified by shareholders.

• When registered both docs are binding and observable by the co. 
• Members bound to co. 
• Co. bound to members  
• Members bound to members: members can't sue each other, only co. can call out the member against the aggravated member. 
• Co. not bound to outsiders.: the co. can't create contact b/w co. and another person, they may indicate the basis upon which contracts may be made by the co. 
• The directors render themselves liable for an action by member when the directors contravene the provisions in the articles.members can also ratify the director's acts, directors are liable to reimburse co. any loss incurred 

ALTERATION

1. Issue of a new COI when fresh name is entered into the register.  
1. Application INC23, FRESH COI INC 25. 
2. Within 3 months for name change if ordered by Cg, within 15 days after fresh name to inform ROC.  
3. Approval of CG not req. When addition/deletion of "pvt."

1. PROCEDURE FOR ALTERATIONS IN NAME CLAUSE 

1. Calling of BM 
2. Seeking name availability from ROC 

3. Obtaining ROC approval  and name availability letter (name validity:60 days) .  

1. Convene a BM for acknowledgement of above  
2. Issue an EGM for name approval.  
4. Notice and holding of EGM (SR passed)  
5. ROC filing 
6. Old name told as well upto 2 years.  

 

1. ALTERATION OF SITUATION OF REGISTERED CLAUSE 

1. within local limits: BR, change and verification of registered projects in INC 22. 15 DAYS 
2. Outside local limits: voting through postal ballot.  
3. From 1 ROC to another (same state) : app to RD in INC 23, concerned SR.  

4. Alteration of registered of from one state to another: app to RD INC 23. 

1. Application for approval of change of registered office from one state to another in INC23, CG approval to ROC in INC28. 
2. Ad before inc-23 in INC-26 

2. Alteration of OBJECT CLAUSE 

1. By an SR or postal ballot (if eligible).  

2. SR co.  

1. Co. Having 200 or more members.  
2. Co. Issuing money through prospectus and underutilized money left outta the same.  

3. Procedure 

1. BM 
2. Approving amendments to object clause, fix agm details, to authorize draft notice of gm and authorizing co. Secretary to sign/issue gm notice.  
3. Following for underutilized prospectus money co
4. SR 
5. NOTICE OF RESOLUTION FOR ALTERATION 
6. Publish ad with dispatch of postal ballot notices 
2. 1. Send notice of gm 
   2. 3/4th majority 
   3. File certified SR copy with registrar with said securities.  

Alteration of capital clause 

1. Every alteration doesn't require tribunal confirmation but consolidation/division does.  

ALTERATION OF AOA.  

1. Consistent with MOA, co. law. No expulsion of members, no clause depriving powers of altering MOA. 

2. Procedure (14) 

1. 7 days notice for BM 
2. Notice of GM 
3. Sec 8 can't alter without prior approval of CG