business and company law2

8/8/2019 Business and Company Law2

1/44

BUSINESS ANDBUSINESS AND

COMPANY LAWCOMPANY LAWSESSION 2SESSION 2

MOA,MOA, AOA,CHARACTERISTICS,CONTENTS AOA,CHARACTERISTICS,CONTENTS AND DIFFERENCES AND DIFFERENCES


2/44

MEMORANDUM OFMEMORANDUM OF

ASSOCIATION ASSOCIATIONThe MOA is an important and unalterableThe MOA is an important and unalterablecharter.It contains the object for whichcharter.It contains the object for which

the company is formed and thereforethe company is formed and thereforeidentifies the possible scope of itsidentifies the possible scope of itsoperation beyond which its action can not operation beyond which its action can not go.It defines as well confines the power of go.It defines as well confines the power of the company.the company.


3/44

Contents or Clauses of MOAContents or Clauses of MOA

Section 13 of Companies Act,1956 sets out Section 13 of Companies Act,1956 sets out the content of MOAthe content of MOAThe Name ClauseThe Name ClauseThe Registered Office ClauseThe Registered Office ClauseThe Object ClauseThe Object ClauseThe Liability ClauseThe Liability ClauseThe Capital ClauseThe Capital ClauseThe Association and Subscription ClauseThe Association and Subscription Clause


4/44

The Name Clause Sec13(1)(a)The Name Clause Sec13(1)(a)

Require to state the name of the companyRequire to state the name of the companyWord limited or pvt. ltd should follow the nameWord limited or pvt. ltd should follow the nameThe name should not be identical to the name of The name should not be identical to the name of the company which is already registeredthe company which is already registeredName change of a Company requires specialName change of a Company requires specialresolution and approval of the central Govt. andresolution and approval of the central Govt. andfresh certificate of incorporation will be issuedfresh certificate of incorporation will be issuedby Registrar of Companiesby Registrar of Companies


5/44

The Registered Office ClauseThe Registered Office Clause

Sec13(1)(b)Sec13(1)(b)Must specify the state in which theMust specify the state in which theregistered office of the company is to beregistered office of the company is to be

situated.The address of the head officesituated.The address of the head officenot required.not required.Process differs in case of shifting of Process differs in case of shifting of registered office within the same city,registered office within the same city,from one city to another city within thefrom one city to another city within thesame state or from one State to anothersame state or from one State to anotherState.State.


6/44

The Object ClausesThe Object Clauses

sec13(1)(a)&(d)sec13(1)(a)&(d)Must state the objects for which the proposedMust state the objects for which the proposedcompany is to be established.company is to be established.The companies Act ,1965 requires that in caseThe companies Act ,1965 requires that in casethe company is in existence before thethe company is in existence before theamendments, the object clause has simply toamendments, the object clause has simply tostate the object of the company.But in case ostate the object of the company.But in case ocompanies to be registered after thecompanies to be registered after theamendments,the object clause must be dividedamendments,the object clause must be dividedinto three sub clauses, namelyinto three sub clauses, namely


7/44

Object clause continuedObject clause continued

i.i. Main Object Main Object ii.ii. Other object Other object

iii.iii. Commencement of New BusinessCommencement of New Business


8/44

Main ObjectMain Object

To state the primary object of theTo state the primary object of thecompany for which it is incorporated andcompany for which it is incorporated and

object incidental to the attainment of theobject incidental to the attainment of themain object main object


9/44

Other ObjectsOther Objects

This sub clause must state the objectsThis sub clause must state the objectswhich are not included in the above clausewhich are not included in the above clause

Secondary objectivesSecondary objectives


10/44

Commencement of new BusinessCommencement of new Business

No new business in other objects can beNo new business in other objects can becommenced unlesscommenced unless

1.1. Prior approval of shareholders obtainedPrior approval of shareholders obtainedthru special resolution in generalthru special resolution in generalmeeting.meeting.

2.2. When special resolution is not When special resolution is not

passes,central Govt.may allow on thepasses,central Govt.may allow on theapplication made by BOD to commenceapplication made by BOD to commencebusiness in other objectsbusiness in other objects


11/44

The liability ClauseThe liability Clause

States the nature of the liability of States the nature of the liability of membersmembers

Whether it is limited by guarantee or byWhether it is limited by guarantee or bysharessharesChange in liability can bebrought byChange in liability can bebrought bypassing a special resoluton to that effect passing a special resoluton to that effect


12/44

The Capital ClauseThe Capital Clause

Specify the amount of share capital withSpecify the amount of share capital withwhich the company is to be registered andwhich the company is to be registered andthe number of shares in which the amount the number of shares in which the amount has been divided.has been divided.The authorised capital should beThe authorised capital should besufficiently high so that thee would besufficiently high so that thee would beadequate for further issue of share onadequate for further issue of share onlater date for expansion of businesslater date for expansion of business


13/44

The Association ClauseThe Association Clause

The name MOA derived from this clauseThe name MOA derived from this clauseHere the signature of the subscriber to theHere the signature of the subscriber to the

memorandum are available.memorandum are available.The MOA to be subscribed by atleast 7The MOA to be subscribed by atleast 7members in case of public company and 2members in case of public company and 2person in case of private company.person in case of private company.

A suscriber must take at least one share A suscriber must take at least one share


14/44

Doctrine of Ultra ViresDoctrine of Ultra Vires

The word ultra means beyondand theThe word ultra means beyondand theword vires means power.word vires means power.There for ultraVires means beyond theThere for ultraVires means beyond thepowerspowers

Any Activity undertaken by comapny which Any Activity undertaken by comapny whichis beyond its power , as conferred upon it is beyond its power , as conferred upon it

by MOA, will be ineffective even if agreedby MOA, will be ineffective even if agreedto by all the members.This rule is knownto by all the members.This rule is knownas Doctrine of Ultra Vires.as Doctrine of Ultra Vires.


15/44

Effect of Ultra Vires TransactionsEffect of Ultra Vires Transactions

InjuctionInjuction

Personal Liability of DirectorsPersonal Liability of Directors

Acquisition of Property that is Ultra Vires Acquisition of Property that is Ultra Vires

Directors personally liable to Third PartiesDirectors personally liable to Third Parties


16/44

Alteration of MOA Alteration of MOA

Section 16 companies Act states AlterationSection 16 companies Act states Alterationin Moa cannot be done except in the modein Moa cannot be done except in the modeand to the extent expressly provided byand to the extent expressly provided bythe Act, as per following provisions:the Act, as per following provisions:


17/44

1. Alteration of Name Clause1. Alteration of Name Clause

Sec21 provides the name of the companySec21 provides the name of the companymay alter at any time by passing a specialmay alter at any time by passing a specialresolution and with the written approval of resolution and with the written approval of the Central Govt.the Central Govt.If company is registered under similarIf company is registered under similarname alteration can be affected byname alteration can be affected byordinary resolution and previous consent ordinary resolution and previous consent of the central Govt.of the central Govt.


18/44

Alteration in name clause Alteration in name clause

continuedcontinuedIf Central Govt. feels that the name of theIf Central Govt. feels that the name of thecompany is not desirable it can direct thecompany is not desirable it can direct thecompany to change its name within 12company to change its name within 12months from the date of registration, andmonths from the date of registration, andthe company must do so within 3 monthsthe company must do so within 3 monthsof that direction otherwiseof that direction otherwise

Every Officer in default is punishable uptoEvery Officer in default is punishable uptoRs1000 fine per day of the period of Rs1000 fine per day of the period of Default.Default.


19/44

Alteration of Registered Office Alteration of Registered Office

Change of RO within same cityChange of RO within same cityThe notice shall be given in Form18The notice shall be given in Form18

Change of RO from one city to anotherChange of RO from one city to anotherwithin same statewithin same stateThe notice shall be given in Form18The notice shall be given in Form18


20/44

Alteration of RO continued. Alteration of RO continued.

Change from state to anotherChange from state to anotherRequires alteration of MOARequires alteration of MOA

A special Resolution required to be passed A special Resolution required to be passed A Copy of CLB order to be filed with A Copy of CLB order to be filed withregister of both the Statesregister of both the States

All document relating to the company to All document relating to the company tobe sent to the register of other Statebe sent to the register of other State


21/44

Alteration of Object Clause Alteration of Object Clause

Sec 17 allows to change the objectivesSec 17 allows to change the objectivesor address of the company by passingor address of the company by passingspecial resolution on the followingspecial resolution on the followingground only:ground only:

i.i. To carry on the business moreTo carry on the business moreeconomically and efficientlyeconomically and efficiently

ii.ii. To attain the objective by improvedTo attain the objective by improvedmeansmeans


22/44

ContinuedContinued

iii.iii. To enlarge the area of operationTo enlarge the area of operationiv.iv. To restrict or abandon any objectiveTo restrict or abandon any objective

specified in the Moaspecified in the Moav.v. To sell or dispose any part or wholeTo sell or dispose any part or whole

undertakingundertaking

vi.vi. To amalgamate with other companyTo amalgamate with other company


23/44

4 .Alteration of Liability Clause4 .Alteration of Liability Clause

Section 38 specifies liability of a companySection 38 specifies liability of a companymay be increased or decreased aftermay be increased or decreased aftermembers agrees in writing.members agrees in writing.


24/44

Alteration Of Share capital Alteration Of Share capital

Section 94 , can alter share capital and beSection 94 , can alter share capital and beany of four shapes:any of four shapes:

Alteration of Share Capital Alteration of Share CapitalReduction of Share CapitalReduction of Share Capital

Variation of the right of shareholders Variation of the right of shareholders

Rearrangement of Share CapitalRearrangement of Share Capital


25/44

Articles of Association Articles of Association

The AOA of a company are its byelawsThe AOA of a company are its byelawswhich govern the internal management of which govern the internal management of a companya company

Articles of Association is equivalent to Articles of Association is equivalent to partnership deed of Partnership. partnership deed of Partnership.The rules for the general management forThe rules for the general management forthe attainment of its objects a sgiven in itsthe attainment of its objects a sgiven in itsmemorandum.memorandum.


26/44

Broad Purpose of AOABroad Purpose of AOA

Prescibes rule for attainment of objectivesPrescibes rule for attainment of objectivesConstitutes a contract between theConstitutes a contract between the

company and its members defining theircompany and its members defining theirrespective rights and dutiesrespective rights and duties


27/44

Contents of AOAContents of AOA

Directors their qualification, remuneration,Directors their qualification, remuneration,rotation etc and board meetingsrotation etc and board meetingsDefinitions of important words and phrasesDefinitions of important words and phrasesDividends reserves and depreciation fundsDividends reserves and depreciation fundsCapital clause specifying the different classesCapital clause specifying the different classesinto which the share capital of the company willinto which the share capital of the company will

be divided and defining the rights of respectivebe divided and defining the rights of respectiveclasses regarding dividends, bonusclasses regarding dividends, bonus Allotment of shares Allotment of shares


28/44

ContinuedContinued

Allotment of shares Allotment of sharesFixation of minimum subscriptionFixation of minimum subscription

Share certificates and share warantsShare certificates and share warantsPayment of underwriting commissionPayment of underwriting commissionCall on sharesCall on shares

Forfeiture, surrender and lienForfeiture, surrender and lienTransfer and transmission of sharesTransfer and transmission of shares


29/44

Continued.Continued.

Increase and reduction of capitalIncrease and reduction of capitalConsolidation and subConsolidation and sub- -division of sharedivision of share

BorrowingBorrowingGeneral meeting , proceeding thereof andGeneral meeting , proceeding thereof andvotes, proxies and pollsvotes, proxies and polls

Management Management The exclusion , total or partial of table AThe exclusion , total or partial of table A


30/44

Continued..Continued..

Adoption or execution of a preliminary Adoption or execution of a preliminaryagreement agreement

Accounts and audits Accounts and auditsCommon SealCommon SealNoticesNotices

Special provisions in the winding upSpecial provisions in the winding up Arbitration Arbitration


31/44

Alteration of Articles sec31 Alteration of Articles sec31

Sec 31 , company may add or alter itsSec 31 , company may add or alter itsarticles by special resolution and file it articles by special resolution and file it with Register of companies within 30 dayswith Register of companies within 30 daysof the passing of the special resolutionof the passing of the special resolution


32/44

Limitations on power to Alter Limitations on power to Alter Articles Articles

The alteration must not exceed the powerThe alteration must not exceed the powergiven by memorandumgiven by memorandum

The altered articles must not be unlawfulThe altered articles must not be unlawful Amendments of articles to empower BOD Amendments of articles to empower BODto expel any member is opposed toto expel any member is opposed tofundamental principle.fundamental principle.

A company cannot justify breach of A company cannot justify breach of contract with third partycontract with third party


33/44

Effects of Memorandum andEffects of Memorandum and Articles Articles

The MOA and AOA when registered binds theThe MOA and AOA when registered binds thecompany and its members to the sam e extent company and its members to the sam e extent as if It has been signed by the company and theas if It has been signed by the company and the

members.members.Binding on Company and its DirectorsBinding on Company and its DirectorsMembers bound to the companyMembers bound to the company

Company bound to the memberCompany bound to the memberMember bound to the memberMember bound to the memberWhether company members bound to OutsidersWhether company members bound to Outsiders


34/44

Doctrine of Indoor ManagementDoctrine of Indoor Management

Outsiders dealing with the company can assumeOutsiders dealing with the company can assumethat if the Directors or other officers are enteringthat if the Directors or other officers are enteringinto the transactons with them , they wouldinto the transactons with them , they would

have obtained the necessary sansctions orhave obtained the necessary sansctions orapprovals required. This is known as Doctrine of approvals required. This is known as Doctrine of Indoor Management.Indoor Management.It is a protection to the outsiders against theIt is a protection to the outsiders against themanipulations done by the representative of themanipulations done by the representative of thecompanycompany


35/44

Exceptions to the Doctrine of Exceptions to the Doctrine of Indoor managementIndoor management

Where outsiders had knowledge of Where outsiders had knowledge of irregularityirregularity

No knowledge of articlesNo knowledge of articlesForgeryForgeryNegligenceNegligence


36/44

Doctrine of Constructive NoticeDoctrine of Constructive Notice

It is a protection to the company against It is a protection to the company against the outsidersthe outsiders

It assumes that who ever is dealing with aIt assumes that who ever is dealing with aCompany has gone thru its MOA and AOA.Company has gone thru its MOA and AOA.


37/44

Difference Between MOA and AOADifference Between MOA and AOA

MOA is prepared for the outsiders whileMOA is prepared for the outsiders while AOA is prepared for the insiders AOA is prepared for the insiders

MOA lays down the object and purpose forMOA lays down the object and purpose forwhich company is formed while AOA arewhich company is formed while AOA aresubordinate to the MOA and dealssubordinate to the MOA and dealsregulation for attainment of thoseregulation for attainment of thoseobjectivesobjectives


38/44

QuizQuiz

Which is considered to be the most Which is considered to be the most important document of the company?important document of the company?


39/44

QuizQuiz

Which Document is prepared for theWhich Document is prepared for theoutsiders and which Document is Preparedoutsiders and which Document is Preparedfor the members?for the members?


40/44

QuizQuiz

The Liability clause is part of MOA or AOA?The Liability clause is part of MOA or AOA?


41/44

QuizQuiz

Alteration of which Clause is not possible? Alteration of which Clause is not possible?Name ClauseName Clause

Registered Office ClauseRegistered Office ClauseObject ClauseObject Clause


42/44

QuizQuiz

Directors and their Qualification is part of Directors and their Qualification is part of which Document?which Document?


43/44

quizquiz

MOA has no binding on Directors.MOA has no binding on Directors.(True/False)(True/False)

FalseFalse


44/44

QuizQuiz

Which Doctrine Protect Company fromWhich Doctrine Protect Company fromOutsiders ?Outsiders ?

which Doctrine Protects Outsiders fromwhich Doctrine Protects Outsiders fromCompany?Company?

business and company law2

Documents