Incorporation Of A Private Company

Memorandum Of Association

Meaning and Purpose of Memorandum

An important step in the formation of a company is to prepare a document called memorandum of association. It is the charter of the company and is very important document as it contains the basic conditions on which the company is incorporated.

The Memorandum contains the name, registered office, main and other objects of the company, liability of the members and the authorized capital of the company. The main purpose of the memorandum is to limit the scope of activities and powers of the company. Thus, any act outside the memorandum is ultra vires the company. Such an act is not enforceable and directors involve personal liability for it.

Requirements with respect to Memorandum.

1. The memorandum of every company shall state -
   • the name of the company with "Limited" as the last word of the name in the case of a public limited company, and with "Private Limited" as the last words of the name in the case of a private limited company;
   • the State in which the registered office of the company is to be situated;
   • in the case of a company in existence immediately before the commencement of the Companies (Amendment) Act, 1965, (31 of 1965) the objects of the company;
   • in the case of a company formed after such commencement, -
     • the main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects;
     • other objects of the company not included in sub-clause (i); and
   • in the case of companies (other than trading corporations), with objects not confined to one State, the States to whose territories the objects extend.
2. The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.
3. The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up 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, or of such debts and liabilities of the company as may have been contracted before he ceases to be a member, as the case may be, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.
4. In the case of a company having a share capital -
   • unless the company is an unlimited company, the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount;
   • no subscriber of the memorandum shall take less than one share; and
   • each subscriber of the memorandum shall write opposite to his name the number of shares he takes.

Obtain Registrar's Guidance

The company Law Board in its Circular No. 128/ HCC/64 dated 27-7-1964 has directed that the Registrars should to the extent possible offers their help and advise to those who may approach them in drawing up the Memorandum and Articles. This is specifically desirable in case where promoters have no prior experience of company promotion.

Stamp duty

The Memorandum of Association and Articles of Association are required to be stamped adequately in the prescribed manner and mode. Rules 10 and 39 of Schedule I of the Indian Stamp Act, prescribe the rates of stamp duty payable on the Memorandum of Association and Articles of Association. The different States prescribe different rates of stamp duty applicable to the companies incorporated in their respective territories.

Stamp duty should be paid either by affixing adhesive stamps or by using non-judicial papers or otherwise as may be prescribed by the States concerned. Unless it is provided otherwise; adhesive stamps are generally used.

Execution of Memorandum of Association

• One copy of the Memorandum of Association is to be executed by the subscribers.
• The minimum number of subscribers who can execute the memorandum is two in the case of a private company. Each one of the subscribers must take atleast one share.
• While executing the Memorandum of Association the subscribers are required to write the following particulars in their own handwriting.
  1. Name
  2. Father's /Husband's name
  3. Address
  4. Description indication the occupation of the subscribers
  5. Number of shares subscribed by them in words as well as in figures
  6. Signatures
  7. Date
• Generally speaking the memorandum should be signed by the subscribers. However, in certain cases it becomes difficult for the subscribers to sign the memorandum or any amendments thereto. This may happen where the subscribers to the memorandum are foreign parties who may be collaborating with Indian promoters.
• The Department of company Affairs has clarified that in such cases the memorandum be signed by an agent if authorized by a power of attorney to do so. When an executant is an illiterate person, he should annexe his thump impression or mark, which should be described as such by the person writing for him.

Witnesses

The execution of the Memorandum of Association is required to be witnessed. One person can witness the signatures of all the subscribers. None of the subscriber can be a witness. The witness (es) is/are required to give the following particulars in his/their own hand:

1. Signature
2. Name
3. Father's /Husband Name
4. Descriptions indicating occupation
5. Address
6. Date

The date of signing should be the date on which the memorandum is stamped or any date after that. It should not be any date prior to stamping.