Various clauses and rules of the memorandum of a company

Various clauses and rules of the memorandum of a company

Name clause:

Start-up companies face a lot of issues whilst choosing the name of their companies. The ministry of corporate affairs has defined strict guideline regarding the allotment of name for Companies and LLPs. Firstly the desired name of the company should be in connection with the proposed business activity of the company. 

Further there are many such rules and regulations regarding allotment of names – No company shall be registered by a name which in the opinion of the central government is undesirable and in particular which is identical or which too nearly resembles the name of an existing company. Where a company is registered by a name so similar to that of another company, that the public are likely to be deceived, the court will grant an injunction restraining it from using that name.

Every public company must write the word ‘limited’ after its name and every private limited company must write the word ‘private limited’ after its name. The use of the word ‘company’ is however, not compulsory. Companies, whose liabilities are not limited, are prohibited from using the word ‘limited’. The words ‘limited’ may be dispensed with in the name of charitable companies. But companies formed to promote art, science, religion etc, which do not propose to pay dividend but intend to apply all its profits towards the working of the company, can be registered without the word ‘limited’ under licenses granted by the central government.

A company cannot adopt a name which violates the provisions of the emblems and names act 1950. This act prohibits the use of the name and emblems of the united nation, and the world health organization, the official seal and emblem of the central and the state governments, the Indian National Flag, the name and pictorial representation of Mahatma Gandhi and the prime minister of India.
*These provisions are not exhaustive.

If a limited company makes a contract without using the word ‘limited’ the directors who make the contract on behalf of the company would be personally liable.

Every company is required to publish its name outside its registered office, and outside every place where it carries on business, to have its name engraved on its seal and to have its name on all business letters, bill heads, notices and other official publications of the company.

Registered office clause(Situational Clause):

This clause states the name of the state where the registered office of the company is to situate. The registered office clause is important for two reasons. Firstly, it ascertains the domicile and nationality of a company. This domicile clings to it throughout its existence. Secondly, it is the place where various registers relating to the company must be kept and to which all communications and notices must be sent. A company need not carry on its business at its registered office.

A company shall have its registered office. Such office must be in existence from the date on which the company begins to carry on business or within 30 days after incorporation, whichever is earlier. Notice of situation of the registered office and every change therein must be given within 30 days from the date of incorporation of the company of after the date of change, as the case may be.

Objects clause:

(a) Main objects: This sub-clause has to state the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects.

(b) Other objects: This sub-clause shall state other objects which are not included in the above clause.

The subscribers to the memorandum of association may choose and object or objects for their company. However there are certain restrictions.

1. The objects should not be against the policy of the constitution. For example, the object should not be such as to encourage untouched ability which has been abolished under our constitution.

2. The objects should not include anything which is illegal or against public policy. For example, forming a company for dealing in lotteries or for trading with the alien enemies.

3. The object must not be against the provisions of the companies act, as for example, authorizing the company to purchase its own shares.

It is, therefore, clear that any act of the company outside its stated, objects is ultra viruses and therefore void and cannot be ratified even by the whole body of shareholders.

Liability clause:

This clause states that the liability of the members in the company is limited. In the case of a company limited by shares, the member is liable only to the amount unpaid on the shares taken by him.

Any alteration in the memorandum compelling a member to take up more shares, or which increases his liability, would be null and void.

If a company carries on business for more than six months, while the number of members is less than 7, in the case of public company and less than 2 in case of a private company each member aware of this fact, is liable for all the debts contracted by the company after the period of six months has elapsed.

Capital clause:

The memorandum of a company limited by shares must state the authorized or nominal share capital, the different kinds of shares, the authorized or nominal share capital, and the nominal value of each share. The capital clause need not state anything else and it is usually better that it should not do so.

Association or subscription clause:

This clause provides that those who have agreed to subscribe to the memorandum must signify their willingness to associate and form a company. According to section 12 of the act, at least seven persons are required to sign the memorandum in the case of a public company, and at least two persons in the case of a private company.

The memorandum has to be signed by each subscriber in the presence of at least one witness who must attest the signatures. Each subscriber must write opposite his name the number of shares he shall take. No subscriber of the memorandum shall take less than one share.


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