Altyeration of memorandum

ALTERATION OF MEMORANDUM OF
ASSOCIATION
One of the first steps in the formation of a company is to prepare a document called the
memorandum of association (hereinafter referred to as MoA). The MoA of the company
contains the fundamental conditions upon which alone the company has been
incorporated. [1] Every registered company should have a MoA which is the company’s
charter. In general the MoA regulates the company’s external affairs while the articles of
association regulate its internal structure. [2]

The precondition for the registration of the company involves one or more person
signing and delivering to the Companies House or the Registrar of Companies (RoC) a
memorandum of association stating the intention of the subscriber or subscribers to
form a company with a particular name stating where its registered office is located and
stating the objects the company is formed to pursue. The memorandum must state that
the company is to be a limited company if that is so and must state that it is to be a
public company if that is so. [3]

The memorandum of association is also called the charter of the company as it is the
company’s principle document. Like explained before, no company can register without
a memorandum of association as it defines the right and objects of the company.

According to section 2(28) of the Companies Act, “Memorandum means Memorandum

of Association as originally framed or as altered from time to time in pursuance of any
companies law or of this Act." Evidently the definition is not comprehensive and does
not convey the full importance of the document. However it is notable that the act
provides for the admission of an altered version of the original memorandum the
Memorandum of Association of the company.

In this project the researcher will explicate the importance of Memorandum of

Association and elucidate the process and procedure involved in the alteration of
Memorandum of Association of a company.

CHAPTER 1- SUBJECT MATTER OF MEMORANDUM

According to Palmer, the Memorandum of Association is a document of great
importance in relation to the proposed company. It contains the objects for which the
company is formed and therefore identifies the possible scope of its operations beyond
which its actions cannot go. It defines as well as confines the powers of the company. If
anything is done beyond these powers that will be ultra vires the company and be
void [4]

In the celebrated case of Ashbury Railway Carriage and Iron Co. Ltd. v. Richie [5] Lord
Carins Observed that the Memorandum of Association of a company defines the
limitation on the powers of the company… it contains in it both that which is affirmative
and that which negative. It states affirmatively the ambit and extent of vitality and power
which by law are given to the corporation and it states, if it is necessary to state,
negatively that nothing shall be done beyond that ambit.

Constituents of Memorandum of Association

Name Clause: Since a company is an artificial person it can be identified only by its
name, which is thus of considerable importance. The promoters are free to choose any
name for the company but the same is subject to certain limitations.

If a company is limited by shares is to be a private company, the last word of its name
must be “limited" or “private limited"

If the name chosen according to the opinion of the Central Government is undesirable
or it is identical or resembles too nearly, to the name by which a company in existence
has been previously registered, it may deem to be undesirable [6]

Registered Office Clause: The Memorandum of Association registered with the RoC must
state the geographical location of the company. Every registered company must have a
registered office which establishes its domicile and is also the address at which the
company’s statutory books must normally be kept and to which notices and other
communications can be sent. The notice of the exact situation of the company has to be
submitted to the RoC within 30 days of incorporation. [7]

Objects Clause: The Memorandum of Association of a company should state the objects
of the company. The RoC can deny registration to a company which whose objects are
unlawful. It is the intention of the legislature that the Memorandum of Association of a
company must state the objects for which it is incorporated, and the company is
accordingly incorporated only for the purpose of pursuing those objects. Pursuing any
other object is said to be ultra vires the company.

Accordingly there can be two objects as far as a company is concerned namely:- [8]
Main objects of the company which is to be pursued by the company on its
incorporation and objects incidental or ancillary to the attainment of the main objects

Other objects

Capital Clause: A company can be limited by shares only if it has a share capital and a
company limited by shares must state in its memorandum the total amount of share
capital it is to have and the way it is divided into shares.

The clause lays down the limit beyond which the company cannot issue shares without
altering the memorandum as provided by section 94 of the Companies Act.

The association or subscription Clause: At the end of ever Memorandum of Association

there is an association clause or subscription clause.

CHAPTER 2- ALTERATION OF MEMORANDUM

As a matter of course Memorandum of Association is not alterable. In fact the words of
the Memorandum cannot be changed that easily. It is said that “Memorandum of
Association is an unalterable document alterable only in accordance with the provisions
of the law"

2.1 Alteration of Memorandum of Association under

the Common Law
Under the Common Law the Joint Stock Companies Act 1856, which introduced the
Memorandum of Association into company law, made no provisions for the alteration of
a memorandum. Companies Act 1862 permitted a company to change its name and its
authorized share capital, but forbade any other alteration. Subsequent acts have
extended the range of alteration that may be made. The CA Act 1985 S.2 (7) provides: A
company may not alter conditions contained in the memorandum except in the case in
the mode and to that extend, for which express provision is made by this Act. [9]

The court has in Scott v. Scott Ltd. held that even if inadvertently the memorandum of a
company does not correctly express the wishes of its subscribers, the court doesn’t to
have power to rectify the mistake after the company has been registered.
2.2Alteration of Memorandum of Association under
Indian Law
Several restrictions have been imposed as far as the alteration of Memorandum of
Association is concerned. The quantum of such restrictions can be seen under S.16 of
the Companies Act.

Alteration of Name Clause

Alteration of the name of a company can be effected by two methods.

By special Resolutions and Permission of the government: The Law regarding the
change of name of a company is laid down under section 21 of CA. The section provides
that the name of a company may be changed at any time by passing a special resolution
at a general meeting of the company and with the written approval of the central
government. However no such approval is required if the change of name involves
addition or deletion of the word “private"

By rectification of omission in name: If by oversight or mistake a company is registered

with a name which is the same or similar to the name of an existing company, the
company may change its name by passing an ordinary resolution and getting a written
permission from the Central government. In such a case the central government within a
period of one year of the first registration or registration under a changed name can
direct the company to change its name. In such a situation, the company must alter its
name by passing an ordinary resolution within three months from the date of such
direction. [10]

After the alteration of name of the company, the registrar should write the new name in
the place of old name. Accordingly the certificate of newly incorporated company
should be issued. If and when the certificate of newly incorporated company is received,
then only the company’s name is recognized. [11]

With the change of the name of the company the power and responsibilities are not
changed. Because of this change of the name legal affairs of the company are not
affected. Besides it does not affect the company’s existence. But after the new name is
registered the legal affairs cannot be continued with the old name.

The legal effect of change in name clause can be illustrated by the decision of the
Calcutta High Court in the case of Malhati Tea Syndicate v. Revenue Officer [12] wherein
a company changed its name from Malhati Tea Syndicate Ltd. to Malhati Tea and
Industries Ltd. It filed a writ petition in its former name. Declaring the petition to be
invalid the court said that nothing in the Act authorized the company to commence
legal proceedings in its former name at a time when it had acquired its new name which
has been put on the register of joint stock companies.

Alteration of Registered Office Clause

A company may change the situation of its registered office for the smooth running of
its business and the realization of its objects. Such change in the situation can be: (a)
from one place to another in the same city or town (b) from one town to another in the
same state and (c) from one state to another.

Shifting from one place to another in the same city or town: If the registered office of
the company is to be shifted from one place to another in the same city or town, the
board of directors must pass a resolution to that effect and give the name address of its
registered office to the RoC within 30 days after the date of the change of address. [13]

Shifting from one town to another in the same state: IF the company wants to shift its
registered office from one town to another in the state, it shall pass a special resolution
to that effect at its general meeting and send the notification to the registrar within 30
days. It shall give the new address of its registered office to the registrar. [14]

Shifting from one state to another: This kind of shifting is a much more complicated
affair, as it involves alteration of the memorandum itself. The alteration of the
memorandum for this purpose is subject to the provisions of Section 17 which requires,
in the first place, a special resolution of the company and in the second, confirmation by
the Company Law Board can confirm the alteration only if the shifting of the registered
office from one state to another is necessary for any of the purpose detailed in section
17. When this condition is fulfilled, the second stage is reached namely to consider the
objections of a person or class of person whose interest will in the opinion of CLB be
affected the alteration. [15]

The Supreme Court in Mackinnon v. Mackenzie & Co [16] refused to sustain the
contention of the state and allowed the transfer of the company to another state. The
court said there is no statutory right of the state as a state to intervene in an application
made under section 17 for alteration of the place of the registered office of a company.
To hold that the possibility of the loss of revenue is not only relevant but of persuasive
force in regard to change is to rob the company of the statutory power conferred on it
by section 17. The question of loss of revenue to one state would have to be considered
in the total conspectus of revenue for the Republic Of India and no parochial
considerations should be allowed to turn the scale in regard to change of registered
office.

Alteration of Object Clause

Plainly speaking, it is very difficult to alter the objects clause because the law has laid
down strict limitations on such alteration. Section 17 of the CA defines the limitations
and any alteration must necessarily be within these limitations.

The limits imposed upon the power of alteration are of two kinds, namely substantive
and procedural. The former defines the physical limits of alteration and the latter the
procedure by which it can be effected. [17]

The alteration of object clause involves:

Special Resolution: In the first place , the company has to call a general meeting of its
members and pass a special resolution and file a certified copy of the resolution with
the central government.

Ratification by the central government: After this, the application for proposed alteration
is filed with the central government. The application shall be scrutinized by the
government before confirming the alteration.

Registration of alteration: A certified copy of the order of the central government shall
be filed by the company with the RoC along with the printed copy of the altered
memorandum within three months from the date of the order. The registrar shall
register the same and certify the registration under his hand within one month of the
date of filing such documents. [18]

Doctrine of Ultra Vires

It is the function of the Memorandum of Association to delimit and identify the objects
in such plain and unambiguous manner as that the reader can identify the field of
industry within which the corporate activities are to be confined. And it is the function of
the courts to see that the company does not movie in a director away from the field.
That is where the doctrine of ultra vires comes into play in relation to joint stock
companies. [19]
The doctrine has been affirmed by the Supreme Court in India in the case of
Lakshmanaswami Mudaliar v. Life Insurance Corporation of India [20] wherein the court
held that the directors of a company were authorized to make payment towards any
charitable or any benevolent object or for any general public, general useful object. The
payment made towards the same was held by the court as ultra vires. The court said that
the directors could not spend the company’s money on any charitable institutions or
any general object they choose. They could spend for the promotion of only such
charitable objects as would be useful for the attainment of the company’s own objects.

CONCLUSION
Alteration of Memorandum of Association is an important exercise through which the
company brings about the required flexibility which is pertinent to its existence and
survival as an entity. It is a precondition before the company can initiate any drastic
change in its ‘shape or structure’. As what is now clear from the discussion above it is
clear that any act of the company has to be within the limits set by the Memorandum of
Association.

A seemingly innocuous act like the change of situation requires the prior mandate of the
Board of directors or the permission of the government or in certain cases both along
with a special resolution. Such approval has to be accommodated within the
Memorandum of Association before the company can actually bring about the change.

It however has to be remembered that aside from the sanction of the government or
the board of directors or the appropriate authority concerned there is an array or of
other statutory limitations involved in the alteration of the memorandum. This has been
particularly true in the case of alteration of the object clause. Due to the nature of
intricacies involved a host of statutory limitations have been instituted to prevent
wanton changes in the objectives of the company. The discussion above has made it
abundantly clear the intricacies, complications and limitations in the alteration of
Memorandum of Association.

The alteration of object clause is beset with even more intricate procedures. Like
explained above, the Doctrine of Ultra Vires plays an important role in the alteration of
the object clause. In the case of alteration of objects a copy of the resolution should be
filed with the RoC within one month from the date of resolution. In the case of inter
state shifting of the registered office a certificate copy of the boards’ order and a
printed copy of the alternated memorandum may be filed with the registrar within three
months of the board’s order. Within one month the registrar will certify the registration.
Alteration takes place when it is so registered. If an application for registration is not
made within the above time the whole proceedings of the alteration of the company will
lapse.

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Geoffrey Morse, ‘Charlesworth &Morse Company Law, 15th Ed., Sweet and Maxwell,
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Kapoor G.K, Majumdar A.K, Taxmann’s Company Law and Practice,Taxmann, 2000

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