Chapter: 6.1 Contents of Memorandum of Association

Contents of Memorandum of Association:

a. Name Clause:
The first cause of the memorandum of association is required to state the name of the proposed company. A company being a legal person must have a name to establish its identity. Company can be registered with any name subject to certain conditions, which are as follow:
i)    U/s 20 (1) - no company can be registered with a name, which in the opinion of the Central Government is undesirable.
ii)    U/s 20(2) - the name of the company should not be identical or should not too nearly resemble, the name of other registered company, as such name may be undesirable. Under the Companies Act, a company by registering its name gains a monopoly of the use of that name. A company can apply for an injunction to restrain the new company from having the same name or name, which is nearly, resemble to its name, which is "likely to deceive.” A name is said to be "likely to deceive" when it suggests that the company adopting such is in some way connected or associated with the existing company.
iii)    The name of the company should not be misleading. The name of the company is said to be misleading when the company is with the small resource, but the name suggest that it is trading on a great scale. The Act prohibits use of such misleading name.
iv)    If the liability of the member is limited, then the last word of the name must be "Limited" and if the company is a private company then the last word of the name must be "Private Limited". This is to ensure that all persons dealing with the company shall have the clear notice that the liability of the members IS limited. Section 147 of the Act further requires that such name of the company must be painted outside of every Place where the business of the company is carried on. Further more, such name of the company, including the address of the registered office, must also be mentioned on all business letters and all other official publications, business letter, negotiable instruments issued, invoices, receipts etc. Section 147(2) imposes penalty upon failure to fulfill this provision.

b. Registered Office/ Domicile Clause:
The memorandum of association must specify the place where the registered office of the company is to be situated. Such place must be decided within thirty days from the date of the incorporation of the company or commencement of business, whichever is earlier and notice of the same should be given to the Registrar of Companies who records the same. All communication with the company must be addressed to its registered office.

c. Capital Clause:
This clause of the memorandum of association states the amount of share capital with which the company is registered and the division thereof into share of a fix amount.

The capital which the company is registered is called 'registered', 'authorized', or 'nominal' capital. A company cannot issue more shares than authorized for the time being by the memorandum of association.

Liability Clause:
This clause state that the liability of members of the company is limited by to the face value of shares held by them or to the amount unpaid on their shares. The company which is having unlimited liability need not to give this clause in memorandum of association.

Association/ Subscription Clause:
Under this clause the subscribers of memorandum of association must make a declaration that they are desirous of being formed into a company and they agree to take the specific number of shares in the capital of the company. They are required to sign against their respective names. Each subscriber must sign in the presence of at least one attesting witness.

Object Clause:
This clause must state the object for which the company is formed. This clause is further divided into three sub- clauses, which are as follows:

a)    Main Objects - this clause mention the main object to be pursued by the company on its incorporation and objects incidentals or ancillary to the main clause.
b)    Other Objects - this clause mention the other objects of the company which are not mentioned in the main object clause.
c)    State to which Object Extend - in this clause, non trading company whose object is not confined with to the one state, mention the states to whose territories the object of such company extends.

A company may choose to include any object in its memorandum of association subject to the condition that:

i)    the object should not violate any provision of the law of the land and the Companies Act; and
ii)    it should not be against the public policy.

Importance of the Object Clause:
The shareholders contribute the capital of the company and hence it is necessary that the company must use their contribution for the known defined object. The object clause therefore gives a protection to the shareholders by ensuring that the funds raised for the object of the company are not going to be used for any other purpose.

Similarly, object clause offers certain degree of protection to the creditors also. Creditors become assured when they know that the company's capital can be used only for the specified objects. Public Finance Institutions are mainly guided by the object clause before providing any lone to the company.

This clause does not allow the company to travel beyond the specified limits stated in it. It enables directors to know within what lines of business they authorized to act. The outsider can easily know whether the contract enter into with the company fall within the general authority of management. A company cannot employ its funds for the-purpose, which does not come within the objects specified in the memorandum of association. Thus, it prevents a company from diversifying into areas not closely connected with the business for which it may have been initially established. Thus, it protects the public interest.