Section 18: Companies Act- Incorporating companies and compliances in India
Section 18 of the Companies Act, 2013 deals with the Memorandum of Association of a company. It states that the Memorandum of Association shall contain the following clauses:
Name Clause: This clause specifies the name of the company.
Registered Office Clause: This clause specifies the state in which the registered office of the company is to be situated.
Object Clause: This clause specifies the main object of the company and other objects incidental or ancillary to the main object.
Liability Clause: This clause specifies the liability of the members of the company, which can be limited or unlimited.
Relevant Case laws and Rules:
Ashbury Railway Carriage and Iron Co. Ltd. v. Riche: This case established the doctrine of ultra vires, which states that a company can only act within the scope of its objects as stated in the Memorandum of Association. If a company acts beyond its objects, such actions will be void.
Mohtesham Mohd. Ismail v. Mohtesham Mohd. Yusuf: In this case, the Supreme Court held that the Object Clause of the Memorandum of Association is the charter of the company and its powers are limited by the same.
Companies (Incorporation) Rules, 2014: These rules provide guidelines for the incorporation of a company and specify the requirements for the Memorandum of Association, including the format and content of the document.
Companies (Prospectus and Allotment of Securities) Rules, 2014: These rules specify the requirements for the content of the prospectus issued by a company when it is offering securities to the public. The Memorandum of Association is one of the documents that must be included in the prospectus.
Companies (Share Capital and Debentures) Rules, 2014: These rules specify the requirements for the issue of shares and debentures by a company, including the content of the Memorandum of Association related to share capital.
Companies (Management and Administration) Rules, 2014: These rules specify the requirements for the maintenance and inspection of the Memorandum of Association, as well as the procedure for altering the same.
Re Kondoli Tea Company Ltd.: In this case, the court held that the Object Clause of the Memorandum of Association is not a mere formality, but has a legal effect on the company's powers and operations.
Re Hampshire Land Co.: In this case, the court held that a company cannot alter its Memorandum of Association to include a new object that is not incidental or ancillary to its main object. The new object must be the main object of the company.
Satyam Infoway Ltd. v. Sifynet Solutions Pvt. Ltd.: In this case, the Supreme Court held that the name of a company must not be similar or identical to the name of an existing company, as it can cause confusion and deception among the public.
Companies (Amendment) Act, 2015: This amendment introduced the concept of "objects of the company" and "other objects" in the Object Clause of the Memorandum of Association, to provide clarity and flexibility in the objects of the company.
Any alteration to the Memorandum of Association must be done in accordance with the provisions of the Companies Act and the company's Articles of Association. It is also essential for companies to ensure that the name of the company is not similar or identical to an existing company's name, as it can lead to confusion and legal issues. The Object Clause of the Memorandum of Association should not be taken lightly, as it defines the company's scope of activities and its powers. Any action taken by the company that is beyond the scope of its Object Clause will be considered void. Companies must also ensure that they comply with the Companies (Incorporation) Rules, 2014, Companies (Prospectus and Allotment of Securities) Rules, 2014, Companies (Share Capital and Debentures) Rules, 2014, and Companies (Management and Administration) Rules, 2014, among other relevant rules and regulations. By doing so, companies can ensure that they are operating within the legal framework and avoid any legal or regulatory issues.
In conclusion, the Memorandum of Association is a crucial document for any company, as it outlines the company's objectives, powers, and limitations. It is important for companies to ensure that their Memorandum of Association is compliant with the Companies Act and other relevant rules and regulations.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
