Is one of the most
important documents and must be drafted with care. It has to be filed with the
registrar of companies during the process of incorporation of a company. It
contains the fundamental conditions upon which the company is allowed to
operate. It is the document that governs the relationship between the company
and the outside.
Also, a memorandum of
association (M.O.A) is a legal
document prepared in the formation and registration process of a limited liability
company to define its relationship with shareholders. The MOA is accessible to the public and describes the company’s name,
physical address of registered office, names of shareholders, and the
distribution of shares. The Memorandum of association and the Article of
association serve as the constitution of the company.
“Share holder”, is any person, company or other institution that
owns at least one of a company’s Stock. Because shareholders are a company’s
owners, they reap the benefit of the company’s success in the form of increased
stock valuation. If the company does poorly however, share holders can lose
money if the price of its stock declines.
IMPORTANCES
OF A MEMORANDUM OF ASSOCIATION
It
shows memorandum clauses, clauses include, name clause which tell a company name,
a company selects any name but it should not resemble the name of any other
company, situation clause which show
the name of the province in which the company office is located, object clause which tell the nature of
the company, liability clause which
contains a declaration that the liability of the members of the company is
limited to the extent of the value of the share purchase by them, capital clause (a company having a
share capital shall state the total maximum amount of share capital with which
it is registered, association and subscription clauses (this contains a declaration
by the subscription that are decisions of forming a company and agree to have
number of the shares written against their respective names).
Memorandum
of association sets out the limits outside which the company cannot go,
the limits that a company must not go beyond it, the limits of a company
provide what a company suppose to do and what a company must not do, when a
company breach that contract, the registrar of the companies is powered to
remove the license of that company or other measures may take place.
Memorandum
of association enable share holders, creditors and all those who deal with the
company to know what its permitted range of enterprise,
also the memorandum of association of many companies provides for the minimum
and maximum range of capital that a shareholder can invest in the company, this
help to direct the companies and its shareholders to know the contribution of
each of them in forming a company. The existence of a memorandum of
association, also give good ground for how the shareholders will benefit from
investment.
Business
objective of the company, every company must have an
objective to reach somewhere in success, this objectives or goals of a company
must always put on the memorandum of association so as to enable the
shareholders to understand the where their company is going, also the existence
of company’s goals on memorandum of association, it help the outsiders who want
to invest in such company to know how they will benefit from the company and if
the objective of the company relate to what they want in such companies.
It
define the scope of the company’s activities as well as its relation with the
outside world, the memorandum of association provide
on various activities that a company will deals with, sometime one company can
have many different activities of different nature but only those registered to
be conducted by this company. A company can be registered as food’s company but
inside the company there may be other activities like transporting services and
communication.
The
whole structure of the company is built upon memorandum,
the structure of the company includes the branches or divisions of the company,
leadership of the company, and other necessary information which help to
control company.
Memorandum of
association always work together with Article of association (A.O.A), since
article of association help to provide for the responsibilities of the directors
of the company, the kind of business to be undertaken, and the means by which
shareholders exert control over the board of directors.
MEANING
OF THE DOCTRINE OF ULTRA VIRES
Doctrine of ultra-vires
describe acts attempted by a corporation that are beyond the scope of powers
granted by the corporation’s objects clause, articles of incorporation or in a
clause in it’s by laws, in the laws authorizing a corporations formation, or
similar founding documents. Acts attempted by a corporation that are beyond the
scope of it’s are void or voidable.
PROTECTION
OF CREDITORS AND INVESTORS
Doctrine of ultra vires
has been developed to protect the investors and creditors of the company. This
doctrine prevents a company to employ money of the investors for a purpose
other than those stated in the objects clause of its memorandum. Thus, the
investors and the company may be assured by this rule that their investment
will not be employed for the time of investing their money is so to be
employed.
In Ashbury Railway Carriage
and Iron Company Ltd V. Riche[1],
The director of the company entered a contract with Riche, where the contract
was of financing railway construction in Belgium (its was out object of company
according to memorandum), later the company repudiated the contact and Riche
sued the company for breach of contract.
The
issue in this case was whether the contract was valid and if not,
whether it could be ratified by the members of the company.The court held that, the contract was beyond the objects as defined
in the objects clause of its memorandum and therefore it was void. The company
had no capacity to ratify contract,
According to the doctrine of ultra vires, the doctrine protect the share holders to
ratify things beyond the company’s object, and even if they are forced, the
contract will be null and void. If the share holders are permitted to ratify
ultra vires act or contract, it will be nothing but permitting them to do the
everything which by the Act of parliament, they are prohibited from doing
REFERENCES
BOOKS
Phillip I. Blumberg, The Multinational Challenge to
Corporation Law: The Search for a New Corporate Personality, (1993)
See Paul L. Davies QC, Gower and Davies'
Principles of Modern Company Law, 8th Edition, 2008, London Sweet &
Maxwell,
CASES
In
Ashbury Railway Carriage and Iron Company Ltd V. Riche (1875)
L.R 7 H.L 653
Northern Counties Securities Ltd. v. Jackson
& Steeple Ltd. [1974] 1 WLR 1133
Edmunds v Brown Tillard (1668) 1 Lev 237 and Salmon v The Hamborough Co (1671) 1 Ch Cas 204
Salomon v. Salomon & Co. [1897] AC 22.
Macaura v. Northern Assurance Co Ltd [1925] AC 619
Adams v. Cape Industries plc [1990] Ch 433
Williams v Natural Life [1998] 1 WLR 830
See the frustration expressed by the House of
Lords in Cotman v. Brougham[1918] AC 514
OTHER SOURCES
www.indiacorporatelaws.com
www.companiesglobal.com
www.lawdictionary.com
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