Business Laws and Ethics (BLE)

Clauses of Memorandum of Association

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Memorandum of association contains many sections. These sections are generally referred to as clauses. The various clauses in Memorandum are :

Name Clause:

This is the first clause of the memorandum in which the name of the company is stated. A company can choose any suitable name subject to the following restrictions:

The word ’limited’ should be added to the name of a public company. A private company must add ’private limited’ to its name.

The name of the company cannot be identical to the name of an existing company.

The name should not give a false impression that the company is sponsored by the government or part of the government department.

Companies that are formed without the object of making profits or distribution of dividend to shareholders, such as cultural organizations or charitable organizations can obtain permission from the government for not adding the word ’limited’ to its name.

Situation (Registered Office) Clause :

This clause contains the name of the state in which the registered office of the company is to be situated. This is necessary to direct all communication to the company. The address of the company is important to fix legal and tax-related issues.

 Objects Clause :

The objects clause is considered the core of the memorandum of association. It sets out the objects for which the Company is formed.

It defines the scope of activities of the company. It explains to the members the range of activities for which the capital of the company will be used. A company is allowed to engage only in those activities that are expressly stated in the objects clause.

The objects of the company must be legal and very clearly stated. They should not violate any provisions of law. All principal objects of the; company must be specifically enumerated. The object clause describes the main activity of the business as well all the additional activities that the company intends to do as part of its business.

Liability Clause :

The liability clause of the memorandum states the nature of liability of the shareholders. There are two ways of limiting the liability of members. They are liability limited by shares and liability limited by guarantee. When the liability is limited by shares, the member who is a shareholder has a liability up to the face value of shares held by him.

Limiting the liability by guarantee is a method usually adopted by companies without share ’capital such as cultural organizations or charitable institutions. Members of such company expressly guarantee that they shall bear the liability of the company up to a certain limit. Thus liability of such a member is limited up to the amount guaranteed by him.

Capital Clause :

The capital clause of the memorandum of association states the authorized capital or registered capital of the business. This is also known as the registered capital. This is the maximum amount for which the company is allowed to issue capital. The registration fee of the company is calculated on the basis of authorized capital.

Association / Subscription Clause :

This clause is in the form of a declaration. In this clause the founder members of the company, Who are the signatories to the memorandum of association express their desire and agreement to form a company. They also agree to take the number of shares mentioned against their names.

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