Memorandum of Association of Company

CONSTITUTIONAL DOCUMENTS  OF THE COMPANY

General Constitutional Features

The two constitutional documents of the company are; memorandum and Article of Association. Both documents are made on free will yet the freedom is restricted when it comes to constitutional changes in the company. The constitution of the company provides for the distribution of profit, risk, and control within the company.

Memorandum governs the relationship between the company and the outside world. The memorandum gives the external aspects of its constitution, for instance, name, objects, domicile, line of business, capital structure, and status. On the other hand, the Article of Association regulates the internal matters of the company that are the primary interest of the companies own members and officers. The article of the association is a source of rights only for the members.

Memorandum of Association of Company

Content of the Memorandum

Section 27 give these six clauses of the memorandum of association

·         The name clause

·         The Registered Office Clause

·         The object Clause

·         The limited Liability Clause (29 Unlimited company doesn’t have this)

·         The Capital Clause

·         The Association Clause

Borrowing Powers to be Part of Memorandum

Section 30 deals with the borrowing powers of the company. It states that the memorandum and the article of association always have the power to include the power to enter into any arrangement for obtaining loans, advances, finances, or credits.

Other Clauses May be Added

Other clauses may or may not be included. These clauses usually contain rights attaching to shares, distribution of dividends, or the right to participate in a winding up. These clauses help to make it less permanent and easy to amend.

Form of the Memorandum

The form of a memorandum is set out in table ABCD of the Act. The forms are listed in section 41.

 

Memorandum and Article to be Printed and Dated

The composition of the Memorandum is given in sections 31 and 37.

Name

The name of the company shows the type it belongs to. For instance, word limited attached to the name of any company shows that the company is a limited company. Likewise private limited shows the company is a private limited company. Section 501 provides a penalty for the improper use of word limited without having the characters of the word, that person is liable to a penalty of level 3 on the standard scale.

Special Statutory Restrictions with the name

Section 10 has given the rules for selecting the name of the company. The name shouldn’t be inappropriate, undesirable, deceptive, or exploiting religious sentiments. Names that include any national identity or related to Pakistan should be approved by Commission in writing.

Passing off

Passing off is a civil wrong and it’s a tort. It's an infringement of an unregistered trademark. Section 10(2) of the Act holds the concept of passing off which is a common-law rule. This rule states that if a person represents his business someone else business as his to mislead the public, this will be considered a tort. The act prohibits such names that will cause unjustified enrichment.

Dispensation with word Limited

A company limited by a guarantee that promotes commerce, art, science, education, or religion may be given license not to use word limited. (S 42)

Publicity in respect of the Company’s name

SECTION 22 The companies have to display the name of the company as a conspicuous position. The name should be written either in Urdu or English. A certified copy of the certificate is also needed to be displayed. Also, the official publication should contain, include contact no, address, and other important details useful for the public. The companies should be properly written on the promissory note, cheques, and on all the bills of exchange.

SECTION 24 If the company hasn’t displayed the name it shall be liable to a penalty not exceeding level 1 on the standard scale. Also, the authorized person of the company who permits the default shall be liable too.

If any officer having the authority to issue the bills of exchange on behalf of the company and didn’t mention the name of the company in a prescribed manner that authorized person is liable to a penalty not exceeding level 1.

 

Provision with respect to the name of the company.

·         Prohibition of certain names (section 10)

·         Rectification of name of a company (Section 11)

·         Change in the name of the Company (Section 12)

·         Registration of change of name and effect thereof (Section 13)

Reservation of name and rectifications

 Section 10(4) gives the procedure for the reservation of name and its rectification. For this purpose application with an accompanying fee is required to be made to the registrar for the reservation of name set out in the application for a period not exceeding sixty days. Reservation will be canceled in case of false information and a penalty of not exceeding level 1 of the standard scale. On refusal of the company’s name, a final appeal can be made to the Commision, and the Commission's decision shall be the final decision. 

If the name is not complying with the rule of section 10 with the approval of the registrar the name can be changed within thirty days. After directing to change the name, when the name has not changed the registrar himself may allot a new name to the company and issue a certificate of incorporation.

Registered Office

The registered clause in the memorandum is very important to specify the province of the company upon which it will be issue domicile All the communication of the company and notices shall be address to the registered office.

Change in the registered office notice should be sent to the registrar within a period of fifteen days after such a change. If the change in registered office has been made from one city in the province to another or a city to another in any part of Pakistan not included in the province need the approval of that change from the general meeting through a special resolution.

If these rules are not followed the company and every officer responsible for the non-compliance shall be liable to a penalty not exceeding level 1 of the standard scale.

Objects and Powers in the Memorandum

The object clause governs the relationship between the company and the outside world. It defines the capacity of the company and it is the most important clause. This clause contains the purposes for which the company is made. This helps to understand what activities the company will carry. This set out the limits of the company and the company cannot attempt to do anything beyond the limits. If it does something which is not in the objective clause the company is considered exceeding its limits and acting ultra vires.  

The new law focuses on the principal line of the business in the objective clause. Due to the restrictions made by the court on going out of the object clause the companies were in past making a comprehensive list of powers that the company may conceive in the future. The ultra vires rule was depriving most of the force of the company. Now the principle line excludes the compulsion to include length lists of objects.

The doctrine of ultra vires is now mostly applied to prohibited business. Section 26(2) says that the company cannot engage in business that is prohibited by the legislation in Pakistan or restricted by law, rules, or regulations unless a license is approved.

Section 26 has also defined the principle line. It is one in which the substantial assets are held. The principle line should be mentioned in the memorandum of association that shall always commensurate with the name of the company.