Md Parvez Islam

 INDUSTRIAL AND COMPANY LAW Semester (000) 1 (a) Define article of Association. Ans: Articles of association are a document that specifies the regulations for a company's operations and defines the company's purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and the handling of financial records. (b) Explain rules regarding the restriction on alternation of memorandum. As a matter of course Memorandum of Association is not alterable. In fact the words of the Memorandum cannot be changed that easily. It is said that “Memorandum of Association is an unalterable document alterable only in accordance with the provisions of the law”  Alteration of Memorandum of Association under the Common Law Under the Common Law the Joint Stock Companies Act 1856, which introduced the Memorandum of Association into company law, made no provisions for the alteration of a memorandum. Companies Act 1862 permitted a company to change its name and its authorized share capital, but forbade any other alteration. Subsequent acts have extended the range of alteration that may be made. The CA Act 1985 S.2 (7) provides: A company may not alter conditions contained in the memorandum except in the case in the mode and to that extend, for which express provision is made by this Act. [9] The court has in Scott v. Scott Ltd. held that even if inadvertently the memorandum of a company does not correctly express the wishes of its subscribers, the court doesn’t to have power to rectify the mistake after the company has been registered. (c)State the points of the points of difference between the memorandum of association and the article of association. ‘Memorandum of Association‘ abbreviated as MOA, is the root document of the company, which contains all the basic details about the company. On the other hand, ‘Articles of Association‘ shortly known as AOA, is a document containing all the rules and regulations designed by the company. Difference Between Memorandum of Association and Articles of Association Comparison Chart BASIS FOR COMPARISON MEMORANDUM OF ASSOCIATION ARTICLES OF ASSOCIATION Meaning Memorandum of Association is a document that contains all the fundamental information which are required for the incorporation of the company. Articles of Association is a document containing all the rules and regulations that governs the company. Defined in Section 2 (56) Section 2 (5) Type of Information contained Powers and objects of the company. Rules of the company. Status It is subordinate to the Companies Act. It is subordinate to the memorandum. Retrospective Effect The memorandum of association of the company cannot be amended retrospectively. The articles of association can be amended retrospectively. Major contents A memorandum must contain six clauses. The articles can be drafted as per the choice of the company. Obligatory Yes, for all companies. A public company limited by shares can adopt Table A in place of articles. Compulsory filing at the time of Registration Required Not required at all. Alteration Alteration can be done, after passing Special Resolution (SR) in Annual General Meeting (AGM) and previous approval of Central Government (CG) or Company Law Board (CLB) is required. Alteration can be done in the Articles by passing Special Resolution (SR) at Annual General Meeting (AGM) Relation Defines the relation between company and outsider. Regulates the relationship between company and its members and also between the members inter se. Acts done beyond the scope Absolutely void Can be ratified by shareholders. Semester (151) Q. Define memorandum of association. Memorandum of Association (MOA) is the supreme public document which contains all those information that are required for the company at the time of incorporation. It can also be said that a company cannot be incorporated without memorandum. At the time of registration of the company, it needs to be registered with the ROC (Registrar of Companies). It contains the objects, powers, and scope of the company, beyond which a company is not allowed to work, i.e. it limits the range of activities of the company. Q. Explain rules regarding the restriction on articles of association. Q. write what a memorandum can do in case of company that is limited by guarantee . Ans :The Memorandum (Company Limited By Guarantee) is in the prescribed form and complies with the latest legislation. Please note that unless a company creates its own articles excluding or amending the model articles, then the new model articles for that type of company will apply by default. However, companies are free to adopt, vary or exclude some or all of the model articles, subject to the provisions of the Companies Act 2006. In the case of existing companies, in so far as their articles are inconsistent with the CA 2006, the requirements of the CA 2006 will override those articles. This Memorandum (Company Limited By Guarantee) template is in open format. Either enter the requisite details in the highlighted fields or adjust the wording to suit your purposes. This document can also be found in Memorandums and Articles of Association, in the Memorandums of Association Subfolder, entitled Memorandum for Private Company Limited By Guarantee. Q. Briefly describe the effect of alternation in memorandum and articles. Ans: Sec 38    -     Effect of alteration in memorandum or articles. Notwithstanding anything in the memorandum or articles of a company, no member of the company shall be bound by an alteration made in the memorandum or articles after the date on which he became a member, if and so far as the alteration requires him to take or subscribe for more shares than the number held by him at the date on which the alteration is made, or in any way increases his liability as at that date, to contribute to the share capital of, or otherwise to pay money to, the company: Provided that this section shall not apply :   (a) in any case where the member agrees in writing either before or after a particular alteration is made, to be bound by the alteration; or (b) in any case where the company is a club or the company is any other association and the alteration requires the member to pay recurring or periodical subscriptions or charges at a higher rate although he does not agree in writing to be bound by the alteration Q. Briefly explain the restriction on alternation of memorandum. Alteration in the Memorandum of Association can be carried out only by a special resolution at the Shareholders meeting. This is a complicated and lengthy procedure. So Memorandum must be very carefully prepared at the beginning itself. Provisions relating to alteration of Memorandum The following are the provisions related to alteration in Name Clause, Objects Clause, Liability Clause, Capital Clause and Subscription Clause. 1. Alteration of Name Clause in Memorandum of Association A company may by passing a special resolution alter is name with the approval of the Central Government. If the alteration involves change of the name to private limited or public limited, permission of Central Government is not required. In case a company has been registered with a name which resembles a name of an existing company, the Central Government may ask it to change its name. In such case ordinary resolution is sufficient. The intimation of name change should be given to the Registrar who will issue a fresh certificate of incorporation. Alteration of Situation clause 1. In case registered office has to be shifted within the same city, town or village, a notice has to given to the Registrar within thirty day of the change. 2. In case registered office has to be shifted from one town to another town or one village to another village, a special resolution has to be passed. 3. A company can change its registered office from one State to another State for the following reasons: a. to carry on business more efficiently and economically; b. to achieve the important purpose of the company by sophisticated means; c. to expand its operations in the current location; d. to control any of the existing objects; e. to sell whole or part of the business undertaking; f. to amalgamate with other business or person. In case, registered office has to be shifted from one State to another State, a special resolution has to be passed and approval from the Company Law Board has to be obtained by the company. The altered memorandum should be filed with the Registrar of the State from which the company is shifting and also to the Registrar of the State to which the company is shifted. 2. Alteration of Objects Clause in Memorandum of Association A company can alter is objects clause by passing a special resolution. Alteration of objects clause can be done for the following reasons: 1. For the purpose of carrying on its business more economically and efficiently. 2. For the purpose of obtaining the main business of the company by new and improved means 3. For the purpose of enlarging or changing the local area of its operations. 4. For the purpose of carrying on some business, which may be conveniently or advantageously combined with the existing business. 5. For the purpose of abandoning any of the objects specified in the memorandum. 6. For the purpose of selling the whole or any part of the undertaking. 7. For the purpose of amalgamating with any other company. 3. Alteration of Liability Clause in Memorandum of Association The liability clause can be altered only when a public company is converted to a private company. 4. Alteration of Capital Clause in Memorandum of Association A company can alter its capital clause by passing an ordinary resolution in a general meeting. Alteration of capital may relate to: i. Sub division of shares ii. consolidation of shares iii. conversion of shares into stock and cancellation of unsubscribed capital. Within thirty days of passing a resolution, the altered Articles and Memorandum have to be submitted to the Registrar. 5. Alteration of subscription clause in Memorandum of Association The company can alter is subscription clause to make the liability of the directors appointed subsequent to the alteration as unlimited. Q. Distinguish between privet limited company and public limited company. Comparison Chart BASIS FOR COMPARISON PUBLIC COMPANY PRIVATE COMPANY Meaning A public company is a company which is owned and traded publicly A private company is a company which is owned and traded privately. Minimum members 7 2 Maximum members Unlimited 200 Minimum Directors 3 2 Suffix Limited Private Limited Start of business After receiving certificate of incorporation and certificate of commencement of business. After receiving certificate of incorporation. Statutory Meeting Compulsory Optional Issue of prospectus / Statement in lieu of prospectus Obligatory Not required Public subscription Allowed Not allowed Quorum at AGM 5 members must present in person. 2 members must present in person. Transfer of shares Free Restricted Q. what do you mean by memorandum of company limited by shares? A private company limited by shares is a class of private limited company incorporated under the laws of England and Wales, Northern Ireland, Scotland, certain Commonwealth countries, and the Republic of Ireland. It has shareholders with limited liability and its shares may not be offered to the general public, unlike those of a public limited company. "Limited by shares" means that the liability of the shareholders to creditors of the company is limited to the capital originally invested, i.e. the nominal value of the shares and any premium paid in return for the issue of the shares by the company. A shareholder's personal assets are thus protected in the event of the company's insolvency, but any money invested in the company may be lost. A limited company may be "private" or "public". A private limited company's disclosure requirements are lighter, but its shares may not be offered to the general public and therefore cannot be traded on a public stock exchange. This is the major difference between a private limited company and a public limited company. Most companies, particularly small companies, are private. Q. Describe the content of memorandum of association . Explain the Contents of Memorandum of Association A memorandum of association contains a name clause, registered office clause, object, objects clause, liability clause, capital clause, and association clause.3 min read A memorandum of association contains a name clause, registered office clause, object (or objective clause), objects clause, liability clause, capital clause, and association clause. An MOA is a type of legal paper that is prepared when forming and registering a limited liability company (LLC). The MOA's purpose is to explain the LLC's relationship with its shareholders. The articles of Association and MOA make up the company's constitution. An MOA isn't required in the United States, but limited liability companies that are based in European countries, which include the U.K., the Netherlands, France, and some Commonwealth Nations do require MOAs. Name Clause This clause states the company's proposed name. It must end in the word "limited" if it's a public company or "private limited" if it's a private company. It can't be identical to any existing company's name. It can't allude to the new company doing the business of an existing company. It should not be misleading in any way. Registered Office Clause The registered office clause lists the name of the state where the company's registered office is physically located. The registered office's physical location determines which jurisdiction the Registrar of Companies and which court the company would fall under. It also confirms the company's nationality. The registered office's full address must be provided to the Registrar of Companies to simplify further communications. Objects or Objective Clause The objects clause, also called the objective clause, is considered the most important in the MOA. It defines and limits the scope of the company's operations. It details the company's scope of activity for the members and explains how the members' capital will be used. It protects shareholders funds and ensures the funds will be used for the specific business purposes for which they were raised and that they won't be risked in other endeavors. Object Clause The object clause explained why the company is establishing. Companies aren't legally allowed to do any kind of business other than the kind of business that is specifically stated in this clause. An object clause should contain: A list of the main objects the company will be pursuing after it's Incorporated Incidental objects that are necessary to achieve the main object Any other objects that aren't included in the main objects or incidental object Nothing illegal Nothing that's against the public interest Nothing that's against the country's general rule of law Liability Clause The liability clause explains what liability each of the company's members faces. If the company is limited by shares, the liability that each member faces can be no more than the face value of shares that he or she holds. If it's a company that's limited by guarantee, this clause must define how much liability each individual company member holds. If it's an unlimited company, this particular clause would not be included in the MOA. Capital Clause The capital clause lists information about the total capital held by the proposed company. This amount is called the company's authorized capital. Companies aren't permitted to collect more money than the amount listed under authorized capital. The way the capital is divided into equity share capital and preference share capital also needs to be listed in the capital clause. The number of shares the company puts in equity share capital and preference share capital, alongside their value, needs to be included in the MOA. Association Clause The association clause explains that any individual signing the bottom of the MOA wants to be part of the association that's being formed by the memorandum. The MOA has to be signed by at least seven people or more if it's a public company. It has to be signed by at least two or more people if it's a private company. The signatures also have to be affirmed by witnesses. There can be one witness for all of the signatures, but none of the subscribers can witness the signatures of the others. All subscribers and witnesses must provide their addresses and occupations in writing. If you need help with the contents of an MOA, you can post your legal need on UpCounsel's marketplace. UpCounsel accepts only the top 5 percent of lawyers to its site. Lawyers on UpCounsel come from law schools such as Harvard Law and Yale Law and average 14 years of legal experience, including work with or on behalf of companies like Google, Menlo Ventures, and Airbnb. Q. How the memorandum of association can be altered? Alteration of Memorandum of Association under Indian Law Several restrictions have been imposed as far as the alteration of Memorandum of Association is concerned. The quantum of such restrictions can be seen under S.16 of the Companies Act. Alteration of Name Clause Alteration of the name of a company can be effected by two methods. By special Resolutions and Permission of the government: The Law regarding the change of name of a company is laid down under section 21 of CA. The section provides that the name of a company may be changed at any time by passing a special resolution at a general meeting of the company and with the written approval of the central government. However no such approval is required if the change of name involves addition or deletion of the word “private” By rectification of omission in name: If by oversight or mistake a company is registered with a name which is the same or similar to the name of an existing company, the company may change its name by passing an ordinary resolution and getting a written permission from the Central government. In such a case the central government within a period of one year of the first registration or registration under a changed name can direct the company to change its name. In such a situation, the company must alter its name by passing an ordinary resolution within three months from the date of such direction. [10] Get help with your essay today, from our professional law essay writers! Qualified writers in the subject of law are ready and waiting to help you with your studies. Get help with your essay View professionally written samples After the alteration of name of the company, the registrar should write the new name in the place of old name. Accordingly the certificate of newly incorporated company should be issued. If and when the certificate of newly incorporated company is received, then only the company’s name is recognized. [11] With the change of the name of the company the power and responsibilities are not changed. Because of this change of the name legal affairs of the company are not affected. Besides it does not affect the company’s existence. But after the new name is registered the legal affairs cannot be continued with the old name. The legal effect of change in name clause can be illustrated by the decision of the Calcutta High Court in the case of Malhati Tea Syndicate v. Revenue Officer [12] wherein a company changed its name from Malhati Tea Syndicate Ltd. to Malhati Tea and Industries Ltd. It filed a writ petition in its former name. Declaring the petition to be invalid the court said that nothing in the Act authorized the company to commence legal proceedings in its former name at a time when it had acquired its new name which has been put on the register of joint stock companies. Alteration of Registered Office Clause A company may change the situation of its registered office for the smooth running of its business and the realization of its objects. Such change in the situation can be: (a) from one place to another in the same city or town (b) from one town to another in the same state and (c) from one state to another. Shifting from one place to another in the same city or town: If the registered office of the company is to be shifted from one place to another in the same city or town, the board of directors must pass a resolution to that effect and give the name address of its registered office to the RoC within 30 days after the date of the change of address. [13] Shifting from one town to another in the same state: IF the company wants to shift its registered office from one town to another in the state, it shall pass a special resolution to that effect at its general meeting and send the notification to the registrar within 30 days. It shall give the new address of its registered office to the registrar. [14] Shifting from one state to another: This kind of shifting is a much more complicated affair, as it involves alteration of the memorandum itself. The alteration of the memorandum for this purpose is subject to the provisions of Section 17 which requires, in the first place, a special resolution of the company and in the second, confirmation by the Company Law Board can confirm the alteration only if the shifting of the registered office from one state to another is necessary for any of the purpose detailed in section 17. When this condition is fulfilled, the second stage is reached namely to consider the objections of a person or class of person whose interest will in the opinion of CLB be affected the alteration. [15] The Supreme Court in Mackinnon v. Mackenzie & Co [16] refused to sustain the contention of the state and allowed the transfer of the company to another state. The court said there is no statutory right of the state as a state to intervene in an application made under section 17 for alteration of the place of the registered office of a company. To hold that the possibility of the loss of revenue is not only relevant but of persuasive force in regard to change is to rob the company of the statutory power conferred on it by section 17. The question of loss of revenue to one state would have to be considered in the total conspectus of revenue for the Republic Of India and no parochial considerations should be allowed to turn the scale in regard to change of registered office. Alteration of Object Clause Plainly speaking, it is very difficult to alter the objects clause because the law has laid down strict limitations on such alteration. Section 17 of the CA defines the limitations and any alteration must necessarily be within these limitations. The limits imposed upon the power of alteration are of two kinds, namely substantive and procedural. The former defines the physical limits of alteration and the latter the procedure by which it can be effected. [17] The alteration of object clause involves: Special Resolution: In the first place , the company has to call a general meeting of its members and pass a special resolution and file a certified copy of the resolution with the central government. Ratification by the central government: After this, the application for proposed alteration is filed with the central government. The application shall be scrutinized by the government before confirming the alteration. Registration of alteration: A certified copy of the order of the central government shall be filed by the company with the RoC along with the printed copy of the altered memorandum within three months from the date of the order. The registrar shall register the same and certify the registration under his hand within one month of the date of filing such documents. [18] Q. State the circumstance in which a private company will automatically become a public company. Circumstances when a private ltd company becomes a public ltd company The private limited company form of organization is preferred by businessmen because of the special privileges it enjoys. Capital is sourced from close friends, relatives and known persons and not from the public. Therefore, the Companies Act, 1956 does not impose stringent rules and regulations as those imposed on Public limited companies. In certain circumstances, a private limited would become a public company. They are: a. Conversion by default b. Conversion by operation of law c. Conversion by choice or by option Once a private company becomes a public company under any of the above mentioned circumstances, it would lose the privileges it enjoyed as a private company. On conversion, the rules and regulations applicable to public limited companies would become applicable. 1. Conversion by default A private company: i. restricts the right to transfer shares, ii. limits the maximum number of members to 50 and iii. prohibits invitation to the public for subscription of shares or debentures. If any of these conditions are violated, a private company would become a public Company by default. 2. Conversion by operation of law In the following cases, a private company becomes a public company by the operation of law: i. When not less than 25% of the paid up share capital of a private company is held by one or more public companies, ii. When the average total turnover of the private company is not less than Rs.25 crores for three consecutive years, iii. When the private company holds not less than 25% of the paid up share capital of a public company. iv. When the private company invites, accepts or renews deposits from the public. The Companies Amendment Act, 2000 has given an option to these companies, either to continue as public limited companies or convert themselves into private limited companies by making the necessary changes in their Articles. 3. Conversion by Choice or Option A private company out of its own free will can choose to convert itself into a public company. Generally, when private companies plan to expand and require more capital resources, they would convert themselves into public companies. By becoming public companies they can issue shares or debentures to the public and get the required amount of capital. In India, many organizations which commenced operations as private companies have got themselves converted into public limited companies in order to expand and diversify. Any private company which desires to get converted into a public company should make the necessary changes in the Articles and follow the below mentioned steps: a. It should convene a general meeting and pass a special resolution duly altering the Articles. b. The copy of the resolution along with the amended Articles should be filed with the Registrar within 30 days of passing the special resolution. c. The number of members should be increased to 7. d. The company has to apply to the Registrar for obtaining a fresh certificate of incorporation with the words ‘Private’ deleted from its name. Q. Distinguish between partnership and a company. Differences Between Partnership and a Company 1. Structure of Partnership and a Company One of the main differences between partnerships and companies is the formation structure. Companies have a complex structure due to their large number of people involved in the formulation of the company. The people forming the company include the shareholders who employ a management team to run the company on their behalf. This means that a company has a complex organizational structure with hierarchy a bureaucratic root in which decisions and instructions flow. On the other hand, a partnership does not have a complex organizational structure because it involves two people combining their efforts and strategies to offer goods and services to people. There are no structures in a partnership because the owners make decisions, which influence the working of the partnership. 2. Startup Costs of Partnership and a Company The other difference between partnerships and companies is the costs involved in the formation of these types of businesses. Companies involve high costs of formulation due to the legal requirements that the government puts in place to ensure that a company has met all the required fundamentals. It is important to highlight that formulation of corporations include a lot of administration costs and complex tax requirements. Besides, there are many employees involved in the formulation of a corporation, which increases the cost of forming a company. This is not the same when it comes to the formulation of a partnership. Partners are just required to register the business with state and obtain local or state business licenses permits. 3. Liabilities of Partnership and a Company Another difference between a company and a partnership is the issue of liability. For a partnership, the owners of the organization are purely responsible for the liabilities of the organization. In case of the dissolution of the partnership, the properties of the partner members will be taken to pay for the liabilities of the partnership to pay the debts involving their company. Therefore, all the legal liabilities are bestowed upon the partner members, which is one of the main disadvantages of a partnership. It is also essential to note that partners include a partnership agreement, which states the percentage of the partnership he or she owns. On the other hand, a company is a legal entity, which shields the owners of the organization from being liable for the debts of the company. It is important to understand that owners of the organization and other shareholders are not at risk of losing personal assets. Report this ad 4. Business Taxation in Partnership and a Company The method of taxation is another aspect that differentiates between a partnership and a company. A partnership does not pay taxes as losses and profits are passed to the individual owners upon which they pay the income taxes. It is worth noting that partners have to file a tax return which shows their share of profit or loss from the partnership and other incomes upon which they are taxed. This is different from corporations which are taxed directly by the revenue collecting body. It is worth noting that a company is a legal entity which means that the taxes of the company cannot be passed to the individual owners of the organization. Corporations pay both state and national taxes while shareholders pay their taxes, which are based on salaries, bonuses, and the dividends that they receive from the profits of the company. 5. Life Time in Partnership and a Company The life of a company and that of the partnership forms a significant difference between the two forms of business ownership. It is important to note that the life of a company is formulated such that it can last in its entirety. Its existence is not affected by the change of the membership or death of any of the members of the organization. Besides, a company’s life may not be ended due to the insolvency of one of the members. On the other hand, there are specific situations upon which the life of a partnership can come to an end. Some of the main incidences that may lead to the end of a partnership include the death of one of the members, insolvency, or insanity of any one of the partner. 6. Transfer of Shares in Partnership and a Company Lastly, shares or units of a company can easily be transferred from one person to another unless restricted by the articles of the organization. On the other hand, a partner cannot transfer his share without the consent of all other partners. This explains why the shares of an organization are traded on the stock exchange while the shares of a partnership are no traded in the stock market.