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Formation of Company

Q. What is memorandum of Association? Explain its clauses.

Ans: - Memorandum of Association is the fundamental conditions on which the company is incorporated. It is the charter of the company. Its clauses are:

·         Name Clause-Under this clause the corporate name of the company is stated with the name "limited” or "Private Limited” as the last word in this name. The name should not be identical with the name of any registered company No company can be registered by the name which is not desired by the Central Government.

·         Domicile Clause: Under this clause the company is required to mention the state in which the company is situated

·         Objects clause: It defines the area of operations of the company’s activities by enumerating a long series of objects and the purposes for which a company is started. The object clause must contain the main object of the company and the other objects related with it for the completion of main object. The company is not entitled to carry any of the business which is not mentioned in the object clause.

·         Liability Clause This clause stated that the liability of members is limited to the amount unpaid on their shares.

·         Capital Clause: It shows the amount of share capital with which the company is going to be registered and division there of into shares

·         Association Clause: This clause signifies the desire of the subscribers to form them into a body corporate.

 

Q. Distinguish between Memorandum of Association & Article of Association.

Ans: - The difference between Memorandum of Association & Article of Association is given here:

BASIS OF DISTINCTION

MEMORANDUM OF ASSOCIATION

ARTICLE OF ASSOCIATION

MEANING

It is a charter of a company .It sets the constitution .It defines limits ,powers and objects of the company

It contains rules and regulation for the internal management of the company

OBJECTIVES

It governs relationship with the external world i.e. creditors, sellers, buyers & debtors.

It governs internal relationship between the members of the company.

STATUS

It is the primary document. It is the foundation of the company.

It is the secondary document & it is based on the memorandum of association.

COMPULSION

It is a compulsory document for all the companies

It is compulsory for private companies, unlimited companies and companies limited by guarantee.

ALTERATION

It is an unalterable document. Alteration can only be done by the permission of court

It can be stitched according to the management a resolution is to be passed and it is within the limits of Memorandum of Association

Ultra Vires Actions

It lays down the boundaries beyond which a company cannot work. All such acts are illegal and they are called ultra vires acts.

The articles are controlled by the memorandum Within it the shareholders and the directors may make such regulations as they feel fit for internal management.

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