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Introduction:
Under the existing law a limited company can be formed by preparing certain legally
specified documents and filling the same with the registrar of companies. The first
essential document to be prepared and filled with registrar and without which a company
cannot be incorporated is named as memorandum of association, briefly called
memorandum. The preparation of this document is the starting point in the formation of a
company.
(Luqman Baig-2005)
It is the document that governs the relationship between the company and the outside. It
is one of the documents required to incorporate a company in the United Kingdom,
Ireland, India, Bangladesh, Pakistan and Sri Lanka, and is also used in many of the
common law jurisdictions of the Commonwealth.
(wikipedia.org)
Etymology:
• Memorandum word is derived from Latin word verbal phrase memorare means
'something to be brought to mind'
• Association word is also derived from Latin word associare means 'join'
History:
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called the; Deed of Settlement.” The Joint Stock Companies Act 1856 introduced a new
constitutional framework for incorporation in 1888.Under the 1856 Act, two documents
were required: the memorandum of association and article of association. This structure
was followed in successive Companies Acts until the Companies Act 2006.
(Hicks, Goo-2008)
Definition:
(Luqman Baig-2005)
Memorandum binds the company and the members as if each member had signed and
covenanted as regards himself, his heirs and legal representatives to observe and abide by
all its provisions and conditions. Memorandum regulates the company’s external affairs
is that the relation of company with outside world. It informs all persons what the
company is formed to do and what capital it has to play with.
(Luqman Baig-2005)
Memorandum of association is a public document, and every person who deals with
company is presumed to have a sufficient knowledge of its contents and provisions.
(Luqman Baig-2005)
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Requirements:
It is basically a statement that the subscribers wish to form a company under the 2006
Act, have agreed to become members and, in the case of a company that is to have a
share capital, to take at least one share each. It is no longer required to state the name of
the company, the type of company (such as public limited company or private company
limited by shares), the location of its registered office, the objects of the company, and
it’s authorized share capital. Companies incorporated prior to 1 October 2009 are not
required to amend their memorandum. Those details which are now required to appear in
the Articles, such as the objects clause and details of the share capital are deemed to form
part of the Articles.
(wikipedia.org)
The memorandum no longer restricts what a company is permitted to do. Since 1 October
2009, if a company's constitution contains any restrictions on the objects at all, those
restrictions will form part of the articles of association.
(wikipedia.org)
(wikipedia.org)
Purpose:
The memorandum of association records the agreement of the first subscribers to form a
company under the 2006 Act, to become members and, in the case of a company that is to
have a share capital, to take at least one share each.
(wikipedia.org)
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Restriction on alteration of memorandum:
A company shall not alter the conditions contained in its memorandum except in the
cases and in the mode and to the extent specified in this Ordinance.
(www.secp.gov.pk)
Alteration of Memorandum:
(2) The alteration shall not take effect until and except in so far as it is
confirmed by the Commission on petition: Provided that an alteration so
as to change the place of registered office of a company from a place in
the Province of the Punjab to the Islamabad Capital Territory or from the
latter to a place in the Province of the Punjab, or from one city in a
Province to another shall not require confirmation by the Commission.
• that, sufficient notice has been given to every holder of debentures of the
company and to any person or class of persons whose interest will, in the opinion
of the Commission, be affected by the alteration; and
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• that with respect to every creditor who in the opinion of the Commission is
entitled to object, and who signifies his objection in manner directed by the
Commission, either his consent to the alteration has been obtained or his debt or
claim has been discharged or determined, or has been secured to the satisfaction
of the Commission.
(www.secp.gov.pk)
The Commission may make an order confirming the alteration either wholly or in part,
and on such terms and conditions as it thinks fit, and make such order as to costs as it
thinks proper.
(www.secp.gov.pk)
This clause states the name of company. A company may select any name, but it should
not resemble the name of any other company. The name clause must include:
a) The word “Limited” as the last word in case of a Public Limited Company.
b) The words “(Private) Limited” as the last words in the case of a Private Limited
Company.
c) The words “(SMC-Private) Limited” as the last words of a Single Member Private
Limited Company.
These end words show that all persons dealing with the company must know that
their liability is limited to the extent of their shares.
(www.iin.com.pk)
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2. Registered Office Details
It is known as domicile clause. The memorandum of association must state the name of
the place of business of the company. The company must have a registered office and its
place must be notified to the registrar.
Place of registered office may be change from province to province or town to town;
Registered office of the company may be changed by passing special resolution and
obtaining the confirmation of the commission.
The place of registered office of the company may be changed from one town to another
town within the same province by passing special resolution and notice to the registrar
without any confirmation of the commission.
(Notes provided by Ms. Faiza Khan)
3. Object Clause
This is the most important part of the memorandum of association and is to be worded
immensely carefully. A company cannot legally take up any business that is not
authorized by its object clause. The object clause cannot contain any thing contrary to the
provisions of the Companies Ordinance, 1984. It is generally very lengthy and the
Registration Procedure for A Company Legal Services Cell 9 scope of the company’s
activities is widened by including the words “and the doing of all such other things
incidental or conductive of the environment of the above objects.”
(www.iin.com.pk)
The statement of object defines the sphere of company activities. It determines and
restricts the power of company.
• Scope of object:
The company can have any object provided that it is not contrary to law.
The company can not do any thing outside the powers specified in the object clause.
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4. Liability Clause
The clause must include whether the company is limited by share or guarantee. The effect
of this statement is in the event if the company is wound up, the members of the company
will not be liable to contribute more than the amount, if any, unpaid on their shares, in
case of a company limited by shares. In the case of a company limited by guarantee, the
members undertake to contribute a specific amount to the assets of the company.
(www.iin.com.pk)
• Exceptions:
The following information is provided in this clause, except for guarantee companies
having no share capital and unlimited companies:
a) The amount of share capital with which the company is formed and registered.
b) The division of share capital into shares of fixed amounts.
The memorandum of association must be signed by the subscribers i.e. the first members
of the association.
(www.iin.com.pk)
6. Subscriber clause:
Association and subscription clause contains declaration by the subscriber that they are
desirous of forming a company and agree to have number of shares written against their
respective names.
Each subscriber must sign the memorandum in the presence of at least one witness who
shall attest the signature.
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Difference between memorandum of association and article of
association:
The Memorandum of Association sets out the company's name, where its registered
office is situated, the fact that the liability of members is limited, its share capital and the
purpose for which the company is set up (its objects and its powers).
(www.blurtit.com)
Contents of memorandum of association are as follow;
• Name of company
• Place of registered office
• Objects of company
• Liability of shareholders
• Registered capital
The Articles of Association of the company are the internal rules of the company. They
create a contract between the members or owners of the company and the company itself.
If no Articles of Association are filed when the company is incorporated a statutory
standard form of articles will apply. In practice, the statutory articles are amended to suit
a company's specific requirements. The Articles deal with such matters as the creation,
issue, allotment and transfer of shares, the company's borrowing limits and the powers
and duties and regulations of directors.
(www.blurtit.com)
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The difference between memorandum of association and article of association is as
follow:
1. As to alteration:
Whereas article of association is regarded alterable document, company can change the
conditions mentioned in it at any time.
2. As to subordinate:
3. As to importance:
4. As to compulsion:
5. As to clauses:
Memorandum of association has usually six clauses.
6. As to legal effect:
7. As to object:
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Article of association contains the procedure for achieving objects
8. As to nature:
Memorandum of association is the charter of the company which defines the external
power of company.
Article of association contains the rules and regulation for internal management.
9. As to certificate of commencement:
10. As to incorporation:
Memorandum of association contains the conditions upon which the company is granted
incorporation.
11. As to scope:
12. As to Status:
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Conclusion:
Both the Memorandum of Association and the Articles of Association are very important
documents for any type of company be it a public-limited company or a private-limited
company. For a company, a Memorandum is the constitution of the charter of the
company. In other words, a Memorandum defines and confines the power of the
company. As for the Articles of Association, they are the by-laws of the company that
give an explanation to the Memorandum. While the Memorandum regulates the
interaction of the company with the external world, the Articles of Association are
responsible for the internal conduct of the company. Also registration of the
Memorandum is compulsory for every company. In addition to that, a Memorandum is
sub-ordinate to only the Company's ordinance 1984.
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References:
Links:
• http://en.wikipedia.org/wiki/Memorandum_of_association
• http://www.iin.com.pk/IINSiteData/images/grrsection/pdf/Regulatory
%20Procedures/Business%20Registration/Company%20Registration
%20Process.pdf
• http://www.secp.gov.pk/corporatelaws/pdf/Comp_Ord1984.pdf
• http://www.blurtit.com/q590878.html
Books:
Notes:
• Notes dictated in class by Ms Faiza Khan
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