The Memorandum

(b) The registered office clause. The memorandum states only the State, not the address; the address is dealt with by s.12 and can change within the State without altering the memorandum. That drafting choice is deliberate and is worth stating in an answer: it is why a move across the road is an administrative filing and a move across a State border is a memorandum alteration confirmed by the Central Government.

(c) The objects clause. The objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. This is the substituted form: there is no longer a division into main, ancillary and other objects, and the reference to matters in furtherance of the objects incorporates the powers a company needs to pursue them. Its consequences are the subject of [The Objects Clause and Ultra Vires].

(d) The liability clause. It must state whether members' liability is limited or unlimited, and specifically: for a company limited by shares, that liability is limited to the amount unpaid, if any, on the shares held; for a company limited by guarantee, the amount each member undertakes to contribute to the assets in the event of winding up while he is a member or within one year after he ceases to be a member, for debts and liabilities contracted before he ceased to be a member, and to the costs, charges and expenses of winding up and the adjustment of the rights of contributories among themselves.

That one-year tail is the detail examiners like, and it explains the position of past members as contributories in [Contributories and Calls].

(e) The capital clause. For a company with share capital, the amount of share capital with which the company is to be registered, its division into shares of a fixed amount, the number of shares the subscribers agree to subscribe, which shall not be less than one share, and the number of shares each subscriber intends to take, indicated opposite his name.

(f) The subscription and nomination clause. For a One Person Company, the memorandum must state the name of the person who, in the event of the subscriber's death, becomes the member, which is the nomination discussed in [Private, Public and One Person Companies].

Form, signature and the Tables

Section 4(4) allows an application to the Registrar for reservation of a name, and s.4(5)(i) lets him reserve it for twenty days from the date of approval, or such other period as may be prescribed, with a proviso allowing sixty days where an existing company applies to reserve a name or to change its name. Section 4(5)(ii) deals with a reservation obtained by furnishing wrong or incorrect information: if the company has not been incorporated the reservation is cancelled with a penalty, and if it has been incorporated the Registrar may, after hearing it, direct a change of name, take action for removal of its name from the register, or make a petition for winding up.

Section 4(7) adds a small but pointed rule for a company limited by guarantee and not having share capital: any provision in the memorandum or articles purporting to give a person a right to participate in the divisible profits otherwise than as a member is void. It stops the guarantee form being used to route profits to outsiders while presenting itself as a non-profit-distributing body.

Section 4(6) requires the memorandum to be in respective forms specified in Tables A, B, C, D and E in Schedule I as may be applicable, or in a form as near thereto as circumstances admit. Table A is for a company limited by shares, Table B for a company limited by guarantee not having share capital, Table C for one limited by guarantee having share capital, Table D for an unlimited company not having share capital and Table E for an unlimited company having share capital.

Section 7(1)(a) requires the memorandum to be duly signed by all the subscribers in the prescribed manner, which is what makes the subscribers members from incorporation under s.9.

Section 16: rectification of name

Section 16(1) empowers the Central Government to direct a company to change its name where, through inadvertence or otherwise, a name has been registered which is identical with or too nearly resembles the name of an existing company, whether registered before or after, in which case the direction must be complied with within three months; or where it is identical with or too nearly resembles a registered trade mark, on the application of the proprietor of that mark made within three years of incorporation or registration or change of name, in which case the direction must be complied with within six months. Section 16(2) requires the company, on receiving such a direction, to pass an ordinary resolution and change the name, and to notify the Registrar, who enters the new name. Section 16(3) provides the consequence of default, and the section is the reason a company cannot rest on registration as an answer to a trade mark owner.

A worked example

Four founders wish to register Tata Sunrise Bio Limited in Nagpur to manufacture bio-fertiliser, with authorised capital of fifty lakh rupees divided into five lakh shares of ten rupees, each founder taking twenty-five thousand shares, and liability limited by shares.

The name. Two objections arise before drafting goes further. Under s.4(2)(b)(ii) the name must not be one whose use would constitute an offence or be undesirable, and under the prescribed cases a name identical with or too nearly resembling a registered trade mark is undesirable. Even if the Registrar were to register it, s.16(1)(b) would let the proprietor of the mark apply to the Central Government within three years and obtain a direction to change it within six months. The correct advice is to choose a distinctive name at the outset.

The registered office clause states "Maharashtra", not the Nagpur address. If the company later moves to Pune, no memorandum alteration is needed; if it moves to Gujarat, the memorandum must be altered under s.13 and confirmed by the Central Government.

The objects clause states the manufacture and sale of bio-fertiliser and matters necessary in furtherance thereof. Note what that phrase does: it supplies the powers, borrowing, leasing, hiring, that pursuing the object requires, without the old three-tier drafting.

The liability clause states that liability is limited to the amount unpaid on the shares held. A founder who has paid ten rupees on each of his shares owes nothing more, which is the whole of what limited liability means.

The capital clause states fifty lakh rupees divided into five lakh shares of ten rupees each, with twenty-five thousand shares written opposite each founder's name, satisfying the requirement of at least one share per subscriber.

And the form. Being limited by shares, the memorandum follows Table A of Schedule I, and all four subscribers sign it under s.7(1)(a), becoming members on incorporation by force of s.9.

Distinctions

What it does NOT mean

Not a list of powers only. The objects clause states the objects; the powers to achieve them come with the words "any matter considered necessary in furtherance thereof", so a company need not enumerate every incidental power.

Not the registered address. Clause (b) is the State; the address lives in s.12.

Not unalterable. The 2013 Act's alteration machinery is in s.13, treated in [Alteration of Memorandum and Articles]; what survives from the old law is that alteration requires the prescribed procedure and, for some clauses, an outside approval.

Quick revision

s.4(1): name with Limited or Private Limited, except a s.8 company; State of the registered office; objects and matters in furtherance; liability, with the guarantee company's one-year tail and the winding-up costs limb; capital, division into shares of a fixed amount, at least one share per subscriber, number opposite each name; OPC nominee. s.4(2): not identical with or resembling too nearly an existing company's name, not an offence, not undesirable. s.4(3): no impression of government connection or prescribed expression without previous Central Government approval. s.4(4) and (5): reservation for twenty days, sixty for an existing company; wrong information means cancellation, or, after incorporation, a direction to change the name, removal from the register or a winding-up petition. s.4(7): in a guarantee company without share capital, a right to divisible profits otherwise than as a member is void. s.4(6): Tables A to E of Schedule I. s.7(1)(a): signed by all subscribers. s.16: Central Government direction to change a name, three months for resemblance to a company name, six months on a trade mark proprietor's application made within three years.

Test yourself

1. Does the memorandum state the company's address? No, only the State in which the registered office is to be situated, under s.4(1)(b); the address is governed by s.12, which is why a move within the State is a filing and a move to another State is a memorandum alteration.

2. State the guarantee company's liability clause precisely. Each member undertakes to contribute to the assets in the event of winding up while he is a member or within one year after he ceases to be a member, for debts and liabilities contracted before he ceased to be a member, and to the costs, charges and expenses of winding up and the adjustment of the rights of contributories among themselves.

3. A registered company's name too nearly resembles a registered trade mark. What may the proprietor do, and when? Apply to the Central Government under s.16(1)(b) within three years of incorporation, registration or change of name; a direction to change the name must then be complied with within six months.

4. How many shares must a subscriber take? Not less than one, under s.4(1)(e)(i), with the number indicated opposite his name.

5. Which Table of Schedule I applies to a company limited by guarantee having share capital? Table C.