Memorandum of Association is the basic document of a joint stock company. It is known as the Charter of the Company. It sets out the limits outside which the company cannot go. Its main purpose is to enable shareholders, creditors and all those who deal with the company to know what is it's permitted range of enterprise. The main clauses of the memorandum of association of a company limited by shares have been described in Sections 16, 17 and 18 of the Companies Ordinance as under:
Clauses of Memorandum of Association:
1. Name clause. This clause states the name of the company. A company may select any name but it should not resemble the name of any other company. It should also not contain the words like king, queen, emperor, government bodies, UNO, WHO etc. The name should not be objectionable in the opinion of the government. The Companies Ordinance provides that the name of company must end with the world 'Limited' so that all the persons dealing with the company must know that their liability is limited to the extent of their shares. In the case of a private limited company, the words (private) limited to be used as the last word of the name.
2. Situation clause. It is also known as domicile clause. The company is requited to state the name of the province in which the office is situated. It is also necessary to give the exact address and name of the city where the company is located. This clause has the following advantage.
(a) A person can known, through this clause, the jurisdiction of the court under which the company operates.
(b) It also indicates the place for holding annual meeting of the company.
(c) The creditors, customers, government know the where about of the company.
(d) All correspondence is done at the office address of the company.
3. Object clause. This clause is the essence of the Memorandum. It clearly defines the sphere of the company's activities. It indicates a series of objects for which the company is started. Any business activity carried outside the territories specified in the object clause of memorandum is ultra vires and void.
The object clause, the most important part of the Memorandum, should be drafted very carefully. It is quite complicated to alter the object clause later on. If a public company whishes to start any new business not covered in the object clause, it has to pass a special resolution in the meeting
The object clause offers protection to the sharehol6ers by ensuring them that the amount collected for undertaking is not risked in any other undertaking. The creditors also feel protected by this clause.
4. Liability clause. This clause of Memorandum contains a declaration that the liability of the members of the company is limited to the extent of the value of shares purchased by them. In case a shareholder is to pay the unpaid calls on the shares, he can be compelled to pay up to the extent of unpaid amount on the shares and beyond that nothing more.
5. Capital clause. A company having a share capital shall state the total maximum amount 'of share capital with which it is registered. The capital as mentioned is called Authorized or Registered Capital. The capital is divided into shares of a certain value which is specified in the capital clause. For example, "The Authorized share capital of the company shall be Rs.5, 000,000 consisting of 500,000 equity shares of Rs. 10 each"
6. Association and subscription clause. This clause contains a declaration by the subscribers (7 persons in public company and 2 in a private Ltd company) that they are desirous of forming a company and agree to have number of shares written against their respective names. Each signature of subscriber must be supported by the signature of a witness with his address. The subscriber is required to take at least one share each.
Alteration of Memorandum. Any clause in the Memorandum may be altered by following the conditions laid down in the Companies Ordinance. The procedure for each clause varies.
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