What do you mean by Memorandum of Association? How can an object clause be altered? Discuss the effect of 'Doctrine of Ultra Vires' on alteration of Memorandum

Question: What do you mean by Memorandum of Association? How can an object clause be altered? Discuss the effect of 'Doctrine of Ultra Vires' on alteration of Memorandum. [BJS 2011]

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Answer

A memorandum of association is a legal document that sets out the main objects and powers of a company. It is often referred to as the "constitution" of a company and is required to be filed with the relevant government body when incorporating a company. The memorandum of association typically includes information such as the company's name, registered office address, and the names of its shareholders.

In the case of Salomon v. A Salomon & Co Ltd., [1897] AC 22, it was held that a company is a legal person separate from its shareholders and that the memorandum of association creates the company and defines its powers. The court also held that the company's powers are limited to those set out in the memorandum and that shareholders are not personally liable for the company's debts beyond the amount of their unpaid share capital.

In the case of Lee v. Lee's Air Farming Ltd., [1961] AC 12, it was held that the memorandum of association creates the company and defines its objects and powers and an alteration to the memorandum of association requires a special resolution and the approval of the court.

In the case of Ashbury Railway Carriage and Iron Co Ltd v Riche, (1875) LR 7 HL 653, it was held that the memorandum of association creates the company and defines its objects and powers and that if a company carries on business beyond the objects set out in its memorandum, it will be ultra vires (beyond its powers) and any contract entered into in that context will be void.

In summary, a memorandum of association is a crucial document of a company. It defines the objects, powers, and scope of the company, and any alteration of the memorandum of association requires a special resolution and court approval. And also any act outside the powers defined in the memorandum of association would be considered as ultra vires.

Steps for alteration in the object clause of the Memorandum of Association

A company can alter its object clause by addition, deletion, modification, substitution, or in any other way, only if it wants. Following are the simplified steps for alteration in the object clause of an MoA:

Step I- Convene A Board Meeting: (As per section 173 and SS-1) Issue Notice of Board Meeting to all the directors of the company at least 7 days before the date of the Board Meeting. Attach Agenda Notes to Agenda Draft Resolution

Step II- Hold the Board Meeting: Proposed new Objects of the company. Pass Board Resolution after Selection of Object. Get Approval to change in the objects clause and recommend the proposal for members’ consideration by way of special resolution. Fixing the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.

Step III- Issue Notice of General Meeting: (Section 101) Notice of EGM shall be given at least 21 days before the actual date of EGM. EGM can be called on Shorter Notice with the consent of at least a majority in number and ninety-five per cent of such part of the paid-up share capital of the company giving a right to vote at such a meeting: All the Directors. Members Auditors of Company The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be transacted at the EGM.

Step IV- Hold General Meeting: (Section 101) Check the Quorum. Check whether an auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146). Pass Special Resolution.[Section-114(2)] Approval of Alteration in MOA.

Step V- Filing and fees: File Form No. MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of passing the special resolution, along with given documents:-

Attachments:

• Certified True Copies of the Special Resolutions along with explanatory statement;
• Copy of the Notice of meeting sent to members along with all the annexures;
• A printed copy of the Memorandum Article of Associations.
• Copy of Attendance Sheet of General Meeting.
• Shorter Notice Consent, if any.

Step VI Follow-up: The Registrar shall then accordingly register the alteration and issue a certificate which will be the conclusive evidence that all the requirements with respect to the alteration have been duly complied with by the company. The alteration shall be complete and effective only on the issue of a certificate by the Incorporate the alteration in every copy of the memorandum.

Applicability of the doctrine of Ultra Vires in the alteration of an MOA

The Doctrine of Ultra Vires states that a company cannot carry out any actions that are beyond the powers given to it in its Memorandum of Association (MOA). This means that any alteration to the MOA that would allow the company to carry out actions that it was not previously authorized to do would be considered ultra vires, and therefore invalid.

In the case of Ashbury Railway Carriage and Iron Co. v. Riche, (1875), the court held that any alteration to the MOA that would change the company's objects or powers must be approved by a special resolution of the shareholders and that any alteration that would increase the liability of the shareholders would also be invalid. This case established the principle that shareholders must be protected from any alteration that would increase their liability without their consent.

In the case of Lee v. Lee's Air Farming Ltd, (1961), the court held that any alteration to the MOA that would change the company's objects or powers must be approved by a special resolution of the shareholders and that any alteration that would increase the liability of the shareholders would also be invalid. This case established the principle that shareholders must be protected from any alteration that would increase their liability without their consent.

In the case of R. v. Registrar of Companies, ex parte Eastworthy, [1986] QB 1114, it was held that an alteration of the Memorandum of Association is ultra vires if it authorizes the company to do something which is illegal or which is prohibited by the provisions of the Act.

In summary, the Doctrine of Ultra Vires states that a company's MOA cannot be altered in a way that would allow the company to carry out actions that are not within the powers given to it in the MOA, and any such alteration would be considered invalid. Any alteration of the Memorandum of Association must be approved by a special resolution of shareholders and should not authorize the company to do something which is illegal or prohibited by the provisions of the Act.

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