Preparation of Important Documents for company

21/12/2020 0 By indiafreenotes

Memorandum of Association:

The Memorandum of Association is the constitution of the company and provides the foundation on which its structure is built. It is the principal document of the company and no company can be registered without the memorandum of association. It defines the scope of the company’s activities as well as its relation with the outside world.

The company law defines it as “The memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous Company Laws or of this Act.”: Section 2 (28) of the Companies Act


The main purpose of the memorandum is to explain the scope of activities of the company. The prospective shareholders know the areas where company will invest their money and the risk, they are taking in investing the money. The outsiders will understand the limits of the working of the company and their dealings with it should remain within the prescribed scope.

Clauses of memorandum:

The memorandum of association contains the following clauses:

  1. The Name Clause:

A company being a separate legal entity must have a name. A company may select any name which does not resemble the name of any other company and it should not contain the words like king, queen, emperor, government bodies and the names of world bodies like U.N.O., W.H.O., World Bank, etc.

The name should not be objectionable in the opinion of the government. The word ‘Limited’ must be used at the end of the name of a Public and ‘Private Limited’ is used by a Private Company. These words are used to ensure that all persons dealing with the company should know that the liability of its members is limited.

The name of the company must be painted outside every place, where business of the company is carried on. If the company has a name which is undesirable or resembles the name of any other existing company, this name can be changed by passing an ordinary resolution.

  1. Registered Office Clause:

Every company should have a registered office, the address of which should be communicated to the Registrar of Companies. This helps the Registrar to have correspondence with the company. The place of registered office can be intimated to the Registrar within 30 days of incorporation or commencement of business, whichever is earlier.

A company can shift its registered office from one place to another in the same town with an intimation to the Registrar. But, if the company wants to shift its registered office from one town to another town in the same state, a special resolution is required to be passed. If the office is to be shifted from one state to another state it involves alteration in the memorandum.

  1. Object Clause:

This is one of the important clauses of the Memorandum of Association. It determines the rights and power of the company and also defines its sphere of activities. The object clause should be decided carefully because it is difficult to alter his clause later on. No activity can be taken up by the company which is not mentioned in the object clause.

Moreover, the investors i.e., shareholders will know the sphere of activities which the company can undertake. The choice of the object clause lies with the subscribers to the memorandum. They are free to add anything to it provided it is not contrary to the provisions of the Companies Act and other laws of the land.

The object clause can be altered to enable a company to carry on its activities more economically, or by improved means to carry on some business which under existing circumstances may conveniently be combined with the object clause.

  1. Liability Clause:

This clause states that the liability of the members is limited to the value of shares held by them. It means that the members will be liable to pay only the unpaid balance of their shares. The liability of the members may be limited by guarantee. It also states the amount which every member will undertake to contribute to the assets of the company in the event of its winding up.

  1. Capital Clause:

This clause states the total capital of the proposed company. The division of capital into equity shares capital and preference share capital should also be mentioned. The number of shares in each category and their value should be given. If some special rights and privileges are conferred on any type of shareholders, mention may also be made in the clause to enable the public to know the exact nature of capital structure of the company.

The capital clause can be altered by passing a special resolution and by obtaining the approval of Company Law Board.

  1. Association Clause:

This clause contains the names of signatories to the memorandum of association. The memorandum must be signed by at least seven persons in the case of a public limited company and by at least two persons in case of private limited company. Each subscriber must take at least one share in the company. The subscribers declare that they agree to incorporate the company and agree to take the shares stated against their names. The signatures of subscribers are attested by at least one witness each. The full addresses and occupations of subscribers and the witnesses are also given.

  1. Articles of Association:

The rules and regulations which are framed for the internal management of the company are set out in a document named Articles of Association. The articles are framed to help the company in achieving its objectives set out in memorandum of association. It is a supplementary document to the memorandum.

“Articles of association of the company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act.” —Section 2(2) of the Companies Act. The private companies limited by shares, companies limited by guarantee and unlimited companies must have their articles of association. A public company limited by shares may or may not have its own Articles of Association.

As per Action 26 of Companies Act, it is not obligatory on the part of a public company limited by shares to prepare and register Articles of Association along with Memorandum of Association. However, such a company may adopt all or any of the regulations contained in the model set of Articles given in Table A in Schedule I of the Act.

It means the company can partly frame its own articles and partly incorporate some of the regulations in Table A. Unless the company prepares its own articles then regulations of Table A shall be applicable in the same manner as if they were contained in its own registered articles.

The articles cannot contain anything contrary to the Companies Act and also to the memorandum of association. If the document contains anything contrary to the Companies Act or memorandum, it will be inoperative. When articles are proposed to be registered, they must be printed, divided into paragraphs and numbered consecutively. Each subscriber to the memorandum must sign the articles in the presence of at least one witness.

The nature of Articles of Association may be explained as follows:

(i) Articles of association are subordinate to memorandum of association.

(ii) These are controlled by memorandum.

(iii) Articles help in achieving the objectives laid down in the memorandum.

(iv) Articles are only internal regulations over which members exercise control.

(v) Articles lay down the regulations for governance of the company.


Some of the contents of articles of association are as follows:

  1. The amount of share capital issued, different types of shares, calls on shares, forfeiture of shares, transfer and transmission of shares and rights and privileges of different categories of shareholders.
  2. Powers to alter as well as reduce share capital.
  3. The appointment of directors, powers, duties and their remuneration.
  4. The appointment of manager, managing director, etc.
  5. The procedure for holding and conducting of various meetings.
  6. Matters relating to maintaining of accounts, declaration of dividends and keeping of reserves, etc.
  7. Procedure for winding up the company.

Alteration of Articles of Association:

The articles of association can be altered by passing a special resolution. Certain restrictions are imposed on the nature and extent of the alternation that may be made.

(a) The change should not be violating the provisions of the Companies Act.

(b) It should not be contrary to the provisions of the memorandum of association.

(c) The alteration must not have anything illegal.

(d) The alteration should not adversely affect the minority shareholders.

  1. Prospectus:

After getting the company incorporated, promoters will raise finances. The public is invited to purchase shares and debentures of the company through an advertisement. A document containing detailed information about the company and an invitation to the public subscribing to the share capital and debentures is issued. This document is called ‘prospectus’. Private companies cannot issue a prospectus because they are strictly prohibited from inviting the public to subscribe to their shares. Only public companies can issue a prospectus.

“A prospectus means any document described or issued as prospectus and includes any notice, circular, advertisement or other document inviting deposits from public or inviting offers from the public for the subscription or purchase of any shares in or debentures of a body corporate.” —Section 2(36) of the Companies Act

The prospectus is not an offer in the contractual sense but only an invitation to offer. A document construed to be a prospectus should be issued to the public.

A prospectus should have the following essentials:

(i) There must be an invitation offering to the public.

(ii) The invitation must be made on behalf of the company or intended company.

(iii) The invitation must be to subscribe or purchase.

(iv) The invitation must relate to shares or debentures.

A prospectus must be filed with the Registrar of companies before it is issued to the public. The issue of prospectus is essential when the company wishes the public to purchase its shares or debentures.

If the promoters are confident of obtaining the required capital through private contacts, even a public company may not issue a prospectus. The promoters prepare a draft prospectus containing required information and this document is known as a statement in lieu of ‘prospectus.’ A prospectus duly dated and signed by all the directors should be field with the Registrar of Company before it is issued to the public.

A prospectus brings to the notice of the public that a new company has been formed. The company tries to convince the public that it offers best opportunity for their investment. A prospectus outlines in detail the terms and conditions on which the shares or debentures have been offered to the public. Every prospectus contains an application form on which an intending investor can apply for the purchase of shares or debentures.

A company must get minimum subscription within 120 days from the issue of prospectus. If it fails to obtain minimum subscription from the members of the public within the specified period, then the amount already received from public is returned. The company cannot get a certificate of commencement of business because the public is not interested in that company.


The following matters are to be disclosed in a prospectus:

  1. Name and full address of the company.
  2. Full particulars about the signatories to the memorandum of association and the number of shares taken up by them.
  3. The number and classes of shares. The interest of shareholders in the property and profits of the company.
  4. Name, addresses and occupations of members of the Board of Directors or proposed Directors.
  5. The minimum subscription is fixed by promoters after taking into account all financial requirements at the beginning.
  6. If the company acquires any property from vendors, their full particulars are to be given.
  7. The full address of underwriters, if any, and the opinion of directors that the underwriters have sufficient resources to meet their obligations.
  8. The time of opening of the subscription list.
  9. The nature and extent of interest of every promoter in the promotion of the company.
  10. The amount payable on application, allotment and calls.
  11. The particulars of preferential treatment given to any person for subscribing shares or debentures.
  12. Particulars about reserves and surpluses.
  13. The amount of preliminary expenses.
  14. The name and address of the auditor.
  15. Particulars regarding voting rights at the meetings of the company.
  16. A report by the auditors regarding the profits and losses of the company.

These are some of the contents which every prospectus must include. The prospectus is an advertisement of the company therefore, the company may give any information which promotes its interest. Any information given in the prospectus must be true otherwise the subscriber can be held guilty for misrepresentation.