Memorandum and Articles of Association-Companies Act 1994, Bangladesh

Assignment

On

Memorandum of Association & Articles of Association

Course Title-Legal Environment of Business Course Code-Bus361

Submitted to:

Syed Robayet Ferdous Assistant Professor

Department of Business Administration

Submitted by:

Name Id Section Group Name

Md. Ajgor Ahmed 2006-2-10-159 Saiful Hasan Robel 2007-1-10-084 Md. Raihan Shourov 2007-2-10-034

2

The Lax Society

Sharmin Akter 2007-2-10-046 Rafed Rasul Khan 2007-2-10-111 Md. Zahidul Islam 2007-2-10-159

Date to submit: December 13, 2010

Memorandum of Association and Articles of Association

Abstract: A company is an artificial person created by law with perpetual succession and

common seal. The law by which a company is formed and guided and regulated in Bangladesh is the companies Act, 1994. Formation of a company requires decision on the kind of company to be formed followed by the preparation of the constitutional documents viz., the memorandum of association and articles of association by the promoters or their advisers. The memorandum of association is the primary constitution of the company. It contains the conditions upon which a company is granted incorporation. It may be termed as the charter of the company. On the other hand, articles of association is a document of the company providing for its regulation of internal management. It lays down the regulations for achievement of the object of the company as per its memorandum as to carry out those objects. Articles of Association cannot provide for anything contrary to the powers and objects set forth in the memorandum. It also constitutes a contract between the company in the one hand and the shareholders individually on the other hand and also between the members interse.

Keywords:

Introduction:

Company according to Justice Lindley is “An association of members, the shares of which are transferable”. In other words, by a company it is meant association of many persons who contribute money or money‟s worth to a common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share. Mainly there are three kinds of companies as per the Companies Act, 1994 viz., 1) Company limited by shares 2) Company limited by guarantee and 3) Company with unlimited liability.

These different types of companies do not conduct business in same manner. They follow their company constitution in legal issues. The constitution of the company is contained two documents- the memorandum of association and the articles of association. Before a company is formed certain steps shall be followed which starts with preparation of the memorandum and articles of the association. These two documents must be filed when application is made for the registration and incorporation of the company. The companies act lay down rules regarding the preparation of the memorandum. These documents, together with certain other documents which likewise require registration and the registrar of Joint Stock Companies registers the same. On issuance of certificate registration by the registrar and from the date mentioned therein the company comes into existence as legal person commence business at once but if it is formed as public company it has to satisfy further requirements before it is granted a certificate authorizing it to commence business.

This constitution includes the original memorandum or altered from time to time. In the case of a company limited by shares, it must contain the name of the company with “limited” as the last word., the address of the company‟s registered office, objects of the company, a statement that the liability of the company‟s members is limited though of the directors may be made unlimited and the amount of share capital with which the company proposes to be registered and division thereof of a fixed amount. For example, each of the subscribers to the memorandum must write opposite his name the number of shares he would take and moreover, a minor cannot be subscriber to the memorandum as he cannot enter into a contract.

This division of the constitutional documents was first adopted by the Joint Stock Companies Act, 1856.Before that act the constitution of the English company was contained in one document, viz., the deed of settlement. The system of the uniform constitution is still in use in many Continental company laws. In the U.S.A also the legislature provide for the division of the constitutional documents similar to that applying to companies in U.K.

Memorandum of Association:

The Memorandum of Association is a document which contains the fundamental rules regarding the constitution and activities of a company. It is the basic document which lays down how the company is to be constituted and what work it shall undertake. The purpose of the memorandum is to enable the members of the company, its creditors, and the public to know what its powers are and what is the range of its activities. The memorandum contains rules regarding the capital structure, the liabilities of the members, the objects of the company, and all other important matter related to the company. The memorandum is altered only after certain formalities are observed. The memorandum shows the range of the enterprise. The memorandum is the foundation on which the super structure of the company has been built up. It enables the shareholders, creditors and outsider to show the permitted activities of the company. It is generally accompanied by articles of association.

According to Lord Cairns L.C. ” the memorandum is, as it were, the area beyond which the

action of a company cannot go; inside that area the shareholders may make such regulations for their own government as they think fit” [ Ashbury I’s Riche. L.R. 7 H.I. 653]

Mode of forming Incorporated Company:

Any seven or more person or, where the company to be formed will be a private company, any two or more persons associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of registration form an incorporated company, with or without limited liability, that is to say, either-

a. a company limited by shares that is to say, a company having the liability of its member limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them; or

b. a company limited by guarantee, that is to say , a company having the liability of iths members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up; or

c. an unlimited company, that is to say, a company having no limit on the liability of its members.

What to be stated in Memorandum:

The memorandum is a document of great importance in relation to the company. It must be printed and divided into paragraphs consecutively and it must state the objects of the company. Accordingly, it has to contain the following clauses viz.-

i. The name Clause

ii. The Registered Office Clause iii. The Association Clause

And some other clauses viz.- Situation, Objects, area of operation, liability, capital, the association and Subscription Clause.

Conditions required to be stated in the Memorandum:

Only those provisions are regarded as conditions that are required by section 13 to be stated in the memorandum of association. Any other thing stated in the memorandum can be altered by passing special resolution [Venkataraman Vs the Coimbatore mercantile bank, AIR 1942 Mad.

126.]

Alteration of Memorandum:

Clauses other than conditions may be altered generally by special resolutions, as if they are contained in the articles. A clause in the memorandum regarding the right of dividend of class of share-holders may be altered by special resolution [Rampuria Cotton Mills Ltd. Re. A (1959)

253=63 CWN 11]

Change of the registered office:

Change of the registered office of the company not permissible without High Court‟s sanction. Notice of any change cannot be effected by collateral document [Sakhwat Hossain Vs.

Chittaranjan Cotton Mills Ltd. (1962) 14 DLR 407.]

Registration of the alteration:

Under section 16 the alteration has to be registered within ninety days. Where for that purpose the copy of the order memorandum of alteration is not filed within three months, the court has, of course, the power to extend time for filing the same, but the period of three months has expired, the proceedings would become void under section 19(2) and the court cannot thereafter extend the time. The only procedure open thereafter is to apply to the court for reviving the order [Shiv

Prakash Janakrai S. Co Vs. Registrar of Companies, (1963) 2 Comp. L.J. 228 (Punjab).]

Failure to file altered memorandum:

Altered memorandum of association granted by the High Court to be filed with the Registrar of Joint Stock Companies within the time specified is section 15…..Further time may be granted under the proviso to section 16…….When all these not availed of –Held: the alteration of memorandum becomes void [ In the matter of Union Bank Ltd. (1969) 21 DLR 135.]

Articles of Association:

The Articles of Association of company is subordinate to and controlled by the Memorandum of Association. The Articles of Association is a document which contains rules, regulations and by-laws regarding the internal management of the company. Articles must not violate any provision of the memorandum and the relationship between articles and memorandum in this language: “the memorandum is as it were, the area beyond which the actions of the company cannot go; inside the area, the shareholders may make such regulation for their own government as they think fit,”

1. The Articles are subordinate to Memorandum.

2. The memorandum must be read in conjunction with the Articles.

3. The terms of the Memorandum cannot be modified or controlled by the Articles.

Articles- not a contract between company and outsider: As between the company and an outsider that is

a person who is not a share-holder, the articles do not in any circumstances constitute a contract [ Maj

Gen. Shanta Shamsher Jang Bahadhur Vs. Kamani Brothers Pvt. Ltd. (1959) 29 a comp. Xas 501]., but

the articles constitute a contract between each member ad the company and regulate their rights inter se [

Hickman Vs. Kent Ronney sheep Breeders’ Association (1914) All ER Rep. 900.]

Registration of Articles:

An unlimited company, a company limited by guarantee and a private company limited by shares must file their articles of association at the time of registration of the company.

Articles when to be registered:

If articles of any company are not registered, then section 18 of the Act would apply [Prayan Prasad Vs.

Gaya Bank and Traders Association Ltd. (1931) I Comp. Cas. 85.]

Articles shall include:

 The restrictive features peculiar to private companies (viz., limitation of the number of members to 50; restrictions on the transfer of shares; prohibition of invitation to the public for the purchase of shares and debentures.).

 In the case of a company limited by guarantee, the number of members with which the company is to be registered.

 In case of an unlimited company, the articles shall state the number of members with which the company is to be registered and if the company has a share capital, the amount of such share capital.

Contents of Articles:

Articles should include following provisions: 1. Share capital.

2. Share certificate.

3. Transfer and transmission of share.

4. Alteration of the capital. 5. Borrowing powers. 6. Notice of meeting.

7. General meeting. 8. Votes of members. 9. Directors.

10. The meeting of the board of directors. 11. Management.

12. Operation of bank account. 13. Common seal. 14. Dividend. 15. Accounts. 16. Audit. 17. Indemnity. 18. Secrecy. 19. Arbitration. 20. Winding up.

Where company does not have articles:

Companies must possess their own Articles. The following companies must have their own articles, namely,

a. Unlimited companies.

b. Companies limited by guarantee, c. Private companies limited by shares.

In case, where company does not have articles, Table A (Corresponding to schedule 1 in the Companies Act, 1994) will be applicable. If such a company has Articles it can exclude of modify Table A then the regulations of Table A will apply if they are not inconsistent with the company‟s articles [ Naresh Sanyal Vs. Raman‟ Kanta Roy AIR 1949 Cal 360].

[Table A is a set of model articles printed in the Companies Act.]

Considerations to be noted:

Articles of Association- binding effect of: Every member of a company as well as the company itself is

bound by the terms of the articles of association and as such its registration is necessary.

Articles- inclusion of illegal term: Where the articles of association of the company prevented members

in participating the annual general meeting- Held that the same to be void and illegal [ P.C. Arivndhan Vs.

M. A. Kesavan 1973 Tax L R 1844]. The articles of a company limited by guarantee and having no share

capital giving power to the managing committee to expel a member was held to be void and illegal [

Gaiman Vs. National Association of Mental Health (1971) 41 Comp. Cas 927.]

Words used in the articles when ambiguous: Where the words used in a clause are ambiguous, all

relevant clasuses of the articles should be considered and attempt should be made to reconcile them and adopt such construction as would avoid conflict [ Shiv Onkan Moheswari Vs. Bansidhar Jagamath A

1956 Bom 190=26 comp. Cas. 148.]

Remuneration paid to directors when not provided for in the articles: held- it could not be said that

without modifying or amending the aricles of association, remuneration could not be paid to the directors.

Alteration of articles:

Section 20 of the Companies Act 1994 provides that a company may by special resolution alter or add to its articles ; and any alteration or addition so made shall be as valid as if the same was originally contained in the articles.

Alteration- refusal of registration:

The registrar may refuse to register an alteration of articles which introduces an illegal object [Pioneer

Mutual Benefit & Friend in need Society Ltd. Vs. Assistant. Registrar of Joint Stock Companies A (1933) Mad. 129.]

Effect of alteration in memorandum or articles:

Notwithstanding anything in the memorandum or articles of a company, no member of the company shall be bound by an alteration, made in the memorandum or articles after the date on which he becomes, member, if and so far as the alteration requires him to take or subscriber for more shares than the number held by him at date on which the alternation made, or in any way increase his liability as at

Memorandum and Articles- difference of:

Memorandum of Association Articles of Association

The Memorandum of Association contains the conditions upon which a company is granted incorporation

Articles of Association contain the internal regulations for the administration of the company.

Memorandum limits the activities which the company can undertake

The Article set forth the rules or by-laws wherewith those activities can best be carried out from the very birth of the company till its death.

The Memorandum of Association is as unalterable document except in so far as is provided by the section 12 of the Companies Act.

Articles of Association can be changed s many times as the shareholders may choose by special resolution

A company must provide itself with its Memorandum of Association which are usually framed in statutory way.

A company may provide itself with its Articles of Association by fully adopting „Schedule 1‟ of the Act.