Memorandum of Association of a Company: It is its charter, which contains the fundamental

conditions upon which alone the company is incorporated.

It defines the limitation of the powers of the company, the area beyond which the action of the
company cannot go. Its purpose is to enable the shareholders, the creditors, and all those who
deal with the company know what is its permitted range of enterprise.

It is a document, which sets out the constitution of a company, as such, it is really the foundation
on which the structure of the company is based. It defines its relations with the outside world and
the scope of its activities.

In the case of a company limited by shares the Memorandum of Association shall state:

1. The name of the company: Promoters are at liberty to choose any name except the similar to
or identical with the one already in existence. Undesirable names are also not allowed. Last
word of the name must be “Limited”. Private Company should indicate word “(Pvt.)” before
“Limited”.

2. Situation clause: Company must state whether its registered office where would be located.
It is central place for contact and documentation. Name of city is not advisable where the
Head Office would be located, but the name of province should be mentioned. It creates
convenience to shift office from one locality to another within the province. A notice must be
served to the Registrar concerned.

3. Object clause of the Company: Objective of the incorporated company must be mentioned
as it indicates the extent of the company’s powers and the sphere of the activities incidental
to or consequential upon the powers. Company must do the business, which is specified in
its object clause along-with allied matters. Variation from object clause puts in ultra vires.

4. Liability: It includes the extent of the liability of the promoters and/or shareholders.
Company limited by shares restricts the liability of the investors limited upto the extent of the
amount they have contributed in the company.

5. Capital clause: This clause contains the registered or authorized or nominal capital divided
into shares. If the authorized capital is Rs. 100,000/-, it may be divided @ Rs. 10/- per share
into 10,000/- shares. Normally issued capital achieves its subscription, which leaves good
gesture on the part of company. Equation of both issued and subscribed capital increase
goodwill of the company. Law does not allow reduction in capital.

6. Association clause and subscription: Promoters are required to subscribe initially and sign
the Memorandum of Association in the presence of witnesses which are seven in number
equally in case of public limited company. This is also called undertaking.

In what respect alteration in Memorandum of Association can be made: Promoters of the

A Company subject to the provisions of the Ordinance may by special resolution alter the
conditions contained in its memorandum. Company may make following alterations:

1. Name of Company: Name of the company can be altered with new one provided it is neither
similar to nor identical with an existing name and nor it should be undesirable. This alteration
requires notifying the Registrar. Special resolution requires for such alteration. Old name of
the company is carried out with new name for a period of one year as formerly name.

2. Capital clause: Capital clause may be amended as follows:

(a) Consolidate and divide shares in the share of larger amount.

A shareholder has subscribed the investment as follows:

10 shares @ Rs. 10/- per share Totaling amount Rs. 100/-

Making one share @ Rs. 100/- may consolidate his ten shares into one.

(b) Subdivide its share into the shares of smaller amount.

Here situation of former case would be reversed.

(c) Canceling shares, which have neither been taken-up nor agreed to be taken-up at the time
of passing the resolution.

For example, a company has issued its 100 share out of them only 80 are subscribed. 20
shares are remained un-subscribed. It may harm the goodwill of the company. Company
by passing special resolution may write off or cancel the remaining left over share. This
would not result in reduction of capital, which is not allowed by law.

3. Situation clause: Passing special resolution it may be altered. Communication of resolution

4. Limitation of liability clause: It also can be altered subject to statutory law.

5. Object clause: Special resolution is required to alter it. Shareholders and Registrar raise
objections. After getting necessary answers and satisfaction, Registrar permits to change
object clause. Why need to alter in object clause becomes necessary? It can be answered as
follows:

(a) To carry on its business more economically and more efficiently, e.g., local raw material
can be used instead of imported raw material, which guarantees the economic production
and readily availability.
 (b) To attain its main purpose by new and improved means, e.g., hand made cloth but later
on powers looms were invented which resulted in reduction of cost and labour and
increase in production.

(c) To enlarge or change the local area of operation. Business is carried on within the limits
specified and allowed by Registrar in Memorandum of Association and Articles of
Association. Extension in area of operation requires permission of Registrar. From one
province to another or from one country to another, business can be expanded with due
course of time and increasing of demand by taking permission from Registrar.

(d) To carry on some business which under existing circumstances can advantageously be
combines with the business of the company. Packages Company, is a good instance,
which is manufacturer of packing material. Quite enough wastage of papers was left out
which was sold in local market but later on it was revealed that it could be utilized in
making of board. They installed another plant to make board from such left over wastage
of paper. It was advantage to the company. Now-a-days many sugar mills are also
manufacturing chipboard with the wastage of sugarcane, which is left over after making
the sugar.

(e) To restrict or abandon any of the objects specified in the Memorandum of Association.
Some time manufacturing cost increases and some time unavoidable circumstances put
company to close unit as whole or as part.

(f) To sell or dispose of the whole or any part of the undertaking of the company. If the new
techniques have been developed or demand has been reduced then part of undertaking
or whole is requires to be sold.

(g) To amalgamate with other company or body of persons. To increase production and
reduce cost, it becomes imperative to merge a company with another having the same
object like Galaxo with Wellcome, Mercedeze with BMW, Ravi Chemicals with Hoechst
etc.

Alteration in object clause must be communicated to Registrar within 90 days after passing special
resolution.

Right shares increase the capital of the company thus offered to existing members. It requires
general resolution of present majority of members. Capital may be diminution. It is reduction in
volume.