Answer the following questions
1) Briefly explain the clauses of Memorandum of Association.
(i) Memorandum of Association is the basic fundamental and principle document of a company with which the company is registered. It is a charter of the company. It serves as the constitution of the company. It defines the company’s objects and lays down the fundamental conditions upon which the company is allowed to be formed.
(ii) According to Lord Cairns, the Memorandum of Association of the company is its charter and defines the Limitations of the powers of the company. This definition specifies that the Memorandum of Association is a document that describes the constitution of the company and its rights or privileges. It states the powers of the company Le. What it can do and what it cannot do. In brief, Memorandum of Association defines the scope of the activities of the company, the relationship of the company with the outside world, its objects, the extent of and limitations of the powers of the company.
2) Define Memorandum of Association. Explain its features.
(i) A Memorandum of Association of a company lays down the boundaries within which the company must conduct its activities. It also defines the scope or the extent of the company’s powers. The term ‘Ultra Vires’ means beyond the legal power or authority of a person, corporation, agent, etc. Any act of the company whether it is legal or illegal done outside the permitted range of activities as laid down in the Memorandum is said to be Ultra Vires. Ultra Vires acts are null and void, Le. It will be invalid and legally ineffective and therefore, not binding on the company.
(ii) Any act of the company which is ultra Vires. Is declared void and cannot be ratified later on even by the whole body of the shareholders. On the contrary, any act which is ultra Vires the Articles but Intra Vires the Memorandum can be ratified by the shareholders.
3) What is Articles of Association? Explain briefly its content.
(1) The definition of ‘Articles of Association’ permits its alteration from time to time whenever found necessary. However, the proposed alteration must be subject to the provisions of the Companies Act and the conditions contained in the Memorandum. The alteration must be approved by passing a Special resolution in general meeting. Alteration in the articles binds the members as original articles.
(2) A company can alter the contents of Articles in the following ways:
(i) By adopting a new set of an article.
(ii) By deleting unwanted contents from the articles.
(iii) By the addition of new content.
(iv) By substitution of contents.
(v) By the amendment of contents.
4) Define Prospectus. Explain its contents.
(1) In order to maintain business secrecy, it is obligatory on the part of the company management and its officers that certain information which is important and confidential should not be leaked or known to the outsiders. Therefore, directors and mockers of the company must act in accordance with the information they get from the Memorandum of Association and Articles of Association.
(2) The doctrine indoor management explains that the third parties or persons entering into a contract with the company are not bound to inquire whether the company or its officers have followed the internal proceedings mentioned in the Articles of the company or not. It is presumed that the company acts as per the provisions made in its Memorandum of Association and Articles of Association. Thus, the doctrine of indoor management safeguards the interest of outsiders who deal with the company in good faith and without manacled interest.