Memorandum of Association (Section 4) →

The memorandum of association is the charter of a company — the document that brings it into legal being and fixes the outer boundary of everything it may lawfully do. Section 4 of the Companies Act, 2013 prescribes its contents in six clauses: the name, the State of the registered office, the objects, the liability of members, the share capital, and (for a One Person Company) the nominee. Every act of a company must fall within the four corners of its memorandum; an act outside that boundary is ultra vires and void, incapable of being saved even by the unanimous assent of the shareholders. This chapter sets out the statutory scheme of Section 4, the function and limits of each clause, the doctrine of ultra vires from Ashbury v Riche to Lakshmanaswami Mudaliar, the contrast with the articles of association, and the machinery of alteration under Section 13.

The memorandum is the second of the two constitutional documents a company must file at incorporation under Section 7. It is best read alongside our chapters on the nature of a company and the key statutory definitions, because the memorandum is where the abstract idea of a body corporate with separate legal personality and perpetual succession is converted into a concrete, registered, public instrument.

What the memorandum is

The memorandum sets out the structure of the company and may be termed its foundational stone. It states the constitution of the company and the boundary of its powers: the company must act within the scope of its memorandum, and any act beyond that scope is ultra vires and therefore void. The classic statement is that of the House of Lords in Ashbury Railway Carriage and Iron Co Ltd v Riche, (1875) LR 7 HL 653, where Lord Cairns observed that the memorandum is, as it were, the area beyond which the action of the company cannot go; it states affirmatively the ambit and extent of the vitality and powers which the law confers on the corporation, and negatively that nothing shall be done beyond that ambit.

The memorandum serves a twofold purpose. First, it protects the prospective shareholder, who learns from it the precise field in which his money will be employed and can gauge the risk before investing. Second, it protects those who deal with the company, who can ascertain from the public record whether a proposed contract is within the company's objects and powers. The memorandum is, in this sense, a document addressed to the outside world as much as to the members — a feature that underpins the doctrine of constructive notice discussed below.

Statutory definition and form

Section 2(56) defines "memorandum" to mean the memorandum of association of a company as originally framed, or as altered from time to time in pursuance of any previous company law or of this Act. The definition is deliberately framed to capture both the original instrument and every subsequent amendment, so that the "memorandum" at any given moment is the document as it then stands.

Section 4(6) requires that the memorandum be in the respective form set out in Tables A to E of Schedule I, as may be applicable to the company — Table A for a company limited by shares, Table B for a company limited by guarantee and not having a share capital, Table C for a company limited by guarantee and having a share capital, Table D for an unlimited company not having a share capital, and Table E for an unlimited company having a share capital. Section 4(7) provides that any provision in the memorandum or articles of a company registered or to be registered which is contrary to the Act shall, to the extent of the repugnancy, be void.

The substantive contents are prescribed by Section 4(1). The memorandum of a company shall state: (a) the name of the company; (b) the State in which the registered office is to be situated; (c) the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof; (d) the liability of members, whether limited or unlimited; (e) in the case of a company having a share capital, the amount of authorised capital and its division into shares of a fixed amount, with the number of shares each subscriber agrees to take; and (f) in the case of a One Person Company, the name of the person who, on the death or incapacity of the subscriber, shall become the member. These are conventionally described as the name clause, the situation (or registered office) clause, the objects clause, the liability clause, the capital clause and the subscription (or association) clause.

The name clause

A company is a legal person and, like a natural person, must have a name by which it is identified. Section 4(1)(a) requires the memorandum to state the name, with "Limited" as the last word in the case of a public limited company and "Private Limited" as the last words in the case of a private limited company. The requirement is dispensed with for companies licensed under Section 8 — non-profit companies formed to promote commerce, art, science, charity and the like, which may omit the word "Limited" altogether.

Section 4(2) restricts the choice of name. No company is to be registered with a name that, in the opinion of the Central Government, is undesirable, and in particular a name that is identical with or too nearly resembles the name of an existing company, or that constitutes an offence under any law, or that is undesirable. Section 4(3), read with the Companies (Incorporation) Rules, 2014, further bars a name that gives an impression of connection with, or patronage of, the Central or a State Government, a local authority, or any body constituted under a Central or State Act, and a name containing reserved words or expressions unless the prescribed approval is obtained. The policy is to prevent deception of the public and passing off, the company-law analogue of the protection a trader enjoys at common law against the misappropriation of business reputation.

Reservation of name — Section 4(5)

Section 4(4) permits a person to apply to the Registrar for the reservation of a name, either for a company proposed to be incorporated or for a change of name of an existing company. Section 4(5)(i) provides that, on the basis of the information and documents furnished, the Registrar may reserve the name for a period of twenty days from the date of approval in the case of a new company, or sixty days from the date of approval where an existing company applies to change its name. (The original 2013 text had spoken of sixty days "from the date of the application"; the period and trigger were rationalised by later amendment, and the figure of twenty days for fresh incorporations is the position to carry into the examination hall.)

Section 4(5)(ii) supplies the consequence of a name reserved on wrong information. Where, after reservation, it is found that the name was applied for by furnishing wrong or incorrect information, then if the company has not been incorporated, the reserved name is cancelled and the applicant is liable to a penalty which may extend to one lakh rupees. If the company has already been incorporated, the Registrar may, after giving the company an opportunity of being heard, either direct it to change its name within three months by ordinary resolution, or strike its name off the register of companies, or make a petition for its winding up. The graded response reflects the practical reality that an incorporated company cannot simply be denamed; it must be steered to a lawful name or removed.

The registered office clause

Section 4(1)(b) requires the memorandum to state only the name of the State in which the registered office is to be situated, not the precise address. The exact address is supplied later. Section 12(1) requires a company, within thirty days of its incorporation and at all times thereafter, to have a registered office capable of receiving and acknowledging all communications and notices addressed to it. Section 12(2) requires the company to furnish to the Registrar verification of its registered office within thirty days of incorporation.

The registered office is the company's legal domicile: it determines the jurisdiction in which the company is registered, the Registrar to whom returns are filed, and the place at which documents may be served. The clause is therefore of more than formal significance — it anchors the company within the federal scheme of company administration, which is why a shift of the registered office from one State to another is treated as a substantive alteration of the memorandum requiring Central Government approval under Section 13(4), discussed below.

The objects clause

The objects clause is the doctrinal heart of the memorandum. Section 4(1)(c) requires the memorandum to state the objects for which the company is proposed to be incorporated, and any matter considered necessary in furtherance thereof. The company cannot diversify its activities beyond the objects so stated, and the objects must not be illegal or contrary to the provisions of the Act.

The 2013 Act made a deliberate structural change here. Under the Companies Act, 1956, the objects clause of a public company had to be split into three parts — the "main objects", the "objects ancillary or incidental to the attainment of the main objects", and the "other objects". The 2013 Act abolished this three-fold division. A company now simply states its objects and any matter considered necessary in furtherance thereof, a simpler and more flexible formulation. The change matters for the examination because the old "main / ancillary / other objects" terminology, though still found in many older memoranda, is no longer a statutory requirement.

The drafting of the objects clause is constrained by the rule of construction in Cotman v Brougham, [1918] AC 514, where the objects clause ran to thirty sub-clauses and contained an "independent objects" provision directing that each sub-clause be read as a separate and independent object and not as merely ancillary to the first. The House of Lords, while deprecating the prolixity of such clauses, held the independent-objects declaration valid and binding: the court must read the memorandum as it stands and give effect to the parties' express direction. The decision explains why memoranda historically grew so long — draftsmen, fearing the ultra vires axe, listed every conceivable object and added an independent-objects clause for safety.

The doctrine of ultra vires

The doctrine of ultra vires is the legal consequence of the objects clause. It provides that an act which is beyond the scope of the objects clause is ultra vires the company and void; neither the company nor the contracting party can enforce it. The doctrine was enunciated in Ashbury Railway Carriage and Iron Co Ltd v Riche, (1875) LR 7 HL 653. The company's objects were to make and sell, or lend on hire, railway carriages and wagons and all kinds of railway plant, to carry on the business of mechanical engineers and general contractors, and to deal in timber, coal, metals and other materials. The directors contracted with Riche to finance the construction of a railway line in Belgium and then repudiated the contract as ultra vires. Riche argued the contract fell within "general contractors".

The House of Lords rejected the argument. "General contractors" had to be read down, applying the ejusdem generis principle, to mean contracts connected with the business of mechanical engineering; read literally it would have authorised the company to undertake any contract whatsoever, rendering the objects clause meaningless. The contract being outside the objects, it was ultra vires and void. The decisive proposition for the examination is that an ultra vires contract cannot be ratified even by the assent of the whole body of shareholders: to permit ratification would defeat the very purpose of compulsory registration of the memorandum and the protection it affords to creditors and to those who invest in or deal with the company.

The doctrine has practical effects worth noting. An ultra vires contract is void ab initio, so no rights accrue under it to either side. Property acquired under an ultra vires transaction may nonetheless belong to the company, and an ultra vires borrowing, while not creating a debt enforceable against the company, may entitle the lender to be subrogated or to trace his money. The rigour of the doctrine — which could trap an innocent outsider who failed to scrutinise the memorandum — has been progressively softened in modern company law, but for Indian judiciary and CLAT-PG purposes the Ashbury rule remains the doctrinal anchor and the starting point of every answer on the objects clause.

Ultra vires in India — Lakshmanaswami Mudaliar

The Indian application of the doctrine is found in Dr A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185. At an extraordinary general meeting of the United India Life Assurance Co Ltd, the shareholders passed a resolution sanctioning a donation of two lakh rupees to a trust to be formed for the promotion of technical and business knowledge. The objects of the company did not authorise the making of such a donation. The Supreme Court held the donation ultra vires and void: it was beyond the company's objects, and the fact that the shareholders had sanctioned it could not validate an act outside the memorandum. The directors who had authorised the payment were held personally liable to make good the amount to the company.

The decision is doctrinally important for two reasons. It confirms that the Ashbury rule — including the bar on ratification by unanimous shareholder assent — is part of Indian company law. And it draws the sharp line between acts ultra vires the memorandum, which are void and cannot be ratified, and acts merely beyond the powers conferred by the articles of association or beyond the authority of the directors, which the company can ratify in general meeting. The distinction recurs constantly in examination questions: ultra vires the company is incurable; ultra vires the articles or the directors is curable by ratification.

The liability clause

Section 4(1)(d) requires the memorandum to state the liability of the members, whether limited or unlimited. The clause is the formal expression of the principle of limited liability that distinguishes the registered company from the partnership. In a company limited by shares, the liability of a member is limited to the amount, if any, unpaid on the shares held by him; once the shares are fully paid, the member has no further liability for the debts of the company. In a company limited by guarantee, the liability is limited to the amount each member undertakes to contribute to the assets of the company in the event of its winding up. In an unlimited company, the members' liability is, as the name implies, without limit.

The liability clause must be stated even by a Section 8 company that is exempt from using the word "Limited" in its name, because the exemption from the name requirement does not dilute the underlying limitation of liability. The clause works hand in hand with the principle of separate legal personality: it is precisely because the company is a distinct juristic person, and the members are not, that the members' exposure can be confined to their shareholding or guarantee. The exceptional cases in which the corporate veil is lifted — fraud, the determination of enemy character, the evasion of tax or legal obligation — are taken up in our chapter on the nature of the company.

The capital and subscription clauses

Section 4(1)(e) requires a company having a share capital to state in its memorandum the amount of the authorised (or nominal) share capital with which it is to be registered, and its division into shares of a fixed amount. The authorised capital is the ceiling on the capital the company may raise by the issue of shares; it cannot be exceeded without an alteration of the capital clause. The figure also fixes the registration fee payable. The relationship between the authorised, issued, subscribed, called-up and paid-up capital is developed in the chapters on share capital, but the memorandum is concerned only with the authorised figure.

The subscription clause, sometimes called the association clause, is the operative part by which the company is brought into existence. The subscribers declare that they are desirous of being formed into a company in pursuance of the memorandum and agree to take the number of shares set against their respective names. Each subscriber must sign the memorandum and write opposite his name the number of shares he takes, and the signature must be attested by at least one witness. Section 4(1)(e) requires that the memorandum be subscribed by the requisite number of persons — seven in the case of a public company, two in the case of a private company, and one in the case of a One Person Company, mirroring the formation thresholds in Section 3.

For a One Person Company, Section 4(1)(f) adds a distinctive requirement: the memorandum must name the individual who, in the event of the subscriber's death or his incapacity to contract, shall become the member of the company. The written consent of that nominee must be filed with the Registrar at incorporation. The provision solves the structural problem of perpetual succession in a one-member company — without a named successor, the death of the sole member would leave the company without a member.

Memorandum versus articles

The memorandum must be distinguished from the articles of association, defined in Section 2(5) and governed by Section 5. The memorandum is the dominant instrument; the articles are subordinate to it. The memorandum lays down the constitution, the objects and the scope of the company's powers — its relationship with the outside world — while the articles are internal regulations governing the management of the company and the rights of the members inter se. In Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, the Court explained that the memorandum contains the conditions on which the company is incorporated, whereas the articles prescribe the manner in which the objects of the company are to be carried out.

Three consequences follow from the hierarchy. First, in case of conflict between the memorandum and the articles, the memorandum prevails. Second, an act ultra vires the memorandum is void and cannot be ratified, while an act merely beyond the articles can be ratified by the company by special resolution. Third, the articles must be read subject to the memorandum and cannot enlarge the company's powers beyond those the memorandum confers; the articles may restrict the company's powers further, but they cannot expand them. The two documents, taken together, form the constitution of the company, and both are filed at incorporation under Section 7.

Constructive notice of the memorandum

The memorandum and the articles, once registered, become public documents open to inspection by any person on payment of the prescribed fee. From this flows the doctrine of constructive notice: every person dealing with the company is deemed to have notice of the contents of its memorandum and articles, whether or not he has actually read them. A person who contracts with the company in a manner inconsistent with the memorandum — for instance, on a transaction outside the objects clause — cannot plead ignorance, because he is presumed to know what the public record contains.

The doctrine of constructive notice is a double-edged protection. It protects the company against outsiders who deal with it in disregard of its public constitution; but, because it can work harshly against an innocent third party, it is tempered by the doctrine of indoor management — the rule in Royal British Bank v. Turquand — under which an outsider who has satisfied himself that the transaction is consistent with the memorandum and articles is entitled to assume that the company's internal procedures have been duly complied with. The interaction of the two doctrines is examined in detail in our chapter on the doctrine of constructive notice and indoor management, and the related question of a company's contractual capacity in the chapter on the object clause and the ultra vires doctrine.

Alteration of the memorandum — Section 13

Section 13 governs the alteration of the memorandum and reflects the principle that, while the memorandum is the company's charter, it is not immutable; it may be altered, but only by the procedure the statute prescribes for each clause. The general rule in Section 13(1) is that a company may alter the provisions of its memorandum by a special resolution and by complying with the procedure specified in the section.

Certain alterations attract additional safeguards. A change of name under Section 13(2) does not take effect unless it is approved in writing by the Central Government (a power now exercised by the Registrar through delegation), and on a change of name the Registrar enters the new name and issues a fresh certificate of incorporation; until then the change is ineffective. A change of the registered office from one State to another is the most heavily regulated: Section 13(4) provides that such an alteration shall not take effect unless it is approved by the Central Government on an application, and Section 13(5) requires the Central Government to dispose of the application within sixty days, after satisfying itself that the alteration has the consent of the creditors, debenture-holders and other persons concerned, or that sufficient provision has been made for the discharge of the company's debts and obligations. On approval, a certified copy of the order is filed with the Registrar of each State, and the Registrar of the State to which the office is shifted issues a fresh certificate of incorporation.

The objects clause may be altered by special resolution, but Section 13(8) imposes a special safeguard where the company has raised money from the public through a prospectus and still has unutilised amounts: such a company cannot change its objects unless a special resolution is passed and a notice of the resolution, with prescribed disclosures, is published and dissenting shareholders are given an exit opportunity in accordance with the regulations made by the Securities and Exchange Board of India. The capital clause is altered not under Section 13 but under Section 61 (alteration of the capital clause — increase, consolidation, sub-division, conversion or cancellation) read with Section 64 (notice to the Registrar of alteration of share capital). The liability clause of a company limited by guarantee cannot ordinarily be altered to impose further liability on existing members. Section 13(9) requires the Registrar to register any alteration of the memorandum and certify the registration within a stipulated period, and Section 13(10) provides that no alteration takes effect until it has been so registered.

MCQ angle — the recurring distinctions

Several propositions recur in prelims with high frequency. First, the six clauses of the memorandum under Section 4(1) — name, registered office (State), objects, liability, capital, and the One Person Company nominee — must be remembered in order, with the subscription/association clause as the operative seventh element on the face of the document. Second, the doctrine of ultra vires from Ashbury v Riche: an act outside the objects clause is void and cannot be ratified even by all the shareholders, applied in India in Lakshmanaswami Mudaliar. Third, the curable/incurable distinction: ultra vires the memorandum is incurable; ultra vires the articles or the directors is curable by ratification.

Two further distinctions are worth carrying forward. The name reservation period under Section 4(5) is twenty days from approval for a fresh incorporation and sixty days for an existing company changing its name. And the alteration regime under Section 13 grades the difficulty by clause: ordinary alterations by special resolution; change of name needs Central Government approval and a fresh certificate; shift of registered office between States needs Central Government approval after a creditor-protection inquiry; and the capital clause is altered separately under Section 61. The memorandum is the document the examiner returns to again and again because it is where the abstract attributes of corporate personality — explored in our Companies Act hub — are made concrete, registered and enforceable.

Frequently asked questions

What are the clauses required in a memorandum of association under Section 4?

Section 4(1) of the Companies Act, 2013 requires the memorandum to state six matters: the name of the company (with 'Limited' or 'Private Limited' as the last word, unless exempted under Section 8); the State in which the registered office is to be situated; the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof; the liability of members, whether limited by shares, limited by guarantee, or unlimited; the amount of authorised share capital and its division into shares of a fixed amount; and, in the case of a One Person Company, the name of the nominee who will become the member on the subscriber's death or incapacity. These are conventionally called the name, situation, objects, liability, capital and subscription (or association) clauses.

What did Ashbury Railway Carriage and Iron Co v Riche decide?

In Ashbury Railway Carriage and Iron Co Ltd v Riche, (1875) LR 7 HL 653, the House of Lords laid down the doctrine of ultra vires. The company's objects clause authorised it to make and sell railway carriages and to act as mechanical engineers and general contractors. The directors contracted to finance the construction of a railway line in Belgium. The Lords held the contract void as ultra vires the memorandum — 'general contractors' had to be read down to contracts connected with mechanical engineering. Crucially, the contract could not be ratified even by the unanimous assent of all shareholders, because ratification would defeat the protection that compulsory registration of the memorandum affords creditors and investors.

How long is a reserved company name valid under Section 4(5)?

Under Section 4(5)(i), as amended, the Registrar may reserve an approved name for a period of twenty days from the date of approval for a new company seeking incorporation, or sixty days from the date of approval where an existing company applies to change its name. If, after reservation, it is found that the name was obtained by furnishing wrong or incorrect information, then under Section 4(5)(ii) the consequences differ: if the company is not yet incorporated, the reserved name is cancelled and a penalty up to one lakh rupees is payable; if it is already incorporated, the Registrar may, after a hearing, direct a change of name, strike the company off the register, or petition for its winding up.

Can an ultra vires act be ratified by the shareholders?

No. An act that is ultra vires the memorandum is void ab initio and cannot be ratified even by the unanimous consent of the whole body of shareholders. This was settled in Ashbury v Riche and applied in India by the Supreme Court in Dr A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, AIR 1963 SC 1185, where a shareholder-sanctioned donation of two lakh rupees to a charitable trust was held void as beyond the company's objects, and the directors who authorised it were held personally liable to refund the amount. The position is distinct from an act that is merely ultra vires the articles (or the directors' powers), which the company in general meeting can ratify.

What is the difference between the memorandum and the articles of association?

The memorandum is the company's charter — it defines its constitution, the scope of its powers, and its relationship with the outside world; the articles are subordinate internal regulations governing management and the rights of members inter se. The point was put by the Court in Guinness v. Land Corporation of Ireland, (1882) 22 Ch D 349, that the memorandum contains the conditions on which the company is incorporated while the articles prescribe how its objects are to be carried out. In a conflict the memorandum prevails; an act ultra vires the memorandum cannot be ratified, whereas an act merely beyond the articles can be ratified by special resolution. Both are public documents and attract constructive notice.

How is the memorandum altered under the Companies Act, 2013?

Section 13 governs alteration. As a general rule a company may alter any clause of its memorandum by special resolution and filing with the Registrar. Two alterations need more. A change of name takes effect only with the written approval of the Central Government (now the Registrar/RD by delegation) and a fresh certificate of incorporation; and a shift of the registered office from one State to another does not take effect unless approved by the Central Government under Section 13(4), which must satisfy itself that creditors and others concerned have consented or been secured. The capital clause is altered under Section 61 (read with Section 64), and the objects clause alteration carries special safeguards where the company has raised money from the public through a prospectus and has unutilised amounts.