It contains rules regarding constitution and activities or objects of the company. It is a fundamental charter of the company. Company is governed by Memorandum of Association. Its relations with the members and outsiders are determined by association. The company is allowed to function within the framework of Memorandum of Association.
According to section 13 of companies Act it contains;
(i) “Name of the company with ‘limited’ as the last word of the name in case of a public company and “Private Limited” as the last word of the name in case of a private company,
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(ii) Registered office
(iii) Objects of the company,
(iv) Liability of member
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(v) Details of share capital of the company
(v) Subscription of or Association Clause.
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Articles of Association:
Article mean Articles of Association of company as originally framed or as altered from time to time in pursuance of any previous Companies Law or of this Act. “The Articles contain rules and regulation for the internal management of the company subject to provisions of the company’s Act.” Articles contain rules and regulations for the company.
Any stipulation as to the relations between the company and its members and between members interse is inserted into the Articles. The provisions in the Articles must not however conflict with provisions of the companies Act.
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Articles should contain provisions relating to the following among other matters.
1. Share Capital and alternation thereof.
2. Payments, call, transfer.
3. Share Certificates, shareholder’s rights.
4. Meeting of the company.
5. Appointment, remuneration, qualification, power of Board of Directors.
6. Account and Audit.
7. Dividend.
8. Indemnity and winding up of company and who will be Members of the company.
The subscribers to memorandum of the company will become members of the company. Person holding unity share capital of the company and whose name is entered as beneficiary in the records of the depository and whose name is entered in its register of members shall be the member of the company.
Membership ceases by transfer of shares, forfeiture of shares and surrender of shares, by sale of shares or by insolvency, by death, when the company redeems its redeemable preference shares or issue share warrants instead of share certificate or in the event of winding up of the company.
A company can raise capital by issue of shares. Share capital of the company is classified as:
(a) Authorised Capital,
(b) Issued Capital
(c) Subscribed Capital
(d) Paid up Capital and
(e) Un-called Capital.
With this capital company’s registered. It comprises of total face value of the shares in a company. It is also called total or Nominal Capital” of the company. The total amount of the Authorised capital is mentioned in the memorandum of the company. The company issues shares to the extent of its requirement.
This is called issued capital. That part of the issued capital which is agreed to be taken back by the public is called subscribed capital and the amount actually paid up by the subscribers towards capital accepted by them is called paid up capital.
The company may not require the full amount of subscribed capital. It may call up only part of the capital subscribed and that part which has not called up the remainder of the subscribed capital is called uncalled capital.
Article 370 of the company’s Act provides for norms of taking loans. Loan means deposit of money. All loans are taken subject to the approval of central government. Company issue debentures by taking loans.
Debentures may be in the form of debenture bonds, stocks and any other securities of a company, whether constituting a charge on the assets of the company or not. No company shall issue any debentures carrying voting rights at any meeting of the company, whether general or in respect of particular classes of business. Debentures may be converted into shares. After a debenture is converted into share it does not yield interest but gets dividend according to the decision of the company.
A company collects Deposit of money from people or other sources from approval of R.B.I.
Companies call general meetings (i) statutory meeting (ii) Annual general meeting (iii) Extraordinary General meetings. There are also Class Meetings; Meetings of creditor and debenture holders, Meeting of Directors or Board meeting, matters in the company are decided by resolutions in a meeting. Authorities to directors or any other person are also given by resolutions. A resolution is put in the house for discussion and deliberations.
Every company shall keep at its registered office proper books of account with respect to (i) all sums of account with respect to (i) all sums of money received and spent (ii) all sales and purchases of goods by the company (iii) all assets and liabilities of the company (iv) in the case of a company pertaining to any class of companies engaged in production, processing manufacturing or mining.
The Companies Act also provides rules for the constitution of Board of Directors, Number of Directors, Role of Directors, and Retirement of directors or Disqualification of director. From 1-6-1988, every public company or a private company which is a subsidiary of a public company, having paid-up capital of Rs five crores or more shall have a managing or whole time director or a manager.
According to Section 285 of the Act, a meeting of Board of Directors is called at least once in every three months and at least four such meetings shall be held every year. However, this clause is relaxable under the permission of central government. The quorum of a Board meeting is one third of total strength or two members whichever is higher. Quorom means minimum number of members required to hold a meeting.
The powers of Board of Directors have two aspects (i) general power (ii) powers to be exercised only at Board Meetings.
The Board is not supposed to do anything which is to be exercised or done by company in the general meeting.
The Board of directors enjoys following powers such as the power to make calls on shareholders in respect of money unpaid on their shares, the power to issue debentures, the power to borrow money other than on debentures, the power to invest the funds of the company and power to make loans.
Board of the company cannot sell, lease or dispose of the whole or part of the company, or remit or give time for repayment of any debt due to company by a director except in the case of renewal or continuation of advance made by a banking company to its director in the ordinary course of business.
According to Article 372 of the Company’s Act, the aggregate of investments made by the Board in all other bodies corporate shall not exceed 30 percent of the subscribed capital of the company. The aggregate of the investment made in all other bodies corporate in the same group shall not exceed 20 percent of the subscribed capital of the investing company.
A body Corporate is deemed to be in the same group as the investing company. A company may also be used for unlawful activities. It may be necessary to find who controls the company. This is called, “Lifting or piercing of the corporate veil.”
A company will cease to exist if it transfers its undertakings to another. Company under a scheme of reconstruction or amalgamation so it may be dissolved without winding up. The name of the defunct company may be removed from the Register of companies by the registrar.
A company may be winding at the instance of members of its creditors or under the supervision of the court. For voluntary winding up a declaration is necessary after a resolution of Board to this effect. At the instance of the members a liquidator may be appointed and he assumes charge of the company and its affairs. There are two principal modes of winding up viz. winding up by court and voluntary winding up.
A company may be compulsorily wound up by special resolution ordered by court, if there is defaults in submitting statutory report, if the company fails to start business within a year from its incorporation, if court views such winding up is just and equitable.
The company Law Board administers the principle of company’s Act. Company Law Board has Regional Directors at Kolkata, Mumbai, Chennai and Kanpur. Below the Regional Directors there are Registrars who collect documents related to companies. They ensure proper functioning of company. They scrutinise contents of the returns to determine whether they have complied with the structure of the law.
Company’s Act forms the basis of the operation of Indian Corporate. It is an important as well as vital law for determining corporate decision-making process in the country.