The first step in the formation of a company is to prepare a document called the memorandum of association. This document contains the constitution of the company. It has to be divided into five clauses. It has to be in any of the forms specified in tables A to E in schedule 1.
- Name Clause:
The first clause of the memorandum states the name of the proposed company. The name should not be such as, in the opinion of the central Government, is undesirable. Generally, a name is undesirable when it is identical with or too nearly resembles, the name of another company. The name should not mislead as to the nature of the company’s business. Or its scale. The name should not indicate connection with or patronage of Government. The name should not be such that its use by the company will be an offence under any law. If the company is with limited liabilities the last word of the name should be “limited” and in the case of a private company “private limited”. This informs person contracting with the company that the liabilities of its members are limited.
- Registered office clause:
The second clause of the memorandum states the state in which the registered office of the company shall be situated. After incorporation the exact address of the registered office of the company should be sent to the registrar.
- Object Clause:
The third clause states the objects of the proposed company and any matter considered necessary in furtherance of the objects. The company carries on business with other people’s money and therefore the investor must be informed of the objects in which their money is going to be employed. People are more willing to invest in one kind of object than in others. Secondly, the creditors of the company are paid out of the company’s assets and they feel protected when they know that the assets can be used only for the authorized objects.
- Liability Clause:
The fourth clause has to state the nature of liability that the members incur. The clause will state whether the liability of the member is to be limited and if so whether limited by shares or by guarantee, or unlimited.
- Capital Clause:
The last clause states the amount of capital with which the company is proposed to be registered and the kinds, number and value of shares into which the capital is to be divided The memorandum concludes with the subscribers declaration that they desire to be formed into a company.In case of one person company the memorandum has to state the name of the person who in the death of the subscriber , is to become the member of the company
- Company Law – Avtar Singh – Eastern Book Company
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