Legal Aspects of Business

Legal Aspects of Business

Law is a set of rules regulating conduct of individuals in their dealing with other individuals and with the government. Business law, commercial law and mercantile law is synonymous.

Legal Aspects of Business

Contents: 1. Indian Contract act 2. Indian Sale of Goods Act 3. Salient features of companies act 4. Restrictive & unfair trade practices 5. Salient features of negotiable instruments act.

Company Law The Companies Act1956

Contents: 1. Characteristic of a company 2. Formation of a company 3. Types of companies 4. Management of Company

Case
Mr. Saloman was running a shoe business in England as a sole proprietor.He formed a company known as Saloman & Co.It consisted of Saloman himself , his wife, his four sons and a daughter. The company ran into financial trouble and went into liquidation within an years time.The realised amount from winding up was 9000 . The company owed 10000 to Mr. Saloman (Debenture holder) and 10000 to unsecured creditors.The entire realised amount was given to Mr. Saloman . The unsecured creditors moved the court claiming that Mr Saloman and the company was same entity but lost the case .Discuss the reasons for failure.

Solution Format
Name of the act and the year The problem and the characterization Solutiona) Theoretical content from the act b) Explanation

Company Law The Companies Act1956

COMPANY: Section 3(1)i of the companies act ,1956 defines a company as A company means a company formed and registered under this act or an existing company.

Company Law The Companies Act1956

Meaning of company in general termsA company is a form of business organization in which the funds of a large number of investors are managed by a few persons for the purpose of earning profits which are shared by all the investors.

CHARACTERISTICS OF A COMPANY
1. 2. 3. 4. 5. 6. 7. 8. 9. Registered Distinct person- Separate legal entity Perpetual succession Artificial person but not a citizen Transferable shares Limited liability Common seal Separate property Capacity to sue and be sued

CHARACTERISTICS OF A COMPANY
1. Registered : a company should be compulsory registered under companies act. 2. Distinct person- Separate legal entity: A company is a distinct person possessing its own identity and independent from its members. 3. Perpetual succession: A company incorporated never dies .Its owners come and go but the company remains the same entity forever. The death of or insolvency of the member does not affect the corporate existence of the company.

CHARACTERISTICS OF A COMPANY
4. Artificial person but not a citizen: The company is an artificial person .It functions through its board of directors but it is not a citizen of the country. The company cannot enjoy the fundamental rights of the country. 5. Transferable shares: A company s shares are easily transferable. The shares , debentures are movable property of the company. 6. Limited liability: Any person can participate in the share capital of an incorporated company and limit his liability to the extent of participation.

CHARACTERISTICS OF A COMPANY
6. Common seal: The company has a separate legal existence under its own common seal. 7. Separate property: The company being a distinct and legal personality can own , enjoy and dispose off property in its own name. The shareholders are not the owners of the companys property even if they have contributed to the capital and assets. 8. Capacity to sue and be sued: a company can sue and be sued in its corporate name.

PARTNERSHIP
1. A partnership is created by agreement which may be express or implied from the conduct of the partners and is subject to the Indian Contract Act and the Indian Partnership Act. No special form is required . A partnership is not a legal though it may sue and be sued in the firms name. Thus the partners own the property of the firm and are liable for the contracts of the firm jointly as well as severally. A partner can transfer his shares in the firm , but the assignee does not thereby become a partner and is merely entitled to the assigning partners share of the profits.

COMPANIES
1. A company is created by registration under the Companies Act., though partnerships articles are usually written.
A company is an artificial legal person with perpetual succession. Thus a company may property , make contracts and sue and be sued. It is an entity distinct from its members. Shares in a company are freely transferable unless the companys constitution otherwise provides; restrictions may , of course , appear in the articles of a private company

2.

2.

3.

3.

PARTNERSHIP
4. A partnership cannot consist of more than 20 persons (10 persons in case of banking business). 5. Partners are entitled to share in the management of the firm unless the articles provide otherwise. 6. The liability of a partner is unlimited.

COMPANIES
4. A private company must have at least two members and maximum 50 members. 5. Members of a company are not entitled to take part in the management of the company unless they become directors. 6. The liability of a member of a company may be limited by shares or by guarantee.

PARTNERSHIP
7. Partners may carry on any business as they please so long as it is not illegal and make whatever arrangements they wish with regard to the running of the firm from time to time. 8. A partnership may be dissolved by any partner at any time unless the partnership is entered into for a fixed period of time. A 8. 7.

COMPANIES
The affairs of accompany are closely controlled by the Companies Act, 1956 and the company can only operate within the objects laid down in the memorandum of association, though these can be altered to

some extent by
special resolution. No one member of a company

partnership is also dissolved by

the death or bankruptcy of a partner.

can wind up the company, and

the death, bankruptcy or insanity of a member does not mean that the company must be wound up.

Types of Companies

Type 1

Basis of incorporation Basis of liability

Type 2

Type 3

Basis of control

Unlimited company
Limited by shares

Limited by guarantee

On the basis of Liability

KINDS OF COMPANIES
Limited liability companies may also be classified as: I. Companies limited by shares II. Companies limited by guarantee III. Companies limited by guarantee as well as shares.

KINDS OF COMPANIES
I. Companies limited by shares: It is a registered company having the liability of its members limited by its memorandum of association to the amount , if any, unpaid on the shares respectively held by them. The shareholder is not asked to pay more than the amount remaining unpaid on the shares. His personal assets are not called for the payment of liability of the company. Authorised capital Issued Capital Subscribed capital Paid up capital

KINDS OF COMPANIES
II. Companies limited by guarantee: It is a registered company having the liability of its members limited by its memorandum to the amount , contributed to the assets of the company in the event of being wound up. Such situation comes only when the liabilities of the company exceeds assets.

KINDS OF COMPANIES
III. Companies limited by guarantee as well as shares: It is a registered company having the liability of its members limited to the unpaid share capital and guarantee i.e. the amount , contributed to the assets of the company in the event of being wound up.

KINDS OF COMPANIES
IV. Unlimited Company: A company not having any limit on the liability of its members . In the event of being wound up the members are liable to the full extent to meet the obligations of the company. The members are not liable to the companys creditors. If the creditors cannot obtain the payments from the company, they may petition the court for winding up of the company. The liquidator will then call upon the members to contribute to the assets of the company.

Chartered

Registered

Statutory

On the basis of Incorporation

KINDS OF COMPANIES
Chartered companies: A company incorporated under a special charter granted by the king or queen of England is called Chartered Company. A chartered company is regulated by its charter and the companies act does not apply to it. The charter describes the nature and powers of the company.The examples are East India company.

KINDS OF COMPANIES
Statutory companies: These companies are formed under the special statutory act of the parliament. For example: RBI, SBI, Industrial Finance Corporation , LIC. These companies are mostly public undertakings and are formed with the main objective of public utilities and not for profit. Any change in the working of these companies are regulated by parliament or legislative amendments only. Companies act 1956 also applies to these companies if its provisions are not inconsistent.

KINDS OF COMPANIES
Registered companies: Companies registered under companies act 1956 comes under this category. For eg: private limited companies and public limited companies. The act provides variety of companies to be promoted and registered under the act. The two common types area) Private company b) Public company. These companies are incorporated either as limited liability company or as unlimited liability company.

KINDS OF COMPANIES
1. Private Companies: Section 3(1)(iii) states a private company means a company which has a minimum paid up capital of one lakh rupees or such higher paid up capital prescribed by its articles: a) Restricts the right to transfer its shares. b) Limits the number of its members to 50 , not includingi) Present employees who are members. ii) Two or more person who own one or more share of the company jointly. iii) Past employees who are members.

KINDS OF COMPANIES
1. Private Companies: c) Prohibits invitation to the public to subscribe for any shares in or debentures of the company. - No. of debenture holders may exceed 50 and issuance of debentures can be done only invitation to the public cannot be made. d)Prohibits any invitation or acceptance of deposits from persons other than its members , directors or their relatives. Only the persons who are approached are invited ,no public display or invitation is done.

KINDS OF COMPANIES
1. Private Companies: e) Two years time is given to enhance the paid up capital to 1 lakh if it fails to enhance its aid up capital it will be deemed to be defunct and shall be struck off from the register of registrar of companies. f) Minimum number of members : Atleast two , to form a private company. g) The use of private limited (Pvt Ltd) must be added at the end of the name of the company.

KINDS OF COMPANIES
1. Public company: Section 3(1)(iv) states a public company means: a) a company which has a minimum paid up capital of five lakh rupees or such higher paid up capital prescribed by its articles. b) Is not a private company c) Private company which is a subsidiary of public company.

PRIVATE COMPANY
1. MEMBERS: Minimum number in a private company are 2 and maximum are 50. TRANSFER OF SHARES: Transfer of shares are strict and regulated by article. PUBLIC INVITATION: Public invitation to subscribe to its share capital is not done. NAME: The use of private limited company is must. NUMBER OF DIRECTORS: It has minimum 2 directors. PAID UP CAPITAL: Minimum 1 lac. RESTRICTIONS ON APPOINTMENT OF DIRECTORS: No restrictions LOANS :Directors can borrow from the private company. 1.

PUBLIC COMPANY
MEMBERS: Minimum number in a public company are 7 and maximum are unlimited. TRANSFER OF SHARES: Shares in a company are freely transferable. PUBLIC INVITATION: The members are invited to subscribe to its share capital by public issue. NAME: The use of limited company is must. NUMBER OF DIRECTORS: It has minimum 3 directors. PAID UP CAPITAL: Minimum 5 lac. RESTRICTIONS ON APPOINTMENT OF DIRECTORS: Directors must file their consent to act as directors with the registrar. LOANS :Directors cannot borrow from the company.

2.

2.

3.

3.

4.

4. 5. 6. 7. 8.

5.
6. 7.

8.

CASELETS
1. An organization has 3 directors . One of the directors wants to take loan from the company is it possible , if yes then under which company. 2. A company is allowed to register with a paid up capital of 6 lacs. The company can raise the money from its close associates but restrictions are 50 members. Identify the status of the company.

CASELETS
3. An organization in the process of wound up has dues of 50 crores towards creditors. what is done in the process if the company is working on partnership pattern. 4. An organization is bound to have minimum paid up capital of 5lac, what would be the status of the company if the paid up capital is 4lacs after 2 years.

Government or non government

Foreign or domestic

Holding or subsidiary

On the basis of Control

KINDS OF COMPANIES
Government companies: Any company in which not less than 51% of the paid up share capital is held by the central government or by any state government or partly by central or state government is called government company. The auditors of a govt company shall be appointed by CAG(Comptroller and auditors general of India). The Annual report prepared within 3months of the companys AGM and accounts of the Government company are placed before both the houses of parliament.

KINDS OF COMPANIES
Association not for profit: These kinds of associations are formed not for making profits but for promoting commerce, art, science, religion, charity or any other useful social purpose. Such an association may or may not be registered under companies act. Sec .25 permits the registration under the license granted by the central government of Association not for profit with limited liability.

KINDS OF COMPANIES
Illegal Association with exceptions: No company , association or partnership consisting of more than 10 persons for the purpose of carrying on the business of banking and more than 20 persons for the purpose of carrying on any other business can be formed unless it is registered under the companies act.. If such an association is formed and not registered under either the companies act or any other law it will be regarded as illegal association although none of the objects for which it may have been formed is illegal.

KINDS OF COMPANIES
Illegal Association with exceptions: 1. Stock exchange 2. Associations not for profit making 3. Joint Hindu family

KINDS OF COMPANIES
Holding and subsidiary companies: When one company controls another company it is called holding company and company so controlled is termed as .subsidiary company. company may control another company by following ways: i. Where it controls the composition of BOD of another company ii. Where it controls more than half of the total voting power of another company. iii. Where it holds more than half of the nominal value of equity share capital of the other company iv. When the company S is a subsidiary of a company T , which in turn is a subsidiary of company H.

KINDS OF COMPANIES
Foreign company: A company incorporated outside India
is a foreign company-the companies act applies to foreign companies whicha. After 1st April 1956, establish a place of business within India. b. Before 1st April 1956, have established a place of business within India and continue to have an established place of business within India on 1st April, 1956. c. If not less than 51% of the paid up share capital of a co. incorporated outside India having an established place of business in India is held by one or more citizens or corporate bodies in India.

KINDS OF COMPANIES
Investment company: An investment company may be defined as a company whose principle business is the acquisition of shares, stock, debentures or other securities.

KINDS OF COMPANIES
Public financial institution:The following financial institutions shall be regarded for the purpose of companies act as public financial institution1. Industrial credit & investment corporation of India limited. 2. Unit trust of India 3. Industrial Development Bank of India 4. Industrial Finance Corporation of India

KINDS OF COMPANIES
Central government specifies other institutions to be a public financial institution by issuing a notification ;No institution may be specified unless: I. It has been established or constituted by or under central act. II. Not less than 51% of the paid up share capital of such an institution is held or controlled by the central government.

KINDS OF COMPANIES
Existing company:Existing companies means a company formed and registered under any of the previous companies laws specified below: a. Any act or acts relating to companies in force before the Indian companies act 1866 and repealed by the act. b. The Indian companies act , 1866 c. The Indian companies act , 1882 d. The Indian companies act , 1913 e. The registration of transferred companies ordinance, 1942

Formation and Incorporation of the Company

Promotion

Registration

Floatation

Commencement of Business

Formation and Incorporation of the Company

Promotion: The preliminary step taken for the purpose of registration and floatation of the company. The persons who assumes the task of promotion are called promoters. A promoter may be individual, association , partner or company. Promoter- Any individual , syndicate , association , partnership or a company which takes all the necessary steps to create and mould a company and set it going.

ACTIVITIES IN PROMOTION
Discovery of business idea Organization of resources Securing the cooperation of the required number of persons willing to associate themselves with the project Obtaining the consent of persons willing to act as first directors Appointing legal advisors Application for proposed name of the company Preparation of documents like MOA and AOA Filling of the necessary documents with the registrars for incorporation.

FORMATION AND INCORPORATION OF THE COMPANY

When Promotion begins and ends: The relationship between promoter and the company starts from the day floating of the company starts and continues upto the time the directors take over.

LEGAL POSITION OF THE PROMOTER

I. Duties of promoters II. Liabilities of promoters III. Legal position of promoters claim as to

expenses incurred and remuneration

LEGAL POSITION OF THE PROMOTER

I. Duties of promoters a. Not to make secret profit b. To make full disclosure to the company of all relevant facts c. To give benefits of negotiation of the company d. Duty of promoters towards future allottees.

Duties of promoters
A .Not to make secret profit:-A promoter cannot make any direct or indirect profit out of the promotion of the company . Secret profits are profits made and not disclosed to the company. The made profits are to be disclosed to either BOD or intended share holders. Remedies in case of secret profiti) Rescission :-If the promoter has made a secret profit on some transaction rescission must be made in reasonable time. ii) Recovery of secret profit:-To retain the property, paying no more than what the promoter has paid for it thus depriving him of his profit. The measure of damages in any situation will be the difference between the market value of the property and the contract price. iii) Suit for breach of trust:-Where the above remedies would be inappropriate the company may sue for breach of duty .

Duties of promoters
b. To make full disclosure to the company of all relevant facts:-The promoter is in fiduciary capacity he must make full disclosure of the personal interest in a transaction of the company. If the promoter makes a profit and not disclose, the company may either repudiate the contract or affirm the contract and recover the profits made by the promoter. Disclosure may be made to Board or the prospective shareholders. If the promoter makes a secret profit to recover secret profit two situations arisea)Where the promoter was not in a fiduciary position when he acquired the property but only when he sold it to the company.

Duties of promoters
b) Where the promoter was in a fiduciary position when he acquired the property and when he sold it to the company under following circumstancesi. Where the promoter bought property with a view to selling it to the company which he intends to promote. ii. Where the promoter resells to the company at an increased price, the property which he purchased after he commenced promotional activity. iii) Where a person is a promoter for acquiring the property for the company in the capacity of an agent.

Remedies to the situation where the promoter was in a fiduciary position when he acquired the property
1.Rescission of contract and if he has made some profit it may be recovered. 2. To retain the property paying no more than what the promoter has paid for it, Thus depriving of the profit. 3. Where the property has been altered so as to render rescission impossible and the promoter has already received an inflated price, the company can sue for breach of duty. The measure of damages would be the market price and the market value.

Duties of promoters
c)To give benefits of negotiation of the company:The promoter must pass on the benefits of any negotiation or agreement that he has carried on in the capacity of promoter to the company. d) Duty of promoters towards future allottees:-The promoters stand in a fiduciary position towards the future allottees of shares. The prospectus issued should contain all material facts and particulars and does not contain any misstatements.

Liability of promoter
Liability of promoter: A promoter is subject to liabilities under following conditionsa. Liability for not complying- A promoter may be held liable for noncompliance of the provisions of the section 56 of schedule. Section 56 explains the matters that should be stated and the reports that should be set out in the prospectus .The promoters may be held liable by the share holders. b. Liability for untrue statements- The promoter may be held liable for any untrue statement in the prospectus to a person who subscribes for shares or debentures on the faith of such prospectus. The liability of the promoter shall be limited to the original allottee of shares and would not exceed to subsequent allottees to compensate in the process of loss or damage.

Liability of promoter
c)Liability for issuing a prospectus which contains untrue statements:-The promoter can be held criminally liable if the prospectus issued by them contained mis statements. The punishments prescribed is imprisonment extending upto 2 years or fine upto Rs. 50,000 or both. d)Liabilities for public examination:-In the event of winding up of the company the liquidators report alleges a fraud in the promotion or formation of the company , the promoter can also be held liable for public examination by the court . e) Liability for breach of trust by misapplication of fund:- a promoter can be held liable if he had misapplied or retained any of the property of the company. f) Liable to be suspended from taking part in the management of the company:- The court may suspend a promoter from taking part in the management of the company for a period of five years if he is convicted of offence in connection with the promotion , formation or the management of a company.

Legal position of the promoters claim as to expenses incurred and remuneration

Remuneration of promoter: a promoter is not entitled to recover any remuneration for his services from the company. But a company may agree to pay some remuneration to the services rendered by following ways: 1. He may take commisison on the shares sold. 2. He may be paid lumpsum amount. 3. After making full disclosure to the BOD or shareholders a company may sell his own property for cash or against fully paid shares at an overvaluation. 4. He may be given an option to subscribe for a certain number of the companys unissued shares in future at fixed price.

 REGISTRATION AND INCORPORATION OF COMPANY

REGISTRATION AND INCORPORATION OF

COMPANY Any seven or more persons or where the company to be formed will be a private company any two or more persons associated for any lawful purpose may be subscribing their names to a memorandum of association form an incorporated company with or without limited liability. Thus the promoter has to get together at least 7 persons in case of public company and two persons in case of private company to subscribe to the MOA.

REGISTRATION AND INCORPORATION OF

COMPANY Procedure for registration or incorporation of a companyI. Type of company- Only two types of companies can be registered- private companies and public companies. II. Application for availability of name- Availability of the proposed name is checked by the registrar of companies. Three names are submitted along with the fee. Within 7 days the registrar furnishes the information regarding the availability of name.The name for adoption exists for 6 months.

REGISTRATION AND INCORPORATION OF

COMPANY III. Preparation of memorandum or articles of association: the MOA is the constitution of a company. It is a document which defines the area within which the company can act. It is required to state the objects for which the company is being formed, the capital which is allowed to raise , the nature of liability of its members, the name state where the company can be registered.

REGISTRATION AND INCORPORATION OF

COMPANY Procedure for registration or incorporation of a companyIII. Preparation of memorandum or articles of association: The AOA containing the rules and regulations relating to the internal management of the company. IV. Vetting of memorandum and articles, printing, stamping and signing of the same. V. Preparation of other documents-

REGISTRATION AND INCORPORATION OF

COMPANY Procedure for registration or incorporation of a companyV. Preparation of other documents Power of attorney Consent of directors The particulars of director Notice of registered address Statutory declaration

REGISTRATION AND INCORPORATION OF

COMPANY Procedure for registration or incorporation of a companyVI. Filing of documents for registration: 1. By cash 2. By postal order if the fees not exceeds 50 cr. 3. By money order 4. By DD in favour of registrar of companies 5. By cheque 6. By cheque in special branches of PNB

REGISTRATION AND INCORPORATION OF

COMPANY Certificate of incorporation: After scrutinizing the documents filed and on being satisfied that they are in order the requisite fee has to be paid and that all other legal requirements have been duly complied with the registrar will enter the name of the company in the register of companies and shall certify under his hand that the company is incorporated. The certificate so issued by the registrar is called the certificate of incorporation.

Floatation
When a public company is registered and has received its certificate of incorporation it is ready for floatation it can go ahead with raising capital sufficient to commence business and to carry it on satisfactorily.

COMMENCEMENT OF BUSINESS
The private companies having no share capital may commence business and exercise its various powers immediately after it is incorporated. The public company having share capital must obtain certificate to commence business from the registrar of companies before it can commence its business or exercise its borrowing power.

MEMORANDUM OF ASSOCIATION
The Memorandum of association of a company contains the fundamental conditions upon which the company has been incorporated. It contains the objects for which the company is formed and therefore identifies the possible scope of operations beyond which its action cannot go. It defines and confines the power of the company. If anything is done beyond these powers that will be ultra vires(beyond powers of )the company so void.

MEMORANDUM OF ASSOCIATION
13. Requirements with respect to memorandum. (1) The memorandum of every company shall state (a)Name clause- the name of the company with Limited as the last word of the name in the case of a public limited company, and with Private Limited as the last word of the name in the case of a private limited company; (b) the State in which the registered office of the company is to be situate; (c) in the case of a company in existence immediately before the commencement of the Companies (Amendment) Act, 1965, the objects of the company; (d) in the case of a company formed after such commencement,

MEMORANDUM OF ASSOCIATION
13. Requirements with respect to memorandum. (i) the main objects of the company to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main objects; (ii) other objects of the company not included in subclause (i); and (e) in the case of companies (other than trading corporations), with objects not confined to one State, the States to whose territories the objects extend.] (2) The memorandum of a company limited by shares or by guarantee shall also state that the liability of its members is limited.

MEMORANDUM OF ASSOCIATION
13. Requirements with respect to memorandum. (3) The memorandum of a company limited by guarantee shall also state that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year after he ceases to be a member, for payment of the debts and liabilities of the company, or of such debts and liabilities of the company as may have been contracted before he ceases to be a member, as the case may be, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributories among themselves, such amount as may be required, not exceeding a specified amount.

MEMORANDUM OF ASSOCIATION
13. Requirements with respect to memorandum. (4) In the case of a company having a share capital (a) unless the company is an unlimited company, the memorandum shall also state the amount of share capital with which the company is to be registered and the division thereof into shares of a fixed amount; (b) no subscriber of the memorandum shall take less than one share; and (c) each subscriber of the memorandum shall write opposite to his name the number of shares he takes.

ALTERATION OF MEMORANDUM
1. Name of the company can be changed by passing a special resolution and obtaining the approval of Central Government. Approval of Central Government is not necessary where the only change sought is addition or deletion of the word private. 2. Where a co. has been registered by an undesirable name, the central government may direct it to alter its name.In such a case the company may change its name by passing an ordinary resolution and then obtaining confirmation of the Central government for the new name.

ALTERATION OF MEMORANDUM
3. Registered office of a company may be shifted from one premises to another premises by passing a resolution of the BOD and intimating the change to RoC within 30 days. 4. The liability of a member cannot be increased unless the member agrees in writing.

ARTICLES OF ASSOCIATION
The articles of association of a company are its byelaws or rules and regulations that govern the management of its internal affairs and conduct of its business. They set out provisions for the manner in which the company is to be administered. They provide matters like- making of calls , forfeiture of shares, directors qualification, appointment, powers and duties of auditors, procedure for transfer and transmission of shares and debentures.

ARTICLES OF ASSOCIATION
ContentsArticles usually contain following provisions1. Share capital rights of various shareholders 2. Lien on shares 3. Calls on shares 4. Transfer of shares 5. Transmission of shares 6. Forfeiture of shares 7. Surrender of shares 8. Conversion of shares into stock

ARTICLES OF ASSOCIATION
ContentsArticles usually contain following provisions9. Share warrants 10.Alteration of capital 11.General meetings and proceedings 12.Voting rights of members 13.Directors, first directors, lifetime directors , their appointment, remuneration, qualifications, powers and proceedings of Board of directors. 14.Dividends and reserves

ARTICLES OF ASSOCIATION
ContentsArticles usually contain following provisions15.Accounts and audits 16.Borrowing powers 17.Winding up.

MOA
1. The memorandum contains the fundamental conditions upon which alone the company is allowed to be incorporated. They are conditions introduced for the benefit of the creditors, out side public and shareholders. Memorandum lays down the area beyond which the activities of the company cannot go. Memorandum can be altered only under certain circumstances and in the manner provided in the act. The permissions from the central government or the company law board is required. Acts beyond the scope of memorandum are ultra vires. They cannot be ratified by even unanimous vote of shareholders. 1.

AOA
The article contains internal regulations of the company, they only regulate the relationship between company and the members inter se. Articles provide regulations for inside working.

2.

2.

3. Articles can be altered by the members by passing a special resolution only.

3.

4. The acts beyond articles can be ratified by the shareholders provided the relevant provisions are not beyond memeorandum.

4.