Memorandum of Association of a company is its Charter.

It contains the fundamental conditions upon which alone the company can be incorporated. It contains its objects of the formation of the company and the maximum possible scope of its operation beyond which it cannot act or operate. Thus, it defines as also restricts (confines) the power of the company.

The Memorandum of Association of a company should be in one of the Forms provided in Tables B, C, D, and E in Schedule 1 to the Act, as may be applicable in the case of the company, or in the Forms, as near the Form provided in the Act, as the circumstances may require (accept or admit).

The Memorandum of Association of a company should be printed or legibly computer printed. Further, it must be divided into paragraphs, which must be serially numbered consecutively, and signed by at least seven persons in the case of a public company, and by at least two persons in the case of a private company. They must sign the Memorandum of Association of the company in the presence of at least one witness who will attest their signatures. Each of such members must take at least one share and write against his name the number of shares so taken.

The Memorandum of Association of a limited company to contain the following: (a) The name of the company with the word limited as the last word in the case of a public company, and private limited as the last word in the case of a private company (b) The name of the State wherein the registered office of the company is to be located (situated) (c) The objects of the company classified separately as the main objects and other objects (d) The declaration to the effect that the liability of its members is limited (e) The amount of the authorised share capital, divided into shares of the specified (fixed) amounts

A company can change its name, change in its registered office, change in the objects clause, and change in the capital clause, by following the procedures laid down in these regards. A company, limited by shares, can increase its authorised share capital by passing an ordinary resolution, if its Articles of association so authorises. Within 30 days of the passing of the resolution for the increase in the authorised capital, the company is required to file a notice in this regard with the Registrar of Companies.

Consolidation and Sub-Division (Splliting) of Shares (a) Combination of shares means combing a specified number of shares of smaller face value (denominations), resulting in the higher face value of each share and the resultant lesser number of total shares. (b) Sub-Division (Splitting) of Shares means the opposite.

(c) The Articles of Association governs the ways in which the objects of the company are required to be carried out and achieved. The Articles of Association can be formed and altered by the members of the company by passing a special resolution. Besides, the Memorandum of Association lays down the area beyond which the action of the company cannot go.

Thus, within such boundary line (Lakshman Rekha) specified by the Memorandum of Association, the shareholders may make such regulations for their own governance as they may deem fit. However, the Articles of Association must not be inconsistent with any of the provisions in the Memorandum of Association.

Registration of Articles of Associations As provided under Section 26, a public company, limited by shares, may register its Articles of Association, signed by the subscribers to the Memorandum of Association. However, if it does not register its own Articles of Association, the Articles of Association, given in Table A of Schedule 1 of the Act, will automatically become applicable.

If a member of the company so requires, the company shall send to him a copy of the Articles of Association,, within seven days of the requirement, on payment of Re 1. Further, if the company fails to do so, the company and every officer of the company responsible for such lapse shall be punishable with a fine upto Rs 50.

Subject to the provisions of the Act, as also to the conditions laid down in the Memorandum of Association, a company may, by special resolution, alter or add to its Articles of Association. A printed or type-written copy of every special resolution of the company making alterations in the Articles of Association must be filed with the Registrar of Companies within 30 days of the passing of such special resolution. Such alterations or additions in the Articles of Association, must not include anything which may be illegal, or against the public policy.

(d) Above all, such alterations or additions in the Articles of Association must be bona fide and in the interest of the company as a whole. However, such alterations or additions in the Articles of Association will not be considered bad merely because it inflicts hardship on any of the shareholders.

The doctrine of constructive notice imposes the burden on the people, outside the company, entering into a contract with the company, that they are presumed to have read the documents, though, in fact, they might not have read them.

As i st t tri f str ti ti , t doct i of i door m m t ll s ll t se eal it t e any t assume t at t e r isi ns f t e Arti les f Association ave een observed by t e officers of t e company. Alternatively speaking, t ey are not bound to enquire into t e regularity or ot er ise of t e internal proceedings. at is, an outsider is not supposed to see t at t e company carries out t e internal proceedings, in t e required manner.

A public company, limited by shares, generally issue shares to the public for raising its capital. or this purpose, it is required to issue a document, known as Prospectus. In this respect, it has to follow the following procedures: After the certificate of incorporation is received, the affairs of the company are taken over by the first directors appointed in accordance with law. hey then select one of the directors as the chairman of the oard of irectors, if no person has been named in the Articles of Association.

The Board attends to the following issues

(a) Appointment of various expert agencies, such as bankers, auditors, secretary, and so on. (b) Entering into the underwriting contracts/ brokerage contracts with the underwriters/brokers. (c) Making arrangements for the listing of its shares in the stock exchange(s). (d) Drafting a prospectus for issuing it to the public.

The Board attends to the following issues

(e) Appointment of banker(s) is necessary where the members of he public will submit their applications for the allotment of shares on the prescribed and serially numbered application forms, and deposit the cash or cheque or bank draft for the amount of the application money. (f) Appointment of the first auditor is within the powers of the Board of Directors. It is necessary that an auditor is appointed before the prospectus is issued. (g) The appointment of the company secretary is obligatory in the case of the companies, which have the prescribed paid up share capital (presently Rs 50 lakh or more). In the cases of even other companies, the appointment of the company secretary is desirable, though not compulsory.

The Board of Directors enters into underwriting contracts with the underwriters. Simply put, the term underwriting consists of an undertaking by some person or persons to the effect that if the public does not subscribe to the public issue in full, he or they (underwriter or underwriters, as the case may be) will meet the amount of the balance, which remains unsubscribed by the general public. Thus, it involves great risks, on the part of the underwriters, to pay a huge balance amount if the public issue gets highly undersubscribed.

For undertaking such risks, the company enters into contracts with the underwriters to pay a reasonable amount of underwriting commission to them. The total amount of commission must be reasonable and should not exceed 5 per cent of the issued price in the case of the public issue of the shares and 2 percent of the issued price in the case of the public issue of the debentures.

Further, in the case the issue is fully subscribed, the underwriters do not have to pay any amount to the company to take up any of its shares. But then, in such a mutually happy situation, the underwriters are entitled to receive their underwriting commission, all the same. A company must receive applications for issue of the shares from the general public equivalent to the minimum subscription, as it has been mentioned in the prospectus, failing which the company is required to refund the application money in full to the applicants (subscribers).

At present, at least 90 per cent of the total issue is required to be subscribed, failing which the company is required to refund the application money in full to the applicants (subscribers).

But in the cases where the entire issue has been underwritten by the underwriters, the company rests assured that it will not have to refund any application money, in view of the fact even if the public issue is not fully subscribed, the balance unsubscribed amount shall be paid by the underwriters in exchange of the shares equivalent to the agreed underwritten amount. Such shares are to be taken up by the underwriters at the issue price and not at any discounted price. This way, the underwriters act as a sort of insurer against the risk of under subscription, if any.

As the financial risks are high, the underwriters prefer to underwrite the shares only upto a certain limit, depending upon their capability and risk-taking intention (appetite). To reduce (spread) their risk even further, they prefer to share their burden with some other persons, who are, in turn, are known as the Sub-Underwriters. Such sub-underwriters agree to take a certain number of shares, for which they accept the responsibility. For taking such risk, they are paid the underwriters commission, out of the total underwriters commission received by their main (principal) underwriters from the company.

Besides the underwriters, a company may also enter into brokerage contracts with the brokers. The broker is a person who undertakes to place shares, that is, to locate (find) persons who will buy the shares of the company, in consideration of an agreed amount of brokerage. But even if he fails to place any of the shares, he cannot be held personally liable to take them (as against the underwriters), nor he is entitled to claim any brokerage in regard to the shares not placed. He will, however, be paid his brokerage (commission) on the shares he has been able to place.

There must be the authority given in the Articles of Association to pay the brokerage, and such brokerage paid must be reasonable, too. Such brokerage must also be disclosed in the prospectus , or in the statement in lieu of the prospectus, as the case may be. It is necessary for every public company, before issuing shares or debentures, for the subscription by the public by issue of a prospectus, to make an application for the listing of the securities (shares and debentures) in one or more of the recognised stock exchanges. This is known as the listing of shares.

Public deposit is the deposit received by the companies from the public for a certain period of time, with certain restrictions. (a)A company is required to publish an advertisement for inviting or accepting any deposit, specifying therein the financial position, management structure, and other specific particulars of the company. Further, the renewals of the public deposits are included in the acceptance of the deposits. (b)A company cannot accept or renew any deposits which are repayable on demand. That is, it can accept or renew only such deposits which are repayable after the expiry of a certain specified period of time.

(c) Further, a company cannot accept or renew any deposits which are repayable within six months of its deposit. But then, such deposits of less than six months can be accepted provided such deposits do not exceed 10 per cent of the paid up capital and free reserves of the company taken together. (d) Moreover, a company cannot accept deposits for less than three months and for more than 36 months.

(e)A company can accept deposits only within the following limits:
(i) 10 per cent of the paid up capital and free reserves of the company taken together, in the cases of the deposits in the form of any deposit against unsecured debentures, deposits from the shareholders, or any deposits guaranteed by the directors of the company. (ii) Any other deposits, not exceeding 25 per cent of the total paid up capital and free reserves of the company taken together.

(f) No Government company can accept any public deposit more than 35 per cent of the paid up capital and free reserves of the company taken together.