Note on Memorandum of Association, Articles of Association, Prospectus And A Statement In Lieu of Prospectus

by • 06/01/2013 • GeneralComments (0)511

Q.9 Writes a note on the following: –

1. Memorandum of Association

2. Articles of Association

3. Prospectus

4. A Statement In Lieu of Prospectus



The Memorandum of Association is the charter of the company. It describes the relationship of the company with the general public. The shareholders and creditors learn about the business activities of the company. Any work outside the scope of the Memorandum is not acceptable.



Following are the contents of Memorandum of association.


Name Of The Company

As a legal person the company must have a name. It should be different from the existing registered companies. The name of the company should include words like King, Emperor etc. The names of world Organizations such as World Bank, UNO etc. cannot be used. Every public company has to use the word limited after its name. In case of private limited company, the word private limited must be added in its name. The promoters have the right to decide the name of the company.


Place of Registered Office

Every Company must have a registered office for correspondence. The complete address of the registered office and its branches must be stated in the Memorandum of Association. It is advisable to mention the name of province or state to avoid legal formalities in case of shifting the office.


Objects of the Company

This is the most important clause. It mentions the purpose for which the company was formed. The objects should be framed carefully because changes in it are not so easy. The object clause provides protection to share holders and creditors and others who deal with the company. A company cannot start any work, which is beyond the scope of the objects mentioned.


Liability Clause

According to this clause the liability of the members is limited up to the value of unpaid shares. The personal property of the shareholders is liable to pay the unpaid calls on their shares. The liability of members may be limited by guarantee. The shareholders are bound to pay the amount of guarantee when the company is wound up.


Authorized Share Capital

The authorized capital is also known as Nominal or Registered Capital. The authorized share capital of a limit company is mentioned in the Memorandum. The share capital of the company may be stated as: “The Share Capital of the company is Rs. 100,000 divided into 1,000 shares of Rs. 10 each”. The stamp duty is payable on such amount of capital. The capital may be divided into shares of various classes. All these points should be mentioned in the Memorandum of Association.


Association Clause

The subscribers to the memorandum express their consent in writing to form an association. The purpose of the association is to set up a company. This clause must be subscribed by at least 7 persons in case of public company and by at least two persons in case of a private company. Each must buy at least one share. Each member signs the memorandum in the presence of one witness. Each subscriber shall write opposite to his name the number of shares he takes.

There is no restriction for adding other clauses. The Memorandum is then registered with the registrar of companies.



The importance of the memorandum is so great that it was regarded until recently as an unalterable charter of a company. And Section 21 prohibits any alteration of the conditions in the memorandum except as is expressly permitted by the later sections of the ordinance. It is to be noted that any provision in the memorandum relating to the appointment of a manager and managing agent or other matters of a like mature incidental to the main objects of the company must not be deemed to be a conditions of the memorandum within the meaning of Section 21.


The alternations, which may are without confirmation by the Corporate Law Authority.


1. Change of name (Section 39 of Companies Ordinance, 1984)


2. Increase of share capital consolidation of shares into shares of large amount, conversion of fully paid-up shares into stock and re-conversion of stock into shares, sub-division of shares into shares of smaller amount cancellation of capital not issued or agreed to be issued (Section 92 of Companies Ordinance, 1984).


3. Rendering unlimited the liability of direction (Section 71 of Companies Ordinance, 1984) and subject to confirmation by either the court or the Authority in relation to the relevant provisions of the ordinance.


(a) Change of the registered office from one province or another,

(b) Alteration of objects for certain purposes (Section 21);

(c) Re-organization of capital by consolidation of shares of different classes or by division of shares of different classes;

(d) Reduction of paid or unpaid capital



Alterations in the memorandum permitted by law may be made by

(1) Passing a special resolution, and

(2) Obtaining where necessary the sanction of the Authority or the Court.



Articles of Association ate the by-laws of the company. These are the rules to manage internal affairs of the company and to achieve the objects stated in the Memorandum. Each company is allowed to frame its own articles. If a company fails to frame and register its articles, the rules and regulations stated in Table A of the Companies Ordinance will be treated the articles of association of that company.



Following matters are discussed in the articles of association:


1. Amount of capital and its decision into various shares.

2. Rights regarding the different shareholders.

3. Rules regarding transfer of shares.

4. Rules regarding issue of shares and debentures.

5. Calls on shares.

6. Appointment of directors.

7. Alternation of capital.

8. The functions and power of managing agents.

9. Proceeding of disposing of resolution.

10. Accounts and audit. ii. Stamps of a company.

12. Voting rights of shareholders.

13. Procedure of winding up of the company.

14. Rules regarding the forfeiture and surrender of shares.

15. Proceeding of shareholders meeting.



Subject to the provision of this Ordinance and to the conditions contained in its memorandum, a company may be special resolution alter or add to it articles. Any such alteration or addition shall be a valid as if originally contained in the articles.

The alteration must not constitute a fraud on the minority. The majority cannot alter the articles so as to sacrifice the interest of the minority without a reasonable prospect of advantage to the company as a whole.


An alteration in the articles of a company which-requires any of its members to take or subscribe for more shares or in any way increases his liability to contribute to the share capital of, or otherwise to pay money to, the company will not bind a member who has not consented in writing to the bound thereby. So far as outsiders are concerned, a company cannot justify a breach of contract by altering its articles. A company can be restrained by injunction at the suit of a third party from altering its articles so as to commit a breach of contract with that third party.


A company cannot restrict or deprive itself of its statutory power to alter its Articles of Association either by a statement in the Articles or by a contract that they shall not be altered. A provision deprivin8 the company of its power to alter its articles is void.





According to the Companies Ordinance of 1934

“Prospectus means any document described and is issued as prospectus, and includes any notice, circular, and advertisement or other communication, inviting offers from the public for the subscription or purchase of any shares or debenture of a body corporate. Or inviting deposits from the public, other than deposits invited by a banking institution or financial institution, approved by the federal Government, whether described as a prospectus or otherwise:’


A prospectus can be simply called a notice to the general public about the formation of a new company. A company tries to attract the public to purchase the shares and debentures of the company. The prospectus contains the terms and conditions required for the purchase of share and debentures.



Following are the contents of prospectus.


Memorandum of Association

The contents of the Memorandum of Association and the names of the people who have signed it must be mentioned in the prospectus. The number of shares subscribed by such people is also stated.


2. Nature of Business

A company may start a manufacturing, trading or services business. The description of the business to be stared by the company is mentioned in the prospectus. The future possibilities of business growth are also mentioned.


3. List of Directors

The Names, father’s names, addresses and share holdings of the directors of the company are also mentioned in the prospectus.


4. Remuneration Of Directors

The rules about the remuneration of the directors for the services should be mentioned in the prospectus.


5. Names Of Management

The name, address and occupation of the directors, chief executive and secretary may also be stated in the prospectus.


6. Minimum Subscription

The minimum amount of subscription if the shares are offered to the public for subscription.


7. Subscription Timing

The date and time of the opening and closing of the subscription. The names of banks, the dates and time for submitting the application should be stated in it.


8. Application Money

The application money payable on each share should be stated. The value of each share is payable in full at the time of application.


9. Previous Issue

The number description and amount of shares and debentures issued within the last two years is also mentioned in the prospectus.


10. Purpose Of Issues

The main purpose for which the proceeds of the issue are to be used and the approximate amount, which will be spent for each purpose.


11. Premium Paid

The amount of premium paid on each share issued with the last two years from the date of prospect us.


12. Preliminary Expenses

The estimated amount of preliminary expenses incurred and by whom they have been paid in this regard is also mentioned.


13. Property Purchased

The value and other derail of property purchased. The amount payable or paid in this regard is also mentioned.


14. Name of Vendors

The names and addresses of the vendors must be mentioned. The amount payable or paid in this regard is also stated.


15. Auditor And Legal Advisor:

The names and addresses of the auditors and legal advisors, if any of the company.


16. Interest Of Directors

Full particulars about the interests of each director with in the last two years from the date of the prospectus.


17. Contracts

The nature of any contract or arrangement to be given to any person to subscribe for shares or debentures.


18. Company’s Performance:

A summary of the company’s performance for the last three years is presented in a columnar form.


19. Inspection Of Accounts:

A reasonable time and place at which the financial statements based on the auditor’s report are also mentioned.


20. Auditor’s Report:

A report by the auditor’s of the company with respect to profits and losses and assets and liabilities of the company is included.


21. Duration of Business:

If the company s in old one. The length of time during which the busines3 of the company has been carried on.


22. Voting Rights:

The rights of voting at the meetings of the company and the rights in respect of capital and dividends.


23. Underwriters

The names of the underwriters are mentioned, if the shares or debentures have been undertaken in the previous two years.


24. Court Cases

The pending legal cases in which the company or its subsidiary is a party.


25. Filling of the Prospectus

Statement that a copy of there of has been submitted to the registrar’s office.



A public company having privately arranged for the capital subscription may not issue a prospectus but in that event a statement in lieu of prospectus must be tiled with the registrar three day before any allotment of any shares or debentures can be made. It should be signed by every director or proposed director and should contain similar particulars as are required in the case of a prospectus and should fulfill similar condition.



1. Name of company

2. Description of the business.

3. Statement of Capita1.

4. Addresses of Directors, Secretary and Managing Agents Names

5. Materiel Contacts or Detail of important contact.

6. Minimum subscription

7. Director’s interest

8. Estimated Initial expenses.



Pin It

Leave a Reply