LEGAL DOCUMENTS ISSUED BY A COMPANY:MEMORANDUM OF ASSOCIATION, CONTENTS OF ARTICLES

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Introduction to Business MGT 211

LESSON 10

LEGAL DOCUMENTS ISSUED BY A COMPANY

BASIC LEGAL DOCUMENTS

A public company must have three basic legal documents.

Basic Legal Documents

Memorandum

Articles of

Prospectus

of Association

Association

The "Memorandum of Association" is the constitution of a company. The "Articles of

Association" are the basic rules to run the business and the Prospectus" is a notice to the

public for the purchase of securities of the company.

MEMORANDUM OF ASSOCIATION

DEFINITION

According to Companies Ordinance, 1984:

"Memorandum means the memorandum of association of a company as originally

framed or as altered from time to time tin pursuance of the provisions of any previous

Companies Act or of this Ordinance."

Explanation

Memorandum of association is known as "Charter of Company", as it sets the limits, which the

company cannot go out of. Through this, the shareholders and creditors can know about the

range of business activities of the company. Any work or business not stated in the

memorandum cannot be carried out by the management.

The memorandum of public limited company

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Must be printed

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Divided into paragraphs

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Numbered consecutively

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signed by the members

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Name, occupation, nationality, address and number of shares taken by each

subscriber

CLAUSES OF MEMORANDUM OF ASSOCIATION

The memorandum of association may has the following six clauses:

1. Name Clause

The name of a company should be carefully selected and it must not be similar to any existing

company. The Companies Ordinance provides that the name of a public company must end

Introduction to Business MGT 211

with the word "Limited".

In case of private company the name must end with the words

"(Private) Limited".

2. Situation of Registered Office

The company should have registered head office in the state or province where it wants to

conduct its business. The company cannot start its business without registered head office.

3. Object Clause

This is the most important clause of the memorandum. In this clause it is mentioned that what

type of business company will do. If the company does not work according to its objects then

this action would be considered as illegal.

4. Capital Clause

It is also mentioned in the memorandum that what will be the amount of total capital, its

division in share and the value of each share.

5. Liability Clause

It is clearly written in the memorandum that the liability of the shareholders is limited or

unlimited.

6. Association Clause

This clause contains a declaration by the subscribers (promoters) that they are desirous to

form a company and agree to have a number of shares written against their names.

ALTERNATION IN MEMORANDUM

According to sections 20 and 21 of the Companies Ordinance, any clause of memorandum

can be altered with the sanction of court or Central Government.

DEFINITION

According to Companies Ordinance, 1984:

"Articles mean the articles of association of a company as originally framed or as

altered in accordance with the provisions of any previous Companies Act or this

Ordinance, including so far as they apply to the company, the regulations contained in

Table A in the first schedule."

Explanation

Articles of association are the by-laws of a company. It includes the rules and regulations,

necessary to manage the internal affairs of the company and to achieve the objectives stated

in the memorandum. Articles are responsible for the good conduct of the whole management.

The articles of association must be:

� In a printed form

� Divided into paragraphs

� Numbered consecutively

� Signed by the subscribers

� Properly dated

CONTENTS OF ARTICLES

The articles usually state the rules and regulations about the following matters:

1. Share capital and its division into different types

2. Methods for the transfer of shares

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3. Conversion of shares

4. Alternation in share capital

5. Methods to call the meetings of the company

6. Voting power of members

7. Appointment of directors

8. Powers and duties of directors

9. Right regarding shareholders

10. Proceedings of Directors' meetings

11. Disqualification of directors

12. Seal of the company

13. Dividends and reserves

14. Accounts and their audits

15. Notices to be issued by the company

16. Winding up a company

ALTERNATION IN ARTICLES

The shareholders of the company can change the articles by passing special resolution but

this change should not be against the memorandum and the ordinance.

PROSPECTUS

DEFINITION

According to English Companies Act,

"Any prospectus, circular, notice, advertisement or other invitation, offering to the public

for subscription or purchase any shares or debentures of the company."

Explanation

A prospectus is a notice to general public about the formation of new company. The company

tries to attract the public to purchase its shares through the prospectus, as the terms and

conditions for the purchase of shares and debentures are written in it. There is an application

form in every copy of a prospectus. Only the public company is required to issue the

prospectus.

CONTENTS OF PROSPECTUS

The important matters to be included in a prospectus are divided in numbers with separate

headings. Some of them are briefly discussed below:

1. Share Capital

Authorized, issued and subscribed capital with basis of allotment.

2. Commission, Brokerage and Tax Exemption

Commission to be paid to the bankers on issue, brokerage and tax exemption on investment in

shares.

3. Brief history and Prospectus

Brief history, main objects and location of the company, information about project, plant, etc.

4. Financial Information

Auditor's report, shareholders' equity and liabilities, share capital, etc.

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5. Board of Directors

Names, addresses and occupations of board of directors.

6. Interest of Directors

Interest of directors in dividends, remuneration to be paid to directors, secretaries, etc.

7. General Information

General information like:

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Appointment,, election and powers of directors

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Voting rights

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Transfer of shares

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Quorum of general meeting

8. Miscellaneous

Place of registered office, factory and bankers, consultants, legal advisor of the company, etc.

9. Application and Allotment

The procedure for applying for shares and their allotment is made clear to the prospectus

investor.

Distinction between Memorandum of Association and Articles of Association.

MEMORANDUM OF ASSOCIATION

Memorandum of association is a basic document of a joint stock company. It is known as the

charter of the company. It sets out the limits, which a company cannot go out of. It main

purpose is to enable the shareholders, creditors and all those who deal with the company, to

know about its permitted range of enterprise.

ARTICLES OF ASSOCIATION

Articles of association is a legal document, secondary in importance of memorandum of

association. The articles of association are the regulations by law which govern the internal

organization and conduct of a company.

Distinction between Memorandum of Association and Articles of Association

Memorandum of Association

Articles of Association

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1. Status

It is the charter of the

It contains regulation and

company to regulate the

laws, which govern the

external affairs of the

internal administration and

company

management of the company.

2. Preparation

It is prepared under the

provisions of Companies

Ordinance, 1984.

Ordinance, 1984, and

memorandum of association

3. Registration

No company can be registered

Articles of association are not

without submitting memorandum

necessary for the registration

to registrar.

of the company.

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4. Limits

This document determines the

Business limits are not

limit of company's business

mentioned in it.

5. Alteration

It is not alterable, but it can be

It can be altered by a special

altered by court and central

resolution at any time.

government.

6. Nature

It deals with external

It deals with internal

contracts.

administration and management

of the company

7. Priority

If there is a conflict between

Priority is not given to articles

memorandum of association

of association.

and articles of association,

then priority is given to

memorandum of association.

8. Incorporation

A public company cannot be

The registration of articles of

incorporated unless the

association by a company,

memorandum of association is

limited by shares, is optional.

submitted to the registrar.

9. Clauses

The memorandum of

The articles are not limited to

association has usually six

six clauses. For example,

clauses, which can be altered

Table A of Companies

as per the requirement.

Ordinance has 85 clauses.

10. Importance

It is most important and

It is the secondary document

primary document of

of the company.

company.

Discus briefly various types of meetings which are held in a joint stock company.

WHAT IS A "MEETING"

"A gathering of two or more persons by previous notice or by mutual arrangement for the

discussion and transaction of some business is called meeting."

SHAREHOLDERS' MEETINGS AND COMPANY'S MEETING

"When the members of a company gather at a certain time and place to discuss the business

and managing affairs it is called meeting of the company."

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Kinds of Company's Meeting

Shareholders'

Directors'

Meetings

Meeting

Statutory

Annual

Extra-

Meeting

General

ordinary

Meeting

SHAREHOLDERS' MEETINGS

The meetings, which are called to discus the affairs of the company with shareholders, are

called shareholders' meetings. These meetings have following three kinds:

STATUTORY MEETING

According to section 157, this meting is held only once in the life of a public company. It is the

first meeting of the members of a public limited company. Its main objective is to provide the

shareholders with first hand information about the exact position of company's affairs.

1. By whom and when held

Section 77 of the Companies Ordinance, 1984, makes it compulsory for:

�

every public company limited by shares,

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every public company limited by guarantee, and

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every private company converted into public company

that statutory meeting must be held within a period of not less than 3 months and not more

than 6 months from the date at which the company is entitled to commence business.

2. Objects

Its main object is:

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To provide exact and latest information about the affairs of the company,

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To win the confidence of shareholders of the company, and

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To discuss the statutory report.

3. Notice

At least 21 days before the meeting, a notice must be sent to each shareholder along with the

statutory report, by the secretary.

4. How the meeting is called

Under section 157(2) of Companies Ordinance, the directors should send a notice of statutory

meeting, to all the shareholders, at least 21 days before the meeting. Directors also send

statutory report, duly certified by at least 3 directors one of them should be the chief

executive of the company.

5. Privileges to the members

Introduction to Business MGT 211

The members of the company in meeting have the liberty to discuss any matter relating to

company's affairs.

STATUTORY REPORT

The report prepared by the secretary, certified by at least 3 directors one of them being the

chief executive of the company is called statutory report. The statutory report contains the

following information:

1. Share Allotment

Total number of shares allotted and their consideration for allotment.

2. Summary of Cash received

Summary of cash received in respect of shares allotted.

3. Expenses

List of basic expenses of the company.

4. Commission

Detail of commission for the sale of shares, if any.

5. Particulars of Contract

The particulars of contract and their modifications, if any,

6. Particulars of Directors

The names, addresses and occupations of the directors and other officers of the company.

7. Underwriting Contract

The particulars of underwriting contract, if any.

8. List of Arrears

The arrears, if any, due on calls from director or managing agents.

ANNUAL GENERAL MEETING

According to section 158 of Companies Ordinance, every company must hold an annual

general meeting of its shareholders, once in a year. The meeting provides an opportunity to

evaluate and measure the efficiency of the directors and other officers in carrying out the

company's affairs.

1. Notice

A notice of annual general meeting should be sent to the shareholders, at least 21 days before

the date of the meeting.

2. Place of Meeting

In case of listed company, annual general meeting should be held in town where the

registered office of the company is situated.

3. Role of shareholders

The shareholders can criticize the policies of the directors and other officers and can offer

suggestions for their improvement.

4. Occasion

The first meting of this nature must be held within 18 months from the date of incorporation.

The gap between two annual general meetings must not be more than 15 months.

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5. Objects

The main objective of this meeting is to check that ordinary business is being done according

to the rules laid down in articles of association of the company. The directors submit their

report about the affairs of the company during the proceeding year. This report is known as

director's report. Other objectives are:

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Election of Directors

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Appointment of auditors

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Declaration of dividend

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Fixation of director's, auditor's and managing agent's remuneration

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Auditor's report and balance sheet are presented in the meeting

6. Winding up

According to section 305(b), a company may be wound up by the court if it does not hold the

two consecutive annual general meetings.

EXTRAORDINARY GENERAL MEETING

All the general meetings other than annual general meeting and statutory meeting shall be

called extraordinary general meetings. There is no time limit for it. It may be held from time to

time

1. Right to Call Meeting

(a)

The directors of the company may call extraordinary general meeting for doing

some urgent business.

(b)

This meeting can also be called by the directors, on the request of

shareholders, having not less than one tenth of the voting power.

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In case the directors fail to call the extraordinary general meeting within 21

days, the shareholders themselves may call the meeting. In such, case,

meeting must be held within 3 months.

2. Notice

To call the extraordinary meeting, 21 days notice is served.

3. Procedure

The shareholders have to submit their demand to the secretary of the company. With the

consultation of directors, he will arrange to call the meeting. The company bares the

expenses of the meeting.

4. Objects

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To issue the debentures

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To alter the memorandum and articles

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To alter the share capital of the company

DIRECTOR'S MEETINGS

The members of the company elect their representatives to run the business and management

of the company. These representatives are called the directors of the company and they are

different in numbers in different companies. All the business affairs are settled with mutual

consultation of all directors. So, the meeting called for directors to discuss the policies or to

take the decisions is called directors' meeting.

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1. When is it held?

This meeting must be held at least once in three months and at least four times in a year.

2. Notice

Notice of every meeting must be sent to each directors, otherwise the proceedings of the

meeting may be declared void.

3. Objects

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To allot shares

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To invest company's fund

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To recommend dividend

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To keep reserve out of profit

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To make loans

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To appoint officers or committee

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To discuss the contracts of the company

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To determine the date of next meeting

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