Chapter 02: Memorandum and Articles

Question 1

List down different Clauses of Memorandum.

Answer 1

1. Name Clause
2. Registered Office Clause (or Place clause)
3. Principal Line of Business Clause
4. Liability Clause
5. Authorized Capital Clause (for companies limited by share, or limited by guarantee having share capital)
6. Undertaking or Subscription Clause

[Chapter 2: LO 1]

Question 2

Briefly state what information is included in “Name Clause” of Memorandum.

Answer 2

This clause contains the name of the company, including words “Limited” or “(Private) Limited” or “(Guarantee) Limited” or “(Unlimited)” or “(SMC–Private)” as appropriate.

[Chapter 2: LO 1]

Question 3

Briefly state what information is included in “Registered Office Clause” of Memorandum.

Answer 3

This clause shall state:
 Province (e.g. Sindh) or
 part of Pakistan not forming part of a province (e.g. Islamabad)
, in which registered office of the company is to be situated.

[Chapter 2: LO 1]

Question 4

Briefly state what information is included in “Principal Line of Business Clause” of Memorandum.

Answer 4

 This clause shall state company’s principal line of business. A company can engage in any business activity except those which are prohibited, or restricted (i.e. require approval).
 It shall always match with the name of the company. However, existing companies shall continue with their existing memorandum.

[Chapter 2: LO 1]

Question 5

Briefly state what information is included in “Liability Clause” of Memorandum.

Answer 5

 This clause shall state liabilities of members i.e. whether the liability of members is limited by shares, limited by guarantee, or unlimited.
 In case of company limited by guarantee, this clause shall also state liability of each member which he agrees to contribute at time of winding up.

[Chapter 2: LO 1]

Question 6

Briefly state what information is included in “Authorized Capital Clause” of Memorandum.

Answer 6

 If a company has a share capital, this clause shall state maximum amount of share capital which can be issued.
 This clause shall also state division of authorized share capital into shares of fixed nominal value.
 In the same clause, every subscriber shall agree to take atleast one share. Each subscriber writes opposite to his name total number of shares he has agreed to take.

[Chapter 2: LO 1]

Question 7

Briefly state what information is included in “Undertaking or Subscription Clause” of Memorandum.

Answer 7

 The company shall add an undertaking as may be specified by the SECP.
 All subscribers also undertake to form company, to comply with clauses of memorandum, and to take shares in the company.

[Chapter 2: LO 1]

Question 8

What are Printing and Signature requirements of Memorandum.

Answer 8

 Memorandum shall be in printed form, divided into sequentially numbered paragraphs, and shall be dated.
 Subscribers shall sign the Memorandum, and shall include their names, occupation, nationality, residential addresses and such other particulars as may be prescribed. A witness shall attest the signature, and shall mention his particulars similarly.

[Chapter 2: LO 1]

Question 9

A company cannot be registered with a name which contain certain words. List those words.

Answer 9

A company shall NOT be registered with a name which contains such words which in the opinion of Registrar, are:
i. identical or closely resembles with an existing company.
ii. inappropriate, undesirable or deceptive
iii. selected to exploit or offend religious feelings of people.
iv. inappropriate on any other ground as may be specified.
v. prohibited, or restricted (i.e. require prior approval of Commission).

[Chapter 2: LO 2]

Question 10

Approval of Commission is required if name of a company includes certain words. List those words

Answer 10

Approval of commission is required if proposed name of company contains words suggesting:
 Patronage with Head of State (whether Past or Present, Pakistani or Foreign).
 Connection with Federal Govt. or Provincial Govt. or any department, authority or statutory body of such Govt.
 Any connection with any corporation set up by or** under** any Federal or Provincial law.
 Patronage or Connection with Foreign Govt. or international organization.
 Establishing a modaraba management company or to float a modaraba.
 Any other business requiring a license from Govt.

[Chapter 2: LO 2]

Question 11

How a Registrar can rectify name of a company?

Answer 11

If a company is registered with a defective name:
 Registrar shall give company an opportunity to make representation.
 Registrar can issue orders to company to rectify its name within 30 days of the order, subject to approval of Registrar.

If company fails to report compliance with registrar directions within specified period, Registrar:
 may select and enter a new name for the company in register, and
 shall issue a new certificate of incorporation.

[Chapter 2: LO 2]

Question 12

How a Company can change its name?

Answer 12

A company can change its name after registration as follows:
 Company shall obtain written permission of Registrar to reserve new name and shall pass a Special Resolution.
 Company shall apply to Registrar (alongwith copy of special resolution and altered memorandum) to obtain approval.
 If approved, Registrar shall enter the name on the register in place of old name, and shall issue altered certificate of incorporation with new name.

[Chapter 2: LO 2]

Question 13

In which case, change in name of a company does not require approval of Registrar.

Answer 13

Exception: Approval of Registrar is not required if change is only the addition or deletion of words ‘(Private)’ or (SMC-Private) or (Limited) or (Guarantee Limited) or (Unlimited) due to change in status of company.

[Chapter 2: LO 2]

Question 14

Which requirement is to be complied by a company after change of name:

Answer 14

After issuance of certificate of incorporation, company shall continue to mention its old name alongwith new name for **90 days: **
 outside of every office or place of business
 on every document or notice of the company.

[Chapter 2: LO 2]

Question 15

What is the effect of change of name of a company on its rights and liabilities.

Answer 15

The change of name shall NOT affect:
 any rights or liabilities of the company, or
 any legal proceedings by or against the company.

[Chapter 2: LO 2]

Question 16

**What are the places and documents where a company is required to display its name. **

Answer 16

1. Every company shall display name of company and incorporation number in English or Urdu outside registered office, and every office or place of business at prominent position.
2. Every company shall display a certified copy of certificate of incorporation at every place of business.
3. Name of company shall also be engraved on seal of the company, in English or Urdu.
4. Name, address of registered office, telephone, fax number, email and website address shall be mentioned on all official documents or notices of the company.

[Chapter 2: LO 2]

Question 17

What are consequences if a company issues a document without mentioning its legal name or seal of company.

Answer 17

If any document of company is issued without mentioning the legal name or seal of the company, issuer of such document (e.g. promissory note) shall be personally liable.

[Chapter 2: LO 2]

Question 18

What is the procedure for change of Registered Office of a company within same city.

Answer 18

i. Company shall pass Board Resolution.
ii. Company shall notify Registrar within 15 days after the date of change.

[Chapter 2: LO 3]

Question 19

What is the procedure for change of Registered Office of a company from one city to another within same province.

Answer 19

i. Company shall pass Board Resolution.
ii. Company shall pass Special Resolution.
iii. Company shall notify Registrar within 15 days.
iv. Physical record of the company shall also be transferred to the new registrar (if registered office has been shifted to jurisdiction of another registrar).

[Chapter 2: LO 3]

Question 20

What is the procedure for change of Registered Office of a company from one province to another.

Answer 20

i. Company shall pass Board Resolution.
ii. Company shall pass Special Resolution in general meeting.
iii. Application shall be filed with Commission to obtain confirmation. Commission shall consider rights and interest of members as well as creditors, and can make order on such terms and conditions as it thinks proper.
iv. A copy of the order (confirming the alteration duly certified by an authorised officer of the Commission) shall be sent to Company and Registrar within 07 days of the order.
v. Company shall file with Registrar a copy of altered memorandum of association within 30 days from the date of the order of Commission. However, Commission may extend the time for filing of memorandum on sufficient cause shown.
vi. Registrar shall register the same, and shall issue a certificate which shall be conclusive evidence that all requirements of Act have been complied with.
vii. Physical record of the company shall also be transferred to the registrar in whose jurisdiction the registered office of the company has been shifted.

[Chapter 2: LO 3]

Question 21

**What is meant by Principal Line of Business. **

Answer 21

Principal line of business means the business in which company’s:
 substantial assets are held (or likely to be held), or
 substantial revenue is earned (or likely to be earned)
, whichever is higher.”

[Chapter 2: LO 3]

Question 22

How can a company change its Principal Line of Business?

Answer 22

To change Principal line of business clause, following procedure is followed:
1. Company shall pass Special Resolution in general meeting.
2. Within 30 days of special resolution, company shall file amended memorandum to registrar.
3. Registrar shall register the alteration. If change in principal line of business is not in line with name of the company, Registrar may order the company to change the name also.
Approval from Commission is NOT required to change principal line of business clause.

[Chapter 2: LO 3]

Question 23

What is Articles of Association.

Answer 23

Articles contain rules and regulations on internal affairs of the company e.g. regulations regarding minimum number of directors, or rights and liabilities of various classes of shareholders.
Articles cannot override Companies Act.

[Chapter 2: LO 4]

Question 24

List down some Contents/Information included in Articles of a company.

Answer 24

i. Business
ii. Transfer/Transmission of shares
iii. Alteration of capital.
iv. Voting and other rights attached to different classes of shares, and other securities.
v. Notices and Proceedings of General meetings.
vi. Manners of Voting of members.
vii. Proxy Instrument.
viii. Number of directors, their powers and duties.
ix. Proceedings of directors’ meeting.
x. Disqualification of directors and filling of vacancies.
xi. Minute books.
xii. Dividend, and Reserves.
xiii. Accounts.
xiv. The seal.
xv. Indemnity.
xvi. Winding up.

[Chapter 2: LO 4]

Question 25

**Give some examples of concept “Companies Act to override Memorandum/Articles”.**

Answer 25

 Companies Act requires that **minimum number of directors** of an unlisted company will be three. A company can write in articles to have atleast 05 directors, but cannot write to have atleast 02 directors.  Similarly, Act states situations for **disqualification of a director**. Articles may impose additional situations for disqualification but cannot reduce them. ## Footnote [Chapter 2: LO 4]

Question 26

**Is it required to a company to register its Articles?**

Answer 26

A company **limited by guarantee** and an **unlimited company** are required to register their Articles. A company **limited by shares** has following options:  It may **not register** its Articles, and may **adopt Table A** (in Companies Act, 2017) as its Articles, or  It may **register** its own Articles. However, **Table A** shall **still apply** if Articles do not discuss a content mentioned in Table A. ## Footnote [Chapter 2: LO 4]

Question 27

**What is the Procedures for Alteration in Articles.**

Answer 27

1. Company shall pass **Special Resolution** to alter the articles. 2. If such alteration affects substantive rights of members (or a class of members), such alteration shall be valid only if **3/4th majority** of affected class of members also vote for such alteration (either personally or through proxy). 3. Within **30 days of the resolution**, Company shall file with Registrar a copy of altered articles of association. 4. **Registrar** shall register the same. ## Footnote [Chapter 2: LO 4]

Question 28

**What are the rules regarding Contents, Printing and Signature of Articles.**

Answer 28

 Articles may include any or all of contents specified in** Table A ***.  Articles shall be in printed form, divided into sequentially numbered paragraphs, and shall be dated.  Subscribers shall **sign **the articles, and shall include their names, occupation, nationality, residential addresses and such other particulars as may be prescribed. A witness shall attest the signature, and shall mention his particulars similarly. ** ## Footnote [Chapter 2: LO 4]

Question 29

**Who can get a copy of Memorandum and Articles of a company.**

Answer 29

Any **member** of a company can request company to provide a copy of memorandum or articles, after paying **prescribed fee**. Company shall provide it to members within **14 days.** ## Footnote [Chapter 2: LO 5]

Question 30

**What is the Status/Effect of Memorandum & Articles.**

Answer 30

1. Memorandum and Articles **bind the company and members** as if they have signed by members. Members have to observe memorandum, and articles unless in conflict with Companies Act. 2. All the **money payable** by a subscriber (as per his undertaking in memorandum) shall be a debt due to him which is payable in such **time** and **manner** as may be **notified by Commission. ** ## Footnote [Chapter 2: LO 5]

Question 31

**Can a memorandum or articles require a member to take more share or increase his liability?**

Answer 31

An **alteration** in memorandum or articles to require a member **to take more shares** or **increase his liability** shall be valid only if:  member agrees in writing  either before or after the alteration is made. ## Footnote [Chapter 2: LO 5]

Question 32

**Under which Tables, Memorandum/Articles of different types of companies are available.**

Answer 32

 For Company Limited by Shares, Table A (for Articles) and Table B (for Memorandum)  Company Limited by Guarantee, not having share capital, Table C  Company Limited by Guarantee, having share capital, Table D  Unlimited Company, Table E  Association not for profit, Table F ## Footnote [Chapter 2: LO 5]