Memorandum of association and the doctrine of ultra vires

1. Nature of the memorandum

Section 2(56) defines the memorandum as the memorandum of association as originally framed or as altered. It is the document that defines the company's constitution and the scope of its powers. It regulates the company's relation with the outside world, while the articles regulate its internal management. It must be in the form in Tables A to E of Schedule I as applicable (section 4(6)) and is signed by the subscribers.

2. The clauses: section 4(1)

• Name clause (section 4(1)(a)). The name must end with “Limited” (public company) or “Private Limited” (private company), except for a section 8 company. It must not be identical with or too nearly resemble an existing name, or be undesirable (section 4(2)). The name, with the registered office address and CIN, must be shown on the company's letters and documents (section 12(3)).
• Registered office clause (section 4(1)(b)). Only the State is stated in the memorandum. The registered office determines the Registrar's jurisdiction and the domicile of the company; it must be established within thirty days of incorporation (section 12(1)).
• Objects clause (section 4(1)(c)). The objects for which the company is incorporated “and any matter considered necessary in furtherance thereof”. The 1956 Act required separate lists of main objects, incidental objects and other objects; the 2013 Act dropped that division.
• Liability clause (section 4(1)(d)). Whether liability is limited or unlimited; for a company limited by shares, that liability is limited to the amount unpaid on the shares; for a guarantee company, the amount each member undertakes to contribute on winding up.
• Capital clause (section 4(1)(e)). For a company with share capital, the amount of capital with which it is registered and its division into shares of a fixed amount, and the number of shares each subscriber takes.
• Nominee clause for a One Person Company (section 4(1)(f)): the person who becomes the member on the subscriber's death.
• Association and subscription clause. The subscribers declare their desire to be formed into a company and agree to take the shares set against their names.

3. Alteration of the memorandum

The general rule in section 13(1) is that the memorandum may be altered by a special resolution, subject to the procedure in the section. Each clause then has its own extra requirement:

• Name: special resolution and the approval of the Central Government in writing, except where only “Private” is added or deleted on conversion; the Registrar issues a fresh certificate of incorporation, and the change takes effect only then (section 13(2), (3)). A name too nearly resembling an existing name can be rectified on the Central Government's direction (section 16).
• Registered office from one State to another: special resolution and approval of the Central Government, which must satisfy itself that creditors and debenture-holders have consented or are protected (section 13(4), (5)). A shift outside the local limits of the city, town or village needs a special resolution, and a shift from one Registrar's jurisdiction to another within the same State needs confirmation by the Regional Director (section 12(5)).
• Objects: special resolution, registered with the Registrar. A company that raised money by prospectus and has any of it unutilised must also publish the resolution in newspapers and give dissenting shareholders an exit opportunity (section 13(8)).
• Capital: altered under section 61 by the company in general meeting, if the articles authorise it (increase, consolidation, conversion into stock, sub-division, cancellation of unissued shares). Reduction requires a special resolution and Tribunal confirmation under section 66.
• Liability: a limited company may convert into an unlimited one and vice versa by the conversion procedure in section 18, which requires alteration of the memorandum and articles and protects existing debts and contracts.

No alteration has effect until registered (section 13(10)).

4. The doctrine of ultra vires

Ultra vires means beyond the powers. An act of a company is ultra vires if it is outside the objects in its memorandum and not reasonably incidental to them. Such an act is void: it does not bind the company, the company cannot enforce it, and it cannot be ratified.

Ashbury Railway Carriage and Iron Co. v. Riche (House of Lords, 1875). The company's objects were to make and sell railway carriages and wagons and to carry on business as mechanical engineers and general contractors. The directors contracted with Riche to finance the construction of a railway line in Belgium. The shareholders at first approved, then repudiated the contract. Riche sued. The House of Lords held that the contract was beyond the objects, and therefore void ab initio. Since the company had no capacity to make it, even the unanimous assent of the shareholders could not ratify it. “General contractors” was read with the preceding words, not as a power to do any business at all.

Incidental powers. The doctrine is applied reasonably. In Attorney-General v. Great Eastern Railway Co. (House of Lords, 1880) Lord Selborne held that whatever may fairly be regarded as incidental to, or consequential on, the objects authorised ought not, unless expressly prohibited, to be held ultra vires. Borrowing for the business, employing staff, and paying gratuities to employees are usually incidental.

The Indian position. In A. Lakshmanaswami Mudaliar v. Life Insurance Corporation of India, 1962 INSC 368, AIR 1963 SC 1185, the life insurance business of a company had vested in the LIC on nationalisation. The shareholders resolved to pay two lakh rupees to a trust for promoting technical and business knowledge. The Supreme Court held the payment ultra vires: the memorandum did not authorise it, and a donation to a trust unconnected with the company's business was neither incidental nor conducive to its objects. Directors acting under a resolution of members could not validly make a payment the company itself had no power to make.

5. Consequences of an ultra vires act

• Void and incapable of ratification, by the Board or the general meeting.
• Injunction. Any member may obtain an injunction restraining the company from an ultra vires act; the majority rule in Foss v. Harbottle does not bar him. Under section 245(1)(a) members or depositors can bring a class action before the Tribunal to restrain the company from an act ultra vires the memorandum or articles.
• Personal liability of directors. Directors who apply the company's money to an ultra vires purpose are personally liable to restore it, as for breach of trust. If they induce an outsider to deal with the company by representing they have authority they lack, they are liable for breach of warranty of authority.
• Ultra vires borrowing. The lender cannot sue on the loan, but may trace and recover his money if it still exists in identifiable form, and is subrogated to creditors whose debts the money was used to pay.
• Property acquired. Property acquired under an ultra vires transaction is held by the company, and the company's right to it is protected against outsiders.
• Torts. A company is generally not liable in tort for an act outside its objects, since the servant cannot have been acting in the course of the company's business.

How this is examined

June 2025 asked “Explain the clauses of memorandum of association” for 10 marks. Other papers ask for a short note on the doctrine of ultra vires, or set a problem in which directors spend money on something outside the objects. For the clauses question, take each clause in the order of section 4(1), give its content and then its mode of alteration. For ultra vires, state the meaning, Ashbury with facts, the incidental-powers qualification, Lakshmanaswami Mudaliar, and the consequences. In a problem, ask first whether the act is within the objects or reasonably incidental; if not, it is void however many members approved it.