The objectives of a company as stated by the memorandum mark the limits of a company’s activities. All acts done by the company outside the powers taken in the memorandum are ULTRA VIRES the company null and void. If a company wishes to change or extend its objectives, it can do so only with the sanctions of a high court and to obtain a high court sanctions in such matters is a long expensive procedure. To avoid this mess, it is the practice to draft the objectives clause in such a way as to authorize the acts which the company must be able to do to carry out the purpose for which it is formed and also to authorize other acts which in course of time ,the company may wish to do, further to carry out its main powers as defined in the objects clause. For instance, a trading company about to be incorporated may envisage that it might be advantageous in the future to manufacture goods which at first it was proposed to buy from outside firms. It will therefore take power in the objects clause to buy or manufacture and sell the staple commodities in which it is to trade.
ARTICLES OF ASSOCIATION
Of course , there may be filed with the memorandum of Association a voluminous document known as the articles of association which must be signed all the signatories to the memorandum .This document contains regulations for the internal management of the company. It provides for the manner of issue and nature of the shares, the time and conduct of meetings, the number, election, remuneration and powers of the directors and many other matters. When a person becomes a member of a company he is bound by the articles as if he had personally signed and sealed the document as his deed. The articles are not as rigid as the memorandum and may be altered or fixed added to by the company by passing a resolution for the purpose in general and special meetings. When special articles are not registered with the memorandum, then automatically, the model set of Articles which form an appendix to the companies Act of 1929, known a company’s Articles.
CERTIFICATE OF INCORPORATION
On registration being completed the registrar will issue a certificate of Incorporation, from the date of which the persons becoming members of the company form a corporation. The certificate is conclusive evidence that all the requirements as to registration have been complied with.
COMMENCEMENT OF BUSINESS-
A private company can forge ahead to allotment of shares, and start up business and exercise its borrowing powers immediately the certificate of Incorporation is collected. Whereas a public company issuing a prospectus must observe certain other regulations, one of the chief of which is that the minimum subscription for shares as fixed by the articles must first have been secured before any shares of the company is allotted. It should be only upon the filing of a statutory declaration by the secretary or a director of the company that all these requirements of the act have been complied with will the registrar certify that a public company is entitled commence business.
From the economic point of view on a very serious note, a company obtains the capital that is a public company, obtains a capital to prosecute its objects by means of a prospectus in which the terms of subscription for its shares are set forth. The word capital, has several meanings, but let’s proceeds further.
CAPITAL
The fifth clause of the memorandum deals with the amount of capital with which the company proposes to be registered. This is known as the registered capital or the Nominal capital. A company should not necessarily issue shares to the full extent of its registered or nominal capital, even though the side but the figures are under-ruled and are not extended into the total column. It is a memorandum entry.
ISSUED OF SUBSCRIBED CAPITAL-
This is the real face value of the shares issued to the public but the shares may or may not be fully paid up.
Paid up capital-
This is the very amount which has been called up and paid up by the subscribers; it may and usually does in an industrial company, equal the issued capital. But most banks and many other businesses concerns have large subscribed capitals only partially called up so that the share holders carry a heavy liability for the uncalled balance of their shares. In the case of the banks this liability, which the shareholders can be asked to meet only in the event of the concern being wound up.
CLASSES OF SHARES-
preference of shares-
Cumulative – Non cumulative.
Redeemable preference shares
Participating preference
Participating Preference shares
Preferred Ordinary shares
Ordinary shares
Deferred shares
PREFERENCE-
The preference rights attached to these shares may apply only so far as to give the preference shareholders a first claim on the profits of the company , but they may extend also to right, in a winding up of the company to repaid their capital before other classes of shareholders are repaid their capital. Preferential dividends are fixed dividends. When the shares are cumulative preference shares, then if in any one year the profits are insufficient to pay the fixed preference dividend, the arrears of dividend are carried forward and must be paid out of the first available profits earned in subsequent years. Non-cumulative preference shares do not have this right and when the profits in any year are insufficient to pay the dividend the share holder must suffer the loss. These shares are sometimes known as preferred ordinary shares.
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