Page 153 - DCOM404_CORPORATE_LEGAL_FRAMEWORK

Corporate Legal Framework

Notes (c) There is an accidental omission of the word ’limited’ [Dermatine Co. v. Ashworth (1905) 21
T.L.R. 510]. In this case, a bill of exchange was accepted on behalf of a limited company.
The rubber stamp of the company was longer than the paper. As a result, the word ‘limited’
did not appear on the instrument. Held, the directors who accepted the bill of exchange
were not personally liable because omission was neither deliberate nor of negligent origin.
It was an obvious error of most trifling kind and the mischief aimed at by the Act did not

here exist.

The Registered office clause [s.13(1) (b)]. This clause states the name of the State in which the
registered office of the company will be situated. Every company must have registered offi ce

which establishes its domicile and it is also the address at which company’s statutory books must
normally be kept and to which notices and all other communications can be sent. The notice of
the exact situation (address) of the registered offi ce may be given to the Registrar within thirty
days from the date of incorporation (s.146).
As in the case of publication of the company’s name, s.147 also makes similar provisions regarding
publication of the Registered Office of the company.

The objects clause [s.13 (1) (d)]. The objects clause defines the objects of the company and indicates

the sphere of it activities. A company cannot do anything beyond or outside its objects and any
act done beyond them will be ultra vires and void and cannot be ratifi ed even by the assent of
the whole body of shareholders. However, a company may do anything which is incidental to
and consequential upon the objects specified and such act will not be ultra vires. Thus, a trading

company has an implied power to borrow money, draw and accept bills of exchange.
Section 13, read along with Tables ‘B’, ‘C’, ‘D’ and ‘E’, requires the company to divide its objects
clause into three parts: (a) Main objects of the company to be pursued by the company on its
incorporation; (b) Objects incidental or ancillary to the attainment of the main objects; and (c) Other
objects of the company not included in (a) and (b) above. A company, may on receipt of certifi cate
to commence business, pursue any business given in the ‘main objects’. In the case of companies
(other than trading companies) with objects not confined to one State, the Memorandum must

give the name of the State/(s) to whose ’territories the objects extend’. No business given in ‘other
objects’ can, however, be commenced unless prior approval of shareholders with regard thereto
is obtained by way of special resolution passed in general meeting [s.149 (2A)]. Where special
resolution is not passed, the Central Government, may on an application made by the Board of
directors, allow a company to commence business in the ‘other objects’, provided the votes cast
in favour of the resolution exceed the votes cast against the resolution, if any [s.149(2B)].
The objects of the company must not be illegal, immoral or opposed to public policy or in
contravention of the Act. For example, s.77 prohibits a company to purchase its own shares.
Liability clause [s.13 (2)]. This clause states the nature of liability of the members. In case of a
company with limited liability, it must state that liability of members is limited, whether it be by
shares or by guarantee. This means that in case of a company limited by shares, a member can be
called upon at any time to pay to the company the amount unpaid on the shares held by him. In
case of companies limited by guarantee, this clause will state the amount which every member
undertakes to contribute to the assets of the company in the event of its winding up.
In the case of an unlimited company, this clause need not be given in the memorandum. In
fact, the absence of this clause in the memorandum means that the liability of its members is
unlimited.
As per s.45, under certain circumstances the liability of members of a limited company becomes
unlimited.
The capital clause [s.13 (4) (c)]. This clause states the amount of share capital with which the

company is registered and the mode of its division into shares of fixed value, i.e., the number of

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