(Importance of Memorandum of Association)
The importance of councilor memorandum to a company is evident from the fact that in its absence the legal status of the company becomes void. Councilor’s memorandum is the fundamental and essential document of the company, as it gives birth and existence to the company. Some scholars have also called it an important charter, because it determines the limits of rights and functioning of the company established under the Companies Act. The importance of this document is so much that it was considered an irrevocable charter in England till the year 1980. As a result, the companies had to face many kinds of difficulties in running the business. For this reason, provision has been made in the Act to change it in some special cases and to some extent. Aside from this arrangement, the Councilor’s Memorandum is still considered an irrevocable charter, as it is the cornerstone of the company. Therefore, it is in the interest of the creditors, outsiders and shareholders not to make frequent changes in it. Thus it becomes clear that the councilor memorandum is an important and irrevocable charter of a company, as a company is amalgamated as an artificial person by virtue of the conditions contained therein. According to the Companies Act, every company is required to form it. The following points are important in relation to the importance of the memorandum
(1) Fundamental instrument is considered to be a fundamental instrument for every company. For the amalgamation of every new company, it is necessary to create it, otherwise the amalgamation is not possible.
(2) Immutable Charter – It was considered irrevocable in England till 1890, but it brought many difficulties in the proceedings of the companies, which inspired it to be changed in some special cases in the Act. The current Companies Act also recognizes the immutable nature of this form.
(3) Explanation of risk of members- The object sentence of the memorandum states the risk of the members. In the words of Lai Parker – “The narrower the objective is expressed in the memorandum, the less is the risk to the members. Conversely, the more detailed the objectives are expressed, the greater the risk.” ” Therefore, the memorandum should be prepared very carefully.
(4) Memorandum is also considered as a public document for a purpose because every person who deals with the company is expected to have studied the councilor memorandum of the company thoroughly.
It is clear from the above description that the councilor memorandum of the company is an important charter without which the company does not get any existence because in it the details of the company’s activities are given. If the company does any work outside the functions or purposes mentioned in it, then it will be called ultra-vires work.