RE: Legal Opinion regarding whether or not COMPANY 1 has the authority under its Memorandum of Association to do the business of stock brokerage house.
We refer to your letter no. COMPANY 1/Legal Opinion/2007/914 dated July 25, 2007 on the same subject and our opinion Ref: …………………. dated April 22, 2007.
From perusal of your letters and the provided documents it appears that, Industrial COMPANY 1 (“COMPANY 1”) has been negotiating the price and formalities with an existing member of STOCK EXCHANGE 1, STOCK EXCHANGE 2 (“STOCK EXCHANGE 2 ”) in order to acquire its membership.
In this regard you require our opinion on the following issues:
1) Whether COMPANY 1 is permitted under the provisions of its Memorandum of Association (“MoA”) to do the business of stock brokerage house?
There is no express clause permitting COMPANY 1 to do stock brokerage business.
2) If COMPANY 1 is not allowed to do the said business under its MoA, what would be COMPANY 1’s next course of action to do the business of brokerage house? Can COMPANY 1 under its MoA acquire STOCK EXCHANGE 2 as a subsidiary of COMPANY 1 and then do such business through STOCK EXCHANGE 2 ?
Notwithstanding that STOCK EXCHANGE 2 is permitted under their MoA to carry on stock brokerage business, however COMPANY 1 may only take over and acquire business of industrial concern (Object Clause No. 23) or may only purchase all or any part of business of a company, whose object is similar to those contained in the object clauses of the MoA of COMPANY 1 (Object Clause No. 25 & 38). Hence COMPANY 1 may not under its MoA acquire STOCK EXCHANGE 2 as a subsidiary to do stock brokerage business which is not permitted under its own MoA.
COMPANY 1 have 2(two) possible alternatives:
i. Alter the provisions of the MoA of COMPANY 1 by adding object clause(s) to allow COMPANY 1 to own and operate a stock brokerage house: Amendment of the object clauses of the MoA is required to be approved by special resolution of the company and condoned by the High Court. The process can take 3 to 6 months. or
ii. Incorporate another entity as a subsidiary company of COMPANY 1 or acquire STOCK EXCHANGE 2 as a subsidiary of COMPANY 1 and then do the business of stock brokerage house through that Company: There are no specific provisions in the MoA authorising COMPANY 1 to incorporate a subsidiary company of COMPANY 1 or acquire another company as a subsidiary to carry on stock brokerage business. However, from Object Clause No. III (34), (37) and (38), it is apparent that even if COMPANY 1 wants to establish any agencies, enter into partnerships with other companies or purchase all or any part of the business or property of any person or company, COMPANY 1 has to ensure that the object of such endeavor is similar to those contained in the Object Clauses of the MoA of COMPANY 1. And as stated above, there is no express clause permitting COMPANY 1 to do stock brokerage business in the MoA. Therefore, we are of the opinion that, as COMPANY 1 must operate within the spirit and ambit of the MoA, COMPANY 1 needs to amend the object clauses of the MoA accordingly before incorporating a new company or acquiring STOCK EXCHANGE 2 do the business of stock brokerage house,.
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For: “The Lawyers & Jurists”