Change in Object Clause of Company

Every person who are willing to set up a business, desire to achieve their goal and put sweat and blood to turn his/her dream into reality. When business is set up in form of Company these goals are defined as objects of the Company. One thing which is common in every category of company be it private, public, one person or non profit making company or any other form, that is each one has to specify its objective of carrying business.

This objective reflects the vision of the company that it sought to accomplish and all the activities of the company are conducted keeping in view of fulfilling the object of the Company.

However, it may happen that owners or directors realise afterward that company may venture into other fields to seize opportunities prevailing in other sector and industries.

For example, Mr. A had incorporated a Company to carry business of tea products, it may happen that due to market condition and opportunities he consider that opening a café would be beneficial for him or he might want to enter into any other manufacturing business to expand its business into new arena.

In such scenario, Mr. A can opt for modifying the objects of the Company which is already in existence and can continue its business with new objectives.

To change the existing objective of any Company, it is necessary to alter the Memorandum, of Association of Company which states the objective of the Company in its Object Clause.

Reasons to Change Object Clause

Change of object clause of Company can be done for several reasons that varies from company to company. Some of the reasons are given below for reference:

  • To enlarge the scope of the existing activity by expanding business into same sector.
  • To avail benefit of market by entering into new business in addition to the existing line of activity.
  • In case of merger, amalgamation companies often change their object as per their scheme of arrangement.
  • Similarly disinvestment/demerger may lead company to reduce its line of activity.
  • Company may have some objects which they might not have not pursued and also willing to carry that object in future, in such cases company change their object clause to present true depiction of their company’s object.

Basic of Object Clause

Memorandum of Association of a Company, which is the principle documents of any Company, states the Object Clause which underlies the activities company pursue to undertake.

As per the format of the Memorandum of Association given in Schedule I of Companies Act, 2013 Object Clause is bifurcated in two parts as given below:

Clause 3 (a): The objects to be pursued by the company on its incorporation: It specifies the main activities that a company will carry on.

For example: manufacturing, trading, service, software development, export import etc.

Clause 3(b): Matters which are necessary for furtherance of the objects specified in clause 3(a): It specifies those activities which are necessary or required to fulfil objects given in clause 3(a).

For example: To carry business of manufacturing, one might require to set up factory, to take land on lease, to purchase plant machinery, to enter into contract, to open bank account and many other activities which are in furtherance to the main object. These matters are covered under clause 3(b) of object clause.

Types of Change in Object Clause

Object clause of the Memorandum of Association can be altered in three ways:

Addition in existing clause:  This means that if a Company has mentioned three activities in the object clause, then Company can add number of activities that will result into addition in existing clause.

For Example: Object Clause of a Company states:

  1. To carry business of software developer
  2. To carry business of information technology

If Company wants to carry business in addition of existing business then the Object Clause will be altered as follow:

  1. To carry business of software developer
  2. To carry business of information technology
  3. To carry business of Hardware Stores

Deletion in existing clause: As name suggests, this is alteration in object clause by removing any existing activity of the Company

For Example:

Object Clause of a Company states:

  1. To carry business of software developer
  2. To carry business of information technology

If Company wants to discontinue any business from existing objects then the Object Clause will be altered as follow:

  1. To carry business of software developer

Modification in existing clause: This is alteration in object clause by making alteration in existing business activities.

For Example:

Object Clause of a Company states:

  1. To carry business of software developer
  2. To carry business of information technology

If Company wants to remain in same business but with certain modification in existing business then the Object Clause will be altered as follow:

  1. To carry business of software developer and to operate a customer support centre.
  2. To carry business of information technology and provide consultancy and training services for the same.

Process to Alter Object Clause of Memorandum of Association

Section 13 of Companies Act, 2013 specifies the process through which a Company can change its object clause.

Below given is a summarised procedure for changing object of the Company.

  • Any director or person authorised by the Board will dispatch a notice to call for Board Meeting.
  • Notice shall be given as per section 173 of Companies Act, 2013 read with secretarial standard 1 on Board Meetings.
  • Conduct Board Meeting to consider the change in object of the Company.
  • After assent of the board members, call for a general meeting for approval of members to alter object clause inter alia alteration in Memorandum of Association.
  • Dispatch notices for calling an Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) to all the members in accordance with provisions section 101 of Companies Act, 2013 read with secretarial standard 2 on General Meetings.
  • Accord approval of Members through Special Resolution at Extra Ordinary General Meeting (EGM)/Annual General Meeting (AGM) for object change and alteration in Memorandum of Association.
  • File E form MGT-14 to submit special resolution with the Registrar of Companies.
  • The Registrar shall register the alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution.
  • Post approval of MGT-14, Company should ensure to arrange print for new copies of Memorandum of Association to give effect to the altered object.

Restrictions on Alteration of Object Clause

Raising money through public is one of the sources for companies to acquire fund for business. Generally Companies raise money from public and issue shares to them, for raising such money, public companies are required to issue a prospectus detailing the object of the company and also they have to explain the utilisation of the fund.

Ministry of Corporate Affairs has put certain restrictions on change in object clause by such companies to protect the interest of the shareholders as public money is on stake.

Section 13 of Companies Act, 2013 states conditions as to how a company, which has raised money from public through prospectus can change its objects.

Below given are some points to consider:

  • If any company has raised money from public through prospectus and still has any unutilised amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution is passed by the company:

    In simple terms, if a Company has taken money from public stating in the prospectus that it will invest the money in infrastructure business and some of the amount as raised remains unutilised, later on if such Company wants to carry business into education sector, it cannot do so, unless members of the Company has accorded their approval for such change.

  • Resolution is required to pass through postal ballot in accordance of section110 of Companies Act, 2013.
  • Company is required to publish an advertisement in English and vernacular language in circulation at the place where the registered office of the company is situated.
  • Advertisement should include justification for change in object and below given particulars:
    1. the total money received
    2. the total money utilized for the objects stated in the prospectus
    3. the unutilized amount out of the money so raised through prospectus,
    4. the particulars of the proposed alteration or change in the objects;
    5. the justification for the alteration or change in the objects;
    6. the amount proposed to be utilised for the new objects;
    7. the estimated financial impact of the proposed alteration on the earnings and cash flow of the company
    8. the other relevant information which is necessary for the members to take an informed decision on the proposed resolution;
    9. The place from where any interested person may obtain a copy of the notice of resolution to be passed.
  • All above said particular are also required to mention in the notice dispatched for calling general meeting.
  • Advertisement should be publishing simultaneously with dispatch of notice to shareholders.
  • Notice shall also be placed on the website of the Company.

The basic intent of the law maker is to protect the interest of the investors who has put their money on the assumption that Company will not carry any activity that prejudice their stake in any respect whatsoever.

It is pertinent to note that the above stated regulatory framework are as per Companies Act, 2013 only, If any Company is registered with other any regulatory bodies like SEBI, RBI, MSME, IRDA , Companies have to follow additional compliance as prescribed by different regulators under which Company is registered

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