The objects clause of the memorandum of association defines the contours of the company’s business activities. It gives powers to undertake the business activities which as indicated, whereas those activities not part of the objects, cannot be undertaken by the Company, even if all the shareholders give consent to undertake such activity.
In Bhutoria Brothers (P) Ltd., In re[1], it was noted,
“11. Stating the objects of the Company in the memorandum is not a mere legal technicality, but is a necessity of great practical import. It is essential that the public who are called upon to subscribe to the capital of the company by purchase of its share should know clearly what are the objects for which they are paying and which they want to encourage. To give this necessary information, the statement of objects should be clear. It must not be too vague and too general and too wide for in that case it will defeat its very purpose and object. That is why it is not regarded permissible in law to have one solitary clause in the memorandum of association saying, “The Company will carry on all kinds of business” without stating what the kinds of business are.”
Subject to the compliance of Companies Act, a company can change or alter its object clause. Such change in object clause of the company would be increase the scope of business activity of the company/expand business operations, include an object clause of the company (which is not there), statutory purpose (for certain Insurance Regulatory and Development Authority (IRDA)/SEBI registered intermediaries, etc.). Such alteration would also include deletion of obsolete and redundant objects included in the memorandum of association of the company. This article relates to the compliance checklist for altering the object clause of the memorandum of association of the company.
1. Applicable provisions.— Sections 4, 10 and 13 of the Companies Act, 2013 (Act) and relevant provisions of the Companies (Incorporation) Rules, 2014 relates to object clause or changes in object clauses of the memorandum of association of the company.
- Contents of the “object clause”.—Under Section 4 of the Act, the object clause shall contain the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. Here, the relevant provisions are Schedule I to Act which Tables A, B, C, D and E.
- Approval of the Board of Directors.—The directors of the company shall primarily approve the proposal for altering object clause of the company. Such approval shall be subject to the approval of the shareholders and Central Government (in case of Section 8 companies). The necessary authorities shall also be specified in the resolution. The directors shall then call for shareholders meeting and authorise the director(s) or company secretary to issue notice to the shareholders. The resolution passed shall be accordingly drafted. The notice shall be issued in accordance with the Act, Rules made there under and the provisions of the articles of association of the company. The company shall ensure compliance of Sections 101 and 102 of the Act (according to the applicability and provisions in articles of association of the company). In case of public companies or private companies that are subsidiary of public companies, if the amendment to the object clause amounts to diversification of business activity, then in such cases, such companies shall file e-Form MGT-14[2] with the Registrar of Companies.
- Approval of shareholders.—The resolution for amending the memorandum of association for the objects of the company shall be placed before the shareholders of the company. Such approval can be obtained in general meeting or electronic voting or both, as the case may be. The approval of shareholders by passing a resolution by postal ballot may be obtained for alteration of the object clause in the memorandum of association and in the case of the company in existence immediately before the commencement of the Act (i.e. 1-4-2014), alteration of the main objects of the memorandum of association[3].
- Explanatory statement.—A statement setting out the following material facts concerning each item of special business (i.e. amendment to memorandum of association) to be transacted at a general meeting, shall be annexed to the notice calling such meeting, namely: (i) Nature of concern or interest, financial or otherwise, if any, in respect of each items of every director and the manager, every other key managerial personnel; and relatives of the said persons; and (ii) Any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon. Where any item of business refers to any document (i.e. memorandum of association, in this case), which is to be considered at the meeting, the time and place where such document can be inspected shall be specified in the explanatory statement.
- Section 8 companies.—A company registered under Section 8 of the Act shall not alter the provisions of its memorandum of association or articles of association (for any clauses) of the company, except with the previous approval of the Central Government (the powers have been delegated to the Registrar of Companies). An application for such alteration for Section 8 company may be filed by e-Form GNL – 1. Such application to the Central Government (i.e. ROC) can be made by obtaining the approval of Board of Directors. After the approval of Central Government (i.e. ROC), the amendment to the memorandum of association shall be placed before shareholders for their approval. The company shall then file e-Form MGT-14 with the Registrar of Companies[4];
- Change of name (for listed entities).—According to Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, a listed entity shall be allowed to change its name subject to compliance with the following conditions: (i) time period of at least 1-year has elapsed from the last name change; (ii) at least 50% of the total revenue in the preceding 1-year period has been accounted for by the new activity suggested by the new name; or (iii) the amount invested in the new activity/project is atleast 50% of the assets of the listed entity. SEBI has clarified that if any listed entity has changed its activities which are not reflected in its name, it shall change its name in line with its activities within a period of 6 months from the change of activities in compliance of provisions as applicable to change of name prescribed under the Act[5].
- Registration of alteration.—The Registrar of Companies shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of 30 days from the date of filing of the special resolution. The Registrar of Companies issues a certificate for registering the alteration of the object clause of the company.
- Validity of registration.—The alteration made under Section 13 of the Act shall not have any effect until it has been registered in accordance with the provisions of the Act.
- Compliances (post-alteration of object clause.—Each and every copy of the memorandum of association shall have the revised/new object clause of the company.
Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at gp@csgauravpingle.com.
[1] 1957 SCC OnLine Cal 229 : AIR 1957 Cal 593.
[2] S. 179(3)(h) read with S. 117(3)(g) of the Act.
[3] R. 22 of the Companies (Management and Administration) Rules, 2014.
[4] Under S. 117 of the Act.
[5] Regulation 45 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015.
