Change in Business Compliances

Can Object Clause be altered under the Companies Act, 2013?

Section 13 of the Companies Act, 2013 read with rule 29 of Companies (Incorporation) Rules, 2014 contains the procedure for alteration in Object clause of the Company under Companies Act, 2013. Memorandum of association is the main charter of the Company, and it particularly defines the scope of its activities. Memorandum of association also provides the relation of the Company with the rights of the members of the Company, its interest and establishes the relationship of the Company with its members.

The (MOA) Memorandum of Association of a company therefore also has object clauses that determine the purpose and range of activities for a company. Once the incorporation of a company is done, it may require changing or altering the object clause. This requires alteration to be made in the MOA of the Company.  Section 13 of the Companies Act 2013 deals with alteration in the MOA. According to it, every clause mentioned on the MOA can be altered but with the exception of the capital clause which requires an ordinary resolution to be passed, whereas section 13 say by passing a special resolution. 

The object clause of the Company is usually the third clause of Memorandum of association of the Company. It states the objects are the business/purpose for which the Company which has to be or is incorporated and any other matter considered necessary in furtherance thereof. If any act was done by the Company which is beyond the objects and powers as provided by the Companies Act, 2013 then it must be considered as ultra virus. The making of an object clause is one of the most importance clauses for the incorporated Company.

Objects Clause of Memorandum of Association

As also discussed above the object clause specifies the activities which a company needs to carry on for running its business activities. The Company is bound by that clause, and further cannot carry on any activity which is not mentioned in its Memorandum of Association. The activities which are carried out beyond or outside the objects will be ultra vires, and it would be void. However, the Company can do anything incidental to the objects that are specified. There are two types of object clause as mentioned under section 4 of Companies Act, 2013 they are:

1. Main Object which is to be pursued by the Company on its incorporation
2. Ancillary objects are that objects considered necessary in furtherance of the main objects

Procedure for amendment or alteration of object clause of MOA

Object Clause of MOA has to be altered by looking into the provisions under Section 13 of Companies Act 2013 read along with Companies (Incorporation) Rules, 2014. According to Section 13 of Companies Act 2013 that a Company may by passing a special resolution and further after complying with the procedure mentioned in this section can alter the provisions of its Memorandum. The following is the procedure provided below:

STEP-I: Convene a Board Meeting

• Call and Convene the Board Meeting for the alteration of the Object clause in Memorandum of Association of Company. The Notice is given of at least 7 days as specified under section 173(3) of the Act.
• The Main Agenda for the Board meeting would be:
  • For getting in- the principal approval of Directors for making changes in Object clause of MOA
  • Further requires fixing date, placing and timing for holding (EGM) Extra-ordinary General Meeting for the approval of shareholders. By way of passing Special Resolution, the amendment can be made in Object Clause of MOA. This amendment in Object Clause of MOA would be in accordance with the requirement of Section 13 of the Companies Act, 2013
  • The approval of Notice of (EGM) Extra-ordinary General Meeting is taken along with agenda and explanatory report to be annexed to the notice of General Meeting in accordance with the section 102 clause 1 of the Companies Act, 2013
  • It is also to authorize the Company Secretary or the Director to issue Notice of the (EGM) Extra-ordinary General meeting and get it approved by the Board under clause 1(c) of the above mention section.

STEP-II: Issue Notice of the EGM

• The notice has to be issued in the (EGM) Extra-ordinary General meeting in writing to all Members, Auditors and the Directors of the company minimum of at least 21 days before the meeting date of the EGM. It has to be according to the provisions of Section 101 of the Companies Act, 2013 and is given to all the Members, Directors and Auditors of the Company.
• The Notice must consist of the place, date, and the time of meeting and it must also contain a statement and report on the business to be transacted at the Extra-ordinary General meeting.

STEP-III: Holding of the General Meeting

• It is to hold the (EGM) Extra-ordinary General meeting on due date and pass the necessary Special Resolution according to section 13(1) of the Companies Act, 2013, for the alteration in Object clause of MOA.
• Quorum: According to Section 103 (b) of the Companies Act, 2013 it states that in the case there is a Private Company, the presence of two members personally must be required for the quorum for a meeting of the Company.

STEP-IV: ROC Form filing

According to Section 13 of Companies Act, 2013, Company is required to pass the Special Resolution by the shareholders to file a form for Alteration of Memorandum within 30 days of passing of Special Resolution. It must be filed with the concerned Registrar of Companies in Form MGT-14 along with prescribed fees and also with the following attachments:

• The true certified copies of the Special Resolutions along with an explanatory statement
• The copy of Notice of EGM which send to members along with all the Annexure
• A printed copy of the new Altered Memorandum of a company
• The certified true copy of Board Resolution that can be attached as an optional attachment.

STEP-V: Duty of Registrar of Companies

• According to section 13(10) of Companies Act 2013, the alteration made under this section must not have any effect until and unless it has been registered with ROC in accordance with the provisions of the mentioned section.
• According to section 13(9) of Companies Act 2013, The Registrar of Companies has to register any alteration of the MOA with respect to the objects of the Company. The registration is made certified within a period of 30 days from the date of filing of the Special Resolution, which is specified in clause (a) of subsection (6) of section 13. The concerned Registrar of Companies (ROC) will verify the E-forms and the attached documents which are required to give effect in the change of Object clause of the MOA.
• Thereafter the Registrar shall issue such certificate which becomes the evidence that all the conditions with respect to the alteration have been duly complied with.
• The alteration is completed and becomes effective on the issue of the certificate by the ROC.
• The additional fees will be levy as per Companies Act- 2013 if the special resolution is not filed within thirty days from the date of passing of such special resolution
• It is the responsibility of the Company to incorporate the alteration in every copy of the MOA

Importance of Certificate

The Registrar has to issue such certificate which will be the conclusive evidence that all the requirements in respect to the alteration of object clause have been duly complied with by a company. Also further, no alteration can be made under this section. This must have an effect until the Company has been registered in accordance with the provisions of this section. The alteration will be said to the complete and effective only when the issue of the certificate by the Registrar.

Reason to Amend Object Clause

The following can be the specific reasons for which the Company may alter its object clause, which is as follows:

• The Company when wants to carry its business on a larger scale by enhancing the scope of its business activities.
• For the attainment of the goals already set by the Company by new and more improved methods.
• For carrying such additional business activities which can easily be combined with the existing business of the Company.
• In order to sell or dispose of the part of the business that can further alter the structure of the business.
• In case when the Company is getting amalgamated or gets combined with other companies, it requires to be expanding from its existing objective.

Doctrine of Ultra-Vires

A new business mentioned in other objects clause cannot be commenced without taking the prior approval of the shareholder by passing a Special Resolution. The company law prescribes that any activities beyond the scope of the objects will be ultra vires and hence void. In other words, any of the transaction which is beyond the scope of the powers specified in the objects clause of MOA which is not reasonable incidentally or necessary for the attainment of the objects is ultra-vires of the Company

Consequences of the act of ultra vires

If an act which is deemed to be an ultra-vires transaction it can have the following consequences:

• No person can sue the Company for the rights enforced, which is made beyond the powers. Also, the Company cannot sue any person for enforcement of any of its rights made in ultra vires.
• No rights and liabilities aroused out on the part of the Company of such transactions made in ultra vires. Also, it is a nullity even if all the members of the Company agree to it.
• The directors of a company may be held personally liable to outsiders for an ultra vires act. The director may be compelled for the restoration to the Company the funds that have been employed in an ultra vires transaction.
• The members of the Company have a right to get an injunction from the Court if he finds out that the Company is acting ahead with an ultra vires act.
• The ultra vires acts are deemed to be void-ab-initio. Therefore, the Company is not bound by the act, and also it cannot sue or be sued upon it.

Sample board resolution for change in the object clause

“RESOLVED THAT pursuant to provisions of Section 13 and other applicable provisions of Companies Act, 2013 it includes any statutory modifications or re-enactment thereof, for the time being in force and the rules framed there under, consent of the Board of Directors of a Company be and is hereby accorded, and subject to the approval of the Registrar of Companies, NCT of Delhi and subject to the approval of Shareholders in General Meeting, to append following sub clause (4) after sub clause (3) of clause III (A) of the (MOA) Memorandum of Association of Company.

FURTHER RESOLVED THAT for the purpose of giving effect to these resolutions, Mr. XYZ, Director of the Company be, and it is hereby authorized, on behalf of a Company, to do all acts, matters, deeds and things as deem necessary, proper or desirable and to sign and execute all necessary documents, the applications and returns for the purpose of giving effect to the aforesaid resolution along with the filing of necessary E-form as the return of appointment with the Registrar of Companies, NCT of Delhi.