The objects clause in a company’s Memorandum of Association (MoA) defines the scope of activities the company is authorized to undertake. However, as businesses evolve and market dynamics change, a company may need to modify its objectives to align with new ventures or strategic directions.
Changing the objects of a company is a significant step that requires careful adherence to legal procedures under the Companies Act, 2013. This content explains the complete procedure for changing the objects of a company, ensuring compliance with the law and maintaining the company’s legal standing.
Reasons for Changing the Objects Clause
There are several situations in which a company might consider changing its objects clause:
- Expansion into New Markets or Activities: A company may want to venture into new business areas that were not part of its original objectives.
- Change in Business Strategy: The Company might adopt a new direction that requires modification of its objects.
- Regulatory Requirements: Sometimes, regulatory changes necessitate an amendment in the company’s objectives.
- Diversification: Companies diversifying their operations into unrelated fields need to update their objects to include those new activities.
Whatever the reason, the company must follow a well-defined procedure for altering its MoA.
Steps Involved in Changing the Objects Clause
Here is the step-by-step procedure for changing the objects of a company under the Companies Act, 2013:
1. Board Meeting for Approval
The first step is to convene a board meeting to discuss the proposal for altering the objects clause. During this meeting, the following matters are addressed:
- Approval of the draft resolution to amend the objects clause.
- Setting a date, time, and venue for an Extraordinary General Meeting (EGM) of shareholders to seek their approval.
- Authorizing a director or company secretary to issue a notice for the EGM.
Key Considerations: The change in the objects clause must be in the best interests of the company and align with the business's overall goals. The board must ensure that the new objects comply with existing laws and regulations.
2. Issuing Notice for Extraordinary General Meeting (EGM)
Once the board approves the proposal, the company must send a notice to all shareholders, directors, and auditors for convening the EGM. The notice must include:
- The agenda for the EGM, stating the specific resolution to be passed for altering the objects clause.
- A clear explanation of the new objects and the reasons for the change.
- A draft of the special resolution to be passed at the meeting.
According to Section 101 of the Companies Act, the notice must be sent at least 21 days before the meeting. Shareholders must be given ample time to review and prepare for the EGM.
3. Holding the Extraordinary General Meeting
At the EGM, shareholders will discuss and vote on the resolution for changing the objects of the company. Since this is a significant alteration to the company’s MoA, the resolution must be passed as a Special Resolution. This requires a majority of at least 75% of the votes cast to be in favor of the resolution.
4. Filing Special Resolution with Registrar of Companies (ROC)
Once the special resolution is passed, the company must file it with the Registrar of Companies (ROC) to formalize the change. The following forms and documents must be submitted:
- Form MGT-14: Form MGT-14 is used for filing special resolutions with the ROC. It must be filed within 30 days of the EGM, as per Section 117 of the Companies Act.
- Certified Copy of the Special Resolution: This is a copy of the special resolution passed at the EGM.
- Notice of EGM and Explanatory Statement: These documents provide details about the resolution and the reasons for the change in objects.
- Altered MoA: A revised version of the company’s Memorandum of Association, reflecting the new objects.
5. Approval from Registrar of Companies (ROC)
After submitting the required forms and documents, the ROC will review the application. If the ROC finds the submission in order, they will approve the changes, and the altered MoA will be updated in the company’s records. The change in objects will be effective from the date of the ROC’s approval.
6. Alteration of Certificate of Incorporation (if required)
In some cases, if the objects clause is a significant part of the company’s identity or if the company’s name includes a reference to its original objects, an amendment to the Certificate of Incorporation may be required. If applicable, the company will also need to update this document to reflect the new objects.
Post-Approval Compliance and Documentation
Once the change in objects is approved and updated by the ROC, the company must ensure the following compliance steps:
- Update Corporate Records: The Company must update its corporate records, including the altered MoA, to reflect the new objects. These records should be accessible to shareholders and other stakeholders.
- Inform Banks, Financial Institutions, and Stakeholders: It is important to notify any financial institutions, creditors, or other stakeholders about the change in objects, especially if the change impacts the company’s financial dealings or contractual obligations.
- Update Website and Other Public Documents: If the company’s objects are mentioned on its website, letterheads, or other public documents, these should be updated to reflect the new objectives.
Important Considerations and Legal Compliance
While changing the objects of a company is a straightforward process, several factors should be considered to ensure legal compliance:
- Existing Contracts and Agreements: Before changing the objects clause, the company must review any existing contracts or agreements to ensure that the change does not violate any terms. For example, certain agreements with vendors, clients, or financial institutions may have restrictions on altering business activities.
- Impact on Licensing and Permits: Depending on the nature of the new business activities, the company may need to apply for new licenses or permits. It is crucial to ensure that all regulatory requirements are met for the new objects to be legally executed.
- Minority Shareholders’ Rights: If the change in objects significantly alters the company’s direction, minority shareholders may have concerns. The company should be transparent in explaining the reasons for the change and how it benefits the business.
Conclusion
Changing the objects clause of a company is a significant step in the business lifecycle that requires a structured approach and compliance with legal procedures. From convening the board meeting to obtaining shareholder approval and filing the necessary forms with the Registrar of Companies, each step must be carefully executed to avoid penalties and ensure the seamless continuation of business operations.
By following the proper procedure and ensuring all necessary filings are completed, a company can successfully realign its objectives to meet new business opportunities and challenges, all while maintaining compliance with the law.
