Updated : September 2, 2024What is the Main Object Clause in the MOA and How to Change it?
Overview :A Memorandum of Association (MOA) often referred to as the ‘Charter of a Company’ is a document that lays down its legal foundation. The main object clause of MOA defines the scope of a company’s business activities. It consists of all the basic details and information such as Company Name, Registered Office, Capital, Nature of Shareholder’s liability, Primary Object, etc. This blog explains the complete process of changing the object clause in order to alter the scope of activities a company can conduct.
The Object Clause is one of the 6 clauses a Company’s Memorandum of Association contains. Its purpose is to define the primary business activities of a Company. The company is restricted to conduct only those activities which are mentioned in the Object Clause. So, to expand and alter the scope of its activities, a company will have to first change the object clause of its MOA. Understanding the process of changing the Object clause is thus, quite crucial in this context.The Object Clause is one of the 6 clauses a Company’s Memorandum of Association contains. Its purpose is to define the primary business activities of a Company. The company is restricted to conduct only those activities which are mentioned in the Object Clause. So, to expand and alter the scope of its activities, a company will have to first change the object clause of its MOA. Understanding the process of changing the Object clause is thus, quite crucial in this context.
Memorandum of Association and Its Clauses
Memorandum of Association is a vital company document that lays down its legal foundation. It mentions and confirms all the basic details and information with which a company gets incorporated. These include its name, registered office, capital, nature of shareholder’s liability, primary object, and so on. The document is drafted in the format mentioned under Schedule I of the Companies Act, 2013. Each of these formats are divided into specific clauses as mentioned in the table below.
| Clauses | Their Purpose & Content |
|---|---|
| Nature of Tax | Indirect Tax |
| Name Clause | Company’s Name ending with the words “Limited” for Public Limited Company and “Private Limited” for Private Limited Companies and OPCs |
| Situation Clause | Name of the State in which the Company’s Registered Office is situated |
| Object Clause | Primary Object or business activity of the Company, and the matters essential for its furtherance |
| Liability Clause | Nature of Liability of Shareholders – Limited by Shares, Limited by Guarantee or Unlimited |
| Capital Clause | Subscribed Capital of the Company |
| Declaration Clause | Names, Addresses, Shareholding, and Signatures of all Subscribers to the MOA intending to form a company in its pursuance |
| Nominee Clause | Name and Signature of the Shareholder’s Nominee, only in case of OPC |
Note that any changes in the above details of the company will require an alteration of the concerned clause according to the procedures specified under Section 13 of the Companies Act, 2013. This generally includes a resolution passed by the shareholders in general meeting followed by an intimation to the ROC in the appropriate form supported by proper documentation. Once the alteration is made, the ROC grants a Certificate confirming the change to the company. The further sections discuss in detail the procedure of one of the most important MOA clauses viz. the object clause for your clear understanding.
Object Clause in MOA - Meaning, Purpose & Content
The Object clause is one of the most significant clauses of the MOA. It defines the scope and extent of activities a company can undertake in its due course of business. An activity which has not been mentioned in the MOA cannot be carried out by the company, unless an alteration is made to that effect in the Object clause. The doctrine of Ultra Vires applies here which states that any activity or transaction of the company which falls outside the object clause of the Memorandum shall be considered “Ultra Vires” or beyond the powers of the company to carry out.
Effects of Ultra Vires Activities: What if a company carries out activities not mentioned in the object clause of MOA? Well, in the that case such activities will be considered Ultra Vires and will have the following effects:
- It will be declared null and void.
- The company will not be bound by these activities. Also, the company can neither sue or be sued in regards to these activities
- The shareholders can get an injunction order to restrain the company from carrying out these activities
- The directors will be responsible to ensure that the company’s capital is used for the activities stated in the MOA only. Any diversion of funds for other activities have to be personally compensated by the directors.
Implied Powers
While the main object of the company is specified in the object clause of the MOA, there are certain activities that the company must carry out to achieve this object successfully. The power to carry out these activities are implied and not explicitly mentioned in the MOA. For instance, a trading company would have to appoint and act through an agent, borrow and give security for the purposes of its business, and sell its products / services to achieve its main object. The power to carry out these activities are implied for the company owing to the nature of its main object.
The principle underlying the exercise of these implied powers is that a company, in carrying on the business for which it is constituted, must be able to pursue those things which may be regarded as incidental and consequential upon that business. However, there are certain powers which are not implied even if they are consequential to the main object of the company. A list below explains all these exceptions in detail.
- Acquiring any business similar to the company’s own business
- Enter into Agreement with any entity for carrying out business in partnership and share profits
- Acquiring shares in other companies with similar objects
- Promoting other companies or helping them financially
- Sell / dispose off the entire undertaking in a company
- Use Company’s funds for Political Purposes
- Give gifts and donations for charities not relating to the main object
- Acting a guarantor
How to Change the Object Clause In MOA? - Stepwise Process
As already discussed earlier, a company cannot conduct any business activity that’s beyond the scope of what’s been mentioned in the object clause. So, any alteration in the business activity of a company must be reflected in the Object Clause of the MOA. The process for altering the Object Clause of the MOA is mentioned in Section 13 of the Companies Act. Here are the detailed steps you need to navigate for the purpose
Step 1: Call Board Meeting
TIssue notice in writing to every director of the company at his address registered with the company. The notice must be sent 7 days before the actual date of the meeting. The notice must contain the time, date, venue and detailed agenda of the meeting. Hold the Board Meeting as per the set date, time and venue.
Step 2: Pass Board Resolution
In the meeting, the directors are required to pass two resolutions. The first will approve the proposed amendments to the object. The second will approve the time, date, and venue of the general meeting held to ratify the decision of the board. Upon passing the second resolution, the board will authorise the Company Secretary or a similar authority to issue notice to the shareholders for the general meeting.
Step 3: Call General Meeting & Pass Special Resolution
Hold the General meeting attended by all company shareholders, directors, and auditors. Pass the special resolution to approve the proposed amendments to the object clause as per Section 13 (1) of the Companies Act, 2013.
Step 4: File MGT-14 to the ROC
Once the Special Resolution is passed at the General Meeting, the decision to amend the object clause shall be considered approved on the Company’s end. The next step will be to intimate the ROC about the change in object clause. For this, you need to file the copy of the Special Resolution passed at the General Meeting in form MGT-14, within 30 days from the date of passing the resolution. A copy of the Explanatory Statements to the Resolution along with the altered or amended copy of the MOA has to be submitted with the MGT-14 form.
| S.No. | List of Documents Required for Changing Object Clause |
|---|---|
| 1. | Notice of the General Meeting |
| 2. | MGT-14 |
| 3. | Copy of Special Resolution passed at the General Meeting |
| 4. | Amended Copy of the MOA with altered Object Clause |
Change in Object Clause for Companies which have Raised Money through Prospectus
Section 13(8) has placed additional requirements for change in objects clause of a Company which raised money through its prospectus and has not utilized these funds. This particularly applies to Public Limited Companies as Private Limited Companies and One Person Companies are not required to have a Prospectus for their companies. The requirements which Section 13(8) places on such companies are mentioned below.
- Special Resolution Passed Through Postal Ballot
- Details of Special Resolution to be published in at least two newspapers (one in English language, and the other in a vernacular language) in circulation at the place where the company’s registered office is located.
- Details of Special Resolution to be published on the company’s website, if available
- Shareholders dissenting about the change in object of the company will be given an option to exit by the promoters and shareholders having control.
Conclusion
The object clause of a company's MOA plays a pivotal role in defining the scope of its business activities. Any changes to this clause require a systematic process as outlined in Section 13 of the Companies Act, 2013. Understanding the significance of the object clause and the procedure for its alteration is crucial for any company seeking to expand or modify its business activities. By meticulously following the legal framework and adhering to the established guidelines, companies can ensure that their revised object clause accurately reflects their intended scope of operations, while also complying with regulatory requirements.
