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How to modify Object Clause of Company?

To modify the objects clause of your company, the Memorandum of Association of the company should be amended to modify the objectives of the company.

The Memorandum of Association (MOA) refers to the objects of the company under the objects clause. These objectives are the guidelines of the company's activities and reason of existence are generally defined during the incorporation of a company. However, in certain cases, these objectives are required to be altered if the company decides to take up additional activities, or any other such needs.

Object Clause

The object clause of the Company is known as the third clause of memorandum of association of any Company describing the objects i.e. the business/purpose for which the Company is registered and any other matter considered essential in persistence thereof. Any act accomplished by the Company that is outside the objects and powers as stated in the Companies Act, 2013 shall be judged as ultra virus making object clause one of the most significant clause. On incorporation of a Company, the subscribers decide upon the objects they want to follow on incorporation but if after incorporation they want to modify the objects of the Company, they can do so by following the mandatory legal process as recommended under Section 13 of the Companies Act, 2013 :

It is important to note that the object clause of the Company can be classified into :

The objects to be followed by the Company on its incorporation and

Matters which are essential for persistence of the objects (i.e. ancillary objects)

Modification of Objects Clause

Modifications of the object clause of a private limited company can be done without any hassles. However, if the same is required to be done for a company that accepts money from public fund needs a special resolution. It requires to be published in newspapers in English and another local language of the place where the registered company is situated. The details should also be given on the company's website with necessary justification and modification.

Also, under regulations of the Securities and Exchange Board of India, all those who wish to exit should be given the chance to perform so by the promoters and shareholders of the company.

A few easy steps to modify the Objects Clause :

Step 1 - Board Resolution

The change would have to be started from the Board of the Company.

A notice for organizing a Board Meeting must be issued to all the Directors of the company minimum 7 days before the same with the particular agenda for the same.

In the Board Meeting, a proposal for arranging an Extra Ordinary General Meeting would have to be started to modify the objects clause by means of a special resolution.

Date, time and venue of the meeting should be decided.

A director should be given authority to send the notice of the Extra Ordinary General Meeting to shareholders.

The notice for the EGM must be sent minimum 21 days before the General Meeting, with an explanatory statement.

If the company has 200 or more shareholders, the special resolution can be passed by means of a postal ballot.

Step 2 - Performing General Meeting

In the general meeting, the special resolution should be passed by three-fourths majority.

In case the resolution is passed via postal ballot, the results can be declared by the Managing Director or Chairman.

As early as the resolution is passed, a listed company must send proceeding of the meeting and a copy of the EGM notice to the stock exchanges where the company has been listed

Step 3 - Filing of Form MGT-14

Once the special resolution is passed in the extra ordinary General Meeting, a copy of the same with an explanatory statement is filed with the associated ROC within 30 days.

The resolution is to be together with the MGT-14 form, signed by the Managing Director or the Company Secretary authorised by the Board Resolution.

The form must be digitally signed by a practising Chartered Accountant or Company Secretary to authenticate the same.

Documents needed

Notice of Extraordinary General Meeting

Certified True copy of special resolution

Changed Memorandum of Association

Certified True copy of Board Resolution might be added as an optional attachment

Additional Information for a Public Limited Company

If a public limited company decides to modify its objects clause then :

The special resolution passed in the extraordinary general meeting should be published in one English language newspaper, except for one to be published in a vernacular language paper.

The newspaper should be distributed in the state/city where the company's registered office is situated.

A notification must be placed on the company's website.

The shareholders who don't agree with the modification in the objects clause, have to be offered an exit option.

Duty of Registrar

Such certificate will be issued by the Registrar that will be the definite evidence that all the needs with respect to the alteration have been followed by the company accurately. Besides, no alteration is made under this section shall have any effect until it is registered consistent with the provisions of this section. The alteration shall be complete and useful only on the issue of certificate by the Registrar.

Provisions for Object Clause as par Companies Act – 1956

According to the Section 13 of the Companies Act, 1956 the object clause of a company shall be classified into three categories :

Main Objects

Objects accompanying or additional to the attainment of the main objects

Other objects

A Company can continue the business stated in the Main Object Clause and Incidental object clause in common course of business. There is no need to pass general meeting resolution and board resolution.

Small Restriction about change in Object Clause of Memorandum under Section 13 (8) and Rule 32

Small Restriction about change in object clause of Memorandum as par Section 13 (8) and Rule 32, a company, that accept money from public through prospectus and still has any unemployed amount out of the accepted money, should not alter its objects for which it accepted the money through prospectus unless a special resolution is passed by the company. Prescribed details regarding such resolution shall also be given in the newspapers (one in vernacular language and one in English) that is in distribution at the place where the registered office of the company is located and shall also be positioned on the website of the company, if any, informing the justification for such change; The unfaithful shareholders shall be given a chance to exit by the promoters and shareholders having control in accordance with regulations to be stated by the Securities and Exchange Board. As per Rule 32 of Companies (Incorporation) Rules, 2014, this Special Resolution under section 13(8) must be passed through Postal Ballot.

Summary

Once the approval of the Registrar is acquired on the MGT-14 form, the company can make the essential amendments to the Memorandum of Association, what is decided upon by the special resolution. Each copy of the company's Memorandum of Association would have to be accordingly modified. Moreover, once the Memorandum of Association is changed, a copy of the altered document must be sent to the stock exchanges.

Frequently Asked Questions

Ques: A company selling garments, if wants to start dealing in paper product can do so i.e. whether a Company can altogether alter or add business activity?

If a Company includes the key object as trading of garments wishes to start altogether a new business activity (for example dealing of paper product) can start it as well. The only compliance needed on part of the Company is to make proper reporting in Form MGT-9, AOC-4 and MGT-7.

Ques: Whether Form MGT-14 is on approval mode?

Yes, MGT-14 is on approval mode i.e. it must be approved by the officials of the Registrar of Companies.

Ques: In the Form MGT-14, there is a tab "in case of alteration in object clause, whether there is any change in the industrial activity of the Company"; how the same should be dealt with?

With regard to the said tab, it is required to check whether the main object clause of the Company is being changed. If "yes" is chosen, NIC code is asked in the form. We need to fill in the altered national industrial classification (NIC) code according to NIC Code, 2004.

Ques: What are the implications of object change according to the provisions of Income Tax Act, 1961?

There is no implication according to the provisions of the Income Tax Act, 1961. However, it is recommended to outline/change the object clause very carefully as only the expenses incurred for the main business or profession are approved as deduction from the income.



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