What is a Memorandum of Association (MOA)?
Think of the Memorandum of Association, or MOA, as the constitution of your company. It’s a legal document that is created when a company is first formed. The MOA contains all the fundamental information about the company.
The MOA includes:
- The company’s name
- The state where its registered office is located
- The amount of share capital
- The company’s objectives (most important)
These details define the legal boundaries within which the company can operate.
What is the Object Clause?
Within the MOA, the Object Clause is a crucial section. As per Section 4(1)(c) of the Companies Act, 2013, every MOA must state the objects for which the company is formed, along with any related matters needed to achieve those objectives.
This clause defines what your company is legally allowed to do. It outlines:
- Main objects: The core purpose of the business
- Ancillary objects: Activities that support the main object
- Other objects: Additional goals the company may pursue in the future
For example, if your company is created to develop software, the Object Clause will mention this activity. It helps shareholders, investors, and lenders understand the exact scope of your business.
If your company plans to do anything outside this scope, a change in the Object Clause of the MOA is legally required.
How Many Object Clauses Are There in a Company’s MOA?
A typical MOA includes three levels of object clauses:
- Main Objects: The company’s primary business purpose
- Ancillary or Incidental Objects: Supporting activities needed to carry out the main business
- Other Objects: Optional future activities (only applicable for companies incorporated under earlier laws)
Today, most new companies list only the main and ancillary objects, following the simplified structure under the Companies Act, 2013.
Why is the Object Clause So Important for the Company?
Operating outside the Object Clause is a serious matter. This is known as the “Doctrine of Ultra Vires,” a Latin term meaning “beyond the powers.” Any action taken by the company that is not listed in its Object Clause is considered null and void.
This means the company cannot legally enforce any contract related to that activity. The directors can be held personally liable for any losses incurred from such actions. This is why any changes to the object clause must follow the proper legal procedure.
Why Would a Business Need to Change Its Object Clause?
Businesses operate in a dynamic world. Markets change, technologies evolve, and new opportunities arise. A company might need to alter its Object Clause for many reasons.
- Expanding into New Business Areas: A common reason for a change in the Object Clause of the company is diversification. A company that has been successful in one field may decide to enter a new, profitable market. For instance, a restaurant chain might want to start selling its line of packaged foods.
- Scaling Up Your Current Operations: Sometimes, a company needs to change its Object Clause to support the growth of its existing business. It might need to acquire new properties, invest in new machinery, or engage in activities that are ancillary to its main business but weren’t originally listed.
- Adapting to New Market Demands and Technologies: The business landscape is constantly changing. A company might need to adopt new technologies or business models to stay competitive. A retail store might want to move into e-commerce, which would require an update to its Object Clause.
- For Mergers, Acquisitions, or Business Restructuring: When companies merge or one acquires another, they often need to align their business objectives. This may require a change in the MOA Object Clause to include the activities of the merged or acquired entity. Business restructuring can also lead to similar changes.
- To comply with New Laws and Regulations: Governments sometimes introduce new laws that can affect a company’s operations. A company might need to alter its Object Clause to ensure it remains compliant with the latest legal requirements.
Procedure to Change the Object Clause for a Private Limited Company
The procedure for change in the Object Clause of a Private Limited Company is governed by the Companies Act, 2013. It involves a series of steps to ensure the change is legally valid.
Step 1: Holding a Board Meeting
The first step is to call a meeting of the company’s Board of Directors. In this meeting, the directors will discuss and approve the proposed changes to the Object Clause. They will also decide on a date, time, and place for an Extraordinary General Meeting (EGM). In this meeting, the board will also approve the notice for the EGM, where shareholders will vote on the change.
Step 2: Calling an Extra-Ordinary General Meeting (EGM)
After the board meeting, the company must call an EGM of its shareholders. A notice for this meeting must be sent to all shareholders, directors, and the company’s auditor at least 21 days before the EGM. The notice must include the format of the notice of EGM for a Change in the Object Clause, which contains the proposed resolution and an explanatory statement.
As per Section 101(1) of the Companies Act, 2013, an EGM can also be held at shorter notice, but only if 95% of the shareholders entitled to vote agree in writing or electronically.
The explanatory statement for the Change in the Object Clause is crucial. It explains the reasons for the change and the implications for the company.
Step 3: Passing the Special Resolution at the EGM
At the EGM, the shareholders will vote on the proposed change. To alter the Object Clause, a special resolution for a change in the Object Clause must be passed. This means that at least 75% of the shareholders present and voting must vote in favor of the resolution. This is a key part of the EGM resolution for change in the Object Clause in the Companies Act 2013.
Step 4: Filing Form MGT-14 with the Registrar of Companies (ROC)
After the special resolution is passed at the EGM, the company must file Form MGT-14 with the Registrar of Companies (ROC) within 30 days. This form is used to officially inform the ROC about the resolution passed to change the Object Clause.
Along with the form, the following documents must be attached:
- A certified copy of the special resolution
- A copy of the notice of EGM, including the explanatory statement
- The altered Memorandum of Association (MOA)
- The altered Articles of Association (AOA), if any changes were made
- A certified copy of the board resolution approving the EGM and proposed changes
Filing MGT-14 accurately and on time prevents delays in ROC approval.
Step 5: ROC Approval and Updated MoA
After verifying the documents, the ROC registers the change in the Object Clause. The company receives a digitally signed approval, and the updated MoA becomes the conclusive proof of the change.
Procedure to Change the Object Clause for an LLP
A Limited Liability Partnership (LLP) also has an Object Clause, but the process to change it is simpler than for a Private Limited Company. The Change in Object Clause of LLP is governed by the LLP Agreement under the Limited Liability Partnership Act, 2008.
Step 1: Conducting a Partners' Meeting and Passing a Resolution
The partners of the LLP need to hold a meeting to discuss and approve the change in business activities. A resolution for change in the Object Clause of LLP must be passed by the partners as per the terms of the LLP Agreement.
Step 2: Drafting and Executing a Supplementary LLP Agreement
After the resolution is passed, a Supplementary LLP agreement must be drafted. This new agreement will include the updated Object Clause. All partners must sign this supplementary agreement.
Step 3: Filing Form 3 with the ROC
Within 30 days of executing the supplementary agreement, the LLP must file Form 3 with the Registrar of Companies. This form informs the ROC about the changes in the LLP agreement. The supplementary agreement must be attached to this form.
Note: If the change involves a shift in core business activities that fall under a different NIC code, the LLP must also update its Master Data on the MCA portal to reflect the revised activities.
Procedure for Changing the Object Clause of a Section 8 Company
A Section 8 Company is a non-profit organization. The procedure for a Change in the Object Clause of Section 8 Company is more stringent because these companies receive special exemptions and benefits.
Step 1: Getting Prior Approval from the ROC
Unlike other companies, a Section 8 Company must first obtain prior approval from the Registrar of Companies (ROC) before proceeding with any changes to its Object Clause. The Board must pass a resolution to seek this approval and authorize a Director or Company Secretary to file the application with the ROC. Only after receiving this approval can the company move forward with convening a general meeting.
Step 2: Board Meeting and Filing Form GNL-1
The Board of Directors will hold a meeting to approve the change and the application to the ROC. The company then files Form GNL-1 with the ROC to seek this prior approval.
Step 3: Passing a Special Resolution After ROC Approval
Once the ROC grants its approval, the company can proceed with calling an Extra-Ordinary General Meeting (EGM). At the EGM, a special resolution must be passed to approve the change.
Step 4: Filing Form MGT-14 to Finalize the Change
After passing the special resolution, the company must file Form MGT-14 with the ROC within 30 days. The ROC’s prior approval and the special resolution must be attached. The ROC will then register the change and issue a fresh certificate of incorporation.
Note: In certain cases, particularly where the company has charitable objects, approval from the Regional Director (RD) may also be necessary if the change significantly alters the nature of its existing objectives.
Documents Required for Changing the Object Clause
To complete the process, you will need to submit several documents along with Form MGT-14. These include:
- A certified true copy of the special resolution passed at the EGM.
- A copy of the notice of the EGM, along with the explanatory statement.
- A copy of the altered Memorandum of Association (MOA).
- A copy of the altered Articles of Association (AOA), if applicable.
- A certified copy of the Board Resolution.
Government Fee for Filing Form MGT-14
The government fee for filing Form MGT-14 varies based on your company’s authorized share capital. Here’s an example fee structure:
