Carrying out new objects whether contained in the memorandum

We have explained in the memorandum of association, the object clause of companies formed on or after 15-10-1965, the date of commencement of amendment act, 1965, shall carrying the objects as :

  • Main objects that the company will pursue immediately on its registration
  • The objects incidental or ancillary to the attainment of the main objects
  • The other objects is not included

Companies existing prior to 15-10-1965

In terms of section 13, companies incorporated prior to 15-10-1965 were not required to rearrange their objects in the manner referred to above and hence all the objects that the company was authorized to undertake were contained in one consolidated clause in the memorandum.

Section 13 applies both public and private companies

The provisions in section 13 including the object clause apply to both public and private limited companies.

Carrying out new objects whether contained in the memorandum

Carrying out main objects

A company is incorporated, a public limited company cannot start its business immediately.  A private limited company can, however start its business quickly.

Carrying out new objects contained in the memorandum

When a company is faced with a situation to pursue a new activity it can take steps to undertake the new business keeping in view the requirements of the act as explained below :

Taking up of a new object covered by the memorandum

Where an existing public limited company proposes to take up a new business, which is covered in the “other objects” in the memorandum in the case of a company formed on or after 15-10-1965 or covered in the object clause of a company formed before 15-10-1965, the said business can be undertaken by the company only after the proposal is approved by the members by a special resolution.

Undertaking an ancillary business not done at the time but which is germane to an existing business

There are arise occasions when a company may like to pursue an activity which may be considered ancillary to the business that was being carried by the company. If the company is of the view that the said activity constitutes ancillary to its existing business, the board of directors will be competent to approve the said business.

Inclusion of a new business in the memorandum itself

The third aspect of the matter is what a company should do to pursue a new line of activity which is not covered by any of the objects included in the memorandum of association.

Approval by board

Where a company proposes to undertake a new activity which is not covered by the object clause in the memorandum, the proposal will be submitted to the board of directors for consideration.This is an objective consideration which the board of directors shall exercise. If the board is, bona fide satisfied with the proposal, the board shall take action as under :

(a) Accord approval, subject to approval by members, to the proposal to undertake an altogether new activity and to include the same in the object clause.

(b) Fix the time and date for holding a general meeting of members for obtaining their approval by special resolution under section 17 and also for their approval under section 149 (2A) explained below.

(c) Approve of the draft notice and explanatory statement to be sent to the members.

(d) Authorize the secretary to make all arrangements to hold the general meeting of their company registration and commencement of business.

Commencement of said new business

When a special resolution is passed by the members, the said new business would become one of the objects of the company not germane to the existing business. It is therefore, necessary that at the same time when a new object is proposed to be included in the memorandum.

After the special resolution is passed

Certified copy of the special resolutions passed by the company in general meeting together with certified copy of the explanatory statement. A printed copy of the memorandum of association with the addition of the new objects in the object clause shall be filed with the ROC in form 23 with the prescribed fees either in physical mode or by one of the options in the electronic mode, within 30 days of the passing resolution.

It is absolutely necessary to get the certificate of registration of the special resolution from the registrar of companies pursuant to section 18(1) of the act within one month of filing.If the registrar does not give certificate of registration within one month of filing the document, application shall be made to the central government for extension in time.

Action to be taken before commencement of the new business

As soon as the special resolutions passed by the company in general meeting are filed with the ROC with the declaration in revised form 20A. The registrars certificate to commence the new business is obtained, the company can start the new business.

Special resolution for alteration of memorandum to be ineffective if not filed with the registrar within one month

It is stated above that pursuant to section 18(1) certified copy of the special resolution together with a printed copy of the memorandum as altered. It shall be filed with the registrar within one month from the date of passing of the resolution. In Gopal textiles Ltd.v. ROC, Chennai (2005) 3 Comp. LJ 25(TN).

Alteration of objects – private limited companies

As the provisions of section 149 do not apply to a pure private limited company, the board of directors will be able to undertake new objects after the shareholders pass a special resolution. The same is registered with the ROC within 30 days of passing along with a printed copy of the memorandum as altered in the new form 23.

 

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