The object clause is the part of a company’s memorandum of association (MoA) that says what business the company is set up to do. Under section 4(1)(c) of the Companies Act, 2013, the memorandum must state the objects for which the company is incorporated, and anything considered necessary to pursue them. It is a short clause, but it is read by the Registrar when the company is incorporated, by banks and investors during due diligence, and by the company itself whenever it moves into a new line of business.
This post covers drafting the clause well at the start, and recognising when the company has outgrown it. When the clause does need to change, our MOA and AOA alteration service prepares the resolution and files the change with the ROC.
How the clause is structured
The memorandum follows the format in Schedule I to the Act. For a company limited by shares, the objects part has two pieces:
- The objects to be pursued on incorporation: the business the company actually intends to carry on.
- Matters necessary in furtherance of those objects: supporting powers, such as acquiring property, borrowing, entering into contracts or opening branches, that let the company carry on the main business.
The first part is the one that matters most. It defines the company’s business. The second part supports it and should not be used to slip in unrelated activities.
Drafting it well
Be specific about the core business
Describe what the company will actually do, in plain terms: “to develop, sell and license software for…”, “to trade in…”, “to provide consultancy in…”. A specific description helps at incorporation, because the Registrar checks that the name and objects make sense together, and later, because banks and counterparties can see the company is authorised to do the business in question.
Allow for the next step, not every possible step
If you already expect to add a closely related activity in the next year or two, for example manufacturing what you now trade, include it. Do not try to cover every business you might ever enter. Very broad or vague objects, such as “any lawful business”, tend to attract questions from the Registrar and look unconvincing to investors.
Keep the name and the objects consistent
If the name suggests a particular activity (“… Logistics Private Limited”), the main objects should match it. A mismatch can hold up name approval or incorporation.
Watch for regulated activities
Some activities need a regulator’s approval before a company can carry them on, such as banking, insurance, non-banking finance or chit funds. Putting them in the object clause does not grant permission, and wording that suggests a regulated activity can draw objections. Include such objects only when the business genuinely plans them and the approvals are in hand or in progress.
When the clause has to change
A company should alter its object clause when it plans to carry on a business that the existing clause does not cover. Typical triggers:
- a trading company starts manufacturing;
- a services company starts selling products, or the reverse;
- a company enters a new sector, such as moving from software services into financial services;
- a bank, investor or major customer asks for the clause to cover a transaction.
Acting outside the objects creates real problems: contracts may be questioned, lenders may refuse finance, and due diligence will flag it. It is better to alter the clause before the new business starts.
How an alteration is made
- Board meeting. The board approves the proposed new clause and calls a general meeting (or circulates the resolution where permitted).
- Special resolution. Shareholders pass a special resolution, which needs at least three-quarters of the votes cast, under section 13 of the Act.
- Filing with the ROC. The special resolution is filed with the Registrar in Form MGT-14 within 30 days, together with the altered memorandum.
- Registration. The alteration takes effect once the Registrar registers it. Until then, the old clause applies.
Companies that raised money from the public through a prospectus and still hold unspent funds face extra conditions when changing objects. This rarely applies to a private company.
Frequently asked questions
Can a company do business that is not in its object clause?
It should not. Activities outside the objects are open to challenge, and banks and investors check the clause. Alter it before starting the new business.
Does changing the objects mean changing the company’s name?
Not necessarily. If the existing name still fits, it can stay. If the name describes the old business and no longer matches, a name change may be worth considering, which is a separate process.
Is shareholder approval always needed?
Yes. Altering the memorandum, including the objects, needs a special resolution of the shareholders. A board decision alone is not enough.
Complianto (complianto.in), operated by Mentorcorp Private Limited, is a private consultancy and is not affiliated with any government body. We do not issue official documents. We charge a professional fee for application assistance and advisory services. Applicants can apply directly to the government without our fees via the official portals: MCA (mca.gov.in), Income Tax (incometax.gov.in), GST (gst.gov.in), MSME (udyamregistration.gov.in), FSSAI (foscos.fssai.gov.in), Startup India (startupindia.gov.in), and IP India (ipindia.gov.in).
This article is general information, not legal or tax advice.
