Law and You > Corporate Laws > Companies Act, 2013 > Object Clause of Memorandum of Association
Under Section 4 of the Company Act, 2013, the memorandum of association of the company must contain the objects of the company for which it is incorporated and all matters considered necessary in furtherance thereof. These objects are specified in the object clause of the memorandum of association. This clause is perhaps the most significant and always the lengthiest clause in the company’s memorandum and it enumerates the business activities which can be undertaken by the company. Any business falling within the ambit of object clause would be intra vires but any business not falling within the ambit of the object clause would be ultra vires. For ultra vires activity company can be sued and penalized. The objects clause states the ambit and extent of a Company’s powers. The purpose of this statement is to enable creditors and other persons dealing with the company to know the extent of the company’s power and authority, and to protect the subscribers who will know the purposes to which their money can be applied. Similarly, this provision ensures that a company does not diversify into fields which are not stated in its memorandum and are totally unrelated to the activities for which it was incorporated.
According to Section 4(c) of the Companies Act, 2013 the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. According to this clause the object for which company is proposed to be incorporated and any matter considered necessary in furtherance of such object and it determines negatively that nothing shall be done beyond the powers of the company. An act outside the object clause is ultra-vires the company, that is beyond the object or scope of the company.
The objects of the company must not be contrary to company Law or the provisions of any other law, for example, it is unlawful to maintain a gambling house in India.
In Universal Mutual Aid & Poor Houses Assn. v. A. D. Thoppa Naidu, AIR 1933 Mad 18 case, a company was incorporated for conducting lotteries which was prohibited by the prevailing law, the Court ordered company to be wound up.
Purpose of Object Clause:
The capital has been contributed by the shareholders and is held by the Company as though in trust for them. Therefore, such a fund must obviously be dedicated to some defined objects so that the contributors may know the purpose to which it can be lawfully applied.
- It affirmatively determines what shall be the powers of the Company, for the stated objects conferred on the company to the attainment thereof.
- It limits and restricts the powers of the company to those, thus conferred. Any act of the Company outside the area of the objects is ultra vires. The company and even the unanimous consent of all the shareholders cannot ratify it.
In Ashbury Railway Carriage and Iron Co. Ltd. v. Riche, (1878) L.R. 7 H.L. 653 case, the company, and M/s. Riche entered into a contract where the company agreed to finance the construction of a railway line. Later on, directors repudiated the contract on the ground of its being ultra-vires of the memorandum of the company. Riche filed a suit demanding damages from the company. According to Riche, the words “general contracts” in the objects clause of the company meant any kind of contract. Thus, according to Riche, the company had all the powers and authority to enter and perform such kind of contracts. Later, the majority of the shareholders of the company ratified the contract. However, directors of the company still refused to perform the contract as according to them the act was ultra-vires and the shareholders of the company cannot ratify any ultra-vires act. The House of Lords held that the contract was ultra-vires the memorandum of the company, and, thus, null and void. They also stated that even if every shareholder of the company would have ratified this act, then also it had been null and void as it was ultra-vires the memorandum of the company. Memorandum of the company cannot be amended retrospectively, and any ultra-vires act cannot be ratified.
Constituents of Object Clause:
Under the Company Act, 2013, for the Company to be registered, the objects clauses must be divided into three sub-clauses, namely:-
- Main objects,
- Incidental or Ancillary objects,
- Other objects,
All Companies, including private companies have unrestricted choice of objects under the heading ‘main objects’ anything conceivable under the sun, provided it is not illegal or against public interest. A company may well content itself by proposing to restrict itself to such main objects with, of course, the incidental or ancillary objects.
Main Objects:
In this sub-clause the company must state the main objects to be pursued by the company on its incorporation and objects incidental or ancillary to the attainment of the main object. The ‘Main Objects’ shall be pursued by the Company immediately on its incorporation. The incidental or ancillary objects are nothing but the part of the main object which the Act requires to be clearly stated in order to avoid any ambiguity. A Company which has a main object together with a number of subsidiary objects, cannot continue to pursue the subsidiary objects after the main-object has come to an end.
Incidental or Ancillary Objects:
The objects under this category are not independent objects and cannot be entered upon by the Company independent of the main objects as stated in memorandum. These are such objects which, upon a fair and, reasonable construction, may be regarded as incidental or conducive to the attainment of the main objects, but noting further. These records cannot be construed as widening the scope of the objects clause, but will only be taken to include such incidental powers as are necessarily implied in carrying out the main object. In other words, incidental acts are those which have a reasonably proximate connection with the specified main objects.
In Evans v. Brunner Mond & Company, (1921) Ch 359 case, a company was incorporated for carrying on business of manufacturing chemicals. The objects clause in the memorandum of the company authorized the company to do “all such business and things as may be incidental or conducive to the attainment of the above objects or any of them”. By a resolution, the directors were authorized to distribute some amount out of surplus reserve account to such universities in the U.K. for scientific research and education. The resolution was challenged on the ground that it was ultra vires the power of the company. The directors proved that such help to students of the university was to encourage the scientific training of more men to enable the company to recruit staff and continue its progress. The court held that the expenditure authorized by the resolution was necessary for the continued progress of the company as chemical manufacturers and thus the resolution was incidental or conducive to the attainment of the main object of the company and consequently, it was not ultra vires.
Other Objects:
The third part of the objects clause enumerates the objects which are covered neither by the main objects nor by objects ancillary or incidental there to, but which are nevertheless necessary to enable the company to undertake all types of business activities which the company may anticipate to pursue. By providing this sub-cause the Act seeks that the Company should state its objects in clear, plain and unambiguous terms for which the funds of the Company can be used or the field of business within which the Company’s activities have to be extended.
In Waman Lal v. Scindia Steam Navigation Co., (1944) 14 Comp Cas 69 case, Kania J observed that the statement of objects, given a very important protection to the shareholders by ensuring that the funds raised for one undertaking are not going to be risked in another.
Doctirne of Ultra Vires:
According to Section 4(c) of the Companies Act, 2013 the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. According to this clause the object for which company is proposed to be incorporated and any matter considered necessary in furtherance of such object and it determines negatively that nothing shall be done beyond the powers of the company. An act outside the object clause is ultra-vires the company, that is beyond the object or scope of the company.
Ultra virrs is a Latin phrase which literally means ‘beyond power’. The doctrine is developed to protect the investors and creditors of the company. In Asbury case, the Court held that other clause only include those acts which are necessary and essentially for the purpose of conducting the main object. This type of strict interpretation give rise to the doctrine of ultra vires.
The idea behind the doctrine is that the intending shareholders who are contemplate an investment in business enterprise should know within what lines of business monies to be put at risk. Similarly, the directors and management may know within what lines of business they are authorised to act; and anyone who shall deal with the company may ascertain if he is able to read and construe the charter whether a contract or transaction into which contemplates entering is one within the general authority of the management. Ultra virus may either substantive or procedural. Where object clause does not provide an act, the company is not bound by the act because “there is lack of legal capacity to incur responsibility for the action”
In Lakshmanswami Muddaliar v LIC AIR 1963 SC 1185 case, where the directors of the company were authorized to make payment towards any charitable or any benevolent object for any general public or useful object. In accordance with shareholders resolution, the directors paid 2 lakh to trust for the purpose of promoting technical and business knowledge. The company’s business having been taken over by LIC, it had no business left for its own. The Supreme Court held that the payment was ultra vires. They could invest for the promotion only on such charitable object useful for the attainment of the company’s own object.
Alteration in Object Clause:
A company may, by special resolution, alter the provisions of its memorandum so as to change the place of its registered office from one State to another, or with respect to the objects of the company so far as may be required to enable it-
(a) to carry on its business more economically or more efficiently;
(b) to attain its main purpose by new or improved means;
(c) to enlarge or change the local area of its operations;
(d) to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company;
(e) to restrict or abandon any of the objects specified in the memorandum;
(f) to sell or dispose of the whole, or any part, of the undertaking, or of any of the undertakings, of the company; or
(g) to amalgamate with any other company or body of persons.
Thus alteration in object clause can be done to attain above said objectives.
In Juggilal Kamlapat Jute Mills Ltd. v. Registrar of Companies, (1966) 1 Co. Law Journal 292 All case, a company originally formed to do business in jute was allowed to engage in rubber business also.
In Re Modi Spg. & Wvg. Co. Ltd. (1963) 33 Co. Cases 901 All case, a company engaged in the business of spinning and weaving was allowed to manufacture industrial alcohol.
In Indus Cables India Ltd. v. Registrar of Companies, (1973) 43 Co. Cases 353 P&H case, a company manufacturing cables was allowed to engage in the hotel industry.
In Re Cyclists’ Touring Club, (1907) 1 Ch. Div. 269 case, a company incorporated to protect cyclists was not allowed to amend its memorandum to include protection of motorists as cyclists have also protected against motorists.
Under Section 13 (8) of the Company Act, 2013 object clause, can be changed. The Section lays down that “A company, which has raised money from public through prospectus and still has any unutilised amount out of the money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution is passed by the company and the details, as may be prescribed, in respect of such resolution shall also be published in the newspapers (one in English and one in vernacular language) which is in circulation at the place where the registered office of the company is situated and shall also be placed on the website of the company, if any, indicating therein the justification for such change; and the dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control in accordance with regulations to be specified by the Securities and Exchange Board.
Steps Involved in Alteration of Object Clause:
Company can alter its object clause by way of addition, deletion, modification, substitution, or in any other way, only if it wants:
Step‐I: Convene A Board Meeting: (As per section 173 and SS-1):
Step: II: Hold the Board Meeting: Proposed new Objects of the company. Pass Board Resolution after Selection of Object. Get Approval to change in the objects clause and recommending the proposal for members’ consideration by way of special resolution. Fixing the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.
Step‐ III: Issue Notice of General Meeting: (Section 101)
Step‐IV: Hold General Meeting: (Section 101): Check the Quorum. Check whether auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146). Pass Special Resolution [Section-114(2)]. Approval of Alteration in MOA.
Step‐V: Filing and Fees: File FORM NO. MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of passing the special resolution Attach Certified True Copies of the Special Resolutions along with explanatory statement; Copy of the Notice of meeting send to members along with all the annexure; A printed copy of the Memorandum Article of Associations. Copy of Attendance Sheet of General Meeting. Shorter Notice Consent, if any.
Step‐VI: Follow Up: The Registrar shall then accordingly register the alteration and issue a certificate which will be the conclusive evidence that all the requirements with respect to the alteration have been duly complied with by the company. The alteration shall be complete and effective only on the issue of certificate by the Registrar. Incorporate the alteration in every copy of the memorandum.
The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution in accordance with clause (a) of sub-section (6) of Section 13 of the Company Act, 2013. No alteration made under this section shall have any effect until it has been registered in accordance with the provisions of this section. Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.
Conclusion:
The object clause of the Memorandum of Association (MoA) is a fundamental component under the Companies Act, 2013, as it defines the primary purpose and scope of a company’s activities. It lays down the boundaries within which a company can operate, ensuring that the business is conducted lawfully and in accordance with the intentions of its promoters and stakeholders. The object clause helps to protect the interests of shareholders, creditors, and regulatory authorities by clearly stating the company’s permitted business activities.
Under the Companies Act, 2013, the object clause is divided into two parts: the main objects, which the company proposes to pursue immediately upon incorporation, and incidental or ancillary objects, which support the achievement of the main objectives. Unlike the previous Act of 1956, the 2013 Act has done away with the “other objects” clause, thereby restricting the company to only those activities specifically stated in the MoA, unless a formal alteration is made.
This shift emphasizes transparency and ensures that the company does not undertake unrelated business ventures without shareholders’ approval and compliance with legal procedures. Any alteration in the object clause now requires a special resolution and filing with the Registrar of Companies, reinforcing corporate governance and accountability.
In conclusion, the object clause in the MoA under the Companies Act, 2013, serves as a critical legal boundary for a company’s operations. It provides clarity on the company’s intended business domain and limits the scope of its activities, thereby safeguarding stakeholders’ interests. By defining what a company can and cannot do, the object clause upholds the principle of ultra vires, ensuring companies remain within their legal and authorized framework. Thus, the object clause remains a cornerstone in defining a company’s identity and operational legitimacy under Indian corporate law.