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Change in Object Clause of the Company

Background 

  • Object clause defines the goals/purpose for which a company is incorporated or activities which a company can undertake upon incorporation and it is a part of Memorandum of Association (MoA) of a company. 
  • A company may, by passing a special resolution and after complying with the procedure specified in Section 13, may alter the object clause of its 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.
  • No alteration made here under shall have any effect until it has been registered in accordance with the provisions of this section.

Sections/Rules/Regulations 

  • Section 13, Section 96, Section 100, 110, Section 173 of the Companies Act, 2013 
  • Rule 20 and Rule 22(16) of the Companies (Management and Administration) Rules, 2014 
  • Rule 32 of the Companies (Incorporation) Rules, 2014. 
  • Secretarial Standards-1 
  • Secretarial Standards-2 
  • Regulations 30, 44, 46 of the SEBI (LODR) Regulations, 2015 

Pre-requisites & Important Points 

  • Where the company has raised money from public through prospectus and has any unutilised amount out of the money so raised, it shall not change the objects for which the money so raised is to be applied unless a special resolution is passed through postal ballot and the notice in respect of the resolution for altering the objects shall contain the particulars as specified under Rule 32 of the Companies (Incorporation) Rules, 2014. 
  • The advertisement in the newspaper (one in English and one in vernacular language which is in circulation at the place where the registered office of the company is situated) giving details of each resolution to be passed for change in objects which shall be published simultaneously with the dispatch of postal ballot notices to shareholders. 
  • The notice shall also be placed on the website of the company, if any. 
  • 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 SEBI

[Section 13(8) of Companies Act, 2013 read with Rule 32 of the Companies (Incorporation) Rules, 2014]

Procedure for change in Object Clause in MOA of the Company:

1) Convening Meeting of Board of Directors 

  • As per Section 173 of the Companies Act, 2013 and Secretarial Standard-1: 
    • Notice of the Board Meeting shall be issued to all Directors at their registered addresses by post or hand delivery or by electronic means at least 7 days before the date of the board meeting, with provision for shorter notice in case of urgent business. 
    • The notice shall include Agenda, Notes to Agenda, and Draft Resolution. 
    • The Board at its meeting shall pass resolutions  
      • To consider and approve the alteration in the object clause of MOA of a company subject to the approval of the company’s members. (Obtained by convening a General Meeting or by passing a resolution by postal ballot). 
      • For fixing the day, date, time, and venue of the General Meeting 
      • To approve the draft Annual General Meeting Notice along with Explanatory Statement as per Section 102 of the Companies Act, 2013. 
      • For Authorizing directors/CS of the company to file required forms with ROC and to prepare a new set of amended MOA and AOA. 
    • Listed companies shall disclose the outcome of the Board Meeting to the Stock Exchange within 30 minutes / 3 hours as applicable*[Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and on website of the Company within 2 working days from the date of passing of resolution for the alteration of object clause. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 

 

*If the Board meeting is concluded after normal trading hours but more than 3 hours before the beginning of the normal trading hours the outcome to be disclosed within 3 hours from the closure of the board meeting. 

    • Draft Minutes shall be prepared and circulated within 15 days of the conclusion of the Board Meeting. 

2)  Shareholder’s approval is required and can be taken through passing resolution either in General meeting or by postal ballot. 

  • As per Section 110 of the Companies Act, 2013 read with Rule 22(16) of the Companies (Management and Administrative Rules), 2014), the object clause of a company shall be altered by way of postal ballot only in case of companies other than OPC and companies having members up to 200. 
  • Such items of business required to be transacted by means of postal ballot may also be transacted at a general meeting by a company which is required to provide the facility to members to vote by electronic means under section 108, in the manner provided in that section. (Proviso of Section 110(1) of the Companies Act, 2013) 
  • Under Section 108 of the Companies Act 2013, the Central Government prescribes the class or classes of companies and manner in which a member may exercise his right to vote by electronic means. Classes of company so prescribed are – company which has listed its equity shares on a recognized stock exchange and every company having not less than one thousand members [Rule 20(2) of The Companies (Management and Administration) Rules, 2014] 
  • Therefore, a listed company and a company having not less than 1000 members providing e-voting facilities may opt for alteration of object clause at a general meeting or by way of postal ballot (Section 108 read with Rule 20 of the Companies [Management and Administrative Rules], 2014.) 

For more details on conducting business by way of Postal Ballot, one must refer to Rule 22 of the Companies [Management and Administrative Rules], 2014.) which provides for the procedure to be followed for conducting business through Postal Ballot.

For the companies conducting General Meeting: 

  • As per Section 96 & 100 of the Companies Act and Secretarial Standards-2 (SS-2) 
  • Notice of general meeting shall be given at least 21 days prior to the conduct of meeting in the specified mode (as per Section 101 of the Companies Act, 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2018). A shorter notice can be issued with the consent is given as specified under Section 101 of the Companies Act, 2013. 
  • The Notice shall be sent to all the directors, members, and auditors of the company. 
  • The notice shall specify the day, date, time, full address of the venue, and include a statement on the business to be transacted. 
  • The General Meeting to be conducted for passing a Special Resolution for altering the object clause of MOA of the company. 
  • Listed companies shall disclose the outcome of the General Meeting to the Stock Exchange within 12 hours from conclusion of General Meeting [Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of passing resolution for alteration of object clause and for consequent alteration in MOA [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 
  • Voting results shall be submitted to the stock exchange within two working days from the conclusion of the General meeting. (Regulation 44 of the SEBI (LODR) Regulations, 2015). 
  • Minutes of meeting shall be prepared with the specified procedure. 

Post Alteration Requirements 

  • Company shall file the form MGT-14 with ROC within 30 days of passing of Special Resolution along with the fees as specified and with the following attachments:
    • CTC of special resolution passed in the GM along with Explanatory Statement
    • Notice of GM
    • Consent for shorter Notice where the meeting is convened at shorter Notice
    • Altered copy of MOA & AOA, etc
  • Registrar of the company shall register the new objects of the company and shall also certify the registration within 30 days from the date of filing of special resolution by the company. 
  • The alteration of object clause shall be noted in every copy of MOA of the company. 

Penalties & Punishments 

As per Companies Act, 2013:

  • Section 117(2): For failure to file the resolution(MGT14), penalty of Rs. 10,000/- on the company and Rs. 100/- per day of continuous default subject to max Rs. 2 lac. Every officer in default is liable to a penalty of Rs. 10000/-and Rs. 100/- per day of continuous default subject to max Rs. 50,000/-
  • Section 15: For failure to note alteration in every copy of MOA/AOA , the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without such alteration.

As per SEBI (LODR) Regulations: 

Regulation 

Penalty & Punishment 

30  

General penalty:  

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator:  

a) action as per Securities Law,  

b) fine,  

c) suspension of trading,  

d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories,  

e) any other action specified by Board  

44  

Rs. 10,000/- per instance of non-compliance  

46  

Advisory/warning letter per instance of non-compliance per item₹10,000 per instance for every additional advisory/warning letter exceeding the four advisory/ warning letters in a financial year 

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

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