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Alteration of Objects Clause of a Company

Alteration of Objects Clause of a Company 

The Alteration of Objects Clause of a Company is prescribed in Section 13 of the Companies Act, 2013 to be read along with rules mentioned therein.

Objects Clause –

The Memorandum of a company shall contain the objects for which the company is proposed to be incorporated. The Objects clause is the most important clause in the memorandum of a company. It sets out the purpose for which the company has been incorporated. It also sets the limits beyond which the company cannot extend its activities. The purpose of the objects clause is to enable the persons dealing with the company to know its permitted range of activities. The acts beyond this range are ultra vires and hence void. In such cases, even the shareholders cannot ratify the acts.

Although express powers are necessary, a company may do anything which is incidental to the objects specified and such acts will not be ultra vires. The subscribers to the memorandum enjoy absolute freedom to choose the objects of the company. The only restriction is that the objects should not be illegal and against the provisions of the Companies Act, 2013.

Alteration of Objects Clause of a Company –

Section 13(1) of the Companies Act, 2013 states that a company may alter the provisions of its memorandum after passing a special resolution and following the procedure mentioned in the section. Therefore, a company may alter its objects clause by passing a special resolution. The company shall file with the Registrar the special resolution passed for such alteration. Then the Registrar shall register such alteration and certify the registration within a period of thirty days from the date of filing of the special resolution.

Alteration of Objects clause of a Listed Company –

A listed company can alter its objects clause by passing a special resolution through postal ballots.

According to Section 13(8) of the Companies Act, 2013, a company, which has raised money from public through prospectus and still has any unutilized 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—

          (i)  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. The advertisement giving details of such resolution to be passed for change in objects  shall be published simultaneously with the dispatch of postal ballot notices to shareholders.

          (ii) 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.

Rule 32 of the Companies (Incorporation) Rules, 2014 provides particulars about the notice of resolution to be sent to the shareholders.

In case a company has raised money from public through prospectus and has any unutilized 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 following particulars, namely:-

(a) the total money received;

(b) the total money utilized for the objects stated in the prospectus;

(c) the unutilized amount out of the money so raised through prospectus,

(d) the particulars of the proposed alteration or change in the objects;

(e) the justification for the alteration or change in the objects;

(f) the amount proposed to be utilized for the new objects;

(g) the estimated financial impact of the proposed alteration on the earnings and cash flow of the company;

(h) the other relevant information which is necessary for the members to take an informed decision on the proposed resolution;

(i) the place from where any interested person may obtain a copy of the notice of resolution to be passed.

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