Do you wish to commence a new business?
The memorandum of every new company shall state the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof;
- In case of companies in existence immediately before the commencement of the 2013 Act, its objects clause may continue to state the objects in three categories viz., a) the main objects of the company which the company will pursue on its incorporation; b) the objects incidental or ancillary to the attainment of the said main objects; and c) any other objects not included in the main objects and objects ancillary or incidental thereto.
- Where a company proposes to commence a new business , the first thing that the Board of directors of the company registration should check is whether the new business falls outside the scope of objects clause of its memorandum of association.
- In case the new business activity falls within the broad scope of the objects clause (in the case of companies existing prior to the coming into force of the 2013 Act, the main objects) of the memorandum, it is sufficient if the board of directors pass a resolution to that extend at a meeting of the Board. The procedure for calling and holding the meeting of the board has been explained under Rule 176.
- In case the new business activity falls outside the scope of the objects clause (in case of companies existing prior to the coming into force of the 2013 Act, the main objects) of the memorandum of association, the Board of Directors must take steps first to alter the memorandum of association of the new company to incorporate the requisite the new business activity within the scope of the objects clause.
- Therefore, clearly describing the new business activity is an important take and thereafter it should be determined whether it is necessary to alter the objects clause of the memorandum of association.
- In order to alter its objects clause, a new company must obtain the approval of its members by means of a special resolution duly passed a General Meeting of it’s members and thereafter comply with the further procedures specified in that respect so as to the alterations the provisions of its memorandum.
- When a new company alter its objects clause by passing a special resolution, a copy of every special resolution together with the explanatory statement under section 103 of the 2013 Act, if any, annexed to the notice calling the meeting in which the resolution is proposed, should be filed with the Registrar of Companies(ROC) within thirty days of the passing of the same and it should be filed with the prescribed fees in e-form MGT-14. Sub-section(6) of section 13 of the 2013 Act]. Unlike the 1956 Act, there is no bar in filing the special resolution with the ROC even after the expiry of the initial period of 30 days from the date of passing of the special resolution and upto 300 days with additional fees.
- Ensure that the said e-Form is digitally signed by the managing director or director or manager or secretary of the company duly authorized by the Board of Directors. Though e-form MGT-14 mentions that the same could be signed by CEO or CFO too, the drop down menu does not show these two designations at all. The number and the date of the board resolution should also be mentioned in the e-Form MGT-14.
- Further ensure that the said e-Form is certified by a chartered accountant or a cost accountant or a company secretary in whole-time practice by digitally signing the said e-Form and by the said certification the practicing professionals makes certain standard declarations that he has been duly engaged for the purpose of certification of this form and he further certifies that he has gone through the provisions of the 2013 Act and the rules there under.
- Where the company, which has raised money from public through prospectus and still has any unutilized amount out of the money so raised, such a new company must follow a special procedure for the purpose of altering its objects clause.
- Such a company should not change its objects for which it raised the money through the prospectus unless a special resolution is passed by the new company and the particular details, as may be required, in respect of such resolution shall also be published in the newspapers, which is in circulation at the place where the registered office of the company is located and shall also be placed on the website of the new company, if any, indicating there in the jurisdiction for such change;
- 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(SEBI). SEBI has issued regulations in respect.[Section 13(8) of the 2013 Act].
- As per the SEBI (Issue of Capital and disclosure of the requirements) Regulations, 2009, the details of all monies utilized out of the issue referred to in sub item(1) shall be disclosed and continue to be disclosed till the time any part of the issue proceeds remains unutilized under an appropriate separate head in balance sheet of the issuer indicating the purpose for which such monies had been utilized.
- Where the new company is a listed company, under the Listing Agreement, it has to forward copies of notices of any general meeting to the Stock Exchanges and make the announcement through the Exchanges that the company proposes to alter its memorandum for the purpose of commencing the new business activity. This will apply irrespective of whether the listed company has any unutilized money out of proceeds raised through a public issue or not.
- A listed company must forward to stock exchanges a copy of the proceedings at its annual and extraordinary General meeting;
- A listed company must promptly notify any stock exchanges of any proposed change in the general character or nature of its business.
- The Registrar would register any alteration of the memorandum with respect to the objects of the new company and certify the company registration within a certain period of thirty days from the date of filing special resolution in accordance with clause (a) of sub-section (6) of section 13.( now section 13 of the trademarks Act, 2013.
- No alterations made under section 13 of the Act (which obviously includes any alteration to the objects clause too) shall have any effect until it has been registered in accordance with the provisions of section 13.( Sub-section 9 of section 13 of the 2013 Act).
- Once a certificate of company registration of the alteration to the objects clause of the memorandum of association is received, the Board of Directors will be within its corporate powers to undertake the proposed new business activity. Carrying new business activity is different from taking effective steps towards the same. For instance if a detailed project report is prepared and a proposal is submitted to the banks and financial institutions to see if they would grant long term loans for the project, that does not mean the new company has commenced a new business activity ultra vires it memorandum.
- A company may later its objects clause and yet may not commence its new business activity immediately. The explanatory statement that is annexed to the notice of the General meeting in the pursuance of section 102 of the 2013 Act will explain the decision of the Board of Directors in this regard. Listed companies will have to notify the stock exchanges too of any decisions to defer any such proposal and the reasons there for.
- Any proposal to commence a new business activity is price sensitive information for the purpose of SEBI (Prohibition of Insider Trading) Regulations, 20156.
- A new company may enter into a proposal for acquiring a new undertaking or business division of another new company or entity as a result of which it might require an alteration to the objects clause of its memorandum. In such a case prior to completion of the acquisition, whether by demerger or otherwise, the objects clause should be altered. It is possible to incorporate such alteration as a component of a scheme of arrangement too which will take effect upon sanction of the scheme by the Court or National Company Law Tribunal 7 (NCLT) this has not yet been established], as may be applicable.
- Please note that the e-Form MGT-14 contains a declaration at the end that states as follows: “For the subject matter of this form and matters incidental thereto and i have verified the above particulars (including attachments from the original/certified records maintained by the company/applicant which is subject matter of this form and found them to be true, correct and complete and no information material to this form has been suppressed”. Therefore the company secretary/chartered accountant / cost accountant who is certifying the e-form should certify that the said records have been properly prepared, signed by the required officers of the new company and maintained as per the relevant provisions of the 2013 Act and were found to be in order; All required attachments have been completely and legibly attached to this form.
- Any default in filing the special resolution, whether or not the Board of Directors after words drop the proposal for altering the objects clause of the memorandum, will be considered as a contravention of the provisions of the 2013 Act under section 117 read with section 403 of the 2013 Act. Any failure to file the resolution under sub-section (1) of section 117 of the 2013 act before the expiry of the period specified under Section 403 of the 2013 Act with additional fee, the new company shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to RS. 25 Lakhs and every officer of the new company who is in default, including liquidator of the new company, if any, shall be punishable with fine which shall not be less than Rs. 1 Lakh but which may extend to Rs. 5 lakh. (Section 117(2) of the 2013 Act).
- The offence arising from is compoundable so far as the company registration is concerned. Where the maximum amount of fine which may be imposed for such offence does not exceed Rs. 5 Lakh, the offence is compoundable by the Regional director in the Ministry of Corporate Affairs or any officer authorized by the central government. For offences where maximum amount of fine would exceed the above threshold, if the offence is compoundable, the power to compound is with the NCLT, which has not yet been established. For the officers in default, offence is compoundable only with the permission of special court.
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