How Does Changing The Objectives Of Your Business Work For You?
Prioritising and classifying the Primary and ancillary objectives of the business would help in a hassle-free changing of the objectives of the company.
Change in name & objectives
To change the goals or aims and objectives of your business, you need to amend the Memorandum of Association. The MoA contains the object clause. Now, this can be difficult to do, particularly if you’re a young company looking to completely change the main objects. But if you follow the right methods, it can be done quickly. For example, one mistake many companies make is to include several domains in the main objects. This will not be approved. For example, if you are in the software business, you can cover all software services in the main objects, but other services, such as design, should be included in ancillary or other objects of the company.
Why Change Business Objectives?
- Undertake New Ventures: One of the main reasons companies update or change their objectives is to accomodate a transition into new ventures and fields. A business objective, when defined in the MoA restricts the scope of business of a company. Sometimes, as companies evolve, they need to branch out into other auxiliary fields to stay competitive. Therefore, vertical and horizontal expansion of the company results in an expansion of products, services and hence, the activities undertaken by the company. When a company starts out, the Directors may not have mentioned these services and products during the incorporation. Therefore, before branching out into such activities, the company must make the necessary changes in its objectives and business activity in order to branch out.
- Company Takeover: When a company is taken over by another company, the management undergoes a major upheaval. The new company may want to retain the name, logo and other branding agents in order to capitalise on the market value built, but may want to take the business in a different direction. In such cases, the objects of the company which has been acquired might not be in accordance with the views or needs of the new management. Therefore, they require updating, in order for the business to grow and expand further. These changes can be made either after or prior to the takeover, as per the terms discussed during the negotiation.
- Eliminate abandoned activities: Sometimes, as the company grows, top-level management understands that certain businesses or activities undertaken by the company will not work out. Therefore, they slowly reduce and then finally stop indulging in such activities. Furthermore, there are certain activities which are actively pursued during the growing phase of a Company, which is not required once the Company gets established. As an MoA is accessible to any person outside the company, it is important that it is kept as updated and relevant as possible. Therefore, from time to time, companies will need to remove abandoned activities from the MoA.
- Banned or prohibited activities: As Governmental policies change over time, sometimes a company will have to change the way it works. For instance, if a particular activity undertaken by the company is deemed prohibited in the coming year, they will have to stop indulging in such an activity. Furthermore, they must remove that from their MoA, or completely change their objectives in order to avoid getting into legal hassles.
Process to change the objective of the company
The MoA explains two major actions or objectives of the business.
- Main object
- Ancillary object
The main object targets the major business activities of the company while the ancillary object targets the necessary activities for conducting the business plans and needs.
Due to various reasons, a company may want to change both the objectives (Main and Ancillary objects). To get it changed, you will need to follow the 5 steps which lead to the change of objectives.
Firstly, a resolution has to be passed to make the essential changes in name and objectives at the meeting. The director of the company is supposed to sign the resolution, certify and file the necessary forms with the RoC on behalf of the company. The meeting of the board should be fixed in prior. Besides that, it must contain all the necessary members of the firm to avoid any type of disputes and differences.
Special Resolution In EGM
Secondly, a special resolution has to be passed would mention the necessary facts about the company and its workings. It will be issued to all the board members as well as members of their respective groups.
In the EGM, a special resolution will be passed by the members. The reply of the members to the special resolution is obtained through a postal ballot. All the members will be sent a notice that contains the following details:
- Money received by issuing a prospectus
- Money utilized in accordance with the prospectus
- Unutilized money
- Details for the proposed changes
- Justification regarding why the change in objects is necessary
- Amount which will be utilized to fulfill the new objects
- Estimated financial impact of the changes on earnings and cash flow
- Other relevant information
- Where to obtain a copy of the passed resolution
Once this notice is circulated, the resolution is passed. Following this, the resolution is published in one English and one vernacular language newspaper in the company’s registered city. The Resolution must also be added to the Company website.
Any shareholder who voted against the changes must be given a chance to exit the company by the promoters.
If a company has raised funds from the public by issuing a prospectus and possesses some unutilised funds out of those, it has to make some disclosures along with passing a special resolution.
If the company hasn’t received any funds from the public, or the funds received are fully utilised, then the company is not required to make the disclosures, only the special resolution would be enough.
File Form MGT-14 With RoC
After passing the board resolution and special resolution, the company and its director(s) need to fill the MGT-14 form to the Registrar of Companies (RoC) to proceed further. Also, along with the MGT-14 form, the company will have to submit certain important documents to complete the whole process. Important documents like the below mentioned have to be submitted.
- Certified copy of the special resolution
- Notice of Extraordinary General Meeting (EGM)
- The explanatory statement to the notice
- Altered Memorandum of Association (MoA)
Issuance Of Fresh Certificate Of Incorporation
After the completion of the above steps, the company is all set to submit the form along with the necessary documents to the RoC. The RoC will check, verify all the issued documents carefully and if everything is perfect, the RoC will issue a new certificate of incorporation to the company. Hereby, that will highlight the new changes made by the company. Object article change is not completed until the RoC provides a fresh certificate of incorporation to the company.
Incorporating The Object Clause In MoA And AoA
Once the RoC issues the certificate of incorporation, the object clause must be incorporated in all the copies of Memorandum of Association (MoA).
- Notice regarding EGM
- Attested True copy of the Special Resolution
- Altered MoA
- Minutes of the Board meeting and EGM
- Certified True copy of Board Resolution (Optional)
- ID proof of all the directors of the Company
- Address proof of all the directors of the Company
- Attendance Sheet or Register of the Board meetings and General Meetings
Process for Changing Name & Objectives
4 Working Days
You first need the board to pass a resolution selecting the new name and changing the objects of the company. We will ask for a few documents, which will be needed to get the approval from RoC in this regard.
15 Working Days
We will file the necessary forms for changing the name and objects, but would also need to provide us with projected turnover details for three years and a declaration that the company will commence the business mentioned in the objects within six months.
What are the Articles of Association and Memorandum of Association?
When will the changes made to the object come into effect?
Do we have to change the name of the company because we are altering the objectives of our company? Do these both go hand in hand?
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