Objects Clause in English Companies Act, 2006
Under English Companies Act, 2006 a provision as to objects is required to be made in the articles of association. Section 31(1) of English Companies Act, 2006 provides that unless the company’s articles specifically restrict the objects of the company, its objects are unrestricted.
Effect of amendment on statement of objects
The effect of the Clauses (c) and (d) of section 13(1) of the 1956 Act as amended by the Act 31 of the 1965 in this: In the case of an ‘existing company‘, this is, existing prior to the Amendment Act, if any new business not germane to the business which it is already carrying on, is to be started, the provisions of section 149(2-A) clause (a) read with sub-section (2-B) of the 1956 Act should be complied with, and in the case of a company formed after the Amendment Act, if any business coming under the ‘other object’ clause(d) is to be started, the provisions of said section 149(2-A) clause (b) read with sub-section(2-B) of that section should be complied with.
Main objects and ancillary objects
The words ” to be pursued by the company on incorporation” on section 13(1)(d)of the 1956 Act are pertinent. This implies that the object stated in the main object are to be pursued by the company immediately after incorporation or within a reasonable time thereafter. While registering a company, the concerned Registrar of companies is entitled to satisfy himself that the objects included in the main object clause are really the objects intended to be pursued by the company either immediately or within a reasonable time after its incorporation. The Registrar must satisfy himself by reference to certain documents information or explanations furnished by the company.
The terms ‘incidental’ or ‘ancillary’ in clause (d) of section 13(1) of the 1956 Act mean activity arising out of or directly connected to the main activity. For example, the production of by-products is incidental to the manufacture of the main products and also the powers of the company to carry on its object, like investment of surplus funds, to borrow etc., Whether an activity is incidental or ancillary to the main activity will have to be determined by reference to the facts and circumstances of each case. Where the main objects of the company have failed to materialize, the court may order winding-up under ‘just and equitable’ clause of section 433 of the 1956 Act. The company took-over a business of which it is deprived by acquisition and later received compensation. A company may be restrained by an injunction from exceeding its object.
Indication of main objects
There are divergent practices in the offices of the ROCs as to the number of clauses/objects that can be allowed under “Main Objects” to be pursued by the company on its incorporation vide section 13(1)(d)(1) of the companies Act. ROCs are advised to follow the general principle that in case of object oriented names like Hindustan Sugar Limited, the main objects should constitute only of that object (like sugar in case of Hindustan Sugar Ltd), while in case of non-object oriented names (like Tata sons limited) there should be no restriction as to the number of main objects. similar should be the approach in case of companies having names with general expressions like “Industries/Enterprises”, etc., without prefixing the nature of industry or enterprise. In either case, it may be ensured that objects specified in the memorandum of association are specified against column No.5 of Form 1A.
Registration as Commercial company under English Act
The English Companies Act, 1985, section 3 A permits a company’s memorandum to state that its object is to carry on business as a general commercial company. Before this statutory permission the position taken by the courts was that a statement in the memorandum that the company was formed to carry on any business whatever which the company might think would be profitable to the shareholders was not a proper statement of object, though the courts had relaxed their approach. (The English Companies Act , 1985 has been replaced by the Act of 2006.
Objects of non-trading corporation
In case of a non-trading corporation whose objects extends to more than one state, the states to which the objects will extend to have to be mentioned in section 13(1) (e) of the 1956 Act. A company incorporated for Kuries business (in this case in Kerala) has been held to be a trading corporation. The 2013 Act does not defined the term ‘Trading Corporation’ and has no provisions specific to the object of trading corporations.
A company can act as a trustee. It is not necessary that the objects should always be commercial objects.
Objects, power and interpretation
Section 13(1)(d) of the 1956 Act required the memorandum to specify separately, the main objects, ancillary objects and other objects. Such division of the object into three categories has been dispensed with in the 2013 Act. Under the 2013 Act the objects clause is divided into 1) objects which the company proposes to pursue and (2) any other objects considered necessary in furtherance of the main objects. The objects clause is one of the most important clauses in a memorandum. A company should be very careful in drafting its objects clause to ensure that it covers all the activities the company wishes to carry out. If the Company’s objects clause is not carefully drafted and it engages in activities not mentioned in the object clause, such activities would be considered as the memorandum. Since the 2013 Act does away with the need to classify the object to main, ancillary and other a company should include in its objects clause all the main as well as ancillary business that it proposes to engage in. The pertinent question that arises is with regard to the transactions entered into prior to the 2013 Act, that is, memorandum of Companies registered under the 1956 Act. In our opinion the answer to this is that the 2013 Act does not negate any of the transactions entered into under the 1956 Act nor does it say that the memorandum of companies incorporated under the 1956 Act need to be changed. Companies registered under the 1956 Act shall continue as is. By virtue of section 4(6) of the 2013 Act the memorandum should be in one of the respective forms but there is no specific provision requiring amendment of memorandum.
The memorandum of association of a company is its charter defining the object of its existence and operations. As pointed out in 1918 AC 514, the purpose of objects clauses is ‘ to enable the shareholders, creditors and those dealing with the company to knew what it is permitted range of enterprise’. The objects clause or clauses in the memorandum are to be so construed as to confer on the company all powers reasonably required to the attainment of the objects”. ” A memorandum of association like any other document must be read fairly and its import derived from a reasonable interpretation of the language which it employs”. The natural and ordinary meaning of the language used in the several clauses should be taken into consideration for determining whether a particular transaction does or does not fall within the object stated in the memorandum. In the case of Bell Houses Ltd., the Court of Appeal approved of a clause providing that the company may ‘carry on any other trade or business whatsoever which can in the opinion of the Board of directors be advantageously carried on as ancillary to any of the above businesses. From this it would appear that the practice is to water down the ultra vires doctrine as regards dealing of companies with the third parties, provided the dealings are honest. Where the object clause provided that the company may enter into any partnership for manufacturing garments. Where the object clause concluded with the words that each clause was independent of other clauses and one of the clauses authorized the company to carry on the work of merchants generally, it was held that this empowered the company to operate a chain of garages and the company was liable to the supplier of petrol to the garages.
If the objects clause has a specific main object followed by general words, the general words should not be construed as enabling the company to throw its main object. The objects clauses should be construed as independent of each other so as to give full effect to each of them. The ordinary rules of construing documents apply to the construction of the object clauses of memorandum of association. The first question is what is the fair construction of the memorandum as a whole? General words following a particular specification may be considered, but there is no special rule of interpretation by reference to what are the main or principal objects of the company where the question is whether something done or proposed to be done. The proper mode on construing the object clauses of memorandum of association is discussed and the case-law on the subject reviewed. The memorandum has to be construed like any other document. Articles may be looked into for explaining ambiguities but they cannot be used for extending the scope of the memorandum. A company may set out in its memorandum of association as many objects and powers as it considers proper. The registering authority cannot object to the prevailing practice of drafting objects clause which permits the carrying out of diverse activities. The purpose of the Act is not to limit the powers of the company and compel them undergo the tedious and costly process of having to amend the objects whenever a new business venture is planned.
Main objects, rule of construction
In setting out the objects of a company, its memorandum usually states the several powers which the company will be entitled to exercise in carrying out its objects. Though the practice of inserting powers in the object clause was criticized in, the practice has become so common and widespread that the Registrar usually does not refuse to register a memorandum containing, besides its objects, the several powers which a company may exercising in effectuating its objects. The result is ” to bury beneath a mass of words” the real object or object of the company with the intent that every conceivable form of activity shall be found included somewhere within its terms. ” In view of the ruling in that a company cannot employ its funds for the purposes of any transactions which do not come within the object specified in the memorandum the adoption of a wide range of objects clauses in the memorandum protects in a way the activities of the company from being questioned as ultra vires its powers. It has held that the ‘main objects’ rule stood excluded by the concluding clause in the memorandum which declared that the objects in any paragraph thereof were in no way limited or restricted by reference to any other paragraph or the name of the company. The intention to treat a particular object as the main object can also be known from the conduct of the company towards that object. When something is stated amongst the object, it would have to be treated as an object and alterable in the same manner though it was a bare function like distribution of the company‘s assets in winding-up and could have been stated in the articles also. Where the power to make investments, as permitted by the object clause was found to be exercisable only in connection with the company’s principal business or when it had surplus funds, it was held that without such linkage the company’s money could not be used for investing in shares of other companies or for acquiring control over them.
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