How can the name and object clauses of a company be amended?

Introduction

In the ever-changing world of business, companies frequently need to adjust and develop in order to satisfy shifting market needs, regulations, or strategic objectives. The name clause and the object clause both found in the Memorandum of Association are vital elements of a company’s foundational documents. The name clause identifies the official company name, and the object clause defines the company’s objectives and the range of its operations.

Amending these clauses may be necessary for various reasons such as a name change due to rebranding or the need to expand or modify the company’s objectives as a result of a shift in business strategy. However, the procedure to implement these changes is guided by certain legal structures to guarantee fairness, safeguard stakeholders’ concerns, and uphold regulatory adherence.

The laws that amend the name and object clauses are usually outlined in the Companies Act of the specific area. The Companies Act of 2013 offers a thorough legal framework for these changes. This framework outlines the required steps companies must take, such as passing resolutions, gaining shareholder consent, and submitting the necessary paperwork to the Registrar of Companies (RoC).

Memorandum of Association

In the formation of a company, the first step is to prepare a document called the Memorandum of Association. It is one of the most essential prerequisites for the incorporation of any form of company under the Companies Act, 2013.

The definition of “memorandum” is provided under Section 2(56) of this Act. According to Section 4 read with Schedule I, the Memorandum of Association shall consist of a name clause, object clause, liability clause, capital clause, subscription clause, and registered office clause. The name clause is required to identify the official company name, and the object clause is required for the objectives of the company and its operations.

The procedure for obtaining the name clause and object clause is as follows:

1. Name Clause

• According to Section 4(1)(a) of the Act, the name clause defines the name of the company.
• It should not be identical or resemble too nearly any existing company.
• The name of the company is a symbol of its independent corporate existence.
• In the case of a private company, it should have “Pvt. Ltd.” at the end of the name, and in the case of a public company, it should have the word “limited” at the end of its name.
• In the case of Methodist Church v. Union of India[1], it was stated that “the registrar must make preliminary inquiries to ensure that the name allowed by him is not misleading or intended to deceive with reference to the object clause of the memorandum.”

2. Object Clause

• According to Section 4(1)(c) of the Act, it defines the objects for which the company is proposed to be incorporated.
• It indicates the purpose for which the company has been set up and its actual capability, besides its sphere of activities.
• Anyone wishing to trade with a company must know its permitted range of activities; acts outside the scope of its object clause are ultra vires and hence void.
• The case of Cotman v. Brougham[2], pointed out that “to enable the shareholders, creditors, and those dealing with the company to know what is the permitted range of enterprises. The object clauses in the memorandum are to be construed as to confer on the company all powers reasonably required to the attainment of the objects.”

Amendment of Name Clause

The name clause of the company can be changed by two methods; the first step is a change of name at the instance of the company, and the second is a change of name on the direction of the Central Government, which are the following:

• As per Section 13(2) of the Act, the company’s name can be amended through a special resolution at a general meeting and with written approval from the Central Government. Approval from the Central Government (CG) is unnecessary when changing the company name involves merely adding or removing the word ‘private’ due to the company’s conversion from public to private or vice versa.
• As per Section 16 of the Act, if a company is registered with a name that is deemed too similar to an existing company’s name, the Central Government can order the company to change its name. The company must then choose a new name within three months, pass an ordinary resolution, and get written approval from the Central Government.
• As per Section 13(3) of the Act, if a company changes its name under Section 13(2), the registrar will update the register with the new name and issue a new certificate of incorporation. The name change will only be official once the new certificate is issued.

Procedure for Amendment in Name Clause of Memorandum

According to Rule 29 of the Companies (Incorporation) Rules, 2014[3], if a company has not submitted annual returns or financial statements to the Registrar or has not paid matured deposits, debentures, or interest. An application shall be filed in Form No INC-24 along with the fee for the change in the name of the company, and a new certificate of incorporation in Form No INC 25 shall be issued to the company consequent upon the change of name. Here step-by-step procedures should be followed by the company:

• In accordance with the provisions of Section 173(3) of the Act, issue a notice of convening a board meeting to consider the reason for changing the name of the company and get its approval at that meeting.
• The name should be in accordance with the name guidelines given in Rule 8 of the Companies (Incorporation) Rules, 2014.
• In accordance with the proviso of Section 4(5) of the Act, the registrar may, on the basis of information given in the application, reserve the name of the existing company for a period of sixty days from the date of approval.
• In accordance with the provision of Section 13(1) of the Act, an extraordinary general meeting was held for the purpose of passing a special resolution for name change in the name clause of the Memorandum, and it will be filed with the ROC in Form No MGT-14 within thirty days of passing the resolution.
• After verifying the details filed in the application, the ROC shall issue a fresh certificate of incorporation of the name changed in Form No INC-25.
• Listed companies, which decide to change their name, shall comply with regulation 45 of the SEBI (LODR) Regulations, 2015[4].

Amendment of Object Clause

The object clause can be changed by the company by alteration of its memorandum by a special resolution in a general meeting in accordance with the provisions laid down in Sections 13(8) and 13(9) of the Act. A listed company that has raised public funds through a prospectus and has unutilized funds cannot change the purpose for which the money was raised without passing a special resolution. To do so, the company must publish the resolution details in both English and a vernacular newspaper in circulation near its registered office and also on its website, providing justification for the change. Additionally, dissenting shareholders must be given an opportunity to exit, as specified by regulations from the Securities and Exchange Board.

Procedure for Amendment in Object Clause of Memorandum

According to Section 13 read with Rule 32 of the Companies (Incorporation) Rule, 2014[5] and Rule 22 of the Companies (Management and Administration) Rules, 2014, the procedure for amending the object clause in the memorandum is the following:

• First, a notice of the board meeting served to every director on a specified date and time to discuss the proposal to alter the object clause of the memorandum of association.
• If the company has raised the money from the public through a prospectus, it shall pass a special resolution in a general meeting to alter the object clause of the company, and also publish an advertisement on its website and an English and vernacular newspaper circulating at the place where the registered office of the company is situated.
• The Registrar shall register the alteration of the object clause in the Memorandum and certify the registration within a period of thirty days from the filing of the special resolution.

Conclusion

The process of changing the name clause and object clause in a company’s Memorandum of Association is an important part of corporate governance, allowing businesses to adjust to changing market conditions, regulations, or strategic changes. The Companies Act of 2013 provides legal guidelines for amendments, guaranteeing transparency, fairness, and adherence. Amending the name clause and object clause underlines the importance of corporate accountability and adherence to statutory requirements. By following the established procedures, companies can effectively navigate changes to the name and object clauses while safeguarding stakeholder interests and ensuring regulatory compliance. Ultimately, these amendments empower companies to innovate and grow in a competitive landscape, ensuring their continued relevance and success.      

[1] [1985] 57 Com Cases 443 (Bombay).

[2] [1918] AC 514.

[3] ICSI Company Law & Practices 98.

[4] ICSI Company Law & Practices 103.

[5] ICSI Company Law & Practices 111.