# Object Clause of Memorandum

The Object Clause is the heart of the memorandum — it defines the purpose for which the company is formed and the scope of its capacity to act.

## What it must state

The object clause must state "the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof".

## Freedom of Subscribers

Subscribers enjoy almost unrestricted freedom to choose objects.
Only restriction: Objects must not be illegal or against the Companies Act, 2013.

## Alteration of Object Clause (Section 13)

### General Procedure

1. Pass a Special Resolution in general meeting. (In a public company, must be passed by Postal Ballot.)

2. File Form MGT-14 with ROC within 30 days of passing the resolution, along with the altered memorandum.

3. ROC registers the alteration and certifies registration under his hand within 30 days of filing.

4. Effective date of alteration = date when ROC registers the alteration.

### Special Restriction — Companies that raised money through prospectus [Section 13(8) & (9)]

Where a company has raised money from the public through a prospectus and still has unutilised amounts remaining, it CANNOT change its objects unless:

(i) A special resolution is passed through Postal Ballot;

(ii) Exit option is given to dissenting shareholders by promoters/controlling shareholders, per SEBI regulations;

(iii) Newspaper publication — details published in one English + one vernacular newspaper circulating where registered office is located, and hosted on the company's website, with justification for change.

### Postal Ballot Notice — Required Particulars

The notice for the resolution must contain:

(a) Total money received;
(b) Total money utilised for objects stated in prospectus;
(c) Un-utilised amount;
(d) Particulars of proposed change in objects;
(e) Justification for the change;
(f) Amount proposed to be used for new objects;
(g) Estimated financial impact on earnings and cash flow;
(h) Other information needed for informed decision;
(i) Place from where interested person may obtain copy of notice.

### Registration & Effect [Sec 13(9), (10), (11)]

Registrar must register the alteration of objects and certify within 30 days of filing the special resolution.
Alteration is effective ONLY after registration [Sec 13(10)].
For a company limited by guarantee without share capital, any alteration giving a non-member a right to participate in divisible profits shall be VOID [Sec 13(11), reinforcing Sec 4(7)].

## Why the Restriction?

To protect minority shareholders and public investors — money was raised on representations of specific objects; unilateral change without consent would defraud subscribers.

Worked example

### Example 1

Q: PQR Ltd raised ₹100 crore through an IPO with stated object of building a textile factory. ₹40 crore remains unutilised. The Board now wishes to use the unutilised amount for a real estate venture. What is the procedure?

A: Since unutilised IPO money remains: (i) PQR must pass a special resolution through postal ballot; (ii) the notice must contain all 9 particulars (total received ₹100Cr, utilised ₹60Cr, unutilised ₹40Cr, justification, financial impact, etc.); (iii) exit option must be given to dissenting shareholders per SEBI regulations; (iv) advertisement in one English + one vernacular newspaper + on company website; (v) file MGT-14 with ROC; (vi) ROC registers within 30 days. Change is effective only upon registration.

### Example 2

Q: A private company wishes to alter its object clause. Must it use postal ballot?

A: No. Postal ballot for object clause alteration is mandatory only for public companies. Private companies may pass the special resolution at a general meeting in the normal manner.

⚠️ Common exam mistakes

Forgetting that for public companies, the special resolution for object clause alteration MUST be by postal ballot.
Assuming the alteration is effective from the date of the special resolution — it is effective only from the date of ROC's registration.
Overlooking the 9 mandatory particulars in the postal ballot notice when a company has raised money via prospectus and has unutilised funds.
Confusing Section 13(11) [guarantee company without share capital] with general companies — the void-ab-initio rule applies only to such guarantee companies.

Bare-Act text Section 13(8), (9), (10), (11) · Companies Act, 2013 · click to expand

Section 13(8): A company, which has raised money from public through prospectus and still has any unutilised 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; (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. Section 13(9): The Registrar shall register any alteration of the memorandum with respect to the objects of the company and certify the registration within a period of thirty days from the date of filing of the special resolution. Section 13(10): No alteration made under this section shall have any effect until it has been registered in accordance with the provisions of this section. Section 13(11): Any alteration of the memorandum, in the case of a company limited by guarantee and not having a share capital, purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member, shall be void.

Now that you've read this — what's next?

Move from understanding → mastery in 3 clicks. Each option below picks up from this lesson's topic.

🔥 Drill 5 Qs on this → ✍️ Adaptive practice →

Object Clause of Memorandum and its Alteration

Worked example

⚠️ Common exam mistakes