Change of Object Clauses / Business Objective
An object clause is a provision in a company's constitution, that is Memorandum of Association, stating the purpose and range of business activities for which the company can be carried on.
The company can amend its object clauses by adding, removing or altering a statement of the company’s object clauses.
Any such amendment does not affect any rights or obligations of the company or render defective any legal proceedings by or against it.
The purpose of the object clause is to define and limit the activities which the company is permitted to undertake. Anything which exceeds those limits is ultra vires (beyond the legal power or authority) of the company and may be void. The company may amend its objects clause in a general meeting but it cannot ratify a transaction which was ultra vires.
Any shareholders may apply for an injunction from Court to restrain the company from proceeding in the transaction.
The directors would be in breach of their duty to the company and may be required to make good to the company any loss it has suffered in this connection. (Directors are to compensate the company any losses incurred on this transaction).
But the directors are not liable to compensate any other party who has suffered loss in his dealing with the company because he is deemed to be aware of the restrictions on its powers contained in or implied by the objects clause. However, the directors could be liable if they had personally warranted to the other party.
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Will the object clause have any effects over the company's operations or tax status?
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