Formalities for starting a New Business with Existing Business [Section-149(2A)]

As per Section 13 of the Companies Act, 1956 the Object Clause of a company shall be divided into three categories:—

1.      (i) main objects;

(ii) objects incidental or ancillary to the attainment of the main objects; and

2.   other objects.

To commence any objects listed in other objects, the company is required to pass special resolution u/s 189 and certain other formalities are required to be complied with.

Carry out new business as stated in the object clause of the Memorandum by a company existing prior to 15-10-1965

Prior to 15-10-1965, companies were not required to divide their objects into three categories and all the objects were contained in one consolidated clauses in the Memorandum.

Formalities for companies incorporated before 15-10-1965 to commence new business

Such company has to comply with the following requirements:—

(i) approval of such new business by a special resolution passed in the general meeting;

(ii) there has been filed e-Form 20A together with e-Form 23 and an stamped copy of the e-Form 20A. Simultaneously filed with the Registrar a duly verified declaration by any one of the directors or the secretary or where the company has not appointed a secretary, a secretary in whole time practice, in the prescribed e-Form 20A and 23; and

(iii) pay the filing fees on e-Form 20A and 23 as per Schedule X of the Act.

Carry out new business as stated in the object clause of the memorandum by a company incorporated after 15-10-1965 carrying out main objects

A public company cannot start its business or exercise borrowing powers unless it obtains the certificate to commence business from the Registrar. A private company can, however, commence its business as soon as it is registered.

After obtaining certificate for commencement of business from the Registrar, if required, the company may commence any business activities as stated in the main object clause of the Memorandum of Association of the company, without complying with any other formalities.

STARTING NEW BUSINESS ACTIVITIES COVERED UNDER THE OTHER OBJECT CLAUSES

An existing public limited company which proposes to take up a new business, which is covered in the "other objects" of the Memorandum can do so only after the proposal is approved by the members by a special resolution.

The said business will be considered as a new business, in the case of a company existing prior to 15-10-1965 only when the new business is not germane to the business, which the company was carrying on at that time.

PROCEDURE FOR STARTING NEW BUSINESS ACTIVITIES COVERED UNDER THE OTHER OBJECT CLAUSES

For the purpose of obtaining approval by way of special resolution the following steps have to be taken by the company:—

(i)     hold a Board meeting to consider and approving the matter/proposal for carrying specified business activities.

(ii)   The Board shall also fix the date, time and place for holding a general meeting, approve the notice of the general meeting and explanatory statement and authorise to any director or secretary for issuance of notice to the members as per the requirement of the Act.

(iii)       the proposal to start the new business will have to be approved by the members by way of a special resolution.

Where the special resolution could not be passed at the general meeting, the company is required to be approved the proposal by passing an ordinary resolution and shall require to make an application to the Central Government requesting for according permission to the commencement of new business.

In the absense of any Form for such purposes, the company may apply on simple paper stating with full ground and justification along with the fees. After receipt of the approval of the Government, the company is required to file the declaration in e-Form 20A with ROC

(iv)       File e-Form 23 as desired by section 192 with the certified copy of the special resolution with explanatory statement.

(v)        File a declaration in e-Form 20A electronically and a stamped copy be submitted simultaneously to the Registrar of Companies on the stamp paper to the effect that the provisions of section 149(2A) sub-clause (i) have been complied with.

Section 149 does not apply to a private company.

Inclusion of a new business clause in the Memorandum of Association

Where the proposed new business activities are not covered by any of the objects included in the Memorandum, the company has to first amend its object clause of the Memorandum & include the proposed object in its Main Objects or Other Objects of the company as it consider appropriate.

In the above case company is required to comply with sections 17 and 18 of the Companies Act, 1956 for amendment in the Object Clause of the Memorandum.

PROCEDURE TO AMEND OBJECT CLAUSE OF THE MEMORANDUM:—

(i)     Hold a Board meeting to consider and approving the matter/proposal. The Board shall finalised the objects proposed for inclusion in the Object Clause of Memorandum

(ii)   The board shall also fix the date, time and place for holding a general meeting, approve the notice of the general meeting and explanatory statement and authorise to any director or secretary for issuance of notice to the members as per the requirement of the Act;

(iii) The proposal to amend the object clause of the Memorandum will have to be approved by the members by way of a special resolution.

(iv) File e-Form 23 within 30 days of passing special resolution containing the certified copy of the special resolution with explanatory statement and with the fees as per Schedule X of the Act, to the Registrar of Companies;

(v) File a declaration in e-Form 20A and a stamped copy be simultaneously submitted to the Registrar of Companies on the stamp paper to the effect that the provisions of section 149(2A), sub-clause (i) have been complied with;

(vi) It is absolutely necessary to get the certificate of registration of the special resolution from the Registrar of Companies pursuant to section 18(1) of the Act within one month of filing.

Certificate for confirmation is a conclusive evidence of compliance

The certificate issued by the Registrar of Companies shall be the conclusive evidence that all the requirements regarding the alteration in the Memorandum of Association have been complied with and the Memorandum of Association so altered shall be the Memorandum of the company.

SAMPLE OF SPECIAL RESOLUTION

Under section 149(2A) of the Companies Act, 1956 to carry on the other businesses as given in the other objects clause of the Memorandum of the company:

“RESOLVED THAT pursuant to the provisions of section 149(2A) of the Companies Act, 1956, the consent of the members of the company be and is hereby accorded to carry on the business activities as covered under the Other Objects Clause No. IV (A) 29 to 37 of the memorandum of association of the company and the Board of directors of the company be and is hereby authorized to take all such effective steps to implement the decision of the members of the company as they may consider appropriate in the interest of the company and to do all such acts, deeds and things from time to time for and on behalf of the company.”

ALTERNATE SAMPLE SPECIAL RESOLUTION FOR INSERTION OF NEW CLAUSE

“RESOLVED THAT pursuant to the provisions of section 149(2A) and other applicable provisions, if any, of the Companies Act, 1956, the approval of the members of the company be and is hereby given for commencing and undertaking the new business as stated in the new inserted Clause 8 of the Objects Clause IV of the Memorandum of Association of the company upon the said Clause becoming effective.

FURTHER RESOLVED THAT the Board of directors of the company be and is hereby authorised to do all such acts, deeds, matter and things as they may consider appropriate to commence new business activities for and on behalf of the company.”