The Primary Importance Of Actions & Efforts
"Your karma decides your destiny", goes the wise-old saying. It establishes the prime importance of our day-to-day actions. As nobody and nothing can exist without performing any action, so we are always bound by the actions. Various scientists have also proved beyond doubt that there are massive (atomic & molecular) movements going on inside the seemingly inert stones and sands. Change is written in the DNA of everyone and everything, in this world or perhaps the entire Universe.
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Can A Company Change Its Area Of Activity?
And when we talk about the primary human world, the arena of people and its materialistically significant part, the economy, businesses & commerce, the law of existence doesn't change much. There are various types of companies in the oceanic world of business & economy, some which have only one core area for production and/or sale, others which have presence across multiple segments of human needs and necessities. Now, if a company wishes to expand or change its (segment) range of production and sales, what it should do. Following is the detailed answer to this question:
The Memorandum of Association (MOA) is a constitutional document of the company that helps to bring change in a business activity. It consists of five clauses as listed below.
Name clause – It is the first clause in the MOA. It provides the name of the company. From the name of the company, one can come to know whether the company is a Private Limited Company or a Public Limited Company.
Registered office clause – It shows in which state the company is located.
Object clause – From the object clause, one can get information about the business activity of the company. It shows the purpose of the company.
Liability clause – It shows the liability of the members of the company. It can be limited by shares or guarantee.
Capital clause – Companies having share capital will show the total authorized capital which is divided into the number of shares and the amount.
A Private Limited Company cannot conduct any business activity which is not mentioned in the object clause of the MOA. After Private Limited Company registration, if a company wants to start a new stream related to existing activity or a completely new activity, then it needs to alter or change the object clause in MOA.
Hence the company has to follow the procedure as specified under law to change the business activity of a company. For this, the company will require the approval from the shareholders by passing a resolution.
The Various Situations Where A Company May Want To Change Its Activity
How to change a business activity of a Company
If a company wants to expand the business
If a company takes over another company with different business activity
If a company want to start a completely different business
If the government prohibits the current business activity under any law.
You may also read The Shop And Establishment Act - The Law That Governs Indian Businesses.
Pass a resolution in a board meeting
A board meeting must be called to approve the new object clause by the directors. The BOD may decide a date and time to call an Extraordinary General Meeting to take approval from shareholders. Further, BOD may authorize any of the directors to file all required forms with MCA. The notice for the EGM must be sent to all the shareholders at least before 21 days from the date of EGM.
Pass a special resolution in Extraordinary General Meeting
The company must call an EGM at a specified date and time. To change the object clause in MOA, shareholders must pass a Special resolution. For companies that are not a Private Limited Company or issue capital through prospectus, then the company must pass a special resolution by postal ballot for change in business activity.
Also read Know About The Founders Agreement.
Filing of form with MCA
A company shall file the form MGT-14 for the special resolution passed in the extraordinary general meeting. The form must be filed with the MCA within 30 days from the date of resolution. The process ends when the company receives approval from MCA.
Following documents must be attached with the form;
A true copy of a board resolution
Notice of EGM
A true copy of a special resolution
Alteration of MOA
The company after receiving approval from the MCA must alter every copy of the Memorandum of Association. The company can start new business activities after receipt of approval from the MCA.
Be compliant with all the rules and regulations to avoid any consequences. The company must update MCA by filing forms from time to time as and when required such as a change in registered office, business activity, capital, etc. Otherwise, the company, as well as the officers in default, will be liable for the penalty.
Changing of the activity by a company is unusual, from a macro perspective but it is much more prevalent from a micro perspective. Laws are made to make this process easier and less prone to hassles.