An organization functions to gain profit from specific business activities. To gain increasing profit the efforts of the organization must be directed in one way. The company is a type of organization that requires a specific registration process to be followed and limited its scope within provisions of law. The scope of activities of the company is defined by the charter documents of the company i.e. MoA and AoA. Object clause of the company is mentioned in the MoA of the company, which must be furnished to MCA while company registration.
What is Object clause of MoA?
The object clause of MoA defines the activities to be carried on by the company and outlines the scope of business. A company cannot indulge in activities other than those provided in object clause. The activities carried on outside the scope drawn by MoA are called ultra-virus activities. Also, to limit and regulate the company’s activities, the MoA and objects of the company are verified and approved while Private Limited Company Registration. Here, under object clause, the company must provide all the activities it will engage after its incorporation.
However, while company registration, the most frequent question asked in “Whether one can register a company for multiple businesses?”
The answer is yes, however it depends whether the activities are related or not. The company may carry on more than one activity at the consent of the member. All such activities are required to be listed under the object clause as specified above. In a practical scenario, many promoters wish to put all different activities under one roof, which may be possible to a certain extent. Here, we are providing a true image of whether different business activities can be registered under one company.
When the activities are listed with the reference to business perspective and growth can be performed. Activities ancillary to the main business objective are allowed to be carried on under the same roof and are not a point of objection.
Multiple related and unrelated activities:
Activities that are similar to each other and are of the same field are related activities and that do not fall under the same field are unrelated activities. By referring it to related activities, we mean the two activities are related in one or another way or belong to same industry. For example, let’s discuss a software development company, the main activity of the company is to develop software for clients and deploy them in the market. This company can hire new employees and to make them used to with the process and services of the company they will have to give them proper training. Imparting training for the benefit of the company or to achieve the business goal is permitted but doing it as a lead service is not allowed. Also, a digital market can also be included as it relates to same field or industry.
Here, if the company starts to impart training to students as a service and with no relation to the actual production of the company it will be unrelated to the main objective. Training falls under the education field whereas software development falls under a different category and performing both under one roof is not permitted by RoC. RoC does not approve the unrelated activities as the main object for the same company. However, if the members of the company are willing to do so it may be proposed and applied for approval to RoC.
Why are unrelated activities not allowed under one company?
The focus of this restriction is so organized the industries in specific categorized manner. Form the company point of view it is beneficial as the company or the officers would be able to focus on one core field of operation without losing emphasis by engaging into various fields which are not related to each other.
In a situation where a company is engaged in various objectives, the investors may begin to resist providing funds to the company as the return from two unrelated activities will be diversified and will be difficult for the investors to focus on the rate of growth and rate of return will be different for different industries.
If a company or the officer performs activities which are not related to each other as discussed above, the amount of return received will differ because of the change in the methodology and procedures that are followed. Such diversified activities won’t provide an exact idea of the rate of return and will lead to situations where the investors will be an unaware spend of resources on a particular activity. It would be necessary for the management and investors to know based on which the funding will be initiated.
Taking all the above point in mind, the different activities for one company must be provided in a manner that those can be interlinked with. If the company wants to enter in another field, an option is private limited company registration as subsidiary or associate company. It must be noted that at any time, the business objects must be approved by the Registrar of Companies (RoC). If a specified activity is ancillary to another it shall be categorized in the same manner. While drafting object of the company, care must be taken that the main objectives and the ancillary activities are categorized differently.
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