The reason behind incorporating and running a business is to gain profits. There are many formal and informal business structures in India. Private limited companies are the one of the most opted formal business structures opted by young entrepreneurs today. After online company registration, certain times the owners feel the need to expand the business by introducing new business activities and products. However, there are certain implications involved in running multiple brands under one company in India. Through this article you will get a clear idea on whether it is allowed to run multiple businesses under one limited company, and the extent to which it is allowed.
The role of charter documents in running multiple brands under one company
It is a known fact that a company completely functions as per its charter documents. The Memorandum of Association and the Article of Association collectively referred to as the charter documents. It is the MOA that governs all business activities that a company can function, under its object clause. Traditionally, the MOA of a company has five different clauses:
- Name Clause;
- Registered Address Clause;
- Object clause;
- Liability Clause; and
- Capital clause
It’s the way you draft your object clause that governs whether you will be allowed to run multiple brands under one company or not.
What is Object Clause of MoA?
The object clause is the provision that sets out the primary object behind the incorporation of a business. A company can only carry such business activities, which are allowed on the basis of the object clause. Besides, diverging the business activities of a company without consideration of the object clause makes such business activity ultra vires and unlawful.
XYZ pvt ltd. has “providing education” as their main business activity in the object clause. However, gradually they also started providing software development services as their profit making activity. Further, there is no mention of the software development services in the object clause of MOA. This makes the new services ultra vires and unlawful.
Key Note: Ultra vires means beyond the scope of the business.
Now that we know what the object clause means and its significance, let’s see if you can run multiple brands under one company.
Can you run multiple brands under one limited company?
The answer to this is technically yes. Running multiple brands under one company is not an issue unless and until the activities carried on under that brand is interrelated to the main object of the business.
Let’s consider the fact that instead of starting software development as services, XYZ Pvt Ltd (from the example above) starts training and educating its original clientele, i.e., students on software development. Here, you can see that the training related to software development still falls under the category of providing education. Which is in sync with the main object of the company. Hence, this sort of expansion of a business brand is allowed and valid.
Also Read: Company Registration Process
Can you start multiple businesses in one company during the incorporation process?
Yes, you can start multiple businesses even during the incorporation process. However, you need to fulfill the following conditions:
- The multiple business activities should be interrelated; and
- You must have approval of all members.
The interrelation of business activities
When you consider starting multiple brands in one business the interrelation of the business activities play an important role. There might be two circumstances:
The activity is related to your main object
When the new brand activities are from the same field, or are interrelated with each other. You can start that brand after following the legal compliances
The activity is not related to your main object
This is a situation which arises in the first example. If you are desirous of introducing a new brand which is completely different from the object clause of your company, you need to incorporate a subsidiary or associate company to legally start multiple brands under one company. However, here your company will become a parent company and the brand company will become a subsidiary company. This process of subsidiary company registration also includes governmental charges.
The company laws of India put a restriction on carrying out unrelated business activities. The major reasons why the laws put such restrictions on carrying out multiple brands in one business with unrelated activities are:
Having different sectors and segments of different industries, makes the entire business ecosystem in India more organised. Additionally, this segmentation also helps in figuring out which sectors and business areas are emerging and leading to the growth and development of the nation as a whole.
Easier for the Business Owners and employees
When the employees or management of one business start dividing their attention towards two or more unrelated activities, it becomes difficult to keep a track of the following:
- Use of resources;
- Sources of income;
- Growth rate of the company; and
- Finding investors for your business model.
It is difficult to seek investments when the core members are focused on different business activities. The reason being, the investors won’t be able to track the growth of one business activity from the other. Additionally, it also becomes difficult to figure out the return rates for investors because different SOPs and methods are applicable to different business activities.
Keynote: Even though it is not outright allowed to start multiple brands with unrelated business activities in a business, the owners can still try to get approval from the ROC. For this, all the members need to give their consent before the ROC in an application. However, the approval is solely based on the discretion of the ROC.
Keeping all the above mentioned factors in mind, you need to draft the MOA object clause very carefully and interlink all your proposed business activities. For this, you can take help from certified professionals, which will allow you to continue your venture without any hassles. Connect with our experts today!