Prior to the Companies Act 2006, every UK company was required to include an objects clause in its memorandum of association. This is a clause that sets out a company’s purpose and the scope of its activities. Essentially, it restricts what a company can do.
The need to include any such clause largely ended on 1 October 2009, when the final provisions of the Companies Act 2006 came into effect. The activities of most companies incorporated since that date are unrestricted, subject to any self-imposed limitations they choose to include in their articles of association.
However, the situation is less clear-cut for old companies registered under the Companies Act 1985 or earlier legislation. Certain types of new companies also still have to include a statement of objects in their articles.
We discuss all of these points in more detail throughout this post, explaining how objects clause restrictions apply to different companies.
Objects clause requirements for old companies
Under the 1985 Act and earlier legislation, all UK companies had to specify their objects (i.e. objectives, aims) in their memorandums of association. A company’s purpose, business activities, and the contractual agreements it could enter into were limited to those set out in its objects clause.
If a company engaged in an activity beyond its stated objects, its actions were deemed ‘ultra vires’ (beyond the scope of its powers) and potentially voidable under common law. The directors of the company could be held personally liable for any such acts.
In an attempt to avoid the potential pitfalls of the ultra vires rule, companies typically had excessively long objects clauses. They would set out in great detail every type of activity they may possibly wish to undertake in the course of doing business.
Upon the introduction of the Companies Act 2006, the objects of existing companies automatically became part of their articles of association. Since then, many of the companies incorporated under earlier acts have removed their objects clauses by amending or replacing their articles.
Removing a residual objects clause from your company’s articles
If you incorporated your company before 1 October 2009, you should check your articles of association to determine whether or not the residual objects clause is still in place.
If it is and you would like to amend or remove it, you can do so by passing a special resolution to change your company’s articles. You will then need to notify Companies House on form CC04: statement of company’s objects.
You must send the form to Companies House within 15 days of the amendment taking place, along with a copy of the special resolution and a copy of your revised or new articles of association.
If you are considering altering or changing your articles of association, our Company Secretarial Team can provide advice and assistance. You can contact them by telephone at 020 3984 5387, or by email at email@example.com.
The current position for new companies
Any new company incorporated on or after 1 October 2009 has unrestricted objects, unless it chooses to specifically restrict what it can do by including an objects clause in its articles. The vast majority of companies do not limit their activities by imposing any such constraints upon themselves.
However, certain types of companies continue to restrict their objects, including charities, community interest companies (CICs), property management companies, and other types of not-for-profit organisations.
Charitable company objects clause
Under charities legislation, a company limited by a guarantee that is registered for charitable purposes must have restricted charitable objects. These describe and identify the purpose of the charity (i.e. what it has been set up to achieve).
A charity’s purpose and its objects are set out in the objects clause of its governing document (the articles). By law, everything the charity does must be consistent with, and support only, those stated purposes and objects.
Community Interest Company
Similarly, a Community Interest Company (which exists to benefit the community rather than its members) will usually include an objects clause in its articles of association. This should be in line with the CIC’s community interest statement describing what it will do, who it will help, and how its activities will help the community.
Flat management company
An objects clause is also a requirement for Right to Manage (RTM) companies and other types of flat management companies (known as ‘property factors’ in Scotland).
A Right to Manage company is used exclusively by leaseholder property owners. The company must be limited by guarantee, and its articles must state that its objects are to acquire and exercise the right to manage a particular property in accordance with the Commonhold and Leasehold Reform Act 2002.
In furtherance of its objects, but not otherwise, an RTM company will have the power to undertake all such activities that it is authorised or required to do under the 2002 Act. The full list of permitted activities can be found in Part 2 (Para. 5) of The RTM Companies (Model Articles) (England) Regulations 2009.
Other types of property management companies set up by freehold property owners will usually include an objects clause stating that the company’s purposes are to hold the property, repair and maintain the property, and raise funds to carry out repairs and maintenance.
Companies limited by guarantee
Most companies limited by guarantee are set up for charitable, social, or community-based purposes. As such, it is common for these types of organisations to restrict their objects, even when not required to do so by law.
Including a clear objects clause provides protection and assurance to members and other stakeholders, enabling them to ascertain the scope of the company’s activities and how funds will be used.
How to add an objects clause to your company’s articles
The vast majority of companies in the UK are owner-managed and have no reason to restrict their objects, but it can be useful in certain circumstances. If you wish to include an objects clause in your company’s articles for any reason, you will need to:
- pass a special resolution at a general meeting or in writing – this requires at least 75% of eligible members to vote in favour of the change to the articles
- complete Companies House form CC04: statement of company’s objects
- file the form, a copy of the resolution, and a copy of the amended articles with Companies House within 15 days
If you already have an objects clause but would like to alter or remove it from your articles entirely, simply follow the exact same procedure as above.
We recommend seeking professional advice before restricting your company’s objects or changing any existing restrictions set out in your articles.
Thanks for reading
Please feel free to leave a comment below if you have any questions about this post. Our Company Secretarial Team can also offer advice and assistance related to objects clauses, and making the necessary changes to your articles of association.