What is an objects clause?

If you’ve come across the term ‘objects clause’ and aren’t sure what it means for your company, you’re in the right place. An objects clause defines your company’s purpose and limits the activities it can carry out.

In this guide, you’ll find out whether your company needs one, what the benefits are, and how to add, remove, or change an objects clause in your articles of association.

What’s the purpose of an objects clause?

An objects clause is a provision in a company’s articles of association that defines its purpose and limits the activities it can carry out.

A clearly written objects clause can help the company’s members and other stakeholders understand the scope of its activities, how the company operates, and how its funds will be used – providing both protection and assurance.

• Does my company need articles of association?
• Can I update my memorandum of association?
• Companies limited by guarantee or shares – what’s the difference?

Who needs an objects clause?

Before the Companies Act 2006, every UK company had to include an objects clause in its memorandum of association. That changed on 1 October 2009, when the final provisions of the Companies Act 2006 came into force, removing the requirement for most companies.

Today, certain types of organisation, such as charitable organisations and flat management companies, are still legally required to have an objects clause.

Other companies may still choose to restrict their activities by voluntarily including an objects clause in their articles of association.

As Nicholas Campion, Director of Company Secretarial at 1st Formations, explains:

Most companies no longer use an objects clause, but they can still be beneficial for some. For one thing, they ensure the company remains dedicated to its original purpose. This clarity allows members and stakeholders to have confidence in the company’s focus, potentially reducing risk.

How to add, remove, or amend an objects clause

It can be useful in some circumstances to add an objects clause to your articles of association. Alternatively, if you have an objects clause, you might want to change it or remove it.

Take a school catering company that has just secured investment. It might add an objects clause to its articles of association, restricting its activities to food provision for schools. This gives investors confidence that their funds will be used exactly as intended.

If you formed your company before 1 October 2009, you might have a residual objects clause in place that you now want to remove or amend. Check your articles of association to see if this applies.

Follow these steps to add, remove, or amend an objects clause in your articles of association:

1. Pass a special resolution at a general meeting or in writing – at least 75% of eligible members must vote in favour of the resolution to adopt the new articles of association that contain the new objects clause
2. Complete Companies House form CC04: statement of company’s objects
3. File form CC04, a copy of the resolution, and a copy of the amended articles of association with Companies House within 15 days

We recommend seeking professional advice before restricting your company’s activities in an objects clause, or changing any existing restrictions set out in your articles of association.

If you’re considering amending your articles of association, our Company Secretarial Team can provide advice and assistance.

When is an objects clause a legal requirement?

Certain organisations are legally required to include an objects clause. These include charities and Right to Manage (RTM) companies. Other company types — such as Community Interest Companies (CICs) and other not-for-profit organisations — often choose to include one, even when it’s not a legal requirement.

Legally required objects clause

Charities and Right to Manage (RTM) companies must have an objects clause by law. Learn what you need to do when you form this type of company.

Charitable company objects clause

Under charities legislation, a company limited by guarantee that is registered for charitable purposes must include an objects clause in its articles of association. The clause should identify and describe the charity’s aims and the activities it will undertake to achieve them.

Everything the charity does must be consistent with the goals set out in its objects clause. This is a legal requirement, not a guideline.

RTM and flat management company objects clause

RTM companies must have an objects clause by law.

An RTM company is used by leaseholder property owners who take over the management of the building they live in. Leaseholders own their property for a fixed period through a legal agreement with a landlord known as a lease.

The Commonhold and Leasehold Reform Act 2002 states that RTM companies must be limited by guarantee, and their aims – outlined in their objects clause – must be to acquire the right to manage a particular property, and to exercise that right. RTMs must include their objects clause in their articles of association.

For example, six leaseholders in a six-flat building are experiencing repeated plumbing issues that their landlord has failed to resolve. They decide to form an RTM company to take over management of the building. Their articles of association must include an objects clause stating that the company’s purpose is to acquire and exercise the right to manage the property. In practice, this might mean appointing a new plumber or contractor.

An RTM company can only undertake certain activities, outlined in the Commonhold and Leasehold Reform Act. The RTM company must only carry out these activities if they help it fulfil its aims as outlined in its objects clause.

Company types that choose an objects clause

Some types of companies benefit from having an objects clause even if it’s not a legal requirement. We explain which companies might choose to have an objects clause.

Objects clause requirements for Community Interest Companies (CICs)

Most Community Interest Companies (CICs) include an objects clause in their articles of association. CICs exist to benefit the community rather than their members.

An objects clause should align with the CIC’s community interest statement: both should describe what the CIC will do, who it will help, and how its activities will benefit the community.

For example, a community centre set up as a CIC should include an objects clause that describes:

• The services it will offer (such as exercise classes or book clubs)
• Who it will serve
• How its activities will benefit the wider community – for instance, by creating an accessible, welcoming space

Objects clauses for companies limited by guarantee

Founders setting up a company limited by guarantee for charitable, social, or community-based purposes may choose to register with the Charities Commission as well. Even where there’s no legal requirement, many of these founders choose to include an objects clause in their articles of association. They use it to signal their mission and reassure members that funds will go towards the stated goals.

Do I need an objects clause?

Most UK companies don’t include an objects clause, but that doesn’t mean yours shouldn’t. If you run a charity or an RTM company, you’re legally required to have one. If you’re in any other sector and considering whether an objects clause is right for you, our Company Secretarial team at 1st Formations can help you think it through and put the right provisions in place.