Objects clause and Memorandum of Association: a whistle-stop tour
Historically, companies were required to include an Objects clause in their Memorandums of Association. This clause sets out the purpose of the company and listed the activities that the company was able to undertake. If a company acted outside of their Objects, those actions were said to be ultra vires (i.e. acting outside of their powers) and potentially voidable.
To this end, Objects clauses were often long and unwieldy as companies attempted to include as much as possible to avoid dealings being found to be ‘ultra vires’ in later years. Frequently a wide ‘catch all’ clause was included that provided for the ability to do anything ancillary or complementary to the other Objects.
This practice largely ended following the implementation of the Companies Act 2006 which abolished the requirement for new companies to have an Objects clause. Unfettered by this requirement, the activities of a new company were effectively limitless, subject of course to any self-imposed restrictions in the articles and by law.
However, for old companies that were incorporated prior to the Companies Act 2006, the position became slightly more complicated. Rather than providing for the removal of any existing Objects clause, the Objects automatically became part of the company’s Articles of Association. What was previously a long and unwieldy Objects clause now bloated (and potentially blighted) the articles.
It has become clear that since the implementation of the Companies Act 2006, Objects clauses now only serve to limit the activities of a company and as such, many companies incorporated under the old Act have opted to amend or replace their articles of association to specifically do away with any remnants of their Objects clause altogether. Verily, it is often the case that the Objects clause no longer reflects the current activities of the company and is therefore an unnecessary hindrance.
Whether you have a residual Objects clause or not, our Company Commercial team can assist you if you are considering amending or replacing your Articles of Association. We can advise you as to your options and give you pragmatic and focussed advice as to whether model articles or bespoke articles will be more appropriate.
Please contact Sing Li or Holly Baker if you would like to discuss the matters raised in this article or any other aspect of commercial law generally.