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Pankaj Tyagi
| Updated: 12 Jan, 2021 | Category: Company Registration

Legal Consideration for Multiple Businesses under One Company

Multiple Businesses

A registered entity incorporated under the Companies Act, 2013 is liable to maintain the specific legal documents such as AOA and MOA. Memorandum of Association reflects the purpose behind the establishment of the company. The scope of activities of the privately-held entity is defined by the charter document of the company, viz: Memorandum of Association and Article of Association.

There are times when organizations seek expansion through the addition of a new line of businesses. The act of expansion of the private limited company is subjected to the legal obligations outlined by the Ministry of Corporate Affairs. This blog not only unveils the concept of adding multiple businesses under one company but also look into the legal consideration for the same.

Object Clause under Memorandum of Association 

As per section 4(1)(c) of the Companies Act, 2013, the Memorandum of Association (MoA) must enclose the object for which the entity is proposed to be legally incorporated. Simply put, the object clause is an imperative part of the Memorandum of Association of the company, which ought to be furnished to the Ministry of Corporate Affairs during the company registration process. 

The object clause encloses the detail of activities that the company is willing to undertake after being legally established. The object clause is typically outlined with extreme caution to avert any legal conflict in the future. The company cannot undertake any activities which fall beyond the scope of the object clause.

The violation of the object clause could lead the company to ultra-virus activities, which in general, is perceived as an unlawful undertaking. The object clause invariably supports the concept of multiple businesses under one company, but with some few exceptions. In general, the MoA of the company comprises of six important clauses such as a name clause, registered office clause, object clause, liability clause, association clause, and capital clause.

Can an Organization Register for Multiple Businesses during the Incorporation Process? 

The answer is yes. A company is eligible to register for multiple businesses under one company, however, it entirely depends on whether the activities are interrelated or not. The company is eligible to undertake multiple activities with the approval of the members.

However, all the activities which are mentioned ought to be related to the main business of the company. Activities that are being considered as part of the main business can be carried under one canopy. In addition to that, such companies are also eligible to undertake ancillary activities related to the main business.

Understanding the Concept of Inculcating New Businesses

Suppose there is a digital marketing company whose primary objective is to render PPC services to its target audience. To ensure quick turnaround time (TAT), the company also takes advantage of its in-house remote access technology which allows them to access the client’s system on the go.

It’s fair if the company wishes to use said technology to accomplish their business objective, but they cannot project it as part of primary business activity unless it is mentioned in the object clause under MOA. Object clause voids any concept of undertaking unrelated activities within the registered organization. Since remote access technology is a part of software development services, the company stands ineligible to inculcate it in the primary business activities.

Legal Consideration for Inculcating New Business Activities in Private Limited Company 

Companies working under the Companies Act, 2013[1] are bound to discard all the activities that are not in line with the objective of the company. If the said entity wishes to inculcate new activities then they can opt to create the subsidiary or associate company. If the specified activity is interrelated to another then it would be categorized in the same fashion.  So the concept of multiple businesses under one company is viable only in the situation when company incorporate the another entity.

Incorporating Subsidiary Business for Availing New Activities

Registration of the privately held entity in India can be done via an online process. In Feb 2020, MCA introduced the SPICe+ form, a web-based application form that replaces the previous version of the form called SPICe. The new form is more intuitive and offers plenty of services under the roof, hence making the incorporation process easier than ever.

SPICe+ form offers a plethora of services such as Name Reservation, DIN Allotment, and Incorporation, issuance of PAN, TAN, EPFO, ESIC, and opening of Bank account. With the SPICe+ form in place, the applicant is no longer required to file separates applications related to tax structure and bank account. 

 SPICe+ is Bifurcated into two parts as follows:

 1. Part A: Name Reservation of the company. It can be utilized for availing permission regarding name reservation and also for filing registration for the company in one go. 

 2. Part B: In Part B enclose the following services:

Part B: In Part B enclose the following services

Conclusion 

A successful business often comes across to a point where they want to bifurcates their existing services or inculcate new activities to increase their revenue. If the business is incorporated as a private limited company then adding a new line of activities becomes a matter of legal concern. To serve such a purpose, the company has left with no other option than establishing the new entity as per the guidelines of the Ministry of Corporate Affairs. The new line of activities or businesses should be reflected in the object clause of the company’s MOA.  

Incorporating multiple businesses under one company could be a stressful journey for anyone. If you want to get rid of hindrances from all legal intricacies related to the company registration process then feel free to connect with CorpBiz’s professionals without any hesitation. We make sure that your application for incorporation does not encounter any hindrances from the authority by eliminating errors in the preliminary stage.

Read our article: What are the Requirements Before Choosing Company Name in India?

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Pankaj Tyagi

Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.

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