Reasons Why Object Clause is Important in a UAE Memorandum of Association

UAE Commercial Companies Law require companies to include an object clause in a memorandum of association. The clause sets out exactly how why company is made and lists the economic activities that it plans on undertaking upon incorporation. If a company acts outside the activities mentioned in the object clause, the actions are potentially voidable as it is acting outside of its powers. The company may even be penalized by authorities and sued by third parties.

A memorandum of association (MOA) of a company is a legal document prepared during the time of incorporation. It defines the relationship of the company, its members, and the general public. The legal document as the charter of a company. It’s required to be stamped or signed by the founding members of a company.

An object clause in the MOA is important for the following reasons:

  • It states the primary objects that will be pursued by the business upon its incorporation and the objects ancillary or incidental to attainment of primary objects.
  • It enumerates the objects that are not covered by the primary objects and objects ancillary but nevertheless necessary in enabling a business in undertaking the kinds of activities that it anticipates to pursue. A company has to state the objects in a clear, unambiguous, and plain language for which funds of the business may be used or field of business that cover the activities of the company need to be extended.
  • It determines the powers a company will have for the mentioned objects conferred on a company to their attainment.
  • It limits the powers a company is granted. Any act that’s outside the approved areas of objects of a company will be considered as ultra vires.

You should know: Main Clauses Of Memorandum Of Association

Is it possible to change a UAE memorandum of association object clause?

A UAE memorandum of association’s object clause can be altered with the passing of a special resolution and complying to other conditions as prescribed by the local authorities. The general steps involved in altering an object clause that’s in a UAE company’s memorandum of association are as follows:

Step 1: Issue a notice for the special board meeting

The notice should be issued no less than seven days from the scheduled special board meeting. The agenda of the meeting should also be sent out to the board of directors. Put into writing that all directors of a company are to be at the board meeting in order to consider a proposal for the alternation of the MOA object clause.

You must know: memorandum of association of real estate company

Step 2: Conduct a special board meeting

The meeting shall have the following as the main goal:

  • To consider, decide, and pass the Board Resolution for the approval of the proposed amendment to a MOA object clause subject to all shareholders’ approval in the general meeting.
  • To fix the day, time, date, and venue for the general meeting to pass a special resolution.
  • To delegate authority onto any director for the signing, certification, and filing of the requisite forms with the local authorities and to do all of the acts and deeds that are necessary in giving effect onto the proposed MOA object clause amendment.
  • To approve a draft general meeting notice along with the explanatory statement that’s annexed to a general meeting notice.
  • To give authorization to a corporate secretary or director in signing and issuing a general meeting notice.

Must read: How To Draft A Memorandum Of Association For A Company

Step 3: Conduct the additional steps (only applicable for a company that raise money from the general public)

If a company planning on amending its memorandum of association object clause has raised money that’s from the general public through prospectus, it’s to follow the extra steps to alter the MOA. This includes passing a special resolution to alter the MOA object clause by means only of postal ballot, sending out a notice for the resolution of altering company objects, publishing an advertisement for the special resolution that will be passed, and giving an opportunity for dissenting shareholders to consider exiting the company.

Take note: the notice of resolution for objects alteration should include particulars such as total money received by the company, the total money that is utilized for objects that are stated in the company prospectus, the unutilized amount of money raised from the prospectus, jurisdiction of the change or alteration of MOA, particulars of the proposed change or alteration in the company objects, and estimated financial impact for the proposed change or alternation on the company cash flow and earnings.

Step 4: Hold a shareholder’s meeting

After sending the notice of the special general meeting, hold the meeting for the company shareholders and pass a resolution for the object clause alteration. Majority of the board should agree to the company MOA alteration.

Step 5: Register the objects alteration with the local authorities

The registration must be done no more than thirty days from the filing date of the special resolution. No alteration of the object clause will be effective if it hasn’t been registered with the local authorities.

For more information, contact our expert consultants here in Notary Public Dubai!