Procedure for change in object clause of nbfc

Change in object clause www.enterslice.com

What is Change in object clause ?

• The process of Change in object clause of NBFCs is almost similar to a normal private limited company or Limited company but as first step is you need RBI Approval in advance.

• Change in object clause example Assets finance company wish to convert to a loan company or vice versa • Change in object clause should be strategically planned keeping in mind of the assets size of the company • Recovery from the customer should be planned in advance before proceeding to change in the activity of an NBFC

When do you need to change the object clause of NBFC ??

• Generally in NBFC founders opt for change in the business activity after the takeover of NBFC. For an example, AFC have been takeover for the purpose of lending activity.

• Existing NBFC may experienced better opportunity in other types of NBFC likewise AFC/ LC/ IFC / VC • To carry on any other business which may be combined with the existing business of the company.

• Post Merger / Takeover / Amalgamation of NBFC may need to change the object clause

Compliance requirement for change in the object clause of an NBFC • Change in object clause of the company involves alteration of Memorandum of Association (hereinafter referred to as “Memorandum”) of the Company. Main provisions related to alteration of Memorandum are given in Section 13 of the Companies Act, 2013 read with Companies (Incorporation)Rules, 2014.

Applicability of Section 13 of companies Act : Section 13 of companies Act , regulates the process of amendment in Memorandum of Association is applicable to all the companies.

For alteration of any clauses of Memorandum , consent of members by way of special resolution is required.

- Approval from RBI is mandatory

Continue…..

• The Registrar shall register any alteration of the memorandum with the respects of the company only if it has been approved by the RBI in advance, a copy of RBI approval must be attached with the MCAforms. Necessary ROC compliance must be completed within 30 days from the RBI approval • No alteration made under this section shall have any effect until its has been registered in accordance with the provisions of companies act 2013 and RBI Act. 1934 i.e • An NBFC company can alter its object clause by way of addition , deletion, modification , substitution or in any way subject to RBI Approval

PROCEDURE OF CHANGE OF OBJECT CLAUSE 1. Calling of Board Meeting to discuss the new business activity , shareholder approval for the new business activity of the NBFC 2. The New business activity must be in accordance with the RBI Act. 1934 and the new business activity may require higher net owned fund for the company 3. Members’ approval must be obtained before and after RBI approval 4. RBI May reject the new business activity if it is not in the compliance of RBI laws/ guidelines.

5. After RBI Approval the respective Registrar of companies shall take effect of the change in the object clause of NBFC

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