Case Study – Can a Company do multiple business?

Mr. Deepak Agarwal wants to do business in the trading of Clothes. His Brother who has proficiency in IT wants the Company to also focus on ITES Activities. Now can they do so?

FACTS OF THE CASE

In the given case mentioned i.e Mr. Deepak Agarwal wants to start a business in trading of clothes, and his brother who has proficiency on IT wants the company to also focus in ITES Activities. So the question is “Is it possible for Mr. Deepak Agarwal to do both IT and Cloth Trading Business under one Company”?

Case Study – Can a Company do multiple business?

CASE ANALYSIS

To understand this, first, we need to understand the rules for the object clause in the Memorandum of Association (MOA). According to section 4(1)(c) of the Companies Act, 2013, every MoA must contain the objects for which the company is proposed to be incorporated and any matter considered necessary in furtherance thereof. A company cannot indulge in activities other than those provided in the object clause. The activities carried on outside the scope drawn by MoA are called ultra-virus activities.  Here, under the object clause, the company must provide all the activities it will engage after its incorporation.

A Company can do multiple businesses if those businesses or activities are related to each other. For example a software development company has a main object to develop software for clients. Now, the company hires new employees and give them training to make them used to the service that the company is providing. Here, the company is imparting training to its employees to fulfil the main object of the company which is allowed but if they starts to impart training to students as a service and with no relation to the actual business of the company it will be unrelated to the main objective. Training falls under the education field whereas software development falls under a different category and performing both under one roof is not permitted by the law.

Taking all the above points in mind, the different activities for one company must be provided in a manner that those can be interlinked with. If the company wants to enter in another field, an option is private limited company registration a subsidiary or associate company. If a specified activity is ancillary to another it shall be categorized in the same manner.

CONCLUSION

Here, Mr. Deepak Agarwal wants to do business in Trading of cloth, and the main object for the same will be to buy or to manufacture cloth and sell them in the market. While his brother who has a proficiency in IT and wants to focus on ITES activity for which the main object will be to develop software for the clients and deploy them in the market. Here, both business has a different main object and are not complying with section 4(1)(c) of the companies act, 2013. Therefore, Mr. Deepak Agarwal cannot do both the business activity in one company.

If you want to know more about this or have any query on your business object feel free to write to us at info@taxmantra.com and we shall be glad to assist.

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