What object clause means
The object clause is the company's statement of what it is for.
It sits in the memorandum of association, filed at registration, and it describes the business the company is authorised to carry on. Anyone searching the company at the CAC sees it, and banks, regulators and counterparties read it.
CAMA requires the memorandum to state the nature of the business the company will carry on, and a company is not to carry on business that its memorandum does not authorise. Acting outside the objects is described as acting ultra vires, meaning beyond the company's powers.
In modern practice the consequences of straying are less severe than they once were, because the law protects third parties who deal with a company in good faith. But the clause still governs what the company may properly do, and regulators and banks still check it.
How it is used
The clause is drafted once, at registration, and lived with for years.
A business registering as a bakery, and stating only baking and confectionery, will need to amend the memorandum when it starts supplying event catering, opening a coffee shop, or importing equipment for resale. Each amendment requires a resolution, a filing and a fee.
So Nigerian practice is to draft the clause with room. A well drafted object clause covers the core business specifically, then adds related activities the business might realistically move into, and a general clause covering things incidental or conducive to the main objects.
What it should not do is list everything imaginable. A clause claiming banking, insurance, oil exploration and pharmaceuticals from a two person consultancy attracts questions, and several of those activities require licences the company does not hold.
The practical drafting test is a two to five year horizon. What might this business plausibly be doing in three years? Include that. Ignore the rest.
Key features
- States the nature of the business the company will carry on
- Contained in the memorandum of association filed at registration
- Visible to anybody searching the company at the CAC
- Amended by special resolution and a filing at the CAC
- Acting outside the objects is described as ultra vires
- Regulated activities still require the relevant licence regardless of the clause
How this works in Nigeria
Registering with an expanded object clause is standard advice in Nigeria for a practical reason: amendments cost time and money, and the CAC filing fee and process are avoidable if the clause was drafted properly the first time.
Banks are the other reason. A bank opening a corporate account, or considering a facility, reads the objects. A trading company whose memorandum mentions only consultancy invites questions it did not need to answer.
The same applies to tenders and to corporate clients running vendor due diligence. Where the objects do not cover the work being contracted for, somebody will raise it.
What an expanded clause does not do is create authority the law requires a licence for. Listing banking, insurance, pension administration, telecommunications or aviation in the objects does not permit the company to carry them on. Those are licensed activities, and the licence comes from the relevant regulator, not from the memorandum.
Changing the objects later requires a special resolution of the members and a filing at the CAC, and CAMA sets out the procedure. It is not difficult, it is simply an avoidable cost.
Object clause vs articles of association
Two parts of a company's constitution, answering different questions.
The memorandum, containing the object clause, faces outward. It states what the company is and what business it will carry on, and it is the document the outside world reads.
The articles of association face inward. They govern how the company runs itself: how directors are appointed and removed, how meetings are called, how shares are transferred and allotted, how dividends are declared, and what a quorum is.
Both are filed at the CAC and both can be amended by special resolution.
The practical difference for a founder is that the object clause is drafted once and rarely revisited, while the articles are what actually govern disputes between shareholders. Companies that adopt the standard model articles without reading them often discover, during a disagreement, that the default rules are not what they assumed.
Limits and risks
A broad object clause does not confer capability. Licensed activities need licences, and capital requirements for regulated sectors apply regardless of what the memorandum says.
An excessively broad clause can also work against the company, raising questions with banks and regulators about what the business actually does.
Amendment is available but not free. Special resolution, filing and fees are required, and the change is only effective once registered.
And the clause does not protect the company from anything. Directors who act outside the objects may face internal consequences, but third parties dealing in good faith are generally protected, so the clause is not a shield against the outside world.
Worth knowing
Draft the object clause for the business you may plausibly be running in three years, not only the one you are starting today. Amending it later means a special resolution, a filing and a fee, and it always seems to become necessary in the week a bank or a client is asking questions.
Questions people ask
What is an object clause?
The part of a company's memorandum of association stating the nature of the business it will carry on. It is filed at registration and is visible to anybody searching the company at the CAC.
Why should I use an expanded object clause?
Because amending it later costs a special resolution, a filing and a fee. Drafting for the business you may plausibly be running in a few years avoids that, and prevents questions from banks and clients whose due diligence checks the objects.
Can my company do business outside its objects?
It should not. Acting beyond the objects is ultra vires, though third parties dealing in good faith are generally protected. Banks, regulators and clients do check, and a mismatch raises questions.
How do I change my company's objects?
By a special resolution of the members and a filing at the CAC following the CAMA procedure. The change takes effect once registered.
Does listing an activity in my objects let me carry it on?
Not where the activity is licensed. Banking, insurance, pension administration, telecommunications and similar sectors require a licence from the relevant regulator, and the memorandum does not substitute for it.
What is the difference between the memorandum and the articles?
The memorandum, with the object clause, faces outward and states what the company is and does. The articles face inward and govern how the company runs itself, including meetings, share transfers and director appointments.