Does a company need an objects clause

Q: How does this work in practice?

Illustration only. Alder Ltd was formed in 1998 with an objects clause limited to "carrying on business as a builders' merchant". In 2026 the directors sign a three year lease of a café unit to diversify. The landlord is not a director and has no reason to doubt the board, so the lease binds Alder under sections 39 and 40, even though the landlord's solicitor noticed the objects clause. The directors have breached section 171(a). A minority shareholder who learned of the plan before signing could have sought to restrain it; after signing, the lease is a legal obligation. The members pass a resolution ratifying the directors' conduct and a special resolution removing the objects clause, then file the resolution, the amended articles and form CC04. Had the landlord been a director's spouse, section 41 would have made the lease voidable by Alder.

Q: What mistakes come up most often?

Adding objects to a new company out of habit. It creates a restriction the directors must then observe, with no benefit to outsiders. Forgetting the old memorandum. A pre 2009 company's objects clause still binds the directors through section 28. Treating the nature of business code as the objects. Under section 31(1) only the articles can restrict the objects; the activity code given to Companies House does not. Removing objects without form CC04. Under section 31(2)(c) the change is not effective until the notice is registered. Assuming section 40 protects directors. It protects outsiders; directors remain exposed under sections 40(5) and 41. Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant's fees with Solar Protect. Read how our cover works or get a quote.

No. Under section 31(1) of the Companies Act 2006, a company’s objects are unrestricted unless its articles specifically restrict them, and the model articles contain no objects clause. Older companies whose memorandum listed objects now have those objects treated as a restriction in their articles until they remove it. If directors act outside a restriction, the act generally still binds the company as against outsiders, but the directors are in breach of their duty to act within the constitution.

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What is an objects clause, and why did older companies have one?

An objects clause is a statement of the purposes or activities a company may pursue. Under section 2(1)(c) of the Companies Act 1985, as originally enacted, the memorandum of every company had to state its objects. That is why companies formed under the 1985 Act and earlier legislation usually have long lists of permitted activities, often followed by general powers to borrow, invest and give guarantees.

Sections 1 to 28 of the 1985 Act were repealed on 1 October 2009. The memorandum of a company formed under the 2006 Act only records that the subscribers wish to form a company and agree to become members (section 8). Anything else that was in an older company’s memorandum, including its objects, is treated as part of its articles by section 28.

Does a new company need one?

No. Section 31(1) provides that “unless a company’s articles specifically restrict the objects of the company, its objects are unrestricted”. Schedule 1 to the Companies (Model Articles) Regulations 2008, the default articles for a private company limited by shares, contains no statement of objects. A company formed on model articles can therefore carry on any lawful business.

Some companies still choose, or need, to state objects:

Charitable companies. A charity’s purposes define it. Section 31(4) makes any change to a charitable company’s objects in England and Wales subject to sections 197 and 198 of the Charities Act 2011; see charitable company or CIO.
Guarantee companies omitting “limited”. Companies House guidance says a private company limited by guarantee can apply to be exempt from using “limited” if, among other conditions, its articles state objects such as the promotion of commerce, art, science, education, religion, charity or a profession.
Joint ventures and special purpose companies. Investors sometimes want the company confined to one project. A shareholders’ agreement or reserved decisions can often do this more flexibly than an objects restriction.

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Do older companies still have restricted objects?

Usually, unless they have tidied up their articles. Because section 28 carries the old objects clause into the articles, it counts as a provision that “specifically restricts” the objects for section 31. The restriction is only as narrow as its wording; a long list followed by wide ancillary powers may restrict very little, while a clause tied to a single trade can be a real constraint when the business changes.

To remove or change the objects, the company amends its articles by special resolution (section 21). Section 31(2) then adds a step specific to objects: the company must give notice to the registrar, and the amendment is not effective until that notice is entered on the register. Companies House uses form CC04 for this notice. Section 31(3) confirms that the change does not affect existing rights or obligations or make legal proceedings defective. The general procedure is in amending articles of association, and older constitutions are discussed in Table A articles for older companies.

What happens if the company acts outside its objects?

As far as the outside world is concerned, very little. Section 39(1) provides that the validity of an act done by a company shall not be called into question on the ground of lack of capacity by reason of anything in its constitution. The old idea that an act beyond the objects was void no longer applies to ordinary companies.

Section 40 adds protection where the question is the directors’ authority rather than the company’s capacity. In favour of a person dealing with the company in good faith, the directors’ power to bind the company is deemed free of any limitation under the constitution. That person need not enquire about limitations, is presumed to act in good faith unless the contrary is proved, and is not in bad faith merely because they knew an act was beyond the directors’ powers. Limitations in shareholder resolutions and shareholder agreements are covered too (section 40(3)). See directors’ authority to bind the company.

Charitable companies are the main exception. Under section 42, sections 39 and 40 apply to a charity’s acts only in favour of a person who did not know it was a charity, or who gave full consideration and did not know the act was outside the constitution or the directors’ powers.

What is the position of the directors?

Inside the company the restriction still bites. Section 171(a) requires a director to act in accordance with the company’s constitution, and the objects restriction is part of it. Section 40(5) confirms that the protection for outsiders does not affect any liability the directors incur by exceeding their powers. Under section 178, the consequences of breach are those that would apply under the corresponding common law or equitable rule, so directors can be liable to make good loss the company suffers.

Two routes are open to the members:

Stopping it in advance. Section 40(4) preserves a member’s right to bring proceedings to restrain an act beyond the directors’ powers, but not an act done to fulfil a legal obligation arising from a previous act of the company.
Ratifying it afterwards. Under section 239, a breach of duty can be ratified by resolution of the members, disregarding the votes of the director concerned and members connected with them. See ratifying directors’ breaches.

What if a director is on the other side of the deal?

Section 41 removes the section 40 protection where the parties include a director of the company or its holding company, or a person connected with such a director. The transaction is voidable at the company’s option, and that party and any director who authorised it must account for any gain and indemnify the company for loss (section 41(3)). The right to avoid is lost if restitution is no longer possible, the company is indemnified, an innocent third party’s rights would be affected, or the company affirms the transaction (section 41(4)). A party who is not a director escapes personal liability by showing they did not know the directors were exceeding their powers (section 41(5)).

How does this work in practice?

Illustration only. Alder Ltd was formed in 1998 with an objects clause limited to “carrying on business as a builders’ merchant”. In 2026 the directors sign a three year lease of a café unit to diversify.

The landlord is not a director and has no reason to doubt the board, so the lease binds Alder under sections 39 and 40, even though the landlord’s solicitor noticed the objects clause.
The directors have breached section 171(a). A minority shareholder who learned of the plan before signing could have sought to restrain it; after signing, the lease is a legal obligation.
The members pass a resolution ratifying the directors’ conduct and a special resolution removing the objects clause, then file the resolution, the amended articles and form CC04.

Had the landlord been a director’s spouse, section 41 would have made the lease voidable by Alder.

What mistakes come up most often?

Adding objects to a new company out of habit. It creates a restriction the directors must then observe, with no benefit to outsiders.
Forgetting the old memorandum. A pre 2009 company’s objects clause still binds the directors through section 28.
Treating the nature of business code as the objects. Under section 31(1) only the articles can restrict the objects; the activity code given to Companies House does not.
Removing objects without form CC04. Under section 31(2)(c) the change is not effective until the notice is registered.
Assuming section 40 protects directors. It protects outsiders; directors remain exposed under sections 40(5) and 41.

Company directors can protect the business against the cost of an HMRC check with tax investigation insurance, which pays up to £100,000 of accountant’s fees with Solar Protect. Read how our cover works or get a quote.

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Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 24 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.