Sunday, May 11, 2014

Articles of Association: Contents and Its Alteration

Articles of Association
The Articles contain rules and regulations for the internal management of the company. They are framed with the object of carrying out the aims and object of the memorandum of association and also to monitor that the same are carried as prescribed.
Section 2 (5) of the Companies Act, 2013 defines articles as “Articles means Articles of Association of a company as originally framed or altered from time to time in pursuance of any previous law or of this act including so far as they apply to the company the regulations contain as the case may be in Table A to Schedule I of this act”
The Model contents of the Article of association are as under:
a)      the business of the company;
b)      the amount of capital issued and the classes of shares into which the capital is divided; the increase and reduction of the share capital;
c)       the rights of each class of shareholders and the procedure for variation of their rights;
d)      the execution or adoption of a preliminary agreement, if any;
e)      the allotment of share; calls and forfeiture of shares for non – payment of calls;
f)       transfer and transmission of shares;
g)      company’s lien on shares;
h)      exercise of borrowing powers including issues of debentures;
i)        general meeting, notices, quorum, proxy, poll, voting, resolution, minutes; etc.

Alteration of Articles of Association (Sec. 14 of the Companies Act, 2013) - Any of the clause of Articles of Association can be changed simply by a special resolution. [Section 14(1)]. According to this section, ‘alteration' includes making any addition and omissions. Thus, scope is available for making alterations to Articles. The restrictions are as follows­:
a)      Such alteration cannot be with retrospective effect. Retrospective amendments be permissible as long as vested rights are not adversely affected.
b)      It should not be against provisions of Memorandum of Association or Comp Act.
c)       The alteration must be bona fide for the benefit of company as a whole
d)      Altered article cannot include anything which is illegal or opposed to public.
e)      Company cannot justify breach of contract by altering the articles.
f)       Amendment cannot increase liability of a member, unless his written consent is obtained. However, in case of club or association where member has to recurring periodical or recurring subscription or charges, a member is liable! if he does not agree in writing to the increase.
g)      The amendment must not constitute a fraud on minority. It cannot be oppression of minority.
h)      Articles cannot change a public company to a private company without approval of Central Government – sec. 2(68).
i)        Statutory powers of company to amend the Articles cannot be curtailed.
j)        Every alteration of articles which is registered by the registrar, shall be as valid as if is were originally contained in the articles. [Sec. 14(3)].
Procedure for Alteration
a)      A decision in the meeting of the board must be taken to change all or any of the regulations of the existing articles and day, time place and agenda for the general meeting.
b)      It should be seen that the proposed alteration conforms to the provisions of the Act and the Memorandum.
c)       If the shares are lilted then notice sent to the shareholders must be sent to such stock exchange.
d)      A special resolution should be passed by shareholders in the general meeting.
e)      After the articles have been altered, then six copies of such amendments (one copy must be a certified copy) should be filed with the stock exchange.
f)       Form No.23 must be filed with the Registrar.
g)      Necessary change must be made in all the copes of Articles.
h)      If the effect of alteration is to convert a public company into a private company, the approval of the central Government is necessary. 

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