Procedure of Alteration in Articles of Association

The articles of association of a company are its by-laws or rules and regulations which govern the management of its internal affairs and the conduct of its business. They are framed with the object of carrying out the aims and objects as set out in the Memorandum of Association. According to Section 2(2) of the Companies Act, 1956 ‘articles’ means the articles of association of a company as originally framed or as altered from time to time in pursuance of any previous companies laws or of the present Act, i.e. the Act of 1956. It regulate the internal management of the company

Meaning of Alteration of Articles of Association

Sec. 31 of the Companies Act, 1956, provides that a company may by passing a special resolution; alter regulations contained in its Articles any time subject to –

a) The provisions of the Companies Act and

b) Conditions contained in the Memorandum of Association [Section 31(1)].

A copy of every special resolution altering the Articles shall be filed in Form no 23, with the Registrar within 30 days its passing and attached to every copy of the Articles issued thereafter. The fundamental right of a company to alter its articles is subject to the following limitations:

Conditions that must be satisfied for Alteration of Articles of Association

a) The alteration must not exceed the powers given by the Memorandum of Association of the company or conflict with the provisions thereof.

b) It must not be inconsistent with any provisions of Companies Act or any other statute.

c) It must not be illegal or against public policies

d) The alteration must be bona fide for the benefit of the company as a whole.

e) It should not be a fraud on minority, or inflict a hardship on minority without any corresponding benefits to the company as a whole.

f) The alternation must not be inconsistent with an order of the court. Any subsequent alteration thereof inconsistent with such an order can be made by the company only with the leave of the court.

g) The alteration cannot have retrospective effect. It can operate only from the date of amendment.

h) If a public company is converted into a private company, then the approval of the Central Government is necessary. Printed copies of altered articles should be filed with the Registrar within one month of the date of Central Government’s approval [Section 31 (2A)].

i) An alteration that has the effect of increasing the liability of a member to contribute to the company is not binding on a present member unless he has agreed thereto in writing.

j) A reserve liability once created cannot be undone but may be cancelled on a reduction of capital.

k) An assumption by the Board of Directors of a company of any power to expel a member by amending its Articles is illegal or void.

Procedure of Alteration of Articles of Association

1. Take the necessary decision by convening a Board Meeting to change all or any of the existing Articles of Association and fix up the day, time, place and agenda for a general meeting for passing special resolution to effect the change.
2. Issue notices for the General Meeting proposing the Special resolution and explaining inter alia, in the explanatory Statement the implication and reasons of the changes being proposed.
3. If the shares of the company are enlisted with any recognised Stock Exchange, then forward copies of all notices sent to the shareholders with respect to change in the Articles of Association to the Stock Exchange.
4. Hold the General Meeting and pass the special resolution.
5. File with the stock exchange with which your company is enlisted six copies of such amendments as soon as the company adopts it in General Meeting. Out of the six copies, one copy must be a certified true copy.
6. Forward promptly to the Stock Exchange with which your company is enlisted three copies of the notice and a copy of the proceedings of the General Meeting.
7. File the Special resolution with the concerned Registrar of companies with explanatory statement in Form No.23 within thirty days of its passing after payment of the requisite filing fee. If the Articles of Association have been completely or substantially changed, file a new printed copy of the Articles after paying the requisite fee.
8. Effect the changes in all copies of the articles of association.

Any alteration so made be as valid as if originally contained in the Articles of Association and be subject to alteration by Special Resolution as above.