The articles of association (articles) of the company are often termed as the “bye-laws”. The articles contain regulations for the overall internal management of the company. It contains basic rules for calling and conducting Board meetings, voting at Board meeting, transfer and transmission of securities, voting rights of shares, calling and conducting of general meetings, etc. The article may have a detailed provision for appointment, role and responsibilities of Managing Director, whole-time Director, Executive Directors, etc. Certain provisions of the Companies Act, 2013 (Companies Act) are not applicable to private companies, Section 8 companies if there are certain provisions in its articles. The articles regulate the day-to-day functioning of the company. A shareholder of the company is expected to be familiar with the contents. A company is expected to act within the contours of its article of association. In Naresh Chandra Sanyal v. Calcutta Stock Exchange Assn. Ltd.1, it has been held,
“14. Subject to the provisions of the Companies Act, the company and the members are bound by the provisions contained in the articles of association. The articles regulate the internal management of the company and define the powers of its officers. They also establish a contract between the company and the members and between the members inter se. The contract governs the ordinary rights and obligations incidental to membership in the company.”
The “articles of association” have been defined under Section 2(5) of the Companies Act as “it means the articles of association of a company as originally framed or as altered from time to time or applied in pursuance of any previous company law or of this Act”. “Previous company law” has also been defined in Section 2(67) of the Companies Act. According to Section 5 of the Act, the articles of a company shall contain the regulations for management of the company.
This article relates to procedure and checklist for amending the articles of companies of private companies and unlisted public companies. For listed companies, it shall be necessary to comply with the provisions of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as well.
1.Contents of AOA.—The articles shall also contain such matters, as may be prescribed i.e. in accordance with Rule 11 of the Companies (Incorporation) Rules, 2014. The model articles as prescribed in Tables F, G, H, I and J of Schedule I to the Companies Act may be adopted by a company as may be applicable to the case of the company, either in totality or otherwise.
(i) Table F relates to AOA of company limited by shares.
(ii) Table G relates to AOA of company limited by guarantee and having a share capital.
(iii) Table H relates to AOA of company limited by guarantee and not having a share capital.
(iv) Table I relates to AOA of unlimited company and having a share capital.
(v) Table J relates to AOA of unlimited company and not having a share capital.
Nothing prevents a company from including such additional matters in its articles as may be considered necessary for its management. Such inclusion of additional matters can be done at the time of incorporation of the company or by amending the articles of the company.
2. Entrenchment Related Provisions in AOA of Company.—The articles may contain provisions for entrenchment to the effect that specified provisions of the articles may be altered only if conditions or procedures as that are more restrictive than those applicable in the case of a special resolution, are met or complied with.
3. Manner of Inclusion of Entrenchment Related Provisions in AOA of Company.—The inclusion can be made at the time of incorporation of the company or subsequently by amending the articles of the company. Such provisions for entrenchment shall only be made either on formation of a company, or by an amendment in the articles agreed to by all the members of the company in the case of a private company and by a special resolution in the case of a public company.
4. Notice to Registrar of Companies.—Where the articles contain provisions for entrenchment, whether made on formation or by amendment, the company shall give notice to the Registrar of such provisions in such form and manner as may be prescribed i.e. e-Form INC-7 or e-Form INC-32 Simplified Proforma for Incorporating Company Electronically (SPICe) of the Companies (Incorporation) Rules, 2014 and e-Form MGT-14 of the Companies (Management and Administration) Rules, 2014 in case of subsequent amendment.
4. Occasions for Amending AOA of the Company.—The articles of the company may be amended for ensuring proper compliance of the Companies Act, 2013, availing certain exemptions under the Ministry of Corporate Affairs (MCA) notifications for private company, Section 8 companies, etc., or specifying roles and responsibilities of the directors and key managerial personnel (KMP), or inclusion of certain points of shareholders agreement or investment agreement in the articles of the company, etc. In recent years, companies have adopted an entire new set of articles under the Companies Act, 2013 for the articles of Companies Act, 1956. The amendment of articles would also be required for conversion of a company from private to public or vice versa.
5. Conversion of Companies.— According to Section 14 of the Act, subject to the provisions of the Act and the conditions contained in its memorandum of association, if any, a company may, by a special resolution, alter its articles by including alterations having the effect of conversion of: (i) private company into a public company; or (ii) public company into a private company. However, where a company being a private company alters its articles in such a manner that they no longer include the restrictions and limitations which are required to be included in the articles of a private company under Companies Act, the company shall, as from the date of such alteration, cease to be a private company. Any alteration having the effect of conversion of a public company into a private company shall not be valid unless it is approved by an order of the Central Government (powers delegated to Regional Director) on an application made in such form and manner as may be prescribed (i.e. e-Form RD-1). The company shall ensure compliance of Rule 41 of the Companies (Incorporation) Rules, 2014.
6. Section 8 Companies.—A company registered under Section 8 of the Act shall not alter the provisions of its memorandum of association or articles of association of the company, except with the previous approval of the Central Government (powers have been delegated to the Registrar of Companies). Such application for altering the articles of association of Section 8 company may be filed by e-Form GNL-1. Such application to the Central Government [i.e. Registrar of Companies (ROC)] can be made by obtaining the approval of Board of Directors. After the approval of Central Government (i.e. ROC), the amendment to the articles of association shall be placed before shareholders for their approval. The company shall then file e-Form MGT-14 with the Registrar of Companies under Section 117 of the Act.
7. Approval of the Board of Directors.—The directors of the company shall primarily approve the proposal for altering the articles of the company. Such approval shall be subject to the approval of the shareholders and Central Government (in some cases, discussed above). The resolution passed in the meeting of Board of Directors shall be accordingly drafted. The necessary authorities shall also be specified in the resolution.
8. Approval of Shareholders.— The resolution for amending the articles of the company shall be placed before the shareholders of the company. Such approval can be obtained in general meeting or electronic voting or both, as the case may be. The approval of shareholders by passing a resolution by postal ballot may be obtained for alteration of articles of association in relation to insertion or removal of provisions which, under sub-section (68) of Section 2 of the Act, are required to be included in the articles of a company in order to constitute it a private company [Rule 22 of the Companies (Management and Administration) Rules, 2014].
9. Explanatory Statement.—A statement setting out the following material facts concerning each item of special business (i.e. amendment to articles of association) to be transacted at a general meeting, shall be annexed to the notice calling such meeting, namely: (i) nature of concern or interest, financial or otherwise, if any, in respect of each items of every director and the manager, every other key managerial personnel; and relatives of the said persons; and (ii) any other information and facts that may enable members to understand the meaning, scope and implications of the items of business and to take decision thereon. Where any item of business refers to any document (i.e. articles of association, in this case), which is to be considered at the meeting, the time and place where such document can be inspected shall be specified in the explanatory statement.
10. Registration of Alteration.— Every alteration of the articles under Section 14 of the Act and a copy of the order of the Central Government approving the alteration (i.e. in case of conversion of public company into private company) shall be filed with the Registrar of Companies, together with a printed copy of the altered articles of association, within a period of 15 days, who shall register the same. The company shall then file e-Form MGT-14 with the Registrar of Companies under Section 117 of the Act.
11. Validity of Registration.— Any alteration of the articles of association registered shall, subject to the provisions of the Companies Act, be valid as if it were originally in the articles.
Gaurav N Pingle, Practising Company Secretary, Pune. He can be reached at firstname.lastname@example.org.