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Schedule A Demo

Procedure for Alteration of Article of Association of a Company

Background:

  • Articles 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 [Section 2(5) of the Companies Act, 2013] 
  • Articles of the company needs to be altered in the following conditions: 
    • Conversion of Public company into Private Company. 
    • Conversion of Private company into Public Company. 
    • When any other existing article needs to be altered. 

Sections/ Rules/ Regulations:

  • Section 2, 5, 14, 15, 96 & 173 of the Companies Act, 2013 
  • Rule 10, 33 of the Companies (Incorporation) Rules, 2014 
  • Regulation 30, 44, & 46 of SEBI (LODR) Regulations, 2015 
  • Secretarial Standard-1 
  • Secretarial Standatrs-2 

Mandatory Requirements & Important Points: 

  • A company may, by a special resolution, alter its articles subject to the provisions of Companies Act and Memorandum of Association [Section 14(1) of Companies Act 2013]
  • 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. [Section 5(3) of Companies Act 2013]
  • The 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. [Section 5(4) of Companies Act 2013]. Such amendment shall be filed in Form MGT 14 within 30 days of entrenchment of Articles. [Rule 10  of the Companies (Incorporation) Rules, 2014] 
  • 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 on an application made in such form and manner as may be prescribed. Such order of Central Govt. shall be filed with Registrar together with printed copy of altered Articles within 15 days of receipt of order from Regional Director. [Section 14(2) of Companies Act 2013 read with Rule 33(2) of the Companies (Incorporation) Rules, 2014]
  • Any alteration of the articles shall, subject to the provisions of this Act, be valid as if it were originally in the articles. 

Procedure for alteration of Articles of Association of a company:

  1. Meeting of Board of Directors of company to be as per Section 173 and Secretarial Standard-1:
    • Notice of the Board Meeting shall be issued to all Directors at their registered addresses by post or hand delivery or by electronic means at least 7 days before the date of the board meeting, with provision for shorter notice in case of urgent business.  
    • The notice shall include Agenda, Notes to Agenda, and Draft Resolution.
    • Hold the board meeting and pass necessary resolution for:
      • Alteration of articles
      • Fixation the day, date, time, and venue of the General Meeting.
      • Approval of the draft notice convening the General Meeting with explanatory statement as per Section 102.
      • Authorization of a director or Company Secretary to sign and issue the notice of the General Meeting. 
    • Listed companies shall disclose the outcome of the Board Meeting to the Stock Exchange within 30 minutes of Board meeting/ 3 hours as applicable* [Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days from the date of passing of resolution [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity.  

*If the Board meeting is concluded after normal trading hours but more than 3 hours before the beginning of the normal trading hours the outcome to be disclosed within 3 hours from the closure of the board meeting. 

    • Draft Minutes shall be prepared and circulated within 15 days from the conclusion of the Board Meeting and be signed as provided in the Act and SS.
  1. Convening General Meeting for approving the alteration in Articles of Association of the company as per Sections 96 and 100 of the Companies Act, 2013 and Secretarial Standard-2: 
    • A notice of general meeting shall be given at least 21 days prior to the conduct of meeting in writing/by hand/post/courier/fax/e-mail/any electronic means (as per Section 101 of the Companies Act, 2013 and Rule 18 of the Companies (Management & Administration) Rules, 2018). A shorter notice can be issued where the consent is given as specified under Section 101 of the Companies Act, 2013. (consent of members holding 95% of the paid-up capital of the company entitled to vote)
    • The Notice shall be sent to all the directors, members and auditors (incl Secretarial Auditors), Debenture Trustees and all other persons entitled to receive Notice of GM of the company. 
    • The notice shall specify the day, date, time, full address of the venue, and include a statement on the business to be transacted. 
    • The General Meeting shall pass a special resolution for the alteration of Articles of Association. 
    • Listed companies shall disclose the outcome of the General Meeting to the Stock Exchange within 12 hours from occurrence of the event of information, in case the event is emanating from within the listed entity [Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015] and also on website of the Company within 2 working days. [Regulation 46 (3) of LODR 2015]. The listed entity may provide the exact link to the webpage of each of the recognized stock exchanges where such information has already been made available by the listed entity. 
    • Voting results shall be submitted to the stock exchange within two working days from the conclusion of the General meeting. (Regulation 44 of the SEBI (LODR) Regulations, 2015).*

* Regulation 44(3) compliance has been made a part of Integrated Filing (Governance) now as per Circular on Ease of Doing Business for listed entities under LODR as per which Listed entities are now required to do Integrated Filing (Governance) with the Stock Exchange for Statement on redressal of investor grievances (under Reg 13(3)),Compliance  Report  on Corporate Governance(under Reg. 27(2)(a)), Reconciliation of Share Capital &AR(reg 76 of DP reg), Meeting of shareholders and voting (reg 44(3)) of LODR within 30 days of the end of Quarter

    • Minutes of meeting shall be prepared and are to be signed by the authorized person. 

3.  Post Alteration Requirement 

    • Company shall file MGT-14 within 30 days of the passing of the special resolution with the registrar along with all the necessary documents and the prescribed fee.  
    • Every alteration made in the Articles of a company shall be noted in every copy of the Articles of Association of the Company. [Section 15(1) of the Companies Act 2013]

Penalties & Punishments  

  • As per Companies Act, 2013 
    • Section 15: If a company makes any default in complying with the provisions of sub-section (1) of Section 15 viz. noting of alteration made in Articles in every copy of Articles of the Company, the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without such alteration. 
    • Section 117: For failure to file MGT-14 in respect of resolution passed for alteration of Articles, a company shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of two lakh rupees and every officer of the company who is in default including liquidator of the company, if any, shall be liable to a penalty of ten thousand rupees and in case of continuing failure, with a further penalty of one hundred rupees for each day after the first during which such failure continues, subject to a maximum of fifty thousand rupees.
  • As per SEBI (LODR) Regulations:  

Regulation  

Penalty & Punishment  

30    

General penalty:    

Listed entity/any other person who contravenes any provision of the regulations shall be liable for one or more of the following penalties/actions as deemed fit by the regulator:    

a) action as per Securities Law,    

b) fine,    

c) suspension of trading,    

d)freezing of promoter/promoter group holding of designated securities, as may be applicable, in coordination with depositories,    

e) any other action specified by Board    

44    

Rs. 10,000/- per instance of non-compliance    

46    

Advisory/warning letter per instance of non-compliance per item₹10,000 per instance for every additional advisory/warning letter exceeding the four advisory/ warning letters in a financial year   

Disclaimer: The information contained in this Article is intended solely for personal non-commercial use of the user who accepts full responsibility of its use. The information in the article is general in nature and should not be considered to be legal, tax, accounting, consulting or any other professional advice. We make no representation or warranty of any kind, express or implied regarding the accuracy, adequacy, reliability or completeness of any information on our page/article. 

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