ALTERATION OF MEMORANDUM AND ARTICLES

UPDATE: on 30^th August 2013: Companies Bill 2012 became the Companies Act, 2013 (Act 18 of 2013).

In last blog post, commencement of business and registered office, I discussed Section 11 and 12 of the Companies Bill, 2012 Act 2013. In this post, I will discuss, Alteration of Memorandum and Articles of the company and relevant issues.

ALTERATION OF MEMORANDUM (SECTION 13):

A Company can alter its memorandum by a special resolution, and after complying requirement of Section 13.

Change in Name:

Any Change in name of the company shall be subject to sub – section (2) and (3) of Section 4, which we have discussed in an earlier post here under heading Name of Company. Any such change of name shall have effect only after approval of Central government in writing. This approval is not required in case of conversion of company from one class to another, like Public Company converting into One Person Company.

In case of change in name, the registrar shall enter replace new name for old name in its register and shall issue a fresh Certificate of Incorporation. The change in name shall be effective only on issue of this fresh certificate of incorporation.

Shifting of Registered Office from one State to Another:

Any alteration relating to place i.e. state of registered office shall take effect only after approval by the Central Government.

The Central Government shall dispose of the application for approval of shifting of registered office from one state to another within sixty days. This alteration should have consent of the creditors, debentures – holders, and other persons concerned with the company. The company should have made sufficient provision for the discharge of all its debts and obligations or adequate security should have been provided for such discharge. This is duty of Central Government, before giving approval of the application to satisfied itself about such consent and such sufficient provision to discharge debts and obligations.

It is not clear, what will happen in case of pendency of such application beyond this statutory period of sixty days.

A certified copy of such order by Central Government approving the alteration shall be filed by the company with the Registrar of each States. The Registrar of the State, where registered office is being shifted shall issue a fresh certificate of Incorporation.

Alteration of Objects:

A Company, which has raised money from public and has a unutilised amount out of money so raised, shall not change its objects for which it raised the money through prospectus unless a special resolution is passed by the company.

The prescribed details in respect of this special resolution shall be published in newspapers (one in English and another in local language) which are in circulation at place where registered office of the company is situated. These details shall also be placed on the Website of the company, if any. These details shall indicate the justification for such change in objects of the company.

All dissenting shareholders shall be given an opportunity to exit by the promoters and shareholders having control of the company. This opportunity shall be given in accordance with regulation specified by the Securities and Exchange Board of India (SEBI).

In case of all other companies, like; one man company, Private Company or a public company which has not raised any money from public or a public company which has raised some money from public but has no unutilised amount out of money so raised, may alter its object clause only by passing a special resolution.

Registration of Alteration of Memorandum:

In relation to any alteration of its memorandum, company shall file with the Registrar –

The special resolution passed by the company,

The approval of Central Government, in case of change in name, and

The approval of Central Government, in case of shifting of registered office from one state to another (file with both Registrars in this case).

The Registrar shall register the alteration in case of change in object and certify the registration within thirty days. In case of Change of name and shifting of registered office from one state to another, fresh certificate of incorporation shall be issued.

No alteration of memorandum shall take effect until it has been registered by the registered under this Section.

Limitation on Alteration of Memorandum:

In case of a company limited by guarantee and not having a share capital, any alteration of the memorandum proposing to give any non – member a right to participate in divisible profits of the company shall void.

ALTERATION OF ARTICLES (SECTION 14):

A company may alter its articles by a special resolution, subject to condition contained in its Memorandum. There is no special provision for alteration of articles to convert a private company into a public company or a public company into a private company.

Any conversion of a public company into a private company shall take effect only after approval of the Tribunal. Tribunal has power to make such order as it may consider fit.

Every alteration of article and copy of order of the Tribunal shall be filed within fifteen days with the Registrar along with printed copy of altered articles.

Any alteration of the articles shall be valid as if it were originally in the articles.

Is it means all alteration of articles shall have retrospective effect since date of incorporation of the company? To be prudent, drafting of alteration should convey its effective date and old provision should be there as footnote.

NOTE OF ALTERATION IN EVERY COPY (SECTION 15):

Every Alteration made in Memorandum or Articles shall be noted in every copy of the Memorandum or Articles.

Use of term “Noted” is significant one. This is the requirement of this section to note the alteration not just make alteration. This means this alteration must be clearly made visible through footnote etc.

Any default in this Section shall attract penalties. For every copy of Memorandum or Articles issued without such alteration, the company and every officer in default shall be liable to a penalty of one thousand rupees.

It is prudent to issue a copy of memorandum or articles by mentioning date of such issue and date of last alteration made in that particular copy.