Alteration in AOA (Article of Association) of Companies under Companies Act, 2013 By CS Annu Sharma


INTRODUCTION TO AOA (ARTICLE OF ASSOCIATION):

The article of association (AOA) is a document that specifies the regulations for a company's operations and defines the company's purpose. The document lays out how tasks are to be accomplished within the organization, including the process for appointing directors and handling of financial record.
 
Articles of association often identify the manner in which a company will issue stock shares, pay dividends and audit financial records and power of voting rights. This set of rules can be considered a user's manual for the company because they outline the methodology for accomplishing the day-to-day tasks that must be completed. While the content of the articles of association and the exact terms used vary from jurisdiction to jurisdiction, the document is quite similar everywhere, The articles of association generally contain provisions on the company name, the purpose of the company, the share capital, the organization of the company and provisions regarding shareholder meetings.
 
The following companies must have their own Articles of Association:
 
  1. Unlimited Companies
  2. Companies limited by guarantee
  3. Private companies limited by shares
 
BROADVIEW FOR ALTERATION OF ARTICLES:

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.

This section corresponds to section 31 of the Companies Act, 1956, section 20 of the Indian Companies Act, 1913, section 10 of the English Companies Act, 1948 and section 9 of the English Companies Act, 1985. It has been made effective from 1-4-2014 vide Notification No. SO 902(E), dated 26-3-2014.

Any Company which intended to make any change to the Article of Association (AOA) of its company, will have to comply with the provisions of Section- 14 of Companies Act, 2013 and any other applicable provisions of the Act and applicable rules. The company can alter its Article by way of addition, deletion, modification, substitution, or in any other way, only if it wants.

Note: * Every alteration made in the articles of a company shall be noted in every copy of the memorandum or articles, as the case may be.

STEPS FOR ALTERATION IN ARTICLE OF ASSOCIATION:

STEP – I: Board Meeting of Directors: (As per section 173 and SS-1)

To alter the Article of association of Company by serving  Notice of at least 7 days.

STEP – II: Held Board Meeting: (As per section 173 and SS-1)

At the Board meeting, the given resolutions in respect of alteration in AOA must be passed.

Get Approval to Alteration in Article of Association and recommending the proposal for members’ consideration by way of special resolution.

Fixing the date, time, and venue of the general meeting and authorizing a director or any other person to send the notice for the same to the members.

STEP- III: Issue Notice of General Meeting: (Section 101)

Notice of EGM shall be given at least 21 days before the actual date of EGM. EGM can be called on Shorter Notice with the consent of at least majority in number and ninety-five percent of such part of the paid-up share capital of the company giving a right to vote at such a meeting:

  • All the Directors.
  • Members
  • Auditors of Company
The notice shall specify the place, date, day and time of the meeting and contain a statement on the business to be transacted at the EGM.

STEP- IV: Hold General Meeting: (Section 101)

Check the Quorum.

Check whether the auditor is present, if not. Then Leave of absence is Granted or Not. (As per Section- 146).

Pass Special Resolution.[Section-114(2)]

Approval of Alteration in AOA.

STEP- V: Filing of form with ROC: (Section 117)

File Form MGT-14 (Filing of Resolutions and agreements to the Registrar under section 117) with the Registrar along with the requisite filing within 30 days of passing the special resolution, along with given documents:-

Certified True Copies of the Special Resolutions along with explanatory statement; Copy of the Notice of meeting sent to members along with all the annexure; A printed copy of the Altered Article of Associations

1. Whether Stamp Duty required to pain on Alteration in Article of Association (AOA)?

The Act does not contemplate new articles of association, and where it purports to be so, it is nothing more than a special resolution and as such does not require to be stamped.

2. Whether mistake in Article of Association can be ratified by the Court?

A mistake, whether clerical or any other, in the articles of a company, can only be rectified by altering the articles by special resolution in accordance with this section. It cannot be set right by application to Court. Evans v. Chapman, (1902) 96 LT 381; Scott v. Frank F. Scott (London) Ltd., (1940) 3 All ER 509 : (1941) 11 Com Cases 127 (CA). See also SARKAR SPECIFIC RELIEF ACT, Edn. 1997 section 26(l).

CONTENTS OF ARTICLES OF ASSOCIATION

Section 5(1) and section 5(2) of the Companies Act, 2013 provide for the contents of the articles of association. The articles must contain the regulations for the management of the company along with the matters prescribed by the Central Government. Further, the articles of association must also contain the following:

  1. Share capital including sub-division, rights of various shareholders, the relationship of these rights, payment of commission, share certificates.
  2. Lien of shares:  Lien of shares means to retain possession of shares in case the member is unable to pay his debt to the company.
  3. Calls on shares:  Calls on shares include the whole or part remaining unpaid on each share which has to be paid by the shareholders on the company’s demand.
  4. Transfer of shares:  The articles of association include the procedure for the transfer of shares by the shareholder to the transferee.
  5. Transmission of shares:  Transmission includes devolution of title by death, succession, marriage, insolvency, etc. It is not voluntary but is in fact brought about by operation of law.
  6. Forfeiture of shares:  The articles of association provide for the forfeiture of shares if the purchase requirements such as paying any allotment or call money are not met with.
  7. Surrender of shares:  Surrender of shares is when the shareholders voluntary return the shares they own to the company.
  8. Conversion of shares in stock:  In consonance with the articles of association, the company can convert the shares into stock by an ordinary resolution in a general meeting.
  9. Share warrant:  A share warrant is a bearer document relating to the title of shares and cannot be issued by private companies; only public limited companies can issue a share warrant.
  10. Alteration of capital:  Increase, decrease or rearrangement of capital must be done as the articles of association provide.
  11. General meetings and proceedings:  All the provisions relating to the general meetings and the manner in which they are to be conducted are to be contained in the articles of association.
  12. Voting rights of members, voting by poll, proxies:  The members right to vote on certain company matters and the manner in which voting can be done is provided in the articles of association.
  13. Directors, their appointment, remuneration, qualifications, powers, and proceedings of the boards of directors meetings.
  14. Dividends and reserves:  The articles of association of a company also provide for the distribution of dividend to the shareholders.
  15. Accounts and Audits:  The auditing of a company shall be done subject to the provisions of the articles of association of the company.
  16. Borrowing powers:  Every company has powers to However; this must be done according to the articles of association of the company.
  17. Winding up:  Provisions relating to the winding up of the company finds mention in articles of association of the company and must be done accordingly.
CONCLUDING LINES OF ARTICLE

It is a settled company law principle that the articles of association of a company cannot override the provisions of the Companies Act, 2013. Further, the articles of association of a particular company are also bound to observe the memorandum of association of the company as the articles are subordinate to the charter which is the memorandum of the company as well as any other company law in force at that time. Thus, it is of primary importance that when a company is being incorporated, and the articles of association of the company are being prepared, the same must be done in consonance with memorandum of association, the Companies Act, 2013 and any other company law which is in force at that time.

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