Alteration of Articles of Association

Articles of Association (AoA) is one of the vital documents required by every company. It states the rules and regulations that must be followed by the company and its members. No company can file for company registration without an AoA.

As stated under the Companies Act, 2013, any of the clauses of an Articles of Association can be modified by way of a special resolution. To make changes to the internal regulations of any business, the AOA needs to be altered first. A special resolution refers to 75% of the members voting for such an amendment. The Companies Act provides a specific process that needs to be followed to amend an AOA:

Steps for altering articles of association

To make any alterations or amendments to the AoA of a company, the company is required to comply with section 14 of the Companies Act, 2013 and other relevant laws.

1.     The first step to alter the articles of association is to conduct a board meeting vide section 173 of the Companies Act, 2013; there should be a notice of a minimum of 7 days given to the board before the date of the meeting. At this meeting, the relevant alteration needs to be proposed and needs to get approved by the board. If approved, the board then has to decide a date, time, and venue for an extraordinary general meeting (EGM) where they shall propose this alteration to the members of the company.

2.     The second step requires the issue of notice of the extraordinary general meeting and for the same to be given to the members. This step needs to be followed as specified under section 101 of the Companies Act, 2013.  There needs to be at least 21 days of notice given to the members prior to the date of the meeting. However, if the majority of members agree on a shorter notice, the EGM can be held on an earlier date as well. The notice should clearly state the date, time, and venue of the meeting, as well as a statement clearly stating the purpose of the meeting.

3.     Still following section 101 of the Companies Act, 2013, step three requires proposing the alteration of articles of association at the EGM. This proposal needs to be approved by the members, as mentioned earlier, by a special majority.

4.     If the proposed alteration is approved, then section 117 of the Companies Act, 2013, has to be followed. Step four requires, within 30 days of passing the special resolution, a copy of the altered AoA needs to be filed with the registrar of companies with the following documents attached:

• True copies of the special resolution and an explanatory statement regarding the same.
•  A copy of the notice of the meeting that was sent to all the members.

5.    Once the AOA is filed with the ROC, it becomes effective. 

Points to keep in mind while amending the AOA

•  Altering the articles of association is a decision for the shareholders to make; it can only be questioned in court in case of malafide conduct.
• The Articles of Association can be amended retrospectively. However, the amendment should not:

1. Affect the vested rights of parties,
2. Adversely affect any person dealing with the company,
3. Be prejudiced towards any members of the company.  

Additionally, the amendment should be made in a bona fide manner for and in the company’s interest.                                                                                                                                                                                                              

• The articles of association cannot be amended in such a way as to justify breaching a contract.
• Entrenchment provisions in the AOA can curtail the power to amend AOA. It’s important to keep in mind that curtailment does not mean complete removal (such as state no amendment is allowed); however, it does allow for such a provision to be put in that effectively makes any amendment to the AOA impossible.

Articles of Association of a company carry a lot of important clauses that affect the day-to-day running of the company; because of this, amending the AoA is serious business and requires the approval of all the relevant actors of a company. Keeping in mind the importance of the AoA, it’s best to let legal experts, such as those at LegalWiz.in, help with drafting and amending your AoA.