Alteration of Articles of Association

Because the Articles are meant to serve a living company through years of change — growth in scale, a shift in ownership, a change in the kind of shares issued — the Companies Act, 2013 expressly allows a company to alter its Articles, subject to defined conditions, rather than locking the original wording in permanently. Section 14(1) of the Act provides that, subject to the provisions of the Act and the conditions contained in its Memorandum, a company may, by a special resolution, alter its Articles, including alterations having the effect of converting a private company into a public company, or a public company into a private company.

The special resolution requirement is itself significant: it means an ordinary resolution, passed by a simple majority at a general meeting, is not sufficient — the resolution altering the Articles must be passed by not less than three times the number of votes cast against it, as required for a special resolution under Section 114(2). Once passed, the company must, within the time specified by the rules, file a copy of the altered Articles together with a copy of the special resolution with the Registrar of Companies, so that the public record of the company's constitution stays current.

The power to alter Articles, however, is not unlimited, and this is the aspect of the topic most often tested. An alteration of the Articles is invalid, or takes effect only subject to conditions, in each of the following situations: it cannot conflict with, or go beyond, the provisions of the Companies Act, 2013 itself; it cannot conflict with the conditions contained in the company's own Memorandum of Association, since the Articles remain subordinate to the Memorandum; it cannot be inconsistent with, or contrary to, an order of a Tribunal or a Court; it cannot authorise anything that is illegal or against public policy; it must be made bona fide, for the benefit of the company as a whole, and not merely to benefit one group of members or to oppress a minority; it cannot increase a member's liability to contribute to the company's share capital, or otherwise increase a member's liability, without that member's prior written consent; and where the alteration varies the rights of a particular class of shareholders, it must additionally follow the specific procedure Section 48 lays down for variation of class rights, which typically requires the consent of a defined proportion of the affected class in addition to the special resolution altering the Articles generally. …