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The Articles of Association (AoA) serve as a critical document in the constitution of a company, outlining its purpose, operations, and the responsibilities of its members. The Companies Act, 2013, under Section 14 and Rule 33 of the Companies (Incorporation) Rules, 2014, provides the legal framework for altering these articles. Such alterations can significantly impact the structure and functioning of a company, including converting a private company into a public company or vice versa. This article delves into the provisions, procedures, and implications of altering the Articles of Association in India.

Section 14 provides as follows:

14 (1) Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may, by special resolution, alter its articles, including alterations having the effect of converting

a. a private company into a public company; or

b. a public company into a private company:

Provided that where a company, being a private company, alters its articles in such a manner that they no longer include the restrictions and limitations that are required to be included in the articles of a private company under this Act, the company shall, as from the date of such alteration, cease to be a private company.

Provided further that any alteration having effect on the 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.

Section 14(2) provides that every alteration of the articles under this Section and a copy of the order of the central government approving the alteration as per subsection 1 shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such a manner as may be prescribed, who shall register the same.

Section 14(3) provides that any alteration of the articles registered under sub-section (2) shall, subject to the provisions of this Act, be valid as if it were originally in the articles.

Rule 33 of the Companies (Incorporation) Rules, 2014

  • For effecting the conversion of a private company into a public company or vice versa, the application shall be filed in FORM NO. INC. 27 with a fee.
  • Provided that, subject to the provisions of subrule 1, for effecting the conversion of a public company into a private company, service request number (SRN) from No. ‘RD-1, pertaining to the order of the Regional Director approving the alteration, shall be mentioned in FORM NO. INC 27 to be filed with the Registrar along with the fee together with the altered memorandum of association and article of association within fifteen days from the date of receipt of the order from the Regional Director

EXPLANATION:

  • Section 14 provides that the company can alter its articles by passing a special resolution. A special resolution means a resolution that requires the consent of 75% of the majority of the members of the company present at the meeting of the shareholders held to alter the articles of association of the company.
  • A private company needs to include the following clause in its articles to be called a private company:

“Private Company” means a company having a minimum paid-up share capital as may

be prescribed, and which by its articles, —

i. restricts the right to transfer its shares

ii. limits the number of its members to two hundred:

Provided that where two or more persons hold one or more shares in a company jointly,

they shall, for the purposes of this clause, be treated as a single member.

Provided further that:

(A) Persons who are in the employment of the company; and

(B) Persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and

iii. prohibits any invitation to the public to subscribe for any securities of the company;

  • Where the company alters its articles in such a manner that the following limitations and restrictions are no longer applicable to them, the company will not be called a private company, i.e., the company will not have the exemptions and benefits that are available to the private company, and the company will be called a public company from the date of such alteration.
  • Section 14(2) provides that the company needs to obtain the approval of the central government for the conversion of a public company into a private company. It is to be noted that subsection 2 of Section 14 provides for the approval of the central government in case of any alteration having the effect of converting a public company into a private company. Where the company alters its article, which has the effect of converting into a public company, the approval of the central government is not required in such a case.

FILING OF E- FORM INC – 27 AND APPROVAL OF CENTRAL GOVERNMENT

  • Section 14 sub-section 2 provides that every alteration of the articles under this section and a copy of the order of the central government approving the alteration as per subsection 1 shall be filed with the Registrar, together with a printed copy of the altered articles, within a period of fifteen days in such a manner as may be prescribed, who shall register the same.
  • Rule 33 of the Companies (Incorporation) Rules, 2014 provides that the conversion of a private company into a public company and vice versa from INC 27 is required to be filed. The limit to file Form 27 is 15 days.
  • The form INC-27 Is it required to file Form INC 27 only in cases of the conversion of private into public and vice versa.
  • Where the company alters its articles, which do not have the effect of conversion into a private company or conversion into a public company, the company is not required to file IC 27.

Approval of central government:

For the conversion of a public company into a private company, the approval of the central government is required by filling out Form RD-01 with the Registrar alone with the following attachment:

1. copy of the Board Resolution

2. Copy of the special resolution

3. Copy of the advertisement

Therefor the company need to comply with the following for alteration of Articles of association

1.Send the notice of the board meeting to all shareholders at least 7 days prior to the meeting.
2. Pass the board resolution in the meeting for approving the alteration and for convening the extraordinary general meeting for approval of the shareholder for the alteration of the AOA.
3. Send the notice of the extra ordinary general meeting to all the shareholders at least 21 days prior to the conduct of the meeting.
4. Conduct the extra ordinary general meeting for the approval of shareholders by way of a of a special resolution, i.e., with the approval of a 75% majority.
5. Filed Form 26 in case of conversion of a private company into a public company and vice versa
6. File MGT-14 within a period of 30 days from the date of the Extraordinary General meeting.

Conclusion : Altering the Articles of Association is a significant step requiring meticulous adherence to legal procedures and approvals. Section 14 and Rule 33 of the Companies Act, 2013, and the Companies (Incorporation) Rules, 2014, provide a structured framework for such alterations. Whether converting a private company to a public company or vice versa, compliance with these provisions ensures the legality and validity of the changes. Understanding these processes helps companies navigate the complexities involved, maintaining compliance and securing their operational objectives.

By – Pallavi Garg a Final year Law Student and a CS Professional Student

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