How To Alter Articles Of Association Under The Companies Act, 2013?

The Articles of Association (AOA) serve as the internal rulebook of a company, laying down the regulations for governance, management, and operational procedures. However, as a company evolves, through growth, restructuring, investment, or regulatory changes, it may become necessary to revisit and modify these foundational rules.

The Companies Act, 2013, provides a legal mechanism to alter the Articles of Association, enabling companies to stay aligned with their changing objectives and legal environment. But such alteration is not merely procedural; it has legal, strategic, and compliance implications.

In this blog, we explore:

• What constitutes an alteration of the Articles of Association
• Legal provisions under Section 14 of the Companies Act, 2013
• Permissible changes and legal restrictions
• Step-by-step procedure to alter the AOA
• Role of the ROC and MCA in the approval process
• Practical limitations and legal safeguards
• Common scenarios that lead to AOA amendments
• Key compliance requirements after alteration

Whether you're a company director, legal advisor, or compliance officer, understanding the process and limitations of altering the AOA is crucial for maintaining legal and governance integrity.

What is the Alteration of Articles of Association?

Alteration of Articles of Association refers to the process of changing, adding, or deleting clauses in a company’s AOA to meet evolving legal, operational, or strategic needs. This right is granted under Section 14 of the Companies Act, 2013.

Definition and Significance of Altering the AOA

The Articles of Association (AOA) are one of the key constitutional documents of a company, defining the rules governing the company’s internal affairs, including shareholding structure, directorship, rights of members, and meeting procedures.

Alteration of the AOA refers to modifying, deleting, or adding clauses to adapt to the company’s current or future needs. This right is granted under Section 14 of the Companies Act, 2013, subject to certain conditions and approvals.

Can Articles of Association Be Altered?

Yes, a company can alter its AOA by passing a special resolution in a general meeting of shareholders. In some cases, such alteration may also require prior approval from regulatory authorities such as the Central Government or Tribunal (especially in the case of conversion of company type).

However, the alteration must not be:

• Contrary to the Companies Act or any other law
• Inconsistent with the Memorandum of Association (MOA)
• Fraudulent or oppressive to minority shareholders

Common Reasons for Alteration

Some of the most frequent reasons companies choose to alter their AOA include:

• Change in capital structure (e.g., rights issue, bonus issue, or share class modification)
• Adoption of new governance practices
• Conversion from private to public company (or vice versa)
• Inclusion of provisions related to investor rights or shareholder agreements
• Compliance with updated laws or regulatory frameworks
• Appointment or removal of managing directors or key managerial personnel (KMP)
• Implementation of e-voting or digital procedures

Legal Framework and Governing Provisions

The alteration of the Articles of Association (AOA) is not merely a corporate decision but a statutory procedure governed by specific provisions of the Companies Act, 2013. These legal provisions ensure that changes to a company’s foundational rules are conducted transparently, with shareholder involvement, and in compliance with government regulations. This section provides a comprehensive overview of the legal framework and the role of regulatory authorities in the alteration process.

Overview of Section 14 of the Companies Act, 2013

Section 14 of the Companies Act, 2013, is the primary legal provision governing the alteration of the AOA. The key features of this section are:

Section 14(1) – Special Resolution Requirement

• A company can alter its AOA by passing a special resolution at a general meeting of the shareholders.
• A special resolution requires the approval of at least 75% of members present and voting.
• The alteration takes effect only after the necessary filings and approvals, as required by law.

Section 14(2) – Conversion of Public to Private Company

• If the alteration involves converting a public company into a private company, it requires prior approval of the Central Government (now delegated to the Regional Director (RD)).
• This safeguard ensures that shareholders’ and public investors’ interests are not adversely affected.

Applicability to All Companies

• Whether a company is private, public, or a one-person company, Section 14 applies equally, subject to procedural distinctions.

Filing Requirement: Form MGT-14

• Every alteration of AOA must be filed with the Registrar of Companies (ROC) using Form MGT-14 within 30 days of passing the special resolution.
• The altered AOA (in tracked or marked-up form) must be attached along with the board resolution and explanatory statement.

Failure to comply with these requirements can render the alteration invalid and attract penalties under the Act.

Role of the Ministry of Corporate Affairs (MCA) and Registrar of Companies (ROC)

The alteration of AOA is not legally effective until approved and recorded by the relevant authorities. Two key government bodies play a pivotal role:

Registrar of Companies (ROC)

The ROC is the primary regulatory authority that verifies procedural and documentation compliance related to the alteration of the AOA.

• Reviews Form MGT-14 and the attached documents (board resolution, special resolution, altered AOA).
• May raise queries or request resubmission in case of discrepancies.
• Once satisfied, the ROC will record the alteration, making it legally binding and effective.
• Also ensures timely filing and can impose penalties for delay.

Other Relevant ROC Forms:

• Form MGT-7 – Annual return (which reflects shareholding and governance changes).
• Form SH-7 – For changes in share capital, if linked to an AOA change.
• Form INC-27 – Required in case of company conversion.

Ministry of Corporate Affairs (MCA) – via Regional Director

In case of conversion of a public company to a private company, further scrutiny is carried out by the Regional Director (RD) under the MCA.

• The company must file Form RD-1 with the necessary documents: altered AOA, affidavits, board resolution, and declaration.
• Stakeholders may be notified, and objections may be invited.
• A hearing may be conducted before granting approval.
• Once approval is granted, the company must file Form INC-27 with the ROC to give effect to the conversion.

This oversight ensures the conversion is not misused to escape legal obligations or suppress minority shareholder rights.

Important Compliance Considerations

• Ensure consistency between the Memorandum of Association (MOA) and AOA. The AOA cannot override or contradict provisions of the MOA.
• In case of Section 8 companies (non-profit companies), prior approval of the Central Government is mandatory for any alteration.
• Alterations must not be oppressive to minority shareholders or against the public interest.
• No action should be taken under the altered AOA until all statutory approvals and filings are completed.

Permissible and Restricted Alterations to the Articles of Association

This section outlines the types of changes allowed under law and the restrictions and conditions companies must comply with when altering their AOA.

Types of Changes Allowed

The following types of alterations to the AOA are generally permitted under Section 14 of the Companies Act, 2013:

1. Change in share capital structure

Companies can alter provisions in their AOA to accommodate capital restructuring. This includes actions like issuing additional shares through a rights issue, distributing bonus shares to existing shareholders, initiating a buy-back of shares, or consolidating/splitting existing shares to adjust face value or volume.

2. Issuance of new classes of shares

AOA can be amended to permit the issuance of different classes of shares—such as preference shares (with fixed dividend rights) or equity shares with differential voting rights. These changes are common in funding rounds or strategic investments.

3. Modification of shareholder rights

Companies may alter voting rights, dividend entitlements, or restrictions on the transfer of shares. These changes help customize shareholder privileges, especially in private equity or joint venture settings.

4. Conversion of company type

When a company decides to change its structure, e.g., from a private limited company to a public limited company or vice versa, the AOA must reflect this. The process includes amending relevant clauses like name, share transferability, and director provisions.

5. Alteration in the governance framework

Companies can redefine how their boards function, including rules related to appointment, removal, and the powers of directors. Meeting protocols like quorum, notice periods, and voting mechanisms may also be revised to reflect modern governance practices.

6. Introduction of digital practices

To modernize operations, companies can revise their AOA to include provisions for e-voting, electronic communication with shareholders, virtual board meetings, and maintaining records in digital format—aligning with MCA and SEBI norms.

7. Incorporation of shareholder/investor agreements

To reflect contractual terms agreed with institutional investors, AOA can be amended to include specific veto rights, affirmative vote clauses, exit rights, and liquidation preferences.

8. Alignment with regulatory changes

Companies are often required to update their AOA to comply with amendments introduced in corporate laws or regulations by SEBI, RBI, MCA, or other authorities. This ensures legal consistency and avoids future compliance risks.

Restrictions and Conditions

Despite the broad scope of permitted alterations, the Companies Act and judicial precedents impose several key restrictions:

1. Must not contradict the MOA

The Articles must be consistent with the Memorandum of Association. For example, if the MOA restricts a company to certain business activities, the AOA cannot authorize anything beyond those limits. Any such contradiction renders the AOA alteration void.

2. Must not violate the Companies Act or other laws

An alteration is invalid if it goes against provisions of the Companies Act, 2013, or any other law, like SEBI regulations (for listed companies) or FEMA (for companies with foreign investment). Legal compliance is a mandatory pre-condition.

3. Must not harm minority shareholders

If an alteration disproportionately benefits majority shareholders or unfairly disadvantages minority ones, it can be challenged under Sections 241–242 of the Companies Act. The NCLT has power to review and cancel such alterations if they are oppressive or prejudicial.

4. Must not be fraudulent or mala fide

Any change made with dishonest intent, such as removing a shareholder’s rights, favoring certain insiders, or avoiding statutory obligations, is illegal. Such alterations can be struck down by courts or tribunals for being made in bad faith.

5. Requires special approvals in specific cases

Some alterations, such as converting a public company into a private one, need prior approval from the Central Government, now delegated to the Regional Director. The process involves filing applications, notifying stakeholders, and undergoing scrutiny.

6. May require regulatory approval

If the changes affect foreign investors, listed securities, or capital structure, approvals may be needed from authorities like SEBI (for listed companies), RBI (in case of FDI), or FIPB (for certain foreign transactions). Non-compliance can lead to penalties and rejection.

7. Must align with public policy and good faith

Indian courts have consistently ruled that even shareholder-approved alterations must meet standards of fairness and public interest. Any alteration that promotes illegality, evades taxes, or discriminates unfairly can be declared void, even if formally passed.

Step-by-Step Procedure for Altering AOA in India

Under the Companies Act, 2013, any alteration to the Articles of Association (AOA) must follow a defined legal process involving internal approvals, shareholder resolutions, and regulatory filings. The procedure ensures transparency, compliance, and protection of shareholder interests.

1. Convening a Board Meeting to Propose Changes

The process begins with a properly convened board meeting under Section 173 of the Companies Act. In this meeting, the Board of Directors deliberates on the necessity of altering the Articles and approves the draft version of the proposed changes. The Board also authorizes the calling of a general meeting of shareholders to consider and approve the alteration by way of a special resolution. Along with this, the directors approve the draft notice, explanatory statement, and fix the date, time, and venue for the shareholders’ meeting.

2. Drafting and Circulating Notice and Agenda for Board and General Meetings

Following the Board’s approval, the company must circulate a formal notice of the general meeting to all eligible shareholders. This notice must clearly state the intention to alter the Articles and include the full text of the special resolution along with an explanatory statement as required under Section 102. The notice must be sent at least 21 clear days before the general meeting, and it may be served via post, electronic means, or hand delivery, in accordance with the company’s communication policies and the Companies Act.

3. Passing a Special Resolution at a General Meeting

At the general meeting (either an Annual General Meeting or an Extraordinary General Meeting), the proposed alteration must be placed before the shareholders. For the alteration to be valid, a special resolution must be passed. As per Section 114(2) of the Act, a special resolution requires the consent of at least three-fourths of the members present and voting. Once passed, the special resolution must be accurately recorded in the minutes of the meeting and certified by an authorized officer of the company.

4. Filing Form MGT-14 with the ROC along with Altered AOA and Supporting Documents

Once the special resolution is passed, the company is required to file Form MGT-14 with the Registrar of Companies (ROC) within 30 days. This is a statutory filing under Section 117 of the Companies Act. The form must be accompanied by a certified copy of the resolution, the explanatory statement, and a copy of the altered AOA showing all the changes made. Late filing attracts additional fees and potential penalties. The ROC may scrutinize the filing and request clarifications if needed.

5. Approval Process by ROC and Issuance of Certificate

Upon reviewing and verifying the form and attachments, the ROC registers the alteration and updates the official company record maintained on the MCA (Ministry of Corporate Affairs) portal. In most standard alteration cases, no separate approval certificate is issued, but the registration of the altered AOA itself serves as confirmation of compliance. However, if the alteration involves conversion from a public company to a private company, prior approval from the Central Government (delegated to the Regional Director) must be obtained using Form RD-1, followed by Form INC-27.

6. Updating Company Records and Informing Stakeholders

Once the alteration is formally registered, the company must ensure that all copies of its AOA, both digital and physical, are updated to reflect the approved changes. Key internal stakeholders, including directors, auditors, and legal advisors, must be informed. If the company is listed, compliance with SEBI’s disclosure obligations must be ensured by notifying stock exchanges as per the Listing Obligations and Disclosure Requirements (LODR) Regulations. The altered AOA must also be made available to shareholders and regulatory authorities upon request.

Limitations on Alteration of Articles of Association

While the Companies Act, 2013 allows companies considerable flexibility to amend their Articles of Association (AOA), this power is not unlimited. The law places certain boundaries on what a company can do when altering its Articles to protect the interests of shareholders, creditors, and the public, and to ensure compliance with statutory obligations.

1. Alteration must not contradict the Memorandum of Association (MOA)

The Articles are subordinate to the Memorandum of Association. Any provision inserted in the AOA that is inconsistent with the MOA is invalid. For example, the AOA cannot authorize a business activity not mentioned in the object clause of the MOA.

2. Must not violate any provisions of the Companies Act or other laws

The altered AOA must comply with the Companies Act, 2013, and any other applicable laws, such as SEBI regulations, FEMA, or RBI guidelines. An alteration that overrides or contravenes any mandatory legal provision is unlawful and unenforceable.

3. Cannot be used to commit fraud or act in bad faith

If an alteration is made with the intention to defraud creditors, bypass legal duties, or favor a specific group unfairly, it may be set aside by the courts or the National Company Law Tribunal. The alteration must be made in good faith and for a legitimate business purpose.

4. Should not be oppressive to minority shareholders

Alterations that unfairly prejudice the rights of minority shareholders may be challenged under Sections 241 and 242 of the Companies Act. Courts and tribunals have the authority to strike down such changes if they are found to be unjust or oppressive.

5. Special approvals may be required in specific situations

Certain types of alterations, such as conversion from a public to a private company, cannot be implemented without prior approval from the Central Government through the Regional Director. Similarly, companies regulated by SEBI or RBI may need additional approvals for changes affecting investor rights or capital structure.

6. Must align with principles of fairness and public interest

Even if an alteration has the required shareholder approval, it must not go against public policy or the principles of equity and justice. Courts have consistently held that any change in the AOA must be reasonable, transparent, and made in the best interests of the company as a whole.

Conclusion

Altering the Articles of Association is a strategic and legally significant step that allows companies to adapt their governance framework in response to internal and external developments. While the Companies Act, 2013, grants the right to amend the AOA through shareholder resolutions, it simultaneously imposes procedural requirements and legal boundaries to prevent misuse.

The process, from board approval to ROC filing, must be handled with precision and care. Companies must also ensure that alterations are consistent with the Memorandum of Association, compliant with existing laws, and fair to all stakeholders, especially minority shareholders.

In a dynamic corporate environment, the ability to lawfully modify the AOA helps companies remain agile, transparent, and compliant. However, with this flexibility comes responsibility. Adhering to the statutory framework and best practices is essential to ensure that alterations serve the company’s legitimate interests while upholding corporate governance standards.