Section 20: Companies Act- Incorporating companies and compliances in India
Section 20 of the Companies Act, 2013 deals with the adoption and alteration of the Articles of Association of a company.
Relevant Case laws and Rules:
Companies (Incorporation) Rules, 2014: These rules specify the requirements for the Articles of Association, including the format and content of the document.
Companies (Management and Administration) Rules, 2014: These rules specify the requirements for the maintenance and inspection of the Articles of Association, as well as the procedure for altering the same.
Re: Richmond Gate Property Co.: In this case, the court held that the Articles of Association cannot be altered in a way that conflicts with the provisions of the Companies Act or any other law.
Re: Duomatic Ltd.: In this case, the court held that a resolution passed by all members of the company, even if not in accordance with the Articles of Association, can be binding on the company.
Companies (Amendment) Act, 2015: This amendment introduced the concept of "one person company" and "small company" and specified that such companies may have simplified Articles of Association.
Section 20 provides that a company may alter its Articles of Association by passing a special resolution. The special resolution must be passed by a majority of not less than three-fourths of the members present in person or by proxy at a general meeting of the company, and who are entitled to vote on the resolution.
The company must then file a copy of the altered Articles of Association with the Registrar of Companies within thirty days of the passing of the special resolution. The altered Articles of Association will be effective from the date of filing with the Registrar of Companies.
It is important to note that any alteration of the Articles of Association must be done in accordance with the provisions of the Companies Act and the company's Memorandum of Association. The alteration must not conflict with the provisions of the Companies Act or any other law. Any such alteration will be void and will not be effective.
In conclusion, Section 20 provides the procedure for the adoption and alteration of the Articles of Association of a company. It is important for companies to ensure that their Articles of Association are compliant with the Companies Act and other relevant rules and regulations. Any alteration to the Articles of Association must be done in accordance with the provisions of the Companies Act and the company's Memorandum of Association. Companies must also ensure that they comply with the Companies (Incorporation) Rules, 2014, and Companies (Management and Administration) Rules, 2014, among other relevant rules and regulations. By doing so, companies can ensure that they are operating within the legal framework and avoid any legal or regulatory issues.
Furthermore, Section 20 also provides that the Articles of Association may be adopted by a company at the time of its incorporation. In such cases, the Articles of Association must be filed along with the Memorandum of Association at the time of incorporation.
The Articles of Association should be drafted carefully to ensure that they meet the company's specific needs and goals. They should cover a range of issues such as the appointment and removal of directors, their powers and duties, the conduct of general meetings, the issuance and transfer of shares, and other operational and administrative matters.
Any alteration to the Articles of Association should also be done with the approval of the company's members. The special resolution passed for such alteration must be filed with the Registrar of Companies along with the altered Articles of Association.
It is important for companies to note that any alteration to the Articles of Association will not become effective until it is filed with the Registrar of Companies. Therefore, companies must ensure that they file the altered Articles of Association with the Registrar of Companies within the prescribed time limit.
It is worth noting that the Companies Act, 2013 provides certain restrictions on the alteration of the Articles of Association. For example, the Articles of Association cannot be altered in a manner that changes the rights of a class of shareholders or adversely affects the rights of any shareholder or creditor of the company. Any such alteration requires the approval of the affected shareholders or creditors.
Additionally, the Companies Act, 2013 provides that the Articles of Association of a company may include provisions for entrenchment. This means that certain provisions of the Articles of Association can only be altered with the approval of a higher majority of shareholders or in a manner specified in the Articles of Association. Such entrenchment provisions can provide additional protection to the interests of the company and its shareholders.
Finally, it is important for companies to ensure that they maintain an up-to-date copy of their Articles of Association at their registered office. The Articles of Association must be made available for inspection by any member or creditor of the company, free of charge. Failure to maintain and make available an up-to-date copy of the Articles of Association can result in penalties for the company.
In conclusion, Section 20 of the Companies Act, 2013 provides the procedure for the adoption and alteration of the Articles of Association of a company. Companies must ensure that their Articles of Association are compliant with the Companies Act and other relevant rules and regulations. Any alteration to the Articles of Association must be done in accordance with the provisions of the Companies Act and the company's Memorandum of Association. Companies must also ensure that they comply with the Companies (Incorporation) Rules, 2014, and Companies (Management and Administration) Rules, 2014, among other relevant rules and regulations. By doing so, companies can ensure that they are operating within the legal framework and avoid any legal or regulatory issues.
By Siddharth Dalmia
The StartUp Sherpa
+91-9971799250
dalmiasiddharth1994@gmail.com
