After 1st April I found that there are many advisory’s circulating on Whats up, Facebook & on all social media’s as to what is instantly required to be done by the existing companies in order to comply with CA 2013. One such common advise is to amend the Articles.
Section 5 & Tables under Schedule I of Companies Act 2013 prescribes for the provisions for the Articles of Association of the Company. The said provisions are applicable to the Companies to be formed under the new Act after 1.4.2014. New Companies are required to prepare their articles by following these rules. On close scrutiny I found that following are the major provisions under the CA 2013, which are required to be reflected through Articles of the Company.
1. Number of Members increased to 200. This is effective through prescription in the Articles. Old Articles prescribes for maximum number of members to 50 for private company.
2. Prohibitory clause of acceptance of deposits is removed from the definition of Private Company. The said clause was added through amendment in the year 2000.
3. Entrenchment Provisions can now be made in the Articles providing more stricter compliance for approving the reserved items in the Articles of JV company. Existing Companies have to amend their Articles to adopt this.
Further articles is a set of regulations for management of the Company and is a public document available to all.
In view of the above I feel that there many not be any dire need to amend the articles to align it with the Schedule I and provisions of the CA 2013.
However if the company wants to take the benefit of increased number of members or entrenchment clause or if the internal management of the Company is highly dependent upon the frequent references from the Articles, then it would be better to amend it quickly at the first EGM opportunity. Otherwise I suggest to amend the Articles in the coming AGM.
Amendment to the existing Articles needs a deep study of new provisions and requirements of the Company. It can not just adopt all the provisions of applicable Table under Schedule I. Professional help would be needed to undertake Article amendment exercise. It would always be better to adopt the entire new set by obtaining the approval of the shareholders by special resolution.
MCA has recently put an interesting advisory on its portal to file new set of Articles for incorporation of the Company. It seems that we are yet to be out of 1956 coma.
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Very useful post. Thank you Lele Sir. I have put it on various wtsapps groups for benefit of members and the profession.
Sir, but I believe the existing companies can take protection under section 5(9) and section 6 the new Act. However, in any case for good order the amendment should be carried out.
Please also throw light on the situation in case of a private company which is a subsidiary of a public company. Under the new Act it would be treated as a public company only. So do I need to amend its Articles. My interpretation is that I am not required to as Section 2(71) says that it would be treated as public company “even
where such subsidiary company continues to be a private company in its articles”. So if I amend the Articles then whether I should get them in line with those of private Company or public com. Thanks.
Bhavana,
Private Company upon become subsidiary of Public Company, need not have to amend its articles to align with Public Company articles. However all provisions applicable to Public Company will apply. Now in the new act barring few provisions all provisions apply to pure private company.
Thank you so much for throwing light on this topic as this issue was very critical.
Appreciate your efforts to pen down such a brewing subject.
I second the thought of Anant. Section 5(3) states that entrenchment provisions are optional. Section 5(9) gives us a direct indication that provisions of new law will apply only after alteration in articles. Section 6 further makes this picture more clear by giving a provision regarding overriding effect, in cases of conflict. Hence in my view, even if a company does not ever change its articles; maximum number of members may be read as 200 and prohibition of deposits will activate as per the new law w.e.f. 01/04/2014.
Anant & Rajas,
Please read the definition of the Private Company S 2(68) which says that …and by its articles, – limits the number of members to 200. Hence amendment to numbers would be essential, otherwise you will continue to have maximum 50 members by your own article. The overriding effect will not automatically make increase your numbers to 200. Overriding effect is applicable to the provisions which don’t need specific provisions in the Articles by act.
Further if you will continue to have restriction (d) about deposit in you article, you can not contradict it by applying overriding effect. Since articles can have stricter provisions other than law.
Hence to take the benefit, you need to have these amendments done in the Articles. All other things are optional.