Alteration of the Memorandum and the Articles

The proviso removes one case. No such approval is necessary where the only change is the deletion or addition of the word "Private", consequent on conversion of one class of company to another under the Act.

Section 13(3): when it is complete. The Registrar shall enter the new name in the register in place of the old and issue a fresh certificate of incorporation with the new name, and the change shall be complete and effective only on the issue of such a certificate. Not on the resolution, and not on the approval.

Shifting the registered office from one State to another, section 13(4) and (5)

The alteration shall not have any effect unless it is approved by the Central Government on an application in the prescribed form and manner.

Section 13(5) puts a clock and a test on that. The Central Government shall dispose of the application within sixty days, and before passing its order may satisfy itself either that the alteration has the consent of the creditors, debenture holders and other persons concerned, or that sufficient provision has been made for the due discharge of all the company's debts and obligations, or that adequate security has been provided for such discharge.

That is a creditor protection test, and it is the reason an inter-State shift is harder than any other alteration except a change of objects funded by the public.

Filing, section 13(6) and (7)

Save as provided in section 64, the company shall file with the Registrar (a) the special resolution, and (b) the Central Government's approval, if the alteration involves a change of name.

Section 13(7). Where the alteration transfers the registered office from one State to another, a certified copy of the Central Government's order shall be filed with the Registrar of each of the States, within the prescribed time and manner, and the Registrar of the State to which the office is shifted shall issue a fresh certificate of incorporation indicating the alteration.

Change of objects after a public issue, section 13(8)

This is the heaviest requirement in the section. A company which has raised money from the public through a prospectus and still has any unutilised amount out of that money shall not change its objects unless a special resolution is passed and:

• (i) the prescribed details of the resolution are published in the newspapers, one in English and one in the vernacular language, in circulation at the place where the registered office is situated, and placed on the company's website, if any, indicating the justification for the change; and
• (ii) the dissenting shareholders are given an opportunity to exit by the promoters and shareholders having control, in accordance with regulations to be specified by the Securities and Exchange Board.

Two protections doing different work: disclosure with a reason, so the market can judge, and an exit, so a shareholder who disagrees is not trapped.

Registration and effect, section 13(9), (10) and (11)

Section 13(9). The Registrar shall register any alteration of the objects and certify the registration within thirty days of the filing of the special resolution.

Section 13(10). No alteration made under this section shall have any effect until it has been registered in accordance with this section. So registration, not resolution, is the operative moment throughout.

Section 13(11). In a company limited by guarantee and not having a share capital, any alteration purporting to give a person a right to participate in divisible profits otherwise than as a member is void. This mirrors section 4(7).

Altering the articles: section 14

The general rule, section 14(1)

Subject to the provisions of this Act and the conditions contained in its memorandum, if any, a company may by a special resolution alter its articles, including alterations having the effect of conversion of (a) a private company into a public company, or (b) a public company into a private company.

So conversion between the two classes is done through the articles, which is why section 14 rather than section 13 is the conversion section.

The three provisos

First proviso: losing private status by accident. Where a private company alters its articles so that they no longer include the restrictions and limitations required for a private company under the Act, the company shall, as from the date of such alteration, cease to be a private company. It happens automatically. No order, no application, no certificate. Drop the transfer restriction from your articles and you are a public company from that date.

Second proviso: converting public to private. Any alteration having the effect of 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 in the prescribed form and manner.

Note the asymmetry and it is examined. Private to public: special resolution alone. Public to private: special resolution plus a Central Government order. The reason is obvious once stated: going public adds obligations and protections, while going private removes them.

Third proviso: transitional. Any application pending before the Tribunal on the commencement of the Companies (Amendment) Act 2019 shall be disposed of by the Tribunal under the law applicable before that commencement. This records that the approving authority for public to private conversion moved from the Tribunal to the Central Government in 2019.

Filing, section 14(2)

Every alteration of the articles, and a copy of the Central Government's order approving it where required, shall be filed with the Registrar together with a printed copy of the altered articles, within fifteen days, in the prescribed manner, and the Registrar shall register the same.

Noting the alteration in every copy: section 15

Section 15(1). Every alteration made in the memorandum or articles shall be noted in every copy of the memorandum or articles.

Section 15(2). On default, the company and every officer in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without the alteration.

The penalty is per copy, which is the sting. A company that circulates a hundred out of date copies faces a lakh of rupees.

Conversion of an existing company: section 18

Section 18(1). A company of any class registered under this Act may convert itself into a company of another class by alteration of memorandum and articles in accordance with this Chapter.

Section 18(2). On the company's application, the Registrar, after satisfying himself that the provisions applicable for registration of companies have been complied with, shall close the former registration and, after registering the documents, issue a certificate of incorporation in the same manner as its first registration.

Section 18(3) is the protective sub-section. Registration under this section shall not affect any debts, liabilities, obligations or contracts incurred or entered into by or on behalf of the company before conversion, and they may be enforced as if such registration had not been done.

So conversion changes the company's clothes, not its identity. Its creditors are exactly where they were.

A worked example

Deccan Agro Limited, a public company registered in Telangana, wants to do four things.

1. Change its name to Deccan Agri Foods Limited. Special resolution under section 13(1), and the written approval of the Central Government under section 13(2), the name being checked against section 4(2) and (3). The change takes effect only when the Registrar issues a fresh certificate of incorporation, section 13(3).

2. Move its registered office to Maharashtra. Special resolution, and Central Government approval under section 13(4). The Government has sixty days and will look for creditor consent, or sufficient provision for the debts, or adequate security, under section 13(5). A certified copy of the order goes to the Registrar of both States, and the Maharashtra Registrar issues a fresh certificate of incorporation indicating the alteration, section 13(7).

3. Add a new object, food processing. Special resolution. But the company raised forty crore rupees by a prospectus two years ago and eleven crore is still unspent, so section 13(8) applies: the details must be published in one English and one vernacular newspaper where the registered office is, and on the website, with the justification, and the dissenting shareholders must be offered an exit by the promoters and controlling shareholders under SEBI regulations. The Registrar then registers the change of objects and certifies within thirty days, section 13(9), and nothing takes effect until registration, section 13(10).

4. Convert into a private company. Special resolution altering the articles under section 14(1), plus an order of the Central Government under the second proviso. The alteration, the order and a printed copy of the altered articles go to the Registrar within fifteen days, section 14(2).

And a warning. Once converted, if the company later amends its articles and drops the restriction on transfer of shares, the first proviso to section 14(1) operates automatically: from the date of that alteration it ceases to be a private company, whether or not anybody intended it.

Distinctions that carry marks

What this does NOT mean

It does not mean every memorandum change needs a special resolution. Section 13(1) opens "save as provided in section 61", and the capital clause is altered by ordinary resolution where the articles allow.

It does not mean the resolution changes anything by itself. Section 13(10) says no alteration has effect until registered, and section 13(3) says a name change is complete only on the fresh certificate.

It does not mean conversion creates a new company. Section 18(3) preserves every debt, liability, obligation and contract incurred before conversion.

It does not mean a private company must apply to become public. It can lose private status automatically under the first proviso to section 14(1) simply by dropping the required restrictions from its articles.

Quick revision

• Section 13(1): special resolution, save section 61 for capital.
• 13(2) and (3): name needs Central Government written approval, subject to section 4(2) and (3); no approval needed for merely adding or deleting "Private" on conversion; effective only on the fresh certificate.
• 13(4) and (5): State to State shift needs Central Government approval, decided in sixty days, looking at creditor consent, provision for debts or adequate security.
• 13(6) and (7): file the resolution and the approval; on an inter-State shift file the certified order with the Registrar of each State.
• 13(8): unutilised prospectus money means special resolution plus two newspapers and the website with a justification, plus an exit for dissenting shareholders under SEBI regulations.
• 13(9) and (10): objects registered and certified in thirty days; nothing effective until registration.
• Section 14(1): articles by special resolution, including conversion either way. First proviso: dropping the private company restrictions means the company ceases to be private from that date. Second proviso: public to private needs a Central Government order. Third proviso: pending Tribunal applications under the pre 2019 law.
• 14(2): file within fifteen days with a printed copy of the altered articles.
• Section 15: note every alteration in every copy; one thousand rupees per copy on default.
• Section 18: conversion by altering both documents; former registration closed, fresh certificate issued; debts, liabilities, obligations and contracts survive.

Test yourself

1. What is needed to change a company's name? A special resolution under section 13(1) and the written approval of the Central Government under section 13(2), the new name satisfying section 4(2) and (3). The change is effective only on the issue of a fresh certificate of incorporation: section 13(3).

2. Within what time must the Central Government decide an application to shift the registered office to another State, and what does it look at? Sixty days, section 13(5). It may satisfy itself that the alteration has the consent of creditors, debenture holders and other persons concerned, or that sufficient provision has been made for the discharge of the company's debts and obligations, or that adequate security has been provided.

3. A listed company that still holds unspent prospectus money wants to change its objects. What must it do? Pass a special resolution and comply with section 13(8): publish the prescribed details in one English and one vernacular newspaper in circulation where the registered office is, and on its website, with the justification; and ensure that dissenting shareholders are given an exit by the promoters and controlling shareholders in accordance with SEBI regulations.

4. How does a public company become a private company? By a special resolution altering its articles under section 14(1)(b), which is not valid unless approved by an order of the Central Government under the second proviso. The alteration, the order and a printed copy of the altered articles are filed with the Registrar within fifteen days.

5. A private company amends its articles and deletes the restriction on transfer of shares. What happens? By the first proviso to section 14(1) it ceases to be a private company from the date of that alteration. No order or application is needed; the consequence is automatic.

6. Does conversion under section 18 wipe out the company's old debts? No. Section 18(3) provides that registration under the section does not affect any debts, liabilities, obligations or contracts incurred before conversion, and they may be enforced as if the registration had not been done.