ALTERATION OF ARTICLES THAT HELPS THE STUDENYS TO STUDY WELL

alteration of articles

1. Alteration of Articles

2. The power to alter the Article is wide, but it is subject to a large number of limitations such as:- A lteration must not exceed the powers given by the memorandum A lteration must not be inconsistent with any provisions Articles must not include anything which is illegal or opposed to public policy A lteration must be bona fide for the benefit of the company as a whole Articles cannot be altered so as to compel an existing member to take or subscribe for more shares or in any way increase his liability to contribute to the share capital, unless he gives his consent in writing

3. Cont’d…..., Alteration is not for the benefit of the company as a whole, but for majority of shareholders, then the alteration would be bad. A company cannot defeat escape from its contractual obligation with any person. Articles of Association cannot be altered so as to have retrospective effects A lteration must not be inconsistent with an order of the Court under Sections 397 or 398 and 404 of the Companies Act, 1956 Amendment of Articles relating to Managing, Whole-time director and non-rotational directors requires Central Government’s approval . (Section 268 –This section is of the Companies Act, 1956).

4. Company cannot alter Article except with the approval of Central Government Section 8(4)( i ) provides that a company registered under section 8 i.e. companies with charitable objects shall not alter the provisions of its memorandum or articles except with the previous approval of the Central Government .

5. Alterations of Memorandum or Articles to be noted in every copy Every alteration made in the memorandum or articles of a company shall be noted in every copy of the memorandum or articles, as the case may be. [Section 15(1)] If a company makes any default in complying with the provisions of section 15(1), the company and every officer who is in default shall be liable to a penalty of one thousand rupees for every copy of the memorandum or articles issued without such alteration . [Section 15(2)]

6. Doctrine of Ultra Vires and Intra Vires D octrine of ultra vires*. As a result, an act which is ultra vires is void, and does not bind the company . Neither the company nor the contracting party can sue on it . Also, as stated earlier, the company cannot make it valid, even if every member assents to it The general rule is that an act which is ultra vires the company is incapable of ratification . An act which is intra vires the company but outside the authority of the directors may be ratified by the company in proper form The rule is meant to protect shareholders and the creditors of the company. If the act is ultra vires (beyond the powers of) the directors only, the shareholders can ratify it. If it is ultra vires the articles of association, the company can alter its articles in the proper way

7. Doctrine of Constructive Notice The Memorandum and Articles, on registration, assume the character of public documents. The office of the Registrar is a public office and documents registered there are open and accessible to the public at large. Therefore, every outsider dealing with the company is deemed to have notice of the contents of the Memorandum and Articles. This is known as Constructive Notice of Memorandum and Articles. E very person dealing or proposing to enter into a contract with the company is deemed to have constructive notice of the contents of its Memorandum and Articles Whether he actually reads them or not

8. Doctrine of Indoor Management The doctrine of indoor management follows from the doctrine of ‘ constructive notice’ laid down in various judicial decisions . The hardships caused to outsiders dealing with a company by the rule of ‘constructive notice’ have been sought to be softened under the principle of ‘indoor management’. It affords some protection to the outsiders against the company

9. Exceptions to the Doctrine of Indoor Management No benefit under the doctrine of indoor management can be claimed by a person under the following circumstances Where a person dealing with the company has actual or constructive notice of any irregularity in the internal proceedings of the company Where a person did not in fact consult the Memorandum and Articles of the company and consequently did not act on knowledge of these documents Where a person dealing with the company was negligent and, had he not been negligent, could have discovered the irregularity by proper enquiries Where a person dealing with the company relies upon a forged document or the act done by the company is void Where a person enters into a contract with an agent or officer of the company and the act of the agent/officer is beyond the authority granted to him

10. Books of Accounts Section2(13) read with Section 128 Maintenance of Books of Accounts is one of the Mandatory compliances that every company needs to follow irrespective of its nature whether its a private limited, public limited, OPC, or LLP, each of these entities requires obeying Section 128 of the Companies Act, 2013 mandatorily.

11. Applicable Provisions Section 2(13) books of accounts: “Books of account” includes records maintained in respect of all sums of money received and expended by a company and matters in relation to which the receipts and expenditure take place; all sales and purchases of goods and services by the company; the assets and liabilities of the company ; and the items of cost as may be prescribed under section 148 in the case of a company which belongs to any class of companies specified under that section.

12. Features of Books of Accounts True and Fair View Accrual Basis Double Entry  

13. Where should be the Books of Account kept As per Section 128(1), every company must prepare and keep its books of accounts and other relevant books, financial statements, and papers at its registered office . Provided that all or any of the books of account aforesaid and other relevant papers may be kept at such other place in India as the Board of Directors may decide and where such a decision is taken , the company shall, within seven days thereof, file Form AOC-5 with the Registrar

14. In what form shall it be maintained As per the second provision of Section 128(1), all the companies may keep its books of account or other such relevant paper and books in electronic mode or as prescribed in Rule 3 of Companies (Accounts) Rules,

15. Manner of Books of Account to be Kept in Electronic Mode Shall remain accessible in India Be in original format and complete Must be in readable format Information/details received from the branch office shall not be altered Capable of being displayed in legible form One must keep the back-up of the books of account in servers physically located in India.

16. Moreover, the company must inform the Registrar of Companies on an annual basis during the filing of financial statement the name of the service provider IP address of service provider location of the service provider where the books of account and other books and papers are maintained on the cloud, such address as provided by the service provider.

17. Books of Branch Section 128(2) Where a company has a branch office in India or outside Indi a, it shall be deemed to have complied with the provisions of sub-section (1), if proper books of account relating to the transactions effected at the branch office are kept at that office and proper summarised returns periodically are sent by the branch office to the company at its registered office or the other place referred to in sub-section (1).

18. Inspection of Books of Accounts- Section 128(3) & (4) Read with Rule of the Companies (Accounts) Rules, 2014 Any director can inspect the books of account and other relevant books and papers at business hours only . However, Books of Accounts of a Subsidiary company can be inspected by a person authorized by the Board of Directors.

19. Period for which Books to be preserved: Section 128(5) 1. Not less than 8 Financial Years immediately preceding FY 2. If a company is in existence for less than 8 years then for such entire years of its existence 3. In case of Investigation, as directed by Central Government

20. Responsibility of Maintenance of Books of Accounts- Section 128(6) 1. Managing Director 2. Whole-time Director 3. Chief Financial Officer 4. Any other Competent and Reliable person as duty charged by Board.

21. Penalties for Non-Compliance In case of Non-Compliance or Contravention of provisions mentioned, such managing director, whole-time director in charge of finance, Chief Financial officer or such other person of the company shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

22. Prospectus Prospectus is a disclosure document inviting public , to subscribe for the securities of the company, to enable the investors to take rational investment decisions and to protect their rights, by giving various material facts and prospects about the company. In essence, it means that a prospectus is an invitation issued to the public to offer for purchase/subscribe any securities of the company . A document is deemed to be issued to the public, if the invitation to subscribe for share capital is such as to be open to anyone who brings his money and applies in prescribed form, whether the prospectus was addressed to him or not. The test is not who receives the document, but who can apply for the securities in response to the invitation contained in it .

23. Definition of prospectus However, an issue will not be “Public” if- It is directed to a specified person or a group of persons, and It is not calculated to result in the securities becoming available to other persons Section 2(70) of the Companies Act, 2013 defines a prospectus as “any document described or issued as a prospectus and includes a red herring prospectus referred to in section 32 or shelf prospectus referred to in section or any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any securities of a body corporate.”

24. On the basis of aforesaid definition, it may be said that a document should have following ingredients to constitute a prospectus There must be an invitation to the public ; The invitation must be made “ by or on behalf of the company or in relation to an intended company ”; The invitation must be “ to subscribe or purchase ”; The invitation must relate to any securities of the company

25. The main objectives of the prospectus are To inform the public about the formation of a new company. To induce the investors to invest in its shares and debentures To present an authentic record of the terms

26. Types Of Prospectus Prospectus can come in various forms, such as a full prospectus, red herring prospectus, shelf prospectus, abridged prospectus, or deemed prospectus , depending on the type of offering and regulatory requirements. Each type of prospectus has its own specific features, usage, and regulatory provisions that companies must adhere to while preparing and filing them.

27. Red Herring Prospectus (RHP) The Red Herring Prospectus (RHP) is a preliminary prospectus or offer document used by companies to make an initial public offering (IPO) or a follow-on public offer (FPO) of securities. The RHP contains all the relevant information about the company’s shares or debentures, except for the final offer price . It is filed with the ROC and circulated to potential investors for their consideration. The relevant provisions for RHP under the Companies Act 2013 include: Section 26: This section outlines the requirements for the contents of a prospectus, including the information to be included in the RHP. Section 32: This section specifies the procedure for filing the prospectus with the ROC , including the requirement to file the RHP before the opening of the subscription list. Section 31: This section mandates the inclusion of a statement in the RHP that the offer is being made through a prospectus and that investors should read the prospectus before making an investment decision.

28. Shelf Prospectus A Shelf Prospectus is a prospectus that is filed by a company for multiple issues of securities within a period of one year from the date of its approval by the ROC . It allows the company to make multiple public offers of its securities during the validity period of the Shelf Prospectus without filing a fresh prospectus for each offer. The relevant provisions for Shelf Prospectus under the Companies Act 2013 include: Section 31A: This section outlines the requirements for filing a Shelf Prospectus, including the conditions for its validity, the period of validity, and the amendments to be made to the prospectus during its validity period. Rule 10 of the Companies (Prospectus and Allotment of Securities) Rules, 2014: This rule provides further details on the contents of a Shelf Prospectus, including the information to be included in the prospectus and the procedures for filing and updating the Shelf Prospectus

29. Abridged Prospectus An Abridged Prospectus is a s horter version of the prospectus that contains only the salient features of the full prospectus. It is intended to provide a concise summary of the key information about the company’s securities and the offer to potential investors. The relevant provisions for Abridged Prospectus under the Companies Act 2013 include: Rule 3 of the Companies (Prospectus and Allotment of Securities) Rules, 2014: This rule outlines the requirements for the contents of an Abridged Prospectus, including the information to be included in the prospectus and the procedures for filing and circulation of the Abridged Prospectus

30. Rules and Provision Relating to the Issue of Prospectus An oral invitation shall not be regarded as a prospectus. The prospectus must be in writing . Thus a TV or Radio advertisement, not being document does not become a prospectus. A prospectus is not an offer in itself but an invitation to make an offer. A document which offers shares in exchange for shares is not a prospectus . The rules as to prospectus are attracted only where a prospectus is ‘issued’. Issued here means issued to the public . A document will be treated as a prospectus only when it invites offers from the public A private placement by company’s members or directors again not a prospectus . Prospectus is issued after the formation of a company and company issues prospectus when it is proposed to be formal.

31. Rules and Provision Relating to the Issue of Prospectus A prospectus must not be issued unless a copy thereof has been delivered to the Registrar for registration . Prospectus of a company must be dated to consider the date of its publication . The prospectus may include the statement of an expert, engineer, and accountant values. A copy of prospectus which is signed by every director or proposed director of the company must be filed with the Registrar of company. Prospectus must be issued to the public within 90 days after the date of filing i t. After the registration of prospectus there cannot be any variation in it. Application form of a company issued to public for purchase of its share and debentures must be accompanied by an abridged form of prospectus.

32. Contents of Prospectus Names and addresses of the registered office of the company, company secretary, Chief Financial Officer, auditors, legal advisers, bankers, trustees, if any, underwriters and such other persons as may be prescribed; D ates of the opening and closing of the issue, and declaration about the issue of allotment letters and refunds within the prescribed time; A statement by the Board of Directors about the separate bank account where all monies received out of the issue are to be transferred and disclosure of details of all monies including utilized and unutilized monies out of the previous issue in the prescribed manner; D etails about underwriting of the issue ; disclosures in such manner as may be prescribed about sources of promoter’s contribution capital structure of the company in the prescribed manner

33. Contents of Prospectus the consent in writing of the directors, the auditors, bankers to the issue, expert’s opinion , if any, all the persons named in the prospectus and of such other persons, as may be prescribed; the authority for the issue and the details of the resolution passed therefor; procedure and time schedule for allotment and issue of securities ; main objects of public offer , terms of the present issue and such other particulars as may be prescribed; main objects and present business of the company and its location, schedule of implementation of the project; minimum subscription, amount payable by way of premium , issue of shares otherwise than on cash; details of directors including their appointments and remunerati on, and such particulars of the nature and extent of their interests in the company as may be prescribed;

34. Reports to be set out in the Prospectus R eports by the auditors of the company with respect to its profits and losses and assets and liabilities and such other matters as may be prescribed; R eports relating to profits and losses for each of the five financial years immediately preceding the financial year o f the issue of prospectus including such reports of its subsidiaries and in such manner as may be prescribed; T he business of the company for each of the five financial years immediately preceding issue and assets and liabilities of its business on the last date to which the accounts of the business were made up, being a date not more than one hundred and eighty days before the issue of the prospectus; and R eports about the business or transaction to which the proceeds of the securities are to be applied directly or indirectly.

35. Liabilities for Mis-Statement in the Prospectus Greater care should be taken in preparing the prospectus and it should never conceal any fact or mislead the public. Each and everything must be stated in the prospectus with strict and scrupulous accuracy. Where an untrue statement occurs in a prospectus, there may arise ( i ) civil liability (ii) criminal liability. Every person who is a director of the company at the time of the issue of the prospectus, every promoter of the company and every person, including an expert, who has authorised the issue of a prospectus, shall be liable

36. Filing of Prospectus with the Registrar Section 26(4) states that no prospectus shall be issued by or on behalf of a company or in relation to an intended company unless on or before the date of its publication, there has been delivered to the Registrar for registration , a copy thereof signed by every person who is named therein as a director or proposed director of the company or by his duly authorised attorney

37. Section 26(6) further states that every prospectus issued under sub-section State that a copy has been delivered for registration to the Registrar as required under sub-section (4) Specify any documents required by this section to be attached to the copy so delivered or refer to statements included in the prospectus which specify these documents Section 26(7) states that the Registrar shall not register a prospectus unless the requirements of this section with respect to its registration are complied with and the prospectus is accompanied by the consent in writing of all the persons named in the prospectus. Section 26(8) states that no prospectus shall be valid if it is issued more than ninety days after the date on which a copy thereof is delivered to the Registrar under sub-section (4)

38. Private Placement Private placement means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in section 42

39. Private Placement If a company, listed or unlisted, makes an offer to allot or invites subscription, or allots, or enters into an agreement to allot, securities to more than the 200 persons , whether the payment for the securities has been received or not or whether the company intends to list its securities or not on any recognized stock exchange in or outside India, the same shall be deemed to be an offer to the public and shall accordingly be governed by the provisions of Part I of Chapter III of the Companies Act, 2013

40. CONDITIONS AND PROCEDURE FOR PRIVATE PLACEMENT [SECTION 42] A private placement offer cannot be made to more than 200 people in aggregate in a financial year excluding “qualified institutional buyers” and employees of the company being offered securities under a scheme of employee’s stock option as per provisions of clause (b) of sub- section (1) of section 62 Qualified institutional buyer’’ means the qualified institutional buyer as defined in the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 as amended from time to time

41. PROCEDURE FOR PRIVATE PLACEMENT M ade only to such persons whose names are recorded by the company prior to the invitation to subscribe, and that such persons shall receive the offer by name. Prepare the private placement offer letter - Form No. 3.4 addressed specifically to the person to whom the offer is made. and shall be sent to him. Seek member’s approval - Company, by way of a Special Resolution, for each of the Offers/ Invitations. Circulate the offer letter – writing or in electronic mode, within 30 days of recording the names

42. PROCEDURE FOR PRIVATE PLACEMENT Maintain record of private placement offers File information with ROC Open separate bank account for keeping subscription money Make allotment of securities File return of allotment with Registrar Issue share certificates and update minutes book and register