How Does a Company Amend Its Articles of Association?

1149 words (5 pages) Essay in Company Law

02/02/18 Company Law Reference this

Last modified: 02/02/18 Author: Law student

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Section 31 of the Companies Act states that the amendment or repeal of any provision in the articles will requires a special resolution of members. A company is free to incorporate under different articles of association, or to amend its articles of association at any time by a special resolution of its shareholders, provided that they meet the requirements and restrictions of the Companies Acts. Such requirements tend to be more onerous for public companies than for private ones. In business or commercial law, special resolution is a resolution passed by the shareholders of a company by a greater majority than is required to pass an ordinary resolution. The precise figures vary in different countries, but commonly an extraordinary resolution must be affirmed by not less than 75% of members’ casting votes, whereas an ordinary resolution only requires a bare majority.

Subject to the provisions of this Act and to the conditions contained in its memorandum, by special resolution, a company may alter its articles. However, it must provided that no alteration made in the article under this sub-section which has the effect of converting a public company into a private company, shall have effect unless such alteration has been approved by the Central Government. [1] For example, in a small company, the members may agree that amendments to the articles require the written consent of all of the members. If such a requirement were included, any purported amendment to the articles by special resolution would not take effect unless that additional requirement was satisfied.

Any alteration so made shall, subject to the provisions of this Act, be as valid as if originally contained in the articles and be subject in like manner to alteration by special resolution. [2] Where a company has passed a resolution to amend or repeal its articles, that resolution will take effect on the day it is passed or on a later date specified in the resolution.

Where any alteration such as is referred to in the proviso to sub-section (1) has been approved by the Central Government, a printed copy of the articles as altered shall be filed by the company with the Registrar within one month of the date of receipt of the order of approval. [3]

The power of altering articles under this section shall, in the case of any company formed and registered under Act No. 19 of 1857 and Act No. 7 of 1860 or either of them, extend of altering any provisions in Table B annexed to Act 19 of 1857, and shall also, in the case of an unlimited company formed and registered under the said Acts or either of them, extend to altering any regulations relating to the amount of capital or its distribution into shares, although that those regulations are contained in the memorandum. [4]

A private company is also prohibited from altering its articles if the alteration is inconsistent with the requirements of section 12 of the Companies Act. The provision relating to restriction on the right to transfer shares may be altered through some form of the restriction must remain. In Kwality Textiles (Malaysia) Sdn Bhd Vs Arunachalam & Ors (1990) MSCLC 90,575; [1990] 3 MLJ 361, the court held that there must be some restrictions on the right to transfer shares of a private company although the company cannot totally restrict the right of a shareholder to transfer his shares. An example of a restriction on the right to transfer shares includes a pre-emptive right clause. Another example is a provision requiring the transferor to obtain directors’ approval for the transfer.

The alteration of company’s articles is also subject to some limitation on the members’ voting power. The member must vote in the best interests of the company as a whole. Although a member may exercise his votes freely, it must not result in the oppression of other members or be tainted with male fide. [5] There are majority shareholders altering the articles due to the prejudice of minority. To prevent this to happen, therefore alteration of company’s articles had subjected some limitation on member’s voting power. The court will not going to interfere the freedom of voting of the shareholders, unless unreasonable decision is made.

Articles can be amended by special resolution section 21(1) but, in a new development, certain provisions can be entrenched and can only be amended or repealed subject to more stringent condition. Amendments must not:

Conflict with Companies Act example Directors removable only by special resolution.

Be illegal.

Deprive members of statutory protection (variation of class rights).

Force members to take/subscribe for more shares or increase liability to contribute without written consent.

Be an abuse of majority power.

Registered companies have the statutory right to alter their articles at any time by special resolution and cannot contractually restrict themselves from exercising this statutory right. This was decided in Punt v Symons Co Ltd [1903] 2 Ch 506 where the company’s articles contained provisions restricting the appointment of directors to Mr. Symons (the company’s founder) and after his death provided that the power was limited to his executors. The company entered into a contractual agreement that it would not alter articles to remove this restriction. The court held that the restriction was illegal. Where a company does enter into such an agreement and then alters its articles on breach of the agreement, the injured party cannot prevent the alteration from being made by way of injunction, but can sue for breach of the contract: Southern Foundries (1926) Ltd v Shirlaw [1940]; British Murac Syndicate Ltd v Alperton Rubber Co Ltd [1916] 2 Ch 186. slide webside website

ebook +association+%28s.+18%281%29%29&hl=en&ei=6KCDTKGnB4LGvQP52fSzBA&sa=X&o i=book_result&ct=result&resnum=3&ved=0CDcQ6AEwAg#v=onepage&q=Companies%20 must%20register%20articles%20of%20association%20(s.%2018(1))&f=true stephen judge (2008) ,company law, new york oxford university press inc

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