Companies Act Section 13

Companies Act Section 13: Alteration of Memorandum

Introduction

Section 13 of the Companies Act outlines the process by which a company may alter its memorandum of association, which is one of the foundational documents of a company. 

The memorandum sets out the company’s constitution and provides important details, such as the company’s name, registered office, objects, and liability. 

Any alteration to the memorandum must be carried out in accordance with the provisions laid out in this section, ensuring that both internal and external stakeholders are protected during the process of modification. 

1. General Provisions for Alteration of Memorandum

The memorandum of a company can be altered, except as specified under Section 61. 

For any such alteration to be valid, the company must pass a special resolution. 

A special resolution typically requires the approval of at least 75% of the members present and voting in a general meeting. 

After passing this resolution, the company must follow the prescribed procedure to ensure the change is legitimate and binding.

Special Resolution: 

This is a higher threshold than an ordinary resolution and ensures that significant changes to the company's structure or operations, such as altering the memorandum, are made with a broad consensus of the shareholders.

2. Change of Company Name

Any change to the name of the company must comply with subsections (2) and (3) of Section 4 of the Companies Act. 

These provisions govern the specific rules regarding naming a company, including restrictions on the use of certain words, the requirement to avoid identical or misleading names, and other legal considerations.

Approval from Central Government: Generally, the company must seek approval from the Central Government to change its name. 

This approval ensures that the name change complies with applicable laws and does not infringe on the rights of others. 

However, there is an exception: if the change of name is only due to the addition or deletion of the word "Private" for example, in the case of a company being converted from a public to a private entity, or vice versa no such approval is required.  

Procedure for Name Change: 

The company must submit the necessary documents, including a special resolution, and await approval from the Central Government before proceeding with the name change.

3. Effect of Name Change

Once the Central Government approves the change of name, the Registrar of Companies (RoC) must update the company’s name in the official register of companies.

Issuance of New Certificate of Incorporation: 

After updating the name in the register, the Registrar will issue a new certificate of incorporation that reflects the new name of the company. It is important to note that the name change does not take effect until the issuance of this new certificate, making the certificate crucial for the enforcement of the name change.

Effectiveness of Name Change: The name change becomes legally effective only upon the issuance of the new certificate of incorporation by the Registrar.

4. Alteration of Registered Office Location

In certain cases, a company may wish to change the location of its registered office from one state to another. This alteration requires special approval due to its significant impact on the company’s regulatory and legal obligations.

Central Government Approval: 

For this change to be legally recognized, the company must obtain approval from the Central Government. The application for such approval must be submitted in the prescribed form and follow the proper procedure outlined by the Act.

Inter-State Changes: Moving the registered office across state boundaries has more far-reaching legal implications, which is why such changes require approval beyond the company’s internal processes.

5. Approval and Conditions for Alteration

When an application is made to alter the memorandum, especially in cases of changing the registered office across state lines, the Central Government must take into consideration the company’s obligations to various stakeholders.

60-Day Review Period: 

The Central Government is obligated to process the application within 60 days. This ensures that the alteration is not unduly delayed, keeping the company’s operations efficient.  

Creditors’ Consent: 

Before granting approval, the Central Government must ensure that creditors, debentureholders, and other relevant parties consent to the alteration. If their consent cannot be obtained, the company must demonstrate that it has made sufficient provisions or security to discharge any debts or obligations to these stakeholders.

6. Filing Requirements with the Registrar

Once the special resolution has been passed and approval from the Central Government has been obtained (if necessary), the company must file the relevant documents with the Registrar of Companies.

Special Resolution Filing: The company must file a copy of the special resolution passed by the shareholders. This document formally acknowledges the intention of the company to alter its memorandum.

Government Approval for Name Change: If the alteration involves a change in the company’s name, the company must also file the approval from the Central Government as part of the submission. This step ensures that the change is properly documented and recognized by the authorities.

7. Transfer of Registered Office Between States: 

When a company alters its memorandum to move the registered office from one state to another, additional steps are required to finalize the transfer.

Certified Copy of Approval: 

The company must submit a certified copy of the Central Government’s approval order to the Registrar of each State involved in the transfer. This ensures that both the Registrar in the state where the company was previously registered and the Registrar in the new state are notified of the move.

New Certificate of Incorporation: The Registrar in the new State will issue a fresh certificate of incorporation, which reflects the altered memorandum and confirms the new location of the registered office.

8. Change of Objects After Public Fundraising

If a company has raised funds from the public through a prospectus and still has unutilized funds, it cannot alter its objects clause without following a strict procedure.

Special Resolution: The company must pass a special resolution to change its objects. Additionally, the company must:  

Publish details of the resolution: The company must publish the details of the resolution in newspapers (one in English and one in the local vernacular), ensuring that the public and investors are well informed.  

Exit Opportunity for Dissenting Shareholders: 

If shareholders dissent to the change in objects, the company must offer them an exit opportunity, ensuring their investments are protected. The exit opportunity must be provided by the promoters and controlling shareholders in accordance with the regulations set by the Securities and Exchange Board.

9. Registrar’s Certification of Alteration 

After the company files the special resolution, the Registrar must certify the registration of the alteration, specifically if the change pertains to the company’s objects clause.

30-Day Certification Period: The Registrar has 30 days to certify the alteration from the date the special resolution is filed. This ensures that the alteration process is completed in a timely manner.

10. Effectiveness of Alteration

Any alteration made to the memorandum under this section does not take effect until it has been properly registered according to the provisions of this section. This registration process ensures that the alteration is legally valid and recognized by the authorities.

No Effect Until Registration: Even if the special resolution is passed and government approvals are obtained, the alteration is not considered effective until it is filed and registered with the Registrar. 

11. Limitations for Companies Limited by Guarantee

There are specific restrictions for companies that are limited by guarantee and do not have a share capital. Any alteration to the memorandum of such companies that attempts to grant divisible profits to any person other than a member of the company is considered void.

Restriction on Profit Participation: 

This provision prevents non-members from participating in the distribution of profits in a company that is limited by guarantee without share capital. The intent is to protect the company’s non-profit or limited-profit nature.