1.

Companies Act

Meaning and Definition

Introduction:-
A company in general terms, means a group of persons associated together for
the attainment of a common end social or economic. Our focus is mainly with regard to ‘Registered
or Incorporated Companies’. The term ‘Registered Company’ means a company incorporates
under Companies Act 1956.

Definition:-
A company in a broad sense may be an association of individual formed for
some common purpose. But, it is a voluntary association of person. It has capital divisible into
parts, known as shares. At the same time it is an artificial person created by a person of law. It has
perpetual succession and a common seal.
A company is an artificial person without a body or soul. A company is not
visible except in the eye of law. But now, a company really exists and it is not a fictitious entity.

According to Justices Lindley a Joint Stock Company is “a voluntary

association or organization of many persons who contribute money or money’s worth to a common
stock and employee it in some trade or business and who share the profit arising there from. The
common stock so contributed is denoted in money and it is the capital of the company.

Characteristic

1) Voluntary Association
2) Registration
3) Separate Legal Entity
4) Limited Liability
5) Perpetual Succession
6) Common seal
7) Transferability of shares
8) Separate Property
9) Capacity To Sue
10) Separate Of Ownership and Management
11) Collecting Interest – Free Money
 1. Voluntary Association
A joint stock company is a voluntary association or organization of persons.
No person can be compiled to become a member nor can any member be compiled to
give-up his membership of the company.

2. Registration
The company is created only when registered under Company Act 1956. It
comes in to existence from the date mention in the certificate of incorporation. Sec 11 provide
registration of a group of 10 person in respect of banking business and 20 in respect any other
business. But, for the formation of a public company at least 7 people and for a private
company at least 2 people are necessary. There person agree to come together and lead their
names to the Memorandum of Association and other legal requirement of registration from the
incorporation of company with or without limited liability.

3. Separate Legal Entity

A company is in law regarded as an entity separate from its members. In other
words it has an independent corporate existence. Any of its members can enter into contract
with it in the same manner as any other individual can and he can not be lead responsible for the
acts of company. The company’s money and property belong to the company and not to the
shareholder (although the shareholders own the company).
The important of separate legal entity of a company was formally established in the
case of SALOMON vs. SALOMON company ltd (1897).

4. Limited Liability
A company may limited by shares or a company limited by guaranty. In a
company, limited by shares, the liability of member is limited to the unpaid value of the shares.
For example, if the face value of a share in a company is Rs.10 and a member has already paid
Rs.7 per share, he can be called upon to pay not more than Rs.3 per share during the life time of
the company. In a Company limited by guaranty, the liability of members is limited to such
amount as the member may undertake to contribute to the assets of the company, in the event of
being wound up.

5. Perpetual Succession
The company created by law in perpetuity and like a human being. It never dies
with retirement or death of its members, as it the case with partnership. It is created by law and
an end to it can be put only by the process of law. Perpetual succession therefore means that the
existence of a company continuous irrespective of the change in the composition of its
membership. Thus, it continued existence is not effected by a constant change in its membership
in the same manner of the river cuavery is still the same river though the parts which composite
its or changing every instant.

6. Common seal
Since, a company has no physical existence, it must act through its agents and
such contacts entered into by its agents must be under the seal of the company. The common
seal acts as the official signature of the company.

7. Transferability of shares
The capital of a company is divided into parts called shares. There shares are,
subject to certain conditions, freely transferable. Therefore, a member may sell his shares in the
open market or transfer his shares to anybody. He likes in a public limited company, as per the
conditions laid down in the articles of the company. The unit advantage of this is that the capital
structure of the company would not be affected.

8. Separate Property
As a company is a legal person distinct from its member it is capable of owning,
.enjoying and disposing of property in it own name. No member, not even all the members can
claim ownership of any item of the assets of the company.

9. Capacity To Sue
A company can sue and be sued in its corporate name.

10.Separate Of Ownership and Management

In a company, share holders are the owners but, the management is entered to a
Board of Directors how are separate from the body of the shareholders. Further, a shareholder is
not an agent of the company or of the other shareholder and he can not bind them by his acts. In
a company, form of organization, management is diverse from Ownership.

11.Collecting Interest–free Money

A company has the privilege of collecting interest–free money from the public
for its public issue or through private placement of shares and other securities.
 TPYES
OF
COMPANY

On the basis On the basis On the basis On the basis

On the basis of Of Of Of Foreign
Of
Incorporation Liability Number of Control Companies
Ownership
Member

Company
with Holding
Chartered Private Government
Limited Company
Company Company Company
Liability

Company
with Non
Statutory Public Subsidiary
Unlimited government
Company Company Company
Liability Company

Registered
Company
Types of Companies

1. On the basis of Incorporation

From the point of view of registration, companies may be classified into 3
types:-

 Chartered Companies
 Statutory Companies
 Registered Companies

Chartered Companies:
A chartered company is one which comes into existence as a result of
proclamation issued by Monarch or Crown (i.e. King or Queen). The power and activities of a
chartered company are governed or regulated by the charter under which it is established. As
such, if a chartered company breaks any rules laid down in the charter the crown may annul the
charter. E.g. British East Indian Company and Bank of England.

Statutory Companies:
These are the companies which are created by a special act of the
legislature (parliament or state legislature). These are mostly lowered with public utilities such
as Railways, Gas and Electricity Companies and enterprises of national importance. A few
examples for statutory companies are: the RBI, SBI, LIC, IFCI, UTI, etc.
Registered Companies:
These are companies, which are formed and registered under the
Companies Acts 1956 or were registered under any of the Companies Acts. These are by far the
most commonly found companies.

2. On the basis of liability

On the basis of liability companies may be classified into:
 Companies with Limited liability and
 Companies with Unlimited Liability

 Companies with limited liability

 Company limited by shares
 Company limited by guarantee

Company Limited by Shares

Companies limited by share are those in which the liability of a member is
limited to the nominal of phase value of the share hold by him. If a member is already paid full
nominal value, he can not be called upon to pay any more account, irrespective of the debts of
the company. In other words, these are the companies in which the liability of a member is
limited only to the extents of unpaid amount on the shares held by him.

Company Limited by Guarantee

Where the liability of the member of a company is limited to a fixed
amount which the member undertake to contribute to the assets of the company in the event of
its being wound up, the company is called a Company ltd by each member is mentioned in the
Memorandum Of Association or Articles Of Association of the company.

 Companies with Unlimited Liability

Unlimited companies are companies in which liability of the member is
unlimited, i.e. the member of these companies can be called-upon to pay from their private
assets to satisfy the liability of the company. Every member is liable for the debts of the
company in proportion to the interest in the company
An unlimited company may or may not have a share capital. If it has a
share capital, the amount of share capital with which the company is to be registered should
also be stated in the Article Of Association.
 3. On the basis of Number of Member

From the point of view of general public and on the basis of number of
members, a company may be classified:-
a) A Private Company
b) A Public Company

Private Company
It is also called ‘close corporate’ in USA. A private company is defined
under section 3(l) iii of the companies’ act 1956. According to this section, a private company
which has a minimum paid-up capital of Rs. 1,00,000 or such higher paid-up capital as may be
prescribed, and by its articles:
 This must be restriction upon the rights of its members to transfer their shares in
the company (the registration is not necessary in case of private company not
limited by shares).
 The number of members must be restricted to 50, excluding the member who are
or were in the employment of the company. Joint holders of shares are treated as a
signal member.
 The company must prohibit any invitation to the public to subscribe to its shares or
debentures or their relatives.

Public Company
The definition of a public company given by the Companies Act 1956 is not
clear. In general, a Public company is company which has;
 At least 7 members
 No maximum limit to the number of member.
 Has a minimum paid up capital of 5 lakhs.
 Can enquire to the subscribe to its share or debentures and in which generally
invite public to subscribes to its shares.
 Generally it does not restrict the rights its members to transfer its share.

A public company may be limited by shares, guarantee, or an unlimited company.

 4. On the basis of Control
The companies may be classified into:
 Holding Companies
 Subsidiary Companies

Holding companies:
Where one company has control over another, it is called the Holding
Company. And the control company is the subsidiary (sec4). Those a holding company is a
company:
 Which holds more than 50% of the nominal value of the equity share
capital of another company ‘or’
 Which control the composition of he board of directors of another
company (i.e. which has the power to appoint or remove all or
majority of the Board Of Directors of another company) ‘or’
 Which executrices or controls more than 50% of the total voting
power of another company.

It may also be noted that when one company controls a subsidiary company,
in turn, controls another subsidiary company, the first company will be the holding company not
only with regard to the subsidiary of subsidiarying company.

Subsidiary companies
As per sec 4 of the company’s act 1956 “a subsidiary company is a
company which is controlled by a holding company”. As noted above, a company becomes a
subsidiary of another company if
 The other company holds more than 50% of the nominal value of
its equity share capital ‘or’
 The other company controls the composition of the board of
directors ‘or’
 The other company exercises or controls more than 50% of its total
voting powers ‘or’
 It is subsidiary of another company which is a subsidiary of the
holding company these may be shown by the following chart.

5. On the basis of Ownership

 On the basis of ownership a company may be
 A Government Company
 A Non government Company

Government Company
A Government Company means any company in which not less than
51% of the paid up share capital is held by:
Central government or state government or partly central government
and partly by state government. The subsidiary of a government company is also a government
company.

Non Government Company

A non government company is a company which is owned and
managed by private investors.

6. Foreign companies

It is one which is incorporated in a country outside India but has a place

of business in India. It may be noted that the place of business in India means that the foreign
company should have in India, a specific or identifiable place such as an office, store house etc.
where in it carriers it business or some premises with an indication that there is connection
between the foreign company and the particular premises.

Formation Of A Company

In the formation of a public ltd company having share capital, mainly four
stages are involved. They are:
a) Promotion of a Company
b) Incorporation of a Company
c) Capital subsidiary to the Company
d) Commencement of Business

Promotion of a company:
 Promotion involves discovery of specific business opportunity and the subsequent
organization of the factor of production. According to ‘HANEY’ “promotion is the process of
organizing and planning the finances of a business enterprise under the corporate from” in other
words, the steps which are taken to procreate a number of person to come together for the
achievement of a common objective through the company form of organization is called
Promotion. The person or persons who undertake the responsibility to bring the company into
existence are called “Promoters”.

Steps in the Promotion of a company:

The work of promotion of a company involves four stages. They are:
 Discovery of an idea and preliminary investigation.
 Detail investigation.
 Assembling and
 Financing the proportion.

Discovery of an idea
The promoter starts with an idea to commence some business either in a new
field which has not been commercially exploited or in some existing lines of manufacture or
business. He makes a preliminary investigation to find out whether it is worthwhile to make a
detail investigation. He makes an estimation of probable revenue and expenditure.

Detail Investigation
Secondly the promoter needs to make a detail investigation of its idea with the
assistance of many experts. On the basis of this, the promoter would know the capital
requirement, location, size of the unit, demand condition, cost of production, expected returns
on capital etc. such an decide whether the estimate income will be adequate to take care of the
estimated cost of production and compensation to the owner for risk and services.

Assembling:
Once, promoter is satisfied with the viability of a project, he starts assembling the
proposition. Assembling means, getting the support and consent of some other person to act as
directors or founders, arranging for patents, a suitable name for the company, machinery and
equipment and making appointments.

Financing the proposition

In order to finance the proposition, the promoter prepares a prospectors to present to
the public and to under writers to proceed to finance the proposition. The promoters also take
steps to incorporate the company to secure the certificate to commence the business.
Promoter
A promoter is a person who does the necessary preliminary work incidental to the
formation of a company. If it is a group of persons, they are called “Promoters”
According justice ‘BOWEN L.J.’ “the term Promoter is a term not of law, but of
business, usefully summing up in a single word a number of business operations familiar to the
commercial world”.

Functions of Promoter:
The important function preformed a promoter may be summarized has followed:
i. Promotion of a Company:
This is the important function. The promoter undertakes the
various process of the promotion such as, the discovery of the business proposition, detail
investigation of the proposition, financing the financing the business proposition etc.
ii. Incorporation of the Company:
The promoter takes the responsibility of incorporation the
company. He prepare necessary document such as Memorandum of Association, Article of
Association, etc submit them to register of the company and get the company incorporation.
iii. Raising Capital:
In case of a public ltd company, the promoters undertake the
function of raising capital required for business and obtain the business commencement
certificate.
iv. Others:
A company also decides about the following:
Name of the company, location of its register office, amount and form of
it capital, auditors and legal advisors.

Duties and responsibilities of Promoters:

A promoter stands in apposition requiring trust and confidence. In his

fiduciary position the promotion has the following obligation:
i. The promoter must not make, either directly or indirectly, any profit at the
expense of the company.
ii. The promoter must make full disclosure of all the relevant facts relating to
the promotion of the company.
 iii. If a promoter sells his property to the company, he must disclose his interest
in the property to the Board of Directors, so as to enable the board to form
an independent judgment of the deal.
iv. A promoter should not make an unfair or unreasonable use of his position.
He must avoid any thing which has the appearance of undue influence or
fraud.

Rights of Promoters:

A promoter enjoys the following right subject to the fulfillment of the

requirement conditions.
i. A promoter is entitled to claim remuneration for the services rendered by
him to the company in the course of its formation, provided there is a
contract to that effect. In the absence of such a contract, the promoter is not
entitled to claim remuneration for his service. The remuneration may be in
the form of cash or shares and debentures of the company or partly in cash
and partly in shares.
ii. A promoter is also entitled to get reimbursement in respect of the expenses
incurred by him in the floating of the company. Such as cost of advertising,
brokerage, etc. In the absence an expenses contract, he can not claim the
expenses. However, in actual practice, he is reimbursed the legitimate
expenses incurred by him in the formation of a company, whether there is an
agreement or not.
iii. If one of the promoter is used and damages are recovered from him by the
third party or the company, the promoter who has paid the entitle damages
can claim ratable contribution from the co-promoters.

Incorporation Of A Company:

Incorporation or Registration is the second stage in the formation of a company.

It is affected by registering the company with the Registrar of companies.

Mode of forming an incorporated company

Any 7 or more persons (2 or more persons in a private company) association for
any lawful purpose may form an Incorporated Company with or without limited liability. They
shall subscribe their names to a Memorandum of Association, and also comply with other
formalities in respect of registration. A company so formed may be:
 A company limited by shares or
 A company limited by Guarantee or
 An unlimited company
Companies limited by shares are the most popular and we are concerned with
such a company.

Certificate of Incorporation

When the requisite document are filed with the registrar shall satisfy himself
that the statutory requirement regarding registration have been compiled with. While doing so,
the registrar is not required to carry out any investigation. If the registrar is satisfied as to the
compliance (fulfillment) of the statutory requirements, he retains and registers the
Memorandum, the Articles and other documents filed with him and issues a certificate of
incorporation, i.e. formation of the company. By issuing the certificate of incorporation, the
registrar certifies under his hand that the company is incorporated is conclusive evidence that all
the requirement of the companies act have been compiled-with in respect of registration. This is
known as Rule in “Peel’s case”
When a company is registered and certificate of incorporation is issued by the
registrar three important consequences follow:
 The company becomes a distinct legal entity
 The company acquires a perpetual succession.
 The property of the company is not the property of the share holders.
A private ltd company can commence business immediately after its incorporation.
A public company has to obtain the certificate to commence.

Capital subscription
A public company having share capital is required to raise the needed capital from
the public and obtain another certificate known as the certificate to commence business or
trading certificate or business commencement certificate.
During the capital subscription stage, the following arrangements are generally
made:
i. Convening the first board meeting:
Immediately after the incorporation of the company, a meeting of
the Board of Directors is convened. At the first board meeting the following
business are transacted
  Appointment of the regular secretary of the company.
 Appointment of bankers, auditors, solicitors, brokers, etc.
 Ratification or adoption of preliminary or precorporation contract
 Approval of listing of shares of the company is a recognized stock
exchange and
 Adoption of underwriting agreement.
ii. Filing of a copy of the prospectors or statement in liev of prospectors with the
Registrar of companies.
iii. Issue of prospectors to the public and calling of application of shares.
iv. Allotment of shares.

Commencement of Business:
A public company to commence its business has to obtain a certificate called
‘commencement of business certificate’. In order to obtain this certificate, the following
formalities will have to be complied with:
a) An application must be made to the Registrar of companies for issuance
of such a certificate.
b) Along with the application, the following declaration and documents will
have to be submitted.
 The declaration that the company has received from the public,
subscription for an amount not less than the minimum subscription
mentioned in the prospectors.
 The declarations that the directors have taken up their qualification
share and pay in cash the application and allotment money.
 The statutory declaration (called the declaration of compliance)
sign by the secretary or any one of the directors of the company
stating that the requirements of the companies act in respect of
commencement of business have been complied with.
c) Pay the required registration fee.
d) The registrar of companies after satisfying himself that the requirement
under the companies act in respect of commencement of business have
been complied with, will issue the business commencement certificate.
The commencement of business certificate is the conclusive proof that
the company is entitle to commence the business.

Memorandum Of Association:
 The MOA is a document of great important in relation to a company. It
is often described has the charter or the constitution of the company, defining as well as
confining the powers of the company. Any act do beyond the scope of MOA Ultra Vires the
company and hence Null and Void. It purpose is to enable the share holders, creditors as well as
those who deal with the company to know the permitted range of activities of the company.

Conditions:
The MOA should follow the conditions given below:
i. Very Memorandum should be printed electronically or otherwise has
may be prescribed
ii. Divide it into paragraphs and numbered sequentially &
iii. Signed by each subscriber in the presence of at least one witness who
shall attest the signature and also add his address, description and
occupation.
Clauses:
Sec 13 of the companies act prescribes that MOA of a ltd company should have
essentially the following 6 clauses. They are:
1) The Name Clause
2) The Register Office or Domicile or Situation Clause
3) The Object Clause
4) The Capital Clause
5) The Liability Clause &
6) The Association or Subscription Clause

The Name Clause

The name of a company establishes the identify and is the symbol of its
existence. A company may, subject to the following rules, select any suitable name:
 Undesirable name to be avoided broadly speaking a name is undesirable if it
is too similar to the name of any other company or misleading.
 If a company gets registered a name which resembles the name of a existing
company, the other company with whom the name resembles can apply to the
court for a injunction to restrain the new company from adopting the identical
name.
 The MOA shall state the name of the company ‘with limited’ as last word of
the name in the case of a public ltd company and with ‘private ltd’ as the last
words in case of a private ltd company.
 The company can not use certain names and emblems such as UNO, WHO,
UNESCO, the Indian National Flag, Government of India and State
 Government are the official seal of the President of India or the Governor of
any state.
 If a company use any of the following words in its name it must have a
minimum authorized capital such as:
Name Minimum Authorized
Capital
->Corporation Rs 5 crore
->International, Global, Universal, Rs 1 crore
Continental, Intercontinental etc as
the first word
->Hindustan, India, Bharath being the Rs 50 lakh
first word of the name
->Industries or Udhyog Rs 1 crore
->Enterprise, Products, Business, Rs 10 lakh
Manufacturing.

The Register Office Clause:

This is also known ‘Domicile Clause’ or ‘Situation Clause’. This class should
state the name of the state in which the registered office of the company will be situated. Under
sec 146 a company shall, as from the date on which it begins its business or has from the 30th
day after the date of its incorporation, whichever is earlier, have a registered office. A notice of
the exact place of the registered office must be given to the Registrar within 30days after the
date of its incorporation.
In case, of shifting of its registered office, the Company Act provide for the
following:
i. Shifting from place to within the same city or town or village. This
can be done through a board resolution
ii. Shifting registered office from one city to another within the same
state. For this a special resolution by the board has to be passed.
iii. Shifting of a registered office from one state to another. This is a more
complicated affair, has it involves alteration of the Memorandum of
Association provisions of sec 17 has to be satisfied so has to justify
shifting from state to another. The alteration of the MOA may be
made by a special resolution subject to the conformation of the Union
Government.

The Object Clause:

 The third clause of the Memorandum states the object of the proposed
company. The company carries a business with other people’s money and therefore invertors
must be informed on the objects in which their money is going to be employed.
The object clause has to be divided to two sub-clauses (sec13). They are
i. Main Objects & ii. Other objects

Main Objects:
This sub-clause states the main objects to the pursued by the company or by its
incorporation and it objects incidental or ancillary to the attainment of the main objects
Other Objects:
This sub-clause may state any other objects which are not included in the first sub-
clause. However, it can not pursue subsidiary or other objects after the main object has ended.

Capital clause
The capital clause states the amount of capital with which the company is
proposed to be registered and the kinds, number and value of shares into which the capital is to
be divided. The capital with which a company is registered is called ‘Registered’ ‘Authorized’
‘Nominal Capital’. A company can not issue more shares than authorized for the time being by
the Memorandum.

The Liability Clause

The liability clause has to state the nature of liability that the members incur.
The clause will state whether the liabilities of the member shall be limited, and if so, whether
limited by share or by guarantee or unlimited.

The Association or Subscription Clause

The Memorandum concludes with the declaration by the subscribers that thief
desire to be form into a company. It runs as follows “we, the several person whose names and
address are subscribed, are desirous of being formed into a company in pursuance of this MOA
and we respectively agree to take the number of shares in the capital of the company set
opposite our respective names”. This is followed by names, address and description of
subscribers and the number of shares taken by each of them. Each subscriber has to take at least
one share.

Alteration of MOA:
Alteration of MOA is not a routine thing. It can be affected only as per the
provision of the Act. The provisions are classified into two types:
 a) Fundamental condition or Compulsory clauses
b) Other clauses such as relating to appointment of Managing Director,
Manager, etc.

Fundamental condition can be altered only in the case of- in the mode and to the
extent for which express provision is made in the Companies Act. The other provisions can be
altered by passing a special resolution:
i. Change of Name:
Under sec 21, a company may change its name at any time by
passing a special resolution and prior approval of central government. But,
a change of name which minor involve deletion or addition of word
‘Private’ on the conversion of on the public company to private company
or vise versa, does not require the approval of the central government.
ii. Change of Registered office:
This involves the change of the Domicile or Situation clauses.
Shifting of registered office from one state to another may affects not only
the shareholder of the company, but also its creditors, dealers and
employees. Under sec17 (1) of the Companies Act, a change in the
registered office clauses is permitted only under certain circumstances.
The change of registered office of a company can be considered under 3
heads:
1. Change of registered office of a company from one locality
to another in the same town, city or village:
 Pass a resolution that the Board meeting
 Give a notice of change of location to the registrar of
company within 30 days of shifting of office.
 Issue a public notice of the change of location.
2. Change of registered office of a company from one city,
town or village to another city, town or village in the same state.
 Pass a special resolution at the extra ordinary meeting of the
shareholders
 File a copy of the special resolution with the registrar of the
company.
 Give a notice of the change of location (with the new
address of the registered office) within 30 days of shifting.
3. Change of registered office of company from one state to
another.
 Pass a special resolution at extra ordinary general meeting of
the company.
  Obtain the sanction of the Company Law Board for the
change. The Company law Board before giving its consent,
examine is need for such a shift in the registered office.
 A copy of the special resolution passed at the extra ordinary
general meeting must be filed with the registrar within 30
days of passing the special resolution.
 File the conformation of the company law board with the
registrars of both the states.
 File the altered copies of MOA and AOA with the registrar
of both the states.
 Obtain a certificate of registration of the transfer from the
registrar of both the state.
 Then, give a notice of the location of the new office to the
registrar of the state which registered office is shifting
within 30 days of the transfer.
iii. Alteration of the Object clauses:
The object clause is the most important clauses in the MOA. A
legal personality of a company exists only for the particular purpose of
incorporation. As defined in the object clause under sec17 (i) of the
companies act 1956, the object clause of MOA can be altered only the
following purpose:
 To carry its business more economically or efficiently
 Attain the main purpose by new or improved means
 To carry on some business which comes under existing
circumstances can be conveniently or advantageously
combined with the present business of the company.
 To restrict or abandon any of the objects specified under
the object clause of the MOA.
 To sale or dispose of the whole or any part of the under
taking of the company &
 To amalgamate the company with any other company or
body of persons.

iv. Alteration of Capital clause:

This clause states the amount of the nominal capital of the
company and the number and the value of the shares into which it is
divided. The procedure for alteration of capital is provided in AOA. when
so authorised by the articles, a company may, in a general meeting, alter
its capital for the following purpose:
 For increasing the capital
  For reorganization of the capital
 For the reduction of the capital

As per sec 94 of the act, a company by shares or guarantee by

its AOA, may alter the share capital in any of the following:
 Increase its share capital by issue of new share.
 Consolidate its share capital and dividend into shares of a larger
amount than the existing amount. i.e. ten shares of Rs. 10 each
consolidated into one share of Rs.100.
 Conversion share into stock and vies versa.
 Subdivides its shares into smaller amount. i.e. a share of Rs100
is divided into 10 share of Rs. 10 each.
 Cancel the shares which have not been taken.

v. Alteration of Liability clause:

A company limited by shares or guarantee cannot change its
MOA so as to improve any additional liability on the member of on
compel them to buy additional shares of the company, unless all the
members agree in writing to such a change either before or after the
change.
The liability clause can be altered by passing a special resolution
to make the liability of the directors, managing director or manager of the
company unlimited, if it is authorised by the AOA of the company. The
officers are concern should give his concert to the liability becoming
unlimited. But, such an alternation to change will become effective only
from the date of passing of the resolution.

Articles Of Association
AOA are just articles, is the second important document. The Articles of a
Company are the rules, regulation and byelaws for the Internal Management of the affairs of a
company. They are framed in order to carry out the aims and objects set out in the MOA.
AOA defines the power of its officers and so establishes a contract between the company and
the members and between the members ‘inter se’.
 The Article play a subsidiary part to the MOA and AOA must be read together.
Any ambiguous and uncertainty in one of them may be removed by referring to the other.

Content of AOA:
Very articles of a company defers for each other. However, usually the
article containing provision relating to the following matter:
1) Share capital, rights of shareholders, variation of those rights, payment of
commission and share certificate.
2) Lien on share.
3) Calls of shares
4) Transfer of share
5) Transmissions of share
6) Forfeiture of share
7) Conversion of share in to stock
8) Share warrants
9) Alteration of capital
10) General meeting and proceeding there by
11) Voting rights of members, voting and pole, proxies
12) Directors their appointment, remuneration, qualification, power and
proceedings of board of directors.
13) Secretary
14) Dividend and Reserves
15) Capitalization of profit
16) Winding up

The following type of companies shall have their own Article, they are:
 Unlimited Companies
 Companies limited by guarantee and
 Private Companies limited by shares

The Article shall be signed by the subscribers of the Memorandum.

Alteration of Article Of Association

As per the sec 31 of the Companies Act 1956, a company can alter its Articles as
often as required. A company has been given very wide powers to alter their Article. A company
has to flow some procedure i.e. by passing a special resolution, alter its Articles any time.