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Unit 6: Articles of Association

6.5 Alteration of Articles Notes

Section 31 provides that subject to the provisions of the Act and to the conditions contained in its
memorandum, a company may, by special resolution alter or add to its articles. A printed or
type written copy of every special resolution altering the articles must be filed with the Registrar
within 30 days of the passing of the special resolution.
The right to alter just by passing special resolution is so important that a company cannot in any
manner deprive itself of the power to alter its articles. Also, the power to reduce or increase the
number of members in the case of a company limited by guarantee without share capital, from
time to time, as given in the articles can be done by a special resolution of the general body of
members. However, in spite of the power to alter its articles, a company can exercise this power
subject to certain limitations.

Limitations on Power to alter Articles and these are:
The alteration must not exceed the powers given by the memorandum or conflict with the
other provisions of the memorandum.

The alteration must not be inconsistent with any provision of the Companies Act or any
other statute. For example, no company can purchase its own shares (s.77) and if the
articles of a company are altered so as to have the power to purchase its own shares, then
such power will be void.
The altered articles must not include anything which is illegal, or opposed to public policy
or unlawful.
The alteration must be bona fide for the benefit of the company as a whole. The alteration
will not, however, be bad merely because it inflicts hardship on an individual shareholder.

Example: (i) A company had a lien on all shares “not fully paid” for calls due to the
company. There was only one shareholder A, who owned fully paid-up shares. He also held
partly-paid shares in the company. A died. The company altered its articles striking out the
words “not fully paid up” and thus, gave itself a lien on all shares – whether fully paid up or not.
The legal representative of A challenged the alteration on the ground that the alteration had
retrospective effect.
Held: The alteration was good, as it was done bona fide for the benefit of the company as a
whole, even though the alteration had a retrospective effect [Allen v. Gold Reefs of West Africa
Ltd. (1900) 1 Ch. 656].
(ii) By an alteration in the articles, a company was empowered to expropriate shares held by any
member who was in business in competition with the company. At the time of alteration, there
was only one member doing business in competition with the company. He challenged the
alteration.
Held: The alteration was valid, although only one member was at that time within the ambit of
alteration, as the alteration was bona fide and for the benefit of the company [Sidebottom v.
Kershaw Leese & Co. (1920) Ch. 154 (C.A.)].
The alteration must not constitute a fraud on the minority by the majority. If the alteration
is not for the benefit of the company as a whole, but for majority of the shareholders, then
the alteration would be bad. In other words, an alteration to the articles must not
discriminate between the majority shareholders and the minority shareholders so as to
give the former an advantage of which the latter have been deprived.

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