Strategic Management and Corporate Finance · Raising of Funds from Equity and Procedural Aspects - Public Funding

Articles of Association and Public Issue Provisions for Shares

Updated 11 October 2026 · Fact-checked

The articles of association are the company's internal rulebook. A public issue of shares needs the Act's conditions to be met and must not be prohibited by the articles. A producer company is different: Section 378C says it can never become a public company, and Section 378G sets what its articles must contain.

Understand Articles of Association and Public Issue Provisions

The articles of association (AoA) are the rules that govern how a company runs its internal affairs. They cover share capital, calls, transfer, meetings, directors and more. The memorandum states what the company is. The articles state how it works.

When a company issues shares, two things must be satisfied. First, the law must permit the issue. Second, the articles must not prohibit it. If the articles are silent, the Act's default position applies. The articles may add stricter conditions, and you must follow them. But the articles cannot go against the mandatory provisions of the Act. If they conflict with the Act, the Act prevails and that part of the articles is ineffective. Where the Act itself says 'unless the articles otherwise provide', the articles can vary that default.

Take a further issue of shares. Section 62 deals with further issue of share capital. It is not the section on public offers. It requires a company with share capital that wants to increase its subscribed capital to offer the new shares in one of three ways: (a) to existing equity holders in proportion to their paid-up capital (a rights offer), (b) to employees under an employees' stock option scheme, subject to a special resolution and prescribed conditions, or (c) to any persons if authorised by a special resolution, where the price is fixed by a registered valuer's report.

In a rights offer, the offer notice must say how many shares are offered and give a time of not less than fifteen days (or such lesser number of days as may be prescribed) and not more than thirty days to accept. Unless the articles provide otherwise, the offer includes a right to renounce the shares in favour of another person, and the notice must state this right. So the articles can switch off renunciation. After the period ends, or on earlier refusal, the Board may dispose of the shares in a manner not disadvantageous to the shareholders and the company.

Producer companies have special rules. Section 378G(1) requires the memorandum and the articles, duly signed by the subscribers, to be presented for registration to the Registrar of the State where the registered office is situated. The articles must contain the mutual assistance principles and a list of specified provisions.

The status of a producer company comes from a different section. Under Section 378C(5), on registration it becomes a body corporate as if it were a private limited company, with no limit on members, and it can never become or be deemed to become a public limited company. This matters for any question on public funding.

Key rules to remember

Rights offer period (Section 62(1)(a)(i)): Offer open for ≥ 15 days (or such lesser number of days as may be prescribed) and ≤ 30 days; If not accepted within the time, the offer is deemed declined.
Renunciation (Section 62(1)(a)(ii)): Right to renounce is deemed included unless the articles otherwise provide; The notice must state this right.
Dispatch of offer notice (Section 62(2)): Notice sent to all existing shareholders at least 3 days before the issue opens, by registered post, speed post, electronic mode, courier or any other mode having proof of delivery; Section 62(2) allows any of these modes. The proof-of-delivery requirement attaches to 'any other mode'.
Other routes under Section 62(1): Employees: ESOP with special resolution | Any persons: special resolution + registered valuer's price; Clause (c) covers cash or consideration other than cash.
Producer company formation (Section 378C): ≥ 10 individual producers, or ≥ 2 Producer Institutions, or a combination of ≥ 10 individuals and Producer Institutions; Registrar registers within 30 days of receiving the documents. Liability is limited by shares.
Producer company status (Section 378C(5)): Treated as a private company, with no limit on members, and never a public company; The Act says it shall not, under any circumstance, become or be deemed to become a public limited company.
Mutual assistance principles (Section 378G(2)): Voluntary membership | One member, one vote | Board accountable to members | Limited return on share capital | Equitable distribution of surplus | Education of members | Cooperation with other producer companies; These seven must appear in the articles.
General meeting after registration (Section 378G(3)(o)): Memorandum and articles laid before a special general meeting within 90 days of registration; Articles must provide for this.

How to solve Articles of Association and Public Issue Provisions questions

Use this method for any case on articles and issue of shares. Always link the facts to the Act, then to the articles.

1Identify the type of company: public, private or producer company. This decides what is allowed.
2Identify the kind of issue: rights, employees' ESOP, or to any persons. Name the matching limb of Section 62(1).
3Check what the Act requires: special resolution, valuer's report, notice period and dispatch mode.
4Check the articles. Do they authorise the issue, restrict it, or exclude renunciation? Say what happens if they are silent.
5Apply the facts. Test each condition, such as days given and resolution type, and note any gap.
6If a producer company is involved, test against Sections 378C and 378G: private status, single vote, and required articles contents.
7Conclude clearly: valid or not, and the corrective step, such as altering the articles by special resolution or re-issuing the notice.

Quickest way: Four-line answer frame

When to use it: Use when time is short and the question asks whether an issue is valid.

Line 1: state the rule from Section 62 or 378G in one sentence.
Line 2: say the articles must permit it and cannot override the Act.
Line 3: apply the facts, comparing days, resolution and mode of notice.
Line 4: conclude and give the fix.

Common mistakes in Articles of Association and Public Issue Provisions

Saying the articles can override the Companies Act.
Students think the articles are the final authority inside the company.
Fix: State that any clause conflicting with the Act is void to that extent. The articles can vary a rule only where the Act allows it, as in 'unless the articles otherwise provide'. They may also add stricter conditions.
Stating the rights offer period as exactly 15 days or 30 days.
Students memorise one number.
Fix: Write the range: not less than 15 days (or such lesser number as may be prescribed) and not more than 30 days.
Assuming renunciation is always allowed.
The rule is remembered without its condition.
Fix: Write 'unless the articles otherwise provide'. Check the articles first.
Treating a producer company as eligible for a public issue.
It has no limit on members, so students assume it is public.
Fix: Quote Section 378C(5): it is treated as a private company and can never become or be deemed a public company.
Listing only a few contents of Section 378G.
The section is long and students recall only voting.
Fix: Group it as mutual assistance principles in sub-section (2) and detailed provisions in sub-section (3).
Skipping the valuer's report for issues to any persons.
Students focus on the special resolution alone.
Fix: Under Section 62(1)(c), the price must be fixed by a registered valuer's report along with the special resolution.

Worked examples

Example 1

Sundaram Textiles Ltd wants to issue further equity shares. The Board sends a rights offer notice to shareholders by speed post two days before the issue opens, giving 20 days to accept. The articles are silent on renunciation. Advise on the validity of the notice and on renunciation.

Show the solution

The issue is a rights offer under Section 62(1)(a).
Acceptance period: 20 days lies between the minimum of 15 days (or such lesser number as may be prescribed) and the maximum of 30 days, so it is valid.
Dispatch: Section 62(2) requires the notice to be sent at least three days before the issue opens. Two days is short by one day, so the notice is defective.
Renunciation: the articles are silent, so the offer is deemed to include a right to renounce, and the notice must state this right.
Fix: re-send the notice at least three days before opening, and include the statement of the right to renounce.

Answer: The 20-day period is valid, but the notice was sent only two days before opening, against the three days required, so it is defective. Shareholders have a right to renounce because the articles are silent, and the notice must say so. The company should re-issue the notice in compliance.

Example 2

Kisan Mitra Producer Company Ltd plans an initial public offer to raise funds from the public. Its promoters say the articles can be altered to permit this. Advise.

Show the solution

Check the status: a producer company is formed under Section 378C and, on registration, becomes a body corporate as if it were a private limited company, with no limit on members.
Section 378C(5) says it shall not, under any circumstance, become or be deemed to become a public limited company.
Articles are bound by this rule. Under Section 378G, they must contain the mutual assistance principles and the listed provisions. Altering them cannot override the Act.
Conclusion: the plan to make a public offer as a public company cannot proceed.
Related point: Section 378G(3)(i) and (f) do not give an alternative public-funding route. They only require the articles to prescribe the basis and manner of allotting equity shares in lieu of the sale proceeds of members' produce, and the manner of paying patronage bonus in cash or by issue of equity shares, or both. Check that the articles contain these provisions.

Answer: The producer company cannot make a public offer by becoming a public company, because Section 378C(5) forbids it, and no alteration of the articles can change this. Separately, Section 378G(3)(i) and (f) require its articles to prescribe the basis for allotting shares against sale proceeds and for paying patronage bonus in cash or shares. These are content requirements for the articles, not a substitute public-funding route.

Exam tips

Write the section number with the rule, for example Section 62(1)(a), but only where you are sure of it.
Use the provision, analysis, conclusion layout. Examiners reward the link between the facts and the article or section.
Always mention 'unless the articles otherwise provide' when you discuss renunciation.
For producer companies, learn the seven mutual assistance principles as a list and the status rule in Section 378C(5).
Close each answer with a practical step, such as alter the articles by special resolution or re-dispatch the notice.

Practice questions from Raising of Funds from Equity and Procedural Aspects - Public Funding

Articles of Association and Public Issue Provisions in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Articles of Association and Public Issue Provisions: frequently asked questions

Can a company issue shares to the public without authority in its articles?

It can do so only if the Act's conditions for the issue are met and the articles do not prohibit it. Where the articles are silent, the Act's default position applies. Where they conflict with the Act, the Act prevails. Note that Section 62 deals with further issue of shares, not with public offer provisions.

What does Section 378G of the Companies Act, 2013 deal with?

It deals with the articles of a producer company. The articles must be presented to the Registrar along with the memorandum. They must contain the mutual assistance principles and specified provisions, such as voting, board constitution, patronage bonus and dissolution.

Can a producer company become a public company?

No. Section 378C(5) says a producer company is treated as a private limited company without any limit on members. It can never become or be deemed to become a public limited company.

Can the articles remove the right to renounce shares in a rights issue?

Yes. Section 62(1)(a)(ii) deems the right to renounce included unless the articles otherwise provide. Where the articles do provide otherwise, the deemed right does not arise, so the statement of the right is not required in the notice.

What is the voting rule for members of a producer company?

Section 378G(2)(b) says each member has only a single vote irrespective of shareholding, save as otherwise provided in the Chapter. This is one of the mutual assistance principles.