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IAI Actuarial Core Principles · Business Management · Separate legal personality, directors' duties, shareholders and partnerships

Dev, a shareholder in Kaveri Engineering Ltd, discovers that the directors have been acting within their powers but the company's constitution requires a special resolution to alter the articles. The majority passes an amendment to the articles that removes Dev's right to pre-emption on share transfers. Which general principle governs whether the alteration is valid?

An alteration of the articles is valid if made by the required special resolution, in good faith for the benefit of the company as a whole, and in compliance with the statute. Minority objection alone does not invalidate it.

  1. AAlterations are always void if any minority shareholder objects
  2. BAlterations must be made bona fide for the benefit of the company as a whole and follow the statutory procedureCorrect
  3. CAlterations need the consent of the Registrar of Companies alone
  4. DAlterations are valid only if they increase dividends
  5. Alterations can only be made by the directors without shareholder voting

Explanation

Articles can be altered by special resolution, but the power must be exercised bona fide for the benefit of the company as a whole and within the statute. A single objecting minority holder cannot veto this. Directors alone cannot alter articles, and dividend increase is not the test.

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