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CA Foundation · Business Laws · The Companies Act, 2013

Neha Pvt Ltd's articles were altered by a special resolution to require any member holding shares to sell them to other members if the member competes with the company. Rohit, a member, challenges the alteration, saying it hurts his interests. The alteration was passed bona fide for the benefit of the company as a whole. What is the likely outcome?

The alteration is likely valid. Articles can be changed by special resolution if the change is bona fide for the benefit of the company as a whole and does not conflict with the Act or memorandum. Rohit has no individual veto, and his consent is not required.

  1. AThe alteration is invalid because any member can veto changes to the articles
  2. BThe alteration is invalid because articles can never impose obligations on existing members
  3. CThe alteration is valid because it was made bona fide for the benefit of the company as a wholeCorrect
  4. DThe alteration is invalid unless Rohit consents in writing

Explanation

Articles may be altered by special resolution so long as the alteration is bona fide for the benefit of the company as a whole, is not contrary to the Act or memorandum, and does not defraud the minority. An individual member has no veto, and consent is not needed. The test of good faith is satisfied here, so the alteration stands.

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