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CS Executive · Company Law and Practice · Memorandum and Articles of Association and its Alteration

Rohan Traders Pvt Ltd is a private company. Its members pass a special resolution altering the articles by deleting the clauses that restrict the right to transfer shares, limit the number of members and prohibit invitation to the public to subscribe for securities. What is the effect under section 14(1)?

The company ceases to be a private company from the date of the alteration. The proviso to section 14(1) provides that when the articles no longer contain the mandatory private company restrictions, private status ends from that date, without waiting for any later event.

  1. AThe alteration is void because private company restrictions cannot be removed
  2. BThe company continues as a private company until the Registrar issues a notice
  3. CThe company ceases to be a private company from the date of alterationCorrect
  4. DThe company ceases to be a private company only on the date of a fresh certificate of incorporation

Explanation

The first proviso to section 14(1) says that where a private company alters its articles so that they no longer include the restrictions required for a private company, it ceases to be a private company as from the date of such alteration. No Registrar notice or fresh certificate is the trigger, so the options tying the effect to those events are wrong.

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