Section 5 of CA 2013 : Section 5: Articles

Explanation using Example

Imagine a group of entrepreneurs are setting up a tech startup, 'InnovateX'. They are in the process of registering their company under the Companies Act, 2013. They draft their company's articles of association, which detail how InnovateX will be run, covering aspects such as the appointment of directors, the conduct of board meetings, and the issuance of shares.

While drafting the articles, they decide to include a provision (entrenchment clause) that requires a higher threshold for altering certain clauses of the articles, such as those related to the sale of the company. They agree that these clauses can only be changed with a 90% majority vote among shareholders, instead of the usual 75% required for a special resolution.

Since InnovateX is a private company, all members agree to this entrenchment provision upon formation. They ensure that notice of this entrenchment is given to the Registrar of Companies, as required under the Act.

Additionally, InnovateX adopts some of the model articles provided in Schedule I of the Act, which are applicable to their company type, to ensure they are in compliance with standard legal practices.

This example showcases how Section 5 of the Companies Act, 2013, is used in the real-world scenario of setting up a company's governance structure.