In Case of Change of Ownership, the Company Does Not Change the Subscriber’s Details in the MOA and AOA – How Can the Current Promoters Be Identified?

In Case of Change of Ownership, the Company Does Not Change the Subscriber’s Details in the MOA and AOA – How Can the Current Promoters Be Identified?

In a company's life cycle, it is impossible to avoid change. Changes in ownership structure, new and existing investors, realignment of promoter interests and strategic acquisitions will change how control of the business operates, but usually the MOA (Memorandum of Association) and the AOA (Articles of Association) will remain unchanged in relation to these changes. Because of this, most business owners think that when there is a change of ownership, the subscriber details must also be updated in these constitutional documents. However, in most cases, the subscriber details remain unchanged, as they represent the original subscribers at the time of incorporation. Thus, there can be significant confusion about the ownership structure of a company based on these documents. Often stakeholders, investors, bankers, regulators and even employees will look to these documents to determine the ownership structure of the company. Therefore, the question arises, if the subscriber information in the MoA and AoA has not been changed as a result of a change in ownership, how do you know who the current promoters are? This is critical because it has implications for compliance, governance, due diligence, mergers/acquisitions and the investment decision process. Many companies wrongly assume that by virtue of a change in ownership that the MoA and AoA need to reflect those changes. Shareholding records and written records of the Company’s increase in capital typically provide evidence of ownership transfer rather than the subscriber clause located in the Company’s Memorandum of Association. This guide aims to clarify any misunderstandings regarding changes to the Memorandum and Articles of Association with regards to owners, explain the procedures for amending the Memorandum and Articles of Association in India, and discuss how present promoters can be confirmed when subscriber information does not change. We will also look at the circumstances under which it is necessary to amend the Memorandum of Association or Articles of Association of Companies in India, and what type of structure would help assist the Company in achieving compliance within India through a change MOA or AOA of Company service.

Understanding MOA and AOA: The Foundation of a Company

Before discussing the changes in ownership, it is essential to highlight the meaning of Memorandum of Association and Articles of Association in the governance of companies.

All companies registered under the Companies Act, 2013 located in India must prepare and file two documents:

1. Memorandum of Association (MOA)—this document states the objectives and scope of the company and its powers;

2. Articles of Association (AOA)—this document governs the internal operations and rules of management of the company.

When a company is formed, the Memorandum of Association (MOA) contains the names of the original subscribers (i.e., those who formed the company). These individuals agree to take a defined number of shares in the company and to create the company.

However, the key issue here is as follows:

The names of subscribers to the MOA are only a record of the original subscribers. The MOA does not automatically update when there is a change in the ownership of the company.

Why Subscriber Details Remain Unchanged After Ownership Transfer

Numerous business leaders think that the memorandum and articles of association will automatically be updated whenever somebody else has purchased shareholdings (transfers) or when one of the company’s promoters has changed. This is not true in law.

Some key reasons for this belief include;

1.MOA Subscriber Clause Is Static

Subscriber clause contained in the MoA reflects who the subscriber (those who accepted shares) to the MoA was when incorporation took place and not how many shareholdings have changed after that initial incorporation. The subscriber clause is, therefore, not able to reflect on-going shareholder changes.

2. Shareholder changes are documented elsewhere.

Shareholding changes are recorded in:

• Register of Members;

• Annual Return(s) (MGT-7);

• Share Transfer Form(s) (SH-4);

• ROC returns

3.Promoter Identification Is Separate from Subscriber Status

The definition of "promoter" as defined by the Companies Act, 2013 is a far more extensive definition than being simply a subscriber of shares in the MoA and includes all persons who:

• Control the corporation

• Provide direction to the board of directors

• Named as a promoter by the corporation in statutory filings

Consequently, even though the MoA and AoA may not be revised to reflect the shareholder changes (subscribers) that have occurred since incorporation, the current 'promoter' designations of the company can still be determined.

Practical Scenarios Where This Issue Arises

Situations like this arise in:

• Starting Funding Rounds

• Transfer of Family Owned Business Interests

• Merging or Acquiring Other Companies

• Restructuring – Internal

• Investing with Private Equity Firms

• Buying out Original Founders

A private limited company incorporated in 2015, original subscribers could have exited completely from the company as of 2024, however, unless provided for otherwise in the MOA they would still be named there and would no longer be considered to be promoters or shareholders.

How to Identify Current Promoters Despite Unchanged MOA

Even though the current promoters may not show up in the MOA, there are a variety of official methods for identifying current promoters.

1.The MCA files and Annual Returns

The MCA’s public records are maintained by the Ministry of Corporate Affairs (MCA). The Annual Return of the company (Form MGT-7) contains:

• List of shareholders
• Details of the shareholding pattern
• Details of the promoters
• Any changes in directors

This is the best resource for identifying the present-day promoters.

2.The Company Register of Members

Every company is required to maintain a record of its shareholders in the Register of Members in accordance with the Companies Act, 2013. The Register of Members must contain:

• The name of each shareholder,
• The number of shares owned by that individual,
• The date on which that individual became a member, and
• The date on which that individual ceased to be a member.

Generally, present day promoters can be found in the list of major shareholders.

3.Share Transfer Records

Ownership of shares changes when:

• The board passes a resolution,
• The Share Transfer Deed (SH-4) is executed,
• The Register of Members is updated,
• ROC Forms are filed.

These records correctly establish ownership during a share transfer unlike the MOA and AOA that do not require amendments in India.

4. Filings For Beneficial Ownership (BEN-2):

When the promoter is not referenced as a direct shareholder, declarations of beneficial ownership must be filed. These filings serve to identify:

• the individual(s) who have significant control; and
• ultimate beneficial owner’s (UBOs);

 Ascertaining beneficial ownership would be especially relevant in complex corporate entities.

5. Identification Of Directors

Promoters often are also directors of the company. The company’s DIR-12 filings with the MCA provide information about the following:

• the appointment of directors;
• the resignation of directors; and
• any change(s) in directorship;

While not all directors serve as promoters, director/ promoters can be identified using the above referenced filings.

When Are Changes in MoA and AoA Required?

The above statement clarifies that even if the ownership of a company has changed, it does not automatically mean that a new MoA and/or AoA needs to be created. A new MoA and/or AoA would be created only if:

• There is a name change of the Corporation

• The Corporation's registered office is moved to another state

• The object clause has changed

• The share capital structure has changed

• Internal governance rules have been changed

In each of the above situations the process for the creation of the new MoA and/or AoA must be in accordance with the Companies Act 2013.

Changes in MoA and AoA Process in India

There are legal steps to follow when making changes to both the MOA & AOA of the Company. The following are the steps required:

Step 1- A Board Meeting 

The Board meets to approve the proposed changes to the MoA/AoA and will schedule a General Meeting of the Members of the Company.

Step 2- Passing the Special Resolution

A Special Resolution will need to be passed by at least 75% of the votes taken at the General Meeting.

Step 3- Filing with the ROC

The Company will file Form MGT-14 along with the following supporting documents with the Registrar of Companies within 30 days of passing the Special Resolution:

• A certified copy of the Special Resolution
• The updated version of the MOA/AOA
• An explanatory statement detailing the reason for the amendments.

Step 4- ROC's Approval (if required) 

In some circumstances, such as if the Company has changed its registered office from one state to another, the Regional Director's approval is required to make amendments to the MOA/AOA of the Company.

A professional service to assist in making Changes the MOA and AOA of the Company is essential to help ensure compliance with law.

Legal Interpretation: Subscriber vs Promoter

A common misconception is equating subscriber with promoter.

Under the Companies Act, 2013:

• Subscriber: Person who signed the MOA at incorporation.
• Promoter: Person who has control or influence over the company or is named in filings as promoter.

Therefore:

A subscriber may no longer be a promoter.
A promoter may not have been an original subscriber.

This distinction is crucial in ownership identification.

Due Diligence Perspective: What Investors Look At

Investors do not depend only on MOA subscriber information when conducting due diligence; they will also compile:

• M.C.A. Master Data
• Shareholding Pattern
• Cap Tables
• Board Structure
• Shareholder Agreements
• ROC Filings

Based upon what the regulatory filings, and control structure of a given promoter also, the current promoters are known rather than the static subscriber clause.

Should Companies Amend MOA to Reflect New Promoters?

It is not a requirement under law to update subscribers' records. However, a Company may:

• Issue a new consolidated Memorandum of Association (without change to the subscriber clause);

• Amend the Articles of Association provisions concerning management;

• Clearly define promoters' rights in a shareholder’s agreement.

If any changes are required to structural governance, then engaging a professional service provider to amend a Company's Memorandum of Association and Articles of Association in India will assure compliance with current law and provide correct legal principles.

Regulatory Compliance and Transparency

In India, national regulators are placing a greater emphasis on corporate transparency. Among areas of focus, they include:

• Disclosures around Beneficial Ownership

• Compliance with Anti-Money Laundering Laws

• Corporate Governance Standards

• Accountability of Directors

Therefore, the statutory compliance system will allow for the identification of Promoters, even where the subscriber detail remains constant with regard to the Memorandum of Association (MOA).

Common Misconceptions About Changes in MoA and AoA

Misconception 1:

Ownership change requires MOA amendment.
Reality: Share transfer updates shareholding records, not MOA subscriber clause.

Misconception 2:

AOA must be amended when promoter exits.
Reality: Only if governance provisions require modification.

Misconception 3:

Subscriber names reflect current ownership.
Reality: They represent historical incorporation members.

Common Scenarios Where Confusion Arises

Scenario One: A Full Sale of Shares

All of the shares will be sold to new shareholders.

The MOA still shows a listing of the original subscribers.

In reality, your ownership is determined by the Register of Members, not the MOA subscriber listing.

Scenario Two: A Private Equity Investment

A private equity firm purchases a 60% stake.

The MOA has not changed.

The current promoter is the private equity firm and/or the nominees of the private equity firm (depending on the number of shares they own).

Scenario Three: The Sale of a Family Business

The father is selling the shares of his company to his son.

The MOA still has the father as the subscriber for the shares.

The promoter has changed based on the ownership of the shares not the subscriber as originally listed in the MOA.

Risks of Not Properly Recording Ownership Change

Companies that subscribe to MOA must continue to satisfy the following requirements to maintain their current status as subscribers to the MOA:

• The share transfer must be duly stamped

• The Register of Members must be kept up-to-date

• ROC filings completed

• SBO declaration(s) filed

If companies don't comply, they could be subject to:

• Penalties under the Companies Act

• Legal action

• Lack of confidence by Investors

• Regulatory enforcement action

Conclusion

In the business world, documentation is essential in defining authority, ownership and responsibility. It’s important to realize that the subscriber clause in the Memorandum of Association (MOA) is only a historical document, and does not reflect current ownership. There is no effect on the validity of the transfer of ownership if subscriber details have not been updated in the MOA or Articles of Association (AOA), provided that the company has accurately kept its statutory records and filed all required regulatory documents. The true individuals who control a company can be identified through the index of the registrar, the company’s annual returns, the company’s shareholding structure, the beneficial ownership disclosures and the directors’ filings. However, it is imperative that the company maintain proper statutory records so that it can show health and compliance with the correct Changes to the MoA and AoA process in any structural change. Professional Change MOA & AOA of Company service in India for any revision of the MoA and AoA not only gives protection for compliance, but it also creates credibility with investors, enhances long-term viability and provides confidence for future business operations. In a time where the standards of governance are growing and the scrutiny of regulation is increasing; clarity of documentation and proactive compliance are no longer an option but are key elements of good corporate governance.

Frequently Asked Questions (FAQ)

1. Is it mandatory to update subscriber details in MOA after ownership change?

No. Subscriber details represent the original incorporators and are not required to be updated after ownership transfer.

2. How can I identify the current promoters of a company?

You can check MCA filings, annual returns (MGT-7), shareholding patterns, and beneficial ownership declarations.

3. Does share transfer require MOA amendment?

No. Share transfers are recorded in the Register of Members and ROC filings. They do not require Changes in MoA and AoA.

4. When is MOA & AOA amendment in India required?

It is required when changing company name, object clause, share capital, registered office (inter-state), or governance rules.

5. What is the Changes in MoA and AoA process?

It involves passing a special resolution and filing Form MGT-14 with ROC within 30 days.