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Provisions for Entrenchment | Company Law - CLAT PG PDF Download
Entrenchment in the Companies Act, 2013
Entrenchment, as introduced in the Companies Act, 2013 under Section 5(3), refers to certain provisions in the Articles of Association that cannot be changed easily through a special resolution. The concept of entrenchment is about making certain rules so firmly established that altering them becomes difficult.
Definition of Entrenchment
- The term "entrench" means to set an attitude or belief so firmly that change is unlikely. In this context, an entrenchment clause in the Articles makes certain amendments challenging or impossible.
Question for Provisions for EntrenchmentTry yourself: What does the term "entrench" mean in the context of the Companies Act, 2013?View Solution
Introduction of Entrenchment Provisions
- Entrenchment provisions can only be included in a company's articles during the incorporation process.
- Alternatively, they can be added through a special resolution in the case of a public company.
- For a private company, all members must agree to the entrenchment provisions.
The document Provisions for Entrenchment | Company Law - CLAT PG is a part of the CLAT PG Course Company Law.
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FAQs on Provisions for Entrenchment - Company Law - CLAT PG
| 1. What is the concept of entrenchment in the Companies Act, 2013? |  |
Ans. Entrenchment in the Companies Act, 2013 refers to provisions within a company's articles of association that make it difficult to amend certain rules or rights. These provisions ensure that specific decisions or rights, particularly those that protect minority shareholders or maintain the structure of the company, cannot be changed without a higher threshold of approval, thus providing stability and protection against abrupt changes.
| 2. How are entrenchment provisions introduced in a company’s articles under the Companies Act, 2013? | |
Ans. Entrenchment provisions can be introduced in a company's articles of association by including specific clauses that require a higher voting majority for amendments. This can be done at the time of incorporation or through a special resolution in an extraordinary general meeting, ensuring that any change to these provisions is safeguarded against arbitrary decisions.
| 3. What are the advantages of having entrenchment provisions in a company? | |
Ans. The advantages of entrenchment provisions include enhanced protection for minority shareholders, increased stability in governance, and prevention of hostile takeovers. These provisions can help maintain the original vision of the founders and ensure that critical decisions cannot be easily overturned, thus fostering a sense of security among stakeholders.
| 4. Are there any limitations to entrenchment provisions in the Companies Act, 2013? | |
Ans. Yes, there are limitations to entrenchment provisions. While they provide protection, they cannot be used to contravene the fundamental rights under the Companies Act or to act against public interest. Additionally, entrenchment provisions themselves can be amended, but such amendments require a higher threshold of approval, making them less flexible.
| 5. What role do entrenchment provisions play in corporate governance? | |
Ans. Entrenchment provisions play a significant role in corporate governance by ensuring that essential rights and governance structures are not easily altered. They promote accountability and protect the interests of shareholders, particularly minority shareholders, by requiring a stronger consensus for any major changes, thus contributing to more stable and responsible corporate management.
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Nov 23, 2024 Last updated |
Document Description: Provisions for Entrenchment for CLAT PG 2024 is part of Company Law preparation.
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