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1.0. Company Law 1.1.

Background of Company Law The 'Company Law' in Bangladesh is provided and governed by The Companies Act 1994. Before independence of Pakistan, the Indian Companies Act 1913 was the main instrument in this sub continent regarding company business, which passed through major amendments, once in 1936 and then in 1938. Since independence of Pakistan in 1947 changes have been introduced into the Act from time to time not major in nature. After independence, Bangladesh took the Companies Act 1913 as the governing document of company business. Later on in 1994 the Government of Bangladesh enacted a new Act i.e., The Companies Act 1994 and this Act produced extensive changes in the Structure of Company Law, which was existed in that time. At present in Bangladesh, The Companies Act 1994 is the parent instrument of Company Law. 1.2. Objects and Purposes of Company Legislation The Company is a form of business institution in which the funds of a large number of investors are managed by a few persons for the purpose of earning profits, which are shared by all the investors. Following are the main objects and purposes of statutes relating to companies. (1) Encourage investments in companies by providing certain facilities, i.e., limitation of liability, transferability of shares etc. (2) Ensure due and proper administration of the funds and assets of companies in the interest of the investing persons. (3) Present malpractices by directors and managers. (4) Arrange for investigation into the affairs of companies and provide for effective audit in dealing with cases of dishonesty and fraud in the corporate sector. 1.3. Definition of Company The term Company is used to describe an association of a number of persons, formed for some common purpose and registered according to the law relating to companies. It may be also defined as "an artificial person created by law with a perpetual succession and a common seal." In a Company as in a partnership, several persons are associated for the purpose of carrying on business for profit. As soon as formed, a Company becomes a separate legal entity - an artificial person in the eye of law, separate in existence from the people who are its shareholders. A Company may, therefore, be defined as separate legal person brought into existence by registration or incorporation under the Companies Act in pursuance of an agreement made by several individuals to form themselves into a company. 1.4. Types of Companies: Public and Private The Companies Act provides for two types of CompaniesPublic and private. As defined in Section 2(q) of the Act, a Private Company means a Company which by its Articles: (a) restricts the right to transfer the share, if any; and, (b) prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the company; and, (c) limits the number of its members to 50 not including persons who are in the employment of the company. A Public Company means a company incorporated under the Companies Act 1994 or under any Act, repealed thereby, which is not a Private Company.

According to liability companies are classified as Limited liability and Unlimited liability. Limited liability is noted by shares (ex. MIDAS Finance Ltd.) or by guarantee (ex. MIDAS Ltd.). 1.5. Distinction between a Public and a Private Company From an analysis of the respective definition of a Public and a Private Company as also other provisions of the Companies Act, the following points of distinction between the two may be drawn. (i) While a Public Company can have any number of members, a Private Company cannot enroll more than fifty, excluding, of course, its employees. (ii) The Articles of Association of a Private Company must contain restrictions on the rights to transfer shares but the Articles of a Public Company need not have such restrictions. (iii) A Public Company is entitled to invite the public to subscribe for any shares or debentures in the Company but a Private Company cannot issue any such invitation. (iv) Two promoters are sufficient for the formation of a Private Company but a Public Company cannot be formed except by at least seven such promoters. (v) A Public Company must issue prospectus or a statement in lieu of prospectus but a Private Company has no obligation to issue either of them. (vi) A Public Company must hold its statutory meeting, and file its balance sheet with and deliver the statutory report to the Registrar of Joint-Stock Companies. But a Private Company is not required to do any of these things. (vii) A Private Company can commence its business as soon as it is registered or incorporated. But mere incorporation does not empower a Public Company to commence its business. Before proceeding to do so, it must obtain a certificate of commencement from the Registrar. (viii) A Public Company is treated by the Courts as a Company, real and proper, but in the case of a Private Company the tendency of the Court has uniformly been to treat it more or less as a partnership concern and to apply the same principles to its winding up as would entitle a partner to have a firm dissolved. 1.6. Company and Partnership Partnerships and Companies both are the business organizations formed by the association of several persons for the purpose of carrying on business for profit. In spite of this apparent similarity, there are certain important distinctions between the two, such as the following:


A partnership, also called a firm, has no separate legal existence apart from the partners who constitute it. Partners can, therefore, contract only between themselves and cannot contract with the firm. For illustration, X, Y, and Z are partners of the firm; Green & Co. Green & Co. is not a distinct person in the eye of law. Subject to the Partnership Act 1932 X, Y, and Z can make contract and make any agreement between them. But law does not allow any contract to be made between X or Y or Z on the one hand and the firm, Green & Co., on the other, as Green & Co. is not a separate person in the eye of law. A Company is a separate legal entity with an independent existence apart from the shareholders who compose it. Consequently, any shareholder can execute a contract between himself on the one hand and the Company on the other. This is allowed by law because once a Company is formed, it attains the status of an independent person and its personality is quite distinct from the personality of any or all of its members. Once a Company is incorporated, it must be treated like any other independent person, and the motives of those who promoted it are irrelevant. (ii) The share of a partner cannot be transferred without the consent of his co-partners. But the transfer of shares of a Company is not handicapped by any such restriction.

(iii) In the contemplation of law, every partner is the general and accredited agent of the partnership and may, consequently, bind all the other partners by his acts in all matters, which are within the scope and objects of the partnership. But a shareholder of a Company is not an agent of the Company. A Company acts through its directors or managing agents or both. (iv) The liability of each partner for the debts of the firm is unlimited. Under this rule, a creditor of the firm can sue any partner or all the partners jointly for the realization of his claim. But the liability of the shareholders in a Company is generally limited to the extent of their respective shares unless the shareholders choose to form a Company with unlimited liability. (v) Partners are entitled to make any agreement between them regarding the constitution of the partnership or the conduct and management of its business. But the Companies Act disallows certain agreements to be made between the shareholders of a Company, e.g., the Company cannot buy the shares of the members. (vi) In a partnership, unless there is an agreement to the contrary, every partner is entitled by right to participate in the management of the business of the firm. But in a Company, the shareholders cannot, by right, take part in the management of the Company simply because of his membership. The management of the Company is generally carried on by the directors or managing agents or by both. (vii) The object of a partnership can be changed by a simple agreement between the partners. But to change the object of a Company a special procedure has to be followed and the Court's sanction has to be obtained for such change. 2.0. Constitution and Incorporation 2.1. Stages in the formation of a Company There are several stages in the formation of a Company. These are: 1. A few people known as promoters get together to bring it into existence, for the purpose of carrying on a Joint-Stock business. 2. The promoters, having decided to form a Company, must fix up five things: a. objects or purposes to achieve which the Company is to be formed; b. the name of the Company; c. The place where the business of the Company is to be carried on; d. how far each member undertakes to be responsible for the liabilities of the Company and e. the amount of capital necessary for the business to be carried on successfully. The decisions of the promoters on these five points are recorded in a document called the "Memorandum of Associations." 3. The promoters have to decide upon the manner of carrying on the business of the Company. This calls for the appointment of directors of the Company, the division and allotment of shares, meetings of shareholders and such other things as are necessary for the internal administration of the Company. These arrangements are expressed in a document called the "Articles of Association." 4. The promoters have to submit to the Registrar information regarding the Memorandum, the Articles, the names with addresses of the directors and so on for the purpose of the Company's incorporation and thus get it registered. 5. After the Company has been incorporated by registration, it has to commence its business. A Private Company can commence business as soon as it is registered. But a Public Company has to pass through certain preliminary formalities before its business can be commenced. 2.2. Memorandum of Association This document is the constitution, the primary framework within and inside which the company has to carry on its functions. It is the Charter of the Company defining its objects and limiting its powers.

The Companies Act requires that a Memorandum of Association of a Company limited by shares must contain the following particulars: 1. The name: The Company is at liberty to choose any name subject to the following conditions enumerated in Section 11 of the Companies Act: (1) A company shall not be registered by a name identical with that by which a company in existence is already registered, or so nearly resembling the name that there is likelihood of using the name to deceive, except where the company in existence is in the course of being dissolved and signifies its written consent in such manner as the Register requires. (2) No company shall be registered by a name containing in any form the name or any abbreviation of the name of the United Nations (UN) or of any subsidiary body set up by the UN or of the World Health Organization (WHO) unless the company has obtained the previous authorization in writing of the Secretary General in the case of the UN or the subsidiary body as aforesaid or of the Director General of the WHO in the case of that Organization. 2. Registered Office: The memorandum must mention the place with the name in which the registered office of the Company is situated, so that all communications to the Company may be correctly addressed. Section 77 of the Companies Act obliges a company to maintain a registered office within twenty-eight days from the date of its incorporation. 3. Objects: The "objects clause" contains a statement in detail of the business and acts which the Company is empowered to transact. In this clause maybe included any business which is not illegal or against public policy. 4. Liability of members: The Memorandum must contain a clause stating that the liability of members is limited, either by shares or by guarantee. If the liability is limited by shares (ex. MIDAS Finance Ltd.), no member can be called upon to pay more than the nominal amount of his share or so much thereof as remains unpaid. Where it is fully paid up, the member has no liability whatsoever. If, however, the liability is limited by guarantee (ex. MIDAS Ltd.), each shareholder undertakes to meet the debts of the Company up to a specified sum, e.g., Tk. 100.00, irrespective of the amount of shares he/she has taken. 5. Capital clause: The Memorandum must also contain a capital clause stating the amount of capital which the company is authorized to raise, with its proposed division, if any, into shares classifying them under the headings of(a) Preference, (b) Cumulative Preference, (c) Ordinary, and (d) Deferred, and also stating the amount which is to form the value of each of these shares. The Company cannot change its share capital unless it is authorized to do so by its Articles and allowed by the Court to do so. Hence it is known as "Authorized Capital." 6. Association and subscription clause: This clause contains a statement of the desire of persons who have signed the Memorandum as promoters to be formed into a company and it contains an agreement to take at least one share each. The agreement to take shares contained in this clause is absolute and binding even though the company may never commence its business. This agreement cannot be set-aside on the ground of misrepresentation. 2.3. Mode of forming Incorporated Company The requirements of this Act in respect or registration form an incorporated company, with or without limited liability, that is to say, either(a) a company limited by shares, that is to say, a company having the liability of its member limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them; (ex. MIDAS Finance Ltd.) or

(b) a company limited by guarantee, that is to say, a company having the liability of its members limited by the memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of the assets of the company on the event of its being wound up (MIDAS Ltd.); or (c) an unlimited company, that is to say, a company having no limit on the liability of its members. 2.4. Company limited by Shares. Section 6 of the Companies Act, a company limited by shares: (a) the memorandum shall state. (i) the name of the company, with "limited" as the last word in its name; (ii) The address of the registered office; (iii) the objects of the company, and, except in the case of trading companies, the territories to which they extend; (iv) that the liability of the members is limited; (v) the amount of share capital with which the company proposes to be registered, and the divisions thereof into shares of a fixed amount; (b) each subscriber of the memorandum shall take at least one share; (c) each subscriber shall write opposite to his name the number of shares he takes. 2.5. Company limited by Guarantee Section 7 of the Companies Act lays down that, (a) the Memorandum of a company limited by guarantee shall state: (i) the name of the Company, with 'Limited' (Ltd.) as the last word in its name; (ii) the place in which the registered office of the company is to be situated; (iii) the objects of the company and, except in the case of trading corporations, the territories to which they extend; (iv) that the liability of the members is limited; (v) that each member undertakes to contribute to the assets of the company in the event of its being wound up while he is a member or within one year afterwards, for payment of the debts and liabilities of the company contracted before he/she ceases to be a member, and of the costs, charges and expenses of winding up, and for adjustment of the rights of the contributors among themselves, such amount as may be required, not exceeding a specified amount; (b) if the company has a share capital, the Memorandum shall also state, (i) the amount of share capita! with which the company proposes to be registered and the division thereof into shares of a fixed amount; (ii) no subscriber of the Memorandum shall take less than one share; (iii) each subscriber shall write opposite to his name the number of share he takes. 2.6. Unlimited Company '

Section 8 of the Companies Act lays down that, (a) the Memorandum of Association of an unlimited Company shall state, (i) the name of the company; (ii) the place in which the registered office of the company is to be situated; (iii) the objects of the company and, except in the case of trading corporations, the territories to which they extend, (b) if the company has a share capital, (i) each subscriber of the Memorandum shall take less than one share; (ii) each subscriber shall write opposite to his/her name the number of share he/she takes.

2.7. Alterations of the Memorandum In the very beginning of the Memorandum of Association of a company the situation of its Registered Office has to be mentioned in a separate article and once the Memorandum of Association is filed with the Registrar and the company is incorporated, no change can be made in the situation of its Registered Office without sanction of the Court. The Companies Act does not provide for the transference of the Registered Office of a company from one country to another. All that the Act permits the movement of the Registered Office of the company within the same sovereign state from district to district. For the purpose of obtaining the Court's sanction to such alteration it must be shown to the satisfaction of the Court that the proposed alteration has been rendered necessary to enable the company: (a) to carry on its business more economically or more efficiently; or, (b) to attain its main purpose by new or improved means; or, (c) to enlarge or change the local area of its operations; or, (d) to carry on some business which under existing circumstances may conveniently or advantageously be combined with the business of the company; or, (e) to restrict or abandon any of the objects specified in the Memorandum; or, (f) to sell its undertaking; or, (g) to amalgamate with any other company or body of persons. The Court confirming the alteration would also have to be satisfied that notice of these alterations was given to the debenture-holders, creditors and other persons whose interests, in the opinion of the Court, would be affected by such alteration and that every creditor who was entitled to object and had objected, had either consented to the alteration or that his claim was discharged or determined or secured to the satisfaction of the Court. The notice of change or situation of the Registered Office cannot be made by any collateral documents. 2.8. Articles of Association Definition The Articles are the internal regulations of a company, which determines the rights of members as such, and regulate the transfer of shares, the conduct of meetings, the appointment of directors and other similar matters essential for the beneficial management of the company's business. 2.9. Distinction between the Articles and the Memorandum The Distinction between the Articles and the Memorandum are given below: (i) The Articles are the internal regulations of a company, governing its internal management and working. The Memorandum is the basic constitution of the company. It defines the framework within which the Articles are to function. (ii) By their very respective nature, the Articles are subject to the Memorandum. If the Articles offend any clause in the Memorandum, they are void to that extent. (iii) The Articles can be altered by a special resolution but the alteration of the Memorandum also requires the sanction of the Court and, in the case of the company's name, of the Registrar. 2.10. Registration of Articles Section 23 of the Companies Act mentions the documents to be filled with the Registrar. Form 1, 8, 9, 10, 12 in the case of private companies and forms 1, 6, 10, II, 12 and 14 in the case of public companies need to he filled with the Registrar along with those copies of the memorandum and the articles. The Registrar's office inspects there and are generally quick in granting certificates after its

objections are met. Section 25 provides that the certificate of incorporation shall be conclusive evidence that all the requirements of the Act in respect of registration and of matters precedent and incidental thereto have been complied with. 2.11. Alteration of Articles The Articles of Association of a Limited Company may be altered by a special resolution subject to the following conditions: (i) That the altered Articles are not contrary to any statutory provision. (ii) That the alteration does not seek to increase the liability of the shareholders. (iii) That the alteration does not conflict with the Memorandum. (iv) That the alteration is not a fraud on the minority and is made bona fide and in the interest of the company as a whole. 2.12. Effect of Registration On the registration of the Company the Registrar issues a certificate under his hand that the company is incorporated, and in the case of a Limited Company that the Company is limited. From the date of incorporation mentioned in the certificate incorporation, the subscribers to the Memorandum, together with such other persons as may from time to time become members of the company, shall be a body corporate by the name contained in the Memorandum, capable forthwith of exercising all the functions of an incorporated company, and having perpetual succession and a common seal, but with such liability on the part of the members to contribute to the assets of the company in the event of its being wound up as is mentioned in the Companies Act. 3.0. Commencement of Business 3.1. Prospectus A prospectus can be defined as "any prospectus, notice, circular, advertisement or other invitation offering to the public for subscription or purchase of any shares or debentures of a company, but shall not include any trade advertisement which shows on the face of it that a formal prospectus has been prepared and filed". As it has seen before, a Private Company can commence its business immediately after it is incorporated. But a Public Company has to issue a prospectus (or a statement in lieu of prospectus) inviting the public to subscribe shares in order to raise the minimum subscription without which it cannot commence business. In order to be an offer to the public, the offer contained in the prospectus must be an offer to any person who chooses to come in and take the share. A private offer to friends does not, therefore, make the document a prospectus. Generally issued immediately after the incorporation of the company, a prospectus must be dated and signed by all persons named as directors or by their authorized agents. 3.2. Requirements as to particulars of prospectus Part I and II of Schedule III of the Companies Act requires that every prospectus must contain the following particulars: (i) The number of shares of the founder members, if any, and the nature and extent of the interest of the shareholders in the property and the profits of the company;

(ii) (iii) (iv) (v)

(vi) (vii) (viii) (ix) (x) (xi) (xii) (xiii) (xiv) (xv) (xvi) (xvii)

The number of redeemable preference shares intended to be issued together with the date and proposed method of redemption or where no date is fixed the period of notice required for the purpose of redemption; The number of shares, if any, fixed by the Articles as the qualification of a director, and any provision in he Articles as to the remuneration of the directors. The names, description and addresses of the directors, manager and managing agents together with their remuneration and terms of appointment. The minimum subscription on which the directors may proceed to allot shares and the amount payable on application and allotment of each share. In the case of a second or subsequent offer of shares the amount offered for subscription on each previous allotment made within the two preceding years, and the amount actually allotted, and the amount, if any, paid on the shares so allotted. The number and amount of shares and debentures issued within the two preceding years. If any part of the issue is underwritten, the names of the underwriters and the opinion of the directors that the resources of the underwriters are sufficient to discharge the underwriting obligations. The names and addresses of vendors of any property purchased or acquired by the company or proposed so to be purchased or acquired. If the properly was purchased within two years of the issue of the prospectus history of all previous transfers of the property and if the property purchased is a business, the profits, and the balance sheet of the business. The amount or estimated amount of preliminary expenses. The amount paid to any promoter within the two preceding years and the consideration for any such payment. The names and address of auditors, if any, of the company. The dates of and parties to every material contract including contracts relating to the acquisition of property and a reasonable time and place at which any material contract or a copy thereof may be inspected. Particulars regarding the nature and extent of the interests of the directors in the promotion of the company or in the property proposed to be acquired by the company. Where the company is a company having shares of more than one class, the rights of voting at meetings of the company conferred by, and the right in respect of capital and dividends attached to, the several classes of shares respectively. If the articles impose any restrictions on the rights of members to attend, speak or vote in meetings or to transfer their shares, a statement about such restrictions. If the company issuing prospectus has carried on business before, a report of the Auditor regarding profits and dividends for five preceding financial years, and a report if the proceeds or any part of the proceeds of the issue of the shares or debentures are or is to be applied directly or indirectly in the purchase of any business.

3.3. Allotment of shares Allotment means the distribution of shares among those who apply for such shares. It shows that the company has accepted the offers of the applicants. The company being the acceptor in every case it has also the right to refuse allotment in particular cases. Those applicants whose offers are accepted are sent letters of allotment and those whose offers are rejected receive from the company letters of regret. 4.0. CAPITAL The capital of a company means the amount of money which it is authorized by its Memorandum to raise, generally by the issue of shares. Hence a company's capital is also called 'share capital'. Sometimes the phrase "debenture capital" is used to denote the amount borrowed by the company and

secured by debentures. But this designation is not correctly given, for, the capital of a company should not mean borrowed capital. The capital of a company is used in four different senses, namely:


Nominal or Authorized Capital: This means the whole capital of the company, which is authorized by its Memorandum to rise for the purpose of investment and expenditure. ii) Issued Capital: The whole of the authorized capital is not usually offered to the public for subscription. That portion of the authorized capital which is actually offered to the public for subscription is called issued capital. iii) Subscribed Capital: That portion of the issued capital which has actually been taken up by the public and allotted to them is called the subscribed capital. iv) Paid-up Capital: The portion of the subscribed capital which is actually paid-up by those who have taken then is known as the paid-up capital. And the portion of the subscribed capital which remains unpaid is known as the uncalled capital. The shareholders may be called upon to pay this portion of the subscribed capital whenever occasion arises. 4.1. Shares "Share" means share in the share capital of the company and includes stock except when a distinction between stock and share is expressed or implied. Justice Farewell defines a share thus: "A share is interest of a shareholder in the company measured by a sum of money for the purpose of liability in the first place and of interest in the second, but also consisting of a series of mutual covenants entered into by all the shareholders. A share is not a sum of money, but is an interest measured by a sum of money, and made up of various rights contained in the contract." Now, the capital of a company is generally divided into: (i) Preference shares, (ii) Ordinary shares and (iii) Deferred shares. This classification is provided either in the memorandum or in the articles. 4.2. Different classes of shares: (i) Preference shares: Preference shares are those whose holders are entitled to a fixed rate of dividend, say, five per cent, before any dividend is paid on the ordinary shares. But unless expressly provided in the articles, the holder of a preference share cannot be paid dividend at more than the fixed percentage however, prosperous the company might before. Preferential shares are also divisible into: (a) shares preferential as to capital and (b) shares nonpreferential as to capital. In cases in which they are made preferential as to capital, if, on the dissolution or winding up of the company, any surplus assets are left after meeting all the debts, these must be applied first in paying off the holders of these shares. But where they are no preferential as to capital, their holders are paid off at par with the holders of ordinary shares. (ii) Ordinary shares: Ordinary shares are those whose holders are entitled to dividend out of net profits of the company after the fixed dividend on preference shares has been paid-up. (iii) Deferred shares or Founder's shares: These are those whose holders are usually entitled to dividend after the dividend on ordinary shares has exceeded a fixed amount, e.g., the Memorandum or the articles may provide that the deferred shares shall be entitled to half of the profits after a dividend of 10% has been paid on the ordinary shares.

4. 3. Reserve Capital When a company by a special resolution declares that the 'uncalled capital' of the company shall not be capable of being called up except when the company is wonld up, this uncalled capital becomes the Reserve Capital of the Company. For illustration, The Palrika Ltd. issues capital of Tk. 100,000.00. Tk. 80,000.00 of it is subscribed and the allottees pay to the company Tk. 40,000.00 on allotment and Tk. 20,000.00 on first call. If at that stage, the company resolves that the remaining Tk. 20,000.00 which is the uncalled capital of the company is not to be called up except in the event and for the purpose of the company being wound up, this sum of Tk. 20,000.00 due from the shareholders to the company becomes the reserve capital of the company. 4. 4. Stock Shares fully paid-up may be turned into stock. When the capital of a company is converted into stocks, division of the capital into equal parts or shares is not longer necessary. It may then be divided into any amounts. Thus, there may be in relation to the capital of a company stock of Tk. 4.50 though the shares originally were of Tk. 10.00 each. 4. 5. Distinction between share and stock The chief points of distinction between stock and share may be enumerated as follows: (i) Shares may not necessarily be fully paid-up but are usually payable in instalments known as application money, allotment money, First call money and so on, but stocks must always be fully paid-up. (ii) Shares can be issued and transferred only in terms of complete and indivisible units of the capital, e.g., a capital of Tk. 10,000 can be divided only into 2,000 shares of Tk. 5.00 each or 1,000 shares of Tk. 10.00 each and so on. Further, a share cannot be bought and sold in fractions. If it is of Tk. 10.00, half of it cannot be sold for Tk. 5.00. But stocks may be issued and transferred in terms of any amount (iii) Each share is known by its distinctive number but no such number is borne by stocks. 4.6. Alteration of Capital The capital of a company may be altered in the following ways: (i) By increasing its share capital by the issue of new shares or such shares as it thinks expedient; (ii) By consolidation all or any of its share-capital into shares of larger amount than its existing amount; (iii) By converting all or any of its paid-up shares into stock and reconverting that stock into paid-up shares of any denomination; (iv) By sub-dividing its shares or any of them into shares of smaller amount than is fixed by the Memorandum so that in the sub-division the proportion between the amounts paid and, the amount, if any, unpaid on each reduced share shall be the same as it was in the case of the share from which the reduced share is derived; (v) By diminishing the amount of its share capital; (vi) By reorganizing the existing classes of shares. 5.0. MEMBERS AND SHAREHOLDERS 5.1. Definition of 'Member'


In so far as a Company Limited by Shares is concerned, a member is identical with a shareholder, for, in such a company the members who collectively constitute the company are none but the shareholders. But there may be an unlimited company or a company limited by guarantee, which exists either with or without a share-capital. Hence it has been laid down in the case of South London Fish Market Co., 1888 there a member is not necessarily a shareholder, though in relation to a company limited by shares these two terms are synonymous. Under Section 32 of the Companies Act, membership in a company is constituted in the following manner: (i) The subscribers of a Memorandum of a company shall be deemed to have agreed to become members of the company, and on its registration shall be entered as members in its register of members. (ii) Every other person who agrees to become a member of a company and whose name is entered in its register of members shall be a member of the company. 5.2. Cessation of Membership Membership of a company is terminated in any of the following events: (i) When the share of a member is transferred (ii) When the share or shares of a member are forfeited for nonpayment of calls or otherwise. (iii) When the share or shares of a member are surrendered. (iv) When a member dies. (v) When a member rescinds the contract on the ground of misrepresentation in the prospectus. (vi) When a member's name is removed from the register upon its being rectified by the order of the Court. 5.3. Transfer of shares A shareholder is empowered to transfer his share under Section .38 of the Companies Act. The shares and other interests of any member in a company shall be movable property, transferable in manner provided by Articles of the company. Thus, a shareholder is perfectly competent to dispose of his shares subject only to restrictions imposed by the Articles of Association. The most common form of such restrictions is that a transfer must receive the prior sanction of the Board of Directors. Where the Articles lay downs such restriction, the transferee's title will not be complete unless that sanction to the transfer has been accorded. It must be noted in this connection that the mere execution of a share transfer form does not terminate the transferor's liability on the share or shares. It subsists, i.e., a transferor continues to remain liable on the share or shares until the transferee's name is substituted on the register of members. Recently Mr. M Anis Ud Dowla, one of the Sponsors/Directors of the company, has transfer his total of 22,00,000 shares (12,00,000+5,00,000+5,00,000) of the company to his Daughter Ms. Shusmita Anis Salam (12,00,000 shares), his Wife Mrs. Najma Dowla (5,00,000 shares) and his son Dr. Arif Dowla (5,00,000 shares) by way of gift. 5.4. Mode of effecting transfer The transfer of shares must be affected by means of executing an instrument of transfer in writing and the company must not register a transfer unless a proper instrument duly executed has been delivered to it. It is not necessary to execute a "deed of transfer" unless the Articles expressly require so.


The instrument of transfer is executed by the transferor and handed over to the transferee along with the share certificate. The transferee then executes it and sends it to the company for registration. The transfer is complete only after registration is made and the transferee's name is put on the register of members. 5.5. Rights of Members Acting individually a member of a Public Company has the following rights: (i) He can transfer his share subject only to the restriction imposed by the Articles. (ii) He has the right to inspect the register of members kept open in the registered office of the company without being require to pay any fees for that (iii) He can require a copy of the register, or, of any part or fractional part. (iv) At all reasonable times, he can demand inspection of the minute books of the general meetings of the company, register of directors, managers and managing agents, register of contracts in which any director or directors are directly or indirectly concerned or interested, and also copies of mortgages or charges requiring registration. (v) He is entitled to have a copy of the statutory report at least 21 days before the statutory meeting and a copy of the balance-sheet, profit and loss account, auditor's report and the director's report at least 14 days before the date of the Annual General Meeting and also of notice of meetings of the company at least 14 days before such meetings. (vi) He is entitled to be furnished with a copy of the minutes of general meetings within 7 days after he has made a request. (vii) He is entitled to be supplied a copy of the Memorandum and the Articles within 14 days at his request. (viii) He can require a copy of the register of holders of debentures or any part thereof, and also copies of mortgages and charges and the company's register of mortgages. (ix) He is entitled to be furnished with copies of the balance sheets and the profit and loss accounts or the income and expenditure accounts and the auditor's report. (x) He has a right to apply to the Court for rectification of the share register if: (a) the name of any person is fraudulently or without sufficient cause entered in or omitted from the register of members of a company, or (b) unnecessary delay takes place in entering in the register the fact of any person having ceased to be a member. (xi) He is entitled to apply to the Court to call or direct the calling of a General Meeting of the company if default is made in holding such a meeting in accordance with the provisions of the Companies Act. (xii) He can apply to the Court for compulsory winding up of the company on the ground of default in filing the statutory report. The members of a company acting collectively can do any one of the following acts by ordinary resolution adopted by a simple majority of votes: (i) They can increase the share capital by issue of new shares if so authorized by the Articles. (ii) They can consolidate and divide its share-capital into shares of larger amounts or subdivide the shares into shares of smaller amounts. (iii) They can convert shares into stocks and vice versa. (iv) They can cancel the shares which have not been taken or agreed to be taken by any person. (v) They can discuss and pass any resolution relating to the statutory report in the statutory meeting. (vi) They can appoint the directors.


(vii) They can declare dividend within the bounds fixed by the recommendation of the directors. (viii) They can consent to the selling or disposing of the undertaking of the company by the directors or to the remitting of any debt due by a director. (ix) They can appoint auditors. (x) When the period fixed by the Articles for the duration of the company expires, the members can pass a resolution for the winding up of the company. Acting wings: collectively (i) (ii) the members or shareholders, by special resolution, can do the folio

Alter the Articles. Alter the Memorandum subject, of course, to the sanction of the Court. (iii) Reorganize the share-capital by readjusting the rights attached to different classes of shares. (iv) Appoint inspectors for investigating the affairs of the company. (v) Wind up the company. Acting collectively the members or shareholders, by extraordinary resolution, can(i) Declare that the company cannot, by reason of its liabilities, continue its business and that it is advisable to wind up. (ii) Remove any director, whose period of office is liable to termination at any time by retirement of directors in rotation, before the expiration of his period of office and may appoint another person in his stead. 5.6. Liabilities of Members Like rights, members have also liabilities some of which are statutory as being enjoined by the Companies Act and some contractual as being imposed by the Articles, which every shareholder is deemed to have adopted. Some of the most important of these liabilities are as follows: 1. Liability in respect of reduced shares: According to Section 67 of the Companies Act, a member of a company shall not be liable in respect of any share to pay any call or contribution exceeding in amount the difference between the amount paid, or as the case may be the reduced amount which is to be paid on the share and the amount of the share as fixed by the minute. 2. Liability to pay 'call': Every shareholder is under a statutory liability to pay the uncalled portion of a share when the directors make a call in the manner specified in the articles. A shareholder's liability is, however, confined to the amount unpaid on his shares. Shares are generally issued stipulating that payment shall be made installments, e.g., a share of Tk. 100.00 is issued stipulating that Tk. 20.00 is to be paid on application, Tk. 30.00 on allotment, and the rest when called for. If the company wants the whole or part of the remaining Tk. 50.00 the directors issue a demand on the shareholders specifying the amount to be paid on each share. This demand is known as 'call'. 3. Liability to forfeiture: The Articles of a company usually provide that the shares of: members are liable to be forfeited in case the shareholders fail to pay on call. It is, however, not always for default to pay call that forfeiture of share can be made. If sanctioned by the Articles and the power is exercised bona fide for the interest of the company, forfeiture for other persons also may be valid and shall be sanctioned by the court. 4. Surrender: The Articles of a company generally provided that shares may be surrendered. But surrender of partly paid-up shares is void because such surrender means diminution of the share-


capital to the extent of the unpaid amount of the shares. Surrender is valid when made of fully paid-up shares and accepted by the company bona fide and for the interest of the company. 5. Lien: It is generally provided in the articles that the company shall have the first lien on shares of the members for their debts and liabilities to the company in preference to other creditors of the shareholders. But if the shareholder mortgagee gives notice to the company and the shareholder becomes in debted to the company subsequently, the mortgagee will receive priority over the lien of the company. But if the shareholder's debt to the company is of an earlier date than the mortgage, the lien of the company will have priority over the mortgagee. 5.7. Dividend In Lamplough vs. Kent Water case, the term dividend has been defined "the sum paid and received as the quotient forming the share of the divisible sum payable to the recipient." There is no obligation for Company to divide the whole of its profits amongst its shareholders unless clearly provided for by its Memorandum or Articles that shall do so. Whether the whole profit or part thereof shall be divided and if the whole is not offered for division, then what portion shall be divided and what retained are ordinarily questions to be decided by the shareholders subject to provisions, made by the Memorandum or the Articles and the Court has no jurisdiction in that realm. The declaration of a dividend creates a debt due from the Company to each shareholder and payable at the date at which the dividend is made payable, until the declaration of dividend is made, no shareholder, not even a preference shareholder, has a right to sue for enforcing payment. If the dividend due to a shareholder is not paid by the due date, he can bring an action to enforce payment. It should be borne in mind that the dividend must be paid in cash or by cheque or draft but not by the issue of debentures bearing interest. 5.8. Rules regarding payment of dividend The most important rules with regard to the payment of dividend are:


The dividend shall be paid only out of the profits of the company or any other undistributed properties and cannot be paid out of the company's capital. Thus the payment of interests to the shareholders before any profits have been realized, out of capital or borrowed money, is ultra vires of the law.

Where the profits are capital profits, i.e., the increase which the capital itself has brought about, e.g., the rise in the value of fixed assets, for the payment of dividend out of such profits, it is necessary to remember that the capital as meant by law, in case of Joint-Stock Companies, is the actual amount subscribed pursuant to the Memorandum of Association and that which is represented by such subscription. If, therefore, there has been any accretion to that capital, such an accretion may be realised and distributed among the shareholders by way of dividend. In order to ascertain such an accretion, it is, however, necessary to get all the assets and liabilities re-valued and the balance that remains after deducting the figure of subscribed capital may be said to be the capital profits of the company. 2. The payment of dividend for any particular year is entirely at the discretion of the directors and shareholders cannot insist on the ; declaration of dividend even if the profits are amply sufficient except in case of fraud. The directors have also the power to cancel the declaration of dividend, which they declare as an ad interim dividend if they find later on that the same would have to be paid out of capital. 3. Profits paid to a reserve fund remain profits and may be paid as though there is a loss on capital.




The dividend must be paid in cash unless the Articles otherwise provide. Though dividend cannot be paid out of capital, Section 157 of the Companies Act provides for the payment of interest out of capital in cases in which shares are issued by a company for the purpose of raising money to defray expenses for the construction of any work or buildings or for the provision of any plant which cannot be made profitable for a lengthened period. Such interest may be paid for so much of the share capital as is for the time being paid-up for the period. This can, however, be done if authorised by the Articles or by a special resolution and, that too after having obtained the previous sanction of the Government.

6.0. MANAGEMENT AND ADMINISTRATION 6.1. Management and Administration of Company: 1. Director: Directors are persons elected by the shareholders from among themselves for the purpose of managing the business of the company. Section 90(1) of the Companies Act requires that every Public Company shall have at least three directors. This rule does not apply to a Private Company except where a Private Company is a subsidiary .Company of a Public Company. 2. Position of directors: The position of the directors of a Public Company is that they are merely agents of the company. Though the company is a person it cannot act except through directors. As regards those directors the case is merely the ordinary case of principal and agent. Wherever, therefore, an agent is liable those directors would be liable. Where, however, the liability would attach to the principal and the principal only, it is the company, which would be liable, and not the directors. Thus (i) If a director duly makes a contract on behalf of the company, it is the company which is liable on it. The directors cannot be made personally liable on the contract unless they undertook personal liability, such as by contracting in their own name or by contracting on behalf of the company without using the word Ltd. (ii) If the directors make a contract in their own names but really for the benefit of the company, the other party to the contract, on discovering that the real principal is the company can sue the company on the contract. (iii) Where directors enter into a contract which is within the powers of the company, i.e. allowed by the Memorandum but beyond the powers of the directors, the company, like any other principal, can ratify the contract. 4. Appointment of Directors Section 91 of the Companies Act enumerates the provision regarding appointment of directors. Ilie first directors of a company are generally appointed by the Article of Association. But if such appointment is not provided for by the Articles, the subscribers to the Memorandum shall be deemed to be the directors of the company until the first directors shall have been appointed. Subsequent appointment of directors is made by the shareholders in general meetings. Any casual vacancy occurring among the directors either by death or retirement is filled up by the directors by means of appointment but the person so appointed shall be subject to retirement at the same time as if he had become a director on the day on which the director in whose place he is appointed was last appointed a director. Usually the method of appointing directors is laid down in the Articles to which the rules noted above are subject. Directors appointed must retire by rotation and not less than two-thirds of the whole number of directors shall be persons whose period of office is liable to determination by retirement of directors by rotation.


6.2. Disqualifications of directors

(1) A person shall not be capable of being appointed director of a company, if(a) he has been found to be of unsound mind by a competent court and the finding is in
force; or

(b) he is an un-discharged insolvent; or

(c) he has applied to be adjudicated as an insolvent and his application is pending; or he has not paid any 'call' in respect of shares of the company held by him, whether alone or jointly with others, and six months have elapsed from the last day fixed for the payment of the call; or (e) he is a minor. (2) A company may in its articles provide additional grounds for disqualification of a director.


6.3. Qualification of Director (3) Without prejudice to the restrictions imposed by section 92, it shall be the duty of every director to hold qualification share to be specified in the articles and, if he is not already qualified, he shall obtain his qualification within sixty days after his appointment, or such shorter time as may be fixed by the article. (4) If, after the expiration of the period mentioned in sub-section (1) any unqualified person acts as a director of the company, he shall be liable to a fine not exceeding two hundred taka for every day between the expiration of the said period and the last day on which it is proved that he acted as a director (both days inclusive). 6.4. Qualification shares The Articles usually fix a minimum number of shares, which every director must subscribe in order to become a director. This minimum number is known as the Qualification shares. It is the duty of every director who is required by the Articles to hold a specified share qualification and who has not already qualified himself accordingly, to obtain his qualification within two months after his appointment or such shorter time as may be fixed by the Articles. If after the expiration of the period specified by the Articles any unqualified person acts as a director of the company, he li:ill be liable to a fine prescribed by Sub-section (2) of Section 97 of the Companies Act. 6.5. Managing Director Section 2(m) of the Companies Act defines a Managing M n director who, by virtue of an agreement with the company, or of a resolution passed by the company in General Meeting by its directors or by virtue of its Memorandum or Article of Association, it entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director the position of a managing director, by whatever name called. The Articles of a company may give special powers to one or more of its directors by styling him or them as 'Managing Director' or 'Managing Directors'. 6.6. Remuneration of Directors The remuneration of directors is regulated by the Articles of Association of a company. Unless provided for in the Articles or voted by the shareholders in a general meeting, the directors are not entitled to any remuneration. When so provided or voted, the remuneration of directors is a debt owing by the company and as such can be paid out of capital. The peculiar feature of director's remuneration is that unless fixed by the Articles, the directors are not entitled to remuneration as of right. If, on the other hand, the Articles are silent on this point and


the remuneration of the directors is voted by the company in a general meeting such remuneration is merely a gratuity and not one that can be enforced as a matter of right The most popular method of paying remuneration is a fee for every meeting attended. Sometimes it takes the form of a commission paid upon the profits made by the company. In such a case, it will not include the profits made on the sale of the whole undertaking. If the fees are paid in a lump sum a year to all the directors, the director who has not served for a complete year is not entitled to be paid anything. Where, however, the remuneration is to be paid "at the rate of so much a year" the director who has served for less than a year would be entitled to claim his proportionate fee. 6.7. Rights and Duties of Directors The rights and duties of directors are generally contained in the Articles and subject to the Articles, the directors have the right to do and get done all that is necessary for the proper conduct of the business of the company. Since directors are in the position of trustees asregards the exercise of their powers, they have the supreme duty to exercise their powers and discharge their functions in utmost good faith and for the interest of the company as a whole. The powers of the directors are, in general, exercisable as a body by the 'Board of Directors'. The Articles may, however, provide and generally provide the vesting of special powers to one or more directors known as 'Managing Director' or to what is called 'Managing Agents.' 6.8. Liability of Directors The directors of a company are liable in the following ways:





They are liable for wrongful application of the company's money. This liability may be either in the nature of a breach of trust by which any director or more of them benefit. Acceptance of a present of qualification shares from a promoter is a breach of trust of this kind. The liability may also be due to gross negligence in dealing with the company's property in some manner not approved by the Memorandum or the Articles or the Companies Act, e.g., paying dividends to shareholders when no profits have been made. But in such cases, where the director or directors concerned cannot be shown to have derived any personal benefit, they are excused if they act honestly and reasonably. Under Section 140 of the Companies Act, if any director of a company commits or allows to be committed, any contravention of the law relating to allotments, he shall be liable to compensate the company and the allottee respectively for any loss, damage or costs which the company or the allottee may have sustained or incurred thereby. But the director or directors are excused if he or they can prove that the default was not due to any misconduct or negligence on their part. Under Section 146(1) of the Companies Act, they are also liable to persons who apply for shares on the faith of misstatements in the prospectus. But a number of defences against this liability are available to the directors. These defences have been outlined before. They may also become liable on the winding up of the company if it is shown that they were knowingly parties to the carrying on of the business of the company for any fraudulent purpose and, in particular, for the purpose of defrauding creditors.

6.9. Exemption from liability Directors are exempted from liability under the following conditions:


in case of negligence, default etc., exemption is available directors are found to have acted honestly and reasonable;



in cases of errors of judgment; in cases of fraud committed by subordinate officers of the company if it can be shown that the directors had no knowledge of such fraud.


It should be borne in mind in this connection that no director could escape liability for his own default, neglect, breach of duty or breach of trust for which the ordinary law of the land has made him personally liable. The liability for such act or omission will attach to him irrespective of any agreement with the company or any provision in the Articles exempting him from such liability. 6.10. Managing Agents "Managing Agent" means a person, firm or company entitled to the management of the whole affairs of a company by virtue of an agreement with the company and under such control and direction of the directors as may be provided for in the agreement. Thus if the agreement so provides, a managing agent may be almost free from the control and direction of the directors. For the purposes of the Companies Act, if a person occupying the position of the managing agent calls himself the manager, he shall nevertheless be regarded as the managing agent and not as the manager.76 6.11. Managing Agent and Manager A managing agent and a manager are similar in so far as both are entrusted with the management of the company. But a manager differs from a managing agent in two respects in the main. First, a manager is an individual person, whereas a managing agent may be a person, a firm, or a company, and most commonly it is a firm. Secondly, a manager is usually a salaried official always subject to the control of the directors but a managing agent is appointed under an agreement with the company, which may secure an absolute or large measure of freedom from the control of the directors. 6.12. Distinction between Managing Director and Managing Agent The definition of a "managing director" is new in our Act and follows the definition given in section 2(26) of the Indian Act of 1956. There is some anomaly in this definition. The managing director must be a director and the definition goes on to say that whoever is occupying the position of a managing director. Whether that be an individual, firm or a company, shall be included in this definition. It is submitted that it is irrelevant that a managing director may be a firm or a company as the definition prescribes that a managing, director must be a director and if so then under section 90(3) of the Act must be a natural person. The Indian Act does not mention that a managing director may be a firm or company. The second proviso that that a managing director shall exercise his powers subject to the superintendence, control and direction of the board of directors will remove a controversy that has sometimes arisen when the promoters of a company sought to perpetuate their control over the affairs of the company by inserting a provision in the articles giving substantially ail powers to the managing director and naming their nominee the managing director in the articles. In Holdsworth and Co. vs. Caddies it was held that the managing director of a parent company could be directed to look after the business of its subsidiaries only. The "managing agent" is the product of English colonial business in this company. The merchants in the East India Company used to do business individually but because they could not be present here full time so they used to appoint a managing agent to look after their business for a hefty commission and a share of the profits. The : merchants were quite happy with whatever they used to get as they were reluctant to stay here full time or go and stay in the remote mine fields and tea estates of the sub-continent. The western Indian businessmen were quick to avail of this system and very soon


managing agency houses mushroomed in the big commercial centres of India where * it became an accepted norm to set up companies through managing agency .houses and have these companies sign managing agency agreements with those houses and then go to the public for share subscription. It was not ! until 1936 that the legislature first took notice of the rampant practice of 'managing agency and put a curb on their profit taking by inserting 'limitations on the profits they could make. By definition a managing agent 'is entitled to manage the whole of the affairs of the company or the bulk of the affairs to the exclusion of the board of directors. In Bangladesh the " system of managing agency is going out of fashion now. 7.0. BOOKS, ACCOUNTS AND AUDITORS 7.1. Statutory Books The Companies Act requires every company to keep the following books: 1. A register of members in one or more books entering therein the following particulars: (a) the names and addresses, and occupations, if any, of the members; (b) In the case of a company having share capital, a statement of the shares held by each member distinguishing each share by its members, and of the amount paid or agreed to be considered as paid on the shares of each member; (c) the date on which each person was entered in the register as member; (d) the date from which any person ceased to be a member. 2. A register of directors, managers and managing agents containing with respect to each of them the following particulars: (a) in the case of an individual, his present name in full, any former name or surname in full, his usual residential address, his nationality and if that nationality is not the nationality of origin, then his nationality of origin and his business occupation, if any, and if he holds any other directorship or directorships, the particulars of such directorship or directorships. (b) in the case of a corporation, its corporate name and registered or principal office; and the full name, address and nationality of each of its directors; and (c) in the case of a firm, the full name, address and nationality of fin h partner, and the date on which each became a partner. 3. Every company shall keep a register of mortgages and enter therein all mortgages and charges specifically affecting property of the company and all floating charges on the undertaking or on any property of the company, giving in each case, a short description of the property mortgaged or charged and except in the case of securities to bearer the names of the mortgages or persons entitled thereto. 4. Every company having a share capital shall within eighteen months from its incorporation and thereafter once at least in every year make a list of all persons who, on the day of the first or the only ordinary general meeting in the year, are members of the company, and of all persons who have ceased to be members since the date of the last return or, in the case of the first return or since the date of the incorporation of the company. The annual summary shall state the names, addresses and occupations of all the past and present members mentioned therein-f together with particulars of the number of shares held by each of the existing members at the date of the summary, specifying shares transferred since the date of the last return or since the date of incorporation as the case may be. 5. The minute book: Section 89 of the companies act lays down that every company shall cause minutes of all proceedings of general meetings and of directors to be entered in the books kept for that purpose, and that such minutes ought to be signed by the chairman " of the meeting at which the proceedings were held or by the i chairman of the next succeeding meeting and that they shall be evidence of the proceedings." 7.2. Accounts


Section 181(1) of the Companies Act requires that every company must maintain proper books of account with respect to: (a) all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; (b) all sales and purchases of goods by the company; (c) the assets and liabilities of the company; and (d) in the case of a company engaged in production, distribution, marketing, transportation, processing, manufac-turing, milling, extraction and mining activities, such particulars relating to utilisation of material, labour and other items of overhead cost. The books of account shall be kept at the registered office of the company or at such other place as the directors think fit and shall be open to inspection by the directors during business hours. 7.3. Annual Balance Sheet, Profit and Loss Account Under Section 183 of the Companies Act the directors of every company must once at least in every calendar year lay before the company in general meeting a balance-sheet and profit and loss account or in the case of a company not trading for profit, an income and expenditure account for the period, in the case of the first account since the incorporation of the company and in any other case since the preceding account, made up to a date not earlier than the date of the meeting by more than 9 months or in the case of a company carrying on business or having interest outside Bangladesh by more than 12 months. Provided that the Registrar may for any special reason extend the period for submission of such balance-sheet and profit and loss account by a period not exceeding 3 months. The balance sheet and the profit and loss account or income and expenditure account shall be audited by the auditor of the company and the auditor's report shall be attached thereto, or there shall be inserted at the foot thereof a reference to the report, and the report shall be read before the company in general meeting shall be open to inspection by any member of the company. Every company other than a Private company shall send a copy ol Mien balance sheet and profit and loss account or income and expenditure account so audited together with a copy of the auditor's report to the registered address of every member of the company at least fourteen days before the meeting at which it is to be laid before the members of the company, and shall deposit a copy at the registered office of the company for the inspection of the members of the company during a period of at least fourteen days before that meeting. 7.4. Contents of balance sheet Under Section 185 of the Companies Act, the balance sheet must contain a summary of (i) (ii) (iii) (iv) the authorized capital, the issued capital, the liabilities, the assets with the particulars showing the nature and liabilities of the assets and also showing how the fixed assets have been arrived at.

The balance-sheet must also show separately (i) the preliminary expenses, (ii) the expenses of any issue of shares or debentures, (iii) the amount of the goodwill, patent and trade marks, (iv) all the debts of the company which, if ascertainable, arc secured on any of its assets must be stated to be secured, (v) commissions and discount on shares and debentures of shares,


(vi) (vii) (viii) re-issue, (ix) (x) (xi)

loans for the purchase of shares by the employees, the number and amount of any redeemable debentures, particulars as to debentures which have been redeemed but are available for shares in and loans to subsidiary companies, the amounts and loans to directors and officers, the total amount paid to the directors for remuneration.

7.5. Contents of profit and loss account The profit and loss account must include particulars showing the total of the amount paid whether as fees, percentages or otherwisein the managing agent, if any, and the directors respectively as remuneration for their services, and, where a special resolution passed by the members of the company so requires, to the manager, and the total of the amount written off for depresiation. If any director of the company is by virtue of nomination, whether direct or indirect, of the company, a director of any other company, any remuneration or other emoluments received by him for his own use, whether as a director of, or otherwise in connection with the management of that other company, shall be shown in a note at the foot of the account or in a statement attached thereto. 7.6. Auditors The Articles of a company usually provide for the appointment of an auditor in the following manner. The first auditors may be appointed by the directors before the statutory- meeting and, after being so appointed, they hold office until the first annual general meeting, unless removed earlier by a resolution of the members of the company in general meeting. When the auditors life are so removed, the members at that very meeting may make fresh appointment of auditors. Subsequent appointment of auditors must be made at each Annual General Meeting. Such auditor or auditors are to hold office until the next annual general meeting. If it is proposed to appoint a person other than the retiring auditor, notice of intention to nominate that person to the office of auditors must be given by a member of the company to the company not less than fourteen days before the annual general meeting whereupon the company must send a copy of such notice to the retiring auditor and give notice thereof to its members either by advertisement or in any other manner allowed by the Articles not less than seven days before the annual general meeting. 7.6.1. Qualification of Auditors No person shall be appointed as an Auditor of any company unless he is a "Chartered Accountant" within the meaning of the Bangladesh Chartered Accountants Order I973. Provided that a firm whereof all the partners practicing in Bangladesh are qualified for appointment as aforesaid may be appointed by its firm name to be auditor of company in which case any of the auditors so practicing may act in the name of the firm. 8.0. MEETINGS AND PROCEEDINGS Though the general management of the company is carried on by the 'directors' or the 'managing agents' for which purpose they meet from time to time, the shareholders of the company also are summoned to meeting according as the Companies Act or the Articles of Association lays down, in order that they may obtain a broad idea of how the affairs of the company are going on and also that they may exercise their ultimate supervisory control on the management of the company's business. The meetings of shareholders generally held are the: (i) Statutory Meeting, (ii) Annual General


Meeting and (iii) Extraordinary General Meeting. Besides, as noted above, the directors meet now and then to perform the responsibilities vested in the 'Board of Directors'. 8.1. Statutory Meeting Section 82 of the Companies Act requires that every company limited by shares and every company limited by guarantee and having a share capital must, within a period of not less than one month and not more than six months from the date at which the company is entitled to commence business, hold a general meeting of the members of the company. This is called the 'statutory meeting'. At least twenty-one days before the day on which the meeting is held, the directors must forward to every member of the company a report called the 'statutory report'. 8.2. Annual General Meeting (AGM) A general meeting of every company shall be held within eighteen months from the date of its incorporation and thereafter once at least in every calendar year and not more than fifteen months after the holding of the last preceding general meeting.110 In Bangladesh Chemical Industries Corporation vs. Registrar of Joint Stock Companies1" the Honourable High Court interpreted the expression "after the holding of the last preceding general meeting" as it has a clearly postulate the 'actual' holding of a meeting. 8.3. Statutory Meeting All meetings of the shareholders other than the annual meetings or those provided for in the Articles are known as extraordinary general meetings. These meetings may be called by the directors either suomoto or on the requisition of not less than one tenth of the shareholders and where the directors fail to call such a meeting so requisitioned within the prescribed time limit, by the requisitionists themselves. Section 84(1) of the Companies Act provides that 'notwithstanding anything contained in the articles, the directors of a company which has a share capital shall, on the requisition of the holders of not less than one tenth of the issued share capital of the company upon which all calls or other sums then due have been paid, forthwith proceed to call an extraordinary general meeting of the company. 8.4. Notice of meeting Notwithstanding any provision made in the articles of the company, a meeting of a public company other than a meeting for the passing of a special resolution may be called by not less than fourteen days' notice in writing; but which the consent of all the members entitled to receive notice of a particular meeting that meeting may be convened by such shorter notice and in such manner as those members may think fit. The notice is to be served personally on every shareholder. The notice must be sufficient to show the members substantially the object of the meeting, e.g., a notice of resolution to increase the capital should specify the amount of the proposed increase. If any special 8.5. Quorum The term 'quorum' has been defined as "the fixed minimum number of members of any body which must be present for the proper and valid transaction of any meetings of that body. In the case of a company, the quorum for the meetings of shareholders is usually fixed by the articles. Where the articles do not make any provision for the same, the quorum of a Public Company is made up of five members and of a Private Company by two members, all being personally present in the meeting.


8.6. Chairman The articles of a company generally provide as to who preside over each meeting. Where no such provision is made by the0 Articles, each meeting chooses its own chairman, provided there is a quorum before the election of the chairman takes place. The chairman of a meeting is entitled to exercise the following powers: (a) to maintain order and conduct the meeting properly; (b) to declare the result of a vote taken by show of hands and his declaration is final and conclusive, unless obviously wrong its face; (c) to adjourn the meeting at his discretion but only if a case for adjournment has arisen; (d) if provided by the Articles, to exercise a casting vote, in addition to his ordinary vote, where there is an equality of votes cast prior to his using the casting vote; (e) to decide points of order and at anytime to take, a vote of majority on the question whether the discussion shall stop. 8.7. Voting In the case of a company limited by shares every member has one vote in respect of each share. Where the shares are turned into stock, every member has one vote in respect of each hundred taka of stock. If the company is not limited by shares each member has only one vote irrespective of the number of shares held by him. 8.8. Poll As a general rule, all questions in a meeting are decided by the show of hands. Where, however, voting by the show of hands is considered unsatisfactory or where it is undesirable, a poll may be demanded, by at least five members present in person or by proxy or by the chairman of the meeting or by any member or members holding not less than one-tenth of the issued capital which carries voting rights. In the j case of a Private Company, one member, if not more than seven members are personally present, and two members, if more than seven members are personally present are entitled to demand a poll. The demand for the poll being made, the chairman fixes the time and place for taking the poll and on a poll even absent members may vote through proxies. 8.9. Proxy A 'proxy' is a stamped instrument in writing authorizing a person to vote as proxy for a shareholder at a certain meeting. The person appointed a proxy must be a shareholder himself. The instrument of proxy must be signed by the appointer or his attorney duly authorized in writing or, if the appointer is a corporation, it must be either under seal or under the hand of an officer of the corporation or an attorney duly authorized. The instrument must be deposited at the registered office of the company at least 72 (seventy two) hours before the time of the meeting. The power to vote by proxy must, however, be expressly provided for by the Articles; otherwise representation by proxy will not be in order. 9.0. Debentures: 9.1. Definition and Classification A debenture has been defined as "a document by which a company acknowledges its debt to the holder thereof under certain^ terms and conditions contained in the document." Debenture is a one kind of transferable security resembling shares by which a company can raise finance in the form of loan capital instead of share capital. At common law a company issues a debenture when it delivers its acknowledgement in writing of a debt it owns, whether existing or newly created but negotiable instruments such as bill of exchange, promissory notes as well as deeds of covenant are excluded.124


The terms and conditions contained in the debenture usually relate to the v interest to be paid, the mode of repaying the principal and the security' given for ensuring these payments. Debentures may be classified into the following categories on the basis of terms and conditions of their issue: (a) Simple or Naked Debentures: By these debentures the company simply promises to repay the principal amount lent by their holder together with interest at fixed rates thereon. Those debentures are called simple or naked because the promise to repay contained therein is not secured by any specified charge or mortgage of the assets of the company or any part thereof. The holders of such debentures are thus unsecured creditors of the company. (b) Mortgage Debentures: When the promise of the company to pay the interest and repay the principal is secured by some charge or mortgage on the total assets of the company, or any part thereof the debenture by which the promise is made is called Mortgage debenture. Now the 'charge' by which the debenture is secured may be either 'fixed' or 'floating'. When the debenture is secured by such a specific mortgage on any assets of the company that the debenture holders become the virtual owners of the assets, the charge is fixed and the debenture in that case is known as debenture with a fixed charge or fixed debenture. When, on the other hand, the debenture is secured only by such general charge or lien on the assets that the company can deal with the assets in anyway they like in the interest of the business, the charge is called 'floating' and the debenture secured thereby is known as debenture with a floating charge or floating debenture. A floating charge may get 'fixed" by an event, such as the winding up of the company. Until such events occur the company is, as we have seen, free to deal with its property and, therefore, it can even mortgage such property in priority to the floating charge. When such a floating charge is created, the usual practice is to draw out a trust deed as between the trustees on behalf of the debenture holders on one side and the company on the other. The trustees come in as soon as the charge becomes fixed. (c) Redeemable Debentures: These debentures are such as the company reserves the right to pay offer cancel on or after a certain date. Usually the payment to redeem debentures is made out of a specially created fund known as the 'Debenture Redemption Fund' or out of a fresh issue of debentures. (d) Irredeemable or Perpetual Debentures: These debentures are those which, by the terms of their issue, the company is never bound to pay off except in the case of winding up or default in the payment of interest. 9.2. Distinction between a shareholder and a debenture holder The position of a shareholder is fundamentally different from that of a debenture holder. The following are the main points on which they differ: (a) Money raised by the issue of shares makes up the capital of the company. But money contributed by a debenture holder is only a loan due by the company. (b) A shareholder is a proprietor of the company while a debenture holder is only its creditor. (c) A shareholder receives profit, called dividend, either at a fixed or at a variable rate but a debenture holder derives profits, called interest, only at a fixed rate. (d) A debenture can be redeemed but money received on account of share cannot be returned except where the company is wound up or a reduction of capital is effected by returning the uncalled money on shares. (e) When a company is wound up, the claims of debenture holders take priority over those of shareholders.


9.3. Debenture Stock As shares can be turned into stock, so also debentures can be converted into debenture stock. In fact, the relation between debenture and debenture stock is very much like the relation between the shares and stock. Like stocks debenture stocks need not be of any particular denomination but may be subdivisible into any amount. Debentures stock is, therefore, the whole debt of the company merged in one lump. A debenture stock holder can, as such, lend either Tk. 10.00 or Tk. 10.50 or 11.00 and so on as part of the total debt of the company; but debenture holders cannot lend otherwise than in terms of fixed denomination eg,.. Tk. 10.00 or Tk. 20.00 or Tk. 50.00 or Tk. 100.00 and so on. 10.0. WINDING UP 10.1. Definition. The winding up or liquidation of a Company means the termination of the legal existence of a Company by stopping its business, collecting its assets and distributing the assets among creditors and shareholders, in the manner laid down in the Act. 10.2. MODES OF WINDING UP. There are three methods of winding up a Company: 1. 2. 3. Compulsory Winding Up by the Court. Voluntary Winding Up by the members themselves or by the Creditors. Voluntary Winding Up under the supervision of the Court.

COMPULSORY WINDING UP. Compulsory Winding Up takes place when a Company is directed to be wound up be an order of Court. Grounds of Compulsory Winding Up. A Company may be wound up by the court under the following circumstances: (a) Special Resolution of the Company. If the Company has, by special resolution resolved that the Company be wound up by Court. (b) Default. If default is made in delivering the statutory report to the Registrar or in holding the statutory meeting (c) Not Commencing or Suspending the Company. If the Company does not commence its business within a year from its incorporation, or suspends its business for a whole year. (d) Reduction of Members. If the number of members is reduced, in the case of a public Company to below seven, and in the case of a private Company to below two. (e) Inability to pay debts. If the Company is unable to pay its debts. The just and equitable clause. If the Court is of opinion that it is just and equitable that the Company should be wound up.


Explanation of Just and Equitable The interpretation of just and equitable clause depends on the facts of each case. The court may order winding up of a company


(1) when the object for which it was incorporated has substantially failed or it is impossible to carry on the, business of the company except at a loss or the existing and probable assets are inadequate to meet the liabilities (2) when the majority of the shareholders are using their powers unfairly (3) where there is a deadlock inthe management of the company (4) where public interest in likely to be prejudiced (5) when the company was farmed to carry out fraudulent or illegal business (6) when the company is a mere bubble and does not carry on any business. Company when deemed unable the pay its debts (Sec-434) pay its debts under the following circumstances: A company is deemed to e unable to

1. If a creditor, entitled to receive an amount, demands the money in writing and the company does not pay the money or settle the claim within three weeks of the date of demand. The notice of demand may be signed by the creditor or by this duly authorized agent or legal adviser. If there are valid grounds for disputing the creditors claim no order for winding up will be passed. 2. If execution or other process (issued on a decree or order of any court in favor of a creditor of the company) is returned unsatisfied in whole or in part. 3. If the court, after taking into accounts the contingent and the prospective liabilities of the company, is of opinion that the company is unable to pay its debts. Who can apply for Winding up Subject to the qualifications mentioned below, an application or the winding up of a company can be made to the court by the following: 1. Company. A company can apply to the Court for winding up after a special resolution was passed in a meeting of the company. 2. Contributory. A contributory cannot apply on any other ground unless he was a registered shareholder for at least 6 months during the immediately preceding 18 months, or had obtained the share by the death of previous holder 3. Registrar. The Registrar is entitled to apply for winding up.

4. Government. The Government can apply for winding up under ground if such action is considered necessary after an enquiry into the affairs of the company by inspectors. 5. Creditors. Creditors usually apply for winding up on the ground that the company is unable to pay its debts. The court will not order winding up if the claim is doubtful or if the company can show good grounds for non-payment. 6. Workers. The workers of a Company are entitled to appear at the hearing of the winding up petition whether to support or to oppose it so long as no winding up order is made by the Court. The workers have a locus to appear and be heard. They would also be entitled to prefer an appeal and contend in the appeal that no winding up order should have been made by the Company Judge. Commencement of Winding Up. The winding up of a Company by the Court is deemed to commence from the time of the presentation of the petition for winding up. Where, there was a resolution for voluntary winding up, before the presentation of the petition to Court, the winding up is deemed to commence from the date of the resolution. But the Court may direct otherwise in cases of fraud and mistake.


POWERS OF THE COURT. After a winding up petition is filed, notice is issued on the Company to appear and state its case if any. After hearing both sides, the court may dismiss the petition, adjourn the hearing conditionally or unconditionally, make any interim order necessary or pass an order for winding up. If the order for winding up is passed, the Court appoints a Liquidator whose function is to take charge of and complete the winding up proceedings. To facilitate winging up proceedings the Companies Act gives the following powers to the Court: 1. Stay. The winding up proceedings may be stayed either altogether or for a limited period if considered necessary. 2. List of contributories. The Court is to settle the list of contributories, i.e. shareholders liable to pay money to the Company, determine how much is payable by each and direct the payment of the amount so determined. 3 Adjustment of the rights of the contributories. The Court adjusts the rights of contributories among themselves and distributes any surplus among persons entitled thereto. 4. Delivery to the liquidator. The Court may direct delivery to the Liquidator of any money, property or books and papers in the custody or control of the (Contributory, Trustee, Receiver, Banker, Agents, Officer of Employee of the Company 5. Proof of the claims. The Court may fix a time within which creditors are to prove their claims, and may exclude creditors, not proving within the time, from the benefit of any distribution made before those debts and claims are proved. 6. Giving Priority. In case if deficiency of assets the Court may give priority to the payment of costs and charges of the winding up proceedings. 7. Summon for questioning. The Court may summon, for questioning, persons suspected of having in their possession property, books and papers of the company, persons indebted to the Company, and persons capable of giving information regarding the formation of the Company and its dealings and transactions. If any person summoned fails to appear, he may be arrested. 9. Public examination. If the Liquidator reports that any person concerned with the formation of the Company or the officer of the company, is guilty of fraud, the Court may direct his public examination. He can thereupon be publicly questioned in Court by the Courts. 10. Arrest of a contributory. If it is found that a contributory is about to quit the country or to abscond or to remove and conceal any property for the purpose of avoiding payment or avoiding examination he may be arrested and the relevant books, papers and movable property may be seized. 11. To convene Meetings. The Court may convene meetings of creditors and contributories with a view to ascertain their wishes. 10.3. Official Liquidators.


Appointment. The Companies Act provides that in each High Court there shall be an officer known as the Official Liquidator appointed by the Government. There may also the Deputy or Assistant Official Liquidators. In High Courts there might be part time Official Liquidators. Duties of the Liquidator. 1. The liquidator shall conduct the proceedings in winding up the company.

2. After the winding up order is made, the Liquidator shall take into his custody and control all the properties, effects and actionable claims to which the Company appears to be entitled. 3. The Liquidator is to make a list of creditors.

4. The Liquidator is to summon general meetings of creditors and contributors, in order to find out their wishes. 5. This Liquidator is to pay the claims of the creditors pro rate. If the assets are sufficient to pay all the creditors, the left balance is to be distributed to the shareholders according to their rights. 6. In all the above matters, the Liquidator is subject to e control of the Court and must obtain directions from the court whenever necessary. 7. The Liquidator must pay all moneys received by him into the public account of Bangladesh Bank. He must submit the prescribed returns and reports to the court. He must keep the prescribed books of account and they shall be audited at least twice a year 8. The liquidators shall keep proper books for making entries or recording minutes of the proceedings at meetings. 9. The liquidator shall present to the court and account to his receipts and payments as liquidator. 10. The liquidator may call a meeting to determine whether a committee of inspection is to be appointed. Statement of Affairs. After the liquidator has been appointed a statement of the affairs of the company is to be made to him in the prescribed form, verified by an affidavit. and containing particulars regarding the assets, debts and liabilities, names and addresses of the creditors etc. the statement shall be verified by a Director and the Manager, Secretary or other Chief Officer of the Company. The Statement of Affairs is required in both Compulsory and Voluntary Winding up. The Statement of Affairs enables the liquidator to know the position of the Company. Report by Official Liquidator. As soon as practicable after the receipt of the Statement of Affairs and within 6 months after the date of the winding up order (or within such extended time as the Court may allow) the Official Liquidator shall submit to he Court a preliminary report. The report shall contain a statement of the amount of the capital issued, subscribed and paid up, the estimated amount of assets and liabilities, causes of failure of the Company, and whether in the liquidators opinion fraud and punishable offences have been committed by directors and others, and further enquiry is necessary. 10.4. Powers of the Liquidator.


(1) The liquidator in winding up by the court has power to do the following things with the sanction of the Court: (a) to institute or defend any suit, prosecution, or other legal proceeding, civil or criminal, in the name and on behalf of company. (b) to carry on the business of the company so far as may be necessary for the beneficial winding up to the company. (c) to sell the immovable and movable property and actionable claims of the company by public auction or private contract, with power to transfer the whole thereof to any person or body corporate or to sell to the same in parcels, (d) to raise on the security of the assets of the company any money requisite. (e) to do all such other things as may be necessary for winding up the affairs of the company and distributing its assets. (f) to appoint any advocate, attorney or pleader entitled to appear before the court to assist him in his duties. (2) The liquidator in a winding up by the Court has power to do the following things, without taking special permission from the Court (a) to do all acts and to execute, in the name and on behalf of the company, all deeds receipts and other documents, and for that purpose to use, when necessary, the companys seal. (b) to inspect the records and returns of the company on the files of the Registrar without payment of any fee. (c) to prove, rank and claim in the insolvency of any contributory, for any balance against his estate and to receive dividends in to insolvency. (d) to draw, accept, make and indorse and bill of exchange hundi or promissory note in the name and on behalf of the company. (e) to take out, in his official name letters of dissertation to any deceased contributory, and to do in his official name any other act necessary for obtaining payment of any money due from a contributory or his estate which cannot be conveniently done in the name of the company. (f) to appoint an agent to do any business which the liquidator in unable to do himself. 10.5. Committee of Inspection. The Committee of Inspection of a Join Committee of creditors and contributories consisting of not more than 12 persons. The function of the Committee is to keep a general watch over the acts of the liquidator for the protection of the interests of the creditors and contributories. For this purpose the Committee has the right to inspect the accounts of the liquidator at all reasonable times. The court may, at the time of making the winding up order or at any time thereafter, direct that there shall be appointed a Committee of Inspection. Within two months from the date of such direction, the liquidator shall convene a meeting of the creditors for the purpose of determining who are to be members of the committee. He shall also call a meeting of the contributories, within 14 days after the creditors meeting (or such further time as may be allowed by the court). The contributories are to consider the decision of the creditors as regards the membership of the committee. If the two groups agree, the committee shall be formed accordingly. Otherwise the Court shall decide how the Committee is to be constituted. The Committee of Inspection may meet as often as it desires. The liquidator or any member of the Committee can call a meeting. One-third of the number of members, or two, whichever is higher constitutes the quorum. A member may resign. He loses membership if he becomes an insolvent or compounds with his creditors or absents himself from five consecutive meetings.


10.6. CONTRIBUTORIES Definition. The term Contributory means every person liable to contribute to the assets of a Company in the event of its being wound up. When a limited liability Company is wound up only those shareholders who have not paid in full the amount on their shares are liable to contribute, But the Companies Act includes, within the term contributory, the holders of fully paid up shares. The list of Contributories is made up of two parts, A and B. The A list contains the names of persons who are members of the company on the date of the winding up. The B list contains the names of persons who were members within a period of one year previous to the date of winding up. Rights and liabilities. The Court settles the list of contributories. The rights and liabilities of different Contributories are determined by the Court according to the rules laid down in the Act as follows: (a) A past member shall not be liable to contribute if he has ceased to be a member for one year or upwards before the commencement of the winding up. (b) A past member shall not be liable to contribute in respect o any debt or liability of the company contracted after he ceased to be a member. (c) No past member shall be liable to contribute unless it appears to the Court that the present members are unable to satisfy the contributions required to be made by them in pursuance of this Act. (d) In the case of a company limited by shares, no contribution shall be required from any past or present member exceeding the amount, if any, unpaid on the shares in respect of which he is liable as such member: and (e) In the case of a company limited by guarantee, no contribution is required from any past of present member exceeding the amount undertaken to be contributed by him to the assets of the company in the event of its being wound up. (f) Upon the death of a contributory his legal representative becomes a contributory. Obligations of directors and managers whose liability is unlimited. Where according to the Act and the rules of a company the liability of any director or manager is unlimited, he shall in addition to his liability, if any, to contribute as an ordinary member, be liable to make a further contribution as if he were at the commencement of the winding up, a member of an unlimited company. But he shall not be liable to make such further contributions under the following circumstances: a. If he has ceased to hold office for a year or upwards before the commencement of the winding up. (b) If the debt or liability for which contribution is required was contracted after he ceased to holed office: and, (c) Unless, the Court deems it necessary to require the contribution. 10.7. VOLUNTARY WINDING UP Voluntary winding up means winding up by the members themselves without the intervention of the court. A company can be wound up voluntarily under the following circumstances. 1. By an ordinary Resolution of the members passed in a general meeting in the following cases: (a) Where the duration of the company was fixed by the articles and the period has expired: and (b) Where the articles provided for winding up on the occurrence of any event and the specified event has occurred.



By a Special Resolution passed by the members in all other cases. When a resolution is passed for voluntary winding up, it must be notified to the public by an advertisement in the official Gazette and in a local newspaper

10.7.1. TYPES OF VOLUNTARY WINDING UP. There are two types of voluntary winding up. If the company is, at the time of winding up, a solvent company, i.e. able to pay its debts and the directors make a declaration to that effect, it is called a member Voluntary Winding Up. If the company is not in a position to pay its debts and the directors make no declaration of solvency it is called a Creditors Voluntary Winding Up. The Declaration of Solvency. The Declaration of Solvency is to be made by all the directors (When there are only two directors) or by the majority of the directors (when there are more than two directors). The declaration must be to the effect that they have made a full enquiry into the affairs of the company and that they have formed the opinion that the company has no debts, or that it will be able to pay its debts in full within a specified period (not exceeding three years). The declaration must be verified by an affidavit and must be made at a meeting of the Board. The declaration must be made within the five weeks immediately preceding the date of the passing of the resolution for winding up and must be delivered to the Registrar for registration before that date. 10.8. DIFFERENCES BETWEEN VOLUNTARY WINDING UP. MEMBERS VOLUNTARY AND CREDITORS

1. The former applies to solvent companies and a declaration of solvency is necessary. The latter applies to insolvent companies and no declaration of solvency can be made. 2. In the former, it is not necessary to have a creditors meeting. In the latter there must be a creditors meeting immediately following the members meeting. 3. In the former, the liquidator is appointed by the members, In the latter both the members and the creditors may appoint a liquidator but, if they nominate different persons, the creditors nominee becomes the liquidator. 4. In the former, there is no Committee of Inspection. In the Latter there may be one. 10.9. PROCEDURE OF A VOLUNTARY WINDING UP. company is done by following successive states: The voluntary winding up of a

1. In a Members Voluntary Winding Up: (1) Declaration of Solvency (2) Statutory Declaration to the Registrar (3) A Resolution in a general meeting of the Company within 5 weeks of Declaration of Solvency. (4) Appointment of Liquidator. (5) Collecting the companys assets, pay the liabilities of the company and pay the balance of the proceeds to the contributories. 2. In a Creditors Voluntary Winding Up: (1) A Resolution for the winding up of the company in a general meeting of the company. (2) One he same day or the following day there must be a meeting of the creditors. In the meeting of creditors the directors must state the position of the company and the list of creditors (3) A liquidator or liquidators are appointed by the meeting of members and the meeting of the creditors. The nominees of the creditors are preferred (4) A committee of Inspection (5) The work of winding up according to Statute. 10.10. Rules applicable to a Members Voluntary Winding Up. 1. The company in general meeting appoints one or more liquidators and fixes their remuneration. Vacancies in the office of liquidators are filled by the company in general meeting.


2. On the appointment of liquidators, the powers of the Board of directors, managing or whole time directors and managers, come to an end. 3. Notice of the appointment of the liquidator is to be given to the Registrar. 4. The liquidator must call a general meeting of the company at the end of every year and lay before in an account of his acts and dealings. If the liquidator finds that the company is actually insolvent he must immediately call a meeting of the creditors of the company. 5. As soon as the affairs of the company are fully wound up, the liquidator shall call a meeting of the company (by advertisement) and lay before it accounts showing how he winding up has been conducted. This meeting is called the Final Meeting of the Company. 6. Within one week after the final meeting, the liquidator shall send to the Registrar and the Official Liquidator a copy each of the account, and shall make a return to each of them. If the final meeting is not held for want of quorum, the return shall state so. 7. The Registrar, on receiving the accounts and the returns, shall register them. 8. The official liquidator, on receiving the accounts and returns, shall as soon as may be, make a scrutiny of the books and papers of the company and upon such scrutiny, if he finds that the affairs of the company have not been conducted in a manner prejudicial to the interests of the members or to public interest, he shall report to the court to that effect. 9. If the Official Liquidator finds and reports that the affairs of the company have been conducted in a manner prejudicial to the interests of the members or the public interest, the Court shall direct the Official Liquidator to make a further investigation. 10.11. Rules applicable to a Creditors Voluntary Winding Up. 1. The company shall call a meeting of the creditors to be held on the day or the day following the date on which the company will hold a general meeting of the members to pass the resolution for winding up. The notice of the creditors meeting must be sent by post (simultaneously with the notice of the members meeting) and must also be advertised in the Official Gazette and at least two local newspapers. 2. The Board of directors shall cause a full statement of the affairs of the Company and a list of creditors to be prepared and laid before the creditors meeting. A Director is to be nominated to preside over the creditors meeting. Copies of all resolutions passed in the creditors meeting are to be sent to the Registrar. 3. The members and the creditors, in their respective meetings, can nominate a liquidator. In case the two groups nominate different persons as liquidator, the creditors nominee shall be the liquidator. 4. The creditors may, in a meeting, appoint a Committee of Inspection consisting of not more than five persons. The members of the Company may thereafter appoint not more than five members to the Committee from among themselves. If the creditors object to the persons nominated by the members, some other persons must be appointed, unless the Court, on an application made to it, decides otherwise. 5. The remuneration of the liquidator is to be fixed by the Committee of Inspection or if there is no such Committee by the creditors, the Court is to do it. 6. On the appointment of a liquidator, the powers of the Board of directors come to and end except in so far as the committee of Inspection or, if there is no such Committee, the creditors in a general meeting may sanction the continuation thereof. 7. In the event of the winding up continuing for more than one year, the liquidator shall call at the end of each year a meeting of members and a meeting of the creditors. The liquidator shall place before the meetings an account of his acts and dealings and of the conduct of the winding up during the preceding year. 8. When the affairs of the Company are fully wound up the liquidator shall call a final meeting of the members and creditors and place before them final accounts. 9. Within one week after the holding of the above meetings, the liquidator shall send a return of the meeting and a copy of the final accounts to the Registrar and the official liquidator.


Powers of the liquidator. The liquidator in a voluntary winding up has all the powers which a liquidator in a compulsory winding up has. In addition to the aforesaid, the liquidator in a voluntary winding up has the following powers: (a) To settle the list of contributories and adjust the rights of contributories among themselves: (b) To make calls upon contributories: (c) To call general meetings of arrangement or compromise with creditors with the sanction of a special resolution of the company (or the Court or the Committee of Inspection) and accept shares and properties of another company as part of such schemes. 10.12. WINDING UP SUBJECT TO THE SUPERVISION OF COURT Definition. At any time after a company has passed a resolution for voluntary winding up, the Court may make an order that the voluntary winding up shall continue but subject to the supervision of the Court. A supervision order is usually made for the protection of the creditors and contributories of the company. Effects. A supervision order has the following effects: 1. It gives jurisdiction the court over suits and legal proceedings against the company to the same extent as in a winding up directly by the court. 2. The court can appoint an additional liquidator or liquidators. The court can remove any liquidator and fill any vacancy caused by removal, death or resignation. The Official Liquidator may be appointed liquidator in such cases. 3. Powers of the Liquidator. The liquidator in a winding up under the supervision of the Court can exercise all the powers of a liquidator in voluntary winding up. But the Court can modify or limit the powers and can also give him additional power. Consequences Of Winding Up. The consequences which follow from winding up proceedings can be classified under three heads (a) those which follow all types of winding up: (b) certain other consequences in a compulsory winding up: and (c) other consequences of a voluntary winding up. Consequences which follow all types of Winding Up. 1. The Board of Directors of the Company ceases to have any powers. 2. The property and effects of the company comes under the custody of the liquidator who has to realise the assets and distribute them according to the laid down rules. 3. Every invoice, order for goods or business litters issued on behalf of the company by the liquidator and others and in which the name of the company appears, shall contain a statement that the company is in liquidation. 4. Fraudulent Preference. Al transactions of the company, made within six months previous to the commencement of the winding up, which amount to fraudulent preferences, are invalid. (Fraudulent preferences means any transfer of money or property to a creditors which has the effect of giving him an undue preference as compared with the other creditors) Certain other consequences of Compulsory Winding Up.


1. When a winding up order is passed the court has to send intimation thereof forthwith to the Official Liquidator and the Registrar. 2. A certified copy of the winding up order must be sent to the Registrar by the petitioner and the company within one month of the date of the order. Failure to do so is a punishable offence. 3. The winding up order operates as notice of discharge to the officers and employees of the company, except where the business of the company is continued according to the provisions of the Act. 4. After the winding up order is passed or the official liquidator is appointed as the provisional liquidator, no suit or proceeding can be commenced against the company, and pending suits and matters cannot be proceeded with, except by the leave of the winding up court and subject to such terms as the court may impose. 5. In the case of a winding up by the court or under supervision of the court, the following transaction are void: any dispositions of property or actionable claims or transfer of shares or alteration in the status of a member made after the winding up order, unless the court otherwise declares: and, any attachment, distress or execution and sale of the companys properties without the leave of the court. Additional Consequences in a Voluntary Winding Up. 1. The company shall, from the commencement of the winding up, cease to carry on its business except so far as may be required for the beneficial winding up of such business, But the corporate state and corporate powers of the company shall continue until it is dissolved. 2. Any transfer of shares and alteration in the status of any member made without the leave of the liquidator, is void Thus the consequences of winding up may be summed up: 1. Consequences as to shareholders- A shareholder is liable to pay the full amount up to the face value of the shares held by him. 2. Consequences as to creditors- Where a solvent company is wound up, all claims of its creditors, when proved, are fully met. In the case of an insolvent company the same rules prevail as in the case of law of insolvency. 3. Consequences regarding preferential payments- Some unsecured debts are paid in preference to all other debts. 4. Consequence as to servants and officers- An order of winding up is considered to be notice of discharge to the officers and employees of the company, except when the business of the company is carried on. 5. Consequences as to proceedings against the company- When an order of winding up is issued or an official liquidator is appointed; no suit against the company can be made except by the leave of the court. 10.13. MODE OF DISTRIBUTION OF ASSETS Preferential Payments. The costs of the winding up proceedings are to be paid first out of the assets. Next in order of priority comes the following debts. 1. All revenues, taxes and rates due to the Government or a local authority. The debts must be due at he relevant date, having become due and payable within the 12 months next before that


2. 3. 4. 5. 6.

date. Relevant Date means, - date of appointment or first appointment of the provisional liquidator or the date of the winding up order. And, in other cases-date of resolution for voluntary winding up. Wages and salary of any employee for a period not exceeding 4 months within the 12 months before the relevant date, and subject to certain limits, the compensation payable to any workman under the Industrial Disputes Act. All accrued holiday remuneration to an employee becoming payable on account of the termination of service by the winding up order. Payments due to a workman under the workmens Compensation Act, for death or disablement. All sums due to an employee from a provident fund, pension fund, gratuity fund or any other fund maintained for the welfare of the employees. Expenses of enquiries and investigations, payable by companies.

Payment to creditors. If any money remains after meeting the costs and the preferential payments, it is used to pay the creditors of the company. All debts payable by the company and claims, whether certain or contingent and whether present or future, can be proved in the winding up proceedings and payment claimed from the liquidator. In case of insufficiency of assets the claims of the creditors are reduced. The creditors are paid at a time or by installments as assets are realised. Payment to Contributories. If any money remains after paying the costs, the preferential payments and the creditors in full, it is paid to the contributories according to their rights. They may be paid at different times by installments as assets are available for distribution. Such payments are also called dividends. 10.14. MISCELLANEOUS PROVISIONS Dissolution of the Company. When the affairs of the company have been completely wound up ( assets collected and distributed etc) the court shall make an order that the company be dissolved from the date of this order Books and Papers of the company. When the affairs of the company have been completely wound up, its books ad papers shall be disposed of in the following way: (a) In a members voluntary winding up- as the company by special resolution directs: (b) In a creditors voluntary winding up as the committee of Inspection or, in its absence, as the creditors direct: and (c) In all other cases- as the court directs. After the expiry of 5 years from the date of dissolution, no responsibility shall rest on the liquidator or any other person to produce the books, unless the Government otherwise directs.