COMPANY LAW

Nature of Company
Definition of Company
Characteristics of a Company
Company distinguished from Partnership
Company Law in India- The Companies Act 1956
Definition of Company
A voluntary Association of Persons-
A company , in broad sense, may be an association of
individuals formed for some common purpose.
But it is a voluntary association of persons.
It has capital divisible into parts known as shares. At the
same time is an artificial person created by a process of
law.
It has perpetual succession and a common seal.
It exists only in consideration of law
An artificial person-has no body or soul-
A company has no body , no soul and no conscience nor is it
subject to imbecilities of the body.
It is not visible
This physical disabilities make a company an artificial person.
But then company really exists and it is not a fictitious entity.
Lindley’s definition: A company is an association of many
persons who contribute money or money’s worth to a
common stock, and employ it in some common trade or
business, and who share the profit or loss arising there from.
On incorporation a company becomes a body corporate or
corporation with a perpetual succession and a common seal.
It also requires a personality distinct from its members
Characteristics of a Company
I. Separate legal entity
II. Limited Liability
III. Perpetual succession
IV. Common Seal
V. Transferability of Shares
VI. Separate property
VII. Capacity to sue
Company distinguished from Partnership
1) Regulating Act
2) Mode of creation
3) Liability of Members
4) Legal Status
5) Management
6) Transferability of interest
7) Authority of members
8) Powers
9) Restrictions on Powers
10) Insolvency of firm and winding up of company
11) Debts
12) Dissolution
13) Number of Members
14) Maintenance of books.
Company Law in India
Company legislation in India owes its origin to the English Company Law.
The company Acts passed from time to time in India have been following the
English Companies Acts with certain modifications to suit Indian conditions.
 The Background of Companies Act, 1956
 After the end of world war II, the need for a further revision of the company
law was felt.
Many changes had taken place in the organizations and management of joint
stock companies.
The Government of India appointed a 12 members committee representing
various interests under the chairmanship of Mr. H.C Bhabha on October 25,
1950.
The committee submitted a comprehensive report on all aspects of company
law in April 1952.
The recommendations of the committee culminated in the most
comprehensive on the subject in the companies Act of 1956
The Act has been amended several times since it was codified.
Major amendments to Act were made in 2002.
1. The Indian Companies Act-1913 passed in the British
parliament on the basis of companies act 1908 and it
executed in 1914
2. Then the act amended at least six time between the
1914-1932
3. The Act enforced in India until 1947
4. After the independent of the country very little
amendment made in 1951
5. Major amendment made in the year of 1955 upon the
recommendation of Bhabha Committee which
enforced in 1956
6.Currently Act of 1956 is in enforced in India
 Companies Act in Pakistan
1. After the independent of India and Pakistan,
Pakistan enacted the Companies Act -1913 by only
inserting the word Pakistan instead of India
2. They made few amendments in the year of 1969
 Companies Act in Bangladesh
1. In 1971 Bangladesh continued the Companies Act
1913
2. In 1977 Law reforms Committee made few
recommendations but did not made significant
progress
3. Finally in 1994, a bill was passed under the Name of
Companies Act, 1994.
4. The law became enforce as 1st January 1995.
 KINDS OF COMPANIES
Classification on the basis of incorporation
Classification on the basis liability
Classification on the basis of numbers of Members
Classification on the basis of Control
Classification on the basis Ownership
Association of non-profit
Classification on the Basis of Incorporation

Statutory Companies- The companies which are

created by a special Act of the parliament. Sonali
Bank, Sadran Bima, Bangladesh Petroleum
Corporation etc.
 Registered Companies- These are the companies
which are formed and registered under companies
Act of 1956 or were registered under any earlier
companies Act. These are the most commonly found
companies
Classification on the basis of Liability
Companies with limited liability
A. Companies limited by Shares-where the liability of the
members of a company is limited to the amount unpaid on the
shares, such company is known as limited by shares. The liability
can enforced during the existence of the company or during the
winding. If the shares price is fully paid the liability is nil.
B. Companies limited by Guarantee-Where the liability of the
members of a company is limited to fixed amount which the
member s undertake to contribute to the assets of the company
in the event of its being wound up, the company called limited by
guarantee
 Unlimited Companies: An unlimited company may or
may not have a share capital. It must have its own Articles of
Association
Classification on the Basis of Number of Members
From the view of the General public and the basis of
number of members, a company may be-
A. Private Company
B. Public Company
C. Private Company: A private company is normally call
a “Close Corporation”. A private company which has a
minimum paid-up capital as may be prescribed as by its
Articles-
a) Restricts the right to transfer its shares
b) Limits the number of its member to 50
c) Prohibits any invitation to the public to subscribe for
any shares
B. Public Company: It means a company which-
a) Has a minimum paid-up capital of Tk. 5,00,000.00 or higher
b) Their maximum number of members unlimited.
 Distinction between a Public and Private Company
1) Minimum Capital
2) Minimum Number
3) Maximum Number
4) Number Directors
5) Restriction on appointment of directors
6) Restrictions on invitation to subscribe shares
7) Transferability of Shares/debentures
8) Special privileges
9) Quorum
10) Managerial remuneration
Special privileges of Private Company:
1) Number of Members
2) Allotment before minimum subscription
3) Prospectus or statement in lieu of prospectus
4) Issue of New shares
5) Kinds of Shares
6) Commencement of business
7) Index of Number
8) Statutory meeting and statutory report
9) Demand for poll
10) Managerial remuneration
11) Number of Directors
12) Rules regarding Directors
13) Legal position of a private company
Conversion of Private Company to Public Company
a) Conversion by default- Where a default is made by a private
company in complying with the essential requirements of a private
company like restriction on transfer of shares, limitation of
members and prohibition of invitation to public to buy shares or
debentures, the company ceases to enjoy the privileges and
exemption conferred on private company.
b) Conversion by choice or violation: A private company which
becomes a public company shall also-
I. File a copy of the resolution altering the articles, within the 30 days
of passing thereof, with the Registrar
II. Take steps to raise its membership to at least 7 if it is below that
number on the date of conversion, and also increase number of
directors to more than 2.
III. Alter the regulations contained in the Articles which are
inconsistent with those of a public company .
Conversion of Public Company to Private Company
I. A public company may be converted into a private
company by passing a special resolution.
II. The special resolution should be change the Articles of
the company so as to include the conditions as
prescribed.
III. An alteration made in the Articles which has the effect
of converting a public company into a private company.
IV. Such alteration has been approved by the government.
V. Copies of the alteration should submit with the
Registrar within 30 days of receipt of approval
Classification on the basis of Ownership
 On the basis of ownership , a company may be
I. Government Company: A government company means any company
in which not less than 51% of the paid-up share capital is held by
government.
II. Non-Government Company: This types of company basically held by
the general public.
III. Foreign Company: It means any company incorporated outside
Bangladesh which has an established place of business in Bangladesh.
IV. Associations not for profit: The association is about to formed as a
limited company for promoting commerce, science, religion, charity or
nay useful object and intends to apply its profits, income in promoting
its objects and prohibit the payment of any dividend to its members.
V. One-Man Company: where one man hold practically the whole of the
share capital of the company, and in order to meet statutory
requirement of minimum numbers of members, some dummy members
who are mostly relatives or friends. The dummy members are actually
nominees of the principal share holders.
 COMPANY

Chartered Statutory Registered Unregistered Other

Company Company Company Company Company

Limited Unlimited Existing Foreign Non-Trading Special

Company Company Company Company Company Company

Limited by Limited by
Guarantee Shares

Private Public
limited Limited
Govt. Non-Govt. Holding Subsidiary
Company Company Company Company
Formation of Company
Electronic Filing Form
Incorporation of Company
Certificate of Incorporation
Promoter
Pre-incorporation of Preliminary
Contracts
Provisional Contracts
 Electronic Filing of Forms
Ministry of Commerce has launched a program for managing the
work relating to filling documents etc. with the Joint Stock
Company. The physical filing of all forms has been discontinued and
converted into electronic filing.
I. Registration and incorporation of new companies
II. Filing of annual returns and balance sheets
III.Filing of forms for change of name/address/ directors details
IV. Registration, modification and verification of charges
V. Inspection of documents
VI.Issue of certified copies
VII.Application for permissions required under various provisions of
Company Law
Approvals of from Government, Registrar of Joint Stock Company
VIII.
IX.Investor grievance remedy.
Incorporation of Company
Before a company is formed certain preliminary
decisions are necessary. They do all the
necessary work incidental to the formation of a
company. Company so formed may be:
a) A company limited by shares
b) A company limited by guarantee
c) Unlimited company

Company limited by shares are the most popular.

Documents to be filled with the Registrar:
1) The Memorandum of Association duly signed by the
subscribers.
2) The Articles of Association if any. (A public limited
company limited by shares does have its own Articles of
Association )
3) The Agreement if any
4) A list of the directors who agreed to become the first
directors.
5) A declaration stating that all the requirements of the
companies Act and other formalities to registration have
been complied with.
Certificate of Incorporation:
A certificate of incorporation given by the Registrar in
respect of a company is conclusive evidence that all the
requirements of the company Act have been complied
with in respect of registration.
Effects of Registration:
1) The company becomes a distinct legal entity. Its life
commences from the date mentioned in the certificate
of incorporation.
2) The company acquires a perpetual succession.
3) The company’s property is not the property of the
shareholders. Shareholders have a right to share in the
profits of the company when realized and divided.
Promoter
A promoter is a person who does the necessary preliminary
work incidental to the formation of a company.
He is the first person who control a company’s affairs are its
promoters
Functions of Promoter:
a. Decides its name which will accepted by the Registrar
b. Prepares Memorandum & Articles
c. Nominate Directors, solicitors, bankers, auditors, secretary
and registered office of the company
d. Arrange for the publication of prospectus, obtain
registration.
e. Any other related matter in connection with the formation of
the company.
 Memorandum of Association
The memorandum of Association is a document of great
importance in relation to the proposed company.
It contains the fundamental conditions upon which alone
company is allowed to be incorporated.
It is the charter of the company and defines the reason for its
existence.
It lays down the area of operations of the company.
It regulates the external affairs of the company in relation to
outsiders.
Its purpose is to enable shareholders and those who deal
with the company to know what its permitted range of
enterprise.
Company cannot go beyond its authorized area
Content of the Memorandum
1) Name of the company with “Limited” as the last word
either Private or Public.
2) State in which registered office of the company is to be
situated.
3) The objective of the company which may classified as
main object or other object.
4) Indicating the territory other than its main area if any.
5) Memorandum of company should indicate weather its
limited shares or guarantee.
6) In case of a company having a share capital, the
amount of share capital with which the company is to
be registered and the division thereof into share of a
fixed amount.
Alteration of Memorandum
Special Resolution
Confirmation by the company Law Board
Notice to affected parties
Notice to Registrar
Power of the Company Law Board to confirm change
discretionary
Rights and interest of members and creditors to be
taken care of
Copy of special resolution and the order of the
company law Board to be filed with Registrar.
Doctrine of Ultra Vires
A company has the power to do all such things are-
1) Authorized to be done by the Companies Act
2) Essential to the attainment of its objects specified in
the Memorandum
3) Reasonably and fairly incidental to its objects.
Every thing else is ultra vires the company. Ultra means
beyond and vires means power.
 Articles of Association
The Articles of Association or just Article are the rules,
regulations and bye-laws for the internal management of a
company.
They are framed with object of carrying out the aims and
objects as set out in the Memorandum.
The Articles are next in importance to the Memorandum
of Association which contains the fundamental conditions
upon which alone a company allowed to be incorporated.
It is subordinate to and controlled by the Memorandum.
 Content of Articles
 Articles usually contain provisions relating to following matters:

1) Share capital, rights of shareholders, payment of commissions and share certificate.

2) Lien shares
3) Calls on shares
4) Transfer of shares
5) Transmission of shares
6) Forfeiture of shares
7) Conversion of shares into stock
8) Share warrant
9) Alteration of capital
10) General meetings and proceedings
11) Voting rights of members, voting and poll, proxies
12) directors, their appointment, remuneration, qualifications, power and proceedings of Board
of directors
13) Manager
14) Secretary
15) Dividends and reserves
16) Accounts, audit and borrowing powers
17) Capitalizations of profits
18) Winding up
Alteration of Articles and its limitations
A company may, by passing a special resolution, alter its
Articles any time.
Limitations to Alteration:
1) Must not conflict with the Memorandum
2) Must not sanction anything illegal.
3) Must be for the benefits of the company
4) Must not increase the liability of the members
5) Alteration by special resolution only
6) Breach of Contract
7) Must not result in expulsion of a member
8) No power of tribunal to amend articles
9) Alteration may be retrospective effect.
Distinction between Memorandum and Articles
Memorandum Articles
It is the charter of the company indicating It is the regulations for the internal
the nature of its business. management

It defines the scope of the activities of the It is the rules for carrying out the objects of
company the company.

Being the charter of the company, it is the It is the subordinate to the Memorandum
supreme document

Every company must have their own A company limited by shares need not have
Memorandum their own Articles

There are strict restrictions on its It can be altered by a special resolution

alterations

Any Act of the company which is ultra Any Act of the Company which is ultra-
-vires the memorandum is wholly void and vires the Articles can be confirmed by the
cannot be ratified shareholders.
 Prospectus
Any document described or issued as a prospectus and includes
any notice, circular, advertisement or other document inviting
deposits from the public or inviting offers from the public for the
subscription or purchase of any shares in or debenture of a
company.
In order to finance its activities, a company needs capital which is
raised by a public company by the issue of a prospectus inviting
deposits or offers for shares and debenture from the public.
A private company is prohibited from any invitation to the public
to subscribe for any shares in or debentures of the company.
A prospectus must be registered with Registrar office before the
date of publication.
Where a private company does not invite public to subscribe for
its shares, but arranges to get money from private sources, it need
not issue a prospectus to the public. In such case the promoters
are required to prepare a draft prospectus known as a “Statement
in lieu of Prospectus”
Membership in a Company
The members or shareholders of a company are the
persons who collectively constitute the company as a
corporate body.
Distinction between shareholder and a member
1) A registered shareholder is a member but a registered member
may not be shareholder because the company may not have a
share capital ( in case of unlimited company, company limited by
guarantee)
2) A person who owns a bearer share warrant is a shareholder but
he is not a member as his name is struck off the register of
members. That is that person may be holder of the share not the
member
3) A legal representative of deceased member is not a member
until he applies for registration. He is however, a shareholder
even though his name does not appear in the register of
members
Who can be a Member?
A person who competent to contract may become a meber of the
company.
Minor: A minor is not competent to become the member of a
company however that an agreement in writing for a minor to
become a member may be signed on behalf of the minor by his
lawful guardian and the registration of a transfer of share in the
name of the minor.
Insolvent: An insolvent may be member of a company. As long as
his name appears in the register of the member. He is entitled to
vote even though his shares vest in the official Assignee .
Partnership firm: a partnership firm may hold shares in a
company in the individual names of partners as joint shareholders
Foreigner: A foreigner may become a member of a company , but
any time he becomes an alien enemy, his rights as member of the
company are suspended.
Company: A company may, if so authorized by its articles,
become a member of a another company
The capital of a company is divided into certain
indivisible units of a fixed amount. This units are called
share
Stock is the aggregate of fully paid-up shares,
consolidated and divided for the purpose of convenient
holding into different parts.
The stock may transferred or split up into fractions of any
amount
A company limited by shares may, if authorized by its
Articles by ordinary resolution passed in a general
meeting, convert its fully paid-up shares into stock.
Distinction Between Share and Stock
SHARES STOCK
A share has nominal value Stock does not carry nominal vale

Share may not fully paid Stock are fully paid

Shares may be transferred in round Stock may be transferred in any

numbers fractions

All share are equal domination Stock may carry unequal amounts

Shares always bear distinctive numbers Stock does not bear any distinctive
and shares can be directly issued to the numbers and stock cannot directly
public issued to the public
SHARES
The capital of a company is divided into certain
indivisible units of a fixed amount. These units are
called shares.
The shares or debentures or other interest of any
member in a company shall be moveable property,
transferable in the manner provided by the Articles of
the company.
Under the companies Act , 1956 , a company can issue
two types of shares
A. Preference shares
B. Equity shares
Preference Shares:Preference shares, with reference to
any company limited by shares, are those have two
characterteristics:
a) They have a preferential right to be dividend during the
lifetime of the company
b) They have a preferential right to the return of capital
when the company goes into liquidation.
KINDS OF PREFERENCE SHARES:
1) Cumulative Preference Shares: These are the shares on
which dividend goes on accumulating till it is fully paid
off. The arrears of any year’s dividend are carried
forward as a charge upon the subsequent years’ profits.
2) Non-cumulative preference Shares: These are the
shares on which the dividend does not go on
accumulating
3) Participating preference shares: These shares are not only
entitled to a fixed rate of dividend but also to share in the surplus
profits remain after the claims of the equity shareholders have
been met.
4) Non-participating preference shares: These shares are which
entitled to only a fixed rate of dividend. The holders of these
shares do not share in the surplus profits which go the equity
stockholders.
5) Convertible preference shares: These are the shares which
entitled their holders to convert them into equity shares within a
certain period.
6) Non-convertible preference shares: These are the shares which
do not confer on their holder a right of conversion into equity
shares.
7)Redeemable preference shares: A company limited by shares
may, if so authorized by its Articles , issue preference shares
which are to be redeemed.
Winding Up
Winding up or liquidation of a company represent the
last stage in its life. It means a proceeding by which a
company is dissolved.
There are three modes of winding up of a company:
① Winding up by the court, Compulsory winding up.
② Voluntary winding up, these may be:
members’ voluntary winding up or
 Creditors’ voluntary winding up
3) Winding up subject to Supervision of Court.
Consequences of winding up order
The consequences of winding up by the court are as
follows:
① Intimation to to official liquidator and Registrar
② Copy of winding up order to be filed with the Registrar
③ Order for winding up deemed to be notice of discharge
④ Suits Stayed
⑤ Power of the court
⑥ Effect of winding up order
⑦ Official liquidator to be liquidator