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Assignment Corporate Law MASTER OF BUSINESS ADMINISTRATION

MBA III( Session 2010-2012)

Submitted to:

Mr. Taqueer Ahmad

Submitted by:

Nawaz Sharif

Roll No. 04

Department of Management Sciences Minhaj University Lahore

Member (of a Limited Liability Company)

Definition: A member of a limited liability company (LLC) is an owner of the company. Members in an LLC are equivalent to partners in a partnership. The members determine how much each member will share in the duties of the business and in the profits and losses of the business. All rights and responsibilities of members are spelled out in the Operating Agreement of the LLC. An LLC can have only one member - a "single member LLC;" almost every state allows single-member LLC's. The members of the LLC have a limited liability for debts of the business, unless they have personally guaranteed loans or other debts.

Single Member Limited Liability Companies

Over the years, there has been confusion regarding Single Member Limited Liability Companies in general and specifically, how they can report and pay employment taxes. An LLC is an entity created by state statute. The IRS uses tax entity classification, which allows the LLC to be taxed as a corporation, partnership, or sole proprietor, depending on elections made by the LLC and the number of members. An LLC is always classified under federal law as one of these types of taxable entities. A multi-member LLC can be either a partnership or a corporation, including corporation. To be treated as a corporation, an LLC has to file Form 8832, Entity Classification Election (PDF), and elect to be taxed as a corporation. A multi-member LLC that does not so elect will be classified under federal law as a partnership. A single member LLC (SMLLC) can be either a corporation or a single member disregarded entity. Again, to be treated under federal law as a corporation, the SMLLC has to file Form 8832 and elect to be classified as a corporation. An SMLLC that does not elect to be a corporation will be classified by the existing federal guidance as a disregarded entity which is taxed as a sole proprietor for income tax purposes. Employment tax and certain excise tax requirements for an SMLLC that is a disregarded entity have changed over the past few years. In August, 2007, final regulations (T.D. 9356) (PDF) were issued requiring disregarded single member LLCs to be treated as the taxpayer for certain excise taxes accruing on or after January 1,

2008 and employment taxes accruing on or after January 1, 2009. SMLLCs will continue to be disregarded for other federal tax purposes. For employment taxes, prior to the regulation changes, the single member owner of a disregarded SMLLC was responsible for reporting and paying employment taxes. Before January 1, 2009 the single member owner could file using either the name and EIN assigned to the SMLLC, or the name and EIN of the single member owner. Even if the pre-January 1, 2009 employment tax obligations were reported using the disregarded SMLLC's name and employer identification number, the single member owner retains ultimate responsibility for collecting, reporting and paying over employment taxes for those periods. As of January 1, 2009, Notice 99-6 is obsolete and the SMLLC will be responsible for collecting, reporting and paying over employment tax and excise tax obligations using the name and EIN assigned to the LLC. An LLC applies for an EIN by filing Form SS-4, Application for Employer Identification Number, and completing lines 8 a, b, and c. An SMLLC that is a disregarded entity that does not have employees and does not have an excise tax liability does not need an EIN. It should use the name and TIN of the single member owner for federal tax purposes. However, if a SMLLC, whose taxable income and loss will be reported by the single member owner, nevertheless needs an EIN to open a bank account or if state tax law requires the SMLLC to have a federal EIN, then the SMLLC can apply for and obtain an EIN.

Share allotment
The act of giving some shares in a new company to people who have applied for them.

What is Allotment of Shares?

Allotment of Shares; Procedures regarding allotment of shares; Steps regarding allotment of shares

Meaning: It means an appropriation of a certain number of shares to an applicant in response to his application for shares. Allotment means distribution of shares among those who have submitted written application.

Procedures regarding Allotment of Shares:

(1) Fulfillment of statutory conditions which need to be fulfilled: The company secretary has to see that the statutory conditions regarding the allotment of shares are fulfilled before the Board proceeds to allot the shares. The following are the statutory conditions which need to be fulfilled: (i) Valid offer and acceptance: There should be a valid offer and acceptance for the allotment to be a valid one. Here the company is the offertory and the acceptors are the general public. If there is no company to offer then there would be no public to accept. (ii) Unconditional Allotment: The allotment must be absolute and unconditional and also as per the terms and conditions mentioned in the application. The allotment should be unbiased, and not according to the caste, creed, and religion. It is not that rich shareholders pay more on the shares and the poor share holders pay less on the shares. All have to pay the same price on the shares. (iii) Collection of minimum subscription amount: The minimum subscription amount as noted in the prospectus has been received within 120 days of the issue of prospectus.

(iv) Receipt of application money: Not less than 5% of the nominal value of the share has been secured and has been received along with the applications. (v) Deposition of application of money in a scheduled bank: All application money received along with the applications must be deposited in a scheduled bank. It cannot be withdrawn until the company gets trading certificate or where such certificate is already received or till the minimum subscription amount is received. (vi) Filing of prospectus with the registrar: A copy of the prospectus or statement in lieu of prospectus has been duly filed with the registrar and at least three days have elapsed after such filing before the allotment is taken up. (vii) Time of allotment: No allotment of shares can be effected until the beginning of the fifth day from the date of issue of prospectus. The subscription list must be opened for at least 3 days as disclosed in the prospectus. (viii) Proper communication: The allotment must be duly communicated to the applicant through post i.e. registered post with necessary details. (ix) Allotment strictly as per documents issued: The Board of Directors have to make the allotment of shares strictly as per the documents issued which include the prospectus and the application form. The provisions made in the Memorandum of Association and the Articles of Association must also be given due consideration. (x) SEBI nominee: If the issue is over subscribed, the shares are allotted on a proportionate basis. SEBI's nominee is associated while finalizing the basis of allotment. The purpose is to see that the allotment is done on a fair and just basis. The allotment also needs to be approved by a leading stock exchange. (2) Appointment of allotment committee: The secretary informs the Board, that the share applications are received and are ready for allotment. If the issue is just subscribed or under subscribed, the Board will do the allotment of shares, but if the issue is over subscribed, the Board appoints an allotment committee to do the allotment work. The allotment committee will study the problem, prepare a report and submit to the Board. (3) Board meeting for finalization of allotment formula: A meeting of the Board of Directors will be called to finalize the allotment formula, which is being prepared by the allotment committee. If the shares are listed, the allotment formula is to be finalized with the approval of the concerned Stock Exchange Authorities. (4) SEBI's association with allotment work: A representative of SEBI need to be associated while finalizing the allotment formula. For this, the company has to request SEBI to nominate a public representation for allotment work. SEBI's nominee is necessary when the issue is over subscribed.

(5) Signature of chairman on application and allotment list: The secretary has to see that every sheet of application and allotment list is signed by the chairman. The secretary also has to sign the application and allotment lists. (6)Resolution of the Board for allotment: The secretary has to see that the Board passes a resolution regarding the allotment of shares and authorizing him to issue letters of allotment and letters of regret. (7) Issue of letters of allotment and letters of regret: After the Board's resolution to allot shares, the secretary prepares the allotment list. Then he will send allotment letters to those who have been allotted shares and regret letters to those who could not be allotted shares. (8) Refund / Adjustment of application money: The secretary has to make suitable arrangement for the repayment of application money sent by the applicant. The refunded application money is made to those share holders who bot could be allotted shares. The refund order is sent along with the letters of regret. If an applicant has been allotted a smaller number of shares than the number applied for, the secondary has to adjust the excess amount with the amount due on allotment. (9) Collection of allotment money: The secretary has to make suitable arrangements with the Company's Bankers for collection of allotment money against the allotment letters. (10) Arrangement relating to letters of renunciation: To renounce means to give up. Certain applicants who are being allotted shares do not want them, so they return the shares back to the company. this is known as renunciation. The blank form of letter of renunciation and letter of request for allotment along with the letter of renunciation duly executed and the original letter of allotment from the renounces, the secretary has to make necessary changes in the Application of Allotment list in order to enter the names of the new allot-tees. (11) Arrangement relating to splitting of allotment letters: Splitting means putting the shares in one or more names. In case any allotted requests for a split of the allotment letter, the secretary places such a request before the Board for approval. Once the Board approves the splitting of the allotment letter, the secretary has to enter the details of the split in a separate list of split allotments and issue the necessary 'split' letters. (12) Submission of return of Allotment: Every company whether public or private and having a share capital and within 30 days of allotment is required to send to the Registrar, a document known as the "Return of Allotment". The return of allotment contains various details on allotment of shares such as the nominal value of shares allotted, names and addresses of allotted, amount paid or payable on each share and particulars of bonus shares and shares issued at discount. The secretary has to see

that these documents are prepared and submitted in time to the Registrar. (13) Preparation of Register of members and issue of share certificates: The secretary has to prepare the Register of members from the Application and Allotment lists. He has to see that the shares certificates are properly printed, sealed, signed and distributed to all the allot-tees within three months after the allotment of shares. He has also to see that the share certificates are issued against the letters of allotment.

What is a share?
A share is simply a divided-up unit of the value of a company. If a company is worth 100 million, and there are 50 million shares in issue, then each share is worth 2 (usually listed as 200p in the money pages.) As the overall value of the company fluctuates so does the share price. Shares can, and do, go up and down in value for various reasons. However, such movements are not usually for the most obvious of reasons. It would be very simple if a share were priced solely on what the company in question owned - its buildings, cars, computers, value of contracts in the pipeline etc. The total value minus company borrowings would be divided by the number of shares in issue and there would be the value of each individual share. But there is a fly in the ointment called "sentiment".

Why market sentiment matters

In general, share prices rise on the expectation (rather than the publication) of increased future profits and fall on published facts. If this sounds entirely mad, bear in mind that if an analyst predicts that ABC Company will double its profits then the price will rise at the time of the prediction. When the results come through, revealing that profits have gone up "only" 75%, the price will probably fall because the current facts are less exciting than the earlier prediction. Understanding this apparent nonsense is key to appreciating the behavior of markets in general, and individual shares in particular.

Why companies want to please shareholders

Professional investors buy shares in the hope of benefiting from a rising stream of income over the long term. When profits are distributed to the shareholders the payments are known as "dividends". The capital value of a share - its quoted price - moves mostly in line with expectations of long term dividend payment. There are myriad reasons why the expectation may become better or worse. A reduction in alcohol duty would guarantee a rise in distilling companies making whisky. An increase in VAT would hit retailers. More technically, a positive or negative

assessment of a company's management ability could change investor sentiment enormously. So why do companies go through all this daily public examination and give shareholders votes to - in extremis - remove directors from their positions of power? The simple answer is that "floating" - selling shares in their companies to anonymous investors - raises millions of pounds to allow those same companies to expand into bigger and hopefully better businesses. Companies and shareholders alike have a responsibility to each other.

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Company limited by guarantee

Definition
Incorporated firm without share capital, and in which the liability of its members is limited to the amount each one of them undertakes to contribute at the time the firm is wound up.

Limited by Guarantee Company

Company limited by guarantee without a share capital
This is a private company and the minimum number of members is 7 and the maximum is 50. It is a company which has not been established to earn profits for its members but rather to carry out a specific purpose. The members liability is only the amount they have undertaken to contribute to the assets of the company, being not less than 1 in the event that the company is wound up. Limited By Guarantee companies do not have share capital, they are not required to raise funds from the members and they still retain the benefits of limited liability and a separate legal entity. This type of company is favored by groups of people coming together for a common purpose; it is used for charitable and professional bodies who wish to have the protection of limited liability.

The most commonly uses for Limited by Guarantee Company are:

y y y y y y y y

Charities - Charitable status can be applied for to the Revenue Commissioners on projects which are set up for charitable, scholastic or religious purposes Residential Associations Property management Educational Sports clubs Trade Associations Professional bodies Associations

Advantages of Companies Limited by Guarantee:

y y y y

They have legal identities separate from its members Individual members are almost totally protected against liability They can buy and sell property in the name of the organization They can take or defend legal proceedings in its own name

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What is dividend?
A dividend is the distribution of profits to a company's shareholders.
The primary purpose of any business is to create profit for its owners, and the dividend is the most important way the business fulfills this mission. When a company earns a profit, some of this money is typically reinvested in the business and called retained earnings, and some of it can be paid to its shareholders as a dividend. Paying dividends reduces the amount of cash available to the business, but the distribution of profit to the owners is, after all, the purpose of the business. Some companies pay "stock dividends" rather than cash dividends, in which case shareholders receive additional stock shares. The amount of the dividend is determined every year at the company's annual general meeting, and declared as either a cash amount or a percentage of the company's profit. The dividend is the same for all shares of a given class (that is, preferred shares or common stock shares). Once declared, a dividend becomes a liability of the firm. When a share is sold shortly before the dividend is to be paid, the seller rather than the buyer is entitled to the dividend. At the point at which the buyer is not entitled to the dividend if the share is sold, the share is said to go ex-dividend. This is usually two business days before the dividend is to be paid, depending on the rules of the stock exchange. When a share goes ex-dividend, its price will generally fall by the amount of the dividend. The dividend is calculated mainly on the basis of the company's unappropriated profit and its business prospects for the coming year. It is then proposed by the Executive Board and the Supervisory Board to the annual general meeting. At most companies, however, the amount of the dividend remains constant. This helps to reassure investors, especially during phases when earnings are low, and sends the message that the company is optimistic with respect to its future performance. Some companies have dividend-reinvestment plans. These plans allow shareholders to use dividends to systematically buy small amounts of stock often at no commission. Dividends are not yet paid in gold certificates although this idea has been discussed by mining companies such as Goldcorp. Companies have often avoided paying dividends for several reasons:
y

Company management and the board believe that it is important for the company to take advantage of opportunities before it, and reinvest its recent profits in order to grow, which will ultimately benefit investors more than a dividend payout at present. This reasoning is sometimes right, but is often wrong, and opponents of this reasoning (such as Benjamin Graham and David Dodd, who complained

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about the practice in the classic 1934 reference Security Analysis) usually note that this comprises company management dictating to the business's owners how to invest their own money (i.e. the profit of the business). When dividends are paid, shareholders in many countries, including the United States, suffer from double taxation of those dividends: the company pays income tax to the government when it earns any income, and then when the dividend is paid, the individual shareholder pays income tax to the government on the dividend payment. This is often used as justification for retaining earnings, or for performing a stock buyback, in which the company buys back stock, thereby increasing the value of the stock left outstanding. The shareholder pays no income tax on this transaction.

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What Is Share Capital?

In Companies, the words Capital and Share Capital are used interchangeably. The raising of capital by issuing the shares is known as Share Capital. Share Capital is a permanent liability of a company. Memorandum of Association must contain all the features of a companys share capital i.e. amount, its division into shares etc.

Types of Share Capital:1. Nominal, Authorized or Registered Capital: - It is the registered capital of a company. It is the amount which the company is authorized to issue. Any company whether public or private cannot issue shares more than the amount of its authorized capital. This amount is stated in Memorandum of Association. E.g. if the amount of capital mentioned in Memorandum of Association is 10, 00,000, then this will be the Nominal, Authorized or Registered Capital of the company. 2. Issued Capital: - Issued Capital is a part of Nominal or Authorized Capital, which has been issued by the company for public subscription. A company cannot issue all of its authorized capital at once. It can never be more than Nominal Capital. And the Un-issued Capital is the difference between the authorized and issued capital. e.g. if the company has issued shares of Rs.5,00,000 out of the nominal capital of Rs.10,00,000, then Rs.5,00,000 will be the issued capital of the company. 3. Subscribed Capital: - It is that part of Nominal Capital which has been actually subscribed by general public for cash or in kind. If the whole issued capital has been subscribed by the public, then issued capital becomes the subscribed capital. e.g. suppose if the issued capital is Rs.5,00,000 and the applications were received for only 4,00,000 shares, then Rs.4,00,000 would be the Subscribed Capital of the company. 4. Called Up Capital: - The amount of subscribed capital, which the company has asked its members to pay, is known as Called Up Capital. e.g. if the face value of each share is Rs.10 and the company has demanded only Rs.5 from its shareholders then out of the total subscribed capital of Rs.4,00,000, Rs.2,00,000 will be the Called up capital. 5. Paid-Up Capital: - The part of Called Up Capital which has been paid by the shareholders to the company is known as Paid-Up Capital and the remaining part of the Called-Up Capital is known as Unpaid Capital. e.g. suppose out of called up capital of Rs.5 per share, only Rs.3 per share has been paid by the shareholders, then the Paid up Capital of the company will be Rs.1,20,000.

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6. Uncalled Capital: - The amount on shares which has not been called by the company from its shareholders to pay is known as Uncalled Capital. The company may call upon its members to pay the uncalled amount on shares. e.g. the remaining Rs.5 which has not been called by the company is known as Uncalled capital. 7. Reserve Capital: - A company may by special resolution convert the uncalled capital into reserve capital. Reserve Capital is that part of uncalled capital which can be called upon by the company only in the event of Winding up.

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Auditor
Definition
An individual qualified (at the state level) to conduct audits. An auditor may be an internal auditor (an individual whose primary job function is to audit his or her own company) or an external auditor (an individual from outside the company, who typically is employed by an auditing firm who handles many different clients). An auditor is a professional that is responsible for evaluating some aspect of a project, business, or individual. Auditors often are employed in the task of determining the level of efficiency present in the production process of a business, the efficient use of labor and other resources associated with the business, and the veracity of the financial records of the business. Along with evaluating a project or aspect of a company, an auditor is often expected to make recommendations regarding the correction of negative conditions that currently impact the organization. Essentially, an auditor may function as an employee or an independent professional. When the auditor works for the organization, he or she is usually referred to as an internal auditor. The internal auditor often conducts periodic audits that may encompass several areas on a rotating basis. As an example, the internal auditor may focus on the manufacturing process during one quarter of the year, while devoting a second quarter to evaluating the financial record keeping of the company. Often, the internal auditor will set up a schedule to ensure that audits are conducted on each critical portion of the company at least once per calendar year. Auditing professionals who do not work for a specific company are referred to as external auditors. Sometimes working as freelance professionals and at other times associated with accounting or financial planning firms, the independent auditor is called in to conduct an audit on a specific aspect of the corporation. The idea behind using an external auditor is that the audit will be free of bias and not influenced by office politics or internal relationships that exist among the employees of the company. Many companies make use of internal auditors to make sure that various functions within the company are operating according to established internal standards, as well as complying with any applicable federal and state laws. External auditors are often called in as support to what has already been documented by internal audits or in situations where there is some suspicion of a breach of ethics within the organization. The exact process of the audit may vary, depending on what aspect of the company is being audited, and what internal and external regulations are involved.

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