23 To 25 - GE05 - FECGBL - G.Company Administration & Finance (25%) Cont... - by MD - Monowar Hossain FCMA, CPA PDF

CMA Class Note on
GE05: Fundamentals of Ethics, Corporate Governance and Business Law

CMA: Business Level
GE 05: Fundamentals of Ethics, Corporate Governance and Business Law
The rights attaching to different types of shares.
Class GE 05– G.
The procedures for issuing shares.
No. 23 Company The issue of shares for an improper purpose.
to 25 administration
and finance Payment for shares.
(25%) The maintenance of capital principle: the purposes for which shares
-continuing may be issued, redeemed or, purchased and the provision of financial
assistance for the purchase of the company’s own shares.
The reduction of capital.
The ability of a company to borrow money and the procedure to be
followed.
Unsecured loans, and the nature and effect of fixed and floating
charges.
The appointment, retirement and removal of directors and their
powers and duties during office.
Fraudulent and wrongful trading, preferences and transactions at an
under-value.
The rights of majority and minority shareholders.
The division of powers between the board and the shareholders.
The qualifications, powers and duties of the company secretary.
Proverbial outcomes:
We will learn to explain the law relating to the financing and management of companies limited by
shares.-
• Be able to
- explain the nature of different types of shares, the procedure for their issue and acceptable forms of
payment;
- explain the maintenance of capital principle and the reduction of share capital;
- explain the ability of a company to take secured and unsecured loans, the different types of security
and the registration procedure;
- explain the procedure for the appointment, retirement, disqualification and removal of directors;
- explain the powers and duties of directors when in office;
- explain the rules dealing with the possible imposition of personal liability upon the directors of
insolvent companies;
- explain the rights of majority and minority shareholders;
- explain the division of powers between the board of a company and the shareholders;
- explain the qualifications, powers and duties of the company secretary.
The rights attaching to different types of shares:
A share is a transferable form of property, The key points are:

carrying rights and obligations, by which the • The share must be paid for ('liability'). The
interest of a member of a company limited by nominal value of the share fixes this liability, it
shares is measured. is the base price of the share, ordinary share.
A share is 'the interest of a shareholder in the • It gives a proportionate entitlement to
company measured by a sum of money, for dividends, votes and any return of capital
the purpose of a liability in the first place, ('interest').
and of interest in the second, but also • It is a form of bargain ('mutual covenants')
consisting of a series of mutual covenants between shareholders which underlies such
entered into by all the shareholders principles as majority control and minority
protection.
A share’s nominal value is its face value. So a Tk.10 ordinary share for instance, has a nominal value of
Tk.10. A share is a form of personal property, carrying rights and obligations. It is by its nature
transferable. A member who holds one or more shares is a shareholder. However some companies (such
as most companies limited by guarantee) do not have a share capital. So they have members who are not
also shareholders.
Page# 151 December 12, 2015
Md.Monowar Hossain CPA,ACA,FCS,FCMA
GM & Head of Internal Control and Compliance (ICC)
AGRANI BANK LIMITED
eMail: md.monowar@gmail.com
CMA Class Note on
Information about any special rights attached to shares is obtainable from one of the following
documents which are on the file at Companies Registered Office:
• The articles, which are the normal context in which share rights are defined.
• A resolution or agreement incidental to the creation of a new class of shares (copies must be
delivered to the Registrar of the RJSC).
• A statement of capital given to the Registrar within the specific time (one month) of allotment,
together with the return of allotment.
The procedures for issuing shares:

Payment for shares:
Types of share
If the constitution of a company states no differences

between shares, it is assumed that they are all ordinary
shares with parallel rights and obligations. There may,
however, be other types, notably preference shares and
redeemable shares.
Ordinary shares (equity)

If no differences between shares are expressed then all shares are equity shares with the same rights,
known as ordinary shares.
Equity is the residual interest in the Equity share capital Ordinary shares are shares which
assets of the company after deducting all is a company's issued entitle the holders to the remaining
its liabilities. It comprises issued share share capital less divisible profits (and, in a
capital excluding any part of that does capital which carries liquidation, the assets) after prior
not carry any right to participate beyond preferential rights. interests, eg creditors and prior
a specified amount in a distribution. charge capital, have been satisfied.
Class rights
Class rights are rights which are attached to particular types Class rights may be attached to a class
of shares by the company’s constitution. of shares by:
• The articles
A company may at its option attach special rights to
• A special resolution of the
different shares regarding:
company in general meeting
• Dividends
• A shareholders’ agreement
• Return of capital
• Voting
• The right to appoint or remove a director Owning a share does not entitle the
shareholder to participate in the
Shares which have different rights from others are grouped management of the company, not does
together with others carrying identical rights to form a class. it impose any specific duties on the
The most common types of share capital with different shareholder (shareholders who are not
rights are preference shares and ordinary shares. There also directors do not owe the duties of
may also be ordinary shares with voting rights and ordinary directors).
shares without voting rights.
Preference shares
The most common right of preference shareholders is a prior right to receive a fixed dividend. This
right is not a right to compel payment of a dividend, but it is cumulative unless otherwise stated.
Usually, preference shareholders cannot participate in a dividend over and above their fixed dividend
and cease to be entitled to arrears of undeclared dividends when the company goes into liquidation.
Preference shares are shares carrying one or more rights such as a fixed rate of dividend or preferential
claim to any company profits available for distribution.
CMA Class Note on
A preference share may and generally will carry a prior right to receive an annual dividend of fixed
amount, say a dividend of 6% of the share’s nominal value.
Ordinary and preference shares are deemed to have identical rights. However, a company's articles or
resolutions may create differences between them.
As regards the priority dividend entitlement, four points should be noted.
(a) (b) (c) (d)

The right is The right to receive a If a company Holders of preference
merely to preference dividend is which has arrears shares have no entitlement
receive a deemed to be cumulative of unpaid to participate in any
dividend at the unless the contrary is cumulative additional dividend over
specified rate stated. preference and above their specified
before any If, therefore, a 6% dividend is dividends goes rate. If, for example, a 6%
other dividend not paid in Year 1, the into liquidation, dividend is paid on 6%
may be paid or priority entitlement is the preference preference shares, the entire
declared. It is normally carried forward to shareholders cease balance of available profit
not a right to Year 2, increasing the priority to be entitled to may then be distributed to
compel the right for that year to 12% – the arrears unless: the holders of ordinary
company to pay and so on. (i) A dividend has shares.
the dividend. been declared This rule also may be
When arrears of cumulative
The company though not yet expressly overridden by the
dividend are paid, the holders
can decline to paid when terms of issue. For example,
of the shares at the time
pay the dividend liquidation the articles may provide
when the dividend is
if it decides to commences. that the preference shares are
declared are entitled to the
transfer (ii) The articles (or to receive a priority 6%
whole of it even though they
available profits other terms of dividend and are also to
did not hold the shares in the
to reserves issue) expressly participate equally in any
year to which the arrears
instead of using provide that in a dividends payable after the
relate. An intention that
the profits to liquidation arrears ordinary shares have
preference shares should not
pay the are to be paid received a 6% dividend.
carry forward an entitlement
preference in priority to return Preference shares with these
to arrears is usually expressed
dividend. of capital to rights are called
by the word 'non-
members. participating preference
cumulative'.
shares.
CMA Class Note on
In all other respects preference shares carry the same rights as ordinary shares unless otherwise stated.
If they do rank equally they carry the same rights, no more and no less, to return of capital distribution of
surplus assets and voting.
In practice, it is unusual to issue preference shares on this basis. More usually, it is expressly provided
that:
(a) The preference shares are to carry a priority right to return of capital.
(b) They are not to carry a right to vote, or voting is permitted in specified
circumstances. For example failure to pay the preference dividend, variation of their
rights or a resolution to wind up.
When preference shares carry a priority right to return of capital the result is that:
(a) The amount paid up on the preference shares, say Tk.10 on each Tk.10 share, is to be
repaid in liquidation before anything is repaid to ordinary shareholders.
(b) Unless otherwise stated, the holders of the preference shares are not entitled to share in
surplus assets when the ordinary share capital has been repaid.
Advantages and disadvantages of preference shares
The advantages of preference shares are greater A number of other drawbacks and pitfalls, such
security of income and (if they carry priority in as loss of arrears, winding up and enforced
repayment of capital) greater security of capital. payment, have been indicated above. Preference
However in a period of persistent inflation, the shares may be said to fall between the two stools
benefit of entitlement to fixed income and to of risk and reward (as seen in ordinary shares) and
capital fixed in money terms is an illusion. security (debentures).
If a company wishes to raise capital for a particular period and at a fixed cost, it could issue redeemable
preference shares. These are issued and then bought back by the company after a certain period of time
and offer an alternative to loan stock or debentures.
Variation of class rights
The holders of issued shares have vested rights The holders of issued shares have vested rights
which can only be varied by using a strict which can only be varied by the company with the
procedure. The standard procedure is by special consent of all the holders or with such consent of a
resolution passed by at least three quarters of majority as is specified (usually) in the articles. The
the votes cast at a separate class meeting or by standard procedure for variation of class rights
written consent. requires that a special resolution shall be passed by
A variation of class rights is an alteration in a three quarters majority cast either at a separate
the position of shareholders with regard to those meeting of the class, or by written consent. If any
rights or duties which they have by virtue of other requirements are imposed by the company's
their shares. articles then these must also be followed.
When variation rules apply

It is not a variation of class rights to issue shares to new members, to subdivide shares of another class, to
return capital to preference shareholders, or to create a new class of preference shareholders.
It is only necessary to follow the variation of class rights procedure if what is proposed amounts to a
variation of class rights. There are many types of transaction that do not actually constitute a variation
of class rights.
Redeemable shares Treasury shares
Redeemable shares are shares issued on These are created when a public limited company whose shares
terms that they may be bought back by a are listed on the stock exchange, legitimately purchases its own
company either at a future specific date or shares out of distributable profit. Up to 10% of its shares can be
at the shareholder's or company's option. held ‘in treasury’ which means the company can re-issue them
They remain in existence until the without the usual formalities. They can only be sold for cash and
company is wound up, but can be bought the company cannot exercise the voting rights which attach to
and sold between shareholders just like any them (in Bangladesh share buyback is restricted).
other share.

AGRANI BANK LIMITED
CMA Class Note on
Deferred shares
This type of share is also known as management or founder shares and is rarely used. Holders of deferred shares
are not entitled to a dividend until the fixed dividend on preference shares and a certain amount or percentage is
paid on ordinary shares. As with other types of share, the rights are set out in the terms of issue or the company’s
constitution.
Minority appeals to the court for unfair prejudice (in UK):

A dissenting minority holding 15% or more of the issued shares may apply to the court within 21 days
of class consent to have the variation cancelled as 'unfairly prejudicial'.
Whenever class rights are varied under a procedure contained in the constitution, a minority of holders of
shares of the class may apply to the court to have the variation cancelled. The objectors together must:
• Hold not less than 15% of the issued shares of the class in question
• Not themselves have consented to or voted in favour of the variation
• Apply to the court within 21 days of the consent being given by the class.
The court can either approve the variation as made or cancel it as 'unfairly prejudicial'. It cannot,
however, modify the terms of the variation. To establish that a variation is 'unfairly prejudicial' to the
class, the minority must show that the majority was seeking some advantage to themselves as members
of a different class instead of considering the interests of the class in which they were then voting
Allotment of shares
Allotment of shares is the issue and allocation to a person of a certain number of shares under a contract
of allotment. Once the shares are allotted and the holder is entered in the register of members, the holder
becomes a member of the company. The member is issued with a share certificate.
The allotment of shares is a form of contract. The intending shareholder applies to the company for
shares, and the company accepts the offer.
The terms 'allotment' and 'issue' have slightly different meanings.
(a) A share is allotted when the person to whom it is (b) The issue of shares is not a defined term
allotted acquires an unconditional right to be entered but is usually taken to be a later stage at
in the register of members as the holder of that share. which the allottee receives a letter of
That stage is reached when the board of directors (to allotment or share certificate issued by the
whom the power to allot shares is usually given) company.
considers the application and formally resolves to allot
the shares. The allotment of shares of a private company
is a simple and immediate matter. The name
However if the directors imposed a condition, for of the allottee is usually entered in the register
instance that the shares should be allotted only on of members soon after the allotment of shares
receipt of the subscription money, the allotment would to him. They then become a member.
only take effect when payment was made.
Public company allotment of shares
There are various methods of selling shares to the public.
Public offer : where members of the public subscribe for shares directly to the company.
Offer for sale : an offer to members of the public to apply for shares based on information
contained in a prospectus
Placing : a method of raising share capital where shares are offered in a small number of
large 'blocks', to persons or institutions who have previously agreed to purchase
the shares at a predetermined price (placement of shares).
In order to encourage the public to buy shares in a public company, it may issue a prospectus, or in the
case of a company listed on the Stock Exchange, listing particulars. Listing particulars are subject to rules
set down by the Bangladesh Securities and Exchange Commission (BSEC) and the Stock Exchanges in
Bangladesh.
Allotment procedure
Public companies listed on the Stock Exchange usually follow a two-stage procedure.
AGRANI BANK LIMITED
CMA Class Note on
(a) They first issue a renounceable allotment letter which the original allottee may for a limited
period transfer to another person by signing a form of renunciation (included in the letter) and
delivering it to the transferee. The original allottee, or the ultimate renouncee, sends in the
allotment letter with a completed application for registration of the shares in his name.
(b) On receipt of the application for registration the company enters the name of the applicant
in the register of members and delivers a return of allotment to the Registrar made up to show
who is then on the register. The applicant becomes a member by entry on the register of
members and receives a share certificate from the company.
Public companies face the restriction that no allotment can be made unless either:
(a) The shares offered are subscribed for in full, or
(b) The offer states that even if the capital is not subscribed for in full, the amount of the capital
subscribed for may be allotted in any event, or in the event of the conditions specified in the
offer being satisfied.
Prospectus
The Companies Act definition of a

prospectus covers all public advertisements
for shares – under contract law these are
invitations to treat. A prospectus has to
comply with certain legal requirements.
Private company allotment of shares

The allotment of shares in a private company is more straightforward. The rule to remember is that
private companies cannot sell shares to the public. An application must be made to the directors
directly. After that shares are allotted and issued, and a return of allotment made to the Registrar, as for a
public company.
Rights issues
A rights issue is a right given to a shareholder to subscribe for further shares in the company, usually pro
rata to their existing holding in the company's shares. A rights issue must be made in writing (hard copy
or electronic) in the same manner as a notice of a general meeting is sent to members. Equity securities
which have been offered to members in this way but are not accepted may then be allotted on the same
(or less favourable) terms to non-members. If equity securities are allotted in breach of these rules the
members to whom the offer should have been made may within the ensuing two years recover
compensation for their loss from those in default. The allotment will generally be valid.
General stages and relevant processes of listing with Stock Exchanges (DSE/CSE) in
Bangladesh through IPO
Decision to go Public:
o Take Board decision to go public
o Appoint Issue Manager(s) from Bangladesh Securities and Exchange Commission (BSEC)
approved list
o Decide method of IPO with assistance from Issue Manager – Fixed Price or Book Building
o In case of IPO under Book Building - Get Accounts audited by BSEC approved Panel of
Auditors
o Initiate process for credit rating - Mandatory for Bank, Insurance, NBFI and any issue with offer
price at premium
o Develop a Company Website with publications of Company Financials
Prepare Draft Prospectus:
o Assist Issue Manage in preparing Draft Prospectus in accordance with Securities and Exchange
Commission (Public Issue) Rules, 2006
AGRANI BANK LIMITED
CMA Class Note on
o Appoint Underwriters
o In case of IPO under Fixed Price Method fix a offer price and justify the same in accordance with
rules mentioned in the Securities and Exchange Commission (Public Issue) Rules, 2006
o In case of IPO under Book Building Method prepare a Information Memorandum with Financials
for Road Show and Indicative Price Determination in accordance with rules of the Securities and
Exchange Commission (Public Issue) Rules, 2006
i. Host road shows with Eligible Institutional Investors (EII)
ii. Collect offers from EIIs
iii. Finalize a indicative price
Apply to BSEC for Public Offer:

o Apply to BSEC for IPO under Securities and Exchange Commission (Public Issue) Rules, 2006.
Submit copies of Draft prospectus along with relevant documents to Exchanges simultaneously.
o Fulfill any discrepancy identified by BSEC/Exchange in Draft Prospectus and respond to any
queries made by the Exchanges.
o Assist Issue Manager in updating draft prospectus to comply with or fulfill deficiencies identified
by BSEC/Exchange.
Bidding by EIIs (for Book Building only):

o Apply to Exchanges for holding bidding with BSEC consent for bidding
o Sign agreement to share Book Building Software for bidding and payment of fees thereof
o Collect bidding fee from EIIs
o On completion of bidding collect allotment list for EII and cut-off price from the Exchanges
o Submit the details of bidding alongwith revised drat prospectus to BSEC for approval
IPO Approved:
o Collect approval letter issued from BSEC
o Print Abridged version of the approved and vetted prospectus in widely circulated two Bengali
and two English News Papers
o Print Final Prospectus
o Publish Soft Copy of vetted Prospectus on Company Website
o Apply for Listing with Exchanges in accordance with regulations of the Listing Regulations of
the Exchanges
o Appoint a Post Issue Manager (customs not mandatory)
Subscription and Lottery:

o Start subscription for IPO through designated Stock Brokers/Merchant Bankers
o Assist Issue Manager and Post Issue Manager in completing formalities related to subscription,
lottery, refund and crediting shares to successful allottees
o After Subscription period submit subscription status to BSEC and the Exchanges where the
issuer wishes to get listed
o In case of over subscription hold lottery
Allotment and Refund:
o Process all subscriptions and lottery results
o Distribute electronic Allotment letters and Complete Refund Process
o After distribution of allotment letters/completion of refund submit a compliance report before the
Commission and the Exchanges.
o If issue was not subscribed by minimum required quantity refund the subscribers.
Listing Approval by the Exchanges:
o After distribution of allotment letters/refund warrants and compliance of other requirements, the
application for listing by the Issuer is placed for listing approval
o Listing is approved or rejected
Credit Share/Units:
o If listing is approved by the Exchange, issuer shall apply to CDBL for crediting tradable
shares/units as per allotment.
AGRANI BANK LIMITED
CMA Class Note on
Commencement of Trading of scrips on the Bourse(s):

o Once shares/units are credited and confirmed by CDBL, commencement date for trading is
announced by the respective Exchange.
General stages and relevant processes of listing by offloading of shares of companies through
Direct Listing Process
o Take Board decision for Offloading shares
o Take shareholders resolution in respect of disposal of Shares
o Get relevant approval from concerned ministry or any other regulatory body, if any
o Appoint Issue Manager, Designated Brokers
o Prepare Information Document in accordance with Regulations 8 to 13 of the Dhaka Stock
Exchange (Listing) Regulations, 2015
o Submit Information document to the respective Exchanges and BSEC and apply to the
Exchanges for offloading of shares through direct listing
o Comply with deficiency letter issued by BSEC, if any
o Comply with any deficiencies identified the respective Exchanges
o Update Information document and get the same vetted by the respective exchanges
o Exchange(s) approve Listing, if no contrary opinion is received from BSEC
o Publish the Information Document in two in at least two widely circulated national dailies (one in
Bangla and the other in English).
o Post the full information document or public offer document on the web site of the Commission,
the Exchange and the Issuer.
o Submit printed Information Document to Exchanges and BSEC
o Trading shall commence at least seven days after publication of information document
o Make shares to be offloaded available to designated stock brokers and provide irrevocable sale
orders for the total quantity made available.
o The existing shareholders shall offer for sell at least 25 (twenty five) percent of the shareholdings
in the company within 30 (thirty) trading days from the date of commencing the normal trading.
o No sponsors or directors of the company shall, subject to compliance of other provisions in
respect of shareholding, sell more than 50% of his existing shareholdings until the company
holds the annual general meeting after completion of one full accounting year of the company
upon listing with the Exchange.
o The sponsors or directors shall be restricted from buying shares for 1 (one) year from the date of
direct listing.
o Report broker wise offloading status to the exchanges and BSEC on daily basis until completion
of sale of the targeted 25 (twenty five) percent shareholdings.
The issue of shares for an improper purpose:

Issues for an improper purpose
We have already seen that directors may issue shares for a proper purpose, and that issues to manipulate
the company's shareholdings were void, unless approved by the members in general meeting. Remember
that holders of shares that have been issued irregularly cannot vote in a general meeting to sanction the
directors' actions.
Bonus issues
A bonus issue is the capitalisation of the reserves of a company by the issue of additional shares to
existing shareholders, in proportion to their holdings. Such shares are normally fully paid-up with no
cash called for from the shareholders.
A bonus issue is more correctly but less often called a 'capitalisation issue' (also called a 'scrip' issue).
The articles of a company usually give it power to apply its reserves to paying up unissued shares wholly
or in part and then to allot these shares as a bonus issue to members.

AGRANI BANK LIMITED
CMA Class Note on
The maintenance of capital principle: the purposes for which shares may be issued, redeemed
or, purchased and the provision of financial assistance for the purchase of the company’s own
shares:
The term 'capital' is used in several senses in company legislation, to mean issued, allotted or called up
share capital or loan capital.
Share capital:- The represent the total amount of shares subscribed by the shareholders for the purpose
of the company.
Unreserved Capital Reserved Capital
Equity Financing
Share capital can be different from authorized share capital. Authorized share capital is the maximum
amount of equity capital that a company can issue to the shareholders. The issued capital can be less
than the authorized share capital but it cannot be more than it.
Classes of Share Capital
It may be divided into the following classes:
1. Authorized Registered, or Nominal Capital:- This represents the total amount of the share
capital authorized by the Memorandum of Association and which the company has power to
issue.
2. Issued Capital:- This is the capital consisting of the number of shares that have been offered
to the public for subscription for cash and to the vendors as fully or partly paid.
Issued (share) capital is the amount of nominal value of share held by the shareholders. It is the
face value of the shares that have been issued to the shareholders. Issued share capital and share
premium represent the amount invested by the shareholders in the company. It is also known as
the subscribed capital or subscribed share capital.
• A company need not issue all its share capital at once. If it retains a part, this is
unissued share capital.
• Issued share capital can be increased through the allotment of shares.
• Rights issues and the issue of bonus shares will also increase the amount of a
company's capital.

CMA Class Note on
3. Un Issued Capital:- This represent the amount of authorized capital of the company which
has not yet been allotted and which may be issued at any time.
4. Called Capital:- This is amount of money called up on the shares actually subscribed.
Called up share capital is the amount which the company has required
shareholders to pay now or in the future on the shares issued.
5. Uncalled up Capital:- This is portion of subscribed capital which has not yet been called up
by the company.
6. Paid up Capital:- This is the portion of called up capital which has actually been up the
shareholders.
Paid up share capital is the amount which shareholders have actually paid on
the shares issued and called up.
7. Calls in Arrears:- This represent the difference between the called up capital and the paid up.
8. Reserve Capital:- This the portion of subscribed capital which has not been called up except
in the event and for the purpose of winding up.
9. Loan Capital:- Really this is not capital but this represent the creditors of the company.
So loan capital is sometimes applied to debentures and other loans taken by a company for fixed
period.
Loan capital comprises debentures and other long-term loans to a business.

It is nothing to do with shares.
10. Capital Assets: - The property of the company is called capital assets. It has two kinds,
working capital and fixed capital.
For example, a company has issued and allotted 70, Tk.10.00 (nominal value) shares, has received
Tk.2.50 per share on application and has called on members for a second Tk.2.50. Therefore its issued
and allotted share capital is Tk.700.00 and its called up share capital is Tk.350.00 (Tk.5.00 per share).
When the members pay the call, the 'paid up' share capital is then Tk.350.00 also. Capital not yet called
is 'uncalled capital'. Called capital which is not yet paid is termed 'partly paid'; the company therefore
has an outstanding claim against its shareholders and this debt is transferred to the new shareholder if
the share is transferred.
Market value
Shares of a public company are freely transferable (providing the appropriate procedures are followed)
and therefore may be subsequently sold by some or all of the shareholders. The sale price will not
necessarily be the nominal value, rather it will reflect the prospects of the company and therefore may be
greater or less than the nominal value.
The reduction of capital:[page # 351]
Reduction of capital can be achieved by: extinguishing/reducing liability on partly-paid shares;

cancelling paid-up share capital; or paying off part of paid-up share capital. Court confirmation is

AGRANI BANK LIMITED
CMA Class Note on
required for public companies. The court considers the interests of creditors and different classes of
shareholder. There must be power in the articles and a special resolution.
A limited company is permitted without restriction to cancel unissued shares as that change does not
alter its financial position.
If a limited company with a share capital wishes to reduce its issued share capital it may do if:
• It has power to do so in its articles. (If it does not have power in the articles, these may be
amended by a special resolution).
• It passes a special resolution. (If the articles have been amended, this is another special
resolution)
• It obtains confirmation of the reduction from the court (in the case of public companies).
Dividends
Ownership of a share gives the member a right to receive any dividends declared by the directors.
There are certain rules governing the payment of dividends.
- Dividends may only be paid by a company out of profits available for the purpose. In other
words, they may not be paid out of capital. In the event of liquidation, a liquidator may take
action against directors who have paid dividends out of capital. A company may recover
unlawful dividends from members if the member knew the distribution was unlawful.
Profits available for distribution are accumulated realised profits (which have not been distributed or
capitalised) less accumulated realised losses (which have not been previously written off in a reduction or
reorganisation of capital).
In UK, a public company may only make a distribution if its net assets are equal to or greater than the
aggregate of its called up share capital and undistributable reserves. Undistributable reserves are:
• Share premium account
• Capital redemption reserve
• Revaluation reserve
• Any reserve restricted by the articles
Issuing shares at a premium or at a discount

In issuing shares, a company must fix a price which is equal to or more than the nominal value of the
shares. In allotting shares every company is required to obtain in money or money's worth, consideration
of a value at least equal to the nominal value of the shares plus the whole of any premium. To issue
shares 'at par' is to obtain equal value, say, Tk.10.00 for a Tk.10.00 share.
Issuing shares at a premium : Call value > Face value
Issuing shares at a discount : Call value < Face value
The ability of a company to borrow money and the procedure to be followed: [Page # 366]
Borrowing
Companies have an implied power to borrow for purposes incidental to their trade or business.
All companies registered under the Companies Act -1994 have an implied power to borrow for
purposes incidental to their trade or business.
In delegating the company's power to borrow to the directors it is usual, and essential in the case of a
company whose shares are quoted on the Stock Exchange, to impose a maximum limit on the
borrowing arranged by directors.
A contract to repay borrowed money may in principle be unenforceable if either:
• It is money borrowed for an ultra vires (or restricted) purpose, and this is known to the lender.
• The directors exceed their borrowing powers or have no powers to borrow.
However:
• In both cases the lender will probably be able to enforce the contract.
AGRANI BANK LIMITED
CMA Class Note on
• If the contract is within the capacity of the company but beyond the delegated powers of the
directors the company may ratify the loan contract.
Debentures and loan capital

Loan capital Debentures
Loan capital comprises all the longer A debenture is a document stating the terms on which a
term borrowing of a company. It is company has borrowed money. There are three main types.
distinguished from share capital by the • A single debenture
fact that, at some point, borrowing must • Debentures issued as a series and usually registered
be repaid. Share capital on the other hand • Debenture stock subscribed to by a large number of
is only returned to shareholders when the lenders.
company is wound up. Only this form requires a debenture trust deed,
A company's loan capital comprises all although the others may often incorporate one.
amounts which it borrows for the long-
A debenture is the written acknowledgement of a debt by a
term, such as:
company, normally containing provisions as to payment of
(a) Permanent overdrafts at the bank
interest and the terms of repayment of principal.
(b) Unsecured loans, from a bank or
other party A debenture may be secured on some or all of the assets of
(c) Loans secured on assets, from a the company or its subsidiaries.
bank or other party
A debenture may create a charge over the company's assets
Companies often issue long-term loans as as security for the loan. However a document relating to an
capital in the form of debentures. unsecured loan is also a debenture in company law.
Unsecured loans, and the nature and effect of fixed and floating charges: [page # 371]
Unsecured Loan:
A loan that is issued and supported only by the borrower's creditworthiness, rather than by a type of
collateral. An unsecured loan is one that is obtained without the use of property as collateral for the loan.
Borrowers generally must have high credit ratings to be approved for an unsecured loan.
Charges
A charge is an encumbrance upon real or personal property granting the holder certain rights over that
property. They are often used as security for a debt owed to the charge holder. The most common form of
charge is by way of legal mortgage, used to secure the indebtedness of borrowers in house purchase
transactions. In the case of companies, charges over assets are most frequently granted to persons who
provide loan capital to the business. A charge secured over a company's assets gives to the creditor
(called the 'chargee') a prior claim (over other creditors) to payment of their debt out of those assets.
Charges are of two kinds, fixed and floating.
Fixed charges Floating charges
A fixed charge is protection given to secured A floating charge has been defined as:
creditors relating to specific assets of a company. (a) A charge on a class of assets of a company,
The charge grants the holder the right of enforcement present and future …
against the identified asset (in the event of default in (b) Which class is, in the ordinary course of the
repayment or some other matter) so that the creditor company's business, changing from time to
may realise the asset to meet the debt owed. Fixed time and …
charges rank first in order of priority in liquidation. (c) Until the holders enforce the charge the
Fixed (or specific) charges attach to the relevant company may carry on business and deal with
asset as soon as the charge is created. By its nature a the assets charged.
fixed charge is best suited to assets which the Floating charges do not attach to the relevant
company is likely to retain for a long period. A assets until the charge crystallizes.
mortgage is an example of a fixed charge. A floating charge is not restricted to assets
If the company disposes of the charged asset it will such as receivables or inventory. A floating
either repay the secured debt out of the proceeds of charge over 'the undertaking and assets' of a
sale so that the charge is discharged at the time of company (the most common type) applies to
sale, or pass the asset over to the purchaser still future as well as to current assets.
subject to the charge.
AGRANI BANK LIMITED
CMA Class Note on
The appointment, retirement and removal of directors and their powers and duties during
office:
Appointment of Directors Retirement of Removal of Directors

Directors
The Companies Act provides that a
A company’s Articles of
A company’s director can be removed during
Association normally provide for the
Articles of their term of office by an ordinary
appointment of directors by ordinary
Association may resolution at a general meeting.
resolution of a simple majority of the
shareholders. provide that one-
third of the directors A least 21 days notice must be
The Board of Directors may also appoint (or the nearest whole given in relation to the resolution
additional directors to fill a casual number) must retire proposing to remove a director.
vacancy. by rotation at each
AGM. It is important to note that the
A bankrupt or a company’s auditor cannot director must be given the
act as a director of a company, nor can an If two or more opportunity to speak at the meeting
undischarged. persons were and must receive a copy of the
originally appointed notice of the resolution. The
The Companies Act provides that a on the same day, director is also entitled to make
director appointed by the Board of those to retire should representations in writing to the
Directors must seek re-election at the next be agreed between company upon receipt of the
Annual General Meeting (“AGM”). This them or determined notice.
regulation may be excluded by the by lot. Where a director is appointed for
Articles of a small private company. life by a company’s Articles of
The re-election is additional and not taken The directors Association, such a director can
into account in calculating which retiring can offer only be removed if the correct
directors retire by rotation. themselves for re- procedure for the alteration of the
election at the Articles of Association is
AGM. followed.
A board of directors is a body of elected or appointed members who jointly oversee the activities of a
company or organization.
A board's activities are determined by the powers, duties, and responsibilities delegated to it or conferred
on it by an authority outside itself. These matters are typically detailed in the organization's bylaws. The
bylaws commonly also specify the number of members of the board, how they are to be chosen, and
when they are to meet.
Fraudulent and wrongful trading, preferences and transactions at an under-value: [Page # 295]
Fraudulent trading
Any person who is
knowingly party to the
carrying on of any business
of the company with the
intent to defraud creditors
(including potential
creditors) of the company
or creditors of any other
person or for any fraudulent
purpose will be personally
liable to contribute to the
company's assets. It has
been held that an intent to

AGRANI BANK LIMITED
CMA Class Note on
defraud may be inferred if a
person obtains credit when
he knows that there is no Wrongful trading
good reason for thinking
that funds will be available Wrongful trading is a type of civil wrong.
to pay the debt. However,
there must be evidence to Allowing a firm to continue trading in a situation where a reasonably
justify a finding of actual diligent person would realize that the firm's insolvency is
dishonesty. If this is proved inevitable. Directors of a firm who know (or ought to have known) that its
then the director will, in insolvency could not be avoided may be held personally liable to
addition to being liable to its creditors if it becomes bankrupt or is liquidated. See also fraudulent
contribute to the company's trading.
assets, be guilty of a
criminal offence
Transactions at an undervalue
A transaction at an undervalue occurs when a company
disposes of its assets for significantly less than they are
worth. A liquidator can apply to have the transaction
set aside if it occurred within two years of the
company's liquidation.
The rights of majority and minority shareholders: [Page # 325]
The Basic Rights of Shareholder

1) Recognition of basic shareholder rights
2) Shareholders have the right to participate in decisions concerning fundamental corporate changes
3) Voting rights of shareholders
4) Disclosure of disproportionate voting rights of certain shareholders to obtain a degree of control
5) Markets for corporate control should be allowed to function
6) Shareholders should consider the costs and benefits of exercising their voting rights.
Protection of Minority Rights:

The minority shareholders should be protected from the unjust or unfair conduct of the majority
shareholders. The most impressive thing of this power is the permission to go to the court to prevention
of oppression or mismanagement.
AGRANI BANK LIMITED
CMA Class Note on
The minority shareholders are protected under:
The common law
The provision of the companies act
When a company can establish a proper balance between its majority & minority shareholders then
obviously the company runs smoothly which results increase in profit. Both of these shareholders are
internal stakeholder where the total company functioning by them. So it is very essential to a company to
maintain its own internal environment to function properly. Therefore, a company can ensure its sound
environment through transparency in decision making, good accountability and safeguarding the
interests of shareholders.
The division of powers between the board and the shareholders:
Shareholders and directors have two completely different roles in a company. The shareholders (also
called members) own the company by owning its shares and the directors manage it. Unless the articles
say so (and most do not) a director does not need to be a shareholder and a shareholder has no right to be
a director.
Directors' general authority Shareholders' reserve power

The shareholders may, by special resolution, direct the
Subject to the articles, the directors are
directors to take, or refrain from taking, specified
responsible for the management of the
action.
company's business, for which purpose they
may exercise all the powers of the company. No such special resolution invalidates anything which
the directors have done before the passing of the
Powers of directors
resolution.
Subject to the provisions of the Act, the
• Directors may delegate -
memorandum and the articles and to any
Subject to the articles, the directors may
directions given by special resolution, the
delegate any of the powers which are conferred
business of the company shall be managed
on them under the articles-
by the directors who may exercise all the
(a) to such person or committee;
powers of the company.
(b) by such means (including by power of
In other words, the directors can decide attorney);
unless the Act, the articles or a (previously (c) to such an extent;
passed) special resolution says to the (d) in relation to such matters or territories; and
contrary. In effect, the directors are in (e) on such terms and conditions;
control of the day to day running of the as they think fit.
company, but must obtain approval from the
shareholders for some of the more important • If the directors so specify, any such delegation
decisions. Most companies do not have may authorise further delegation of the
special articles and most have not passed directors' powers by any person to whom they
special resolutions to restrict the directors' are delegated.
powers, so the reality is that in most • The directors may revoke any delegation in
companies the directors can make any whole or part, or alter its terms and conditions.
decision unless the Act says it needs a
resolution in general meeting.
The qualifications, powers and duties of the company secretary:

Company Secretary
Every company is required to have a company secretary. The company secretary acts in accordance
with the directors’ instructions. A company secretary’s main functions are to oversee the company’s day
to day administration and to ensure specifically that the company complies with the law and observes its
own regulations. Every person should, on or before appointment as a company secretary, familiarise
themselves with the duties and obligations attaching to the position.

AGRANI BANK LIMITED
CMA Class Note on
The powers of the
The qualifications of the
company The duties of the company secretary:
company secretary:
secretary:
No qualifications are The powers of the
For instance a Secretary commonly:
required to be the company Secretary are
secretary of a private limited to a few • Provides legal and administrative support
company. powers given to and guidance to the board of directors;
In the case of public limited him by statute and • Ensures that the board’s decisions and
companies, the directors such other powers instructions are properly carried out and
have a statutory duty to as may be communicated;
ensure that the company delegated to him by • Has responsibility to ensure that the
secretary is a person who the board of company complies with all relevant
appears to them to have the directors. statutory and regulatory requirements;
requisite knowledge and • Has responsibility for communications
experience to discharge the The Secretary has with the shareholders when required;
functions of company power to enter into • Acts as principal administration officer,
secretary and who either contracts relating to liaising with staff, customers, suppliers,
has: the day to day media and the board of directors; and
■ experience as a company administration of • Executes important documentation on
secretary; the company. behalf of the company, together with a
■ is a member of a body director.
recognized (ICAB, Where the In addition to ensuring that the company complies
ICMAB, ICSB) or; Secretary enters with the law and observes its own regulations, a
■ is a person who appears into contracts company secretary may be assigned other
to be capable of discharging within his apparent functions in the company’s articles of association
the functions by virtue of or ostensible or they may be delegated by the company’s
their memberships (of other authority, his directors.
bodies) or the positions actions will bind
the company even For ease of reference, secretaries duties are
which they have held.
if he had no classified in the sections below as:
An undischarged bankrupt authority to act statutory duties;
may not however act as a duty of disclosure;
secretary duty to exercise due care, skill and
diligence, and;
administrative duties.
_____________

AGRANI BANK LIMITED

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CMA Class Note on

GE05: Fundamentals of Ethics, Corporate Governance and Business Law

A share is a transferable form of property, The key points are:

The procedures for issuing shares:

If the constitution of a company states no differences

Ordinary shares (equity)

As regards the priority dividend entitlement, four points should be noted.

(a) (b) (c) (d)

When variation rules apply

Page# 154 December 12, 2015

Minority appeals to the court for unfair prejudice (in UK):

The Companies Act definition of a

Private company allotment of shares

Apply to BSEC for Public Offer:

Bidding by EIIs (for Book Building only):

Subscription and Lottery:

Commencement of Trading of scrips on the Bourse(s):

The issue of shares for an improper purpose:

Page# 158 December 12, 2015

Unreserved Capital Reserved Capital

Classes of Share Capital

It may be divided into the following classes:

Page# 159 December 12, 2015

Loan capital comprises debentures and other long-term loans to a business.

The reduction of capital:[page # 351]

Reduction of capital can be achieved by: extinguishing/reducing liability on partly-paid shares;

Page# 160 December 12, 2015

Issuing shares at a premium or at a discount

Issuing shares at a premium : Call value > Face value

Issuing shares at a discount : Call value < Face value

Debentures and loan capital

Appointment of Directors Retirement of Removal of Directors

Page# 163 December 12, 2015

The rights of majority and minority shareholders: [Page # 325]

The Basic Rights of Shareholder

Protection of Minority Rights:

The division of powers between the board and the shareholders:

Directors' general authority Shareholders' reserve power

The qualifications, powers and duties of the company secretary:

Page# 165 December 12, 2015

Page# 166 December 12, 2015

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