Institute of Business Administration (JU) BBA (17th Batch) Session: 2007-08 Course: Legal Environment of Business Course Code: BUS
211 CT: Rumana Islam Lecture- 8
Share The capital of a company is divided into small units of fixed vale. Such units are called shares. According to section 2(14) of the Companies Act - “‘Share’ means share in the share capital of the company.” Share is not a sum of money but an interest measured by a sum of money and made up of various rights contained in the contract. Features of share: 1. 2. 3. 4. 5. Share is a small part of capital Though share has monitory value, it is not money Share in an interest measured by money Share is a movable, intangible and transferable property It is a bundle of rights and liabilities arising out of contract.
Classification of shares: Shares may be broadly of two kinds— 1. Ordinary/ equity share 2. Preference share 3. Deferred share 1. Ordinary Share: The owners of ordinary shares enjoy the ordinary right of dividend and get back their capital after the preference shareholders but they have greater responsibilities in the management of the company. The features are-i. ii. iii. They receive dividend after satisfying the preference shareholder During liquidation, their capital is returned after the preference shareholders They participate directly in the management
2. Preference Shares: Preference shares carry a preferred right to a certain minimum dividend in a year and ordinary share carry the rest. So the features are— i. They receive interest in priority to the ordinary shareholders ii. Their interest is given in a fixed rate iii. Their capital is repaid in priority to the ordinary shareholders at winding up iv. Normally they do not participate in the management
Shares shall be redeemed out of profits or out of proceeds of a fresh issue of shares made for the purpose of redemption. Such shares are called redeemable preference share. If they are so entitled. Participating and Non-participating preference share After paying dividend to the preference and ordinary shareholders out of profits or after repaying the capital to ordinary and preference shareholder at liquidation.Preference shares may be again of following kinds— a. a sum equivalent to the amount paid on redemption shall be transferred to a reserve fund known as capital redemption reserve account. a question will arise. Otherwise they are non-participating preference shareholders. Their rights depend on articles or the terms of issue.
Bonus share: Company can issue bonus shares to the shareholders in following cases— 1. they are called participating preference shareholder. Redeemable and Irredeemable preference share: The company may have the option to pay back to the holders of shares which is called redemption. 2. Participating and Non-participating preference share a. whether preference shareholders are also entitled to a share in the distribution of surplus. Cumulative and Non-cumulative preference share b. if the company lacks cash. Cumulative and non-cumulative Preference share: If there is no profit in one year and arrears of dividend are to be carried forward and paid out of profits of subsequent years the preference shares are said to be cumulative. There are following restrictions in this regard— i. c. Deferred Shares: Deferred shares. But if the unpaid dividend lapses the shares are called non-cumulative preference shares. According to law six years dividend may be paid at best at a time for cumulative preference shares. the preference shares are presumed to be cumulative. is called irredeemable preference share. b. company can issue shares in stead of dividend. 3. The shares which are not redeemable and whose value is repaid only at the time of winding up. Shares to be redeemed must be fully paid ii. if there is any surplus. are usually of small nominal amount with a right to take the whole or proportion of the profits after a fixed dividend has been paid on the ordinary shares. Redeemable and Irredeemable preference share c. Articles provide clarification I this regard and in case of no clear provision in the article. Where redemption is made out of profits. In spite of huge profit. Where the company requires some working capital to enlarge its business or to face some practical problems
. not otherwise. Generally preference shares are non-participating. which are sometimes called founder share or management share. iii. Generally promoters buy these shares and thus they are also known as promoter share.
share is sold at Tk. 100.
General rules of allotment: 1. When an application is accepted. Statutory restrictions on allotment: 1. The application money which must not be less than 5% of the nominal value of the shares must have been received in cash. Posting of properly addressed and stamped letter of allotment is sufficient communication even if the letter is delayed or lost is the course of post. It must be issued within 6 months of courts approval. In “Liquidator of Consolidated Copper etc Ltd. 2. the conditions for such allotments at discount are— a. Shares valuing Tk. No share can be allotted unless minimum subscription is collected which is required to meet the preliminary expenses.
If the capital reserve exceeds the share capital of the company. Allotment must be communicated: An allotment must be communicated to the applicant. power may be delegated to others. If 100 Tk. it is an allotment.
Allotment of share: Offers of shares are made on application forms supplied by the company. According to section 152. Within reasonable time: Allotment must be made within a reasonable time. iii. Absolute and unconditional: Allotment must be absolute ad unconditional. 80. 3. c. If 100 Tk. 110. vs. Such issue must be approved by resolution in the general meeting and High Court. Otherwise it turns into a counter offer.. b. Otherwise the application for share lapses.
. 1000 is issued at Tk.When share is issued on its face value. 4. 2. Commission cannot exceed 10% of the face value. Company must submit a prospectus or a statement in lieu of prospectus to the Registrar before allotment. In case of non compliance shares will be valid but directors will be personally liable. No allotment shall be valid until the beginning of 5th day from date of issuing prospectus or of 3rd day of issuing statement in lieu of prospectus. Nature of allotment: Company can allot or issue shares in following manners— i. If permitted by article. Share is sold at Tk. Issue of shares at discount – If shares are issued for a value less than its face value. 4. 3. Issue of Share at premium – If shares are issued for value greater than face value. By Proper Authority: The proper authority for allotment of share is Board of Directors. Issue of shares at par -. ii. Shares cannot be allotted at once after the issue of prospectus.
4. Otherwise the call is valid. rest of the amount may be paid by three installments. Effects of irregular allotment: According to section 141 and 148 of the Companies Act. Allotment becomes voidable at the option of allotee 2. It was held that the allotment is not valid. Requisites of valid call: 1. 5. Company can claim interest in case of delay in payment and can forfeit the share in case of non. A call must be made bona fide only in the interest of the company and not otherwise. the defendant applied for 100 shares but he was allotted only 25 shares. A ‘call’ is a demand by the company on its shareholder to pay whole or part of the balance remaining due and unpaid on each share made at any time during the continuance of the company. Directors will be personally liable for compensation but suit must be filed within two years of allotment. 7. Company can require full payment of each share or require the shareholder to pay the amount in some installment.payment. At least 21 days’ notice must be served to pay the called money. For example. etc. paid and unpaid part of the money. No call shall be for an amount exceeding one fourth of the face value of the share. Call shall be made on a uniform basis on all shareholders falling under the same class. The resolution must state the amount of the call and time in which it is to be paid.compliance directors will be liable for taka 1000 for each day of default. name and address of the allotees. being duly passed in the presence of proper quorum. 6.Peddiec”. 3. Return regarding allotment: Section 151 of the Companies Act requires the company to submit a return to the Registrar within 60 days of allotment which will contain the number of allotted shares. 2. their value. A call must be made under a resolution of Board of Directors duly appointed and qualified and meeting being duly convened and resolution. In case of non. These three installments are called share calls.
Share Call: The liability of a shareholder to pay the full value of the shares held by him is enforced by making ‘calls’ for payment. a share valuing 100 taka may be paid in the following way — On application – Tk 10 On allotment – Tk 40 On first call – Tk 25 On second call – Tk 15 On final call – Tk 10 Here except the amount paid on allotment and application and allotment (10+40) = 50. the remedies for irregular allotment are as follow— 1.
8. 2. 6. Share Calls in Arrear: If the shareholder fails to pay the call money the amount which remains arrear may be called later if permitted by article. 100 shares are not paid. For example. Share Surrender: If the shareholder. having been called upon to pay. Such share is known as Share call in arrear. Rules regarding share surrender: 1. 3. 3.
Share Calls in Advance: The company can receive any kind of unpaid amount or part from the shareholder in advance though no call is yet made.
At least one month shall be maintained between two consecutive share calls. This is called share calls in advance. if permitted by the article of the company. There is no reference regarding share surrender in the Companies Act but the court has admitted this in several cases. The shareholder will be entitled to an interest not exceeding 6% until the amount becomes due. then it is known as Share surrender. The power of forfeiture must be exercised in good faith for the benefit of the company. not at the request of the shareholder to relieve him. A company calls for 2000 shares 3 Tk each. 2. So (100×3) = 3000 Tk is share calls in arrear. 7. It must by supported by article of association There must be a valid call by the company to pay some amount of share The shareholder must be in default in payment Company can accept forfeiture in order to avoid formalities of forfeiture The shareholder must be really unable to retain the shares and pay future calls The shares can be re-issued on new terms The shareholder can surrender his shares to receive the shares of same value as fully paid shares. No formalities are to be maintained by the company in case of share surrender. defaults the company may.
. Rules regarding valid forfeiture: 1. surrenders his shares to the company. Company can claim 5% interest on arrears until it is duly paid. 5. A 15 days’ notice under the authority of Board of Directors must be served on the shareholder in default. Forfeiture can be made only on the grounds specified in the article. 4. The notice of forfeiture does not operate by itself. The directors must pass a resolution to declare the forfeiture operative. 8. If the forfeited shares are re-issued the new allotee will not be liable for the payment of previous calls. of his own. 5. bring an action and if article permits can forfeit such shares. Forfeited shares become the property of the company and can be re-issued on new terms. Forfeiture of Share: If a member. 4.
It must be permitted by article 2. with the transfer of share the the certificate also is changed. It is an evidence of ownership. Legal Effects of Share Certificate: 1. Right of lien cannot be exercised if the shares are already mortgaged and company is aware of the fact. 4. Company is not liable for a forged certificate 5. The shares which are fully paid can be transferred into share warrant. Share Warrant: Section 46 provides that a company. The shares must be partly paid 3.
. The transfer of a shareholder’s interest in a company is called share transfer. Rules regarding Lien: 1. The company is liable to keep the certificate ready. it is easily transferable subject to the provisions of article. not to deliver 2. if authorized by article. Share Certificate: Section 158 of the Companies Act 1994 provides that every company shall within 90 days of allotment or registration of any transfer of share prepare ad keep ready for delivery a certificate with the company’s seal. can issue share warrant in favour of the holder or bearer with the interest specified in the instrument. Company cannot deny the amount stated in the certificate 4. the company can sell the shares under lien and the transferee gets good title. As soon as the share warrant is issued. 2. The holder can. therefore. This is known as lien on share.Lien on Share: Lien means the right to retain the property of debtor unless and until the debt is satisfied. share is a movable property and therefore. by surrendering the warrant for cancellation. Holder of share warrant has no voting right. If permitted by article the company can deny the shareholders right to transfer his shares unless his dues are paid. share holder’s name in removed from the member’s list 4. Title of share warrant passes to the transferee with manual delivery only 3. 5. Company cannot deny the authenticity of the share certificate 3. Legal effects of Share Warrant: 1. In order to realize the dues. re-issue the share certificate and enter his name into the members’ list. Share warrant is a negotiable instrument and for this it is easily transferable. Such certificates are called share certificate. Holder is entitled to dividend by submission of a coupon attached with the share warrant 6. Share Transfer: According to section 30 (1).
5.Procedure of share transfer: 1. regarding the dues of the shares he is taking. 6. if the shares are not fully paid. Otherwise the transferor shall remain liable for future calls. After registration. Transfer deed signed by both parties ii. Either the transferor or transferee shall submit an application to the company regarding transfer of share. the total procedure of share transfer is complete. 2. shall enter his name into the Register of members. The Company has the power to refuse registration on logical ground. the name of the transferor shall be removed from the members’ list and the name of the transferee shall be added. and if. Regulation 19. Share certificate or the letter of allotment 3. The company. A new share certificate shall be issued in the name of the transferee. give a notice to the transferee. In this way. 4. within two weeks receives no objection from the transferee. (Section 38) Application form is prescribed in the article. With the application the following documents must be submitted— i. otherwise it can be taken from Table ‘A’. Every transfer of share must be registered according to section 38 of the Companies Act.