Companies Act, 1994

Business Law-CA Certificate level

OVERVIEW ON COMPANIES ACT, 1994

 Definition of Company and its essential characteristics

"company" means a company formed and registered under this Act or an existing company;
Essential characteristic:

1. A company is regarded by law and it has a legal personality;

2. A company has perpetual succession;
3. The liability of the members of a company is limited;
4. A company is required to comply with various statutory obligations regarding management.

 Types of Company:

- Private Company:
-Public Company:

i) Company Limited by share

ii) Limited by guarantee
iii)Unlimited Company

-Statutory Company: Railway, Gas etc.

-Chartered Company: East India Company
-Registered Company

 Holding Company and Subsidiary Company

Holding Company
When a company acquires controlling interest in the affairs of another company or companies,
it is known as the holding company. The Companies Act in its definition clause at section 2 clarifies,
interalia, that the holding of such controlling interest should take all or one of the following forms:
1. its assets may consist in whole or in part of shares in another company;
2. such shares or other interests may be held either directly or through a nominee.
3. such interest should be in the form of holding more than fifty percent of shares or voting
rights in that other company.
4. such voting right gives power directly or indirectly to appoint the majority of the
directors in that other company otherwise than by virtue of the provision of a trust –
deed.
Subsidiary Company
It is a company more than fifty percent of whose issued share capital or voting power is held by
another company or the majority of whose directors can be appointed by another company. A
subsidiary company may be a public or private company or not even be a company at all within the
meaning of the Companies Act. Where the shares of such a company are held as security by a
company the ordinary business of which is lending of money or where the majority of directors
can be appointed by a company by virtue of powers contained in a debenture trust-deed, the
former company will not be deemed to be a subsidiary company of the latter.

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Private Ltd. Company VS Public Ltd. Company

Private ltd co.
Minimum- 07, Maximum ltd by
share.
Share can only be transferred among No restriction of transfer of share.
person.
Invitation of Can not invite to general meeting
meeting
Statutory meeting Statutory meeting of filling statutory After start of business the company
of Report report to register of JSE in not is bound to call statutory meeting
obligation. within 1 to 6 month of submit
statutory report.
Commencement of Can start business only after getting Can start business after getting the
the certificate of incorporation certificate of commencement from
JSE
At least 2 directors. At least 3 directors.
Consent of Consent and certificate is to be
Directors Required. required.
 Steps involved in the formation of a company under the Companies Act 1994
Formation of a Company:
2 (two) or more persons (not more than 50) and 7 or more persons (unlimited) may form a Private
or a Public Limited Company respectively by subscribing their signature in the Memorandum of
Association. They may form -
 a Company limited by shares;
 a Company limited by guarantee;
 an unlimited Company.
There are 3 stages for formation of a company -
i. Promotion;
ii. Registration;
iii. Commencement of business.
Promotion stages -
i. Promoters
ii. Clearance of name
iii. Sponsors' equity
iv. Consent of the Directors
v. Selection of objectives.
Registration:
i. Submission of Memorandum & Articles of Association.
ii. Payment of stamp duty & Registration fees.
iii. Obtaining certificate of incorporation.
Commencement of business:
 For a Private Limited Company, the business of the Company can be commenced
after getting the registration i.e. certificate of incorporation.
 For a Public Limited Company, the Company shall obtain the certificate of
commencement of business from the Registrar.

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Pre-incorporation contracts. Exceptions to those contracts

Pre-incorporation contract
A company cannot be bound by a contract which was made on its behalf by any person and excluding
a promoter before the company itself had been formed. The company cannot ratify any pre-
incorporation contract and the promoters will be personally liable.

In these circumstances, the simplest and safest course for promoter is to bring the negotiation to
the point of agreement but to postpone any binding contract until the company is formed and can
enter into the contract for itself. In this regard a fresh contract can be accorded by the company
after the incorporation.
 Certificate of incorporation of a company
The certificate issued by the registrar after a company is registered is called the Certificate of
incorporation. Section 25 of the Act states that the Certificate about the following matters:
1. All the requirements of the Act have been complied with respect of registration and
matters precedent and incident thereto;
2. The association is a company authorized to be registered and duly registered under the Act;
and
3. The legal existence of the company begins from the date of issue of the certificate.
 Principal documents to be filed for the purpose of incorporation of a company
To obtain a certificate of incorporation the following documents need to submit:
1. Memorandum of association signed by each subscriber and dated.
2. The signature must be witnessed by a third party.
3. Articles of association signed, dated and witnessed as same subscribers.
4. A statutory declaration that all the legal formalities have been complied.
5. Notice of situation of registered office.
6. Particulars of directors, managing agent and Manager
7. A list of persons who have consented to become directors.
8. A written consent of the directors to act as such.
Thereafter, the proper stamp duty for registration has to be paid and the register shall enter the name
of the company on the register of the companies and issue a certificate of incorporation
 Memorandum of Association
The memorandum of association is the charter /constitution of the company. It is the written
documents containing the object and power of the company upon which the company is
incorporated and the company cannot go beyond the limitation/contained in the M/A. It cannot
change without the consent of the court / Govt. The memorandum shall be:
1. Printed
2. It shall be divided into paragraphs and numbered consecutively, and
3. It shall be signed by each subscribed (giving his address and description) in the presence
of at least one witness who shall attest his signature.
 Contents of Memorandum of association:
1. Name clause: The memorandum shall state the name of the company with “limited” as the last
word in its name. It signature that the liability of the shareholders is limited. The liability may
Limited by shares or by guarantee.

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

2. Registered office situate clause: After the name the M/A usually state the name of the place
where the registered office of the company. The reasons why the place of its registered office is
stated in the M/A
 It fixed the domicile of the company and determines jurisdiction of the court with regard to
the company
 It provides some definite places at which notice and other processes may be served on it.
 It also determines where the records of the company are to be kept
 Changes the register office
3. Object clause: The third requirement of the M/A is object clause. It determines:
 The power of the company and
 It restricts the power of the company
4. Liability clause: The fourth particular in an M/A is a statement that the company’s liability is
limited. In case of a company limited by shares is wound up the members of company will not
be liable to contribute more than the amount up paid on their shares But if the number of members
is reduced in case of Pvt. Limited co below two and in case of public limited co. below seven and the
business carried on more than 6 months thereafter, then the member are personally liable
irrespectively of limited liability for all debts contracts during the period (U/S 222).
5. Capital clause: The amount of the nominal capital of the company and the number of the shares
must be clearly stated in M/A. There is or legal limit to the amount of the capital or of each shares.
Alteration of capital clause: may by usually. The article of association contains the power and
procedure to alter the capital clause. Otherwise a special resolution has to be passed in a general
meeting to alter the A/A in this regard. A notice in this regard shall have to be filed to the registrar
within 15 days.
 Points of difference between the Memorandum of Association and the Articles of
Association of a Limited Company.
The differences between the Memorandum and Article of Association are as follows:
Memorandum of Association
The memorandum is the The Articles are rules regarding internal
constitution of the Company determining management.
Objectives
Memorandum is the main guideline of the Any rules in the articles contrary to the
company memorandum is invalid
Alteration of Memorandum is difficult, in some Alternation of article is easy; it requires a
cases it requires Court's permission special resolution only.
Articles define the internal regulation and
Management process
Acts done by the company beyond the power of Acts done by the Company beyond the
the memorandum void which cannot be articles can be ratified by the share holders
ratified provided they are within the power of the
Memorandum

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Alteration of memorandum;
- Special resolutions are necessary
-Permission from court may be obtained.
 Power to alter the Articles of Association of a company. Restrictions/ limitations, if
any, on the nature and extent of the alterations that can be made.
Subject to the provisions of this Act and to the conditions contained in its memorandum, a
company may by special resolution alter, exclude from or add to its articles: and any alteration,
exclusion or addition so made shall be as valid as if originally contained in the articles, and be
subject in like manner to alteration, exclusion or addition by special resolution.
Notwithstanding anything in the memorandum or articles of a company, no member of the
company shall be bound by an alteration made in the memorandum or articles after the due
on which he becomes, member, if and so far as the alteration requires him to take or subscribe for
more shares than the number held by him at the date on which the alteration is made, or in any way
increases his liability is at that date to contribute to the share capital of, or otherwise to pay money
to the company.
 Do all the companies issue a prospectus?
All the companies do not issue a prospectus. Only the Public Limited Companies having permission
from the Securities and Exchange Commission may issue a prospectus. A public limited company
which does not issue a prospectus, it shall issue a statement in lieu of prospectus.
As per Section-141 a Public Limited Company having a share capital and not issuing prospectus must
at least 31 days before the first allotment of shares or debentures, file with the Registrar for
registration a statement in lieu of prospectus. The statement must be in the form prescribed in
schedule – IV of the Companies Act-1994.
In case of untrue and misleading information furnished in the prospectus its promoters and
directors will be held liable. The shareholders may claim the value of shares allotted. The
Shareholders may claim demurrage for any losses incurred for such misstatement furnished in the
prospectus.
 Conditions to be fulfilled before a company commences business
A public company, having a share capital and issuing a prospectus, cannot commence business until
the Registrar issues a certificate known as the "Certificate of Commencement of Business". This
certificate is issued after the following formalities have been complied with:
i. The minimum subscription has been raised.
ii. Every director has paid the money payable on application and an allotment for the shares
taken up by him.
iii. No money is repayable for failure to obtain stock exchange recognition for the shares,
where such recognition was promised.
iv. A duly verified declaration by a director or the secretary has been filed with the Registrar
that the above requirements have been complied with.
However, a public company having share capital but not issuing a prospectus will get the
commencement certificate if the following conditions are fulfilled:
i. A statement in lieu of prospectus has been filed with the Registrar.
ii. The directors have paid the money due from them on account of shares.
iii. A declaration by a director or the secretary has been filed with the registrar stating
that condition (b) has been satisfied.
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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Contracts entered into by a company before the commencement of business are binding
on the company?
A company cannot be bound by a contract which was made on its behalf by any Person (including
a promoter) before the company itself had been formed. At the time when the contract is made,
the company is non-existent, it cannot after its formation ratify a contract to which it could not have
been a party when the contract was made [Kenner v Baxter (1866)].
In Kenner's case goods had been ordered for the company's business before the company was
formed. But the company is not bound by a contract merely because it later performs it, e. g. by
accepting the goods or services. The company will, of course be liable if it makes a fresh contract
after the company is formed; but there must be clear evidence that it intended to do so.

ln the circumstances, the simplest and safest course for a promoter is to bring the negotiations to
the point of agreement but to postpone any binding contract until the company is formed and can
enter into the contract for itself. However, if it is essential to some formula of assignment or
notation to be made after incorporation and when it does so, or if it does not do so within a
specified time, he is then to be released.

 Share Capital:

-Nominal or Authorized Share Capital

-Issued Share Capital
-Subscribed Share Capital
-Paid up Capital
-Reserve Capital: By passing a special resolution company may declare uncalled capital as reserve
capital

 Classification of Shares:

-Preference Shares
-Ordinary Shares
-Deferred/Founder’s Shares

 Procedures for reduction of share capital

Reduction of share capital

The power to reduce capital must be given by the articles. If no such power, the articles may be
changed by a special resolution. According to section 59, the share capital may be reduced by:
a) reducing or extinguishing the liability of members for uncalled share capital; or
b) writing off lost share capital; or
c) paying off share capital which is in excess of the wants of the company; or
d) All these are to be done only by way approve by the court.

Procedure for Reduction of Share Capital

Reduction of capital is possible only by passing a special resolution and confirmation by the court.
The court would inquire into the objections, if any, raised by the creditors. In this respect the court
settles the list of creditors entitled to object and issues public notices (sec. 62). On hearing the
objections, the court may confirm the reduction on such terms and conditions as it may dam fit
(sec. 64).
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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Process of share Transfer of company

Share transfer
As per clause 12(2) of listings regulations the Company shall complete share transfer and have
ready for delivery the share certificates lodged for registration of transfer within 45 days of the
application for such transfer and its registration. The transfer instrument is to be filled up by the
transferor and the transferee and to be submitted to the company for necessary action. The
transfer of shares requires Board's appointment.
But at present, the electronics shares require no form of 117 for transfer. Just a valid intention of
sale and buy is to submit to the Broker house for sales, buy, transfer of shares. It transfers
automatically and instantly.
 Qualification and disqualification of a director of a company. How directors are
appointed?
Qualification of Directors:
Articles of Association of a Company usually fix the minimum number of shares which every
Director must subscribe in order to become a Director. The minimum number which is determined by
the Articles is known as qualification number of shares as contained in Section 97(1) of CA 1994. Every
Director shall hold that minimum qualification shares within 60 days or within the lime as may be
specified in the Articles whichever is earlier.

As per Section 97(2), if after the expiration of the period mentioned in sub-section (1) any such
unqualified person acts as a Director of the Company he shall be liable to pay fine not exceeding
Tk.200 per day for the period of holding as an unqualified Director under this section.

As per section 92 every person shall not act as a Director unless he has -
 signed and filed with the Registrar to consent in writing to act as such Director and;
 Signed the Memorandum for a number of shares not less than his qualification shares, or
taken from the Company and paid or agreed to pay for his qualification shares.

Disqualification of Directors:
Following persons shall not be eligible for appointment as director: (Sec-94j:
 An unsound mind, declared by a competent court;
 An insolvent or an un-discharged insolvent;
 A person applied to be adjudicated as an insolvent and his application is pending;
 Any person fails to pay his shares money after it is called up and 180 days have elapsed from
the last day fixed by the call;
 A minor;
 Any other person/persons as may be prescribed in the article.

As per Section 91 of CA 1994 directors are appointed as follows:

 Subscriber of Memorandum shall be treated as the first Directors;
 Generally Directors are appointed at the AGM by the shareholders among themselves;
 One-third of Directors shall retire by rotation in each year;
Existing Director may appoint a person as Directors to fill up any casual vacancy.

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

 Provisions of the Companies Act, 1994 about appointment of Directors of a

Company.
Appointment of Directors (Section-91):
a) The subscriber of memorandum shall be deemed to be the first Director of the company;
b) The Directors are appointed by the shareholders in the General Meeting;
c) The existing Directors may appoint any person as Director in case of any casual vacancy.
One third of the Directors shall retire by rotation in each year.
 Removal of a director
As per section 106 of the Companies Act 1994 –
(1) The company may be extraordinary resolution remove any share-holder director before
the expiration of his period of office and may by ordinary resolution appoint another person in his
stead and the person so appointed shall be subject to retirement at the same time as if he had
become a director on the day on which the director in whose place he is appointed was last elected
director.
(2) A director so removed shall not be re-appointed a director by the Board of Directors.
 Procedure of calling Annual General Meeting and Extraordinary General Meeting of a
company. State what businesses are transacted in an Annual General Meeting
A general meeting shall be held (within eighteen months from the date of its incorporation and
thereafter once at least in every year) at such time (not being more than fifteen months after
the holding of the last preceding general meeting) and place as may be prescribed by the
company in general meeting.
Proceedings at General Meeting
 Fourteen days' notice at least (exclusive of the day on which the notice is served or deemed
to be served, but inclusive of the day for which notice is given) specifying the place, the day
and the hour of meeting.
 No business shall be transacted at any general meeting unless a quorum of members is
present at the time when the meeting proceeds to business
 If within half an hour from the time appointed for the meeting a quorum is not Present,
the meeting, if called upon the requisition of members, shall be dissolved.
 The Chairman selected among them by the Board of Directors shall preside as chairman at
every general meeting of the company. Provided that the Chairman and the Managing
Director shall not be the same person.
 lf there is no such chairman, or if at any meeting he is not present within thirty minutes
after the time appointed for holding the meeting, or is unwilling to act as chairman, the
members Present shall choose someone of their number of be chairman'
 The chairman may with the consent of any meeting at which a quorum is present, adjourn
the meeting from time to time and from place.
Extra Ordinary Meeting:
All meetings of the shareholders other than the annual meetings or those provided for in the articles
are known as extra ordinary meeting. These meetings may be called by the directors either ‘suo
moto’ or the requisition of not less than one-tenth of the shareholders and where the directors fail to
call such a meetings so requisitioned within the prescribed time limit, by the requisitions
themselves.
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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

Businesses that are transacted in an Annual General Meeting:

1. To receive, consider and adopt the Directors’ Report and the Audited Balance Sheet and
the Profit and Loss Account with Auditors’ Report thereon.
2. To declare dividend.
3. To elect Director (s)
4. To appoint the auditors and fix up their remuneration.
5. To transact any other business which can be transacted by ordinary resolution, with
the permission of the chair.
 Statutory Meeting is a must within a specified time for a new company. State the
specified time & Matters can be transacted in such meeting.
Every public company limited by shares and every company limited by guarantee and having a
share capital, must within a period of not less than one month and not more than six months from
the date at which the company is entitled to commence business, hold a general meeting of members
which is to be called, the Statutory Meeting. In this meeting the members are discuss a report by
directors, known as the Statutory Report, which contains particulars relating to the formation of
the Company.
 Discuss the position, powers and liabilities of directors.
Legal position of Directors:
There are different views about the legal position of Directors. They have been described sometimes
as trustees of the company and sometimes as its agents. Neither view is wholly correct but both
contain elements of truth.

Fiduciary Position:
It is generally agreed that the Directors occupy a fiduciary position in relation to the Company.
They must make full disclosure of all material facts of the Company.
Officers:
The Section 2(i) (o) of the Companies Act provides that a Director is an officer of the Company.

Power of Directors:
Directors derive their power and authority from two sources (i) the Articles of Association of the
Company and (ii) the Companies Act.
The articles of association generally contain a list of the powers, which may be exercised by
Directors and the limitation on those powers.
All acts and things done by the Board of Directors, within the powers given to it by the articles, are
valid and binding on the company.
It may be noted that a Director individually has no authority over the affairs of the Company except
as regards matters, which have been specifically delegated to him by the Board.
Liabilities of Directors:
The liabilities of Directors may be analyzed with reference to liability of Directors to third
parties, liability to the company, liability for breach of statutory duties and liability for acts of his
Co-Directors. Directors' liability may be civil liability, criminal liability and unlimited liability.

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Md. Maksodur Rahman ACA
M# +88 01912239702
 Companies Act, 1994
Business Law-CA Certificate level

Civil Liability:
The directors may, under certain circumstances, be liable to pay compensation to the Company
and to outsiders, such as:
1. Untrue statements in the prospectus.
2. Ultra vires acts.

Criminal liability:
For certain breaches of duty the Companies Act imposes criminal liabilities upon Directors such as:
Untrue statements in prospectus, failing to keep certain register, falsification of books and reports etc

10
Md. Maksodur Rahman ACA
M# +88 01912239702