The Institute of Certified General Accountants of Bangladesh

P12- Corporate Law & Banking

December 2020
Marks - 100
Times: 3 Hours

QUESTION 01:
a) Discuss the legal characteristics of a Company.
[Marks: =10]
ANSWER:

Legal Characteristic or Feature of Company:

Company is more important among the various business organizations. Some special characters
make it as an artificial person. This legal and natural characteristic of a company is discussed as
follows.
1. Legal Characteristics of a Company: After registration a company get some legal advantages
such as artificial personality, perpetual successions, operate case, borrowing power even purchase
and sale assets in its own name etc.
2. Law Created Concern: This organization is created according to Companies Act 1994.
3. Separate and Distinct Personality: A company has a separate legal entity from its directors and
shareholders. For this reason, anybody cannot wish to winding up the company without the rules
of company law. So, if all the members are died, the company can continue its entity by its own
name.
4. Perpetual Succession: A company can go on forever after its formation, although the members
may come and go. So, a legal point of view a company has perpetual successions.
5. Ownership of the Property: As an individual and artificial person company itself owns it’s all
assets and liabilities. In fact, a company can control its all assets, management and sales. So, the
shareholders are not owners of the company’s assets. A company itself owns it’s all property.
6. Limited Liability: As an individual and artificial person company itself owns it’s all assets and
liabilities. The Liability of the members is limited to the amount if any unpaid on their shares.
Once a member’s share is fully paid then his liability to the company on them ceases. After then he
is not liable to make any contribution to the company’s assets in respect of the shares in the event
of the company being wound up.
7. Transfer of Shares: The shares of a company can be transfer without any restriction.
8. Separation of Ownership and Management: The management and directors are separated
from the ownership of the company by law. Though the company is form by the owners, the

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 ownerships and the entity of the company are quite separate. As a result, the company and owner
are not liable to each other for their own functions.
9. Share Capital: Company’s capital is divided into specific amount and number of shares.
10. Number of Member: According to Companies Act, 1994 the number of members of Private
Limited Company is minimum 2 and maximum 50. And number of members of Public Limited
Company is minimum 7 and maximum number is limited by share having a share capital with a
memorandum of association.
11. Compulsory Registration: According to Companies Act, 1994 registration is compulsory for
formation of a company.

QUESTION 02:
a) What do you mean by Registration of Firms?
b) What are the effects or consequences of Non-registration of a firm?
[Marks: 5+5=10]
ANSWER:
a) Registration of a firm:
Registration of a firm means that when the Registrar is satisfied that the provision of section 58
has been duly complied with, he shall record an entry of the statement in a register called the
Register of firms and shall file the statement.
b) Effects or consequences of Non-registration of a firm:
The legal consequences of non-registered firm are as follows:
 That no partner or alleged partner, can file a suit to enforce a right arising from a contract or
conferred by the Act against the other partners of alleged partners or the firm, unless the firm
is registered.

 That no suit can be filed by a firm against third parties to enforce right arising from a contract
unless the firm is registered.
Under section 69, a suit filed by a partnership firm without registration must be dismissed.

QUESTION 03:
a) “An agreement enforceable by law Is a contract”. Comment.
b) Briefly explain the essential elements of a valid contract.
c) Father promised to pay his son a sum of TK 1 lakh if the son passed CGA examination in the first
attempt. The son passed the examination in the first attempt, but father failed to pay the
amount as promised. Son files a suit for recovery of the amount. State along with reasons
whether son can recover the amount under the Contract Act,1872.
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 [Marks: 4+8+3=15]

ANSWER:
a) All agreements enforceable by law is a contract. In other words, only those agreements become
contract which is enforceable by law or which arises a legal obligation. Thus, there are two
essentials of Contract: I) Agreement II) enforceability by law.

Some agreements may be enforceable by law while others may not.

Example:
i) An agreement to sell the cotton seeds is a valid contract.
ii) but, an agreement to meet someone is not a contract as it doesn’t arise any legal obligation on
either of the parties.

Thus, from the above examples, it is clear that all agreements are not contract. Only those
agreements are contracts that satisfies the conditions in Contract Act, 1872.

b) Essential elements of a valid contract are as follows:

1. Offer and Acceptance: There must be a lawful offer by one party and a lawful acceptant of the
offer by the other party or parties.
2. Intention to create Legal Relations: There must be an intention (among the parties) that the
agreement shall result in or create legal relations.
3. Lawful consideration: An agreement to do something for nothing is usually not enforceable by
law.
4. Lawful Object: The object should not be illegal or immoral or opposed to public policy.
5. Capacity of parties: Every person is competent to contract who is of –
- the age of majority
- sound mind and
- not disqualified from contracting
6. Free consent: There is absence of free consent if the agreement is induced by –
a) Coercion
b) Undue influence
c) Misrepresentation
d) Fraud
e) Mistake
7. Writing and registration: An oral contract is a perfectly good contract except in those cases
where writing or registration is required by some statute.
8. Certainty: “agreements, the meaning of which is not certain or capable of being made certain,
are void”
9. Possibility of Performance: An agreement to do an act impossible in itself is void.

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c) The son cannot recover BDT 1.00 lakh from his father as there was no intention to create legal
relation while making the promise.
QUESTION 04:
a) XYZ Company Limited is a private Limited Company having five shareholders. The Board of
directors of the company is constituted of two directors. XYZ Company Limited wants to
increase its paid-up capital to Tk. 200.00 million from existing paid-up Capital of Tk. 100.00
million. The Board of Directors of the Company recommended issuance of shares for the
purpose of raising the paid-up share capital.

Describe the procedures to be followed for converting XYZ Company Limited into a public
Limited Company.
[Marks:10]
ANSWER:

For the purpose of converting XYZ Company Limited into a public Limited Company the procedures
are as follows:
 Since XYZ Company Limited has five shareholders the number of shareholders must be
increased to at least seven by issuing new shares or transferring shares from the existing
shareholders.
 Decision needs to be made by the Board of Directors of XYZ Company Limited to convert it into
a public Limited Company.
 Extra-ordinary General Meeting (EGM) shall be called for the purpose of getting approval of
the shareholders. In this regard all the regulations applicable for EGM must be complied.
 Necessary changes shall be made in the Articles of Association of the Company ensuring the
provisions which are applicable for a public limited company.
 The amended Articles of Association of the Company shall be submitted to the Registrar of
Joint Stock Companies along with the resolution of the EGM.
 Either a prospectus or a statement in view of prospectus (Schedule – V) shall have to defiled
with the registrar within 30 days from the date of passing the resolution for such conversion.
 Required fee shall be deposited in the designated bank account of Joint Stock companies.
 After completion of the necessary formalities the Registrar of Joint Stock Companies will
approve the conversion.

QUESTION 05:
(a) What is money laundering? Explain on several different Acts of Parliament.
(b) Describe of the money laundering regulations 2007.
(c) What is mean by ‘good practice’ in corporate governance?
[Marks: 5+5+5=15]
ANSWER:
a) Money laundering is the term given to attempts to make the proceeds of crime appear
respectable.
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 It covers any activity by which the apparent source and ownership of money representing the
proceeds of income is changed so that the money appears to have been obtained legitimately.

Money laundering is a crime that is against the interests of the state, and it is associated with drug
and people trafficking, and with organized crime in general.

Money laundering legislation has been influenced on several different Acts of Parliament:
 Drug Trafficking Offences Act 19
 Criminal Justice Act 1993
 Terrorism Act 2000
 Anti-terrorism Crime and Security Act 2001
 Proceeds of Crime Act 2002
 Money Laundering Regulations 2007

b) The Money Laundering Regulations 2007 require organizations to establish internal systems and
procedures which are designed to deter criminals from using the organization to launder money or
finance terrorism. Such systems also assist in detecting the crime and prosecuting the
perpetrators.

These regulations apply to all 'relevant persons', a term which covers a wide range of
organizations, including banking and investment businesses, accountants and auditors, tax
advisers, lawyers, estate agents and casinos.

As each organization is different, systems should be designed which are appropriate and tailored
to each business. These include:

 Internal reporting procedures:

These should include appointing a Money Laundering Reporting Officer (MLRO) to receive
internal reports of suspected money laundering and, where appropriate, to report them to
SOCA.

 Customer due diligence measures:

These should include identifying and verifying customers and monitoring the business
relationship according to the level of risk of money laundering.

 Record-keeping procedures:
Such procedures may include, for example, retaining copies of customer identity details
such as passports. These procedures are important in proving compliance with the
regulations.

 Ensuring that employees are educated:

Employees should receive appropriate training concerning the law relating to money
laundering and the business's policies and procedures in dealing with it.
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 Should a business fail to implement these measures a criminal offence, punishable with a
maximum sentence of two years' imprisonment and or an unlimited fine, is committed
irrespective of whether money laundering has taken place. Civil penalties may also be imposed.

c) Good practice in corporate governance is concerned with:

 Openness and transparency: disclosure of information
 Integrity and accountability: monitoring and judging directors’ performance based on the
returns that the company has achieved under their stewardship.
 Reducing the potential for conflict
 Reconciling the interests of shareholders and directors as far as possible

The five key elements which support the drive towards good corporate governance are as
follows:
 The Board of Directors:
 Executive directors of an extremely high standard in terms of their decision -making
and of the culture that they create in the company.
 Non-executive directors who are independent of the executives yet who accept that
they have collective responsibility with the rest of the board for corporate
governance.
 Committees of the board of directors that are properly constituted and have the
power and resources to make the decisions delegated to them by the main board.

 Senior management of high quality and able to:

 Put in the effect of the board.
 Whistle-blow on the activities of the company should the need arise.

 Shareholders who are proactive at meetings and generally ensure that the board is acting
in their best interests and within the spirit of good corporate governance.

 External auditors working on behalf of the shareholders totally independently of the

directors when reaching a conclusion as to whether the company’s financial statements
show a true and fair view.

 Internal auditors who are independent of the directors as far as possible, reporting to the
audit committee of the board or to some other committee dominated by non-executives.

Good corporate governance should provide proper incentives for the board and management to
purse objectives that are in the interests of the company and its shareholders and should facilitate
effective monitoring. The presence of an effective corporate governance system, within an
individual company and across an economy, helps to provide a degree of confidence that is
necessary for the proper functioning of a market economy.

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 QUESTION 06:
a) A & B agree to share profits of the business carried out by them but do not state anything in the
Deed about sharing of losses. Is it a valid partnership?
b) When and how may a partner retire? What restrictions are imposed on a retiring partner?
[Marks: 5+5=10]
ANSWER:
a) Yes, it is a valid partnership as both A and B agrees to share profit of the business carried out by
them, if nothing is mentioned in the deed about sharing of losses, losses will be shared equally.

b) A Partner may retire:

 With the consent of all the other partners
 In accordance with an express agreement by the partners
A retire partner may be discharged from any liability to any third party for acts of the firm done
before his retirement by an agreement made by him with such third party and the partners of the
reconstituted firm after he had knowledge of the retirement. Notwithstanding the retirement of a
partner from a firm, he had the partners continue to be liable as partners to third parties for any
act done by any of them which would have been an act of the firm if done before the retirement,
until public notices is given of the retirement. Provided that a retired partner is not liable to any
third party who deals with the firm without knowing that he was a partner.

QUESTION 07:
a) Write down the circumstances in which company may be wound up by Court. (section 241)
b) Write down the procedure of appointment of official liquidator. (section 255)
[Marks: 5+5=10]
ANSWER:
a) A company may be wound up by the Court; if—

(i) if the company has by special resolution resolved that the company be wound up by the Court;
or
(ii) if default is made in filing the statutory report or in holding the statutory meeting; or;
(iii) if the company does not commence its business within a year from its incorporation, or
suspends its business for a whole year; or
(iv) if the number of members is reduced, in the case of a private company below two, or, in the
case of any other company, below seven; or
(v) if the company is unable to pay its debts; or
(vi) if the Court is of opinion that it is just and equitable that the company should be wound up.

b) Procedure of appointment of official liquidator:

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 (1) For the purpose of conducting the proceedings in winding up a company and performing such
duties in reference thereto as the Court may impose, the Court may appoint a person or persons,
other than the official receiver, to be called an official liquidator or official liquidators.
(2) The Court may make such an appointment provisionally at any time after the presentation of a
petition and before the making of an order for winding up, but shall, before making any such
appointment, give notice to the company unless for reasons to be recorded it thinks fit to dispense
with such notice.
(3) If more persons than one are appointed to the office of official liquidator, the Court shall
declare whether any act, by this Act required or authorized, to be done by the official liquidator is
to be done by all or any one or more of such persons.
(4) The Court may determine whether any and what security is to be given by any official
liquidator on his appointment.
(5) The acts of an official liquidator shall be valid notwithstanding any defect that may afterwards
be discovered in his appointment. Provided that nothing in this sub--section shall be deemed to
give validity to acts done by an official liquidator after his appointment has been shown to be
invalid.
(6) A receiver shall not be appointment of assets in the hands of an official liquidator.

QUESTION 08:
a) What is Audit Committee? Discuss constitution and role of Audit Committee in a company.
[Marks: =10]
ANSWER:

Audit Committee
An audit committee is an operating committee of the board of directors charged with oversight of
financial reporting and disclosure. Committee members are drawn from members of the
company's board of directors, with a Chairperson selected from among the committee members.
Audit committee shall assist the BOD in ensuring that the financial statements reflect true and fair
view of the state of affairs of the company and in ensuring a good monitoring system within the
business.
Constitution of Audit committee:

 At least 3 numbers.
 BOD shall appoint 3 members from directors of the company & include at least 1
independent director.
 All members should have financially literate and at least 1 member shall have financial
management experience.
 The Company Secretary shall act as the secretary of committee.

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 Role of Audit Committee:

 Oversee the financial reporting process.

 Monitor choice of accounting policy & principles.
 Monitor internal control risk management process.
 Oversee hiring and performance of External Auditors
 Review along with the management the Annual Financial Statements before submission to
the BOD for approval.
 Review the adequacy of internal audit function.
 Review the statement of significant related party transactions submitted by the
management.

QUESTION 09:
a) Briefly describe price sensitive information (PSI).
b) What are the preconditions of Right Share issue?
[Marks: =10]
ANSWER:
a) Price sensitive information

Price sensitive information means the information that, if made public, would be likely to have a
significant effect on the price of a company’s securities. Such information must, in connection with
a listed company, be released to the market in a fashion that is fair to all investors. Any person
who uses price sensitive information to make a profit either for themselves or a third party in the
shares of a company is in breach of insider trading laws.

Price sensitive information contained:

1. Information regarding financial information of the company before AGM.
2. Dividend related information.
3. Decision regarding issue of rights shares and bonus shares.
4. Information regarding sale or purchase of any fixed asset.
5. Fundamental changes of function of company like Production.

b) Precondition for Right issue:

Right Issue’ means offering shares to existing members in proportion to their existing shareholding
through letter of offer. The procedures of right issue are the followings:
1. Offer to the existing shareholders: The first condition to issue further shares is that they
shall be offered to the existing holders of equity shares of the company irrespective of
class.

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2. Offer to be made by notice: The offer shall be made by notice specifying the number of
shares to be offered and the time limit within which it should be accepted. Such time shall
not be less than fifteen-day s from the date of offer.
3. Shareholders right to revoke such offer: Unless the articles otherwise provide, the
shareholders shall have the right to revoke the offer and the notices shall contain
statement of the right.
4. Director power in case of shareholders rights: If the shareholders do not accept the right
within the prescribed tine, the directors shall have the right to dispose of the unaccepted
shares in such manner as they may think most beneficial to the company.

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