COMPANY LAW

Section: 2(1)

Sec. 2 (1) (c) the Companies Act, 1994.

Solomon vs Solomon case very important from company law.

Private limited company minimum 2 members max 50.

Public limited No limit of members. Share obadhe hostantorjoggo. Dse,Cse.

Minimum number of member is 7.

A franchise company in Bangladesh can be Burger King.

I have own shoe making online page. It will be sole p as long as he has not not

incorporated. As soon as sole proprietorship will be registered with the company

act 1994, it will turn to company. It will have separate legal entity from its

shareholders. Succeed perpetually means even if the founder dies the company can

still exist. In a sole p business if the founder dies the business won’t last. If xyz and

50 others formed xyz and co. ltd. Here xy and 50 others will be separated when xy

and co. comes into live. Jara found korlo tara separated thakbe. Artificial legal

persons that will be separated from all the other shareholders. Jokhon register kora

hobe tokhon separate legal entity. The company is a form of business organisation
in which the funds of a large number of investors are managed by a few persons

(Directors) for the purpose of earning profits.

Sec. 2 (1) (c) the Companies Act, 1994 - “Company means a company formed and

registered under this Act or an existing company”.

A, B, C opened a company. They become shareholders as soon as they opened a

company. LTD company. Once the company gets incorporated it will distinct from

A, B, C. A company will born as-soon as the certificate of incorporation is issued.

It will hold separate entity from its owners. They will have different rights and

obligations that will be separate from the company they have created.

Highest member of private limited company is 50! Reason of incorporating is

reducing the liabilities.

Fire blast in United hospital. Many people died. Who do we sue? We sue the whole

company. Not a single entity.

FR Tower sole proprietorship. And there was fire breakout there. Then we will sue

the directors.

Salomon vs Salomon ashbe for sure!

Salomon was the sole owner of a boot making business. Once it

was becoming profitable he wanted to incoropate it into private

limited company. Transferred it to Salomon Ltd. With family

members and some creditors having 75% of the total shares.

Once it ran for 6-7 months, it was not profitable anymore and

went to liquidity. Then Solomon recovered the amount of money

he had invested and others left with no money. The creditors

then filled a case against salomon saying this company that was

created was a fake company and salomon being the main

shareholder therefore will be liable for the depts of the company.

He needs to recover all the money from the personal assets. All

the creditors need to be paid the amount from salomons personal

assets. Personally liable. The company had separate legal entity.

He will not be liable to pay all the creditors with his own

property because it was an incorporated company. So, Salomon

won’t be needed to pay the amount to them.

The company have own ownership and managements. Once a company is created it is being run

by shareholders and directors. Directors manage the company. Delegate the work to other

managers in the company. Board of directors control the management system. Shareholders who

do not participate management but invest money. Mangers are directed by the directors. They

deal with day to day business. Once a company is liable somehow its blamed to the directors.

Directors are the ones who manage the company. Directors are involved in the management of

the business. Shareholders don’t manage. They just invest. So they are not blamed.

Important implication of separate legal entities: A company has its own properties.

Difference between public and private.

Owned and traded publicly.

Owned and traded privately.

Unlimited members

Max 50 members.

PLC minimum 3
Pvc 2

Public limited Company- PLC

Private Limited- PVT

Statutory meeting cumpolsary plc

Not compulsory in pvt.

What is corporate Veil?

The concept of corporate veil mainly discusses the fact that there is a separate entity between a

company and its members. As a result, if the company incurs any debts or losses, then it should

be the company who will be personally liable. The shareholders and the owners will be not be

liable for those errors and debts. It protects the shareholders and owners from being liable for the

company’s actions. The concept of corporate veil can be seen in Salomon v A Salomon [1897]

AC 22 case where he incorporated his sole proprietorship business and later, he recovered the

money from the company when it went into liquidation. The liquidator, on behalf of the

unsecured creditors, filed a case against Mr. Salomon alleging him being the owner of majority

of the shareholder and he should be personally liable for the company’s debt. But the case went

in favor of Mr. Salomon because he incorporated his company and as a result, there was a veil

between him and the company.

Definition of company, Features of company

A company is a legal entity formed by a group of individuals (Directors, Owners) with a view to

achieve some objectives and to engage in or operate a business commercial enterprise under the

act of 1994.

1) Shares must be transferrable independently in case of public limited company. And for

the private limited company, there might be some restrictions on the transfer of shares.

2) Members of the company won’t be liable for the debts of the company.

3) Both the company and the shareholders will hold a separate legal entity.

4) In a public limited company, it must have at least 7 members and the maximum number

is unlimited. Whereas, in a private limited company there must be 2 members at least and

50 members at max.

5) It is necessary for a company to have a legally registered place or office to act as a

company

Separate Legal Entity: A company has to have a separate legal entity which is
different from its shareholders and members. Due to this feature, shareholders can enter into a

contract with the company and can also sue the company and be sued by the company. As a

result, if the company incurs any debts or losses, then it should be the company who will be

personally liable. The shareholders and the owners will be not be liable for those errors and
debts. An incorporated company must have separate legal existence to the persons that formed

the company, to those whole control the company and to those who owns the company.

IMPORTANT IMPLICATIONS OF SEPARATE LEGAL EXISTENCE:

1) Because of a company being separate legal entity, the shareholders can work for the

company or they can also be the creditors of the company.

2) Like an individual, a company can also own property and assets.

3) A company is considered as an individual who separates it from the people who made the

company.

4) Both the company and the shareholders pay their taxes separately. A company will pay

its own taxes and the shareholders will only pay taxes if they receive any dividends from

the company.

5) The shareholders and the owners will be not be liable for company’s errors and debts

Types of Company, Difference between public and private limited company, key

differences

Public Company: Public limited company means a company with minimum 7 and maximum

unlimited members where shares are transferrable independently, which invites public to seek

their subscription to its shares.

Private Company: Private limited company means a company with minimum 2 members and

maximum 50 members the transfer of share is limited and inviting public to subscribe its shares

is not allowed.

Unlimited Company: A company in which all members or shareholders have equal

responsibilities to cover all debts and other liabilities the company generates, regardless of their

contribution to capital.

Company by limited shares: Company limited by shares refers to the liability of each members

of the company for the money they had invested originally. Their liability will be limited by the

value of shares subscribed by him.

Company by limited guarantee: Means the companies with or without share capital and the

members promise to pay the company’s debt up to a certain sum in cases of liquidation of the

company.

Foreign company: It means any company incorporated outside Bangladesh but has

an established place of business in Bangladesh.

Difference between public and private limited company:

PUBLIC PRIVATE

can offer their shares for sale independently Can not offer shares publicly for sale.

to the general public

Minimum 3 directors are needed for public Minimum 2 directors are needed for private

limited company limited company.

Minimum members in a public limited Minimum members in a private company

company must be 7 and maximum number is

 unlimited must be 2 and maximum number is 50

Statutory meetings are compulsory in Public Statutory meetings are optional in private

limited company. limited company.

Transfer of shares is free in public limited Transfer of shares is limited in Private limited

company company.

Incorporation – MOA, AOA, AOI

A corporation can be incorporated by one (or more) corporations or individuals, or a

combination of both

• If it is not an artificial person incorporating a company, then the following requirements must

be met:

1. The person cannot be less than eighteen years of age;

2. The person cannot be of unsound mind; or

3. The person cannot be bankrupt

MOA- The memorandum of association (MOA) is the first and most important document of a

company which informs the general public of the company name, its share capital, the address of

its registered office, the objects of the company etc. It states the objects for which the company is

formed. It contains the rights, privileges and powers of the company.

AOA- The Articles of Association or AOA are the second most important document along with

the memorandum of association serves as the constitution of the company. It is comprised of

rules and regulations that govern the company’s internal affairs.

The bylaws (Articles of Association) of the corporation are generally not included in the

Memorandum of Association because if they are included in the Memorandum, then

changing the bylaws later would require a special resolution of shareholders.

OBSCENE NAMES- NAMES WHICH PROMOTE ILLEGAL ACTIVITIES, WHICH HURTS

RELIGIOUS SENTIMENTS OF A PARTICULAR SOCIETY.

DEBT AND EQUITY FINANCING

In debt financing there is an obligation to pay the borrowed money.

In Equity financing there is no obligation to pay money.

Debt financing will always come before the quity financing

Equity finance comes after debt financing

Creditors need to be paid first in Debt financing

After creditor being paid if there is any money left the shareholders will receive the dividends.

The company doesn’t share profits with creditors

The company shares profits with shareholders through dividends

Debt financing means where the lender provides loans to the borrower and charge interest on the

sanctioned amount.

Equity financing is a source of raising capital through selling shares.

SHARES

Share is the way of re-raising capitals, it is the asset which

is only being owned by the company. It incurs its own

liabilities. Share capital is not owned by the investors or

the directors. If the corporation goes into liquidation, the

shareholders are not the ones who will be receiving

distributions. The company will receive the distribution.

Authorized share capital: Maximum amount of share

capital which is mentioned in the memorandum of the

association. Maximum amount of share capitals that’s

been registered and that can be distributed among the

public. Can authorize 10000 shares. Er beshi share capital

issue korte parbena. 5000 issue korlo jeta issued capital.

Issued capital: Part of the authorized shared capital that

are being offered to the public for subscription.

Subscribed Capital: Part of the issued capital that has

been subscribed by the public.

Paid up capital: The amount of shares that have been

paid by the shareholders.

DEBENTURE: Debenture is the certificate of a loan that are issued by the

company which acknowledges the debt from the company. It is the security the

company gives to the creditors.

DIVIDENDS: Dividends are the profits of the company which are distributed among

all the members of the company.

ORDINARY PREFERRED

Ordinary shareholders are Preferred are the ones who

the ones who receives receives dividends before

dividends after preferred common share holders

shareholders.

The get less preferences They enjoy preferential

rights

If the company goes into If the company goes into

liquidation in that case liquidation in that case

when there is a repayment when there is a repayment

of the capital the ordinary of the capital the preferred

shareholders receive the share holders receives the

capital repayment after capital repayment before

preferred shareholders. equity and ordinary

shareholders.

Types of preference shares:

Cumulative preference shares: The assurance of

dividends every year. If there are no profits made in a

particular year the dividends will be unpaid. Such unpaid

dividends will be treated as arrears. If in a particular year

the company fails to make any profits, In that case The

unpaid dividends will be given to the preference share

holders in the coming year when it will gain profits. The

dividends of the previous year and the subsequent year

will be accumulated and paid to the shareholders

Non cumulative preference shares: In cases of non-

cumulative preference shares, if there are no profits in a

particular year then the dividends stay unpaid. The

dividends do not accumulate and are not carried forward

to the subsequent year. Thus, the unpaid dividends cannot

be claimed when there are sufficient profits in the

subsequent year.
Participating preference shares : The participating

preference shares are those which, in addition to their

preferential dividends, are also entitled to participate in

the ‘surplus profits’ or ‘surplus assets’. If there is any

surplus profits, it will be distributed amongst the

participating preferred shareholders. The extra amount of

money must be paid to the shareholders.

Non-Participating preference shares: If the company is

making surplus profits, then the non-participating

preferred shareholder will not be entitled to any surplus

profits.
BASIC RULES OF SHARE

1)All the shareholders of the company will be eligible

to vote.

2)Once they are eligible to vote in the meeting, they are

also receiving dividends that are declared by the

board of director.

3)If the company is dissolving and after the properties

are being sold if there are any kind of surplus assets

left that must also be distributed among the creditors

and the members of the company

4)Each owner of a share is entitled to a “share

certificate”

DIVIDENDS
A dividend is a share of profits and retained earnings that

a company pays out to its shareholders.

Cash Dividends – this is the payment of actual cash from

the company directly to the shareholders and is the most

common type of payment. The payment is usually made

electronically (wire transfer), but may also be paid by

check or cash.

Stock – stock dividends are paid out to shareholders by

issuing new shares in the company. These are paid out

pro-rata, based on the number of shares the investor

already owns.

Dividends in Specie– a company is not limited to paying

distributions to its shareholders in the form of cash or

shares. A company may also pay out other assets such as

investment securities, physical assets, and real estate,

although this is not a common practice. it is referred

to as “dividends in specie”

MANAGEMENT AND CONTROL OF

CORPORATION

QUORUM

Quorum is the minimum number of members that must be

present in a meeting. Sec85, 1994. PLC minimum

members 5 and Pvt minimum members 2 in a meeting.

Resolutions

Resolutions is basically the proposal or the decision that

is been given in a meeting by the members of the

company.

Special resolutions: A special resolution is a resolution

which passed by the support of at least 75% of the

shareholders or directors. These resolutions are needed for

more important decisions that affect the constitution of a

company.

Cases where special resolution is been passed:

1) In cases of Amalgamation when there is any kind of

merging between two companies.

 2) In cases of amendments that have been made to the

Memorandum of association.

3)When the special majority decides the company

should be dissolved in that case special resolution

must be passed.

4)If there are any changes made to the stated capital

then it should be passed by special resolution.

Ordinary Resolution: When a decision is been passed by

simple majority. When 51% members agree to a decision,

then ordinary resolution will be passed.

EXAMPLE: At a general meeting of the company, 100

members were present. Out of these

100 members, 51 members casted their votes in favour of

the resolution, and the remaining

49 members casted their votes against the resolution. In

this case, the resolution is said to

be passed by simple majority

Special resolutions: :At a general meeting of the

company, 100 members were present. Out of these

100 members, 75 members casted their votes in favour of

the resolution, and the remaining

25 members casted their votes against the resolution. In

this case, the resolution is said to

be passed by special majority

When a resolution is passed by special majority. A

meeting of 100 members and 75 members votes in favour

of a resolution then it will be considered that a resolution

is been passed by special majority.

MINUTE

Minutes means the written records of the proceedings. Of

every general meeting and of every meeting of its board

of directors.

PROSPECTUS

Prospectus is one of the most important documents that

must be recorded in a company. It is the detailed

document that provides all the information in relation to

the company, it deals with all the material facts, all the

securities, all the disclosure that must be made in a

company. A prospectus must be issued after the

incorporation of the company.

Winding up

In a company when all the persons life come an end as a

cause of dissolvement, the company’s life also comes to

an end. This artificial legal person’s life coming to an end

is called winding up. The properties are being divided

among the members of the company. Putting end to the

life of company is basically called winding up. Two ways

a company can be wound up:

 1)The court decides to wind up the company

2)Voluntarily the members of the company decides to

wound up the company.

DIRECTORS DUTY:

1)Directors must act in good faith and act honestly.

2)The must work in the best interest of the company

3)Directors have a Contractual relationship with the

company as a result the directors are involved in

management and affairs of the corporation. As a result, it

is the directors who decide how the works will be

distributed and among whom the works will be

distributed.

DIRECTOR DUTY

4)A director must exercise reasonable care and diligence

once they are working in a corporation or managing the

affairs of the business.

5) It is mandatory for the directors to attend the meeting

and held meeting every three months.

6) it is one of the duties of directors to disclose any secret

profits that have been earned by the company.

7) Directors should not be delegates who simply

implement the commands of other parties (such as major

shareholders)
DIRECTOR LIABILITY

1)Directors are liable to the shareholders for the losses

resulting from failure to perform statutory duties

during the preparation and execution of a corporate

organization

2)Directors can be liable if they misrepresent any

information in the prospectus,

3)A director who fails to apply to court to open

insolvency proceedings within 30 days of the
company’s insolvency, is liable to the company’s
creditors.
4)Directors will be liable if they don’t arrange meeting

every three months.

DIFFERENCE BETWEEN A PARTNERSHIP AND

COMPANY:

PARTNERSHIP COMPANY

A partnership firm is A company is formed and

regulated by the controlled by the

Partnership Act. Companies Act.

Registration of a Registration of a Company

partnership firm is not is mandatory under the

mandatory under the companies act.

partnership act.

A partner of a partnership A member of a company

firm can not enter into a can make a contract with

contract with the firm

itself. the company itself.

Partnership firms don’t A company has a separate

have separate entity entity

Relatively easy and less Relatively complex and too

formalities required to set many legal formalities are

up a firm. involved.

5 essential elements of partnership

Contract of the partners: There has to be a voluntary

agreement between the partners to form a contract. The

agreement can be done orally or in a written paper. Oral

agreements can cause misunderstandings between the

partners. So, it is better to have a written agreement.

Association of two or more persons: A partnership

agreement has to be formed between two or more

members. According to Companies Act, 1956 If the firm

is carrying on banking business, the number of partners

should not exceed 10 and if the firm is carrying on any

other business, the number of persons should not exceed

20

Carrying on of Business: The partners must be involved

in a business. Business may include any kind of trades,

occupations or professions. The motive of the business

must be legal and profitable. For this reason, a charitable

firm will not be considered as a partnership firm.

Profit distribution: Profits of the firm must be shared in a

way the partners have mutually agreed. It does not

necessarily need to be equally distributed. It is up to the

partners how they want to share the profits and split the

losses.

Mutual Agency: The business must be carried out by the

partners or a single partner who is acting for all of them.

Mutual agency means that every partner is both principle

and an agent for all the other partners of the firm. It’is not

necessary that every partner must actively participate in

the conduct of the business. The important point is that

the business must be carried on behalf of all the partners.