Company law

Definition of a Company
• General Definition
Justice Marshal says “ a corporation is an artificial being,
invisible, intangible, existing only in the contemplation of
law”.
Hancy observes that “ a company is an incorporate association,
which is an artificial person created by law, having separate
entity, with a perpetual succession and a common seal”.
Lord Justice Lindley says that “ By a company is meant an
association of many persons who contribute money or money’s
worth to a common stock and employ in some trade or
business, and who share the profit and loss ( as the case may
be) arising there from”.
 To be continued…
• Statutory definition
Section 2(1) (c) of the Companies Act ,1994
provides “ company means company formed
and registered under this Act or any existing
company”.
 Characterization of a Company
• An organization of some persons/corporate body/incorporate
association
• Artificial legal person created by law
• Perpetual succession
• Separate legal entity
• Limited liability
• Separate Property
• Transferability of shares
• Common seal
• Number of shareholders
• Statutory obligation
• Extinguishes only by the operation of law
 Types of companies
• On the basis of the numbers of the members
a. Private
b. Public
Private company
A private company is a company which is by its Articles ( a)
restricts the right to transfer its shares, if any ( b) limits the
number of its members to fifty, excluding members who are
and were in the employment of the company; and (c) prohibits
any invitation to the public to subscribe for any share in,
debenture of, the company.
 Characteristics of a private company
• Number
• Adding the word, limited
• Restriction of transfer of share
• Commencement of business
• Raising capital
• Limited liability
 To be continued…

• Public companies
All companies other than private companies are called public
companies.
Characteristics
a. Number of members g. statutory liability
b. Transferability of shares
c. Liability ( limited by shares or limited by guarantee)
d. Number of directors ( at least three)
e. Certificate of commencement
f. Statutory meeting and statutory report
 To be continued…

• Public companies may be classified into three types (a)

companies limited by shares; (b) companies limited by
guarantee, ( c) unlimited companies.
• Private companies may be limited by shares or limited by
guarantee.
(a) Companies limited by shares: in these companies there is a
share-capital and each share has a fixed nominal value which
the shareholders pays at a time or by installment. The member
is not liable to pay any thing more than the fixed value of the
share, whatever may be the liabilities of the company.
 To be continued…

• Companies limited by Guarantee. In these companies, each

member promises to pay a fixed amount of money in the event
of liquidation of the company.
• Unlimited Company- In these companies the liability of the
shareholder is unlimited, where the legal liability of the
members or shareholders is not limited: that is, its members or
shareholders have a joint, several and non-limited obligation to
meet any insufficiency in the assets of the company to enable
settlement of any outstanding financial liability in the event of
the company's formal liquidation.
 To be continued…

• Characteristics of a holding company

a. It has the controlling power over another company.
b. It holds more than 50% shares of that other company.
c. It has more than 50% voting power.
d. It is directly or indirectly empowered to appoint directors of
that other company.
• Foreign Company
Incorporated outside Bangladesh, but has an established place
of business in Bangladesh
 To be continued…

• Rules relating to foreign company

A foreign company is required to deliver the following documents to
the Registrar for registration- ( sec.379 of the Companies Act)
(i) A certified English translated copy of the constitution of the
company
(ii) The full address of the registered office of the company
(iii) A list of directors and secretary of the company
( iv) The address of the principal office in Bangladesh
• Every foreign company needs to state the nature of liability of
members of the company
 Stages of forming a company

• Promotion
• Preparation of documents
• Registration or incorporation
• Capital subscription
• Collection of certificate of incorporation
 To be continued…

1. Promotion
• ‘ Conceiving the idea of forming the company
• “ The discovery of business opportunities and the subsequent
organization of funds, property and management ability into a
business concern for the purpose of making profits there
from”.
Promoters do the following two things:
• Taking necessary decision ( name of the company, financial
plan whether public or private)
• Collecting name clearance certificate ( The promoters are
required to have from the Registrar Office.
 To be continued…
2. Preparation of documents
(a) Memorandum of association
(b) Articles of association
• The Memorandum of Association is a document which
contains the fundamental rules regarding the constitution and
activities of a company. It is the basic document which lays
down how the company is to be constituted and what work it
shall undertake. Its purpose is to enables the members of the
company , its creditors, and the public to know what its
powers are and what is the range of its activities.
 To be continued…
The Contents of Memorandum of Association are in the
following: ( company limited by shares)
1. Name of the company
2. Place of registrar office
2. Nature of the company
3. Objects of the company ( main objects, objects incidental
and ancillary to the main)
4. Capital structure of the company ( the amount of share
capital and the division thereof into shares of a fixed amount)
5. Liabilities of the company ( liability limited by shares, or by
guarantee or unlimited)
 To be continued…
• Definition of Articles of Association :
It is a document which contains rules, regulations and bye-laws
regarding the internal management of the company. Articles
must not violate any provision of the memorandum or any
provision of the Companies Act. The rules laid down in the
Articles must always be read subject to the rules contained in
the memorandum.
Relationship :
• The Articles are subordinate to memorandum
• The memorandum must be read in conjunction with the
Articles.
 To be continued…
• The terms of memorandum can not be modified.
Contents of Articles
1. Share capital, rights of shareholders, payments of commissions,
share certificate
2. Lien on shares 8. general meetings and
3. voting
4. Calls on share / rights of
members
5. Transfer of shares 9. appointment and remuneration
6. Conversion of shares into stock of directors, managers and…
7. Share warrants 10. dividends and reserves
8. Alteration of capital 11. accounts, audits and borrowing
powers; 12. capitalisation of profits 13.winding
up
 3.Registration or incorporation

Required Documents
• Company Name. A name clearance must be obtained.
• Memorandum of Association and Articles of
Association. RJSC requires that the object clause in the MoA
to be within 400 words and 7 clauses.
• Shareholders Particulars (National ID if the shareholder is a
Bangladeshi)
• Directors Particulars (including Tax Identification Number)
• Registered Address
• Singed Form IX and Subscriber Page.
• For foreigners: Copy of passport of shareholder and director.
 Registration Procedures

• There are three distinct steps involved in the Bangladeshi

company setup procedure:
i) Name Clearance; (is not identical or too similar to any existing
local company names, does not infringe with any trademarks,
is not obscene or vulgar, is not already reserved)
ii) Bank account opening and bringing in the paid up capital; and
finally
ii) Company Registration.
Step ii is only applicable if there is any foreign shareholder in
the proposed company.
Procedures of registration with Registrar of Joint
Stock Companies and Firms (RJSC)

• The fees which have been determined to pay during submission of return,
papers and documents by the company under Companies Act, 1994 are
hereby given below :
• 1. Clearance to be obtained after submitting application alongwith fees
amounting to Tk. 5/- (five) for clearance of the proposed company, society,
trade organization (T.O.).
• 2. After printing of Memorandum and Articles of Association of the
company [3 (three) copies] the same will have to be submitted alongwith
necessary fees with special adhesive stamp.
• 3. Two copies of Memorandum of Association and constitution alongwith
Tk. 250/- (two hundred fifty) will have to be submitted for the society.
• 4. 3 (three) copies of Memorandum of Association and Articles of
Association, clearance of the name and license obtained from the Ministry
of Commerce will have to be submitted alongwith Tk. 1,500/- (one
thousand five hundred) fees for Trade Organization (T.O.).
 To be continued

• 5. Form No-I alongwith Tk. 10/- (ten) as fees will have to be

submitted for Partnership Firm.
• 6.a) Form - XVIII and original mortgage deed with the concerned
loan sanctioning organization alongwith necessary fees will have to
be submitted alongwith necessary fees for statement of loan.
• b) Form No - XIX and original deed of revised mortgage deed in
non-judicial stamp of Tk. 150/- (one hundred fifty) executed with
the loan giving organization will have to be submitted with
necessary fees for increased loan statement.
• c) Form XXVIII will have to be filled in and will have to be
submitted alongwith Tk. 20/- (Twenty) as fees for satisfaction of
loan.

•
 Registration
• Upon the application accompanied by the required documents,
if the registrar is satisfied with the compliance requirements,
he shall registrar the documents within 30 days from the date
of receipt and in case of refusal the grounds to be
communicated within 10 days after that period. [s.23(1)]
• On the registration of the Memorandum, the Registrar shall
certify that the company is incorporated.
 The effect of registration

• The company acquires a distinct legal entity.

• It secures a perpetual succession.
• Its property is not the property of the
shareholders
 To be continued

4. Capital Subscription
A private company raises capital personally. But in the case of
public company for raising capital issuance of prospectus and
necessary activities are to be performed.
• Meaning of ‘Prospectus’
Generally it is a document by which the subscribers are invited
to purchase shares or debentures of the company.
Section 142
“ Documents containing offer of shares or debentures for sale”.
 To be continued…

• Section 2 (14) of the Companies Act 1994

“ any prospectus, notice, circular, advertisement or other
invitation offered to the public for subscription or purchase of
any shares or debentures of a company”.
Contents of the prospectus
a. The principal objects of the company and particulars of the
signatories of the Memo of the company and shares
subscribed by them
b. Number and classes of shares and the extent of interest of
holders and particulars of debentures and redeemable
preference shares
 To be continued…

C . The rights in respect of capital and dividends attached to different

classes of shares.
d. Particulars regarding the directors, managing agents, secretaries
and treasurers.
e. The minimum amount of subscription and amount payable on
application
f. Time of opening of subscription list
g. Preliminary expenses incurred
h. Particulars regarding purchase of property
i. Details of any premium or underwriting commission paid
j. Nature and extent of interest of every director or promoter
k. The nature and extent of the restrictions upon members at company
meeting.
l. Restrictions upon the powers of directors
 Certificate of commencement

• No public company having a share capital and issuing a

prospectus inviting the public to subscribe for its share, shall
commence business or borrow unless it has obtained ‘
certificate of commencement of business’ from the Registrar
of the Companies.
• Certificate subject to following conditions and formalities:
a. At least minimum subscription has been raised.
b. Every director of the company has paid to the company ,
on each of the shares taken by him or agreed to be taken by
him the amount payable by him on application and allotment
of shares.
 Public company not issuing a prospectus

• Where a company having a share capital has not issued a

prospectus inviting the public to subscribe for its shares, it can
commence business or exercise any borrowing powers if the
following conditions are fulfilled:
a. A statement in lieu of prospectus has been filed with the
Registrar for registration.
b. Every director of the company has paid to the company, on
each of the shares taken or contracted to be taken by for cash.
c. A duly verified declaration has been made to the Registrar
by one of the directors or the secretary in the prescribed form
that above provisions have been complied with.
 Minimum subscription
• While offering shares to the public the amount of minimum
subscription has to be mentioned in the prospectus.
• The amount of the minimum subscription has to be fixed by
the directors taking into account the following expenses:
a. the purchase price of necessary property
b. the preliminary expenses, including commissions payable
for the sale of shares
c. repayment of any moneys borrowed by the company for
above two purposes
d. working capital
e. any other necessary information
 Share capital. Share and shareholders

• Share capital consists of funds raised by issuing shares in

return for cash or other considerations. The amount of share
capital a company has can change over time.
1. Nominal or authorized capital: total face value of the shares
which the company is authorized to issue by its memorandum
of association.
2. Issued capital: that part of authorized capital which is offered
to the public for sale.
3. Subscribed capital: that part of issued capital which is taken
up and accepted by the public.
4. Paid up capital: the amount of money actually paid by the
subscribers or credited as so paid
 Share
• A share is an interest in a definite portion of the capital.
• According to section 2 (v) of the Companies Act ‘ share ‘
means a share in the capital of the company.
• “ A share is the interest of a shareholder in the company
measured by a sum of money, for the purpose of liability in the
first place, and of interest in the second…”.
• It is an interest in the company entitling the owner thereof to
receive proportionate part of the profits, if any, and of a
proportionate part of assets of the company upon liquidation.
 To be continued…

Types of shares

Two major types of share

a. Preference share
b. Equity shares

Preference share: those shares which are given, by the articles of the
company, two privileges :
a. priority in the payment of dividends over other share
b. priority as regards return of the capital in the event of liquidation
 To be continued…

• The holder of preference share is entitled to receive dividends

before any dividends is declared on other shares.
• In the event of winding up, if surplus assets are available, the
preference share holders must be given back the amount which
they paid on the share. The balance is available for distribution
to the other shareholders.
Equity shares
All shares which are not preference shares are equity shares.
Equity shareholders have the residual right of the company.
They may get higher or lower dividends on the basis of the
difference of circumstances.
 Classification of shares

• Deferred shares
Deferred shares are also called the promoters shares since this
type of shares are issued to the promoters or founders of the
company for the service rendered by them in promoting and
forming the company. When the claims of all ordinary share
holders are satisfied, the deferred shareholders are satisfied as
well.
• Redeemable preference share ( sec.154)
 To be continued…

• Allotment of shares
By issuing prospectus, the company invites public to purchase
share. Persons who are interested to take shares apply to the
company and when the company accepts the said offer for the
purchase of share is known as an allotment of shares.
An allotment is generally neither more or less than the
acceptance by the company of the offer to take share.
• Unconditional Acceptance
An acceptance must be unconditional and correspond with the
terms of the offer.
 To be continued…
• General principles of the allotment of shares:
a. Allotment by the proper authority.
Authority is determined by the articles of association. The
following persons may be the competent authority:
i) Board of directors
ii) Any competent person under the articles of association (if
properly delegated)
iii) the secretaries or treasurers of the company if they are so
authorised by the articles of association
b. The allotment must be unconditional
 To be continued…

C. Within reasonable time

It is a question of fact. If there is undue delay in the allotment
the offer may lapse.
d. Must be communicated
Information or notice of allotment must be given to the
applicant.
e. Revocation of the offer
An application for shares can be revoked at any time before
acceptance is communicated.
 Procedures of allotment of shares

• Registration and issue of prospectus

• Minimum subscription
( no allotment of a share , capital of a company offered to the public
shall be made unless the amount stated in the prospectus and at least
5% of that amount has been paid in cash to the company)
• Money to be deposited in the scheduled bank as defined in the
Bangladesh Bank Order ,1972.
• Refund of money deposited in the scheduled bank
( if minimum subscription is not raised , being a precondition for the
allotment of shares, within 180 days after the first issue of the
prospectus or within 40 days from the closing date of the
subscription list, all moneys shall be forth with repaid to them
without interest.)
 To be continued…

• Opening of subscription list

The company for the purpose of allotting shares or debentures,
opens subscription list after the publication of the prospectus.
• Closure of the subscription list
On the pre-determined date, the subscription list shall be closed
and no application shall be accepted further.
• Letter of allotment
Share certificate:
Share certificate means the certificate issued by the company
evidencing that the number of share specified in the certificate
has been allotted. After allotment of shares it is the duty of the
company to issue a share certificate to the allottee free of cost.
 To be continued…

• Time limit for the issuance of the certificate

90 days from the date of allotment.

Effects:
i) Prima facie evidence
ii) Stoppel as to the title of the interest
• it declares the allottee or certificate holder as the share
holder;
• It makes the company bound to recognize the shareholder’s
rights and interests
 To be continued…

• Estoppel as to the payment

Once a share certificate issued by the company , states that the
full amount of shares has been paid then the company may be
stopped from denying the fact.

Share warrant
A share warrant refers to a document issued by a company ,
stating that the bearer is entitled to the shares therein specified.
It is substitute for the share certificate.
 To be continued…

• A duly verified declaration has been filed with

the Registrar by one of the director or secretary
of the company that all above provisions are
complied with.
• It may also be noted that the court has the
power to wind up a company, if it does not
commence its business within a year of its
incorporation.
 Meetings of the company

• Different types of meeting ( meetings of shareholders)

a. Statutory meeting
b. Annual general meeting
c. Extraordinary general meeting

A. Statutory Meeting ( s.83)

Within six months from the date at which a company is
entitled to commence its business, a statutory meeting must
be held.
 To be continued…

• Who are to hold ?

Every company limited by shares and by guarantees and
having a share capital shall hold statutory hold a general
meeting of the members of the company which is referred to as
‘ the statutory meeting’.
• Objective of the meeting
“ The object of the statutory meeting is to put the
shareholders of the company, at as early a date as possible, in
the possession of all important facts relating to the new
company”.
 To be continued…

• Statutory report
Sect. 83 (2)
The board of directors shall prepare a report , in this Act
referred to as ‘statutory report’ and shall at least 21 days before
the day on which statutory meeting is to be held, forward the
report to every member of the company.
Particulars of the statutory meeting:
a. the total number of shares allotted, giving detail whether fully
or partly paid up and the consideration for which they have
been received.
 To be continued…

b. The total amount of cash received by the company in respect of

all shares allotted.
c. Showing under a separate proper heading
i. an abstract of the receipts of the company and of the
payments made there out up to a date within seven days prior
to this report;
ii. the receipts of the company from the shares and debentures
and other sources, the payments made there out and particulars
of concerning balance remaining in the hand;
iii. any commission or discount paid or to be paid on the issue
or sale of shares or debentures;
 To be continued…

iv. an account or estimate of the preliminary expenses of the

company
d. the names, addresses or the occupations of the directors of the
company and of its auditors, and also, if there be any, of its
managing agent, manager and secretary, and the change.
e. the particulars of any contract and modification of any contract
to be submitted to the meeting for approval.
f. the extent the underwriting contract has not been carried out
and the reason therefore;
g. the details of arrears, if any, due on calls from every director,
from managing agent, every partner of managing agent, every
firm in which managing agent is a partner.
 Annual general meeting (AGM)

• Object of AGM is to make the shareholders aware of the

progress and development of the company made during a year.
• Principles regarding holding of a general meeting
Sec. 81 of the Companies Act 1994
“ every company shall in each of the Gregorian calendar hold
in addition to any other meetings a general meeting as its
AGM and shall specify the meeting as such in the notices
calling it; and not more that fifteen months shall elapse
between the date of one annual general meeting of a company
and that of the next.”
 To be continued…
• The company may hold its first general meeting within 18 months
from the date its incorporation and if such meeting is held within
that period, the company is not required to any annual general
meeting in the year of incorporation or in the following year.
Extension of time by the Registrar:
If the company fails to hold an annual general meeting within the
prescribed time, the registrar may extend up to ninety days.
Notice: For calling an annual general meeting a fourteen days notice in
writing is required to be sent to the members. However, the may be
called with a short notice if the shareholders and the members
entitled to vote give consent to this effect.
 To be continued…

• Consequence of non-holding an annual general meeting

a. Holding of AGM by the court’s order

If a company fails to call an annual general meeting according to
section 81 then the court may , on the application of any member of
the company call or direct the calling of an AGM and give such
ancillary or consequential direction as the court thinks fit.
b. Penalty for default
If default is made in accordance with section 81(1) , in complying
with any direction of the court, the company and every officer of the
company who is in default, shall be punishable with fine which may
extend to ten thousand taka .
 Extraordinary general meeting

• All other than statutory and AGM

• When convened ?
a. there some special business to be transacted ;
b. according to articles it cannot be transacted at AGM;
c. it is so urgent that it cannot be differed till the next AGM
• How convened ?
a. By directors
Whenever think fit, a resolution is required to be passed at
the board meeting.
 To be continued…

b. By directors on the requisition of the shareholders

The requisition must be of the holders of not less than one
tenth on the issued share capital of the company. The
requisition must state the object of holding such meeting and
must be signed by the requisitionist and deposited at the
registered office of the company.
c. By the shareholders/ requisitions
a. if directors do not proceed duly to call an extraordinary
meeting on the requisition of requisitionist within 20 days of
the date of deposit of requisition which is to be held within
forty five days of the deposite of requisition , the requisitionist
may themselves proceed to call the meeting .
 To be continued…

• By the court ( section 85)

If for any reason it is impracticable to call a meeting of a
company, the court may either on its own motion or on the
application of any director of the company or any member of
the company who would be entitled to vote at the meeting ,
order that meeting to be called, held and conducted in such
manner as the court thinks fit. And for the attainment of the
object, the court may give such ancillary or consequential
directions.
 Class meeting
• Classification of resolution
Three kinds of resolution may be accepted in the ordinary or
extraordinary general meeting of the company:
a. Ordinary resolution (( adoption of statutory report, declaration of
dividend, issue of share at a discount, adoption of annual account,
appointment of auditors and fixing their remuneration etc)
b. special resolution ( passed by not less than three-fourths of such
members present at the meeting) such alteration of the name of the
company, alteration of the articles of the association, alteration of
memo, variation of share-holders rights, reduction of the share-
capital of the company etc.
c. extra-ordinary resolution
 Other Meetings

• Meetings of directs
a. Meetings of board of directors
b. Meetings of committees of directors
• Special Meetings
a. meetings of creditors
b. meetings of debenture holders
c. meetings of creditors and contributories on the winding up of
the companies.
 Company’s management

• Directors
According to The Companies Act,1994 a ‘Director’ includes
any person occupying the position by whatever name called.
According to section 90(1) , every public company must have
at least three directors and every private company shall have at
least two directors.
• Legal Position of Directors
1. Directors as Agents
2. Directors as Trustees
3.Directors as Employees
 To be continued…

• Directors as Agents
It is well established principle that directors are the agents of
the company. Where the directors contract in the name of the
company and on behalf of the company, it is the company
which is liable on it, not the directors personally.
Ferguson vs. Wilson- 1866– “ The company has no person; it
can act only through directors, merely the ordinary case of
principal and agent.
 To be continued…

• Directors as Trustees
Directors are always considered to be trustees of the property
or assets of the company, which comes to their hand and which
is actually under their control. They are to make good of
moneys which they have misapplied as if they were the
trustees. Again in the case of exercising their powers , they are
bound to act like a trustee for the benefit of the company.
 To be continued…
• Directors as Employees
A director is not an employee or servant of the company. However, a
director may work as an employee in a different capacity under a
different contract. For example, a managing director is an employee
of the company.

Appointment of Directors
1. Appointment of first directors
The first directors are normally named by the company in its article.
If no name is given in the article, the subscribers to the
memorandum shall be directors of the company. The first directors
act as directors until the first annual general meeting.
 To be continued…
2. Appointment by shareholders
The shareholders to the company can appoint directors in the annual
general meeting. The procedure of appointment of directors by that
shareholders is normally determined by the article. At least one third of the
directors shall be appointed and removed in a way so that rational
appointment can be maintained.
3. Appointment by the Board of Directors
If permitted by Article, the board of directors can appoint directors under
the following conditions-
a,. Board may appoint additional directors, if required subject to the
maximum number
b. Board may appoint directors to fill the casual vacancies.
c. A director may appoint an alternate directors if approved by special
resolution.
 To be continued…

4. Appointment by the Managing Agent

The managing agent of the company can appoint director if
permitted by the Article but number of these directors shall not
exceed one third of total directors.
5. Appointment by the third party
If permitted by the Article, third party ( normally creditors,
debenture -holders, etc) can appoint director in the Board. The
power cannot be barred by the company by injunction.
 To be continued…

6. Appointment by the government

Government may appoint director in the following cases-
a. In statutory and nationalized company
b. In case of application of minority shareholders
In such case the directors need not buy any qualifying share.
 Qualifications of Directors

a. The directors must take certain number of shares prescribed

by the Article as qualification share. Within two months of
appoint of director, he must pay for the shares. Otherwise his
office will be vacated and he shall be liable for
compensation.
b. The Shareholders of a company may insist on some other
qualifications for directors like, deposit of a particular
amount to the company.
c. He must be of sound mind.
d. He must be solvent.
e. He must be a major
 To be continued…

• He is to be a person of high morality.

Restriction on appoint or advertisement of director ( section
92 of the Companies Act ,1994
a. Consent as to act a director
A person shall not be capable of being appointed as a director
of a company unless he has signed or filed with the registrar a
consent in writing to act as a director.
b. Qualification to act a director in case of a company having
share capital
In case of a company having share capital he has to sign the
memorandum for a number of shares not less than his
qualification shares.
 Disqualification of directors

• If he is of unsound mind and the fact is certified by a

competent authority.
• If he is an ‘undercharged insolvent.
• If he has applied to be adjudicated as insolvent.
• If, within last five years, he has been sentenced to six months
imprisonment for an offence involving moral turpitude.
• If he has not paid, for six months, any call money.
• If he was removed from the post earlier.
• If he has been declared incompetent by the court to be a
director due to his fraudulent acts.
 Removal of directors

• Removal by shareholders
A director may be removed from his office before the
expiration of his period of office by an ordinary resolution of
the shareholders in general meeting.
• Removal by Government
Government may on recommendation of the High Court
remove a director who is-
a. guilty of breach of trust
b. not competent to run company’s business
c. injurious for the company
d. has obtained the post by fraud
 To be continued…
• The court can remove a director before the expiration of his
term on the application of minority shareholders to protect
them from oppression.
• Powers of directors
The Board of Directors of a company is entitled to exercise all
powers as the company is authorised to do. They have all the
powers of a company subject to the following limitations-
1. Their acts cannot contradict the Memorandum and Articles
of Association.
2. Their acts must be subject to Companies Act
3. In some cases they are under the authority of general
meeting.
 Statutory powers of Directors

1.Powers exercised by the resolution of board meetings-

a. Power to make call
b. Power to issue debenture
c. power to borrow money
d. power to invest the funds of the company
e. Power to take loan
2. Power exercised by the resolution of general meeting-
a. Power to sell or lease company’s undertaking
b. power to extend the time for the payment of dues
c. power to invest money received from the compulsory
acquisition of securities
 To be continued…

d. Power to borrow money beyond paid up capital

e. Power to make contributions in the charity
 Winding up of a company

• Meaning of winding up
Generally the winding up or liquidation of a company means
the cessation of company’s legal existence and taking its
management in the hands of the directors. When a company is
wound up its business stops, the assets are collected and
distributed among the creditors and shareholders in the manner
prescribed in the Companies Act 1994 and in the Articles of
Association of the company.
 Modes of winding up

• Section 234
a. Compulsory winding up under the order of the court
b. Voluntary winding up
c. Winding up subject to the supervision of the court

• Compulsory winding up by the court

When a company is wound up :
a. by the special resolution of the shareholders; or
b. fails to hold the statutory meeting or file the statutory
report; or
 To be continued…

c. fails to commence business within due time prescribed by the

law; or
d. has less number of members than its requirement as provided
by law; or
e. fails to pay its debts
f. is wound up on just and equitable ground ( what is just and
equitable ground is a question of fact that varies from facts to
facts)
then it is called compulsory winding up by the court.
 Just and equitable grounds

• Deadlock – If the situation is such that there is deadlock in

management of the company, the court may pass an order for
winding up the company.
• Continuous loss of the company- If the court finds that the
company continues its business only with losses.
• Fraudulent purpose: If a company is formed and carries on its
business to defraud the creditors.
• Loss of substratum- When the main purpose the company for
which it is established is frustrated or the main object has lost
its substratum. Mere suffering losses does not constitute a just
ground for compulsory winding up.
 To be continued…

• Oppression of minority shareholders: In a public company if

any policy is formulated to oppress minority shareholders, it
can be considered to be an just and equitable ground for
winding up.
 Procedures for compulsory winding up

It starts with-
a. Petition by a company ( there must be a special resolution to
this effect) ; or
b. Creditors’ petition; or
c. Contributory’ s petition ( contributory means every person
liable to contribute to the assets of company in the event of its
being wound up.); or
d. Registrar’s petition
 Methods of compulsory winding up

• Hearing of application - fixing the date, hearing the parties and

taking decision in this regard. The court may dismiss it or make any
order as it thinks fit.
• Commencement of winding up- Winding up shall be deemed to
commence at the time of the presentation of petition for winding up.
• Appointment of a liquidator – When the winding up order is made,
the official receiver shall become the official liquidator of the
company and shall continue to act as such until the court passes an
order to terminate his act.
• Preparation of the list of contributors- The court will do this and
may call the contributors to the extent of their liability to satisfy the
debts and liabilities of the company
 To be continued…

• Collection of documents and assets- The court may require any

contributory, trustee, receiver, banker, agent or officer of the
company to pay, deliver or surrender to the official liquidator
any money, property or document which the company is prima
facie entitled.
• Proof of claim by the creditors
• Payment of dues
• Dissolution of the company
 Voluntary winding up

When the members and the creditors settle the affairs

of the business in their own accord without the
intervention of the court, it is called voluntary
winding up.
 Voluntary winding up

• A company may be wound up voluntarily

a. If any period fixed for the duration of the company by the
articles expires ( by passing an ordinary resolution)
b. When the Articles provide that on the happening of any event
the company is to be dissolved and if it happens or occurs
c. If the company resolves by special resolution that the company
be wound up voluntarily
d. Under certain circumstances if the company fails to continue
its business then by passing an extra-ordinary resolution.
 Types of voluntary winding up

Two types
a. Members’ voluntary winding up; and
b. Creditors’ voluntary winding up

• Members’ voluntary - When a declaration of solvency is

made by the directors in accordance with the provisions of
this Act. That means, declaration with regard to company’s
ability to pay its debts.
• Creditor’s voluntary winding up- When a resolution is passed
at the general meeting to wind up a company voluntarily
without any declaration of financial solvency of the company.
 Procedures of members’ voluntary winding up

• Declaration of financial solvency

• Submission of this declaration to the Registrar
• Adoption of decision of winding up in the general meeting of
the company
• Notification of winding up within 10 days of passing
resolution by advertisement in the official gazette
• Appointment of liquidator
• Call of general meeting by the liquidator , if the winding up
continues for more than one year
• Final meeting and dissolution
• Submission of documents to the registrar
 Procedures of creditors’ voluntary winding up

• Adoption of decision ( there is no declaration of financial

solvency
• Meeting of the creditors- At the date, the resolution for
voluntary winding up is passed.
• Appointment of liquidator by the creditors and the company
• Appointment of a committee of inspection by the creditors
• Arrangement of annual meeting of shareholders and creditors
• Final meeting and dissolution
• Submission of documents to the Registrar
 Winding up subject to the supervision of court

• Section 316 of the Companies Act 1994 provides:

“ When a company has by special or extra-ordinary resolution, resolved to

wind up voluntarily, the court may make an order that the voluntary
winding up shall continue, but subject to such supervision of the court, and
with such liberty for creditors, contributories or others to apply to the court
and gradually on such terms and conditions as the court thinks just”.
 Grounds for being subject to the supervision of
the court
• An order for the supervision of a court may be passed if:
a. the liquidator under voluntary liquidation is partial or is
negligent in collecting the assets; or
b. the rules relating to winding up are not being duly observed.
c. The resolution for winding up was obtained by fraud.