The Companies Act 1994

Company
• Company means a company formed and
registered under this act or any existing
company
Legal Characteristics of a Company
1. Law created concern
2. Artificial entity
3. Perpetual succession
4. Common seal
5. Share capital
6. Transferability of shares
7. Limited liability
Characteristics of a Company Cont…
8. Statutory responsibility
9. Number of shareholders
10. Separation of ownership from management
 Classification of Company
Company

Chartered Registered Statutory Other

Limited Unlimited
Existing
Limited by Share Limited by Guarantee
Foreign.

Private Ltd. Public Ltd. Non-trading

- Govt. Co. - Non Govt. Co. Special

- Holding Co. - Subsidiary Co
 1. Chartered Company
Before passing the company Act at England in
1844, companies were incorporated by the
special charter passed by King or queen of
England. These companies are called
chartered company. For instance East India
Company (1600), Chartered Bank of England
(1694).
 2. Statutory company
• Companies incorporated and run by special
resolution passed by the country's parliament,
or Govt's special rule is called statutory
company. Existing companies Act do not run
these companies. For example: Bangladesh
Bank, BRTC, Wasa etc.
 3. Registered Company
Companies, which are established and registered
under the companies act, are registered
company. Registered companies are of two
types:
a. Unlimited Liability Company
b. Limited Liability Company
a. Unlimited Liability Company: In section 5(c)
of Company Act 1994 it is mentioned that a
company having no limit on the liability of its
members."
 b. Limited liability Company
b. Limited liability Company: Limited Liability Company can be
two types.
Company Limited by Guarantee: " A company limited by
guarantee, that is to say a company having the liability of its
members limited by the memorandum to such amount as the
members may respectively undertake to contribute to the assts
of the company on the event of its being wound up. Section 5
(b), 1994 Company Act.
Company limited by Share: " A company limited by shares, that is
to say, a company having the liability of its members limited by
the memorandum to the amount, if any, unpaid, on the shares
respectively held by them." Section 5 (A).
 Limited by share companies : Private Limited
Company
Limited by share companies are of two types:
Private limited company:
The articles in a Private Limited company -----
• Restricts the right to transfer of its share, if any;
• Limits the number of its members 2 to 50 not including
persons who are its employee.
• Prohibits any invitation to the public to subscribe for its
shares on debentures, if any;
Sec.2 (1-q)
 Limited by share companies :Public Limited
Company

" Public Limited Company" means a company

incorporated under this Act or under any law at
any time in force before the commencement of
this Act and which is not a private company"
Section 2(1-r).
In a public company, the number of members
cannot be less than 7 but no maximum has
been fixed.
 Public limited company can be divided in
several types:

I. Government Company: The Limited Liability

where the government occupies minimum
51% of the total share is called Government
Company. That means public could not hold
more than 49& of the share.
 Non-government Company:
The Limited Liability Company which ownership,
management, and control are rest on general
public in maximum part are called Non-
government Company.
 Holding Company
• Holding Company: "For the purposes of this
Act, a company shall be deemed to be the
holding company of another if, and only if,
that other is its subsidiary. Section 2 (5).
 Subsidiary Company
" For the purposes of this Act a company shall
subject to the provisions of sub-section (4), be
deemed to be a subsidiary of another, if a.
that other controls the composition of Board
of Directors of the first mentioned company.
 4. Unregistered Company

For purposes of this part, the expression-

unregistered company shall not include a
company under this Act or under any
company. Section-371.
 Other Companies
Besides the companies mentioned above, company’s act includes some
other companies.
• Existing company: "Existing Company" means a company formed and
registered under any law relating to companies in force at any time
before the commencement of this act. Sec, 2(1-h).
• Foreign Company: Foreign company fall under the following two
classes:
• a. Companies incorporated outside Bangladesh which after the
commencement of this act establish a place of business within
Bangladesh;
• and b. companies incorporated outside Bangladesh which have before
the commencement of this act established a place of business within
Bangladesh and continued to have an established place of business
within Bangladesh, at the commencement of this act.
 Other Companies
• Non trading association: To the satisfaction of
government if an associations capable of being formed as
a limited company business objectives are to contribute
in science, art, commerce, religion, charity or any other
useful object and use the profit only in promoting the
objects are non-trading association.
• Special Company: Companies which are established
under company act but managed or directed by some
other special regulations are called special company.
Section - 28(1)
• For example; Insurance companies in Bangladesh, all
Banks of Bangladesh, although they are established
according to Banking Company Act 1991.
Differences Between a
Private Company and a
Public Company
 Number of members

The number of members in a private company

can not be less than two and more than fifty.
In a public company, the number of members
cannot be less than seven but no maximum
has been fixed.
 Restriction on transfer of share

In a private company there must be

regulations restricting the transfer of
shares. In a public company there need
not be any.
 Restriction on invitation to public

A private company cannot invite the public

to purchase its shares or debentures.
But a public can do so.
 Prospectus

A private company need not file a

prospectus or a statement in lieu of
prospectus. But a public company must
need to file a prospectus.
 Restriction on Name

 A private company must add the words “

Private Limited” at the end of its name.

 But a public limited company can only

use the word “ Limited” at the end of its
name.
 Issue of right share
• When a public company proposes to increase
its subscribed capital by the issue of new
shares, it must be offered first to the existing
equity shareholders pro rata unless the
members in general meeting decide
otherwise.
• The provision does not apply to private
companies.
 Commencement of Business

 A private company can commence

business immediately on incorporation,
 whereas a public company has to wait
until it obtains a certificate for the
Commencement of Business.
Statutory Meeting and Statutory Report

• A private company need not hold the

Statutory Meeting or file the Statutory
Report.
 Managerial Remuneration
• In the case of public limited companies
there are certain limits to managerial
remuneration. Which is – The
remuneration shall not exceed 11% of its
net profits.
• This rule does not apply for a private
limited company.
 Number of Directors
 The Act provides that a private company must
have at least 2 directors and

 A public company at least 3 directors.

 Issue of Prospectus
• A public limited company must need to
circular a prospectus to invite general public
to purchase its shares or debentures.
• But a private limited company cannot do so. It
has no right to issue a prospectus.
 Quorum

• A public limited company must have minimum

five be present to start a meeting.
• But a private limited company can start a
meeting if it has minimum three members.
Steps for Formation of a Company
1. Promotional stage
– Taking necessary decision
• Nature of company
• Types of business
• Amount of authorized and paid-up capital
• Ways of collecting capital
• Address of company etc.
– Collecting name clearance
Steps for Formation of a Company cont…

2. Preparation of documents
– Memorandum of association
– Articles of association
3. Submission of documents
4. Collection of Certificate of Incorporation
5. Collection of Certificate of Commencement
Documents of Company
 Memorandum 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 how the
company is to be constituted and what work it
shall undertake.
 Form and Contents of Memorandum of
association
1. Name Clause: The name of the company
with the word “limited” at the end of the
name of a public company and the words
“private limited” at the end of the name of a
private company.
2. Situation Clause: The name of the state in
which the registered office of the company is
to be situated.
3. Objects Clause: The objects of the company.
The memo must state separately (i) the main
objects and objects incidental and ancillary to
the main objects, and (ii) other objects not
included in (i).
4. Area of operation: Except in the case of
trading corporations, the State or States to
whose territories the objects extend.
5. Liability Clause: The nature of the liability of
the members, i.e. whether limited by shares
or by guarantee or unlimited.
6. Capital Clause: In the case of a company
having share capital, the memo shall state the
amount of share capital and the division
thereof into share of a fixed amount.
7. The Association and Subscription Clause: No
subscriber to the memorandum shall take less
than one share; and each subscriber to the
memorandum shall write opposite to this
name the number of shares he takes.
 Articles of Association
The Articles of Association is a document which
contains rules, regulations, and bye-laws
regarding the internal management of the
company.
 Contents of Articles
Articles usually contains provisions in respect of the
following matters:
 Share capital
 Rights of share holders
 Payment of commission
 Share certificate
 Lien on share
 Calls on share
 Transfer of shares
 Transmission of shares
 Forfeiture of shares
 Conversion of shares into stock
 Share warrants
 Alteration of capital
 General meetings and voting rights of members
 Appointment and remuneration of directors, managers, and secretary
 Winding up
 Some important definitions
Share certificate: The share certificate is a
certificate issued under the common seal of
the company specifying the number of shares
held by any members. A share certificate must
be issued and delivered within 3 months from
date of allotment.
 Share warrant
• A share warrant is a document issued by a
company stating that its bearer is entitled to
the shares therein specified. Share warrant
may be issued for fully paid up shares.
 Stock
Stock is the accumulation of all the paid up
share capital of a company. Basically there is
no such difference between stock and share.
When all the shares of a company have been
fully paid up, they may be converted into stock
if so authorized by the articles.
 Lien on Share
• It is a first charge against the shares of a
member for moneys due from him to the
company.
 Forfeiture of Shares

• The shares of a shareholder can be forfeited

under non payment of calls.
 Prospectus
• A prospectus has been defined in the Act as
“any document described or issued as a
prospectus and includes any notice, circular,
advertisement, or other document inviting
deposits from the public or inviting offers from
public for the subscription or purchase of any
share in or debentures of a body corporate.”
 Statement in lieu of prospectus
A public company having share capital and not
issuing a prospectus must at least 3 days
before the first allotment of shares or
debentures file with the registrar for
registration a statement in lieu of prospectus.
Classification of Shares
 Definition of share

Share may be defined as an interest in the

company entitling the owner to receive
proportionate part of the profits, and of a
proportionate part of the assets of the
company upon liquidation.
 Classification of Shares
Share

Equity Share Preference Share Deferred Share Other Shares

Cumulative Non-Cumulative Participating Non Redeemable

Pre. Share Pre. Share Pre. Share Participating Pre. Pre Share
Share

Irredeemable Convertible Pre. Non Convertible Pre

Pre. Share Share Share

Bonus Share Right Share No per Value Share

 Equity shares

• All shares other than preference shares are

called equity shares.
 Preference Shares

• Preference shares are those shares which are

given by the articles of the two privileges;
these are a. Priority in the payment of
dividends over other share, b. priority as
regards return of the capital in the event of
liquidation.
 Cumulative Preference Share

• In the case of cumulative share if the profit

made by the in a particular year is not
sufficient to pay dividend at the prescribed
rate, the shortage must be made up out of the
profits of succeeding years.
 Non cumulative preference share

In non cumulative preference shares such

shortages are not required to be made up.
 Participating preference share

• In the participating preference share the

shareholder gets a part of the surplus profits
beyond the amount or rate prescribed for
them if such surplus profits are available.
 Non participating preference share

• In this case the preference shareholder cannot

participate in the surplus profits or in the
assets in liquidation.
 Redeemable preference share

• These shares could be purchased back by the

company subject to condition laid down in
article.
 Irredeemable preference share
• All irredeemable preference shares are one
which cannot be purchased back.
 Convertible preference share

• These types of shares are converted into

equity shares if there is any provision in the
article.
 Non convertible preference share

• But these shares cannot be converted into

equity shares.
 Bonus Share
• A company does not always distribute all of its
dividends but reserves it into funds. After
certain time it converts the reserve funds into
capital and distribute these dividends among
existing shareholders in a pro rata basis.
 Right Share
• If any company wants to increase its capital
then it distributes a certain portion of the new
share capital and gives the existing
shareholders the priority to buy the shares.
 No per value share

The share which does not have any face value

from the beginning but at the year after
calculating total assets and total liabilities the
face value is settled.
Meetings and Resolutions
 Types of Meetings
A. Meeting of the shareholders
1. Statutory Meeting
2. Annual General Meeting
3. Extra-ordinary general Meeting
B. Other Meetings
1. Meetings of the creditors
2. Meetings of the debenture holders
C. Meeting of Directors
 Statutory 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 starts its business, hold a general
meeting of members, which is called statutory
meeting.
 Annual General Meeting
• The first annual general meeting of a company
may be held within a period of not more than
18 months from the date of its incorporation.
• A company must hold an annual general
meeting each year. Not more than 15 months
shall elapse between the date of one annual
general meeting and the next.
 Extraordinary General Meeting
The board of directors can be compelled to hold
a general meeting upon request or requisition
made for it. There are some conditions:
The requisition must be signed by members
holding at least 1/ 10 of the paid up capital of
the company.
The requisition must be deposited at the
registered office of the company.
 Other General Meetings
• Meeting called by the Board of Directors
The Board of directors can call a general meeting
of the members any time by giving not less
than 21 days notice.
Meeting by order of company law board

• The company law board can order a meeting

of a company other than an annual general
meeting.
Winding Up
 Modes of Winding up
The winding up or liquidation of a company means the
termination of the legal existence of a company by
stopping its business.
Mode of Winding up – the winding up of a company may
be either –
1.Compulsory Winding up by the court
2. Voluntary Winding up by the members themselves or by
the creditors,
3. Subject to the supervision of the court
 1. Circumstances in which company may be wound up by Court

1. If the company has by special resolution resolved that the

company be wound up by the court.
2. If default is made in delivering the statutory report or in
holding the statutory meeting or
3. If the company does not commence its business within a year
from its incorporation or suspends its business for a whole
year or
4. If number of members is reduced, in the case of a Public
Company to below seven, and in the case of a Private
Company to below two.
5. If the company is unable to pay its debts
6. If the court is of opinion that it is just and equitable that the
company should be wound up.
 The Interpretation of Just and Equitable
Clause
• When the object for which it was incorporated has
been failed or impossible to carry out
• When the majority of shareholders are using their
power unfairly
• Where there is a deadlock in the management
• Where public interest is likely to be prejudiced
• Where the company was farmed to carry out
fraudulent or illegal business
• When the company is mere bubble and does not
carry on any business.
 2. Voluntary Winding up
Types:
1. Members’ Voluntary Winding Up: By the
declaration of directors although the company
is solvent.
2. Creditors’ Voluntary Winding up: If the company
is not in a position to pay its debts and the
directors make no declaration of solvency.
 3. Winding Up Subject to The
Supervision of Court
Power to order winding up subject to
supervision – when a company has by special or
extraordinarily 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, contributors or others to apply to the
court and generally on such terms and conditions as
the court thinks just.