Company Law- Question solution.pdf

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Introduction

1.What is a company?

Ans.:
Company:
The word ‘Company’ has no strictly technical or legal meaning. In the general law a
company is a legal person in its own right and quite distinct from its officers and
members. So a company is an artificial being invisible, intangible but existing only in
terms of law. It is then a legal personality known by a name, seal, office and acting
through its human agents. According to Company Act 1994, Section 2 (1) c,
‘Company’ means a company formed and registered under this Act or an ‘existing
company’.

An ‘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 and is in
operation after commencement of this Act. [Section 2 (1) h].

Q.2. What do you mean by limited liability? Discuss about the company limited by
share, guarantee, or unlimited.

Ans.:
Limited Liability:
Limited liability means a liability to the extent of the amount of share or guarantee. The
public or private companies are also divided into a few more types in the terms of
liability of the members. These are 

1. Companies Limited by Guarantee:
This category of company has the liability of its members limited by the memorandum to
such amount as the members may undertake to contribute the assets of the company on
the event of its being wound up. Most guarantee companies are clubs and associations.
According to Companies Act 1994, Section 7 (b), company limited by guarantee may
also have share capital.

2. Companies Limited by Share:
This category of company has the liability of its members limited by the memorandum to
the amount, if any unpaid on the shares respectively held by them. Once a member’s
share is fully paid, then his liability to the company is ceases. After then he is not liable to make any contribution to the company’s assets in respect of the share in the event of the
company being wound up.

3. Unlimited Companies:
A company having no limit on the liability of its members is an unlimited company.

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Q.3. Discuss its legal characteristics of Company.

Ans.:
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 characteristics 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 its 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 its all property.

6. Limited Liability:
As an individual and artificial person company itself owns its all assets and liabilities.
The Liability of the members is limited to the amount if any unpaid on their shares. Once
a members share are 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 ownerships and the entity of the
company are quite separate. As a result the company and owners 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.

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10. Number of Member:
According to Companies Act, 1994 the number of member of Private Limited
Company is minimum 2 and maximum 50. And number of member 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.

Q.4. “A company is an artificial legal person completely separate and distinct from
its shareholders/members.” Discuss at least two leading cases.

Ans.:
According to company law a registered company is a legal person in its own right and
quite distinct from its officers and members. This fact is that a company has a separate
entity from its director and shareholders. For this reason anybody cannot wish to wind 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 and seal. A company makes liable itself
to others and also makes others liable to company. A company can operate case,
borrowing power, even purchase and sales assets in its own name.

The management and directors are separated from the ownership of the company by the
law. Though the owners formed the company, the ownership and the entity of the
company are quite separate. As a result the company and owners are not liable to each
other for their own functions.

Case-1: Salomon vs. Salomon & Co. Ltd.:
Salmon is a businessman and shoe manufacturer. He formed a company in which shares were issued to himself, his wife and five children. The new company buys the business
from Salomon for £30000. Salomon get 20000 share of £1 each and debenture £10000 by
exchange of the old business. During the winding up of the company total value of the
assets of the company was £6000. During that time company has outside creditors £7000
and debenture of Salomon £10000. Outside creditors claim that though ‘Salomon’ and
‘Salomon & Co. Ltd.’ are same person, so he cannot claim for his debenture of £10000.
The court judges that ‘Salomon’ and ‘Salomon & Co. Ltd.’ are separate entity against
the case of other creditors. So Salomon gets preference on that asset of £6000.

Case-2: Lee vs. Lees Air Firming Ltd.:
Lee was a crop duster in New Zealand. The business was conducted through a company
in which Lee owned 2999 shares out of 3000 issued shares. He was the sole director of
the company, and was employed at a salary. Lee subsequently died in aeroplane crash
while crop-dusting. His wife claimed compensation from the New Zealand government under a statutory scheme. The company did not consider him as an employee and denied
to pay the compensation. But Prevee Council judges Mr. Lee was an employee of his
company and his widow was entitle to be compensated, because the company and Lee were separate legal persons between whom there was contract of service.

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Q.5.What are the different types of companies that are registered under the
Companies Act 1994 in Bangladesh.

Ans.:
There are various types of companies and now all of the companies are created by
registration under the Companies Act, 1994. The most common types of company are
Public Limited Company and Private Limited Company.

These are discuss as follows 

1. Public Limited Company:
A Public Limited Company is a company having the liability of its members limited by
shares or guarantee and having a share capital with a memorandum of association.

According to Companies Act, 1994, Section 2 (1) r, ‘Public Company’ means a
company incorporated under this Act or under any law at any time in the force before the
commencement of this Act and which is not a Private Company.

The number of member of a Public Limited Company is minimum 7 and maximum
number is limited by share according to share capital described in memorandum of
association.

The special significance of Public Limited Company is that they are permitted to offer
securities and shares to the public. The shares of this company can be transfer without
any restriction.

2. Private Limited Company:
According to Companies Act, 1994 Section 2 (1) q, ‘Private Company’ Means a
company which by its articles 

I. The right to transfer of share (if any) is limited.

II. Prohibits any invitation to the public to subscribe for its shares or debenture (if any).

III. Limits the number of its members to fifty , excluding persons who are in its
employment.

Characteristics:

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I. Number of Members:
Number of members of a Private Limited Company is limited and this limit is
minimum 2 and maximum 50.

II. Issue of Share:
It cannot invite to the public to subscribe for its share or debenture.

III. Limited Liability:
The liability of the members is limited.

IV. Share Transferability:
The right to transfer of share (if any) is limited.

V. Source of Capital:
The member of the company supplies capital.

VI. Use Word Limited:
It must add ‘Private Limited’ to end of name according to company law.

VII. Prospectus:
It cannot publish prospectus.

VIII. Minimum Subscription:
It does not need to collect minimum subscription.

IX. Commencement of Business:
It can start business after registrations without certificate of commencement.

X. Directors Appointment:
There are no legal obligations for appointment of director. But two directors are
sufficient.

XI. Qualifications Share:
Directors of Private Limited Company does not need qualification share.

XII. Statutory Obligation:
Private Limited Company is exempted from statutory meeting, audit of accounts and
submit balance sheet to the registrar.

Q.6. What is the difference between a Private Limited Company and Public Limited
Company.

Ans.:
Distinction between Private Ltd. Company and Public Limited Company:

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The difference between Private Limited Company and Public Limited Company are
as follows 

Private Limited Company Public Limited Company
1. Formation: Its formation is easy.

2. Section: Section 2 (1) q.

3. Minimum Number of Members: At
least two members.

4. Maximum Number of Members:
Maximum number of members is fifty.

5. Share Issue: It cannot invite to issue
share to public.

6. Share Transfer: Its share is not
transferable.

7. Commencement of Business: It can
start business after registration.

8. Prospectus: It cannot publish
prospectus.

9. Number of Directors: Its minimum
number of directors is two.

10. Selection of Directors: It has no legal
obligations to select directors.

11. Use Word Ltd.: It has to add ‘private
Ltd.’ at the end of company name.

12. Minimum Subscription: It does not
need to collect minimum subscription.

13. Signature: It needs signature of two
members on the memorandum of
association and articles of association.

14. Debenture: It cannot issue debenture.

15. Directors Qualification Share: It does
not submit the copy of directors
qualification share to the registrar.

16. Statutory Meeting: It is not obligated
to call statutory meeting.

17. Statutory Report: It is not obligated to
submit statutory report to the registrar.
1. Its formation is comparatively complex.

2. Section 2 (1) r.

3. At least seven members.

4. Maximum number of member is limited
by number of shareholders.

5. It can invite to issue share to public.

6. Its share is transferable.

7. It cannot start business without
certificate of commencement.

8. It can publish prospectus.

9. Its minimum number of directors is
three.

10. Its shareholders select directors.

11. It has to add only ‘Ltd.’ at the end of
the company name.

12. It has needs to collect minimum
subscription.

13. It needs signature at least seven
members.

14. It can issue debenture.

15. It is obligated to submit the copy of
directors qualification share to the registrar.

16. It is obligated to call statutory meeting.

17. It is obligated to submit statutory report
to the registrar.

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Q.7. Discuss the disadvantages of Private Limited Company.

Ans.:
1. It cannot issue share to public.

2. Its share is not transferable.

3. It cannot collect huge capital.

4. Its number of member does not exceed fifty.

Q.8. Discuss the special privileges and exemptions of a Private Limited Company.
Or
Discuss the advantages of Private Limited Company.

Ans.:
General Advantages:

1. Easy Formation:
Its legal obligation is less than that of Public Limited Company. So its formation is
easier than Public Limited Company.

2. Size of Business:
Since it is small in size, its special facilities are more than Public Limited Company.

3. Privacy:
It can protect its privacy because its size is small and number of member is minimum.

4. Prompt Decision:
It can take decision promptly.

5. Efficient Management:
The owners are personally involved in management. As a result management is more
efficient.

6. Easy Taking and Giving Loan:
Loan taking and giving of Private Limited Company is easier than Public Limited
Company.

7. Relation to Third Party and Each Other:
It makes good relation to each other and consumers because the members are few and
personally involved in the company.

8. Conversion:
The members can convert Private Limited Company to Public Limited Company by
changes articles of association if they wish.

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Legal Advantages and Exemptions:

1. Number of Member:
The number of member is minimum two and maximum fifty.

2. Commencement of Business:
It can start business after registration without certificate of commencement.

3. Minimum Subscription:
It does not need to collect minimum subscription.

4. Prospectus:
It cannot publish prospectus.

5. Qualification Share:
Directors of Private Limited Company does not need qualification share.

6. Declaration of Directors Agreement:
It does not need to submit declaration of director’s agreement to registrar.

7. Director’s Appointment:
There are no legal obligations for appointment of director’s. But two directors are
sufficient.

8. Statutory Meeting:
It does not need to call statutory meeting and submit statutory report to the registrar.

9. Voting Power:
The members can employ their voting power.

10. Classification of Share:
It can distribute any kind of share to the members.

11. New Share Distribution:
It has no legal obligation to distribute new share within the limited members.

12. Quorum:
Two members are sufficient to fulfill the quorum if the articles of association do not
mention any particular number.

13. Demands for Poll:
When seven members are personally present in the meeting of Private Limited
Company one member and when more than seven members are personally present in the
meeting of Private Limited Company, two members shall be entitle to demand for a
poll.

14. Signature on Memorandum of Association and Article of Association :
Signature of two members is sufficient on the memorandum of association and article of
association.

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Q.9. Describe the procedures of conversion of Private Limited Company to into
Public Limited Company and vice-versa.
Or
How Private Limited Company can re- register as Public Limited Company?

Ans.:
According to Companies Act 1994, Section 231, the conversion of Private Limited
Company into Public Limited Company & vice-versa are as follows 

I. Alteration of articles of association by special resolution:
The Private Limited Company is to be altered its articles of association by taking
special resolution which does not violet the company law.

II. Alteration of Article of Association:
The following items of article of association of Private Limited Company are to be
changed 

1. The right to transfer of share is limited.

2. The company cannot invite at large to sell its share or securities.

3. The total membership of the shareholder should not exceed fifty.

The following items are to replace on the exchange of above items: 

1. The share of the company is transferable.

2. The share or debenture of the company is issueable.

3. Minimum number of member is seven maximum is limited by number of
shareholder.

III. Winding Up of Private Limited Company:
It would not being Private Limited Company from the changing date of articles of
association.

IV. Submission of Prospectus or Statement in Lieu of Prospectus:
Submit a new prospectus or statement in lieu of prospectus to the registrar within 30 days
from the changing date of article of association.

V. Submission of The Name Schedule of Director:
The number of directors of converted Public Limited Company is to be increased at
least three and the new schedule will be submitted to the registrar.

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Q.10.What are the documents to be submitted and formalities to be completed
before the submission of application to the registrar of Joint Stock Companies for
registration of a Public Limited Company?

Ans.:
The promoter collects form from the registrar after paying registration fees and encloses
the following with the application 

a. Memorandum of Association:
It is a principal document of a company. It includes name, address, objects and capital of
company.

b. Articles of Association:
The articles of association are the domestic regulations of the company and govern its
internal administration.

c. Directors Schedule:
The names of the agreed persons as director are to be enclosed with the application for
registration.

d. Letter of Agreement:
Submit the agreement letter of director’s signature by them.

e. Agreement of Qualification Shares:
Submit director’s qualification shares.

f. Include the World ‘Limited’:
The word ‘limited’ should be added at the end of the name of the company.

g. Letter of Declaration:
A declaration by an advocate of high court or by a person named in the articles of
association as a director, manager, and or secretary of the company compliance with all
of the said requirements shall be filed with the registrar.

h. Collection of Certificate of Incorporation:
If the registrar is satisfied on the above documents, he listed the name of company and
issued a certificate of incorporation.

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Q.11. Whether the registrar of joint stock companies can refuse registration of any
Public Limited Company? If so; why?

Ans.:
The registrar of Joint Stock Company can refuse registration of any Public Limited
Company for the following causes 

1. If a company having the liability of its members limited by Act of parliament and if it
is not defined as a Joint Stock Company according to Companies Act 1994,
Section 355.

2. If the minimum number of member is less than seven.

3. If the minimum number of director is less than three.

4. If the company cannot issue share or debenture to the public.

5. If the company cannot publish prospectus.

6. If the company is not obligated to call statutory meeting or to submit statutory report.

7. If the registrar can identify any false and misleading statement in the prospectus.

So in conclusion it can be said that if the submitted information with the application for
the registration is false and misleading and if it is not fulfill the requirement of Public
Limited Company, than the registrar of Joint Stock Company can refuse the
registration of Public Limited Company.

Q.12. What is the amount of fees for registration of a Public Limited Company
having the authorized capital of Tk.10 crore and issued capital of Tk.5 crore.

Ans.:
According to Companies Act, 1994, Section 348, and Schedule-II, the amount of fees to
be paid to the registrar as follows 

1. A company whose nominal capital does not exceed Tk. 20000, registration fees to be
paid Tk.120.

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. If the nominal capital exceeds Tk.20000 fees to be paid as follows 
— Tk.60 for every 10000 taka or part of 10000 taka of nominal capital after first
Tk.20000 up to Tk.50000.

— Tk.15 for every 10000 taka or part of 10000 taka of nominal capital after first
Tk.50000 up to Tk.1000000.

— Tk.8 for every 10000 taka or part of 10000 taka of nominal capital after first
Tk.1000000 up to Tk.5000000.

— Tk. 15 for every 100000 taka or part of 100000 taka of nominal capital after first
Tk.5000000 up to any limit.

N.B.: Amount to be calculated on nominal / authorized capital.

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♥ Calculation of registration fees of a Public Limited Company having authorized
capital Tk.100000000 & issued capital of Tk.50000000.
Amount
Tk.

For 1
st
20000 taka 120

For 1
st
50000 taka after 20000 taka
(50000-20000) X 60 180
10000

For 1
st
1000000 taka after 50000 taka
(1000000-50000) X 15 1425
10000

For 1
st
5000000 taka after 1000000 taka
(5000000-1000000) X 8 3200
10000

For the remaining amount after 5000000 taka
(100000000-5000000) X 15 14250
100000

Total amount to be paid for registration 19175

Q.13. What is special company?

Ans.:
Limited liability companies will have somewhat the same fundamental characteristic.
However, particular feature of a company necessitates special regulation under the
Companies Act in respect of certain matter. The Act provided scope for registration of
charitable and other similar object organizations under Section 28 with an exemption to
use the word ‘limited’ after its name.

Q.14. What is Subsidiary Company and Holding Company?

Ans.:
A company is deemed to be subsidiary of another (holding) if:

a. Other company either holds more than 50% voting right in it; or

b. A member of it and has the right to appoint or remove a majority of its board of
directors; or

c. A member of it and controls alone, pursuant to an agreement with other shareholders
or members, a majority of the voting rights in it.

So from the above it is clear that the first mentioned company is a subsidiary of any
company by virtue of its memorandum, and that is other’s subsidiary.

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Q.15. What is ‘Holding Company’?

Ans.:
According to Companies Act 1994, Section 2 (5), a company shall be deemed to be the
‘subsidiary undertaking’ or ‘holding company’ of another if, and only if, that other is
its subsidiary. So when a company holds controlling share of another company then
controlling company is called holding company and non-controlling company is called
subsidiary company.

Q.16.How would you distinguish between a company and a partnership firm?

Ans.:
Company Partnership Firm
1. It applies Companies Act, 1994.

2. Its formation is very difficult.

3. It has legal entity.

4. Its registration is mandatory.

5. There is no agreemental relationship
among the members.

6. Minimum number of member is two in
case of private ltd. company and seven
in case of public ltd. company.

7. Maximum number of member is 50 in
case of private ltd. company and
maximum number is limited by number
of shareholders in case of public
limited company.

8. Its member’s liability is limited.

9. Its profit is to distribute according to
number of share.

10. Government control is more.
1. It applies Partnership Act, 1932.

2. Its formation is easier than company.

3. It has no legal entity.

4. Its registration is not mandatory.

5. Its base is agreement. So there is agreemental relationship among the
partners.

6. At least two members.

7. Banking company ten and other
company twenty.

8. Its member’s liability is unlimited.

9. Its profit is distributed according to
profit sharing ratio.

10. Government control is less.

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Promoter

Q.1. Give the definition of Promoters. Discuss different types of promoters.

Ans.:
Promoters:
The persons who build a company are called promoters. It is not clearly defined in the
Companies Act, 1994 nor its existence is traceable. They are the person who undertakes
all the trouble to prepare the necessary documents, paper etc. Beside this the promoter
bear the initial expenses, select first director, publish prospectus, and collect capital. A
promoter could even be an organization.

The promoters may be classified into few types:
1. Ordinary Promoters
2. Occasional Promoters
3. Professional Promoter.

1. Ordinary Promoters:
If some persons promote and float a company of which they are the members are
classified in this class and called ordinary promoters.

2. Occasional Promoters:
When some persons undertake to promote a company for some others, but they themselves are neither members of the proposed company, nor their usual business is
such business promotion is called occasional promoters.

3. Professional Promoters:
The professional promoters are promoter who does it as a business and after floating of a
company they are no more engage in it. Usually the professional promoters are very
skilled and experienced in these matters regarding legal formalities and government rules.

Q.2. Discuss the right of the promoters.

Ans.:
A promoter has the following rights in respect of promoting a company:

1. Reasonable remuneration.
2. Cost incurred for registration and other related purpose.
3. Free shares as promoter.
4. Commission on sale of shares.
5. Disclosed profit by selling his property to the company.
6. Any disclosed profit.
7. Price for selling his property to the company.
8. Indemnity against suit for false or misleading statements in the prospectus, which in
reality was done in good faith.

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Q.3. What is the usual functions or duties of promoters.

Ans.:
The functions of the promoters are as follows 
I. At first they sit together to set out the nature of the proposed company, its objects,
by laws, capital etc.

II. They obtain the name clearance from the registrar for the proposed company.

III. They prepare the memorandum of association and articles of association for the
proposed company.

IV. They bear all the initial expenses and enter into pre-incorporation contracts.

V. They take all necessary steps for registration of the proposed company.

VI. If it is private company, then the company start business from the date of its
incorporation and duty of the promoters are over.

VII. If it is public company limited by share, the promoters prepare prospectus or the
statement in lieu of prospectus and submit it to the registrar.

VIII. They invite public to purchase the share or debenture of the proposed company.

IX. After registration they collect the certificate of commencement to start the business and duty of the promoters are over here in case of public limited company.

Q.4. Discuss about the remuneration of the promoter.

Ans.:
The promoter has frequently to do a lot of work in connection with the flotation of a
company. So he is entitled to get remuneration for his service. He may be remunerated in
any of the three ways:

1. He may pass on the business or other property to the company at an inflated price.

2. He may be given a commission on the purchase price of the business or property
taken over by the company; or

3. He may be granted a lump sum as remuneration.

The promoter’s remuneration may be paid in cash or partly in cash and partly in shares
and debenture of the company. Whatever remuneration the promoters get is to be
disclosed in the company’s prospectus.

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Q.5. What is the step that a promoter has to pass through for the formation of a
Public Limited Company from promotion to the commencement of business.

Ans.:
The following major three steps are to be taken to form a Public Limited Company 
1. Promotional Stage
2. Stage for registration
3. Stage for Commencement of business.
1. Promotional Stage:
At this stage more than one person promote to form a company and take following
decisions 

a. Selection of Name and Approval:
At first the promoter select a name and submit to the registrar for approval. This name is
not quite similar with name of other existing company.

b. Nature of Company:
At this stage the promoter taking decision either the company is to be public limited or private limited.

c. Number of Promoter/members:
In respect of private limited company at least two and public limited company at least
seven promoters/members take all requiring arrangement to form a company.

d. Planning and implementation:
At this stage promoters select the plan and prepare memorandum of association and
articles of association for formation of the company.

2. Stage for registration:
The promoter collects form from the registrar after paying registration fees and encloses
the following with application 

a. Memorandum of Association:
It is a principal document of a company. It includes name, address, objects, and capital of
the company.

b. Article of association:
The articles of association are the domestic regulations of the company and govern its internal administration.

c. Directors Schedule:
The names of the agreed persons as directors are to be enclosed with the application for
registration.

d. Letter of agreement:
Submit the agreement letter of director’s signature by them.

e. Agreement of Qualification Shares:
Submit director’s qualification shares.

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f. Letter of declaration:
A declaration by an advocate of high court or by a person named in the articles of
association as a director, manager, and or secretary of the company compliance with all
of the said requirements shall be filed with the registrar.

g. Collection of Certificate of Incorporation:
If the registrar is satisfied on the above documents he listed the name of company and
issue a certificate of incorporation.
3. Stage for Commencement of business:
The director’s submit the documents to the registrar in a particular form to get certificate
of commencement.

a. Prospectus:
Publish prospectus to invite the public for issue share.

b. Declaration of Minimum Subscription:
A declaration of minimum subscription, which was mentioned in the prospectus, is
already collected.

c. Declaration of Qualification share:
A declaration in respect of payment of qualification share of the director is needed.

d. Declaration by Secretary:
A declaration by the secretary or director for completion of all legal functions is needed.

e. Commencement of Business:
The company can start business after getting the certificate of commencement.

Q.6. Discuss the legal responsibility and liability of the promoters.

Ans.:
The promoters have liabilities towards the company for which they may be sued for damages. The legal responsibility and liability of the promoters could be summarized as
follows 

1. Fiduciary Relationship:
A fiduciary relationship exists in between the company and promoters.

2. Secret Profit:
Attaining any secret profit by the promoters in course of promotion of a company is
prohibited. They are bound to disclose all the profits they have accumulated during the
process. The company may sue the promoters to recover such secret profit.

3. Representation:
Promoters are not representatives of the company. So the company cannot be held liable
for any of the acts of the promoters either before or during formation of the company.

4. Pre-incorporation Contracts:
Promoters are personally liable for any pre-incorporation contract in favor of the
company.

5. Trustee:

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Promoters are not treated as trustees of the company either before or during formation of
the company.

6. False Statement in the Prospectus:
Promoters can be held liable for any false or misleading statement made in the
prospectus.

7. Liability on death and Bankruptcy:
Even on death and becoming bankrupt the liability of a promoter is not extinguished.
After his death his legal representative is liable to pay the demand and on bankruptcy it is
not over till he declared released by the court of law.

Q.7. What legal consequences a promoter may have to face for giving false and
misleading statement in a prospectus?

Ans.:
A promoter is held liable for his false and misleading statement in a prospectus. The
promoter can be held liable in the following manner 

1. He can be sued for damages.

2. His own shares (if any) are forfeited.

3. Can be charged under section 145 & 397 of the Companies Act 1994.

4. The shareholder who bought the share on the basis of his false or misleading
statement may sue him for damages.

5. He can be held criminally liable.

6. His heirs (Property) can be held liable if he dies during the period in which his
liability is pending.

Q.8. Discuss the legal position of a promoter or status of a promoter before
incorporation. Or

What do you mean by pre-incorporation contracts/ preliminary contracts.

Ans.:
Before incorporation of the company it is sometimes necessary for the promoters to enter
into contracts with third parties as process for either registration of the company or
business for the under formation company. Though the companies legal separate entity
are not exists before incorporation so the question arises who will be the liable for this
contract. Let us briefly consider the legal position of a promoter in such situation:

1. Promoters are not an agent:
Since the legal entity of the company is not exists as artificial person before
incorporation, so the promoters cannot be an agent of the company, which he formed.

2. Promoters are not future trustee:
Promoters are not future trustee either before or after formation of company.

3. Fiduciary position:

19
A fiduciary relationship exists in between the company and promoters. Any secret profit
obtain by the promoters in course of promotion of a company is prohibited. For such
secret profit promoters should be inform to the authority. At that time authorities are the
board of directors and existing and intended shareholders.

4. Full Disclosure:
Any profit that may be legal or illegal obtained by the promoters, accumulated during the
process should be informed to the authority.

So the promoters have some legal position in the company, which they formed. They
cannot be an agent of the company before incorporation and trustee of the company
before or after incorporation. In fact they have the fiduciary position in the company.

Q.9. What is the difference between a certificate of incorporation and certificate of
commencement of business?

Ans.:
The distinction between a certificate of incorporation and certificate of commencement of
business are as follows 

Certificate of Incorporation Certificate of Commencement
1. It is a certificate of incorporation.

2. Business cannot be start after certificate of incorporation.

3. Company is not to be listed on the register before certificate of
incorporation.

4. There is no legal obligation before
certificate of incorporation.
1. It is a certificate of commencement of business.

2. Business can be start after certificate of commencement.

3. Company is to be listed on the register before certificate of commencement.

4. There is some legal obligation before certificate of commencement.

Q.10. What is the effect of a certificate of incorporation?

Ans.:
The following are the effects of certificate of incorporation of a company:

1. After incorporation a company obtain legal entity.

2. The company and members must follow the rules of memorandum of association and
articles of association.

3. A registered company can file case against others and other can also file case against
it.

4. A registered company entitle into contract with the third party in its own name.

20
5. Any member can consider all of its payment to the company as a loan according to
the memorandum of association or articles of association.

Q.11. What does you meant by “veil of incorporation”?

Ans.:
Veil of Incorporation:
A company has a separate legal entity from its directors and shareholders. For this reason
any body 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. In the
legal point of view this nature of the company is called “veil of incorporation”.

Q.12. When the veil of incorporation is lifted?

Ans.:
The facility of limited liability by shares or guarantee sometimes provides undue
advantages to some persons who hide themselves behind the corporate shield. The courts
are allowed to lift the veil of incorporation in certain circumstances when they deem it
necessary. The following are some situations when the veil of incorporation can be lifted:

1. When the company runs the business with below statutory minimum number of
members for more than six months.

2. If more than half of the total shares are held by another company, then for
ascertaining whether the first is the subsidiary of the later.

3. If the controlling shareholders are enemy aliens, the veil can be lifted to ascertain the
truth.

4. If all the shareholders admit and resolute in short notice, the resolution is valid, but on
objection, such veil could be lifted to find out the falsity of allegation.

5. If a company buys majority shares of another company and forces the minority to sell
their shares, the veil could be lifted to ascertain the individual personality of the buyer
company.

6. When a company makes loans to its directors the veil can be lifted.

7. If a company carries with business for parent company and when parent company
control the subsidiary’s business the veil could be lifted.

8. For taxation Purpose.

9. For ascertaining the director’s wrongful trading.

10. For the company carries with illegal or fraudulent trading.

21
Prospectus

Q.1. What is prospectus? What contents are required to be entailed in a prospectus?

Ans.:
Prospectus:
A new definition has been given for prospectus in the Companies Act 1994. The need
for capital generation by a Public Limited Company is materialized through the
issuance of this prospectus. This invites the public to subscribe its shares or debentures.
Actually, it is a printed pamphlet, circulated and advertised in the newspapers. A copy of
the prospectus, dated and signed by the directors must be filed with the registrar of Joint
Stock Company before publication. It must also be in agreement with the conditions laid
down by the Securities and Exchange Commission.

Section 135 of the Companies Act 1994, refers to the Schedule-III, which contains the
detailed list of some specific requirements as to the prospectus. However, a prospectus
should include, in broad terms, the following:

1. Name of the company with date of incorporation.

2. Date of the prospectus.

3. Consent of Securities and Exchange Commission.

4. Capital Outlay.

5. Business, management background, and prospects in brief.

6. Name of the directors with address and other particulars.

7. The qualifying shares of the directors.

8. Remuneration of the directors.

9. The minimum subscription on capital.

10. The amount to be paid during application and allotment.

11. The underwriting commission or brokerage, if any payable for effecting sales of
shares.

12. The names and addresses of vendors, if any and the amount payable to vendors in
cash or by means have to be clarified.

13. The amount if any either paid, or agreed to be paid, to the promoters in last two
preceding years.

14. Name of the auditors with address.

15. The number and classes of shares, if any and the nature and extent of the interest of
the holders in the property and profits of the company.

16. Dividend policy and expected dividend to be declared by the company.

17. The risk factors involved.

18. The rights of voting of each class of shareholders where shares are so classified.

19. A report by auditors on profit and dividend declared.

20. Contents of the memorandum etc.

22

Q.2. Distinguish between prospectus and statement in lieu of prospectus.
Ans.:
Prospectus Statement in lieu of Prospectus
1. Prospectus is a printed pamphlet by
which a Public Limited Company
invites the public for subscription to its
shares or debentures.

2. Any Public Limited Company can
publish prospectus.

3. It can invite public for subscription or
purchase of any shares or debentures.
1. When a Public Limited Company
procures its capital from private
arrangement a statement in lieu of
prospectus is submitted to the registrar
in the absence of prospectus.

2. When minimum subscription is not
collected Public Limited Company
prepares statement in lieu of
prospectus.

3. It cannot invite public for purchase of any shares or debentures.

Q.3. What is the defenses open against the persons, who is liable for misstatement in
prospectus?
Ans.:
Liability and penalty for the misstatement in the prospectus:
1. Civil Liability:
According to Companies Act 1994, Section 145 (1), the persons who are liable for
misstatement in the prospectus shall be liable to pay compensation to every person who
subscribes on the faith of the prospectus for any loss or damage.

2. Criminal Liability:
According to Companies Act 1994, Section 146 (1), every person who authorized the
issue of prospectus shall be punishable with imprisonment for a term, which extends to
two years or with fine, which may extend to five thousand taka or with both.

3. Liability Under Law of Fraud:
Every person who is liable for misstatement in the prospectus, victim can sue against
them under the traditional law of fraud instead of the company law.

4. Penalty for Fraudulently Inducing Persons to Invest Money:
According to Companies Act 1994, Section 147, any person who either by knowingly or
recklessly making any statement, promise or forecast which is false, misleading or
deceptive, or by any dishonest concealment of material facts, induces or attempts to
induce another person to enter into any agreement shall be punishable with imprisonment
for a term which may extend to five years or with fine which may extend to fifteen
thousand taka, or with both.

23
Q.4. Who is liable for misstatement in prospectus?

Ans.:
According to Companies Act 1994, Section 145, following persons are liable for
misstatement in the prospectus 

1. Every person who is a director of the company at the time of issue of prospectus.

2. Every person who agreed to be a director of the company.

3. Every person who is a promoter of the company.

4. Every person who has authorized the issue of the prospectus.

Q.5. What is the procedures of filling a prospectus of a Public Limited Company?
Or
Describe the rules as to preparation, submission and circulation of prospectus.

Ans.:
The following are the rules as to preparation, submission, and circulation of prospectus 

1. Name:
At first the name of company is to be mention as heading.

2. Registration Office:
The full address of the registered office of the company is to be mentioned under
heading.

3. Registration Date:
The date of incorporation is to be mentioned in the prospectus.

4. Circulation Date:
In the prospectus its issue date is to be mentioned. If it does not mention any date as issue
date, the circulation date is to be considered as issue date.

5. Sign and Filling:
A copy of the prospectus signed by the promoter, director and or proposed director must
be filed with the registrar of Joint Stock Company before circulation.

6. Condition of Registration:
If the date of prospectus is not mentioned and the Section 134, 135, 136, 137, & 138 are
not followed, the registrar can refuse registration of the prospectus.

7. Filling:
It should be clearly mention in the prospectus that a copy has been delivered to the
registrar for registration.

8. Punishment:
If any prospectus is issued in contravention of Section 136 & 137, the company and
every person, who is knowingly a party to the issue thereof, shall be punishable with fine,
which may extend to Tk.5000.

24
Memorandum of Association

Q.1. What is memorandum of association?

Ans.:
Memorandum of Association:
According to Companies Act 1994, Section 2 (1) n, ‘Memorandum’ means the
memorandum of association of a company as originally framed or as altered in pursuance
of the provisions of this Act. Actually it is the principal document of company, which
regulates the external affairs. The limit of scope and power of the company is said in this
document. Nothing can be done outside the scope of the object clause of memorandum.
So it is called the constitution of the company.

The main purpose of memorandum of association is to 

1. Ascertain its name.
2. Mention of a specific place of business.
3. Its objects.
4. Its nature i.e. Public Limited or Private Limited.
5. Its limited liability of members, and
6. Its capital

Q.2. What is the content of memorandum of association.

Ans.:
According to Companies Act 1994, Section 6, 7, & 8 lay down the contents of
memorandum of association. The memorandum of association of every company must
state 

1. The name of the company with ‘Limited’ as the last world of a company limited by
share or by guarantee.

2. Memorandum of Association should mention a specific place of business of the
company, which is known as the registered office.

3. The object of the company.

4. The liability of the members is limited either by shares or by guarantee.

5. In case of company limited by guarantee that each member undertakes to contribute
to the assets of the company in the event of it’s being wound up. A member is liable
to pay the guaranteed amount while he is a member, or within one year after he
ceases to be a member.

6. In case of company having a share capital, except unlimited company, the total
amount of share capital with which the company proposes to be registered and the
division thereof into shares of a fixed amount.

A Public Limited Company must have at least seven (7) and Private Limited
Company at least two (2) members. This minimum number of person must subscribe
their names to the memorandum. Each subscriber must take at least one (1) share, and
must write opposite to his name the number of shares he takes.

25
Q.3. What is the clause of memorandum of association.

Ans.:
The clauses of memorandum of association are as follows 

1. The Name Clause:
The proposed name of the company is mention in this clause with ‘Limited’ as the last
word in its name. This name of the company should be separated from any other existing
name. It is necessary to take permission from registrar for use the name of winding up
company.

2. The Situation Clause:
Memorandum of association should mention a specific place of business of the company,
which is known as the registered office. According to Companies Act 1994, Section
77(1), a company have a registered office from the day on which a company begins to
carry on business, or from the twenty-eight (28) day after the date of its incorporation,
whichever is earlier. All communications and notices with the company to be addressed
in this office. The address of registered office should include in the memorandum of
association for following purposes 

a. To select nationality

b. To select the limit of scope of Court.

c. To distribute notice, latter etc.

d. To know the place of list of members.

3. The Object Clause:
It is the most important clause of memorandum of association. The company cannot do
any function outside the object clause. Anything done outside the scope of the object
clause of memorandum is ultra vires. The all-possible function of a company is mention
in this clause. The company cannot change the object clause wit hout the permission of
the Court.

4. The Capital Clause:
This clause mentions the total amount of share capital with which the company proposes
to register, and the divisions thereof into shares of a fixed amount. A Public Limited
Company can issue two types of share i.e.

1. Ordinary share, and

2. Preferred Share.

5. The Liability Clause:
This clause mentions the limited liability of shareholders. It is enough to state that the
liability is limited but it should clearly mentioned whether it is limited by share or by
guarantee.

6. Association Clause:
In this clause the initial subscribers declare that they intend to be formed into a company
and will take number of shares mentioned against their respective names.

26
Q.4. Can the object of the company is altered? If so, why?

Ans.:
The object clause of memorandum of association of the company can be altered
according to the Company Law for any of the following reason.

1. To carry on its business more economically or more efficiently.

2. To attain its main purpose by new or improved means.

3. To enlarge or change the local area of its operations.

4. To restrict or abandon any of the objects specified in the memorandum.

5. To sell or dispose of the whole or any part of the undertaking of the company.

6. To amalgamate with any other company or body of persons.

Q.5. What is the alteration procedures of memorandum of association?

Ans.:
The memorandum of association of a company can be altered by the following
procedures 

1. By taking special decision in the special meeting of the members.

2. The Court must approve the alteration.

3. Before confirming the alteration, the Court must be satisfied about the following
terms of the company 

a. Sufficient notice has been given to every holder of debentures or creditors of the
company.

Provided that the Court may dispense with the company for special reasons for
the notice required by this section in the case of any persons or class.

b. Every creditor who signifies his objection in manner directed by the Court, either
his consent to the alteration has been obtained or his debt or claim has been
discharged or has been secured to the satisfaction of the Court.

4. The Court may approve either wholly or in part of proposed alteration on such terms
and conditions as it thinks fit.

5. The following functions are to be completed after the order confirming the alteration
approved by the Court 

a. The attested copy of approval order and converted memorandum of association
are to be submitted to the registrar within ninety (90) days from the date of order.

b. The Court may extend the submission period of documents to the registrar.

c. The registrar incorporated the new memorandum instead of old memorandum.

27
Q.6. “Memorandum defines and confirms the power of a company”  Explain the
statement.

Ans.:
Memorandum of association is the principal document of a company, which regulates the
external affairs. The limit of scope and power of the company is said in this document.
Nothing can be done outside the scope of the object of clause of memorandum. So it is
called the constitution of the company. Anything done outside the scope of the object
clause of memorandum is ultra vires. The all-possible function of a company is mention
in this clause. So it can be said that the memorandum defines and confirms the power of a
company.

Q.7. What is the legal effect of memorandum of association?

Ans.:
As a main document of the company the legal effects of memorandum of association are
as follows 

1. Contractual Condition:
Memorandum of association of a registered company make contractual obligation
between the company and members. As a result the members and their legal agent are
legally obligated to follow the memorandum.

2. Constitutions and Power:
Constitutions and power of the company are made on the basis of memorandum of
association. So the company cannot do anything outside the rules of memorandum.

3. Express Document:
Memorandum of association is an expressed document of a company. All related parties
are aware about the subjects and purposes of the company by this documents.

4. Liability of Company:
Company is not liable for doing anything outside the memorandum to the directors and
shareholders.

5. Effect on Shareholder and director:
The directors cannot make the company liable to third party by doing anything outside
their power described in memorandum. Shareholders also cannot approve anything
outside the memorandum.

28
Q.8. What is the rules in respect of affixing stamps on memorandum and articles of
association.

Ans.:
In accordance with the provisions of Stamp Act 1899 as amended by Finance Act 1993,
Stamp duty is to be affixed on memorandum and articles in the following rates as per
Schedule-I:

Memorandum of Association of a Company: Amount
Tk.
a. If accompanied by articles of association under
Section 17 of the Companies Act 1994 500

b. If not as accompanied:
I. Where the nominal share capital does not
exceed Tk.100000. 1000

II. Where the nominal share capital exceeds Tk.100000. 2000

Articles of Association of a Company:

a. Where the nominal share capital does not exceed Tk.1000000 1000

b. Where the nominal share capital exceeds Tk.1000000 but does
not exceeding Tk.30000000. 2000

c. Where the nominal share capital exceeds Tk.30000000. 5000

Exemption:
Memorandum and articles of association not formed for any profit and registered under
Section 28 of the Companies Act 1994 are exempted from stamp duty.

29
Articles of Association

Q.1. What is an article of association? What are the contents of the articles of
association?

Ans.:
Articles of Association:
According to Companies Act 1994, Section 2 (1) a, ‘Articles’ means the articles of
association of a company as originally framed or as altered by the special resolution,
including so far as they apply to the company, the regulation contained in the First
Schedule to this Act. Actually it is the domestic regulation of a company and governs its
internal administration. It includes and controls, share distribution, share transfer, capital
changing, directors appointment, dividend distribution, voting power, conduct of board
meetings and winding up of company etc. The person signature on the memorandum is
also signature on the articles. It explains the clauses of memorandum.

The Contents of the articles of association:
The contents of articles of association are as follows 

1. Full name of the company.

2. Daily functions and rules of management.

3. Name, address and other description of directors and managing director.

4. Responsibilities, duties, right and power of directors and managing director.

5. Number of directors.

6. Appointment rules of manager and secretary.

7. Remuneration of director.

8. Number and value of qualification share of directors.

9. Total amount and number of authorized capital and classification of shares.

10. Par value and payment system of shares.

11. Terms and conditions of share forfeiture.

12. Procedure of share issue and transfer.

13. Commission of share underwriting.

14. Borrowing power and procedure of company.

15. Calling and operating system of meeting.

16. Voting system of the meeting.

17. Voting power of the member.

18. Rules of dividend declared and dividend transfer to the company.

19. Name and address of auditors, bankers, solicitors, broker and managing agent.

20. Winding up procedure of company.

30
Q.2. What is the legal effect of articles of association?

Ans.:
Following are the legal effect of articles of association:

1. Contractual Obligation:
A registered article of association makes a contractual obligation among the members and
the company. So the members are obligated to follow the articles.

2. Case File:
Company can file case against any member due to avoid articles. Any member can also
file case against other member or the company.

3. Due Debts:
All money payable by any member to the company under the articles shall be considered
as debts due to him.

4. Open Document:
Since the articles of association in an open document to the company, assume that all
related parties are aware from the contents of articles. So if any parties make any
transaction avoiding the rules of articles, the company will not liable.

5. Contracts Between the Company and Third Party:
The company or its member does not make any contract with the third party according to
articles of association.

6. Directors Obligation:
The power and responsibilities of directors are limited by the rules of articles. If any
director violet any rules of articles is to be liable personally.

Q.3. Comment on whether a company can be incorporated as a limited company
without the word ‘Ltd.’?

Ans.:
Whether an association formed for promoting commerce art, science, religion, charity, or
any other useful object and applies or intends to apply its profit if any or other income in
promoting its objects and to prohibit the payment of any dividend to its member, the
government may by license with approval of one of its secretaries, direct that the
association be registered as a company with limited liability without the addition of the
word ‘Limited’ to its name.

Q.4. Can articles are to be made unalterable?

Ans.:
The power of altering the articles is a statutory power; therefore, a company cannot either
by a clause in the articles or by a contract makes the articles unalterable. That would
equal to offending and defeating the provisions of the Companies Act.

31
Q.5. Can articles are altered? If altered how?

Ans.:
Articles of association can be altered, extended and amended according to rules of
Company Law, without permission of Court but taking decision in the members
meeting.

The following rules and restrictions are to be followed to alter the articles:

1. The articles of association can be altered after taking special resolution in the
members meeting.

2. Alteration of articles never violet the rules of memorandum and Company Law.

3. The alteration in the articles should be fair and for the benefit of the company as a whole and not for a class or group of members only.

4. Alteration of articles is not to be contradiction with the order of the Court.

5. The right of the minority members cannot be broken by alteration of articles.

6. Alteration of articles is not for increasing the liability of all members or a few
members.

7. Alteration of articles is not for breaking the contract with third party.

Every special resolution amending the articles of association must be supported by a
return to the registrar within fifteen (15) days of passing of the resolution as required
under Section 88 of the Act.

Q.6.What are the provisions of Companies Act 1994 regarding the registration of
articles and application of schedule-1?

Ans.:
Registration of Articles:
A company limited by guarantee and an unlimited company shall, and a company limited
by shares may, have an article of association wherein provision shall be made for
regulating the affairs of the company; and the articles shall be signed by the subscribers
of the memorandum and be registered together with the memorandum. [Section 17 (1)]

Articles of association may adopt all or any of the regulations contained in Schedule-I,
and regulations 56, 66, 71, 78, 79, 80, 81, 82, 95, 97, 105, 108, 112, 113, 114, 115, and
116 of Schedule-I, compulsorily apply to all companies, whereas regulations 78 to 82 of
Schedule-I shall not deemed to be included in the articles of any private company except
those which is the subsidiary of any public company. [Section 17 (2)]

Application of Schedule-I:
In the case of a company limited by shares and registered after the commencement of this
Act, if articles are not registered, or, if articles are registered, in so far as the articles do
not exclude or modify the regulations in Schedule-I, those regulations shall, so far as
applicable be the regulations of the company in the same manner and to the same extent
as if they were contained in the duly registered articles. [Section 18]

32
Q.7. Distinguish between the memorandum of association and articles of association.

Ans.:
Memorandum of association Articles of association
1. It is the principal document of a
company. It includes object, power, and
right of a company.

2. It maintains the relation between
company and third party.

3. It is the guidance and law of articles.

4. Company Law makes it.

5. It maintains all general contents of company.

6. It must be registered.

7. Every company must have the memorandum.

8. It cannot be altered without the permission of Court.
1. It is the internal documents of a company. It includes internal operation
rules.

2. It maintains internal relations.

3. It is controlled by memorandum of
association.

4. Company Law and memorandum
makes it.

5. It states and explains the contents of memorandum.

6. It is not obligated for registration.

7. Joint Stock Company may not have
this.

8. It can be altered without the permission of Court.

33
Share Capital

Q.1. What is share? Discuss the features of share. Explain differe nt kinds of share.

Ans.:
Share:
Share is the unit of capital measured by a sum of money. It is intangible but very much
movable property. The capital of a company is divided into shares, which is distinguished
by its appropriate numbers. The shares are contained in a certificate, which is
transferable. A share certificate is given under the common seal of the company
specifying the number of shares, say five or fifty and mentioning the name of the holder.
According to Companies Act 1994, Section 2 (1) v, ‘Share’ means a share in the capital
of the company and includes stock except when a distinction between stock and shares is
expressed or implied.

Features of Shares:
Following are the features of shares 

1. Share is the unit of capital measured by a sum of money.

2. According to Companies Act 1994, Section 30 (1), share is a movable property and
shall be transferable in manner provided by the articles of the company.

3. Ownership of share creates some contractual right, responsibility and liability.

4. According to Companies Act 1994, Section 30 (2), each share in a company having
a share capital, which is distinguish by the appropriate number.

5. Share is the personal estate of shareholders with his interest in the company.

Kinds of Shares:
Under the Companies Act, 1994, a Public Limited Company issue two types of shares:

a. Equity Share, and
b. Preference Share

a. Equity Share:
Equity shares are those, which are not preference shares. These shares do not enjoy any preferential right in respect of dividend or repayment of capital. These shares bear all the
risk of the company after payment of all debts, interests, and preferred dividend (if any)
declared by Board of Directors in the Annual General Meeting. Sometimes equity
shareholders received interim dividends.

b. Preference Shares:
Preference shares are those shares, which have: 

1. A preferential right to be paid dividend at a fixed rate during the lifetime of the
company.

2. A preferential right to be repaid capital during the winding up of the company.
Preference share can be divided into several types as follows 

34

1. Cumulative Preference Shares:
If in a certain year the company fails to pay specified amount of interest to the preference
shareholders due to low profit, then some preference shares have the right to get the
unpaid amount as arrears in the subsequent years. This arrear can be carried through only
for five (5) years.

2. Non-cumulative Preference Shares:
In case of such shares, if dividend in any year cannot be paid, the right to receive
dividend for that year lapse. Shareholders are not entitled to get such arrear dividends out
of profit of subsequent year.

3. Participating Preference Shares:
These types of share at first get the specified amount of interest, thereafter participate along with equity shareholders in the dividends. They participate in the event of winding
up in same manner.

4. Non-Participating Preference Share:
The holder of these shares are entitled to a fixed rate of dividend only and do not share
with the equity shares in dividend.

5. Redeemable Preference Shares:
These shares in addition to the preferential right in respect of dividend enjoy the right to
be paid back the face value of preference share to the holders after certain period of time.
Provided that if the articles have the provision, then the company may sell such shares on
some certain conditions.

6. Non-redeemable Preference Shares:
The preference shares, which are not redeemable, are redeemed only on winding up of
the company.

7. Guaranteed Preference Shares:
Either any other company or person guarantees these preference shares interest.

8. Convertible Preference Shares:
These shares are given the right of being converted into equity shares within a specified
period or date according to the terms of issue.

Q.2. Give the definition of (1) Employee’s Share (2) Non-voting Ordinary Share (3)
Deferred or founders shares.

Ans.:
1. Employee’s Share:
It depends on the articles of association of a company. If the articles provides than the
company may issue shares to its employees in consideration for job performance as
bonus. This is not in existence in our country, but not impossible.

2. Non-voting Ordinary Share:
This type of share is not existent in our law; it is prevalent in English Law.
3. Deferred or founders shares:

35
These shares are usually very limited in number and their right to profit is also very
limited. Usually they get profit and interest being paid to other types of shareholders.
This types of share is normally given to a promoters and underwriters. When these are
given to a promoter or founder of the company, they are called ‘founder share’ and
when it is given to underwriter it is called, ‘deferred share’.

Q.3. What is meant by bonus share? In what circumstances bonus share can be
issued?

Ans.:
Bonus Share:
Companies issue bonus shares to its shareholders when it makes enough profit, but it has little in cash to pay cash as dividend. So they issue bonus shares free in exchange of
dividend instead of cash. Bonus share are also issue for adjustment between earned profit
and capital.

The requirements to issuance of bonus shares are as follows 

1. The articles of the company must permit the issuance of bonus shares.

2. Its authorized capital must be sufficient to cover the same.

3. The shareholders must resolve to capitalize profits or to apply the share premium account or utilize other reserves and issue bonus shares.

4. The shares must be allotted by a board resolution in the proportions determined by
shareholders in general meeting.

5. A return of allotment must be submitted to the registrar within sixty (60) days after
allotment of shares.

Bonus Share Can be Issued in Following Circumstances:

1. Short of Cash Money:
When company cannot distribute cash dividend due to little cash but it makes enough
profit then the company issue bonus share in exchange of dividend instead cash.

2. Increasing Working Capital:
When working capital is to be increased owing to expand business and any liability is to
be paid suddenly then the company issue bonus share.

3. Adjustment of Share Capital and Profit:
When there is no adjustment between earned profit and capital then the company issue
bonus share.

4. Balance of Reserve:
When the deposit of reserve is greater than share capital then the company issue bonus
share.

36
Q.4. What is transfer of share?

Ans.:
Transfer of Share:
The way in which a person disposes of his ownership of share to another is called transfer
of share. The procedure by which this is done differs according to whether or not the
transfer is by way of sale in the Stock Exchange or to an individual. In case of a private
company such is limited only within individuals and purely regulated by the articles
subject to conditions of the Act. A share transfer is done through deed and it must be first
registered in the company register and thereafter with the registrar. Every shareholder has
a right to transfer his share.

Q.5. Whether any fees are required for transfer of share.

Ans.:
Fees for Transfer of share:
According to Companies Act 1994, Schedule -I, the company fixed a fee not exceeding
Tk.10 in respect of transfer application of share.

Q.6. Write a short note of (1) Blank Transfer (2) Forged Transfer (3) Transmission
of Share.

Ans.:
1. Blank Transfer:
If the name and address of the transferee and the date of transfer are not mentioned in the
transfer form (117 form) is called blank transfer. Blank transfer facilitates spot trading of
share and it can sell and mortgage to more persons. Besides this, it can be submitted to
the company for registration mentioning name of any person selected by the transferor. In
this case transferee is not legal owner before listed his name in the register of members of
the company.

2. Forged transfer:
When share transferred is occurred by the false and misleading statement is called forged
transfer. This kind of share transfer is quite illegal and nullity. The forged transfer is null
even the company register the transfer. So the ownership of share is not change for this
kind of transfer. The persons who apply for the registration of forged transfer is liable for
compensate the company.

3. Transmission of Share:
The transmission of shares is an involuntary act resulting from the operation of law due to death or insolvency of a shareholder. The ownership of shares of a deceased member,
in such a case vests in his heirs or legal representative. A succession certificate from the Court of competent authority is the legal requirement in case of transmission of shares.
However, the documentary entries are the same for transfer or transmission of share in the books of company.

37
Q.7. What is the procedures for share transfer?

Ans.:
Procedure for Share Transfer:
The following are the procedure of transfer of shares 

1. Provision of Articles of Association:
Shares are movable properties and transferable from one person to another in a manner
provided by articles of association.

2. Written Agreement:
A written agreement should be made between the transferor and transferee for transfer of
share.

3. Application Submit:
An application for the registration of the transfer of share in a company may be made
either by the transferor or by the transferee.

4. Notice:
If the transferor makes the application in case of partly paid shares no registration shall
be affected unless the company gives notice of the application to the transferee. If the
transferee makes no objection within two (2) weeks from the date of receipt of the notice,
the company shall enter the name of transferee in its register of members in the same
manner and conditions as the transferee was made the application for registration. In case
of fully paid shares the notice is not required.

5. Documents of Transfer:
A particular form prescribed in the articles of association, which is signed by the
transferor and transferee and stamped properly regarding share transfer is to be submitted to the company. It includes the full name, address, and profession of the transferee. If the
article of association does not provide any prescribed form, the transfer may be affected
in the form prescribed in regulation 19 of table-A.

The share certificate or the letter of share allotment is to be enclosed with the form.

6. Refuse of Transfer:
If a company refuses to registrar the transfer of any shares or debentures, the company
shall send the notice of refusal to the transferee and transferor within one (1) month from
the date on which the instrument of transfer was lodged.

7. Appeal:
Applicant can appeal against refusal.

8. Right:
The transferor has full right on shares before the registration of shares, which transferee
makes.

9. Issue of New Certificate:
After completing all procedure of share transfer, the company issue new share certificate
to transferee.

38
Q.8. Distinguish between transfer of share and transmission of share?

Ans.:
The distinction between transfer of share and the transmission of share are as follows 

Transfer of Share Transmission of Share
1. It is occurred by sale, donation or any
other similar voluntary work.

2. It is done by particular form and written agreement.

3. In this case a certain fee is to be paid for apply.

4. Transferor is considered legal owner till the transferee is not makes registration.

5. None can transfer share without being members.

6. Notice of transfer is obligatory.
1. It is occurred by death, insolvency of shareholders and winding up and
nationalization of company.

2. It is done according to law of heir.

3. It is to be informed to the company by
a general letter.

4. The ownership is transfer to the heir.

5. Legal representative can transfer shares without being members.

6. Notice of transfer is not obligatory.

Q.9. What is right share? Distinguish between bonus share and right share.

Ans.:
Right Shares:
Right shares are those shares, which are issued after the original issue of shares, but
having an inherent right of the existing shareholder to subscribe to these shares in
proportion of their holdings. These shares can however, be issued to the non-members
when the existing shareholders do not accept the offer within a prescribed time limit. The
issue of right shares must be within the limit of authorized capital of the company. Right
issues are to be made as per SEC guidelines and listing regulations. Generally right
shares are issued to the existing shareholder at a concessive rate.

Following are the difference between bonus share and right share:
Bonus Share Right Share
1. Bonus share means one kind of dividend.

2. Shareholders are not paid any amount against bonus share.

3. In respect of bonus share profit is capitalized.

4. Bonus shares are issued for increasing working capital, short of cash money,
and adjustment of capital reserve.

5. Source of issuing bonus share are
general reserve, credit balance of P/L
account and capital reserve etc.
1. Right share means one kind of share capital.

2. Shareholders must be paid against right share.

3. Right share increased total share capital.

4. Right shares are issued for new capital.

5. Source of issuing right shares are existing shareholders.

39
Q.10. What is share warrants? Distinguished between share warrant and share
certificate.

Ans.:
Share Warrant:
Share warrant is a document issued by a Public Limited Company in respect of fully
paid shares. A Public Limited Company limited by shares authorized by its articles for
issuance of share warrant under its common seal.

Following are the conditions for issue of a share warrant 

1. Only a Public Limited Company limited by share may issue share warrant.

2. A Public Limited Company must authorize by its articles for issuance of share
warrant.

3. The shares are fully paid up and stamped properly.

4. The total number of share is mention in the share warrant.

5. Annual report of the company includes a detail description about share warrant.

On the issue of share warrant, the company must enter the following particulars in the
register of member 

I. The date of issue of the warrant.

II. The fact of the issue of the warrant.

III. A statement of share included in the warrant distinguishing each by its number.

The following are the main points of distinction between the share certificate and share
warrant 
Share Certificate Share Warrant
1. A share certificate is issued in respect
of partly or fully paid shares.

2. The holder of share certificate is a
registered member of the company.

3. Both public and private companies are required to issue share certificates.

4. A share certificate can constitute the
share qualification of a director where
the articles impose qualification.

5. A share certificate is not a negotiable
instrument.

6. The holder of share certificate can go to the Court seeking remedy for any
management misdeeds or for alteration of the articles or even present a petition
for winding up of the company.
1. Share warrant can be issued only in
respect of fully paid shares.

2. The name of the bearer of the share warrant is not entered in the register of
members.

3. Only a public company can issue share
warrant.

4. But a share warrant does not constitute the share qualification of a director
where the articles impose qualification.

5. A share warrant is indeed a negotiable
instrument.

6. But the holder of share warrant cannot do so.

40
Q.11. What is the source of issuing bonus share?

Ans.:
Source of issuing bonus share as follows 

1. General reserve.

2. Credit balance of profit and loss account.

3. Capital reserve or profit related reserve.

4. Balance of refunded debenture.

5. Balance of refunded capital.

6. Companies undistributed profit.

7. Balance of share premium account.

8. Any other balance.

Q.12. What is stock? Distinguish between stock and share.

Ans.:
Stock:
Stock means the number of shares available in any share certificate. Stocks are recorded
in the register of share of certificates called Scrip Register. It is the items of trade in the
Stock Exchange. Stock must be fully paid because of its transferability.

Following are difference between the stock and share:
Share Stock
1. Shares are in units.

2. Shares are intangible.

3. Shares are recorded in the member
register.

4. Shares constitute capital of the company.

5. Shares may not be fully paid.

6. Ownership of share is complete only on
registration at company end.
1. Stock is in a lump holding.

2. Stock of shares is available in share
certificate.

3. Stocks are recorded in the register of share certificate called Scrip Register.

4. Stocks are items of trade in the Stock
Exchange.

5. Stock must be fully paid because of its transferability.

6. Ownership of stock is complete by
mere possession of the share
certificate.

41
Q.13. What is the various methods available to Public Limited Company to issue
share or debenture.

Ans.:
The following are the methods to issue share of a Public Limited Company 

1. Issue of share at par.

2. Issue of share at premium.

3. Issue of share at discount.

1. Issue of Share at Par:
When share is issued at its face value is called share issue at par. Let the value of share is
Tk.10, it would be issue at Tk.10.

2. Issue of Share at Premium:
According to Company Law, when the issued value of share exceeds its face value is
called share issue at a premium. Let the face value of share is Tk.10 and it is issued at
Tk.12, here the premium is Tk.2.

3. Issue of Share at Discount:
When the issued value of share is less than its face value is called share issue at discount.
Let the face value of share is Tk.10 and it is issued at Tk.8, here the discount is Tk.2.

Q.14. Can a company issued its share at a premium? For what purpose the amount
of received premium may be used? Or, How to used the share premium fund?

Ans.:
It is not always that shares of the company have to be issued at par value for subscription by the public. Depending on specific circumstances a company may, subject to certain
control and restrictions by the government, issue its share at a premium or at a discount.
There are specific provisions in the Act for this situation, which is discussed below: 

Share Issue at a Premium:
Share may be issued at a premium; that is a price more than their face value. The Act
provides that a company may issue shares at a premium but stipulates specific application
of the premium fund. This premium is to be transferred to a separate share premium
account and utilized for certain specific purposes, such as 

1. To issue bonus share.

2. To write off initial expenses.

3. To reduce share capital.

4. Redemption of any redeemable preference share or debenture.

5. Amortization of intangible assets.

42
Q.15. What is the circumstance in which a company may issue its share at discount?

Ans.:
There is specific statutory provision for issuance of shares at a discount. According to
Companies Act 1994, Section 153, a company is authorized to issue shares of the same
class at a discount under the following conditions 

Section 153 (1):
a. Such issuance of shares at a discount must be 
1. Sanctioned by the Court.
2. Authorized by the shareholders in general meeting.

b. The resolution of the shareholders must be specific, that is 
1. It must fix the rate of discount.
2. This rate cannot exceed 10% as the maximum.

c. The company cannot issue shares at a discount before expiry of at least one (1) year
from the date of its commencement of business.

d. The issuance of share at a discount must be made within six (6) months of the
sanction of the Court, or within such extended times as is allowed by the Court.

Section 153 (2):
Every prospectus for the issue of the shares and every balance sheet issued by the
company subsequently must contain detailed particulars of the discount allowed on the
issue of the shares.

Section 153 (3):
If accompany defaults in complying with Section 153 (2) the company and also every
officer of the company who is in default shall be liable to pay fine not exceeding Tk.500.

Q.16. What does you meant by “Allotment of Share”?

Ans.:
A Public Limited Company after incorporation issues prospectus for inviting public to
subscribe the capital of the company. Banks collect share application money and send
those to the company concerned. The applicants are allotted with shares on the basis for
their application. This is called allotment of shares. If subscription surpasses the extent of
offer, the matter is generally settled in the following ways:

a. Full allotment is made to the applicants of minimum acceptable units.

b. Allotment is made for the remainders on pro-rata basis.

c. Refund warrant is issued for the balance amount.

Or
a. Allotment is made by lottery or as prescribed by the Securities and Exchange
Commission.

b. Refund warrant is issued to the unsuccessful applicants.

43
Q.17. Discuss the Stock Exchange guidelines for issue of share.

Ans.:
The issuance of corporate shares are now controlled and governed by the Securities and
Exchange Commission (SEC) established by the government of Bangladesh. The
following are the first SEC guidelines for share issue and to be known as the “Public
Issue Rules”.

1. Public Offering:
A public company whose paid up capital amounts to Tk.5 million must obtain sanction
from SEC before raising its further capital. If capital of a local owned public company
exceeds Tk.5 million, it must offer at least 50% of its capital to public including foreign
investors. However, it is not compulsory for a Joint Stock Company or 100% foreign
owned public company to make public offering. If such a public company wishes to
make public offering it can do so.

In case of a local owned company, private placement or allotment may be made to the
foreign investors subject to following conditions: 

a. One third (⅓) of Initial Public Offering (IPO) or right shares which again shall not
exceed the total foreign exchange requirement for import of Plant and Machinery.

b. A lock-in period of one (1) year.

The limit has been set out to specify maximum quota for foreign investors at one-third
(⅓) of IPO and the minimum quota for local investors at two-third (⅔). Out of the quota
for local investors 15% has been reserved for ICB unit/mutual funds and 5% for
employees. The balance is available to investors of various categories.

2. Green Field Project:
A ‘Greenfield Company’ means a public company, which has not yet gone into
commercial operation but is in the process, has already initiated works like acquiring
land, completing construction, opening L/C, finalized shipment etc. This was intended to
dodge a bank debts based industrialization keeping the stock market in the sideline.

In order to facilitate industrialization by raising capital through stock market, a
Greenfield Public Company is allowed to raise equity and debts from the public to
accomplish its industrial projects. A Greenfield Public Company is required to comply
with certain conditions for the purpose of public offering including the following 

a. Sponsors should have attractive record of profitability, liquidity, and solvency.

b. Sponsors should not be bank or tax defaulters.

c. Sponsors must raise their portion of share capital before public offering.

d. The company must acquire land, complete construction of building, open letter of
credit and finalized shipment before public offer.

e. The company must make financial and physical plans for implementation of the
project.

44

3. Pricing of Securities:
Once a public company whether operating or Greenfield, decides to make public offering,
it needs to fix up the price of its securities. The company in conjunction with the issue
manager and underwriter fix up the price of its securities. It is require justifying the price
of its securities in order to enable the public to evaluate the price. The justification is
required to be given with reference to: 

a. Net assets value par share,

b. Earning based value per share, and

c. Market price per share.

4. Prospectus:
Prospectus is a document, which invites the public for subscription of shares and
securities of Public Limited Company. No Public Company can issue a prospectus in
Bangladesh without prior approval of SEC. The SEC approves a prospectus on a full and
fair disclosure basis and not on merit basis. To obtain SEC’s approval, a prospectus must
make full, fair and adequate disclosers about the following: 

a. Purpose of public offering.

b. Justification of share price.

c. Justification for share premium.

d. Financial forecast and basis and assumptions underlying such forecast.

e. Actual financial information for the last five (5) years.

f. Description of the project including capacity, products, country of origin of
machinery, technology and management.

g. Highlights, risk factors and managements perception about the risk factors.

In spelling out the guidelines, the SEC reserves the right to alter, modify, or change any
or all of the above parameters at any time.

Q.18. A person dies while possessing one-lac ordinary shares of company X. After
his death how will his heirs be owner of his share of company X?

Ans.:
The ownership of shares of a deceased member, in such a case, vests in his heirs or legal
representative. A succession certificate from the Court of competent authority is the
legal requirement in this case. However, an application with the necessary document such
as share certificate or letter of share allotment is to be submitted to the registrar for
registration.

45
Q.19. How a share is allocated? Or, Describe the common-law rules for allotment of
shares.

Ans.:
The general rules and procedures governing allotment of shares are as follows 

1. No allotment can be made before filing of the prospectus or a statement in lieu of
prospectus with the registrar of Joint Stock Companies.

2. Usually the board of directors distributes the shares. But the power of share
distribution can be transfer to a committee or some persons if the articles of
association allow this.

3. According to contract law application for share is consider as offer and allotment for
share is consider as acceptance of offer.

4. According to contract law the applicant can cancel the proposal fo r purchase of share
if the share is not distributes within the reasonable time.

5. It is clearly mention in the prospectus and application form that the share purchase by
fraud name is punishable with penalty.

6. If subscription exceeds the extent of offer, the share is distributed according to pro-
rata basis, or by lottery.

Q.20. What is the restrictions on allotment of share?

Ans.:
The following are the restrictions on the allotment of shares: 

1. Any company must submit prospectus or a statement in lieu of prospectus to the
registrar before share distribution.

2. A company cannot distribute share without collecting minimum subscription, which
is stated in the prospectus.

3. Minimum subscription, which is stated in the prospectus, is to be computed by cash
received rather than any received instead of cash.

4. All money received from the applicants must remain deposited in a schedule bank.
The money cannot be withdrawn before receipt of the certificate of commencement.

5. At least 5% of face value of share must be paid with the application.

6. If the minimum subscription is not collected within 180 day’s from the first issue of
prospectus or within the 40 day’s from the closer of subscription list as specified in
the prospectus, whichever is earlier, the collected money shall be repaid to the applicants without interest within the aforesaid period. Th e directors are individually
or jointly repay the money with 5% interest above bank rate after expiry of the
aforesaid period.

7. Company cannot distribute share until the expiration of the eight days after the time
of the opening subscription.

8. No application can be returned within eight days from the share-listed date.

46
Q.21. What is the effect of irregular allotment of share?

Ans.:
If the allotment of any share is not complied with Section 141 and 148, then such an
allotment is presumed to be an irregular allotment. The for such is as follows 

1. Voidable Allotment:
If the applicant fails to pay the minimum subscription (5%) along with the application, or
any subsequent amount as required by the prospectus, then on application of the
shareholder such an allotment may be cancelled and his name should be taken off from
the membership register of the company. The right to cancel the allotment lies only with
the allottee and the company cannot take any extra advantage out of it. Once a share is
allotted, the company cannot deny it.

2. Compensation for Irregular Allotment:
If any promoter, director or concerned person of the company issues/allots any share
without complying the provisions entailed in Section 141 or 148 with respect to
allotment, he shall be liable to compensate the company and the allottee for any loss,
damages or costs which the company or the allottee may have sustained or incurred
thereby.

Provided that proceedings to recover any such loss, damages, or costs shall not be
commenced after the expiration of two (2) years from the date of the allotment. [Section
146 (2)]

3. Misfeasance:
If a director of the company is found to have misused his authority or power, he may be
held liable in any Court of Law for misfeasance.

Q.22. Discuss the provisions of the Companies Act 1994 regarding filing of return
after allotment.

Ans.:
According to Companies Act 1994, Section 151, a company must file the following
documents, within sixty (60) days of the allotment being made: 

1. The company must submit a return describing the name, address, profession etc. to
the registrar.

2. If any share is issued on the basis of any consideration other than cash, that has to be
specifically mentioned. Total number of share distributed and duly stamped as per
Stamps Act 1899, must be submitted.

In case of default the concerned official of the company may be fined maximum
Tk.1000/- per day till the formalities are complied with properly.

47

Q.23. What is share call? Discuss the rules regarding share called.

Ans.:
All shares other than fully paid up share payable at a fixed time in respect of that share. A
company may demand to its shareholder to pay whole or part of the balance remaining
due and unpaid on each share made at any time during the continuanc e of the company is
called share call.

An amount not less than 5% is always with the application for share, and a further
amount is called on allotment. If any further amount is required then the company may
call its as it deems necessary.

Let the value of each share of a company is Tk.100 which is payable as follows 

I. With application Tk.10

II. With allotment Tk.40

III. With 1
st
call Tk.25

IV. With 2
nd
call Tk.15

V. With final call Tk.10.

Rules Regarding Share Calls:
Rule regarding share calls by the company is as follows 

1. The board of directors of the company decides whether to call on share or not. If it
decides to call then it must clearly specify the amount, time and place. The calls must
follow the provisions entailed in articles. No call shall exceed one fourth (¼) of the
nominal amount of the share or be payable at less than one (1) month from the last
call. Each member shall receive at least fourteen (14) days notice specify the time, or
times of payment.

2. If a sum called in respect of a share is not paid before or on the day appointed for
payment, the persons from whom the sum is due shall pay interest at the rate of 5%
per annum from the day appointed for payment to the time of actual payment.

3. The joint-holders of a share shall be jointly and individually liable to pay all calls in respect thereof.

4. The directors may make different arrangements to the holder on the issue of shares
for the amount of calls to be paid and in the time of payment.

48
Q.24. Discuss the liabilities and duties of the shareholders.

Ans.:
Liability of The Shareholder:
1. Liabilities of shareholders are limited by the face value of his share.

2. Shareholder is liable up to his guarantee in the respect of the company is limited by
guarantee.

3. Shareholder is liable to pay the amount unpaid on every share on calls.

4. Shareholder is liable for all liability of the company in the respect of unlimited
company.

5. If shareholder being owner by share transfer will be liable to pay the unpaid amount
in respect of that share.

6. Shareholder who loses their ownership within one year from the date of liquidation is
liable to pay the unpaid amount.

Duties of shareholders:
1. To received distributed share in due time after distribution.

2. To pay all payables in the respect of share.

3. To pay unpaid amount in due time when called.

4. To work according to resolution.

5. Shareholder should respect memorandum and articles as document and follow them.

Q.25. What is meant by the reduction of capital? What is the procedure of reduction
of capital?

Ans.:
Reduction of Capital:
The power to reduce capital must be given by the articles. If no such power is given, the
article may be changed by a special resolution. The capital may be reduced:

a. by reducing or extinguishing the liability of members on uncalled capital, or

b. by writing off lost capital, or

c. by paying off capital which is in excess of the wants of the company, or

d. in any other way provided by the Court.

Pursuant to be reduction of the share capital, necessary alterations must also be made in
the memorandum. Minutes of reduction and court order shall form part of memorandum,
printed afterwards.

Procedure of Reduction of Capital:
Reduction of capital is possible only by passing a special resolution and the Court must
be conferred it. The Court would inquire into the objection, if any, raised by the
creditors. In this respect the Court settles the list of creditors entitled to object and issues
public notice. On hearing the objections, the Court may confirm the reduction on such
terms and conditions as it may think fit.

49
Q.26. What does you meant by reserve capital and capital reserve?

Ans.:
Reserve Capital or Reserve Liability:
A limited company may by special resolution, determine that any portion of its share
capital which has not been already called up, shall not be capable of being called up
except in the event and for purpose of the company being wound up. So a limited
company may create a fund by uncalled share capital which is use to meet up the
expenses and liabilities of the company being wound up, is called reserve capital.

Capital reserve:
Capital reserve fund is created out of the profit of the company. These are two types 

1. Statutory capital reserve, and

2. Non-statutory capital reserve.

1. Statutory Capital Reserve:
Statutory capital reserve is specified to be used for certain purposes only which is
regulated by law, and such usage is also divided into two accounts 

a. Share Premium account, and

b. Capital redemption reserve account.

2. Non-statutory Capital Reserve
The usage of the non-statutory capital reserve is not regulated by legislation. The
company has the liberty to use the fund either to repaid its mach ines, replace an old
machine by a new one, or to use it deems mere appropriate. This fund may also be
created out of the rise of price of its fixed assets and payment of dividend.

Q.27. Distinguish between reserve capital and capital reserve?

Ans.:
Reserve Capital Capital Reserve
1. A part of authorized capital, which is
not called up.

2. It is reserve to maintain liability and expense at the time of winding up.

3. It is not being invested.

4. If necessary, it is to be called at the time of winding up.
1. A part of profit, which is not transferred to reserve to make capital reserve.

2. It is reserve to use in further capital fund
against fixed assets.

3. It is to be invested.

4. If necessary, it is to be used in particular purpose.

50
Q.28. Describe the procedure for redemption of preference share.

Ans.:
Redemption of Preference Share:
This is controlled by Section 154 of the Companies Act 1994, which is summarized as
follows:

a. Articles must authorize issue of redeemable preference share.

b. Redeemable preference shares are capable of redemption only when these are fully
paid up.

c. A redemption fund must be provided out of either:
I. Profits available for dividend, or
II. Proceeds of new issue of shares for the purpose, or
III. Sales proceeds of any property of the company.

d. When redemption fund is provided out of profits available for dividend, a sum equal
to the nominal amount redeemed must be transferred to capital Redemption Reserve
Fund.

e. Any premium on redemption must be provided for out of either:
I. Profits, or
II. Share Premium Account.

f. Capital Redemption Reserve fund can only be reduced in the same way as Share
Capital A/C.

g. The Capital Redemption Reserve Fund may however be used in issuing fully paid
bonus shares to members.

Balance Sheet Disclosure Requirement for Redemption:
The company must state:

a. The earliest and latest date of redemption.

b. Whether the shares must be redeemed in any event or are liable to be redeemed at the
option of the company.

c. The amount of premium, if any, payable on redemption.

Other Affairs for Redemption:
a. Where new shares, issued for the purpose of redemption caused authorized capital
exceeded temporarily, no stamp duty is payable provided old shares are redeemed.

b. Redemption of preference share is not a capital reduction. The nominal value of the
redeemed preference shares must be replaced by Capital Redemption Reserve Fund,
or new issue, or by combination of both.

c. Premium on redemption or on the new issue is no way affects the amount of capital to
be replaced by Capital Redemption Reserve Fund, or the new issue. It is only the
nominal value that is to be considered.

d. Preference share Redemption A/C collects the total amount due to the preference
shareholders on redemption and is closed by payments.

51
Q.29. Discuss the individual and collective rights of shareholders.

Ans.:
Individual Right or Personal Right:
1. Every shareholder must have right to transfer his share subject to restrictions imposed
by the articles.

2. Every member has the right to inspect the member register of the company.

3. Every shareholder has the right to present in the meeting of shareholders.

4. Every shareholder has the right to deliver his speech and to vote in the meeting.

5. Every shareholder can appoint his representative for vote.

6. Every member has the right to get a copy of memorandum and articles of association.

7. Member have the right to inspect the following documents of the company during
stipulated time:
I. List of directors, managers and managing agents

II. List of contracts

III. Minutes of the general meetings

IV. List of mortgages and charges on the company property.

V. List of debenture holders.

8. Every shareholder have the right to get a copy of register or any part thereof on
payment of Tk.5 for every hundred words or fractional part thereof.

9. Every shareholder have the right to get notice of the general meeting at least 14 days
prior to annual general meetings.

10. Every shareholder has the right to purchase new share.

11. Members have the right to get copies of annual balance sheet, profit and loss account
and auditor’s report.

12. If the AGM is not held in due time, any shareholder can apply to Court for calling
AGM.

Collective rights:
1. If articles provides then to alter the share capital, either to increase or to decrease.

2. Appointment of directors and auditors.

3. Right to terminate any director.

4. Appointment of managing agent.

5. Right to get dividend.

6. Right to classification and amalgamation of share.

7. Right to consider directors report, profit and loss account, balance sheet, statutory
report and to declared dividend.

8. Alteration of memorandum and articles subject to permission of the Court.

9. Right to call meeting in special circumstances.

10. Right to approve any ultra vires work of director.

11. If company was formed in pursuant to do any specific work or project and complete
that particular work or project, right to winding up the company.

52
Q.30. What is share forfeiture? What is the effect of forfeiture?

Ans.:
Forfeiture of Shares:
Every company by its articles or by regulations 24 to 29 of Schedule-I acquires the right
of forfeiting shares in case any shareholder fails to pay the call money within a certain
period. After giving 14 days notice of such failure, the company may, through a board
resolution forfeit that shares. The consequence of this measure is that the money paid by
the shareholder ceases to be a member of the company. The forfeiture may be annulled
and membership of the shareholder restored on payment of all moneys due on such shares
if the said shares are not issued to someone else.

Effect of Forfeiture:
The right of the shareholder as a member of the company ceases. If the company winds
up within one (1) year of such forfeiture, then his name could be put in list ‘B’ to meet
the liability (If any). If the company winds up after one (1) year, then no liability in
respect of forfeited share accurse.

Q.31. What is the different between the calls before and after winding up?

Ans.:
According to Companies Act 1994, Section 22, if uncalled share money is called before
winding up, it is called under the provisions of memorandum and articles of the company.

According to Companies Act 1994, Section 226 and 238, if uncalled share money is
called after winding up is called statutory called and done under the supervision of the
Court.

01.10.2005.

53
Borrowing Power of a Company

Q.1. Identify in detail the different methods/modes/forms of securities by which a
company can borrow money?

Ans.:
Following are different method through which a company can borrow money:

I. By issue of debenture;

II. By issue of debenture stock;

III. By issue of promissory note;

IV. By issue of bond;

V. By issue of bill of exchange;

VI. By mortgaging any specific property of the company;

VII. By creating floating charge on overall property of the company;

VIII. By deposit of title deeds;

IX. By overdraw from bank;

X. By depositing goodwill;

XI. By creating charge on uncalled capital;

XII. By way of guarantee;

XIII. By mortgaging or creating charge on patent;

XIV. By mortgaging copyright; and

XV. By way of mortgaging book debts of the company

It must be noted that a company cannot create any charge on its reserve capital.

Q.2. What is debenture? Discuss different kinds of debenture.

Ans.:
Debenture:
When the capital of the company is not sufficient to meet the needs of business of the
company, it can raise loan by the issue of what is known as debenture. So debenture
represents the loan of the company. In fact debenture is an instrument acknowledging a
debt by a company issued under its common seal and repayment of principal.

Debentures are issued usually in bonds by a company and are offered by means of
prospectus. The conditions in the prospectus regarding allotment of shares also apply to
debentures.

54
Debentures are classified into a few classes, which are as follows: 

1. On the Basis of Security:
There are two (2) types of debenture on the basis of security 
a. Ordinary or Naked Debenture
b. Mortgage Debenture

a. Ordinary or Naked Debenture:
The debentures, which are not secured by any mortgage or charge on the property of the
company, are known as ordinary or naked debenture.

b. Mortgage Debenture:
When debentures are secured by any mortgage or charge on the property of the company
are called secured or mortgage debenture. The registration for mortgage debenture is
mandatory according to Company Law. If mortgage debenture are not registered it
becomes payable immediately on the expiry of 21 days. During the winding up of the
company mortgage debenture holder get priority over ordinary debenture holder.

There are two (2) kind of mortgage debenture, such as 
I. Fixed Charge
II. Floating Charge

I. Fixed Charge:
When the company sale debenture by creating charge against any specific property of the
company is called mortgage debenture of fixed charge. Such mortgage property cannot
be used without permission of the debenture holder.

II. Floating Charge:
A floating charge is an equitable charge on some or all of the assets of the company
either present or future.

When a company creates floating charge on some of its property it cannot make further
charge on that particular property unless allowed by the previous charge.

2. On the Basis of Payment:
There are two (2) types of debenture on the basis of payment 
a. Redeemable Debenture
b. Irredeemable Debenture

a. Redeemable Debenture:
Redeemable debenture are those which is issued on the terms that the company is bound
to repay the amount of debenture either at fixed date or upon demand.

b. Irredeemable Debenture:
Usually debentures are redeemable after expiry of the specified period mentioned in the
deed. There are certain types of debentures, which are not redeemable until winding up of
the company. These have perpetual annuity. In this case the debenture holders cannot
demand payment as long as the company is a going concern and does not make default in
payment of interest. These types of debenture are also called perpetual debenture.

55
3. On the Basis of Registration:
There are two (2) types of debenture on the basis of registration: 
a. Registered Debenture
b. Bearer Debenture

a. Registered Debenture:
These specific types of debenture exists in Common Law. But in Bangladesh every
debenture, which creates a charge on company property must be registered. This
registration is not only in the company’s debenture register but also registered with the
registrar of Joint Stock Company.

b. Bearer Debenture:
Instead of written the name of a particular lender, the word bearer is inscribed on this
type of debentures and these are negotiable.

Q.3. What is the procedure relating to redemption of debenture?

Ans.:
Procedure relating to redemption of debenture is as below:

a. The redemption should be in conformity with the terms and conditions of issue of
debentures and of debenture Trust Deed.

b. If the debentures are to be redeemed by drawing lots, the debenture holders have to be
informed of the date, time and place of conducting the draw as provided in the
Debenture Trust Deed.

c. The Stock Exchange shall be informed of the amount of debentures to be redeemed
and the date, time, and place for drawing lots.

d. Lots will be drawn in the presence of debenture holders/debenture trustees and the
names and particulars of the debenture holders who have figured in the lot have to be
listed and the person drawing a lot shall be attested the list.

e. Accordingly, debenture holders concerned have to be intimated and they will also be
asked to submit the debenture certificates to the company.

f. The company has to make arrangements with its bankers and separate account will be
opened for the purpose.

g. After redeeming the debentures, necessary entries will be made in the register.

h. Debentures may be purchase from the open market for redemption, if it is provided in
the Trust Deed.

i. When the debentures are fully redeemed a release deed has to be executed between
the company and the debentures trustees, then particular of satisfaction of charge
have to be filed with the Registrar of Joint Stock Companies and firm within 21
days.

56
Q.4. What is the right of a debenture holder?

Ans.:
According to Companies Act 1994, Section 175 & 176 following are the rights of the
debenture holder 

1. The debenture holders have the right to inspect the debenture register. The company
may impose restriction on such, but cannot keep the book closed for more than 30
days in a year. A debenture holder has the right to have a copy of the register or any
portion on payment of stipulated fees. If any concerned officer of the company
refuses to provide him such certified copy, the defaulting officer may be finding
Tk.50/- and again Tk.20/- per defaulting day.

2. A debenture holder has the right to have a copy of the Trust Deed.

3. Every debenture holder has the right to have a copy of the final accounts of the
company 21 days prior to every AGM.

4. A debenture holder may inspect company accounts any time, as he wishes.

5. Every debenture holder has the right to sue the company if it fails to pay the specified
amount of interest in time.

Q.5. What is meant by ultra vires borrowing by a company? Describe the rights of
the lender after reviewing the circumstances.

Ans.:
When a company exceeds the power to borrow, or violates any of the basic restrictions
imposed on it i.e. borrowing for illegal purpose, it is illegal by itself. Any such act cannot
be ratified, and for such the company may be held liable. However, the lender has the
following rights after reviewing the circumstances:

1. If the money borrowed is used in repaying any debt of the company, and the money is
traced then the lender has the right of subrogation and stands as a creditor.

2. Provided, the lender can identify the use of his money, he is entitled to recover it to
the extent it is identified and such principle of law is called the Doctrine of
Restitution. And on petition a Court may issue injunction in his favor. If a specific
tracing is impossible, a lender may even obtain an equitable tracing order from the
Court.

3. The lender may recover damage from the directors for breach of warranty of
authority, if it was not possible to find it out from the public documents of the
company.

4. A guarantee by the directors that the company will repay the money, if found ultra
vires may bind the directors to compensate.

Furthermore if a company does not have provision to borrow money, then it may by
resolution adopt so in its memorandum and articles. If any company does not have such
provision, but it has adopted the provisions usually entailed in the articles, as all the
provisions in Schedule-I of the Companies Act shall be applicable to this company
unless any contrary remark is mentioned.

57
Q.6. Discuss about debenture trusts deed.

Ans.:
Debentures are usually secured by a Trust Deed. The debenture bonds are issued to the
holders of debentures, which often contain on the reverse page, the terms of the Trust
Deed. The main terms of trust deed are:

1. Guarantee for payment of principle and interest;

2. Provides a legal mortgage over specific property and floating over others;

3. A clause specifying the event on which the security is to become enforceable, e.g.
when the principle is to be repaid and when can be sued in default of payment of
accrued interest;

4. Provides power to trustees to take possession over company property and to recover
money when enforceable;

5. Provides power to trustees to deal with company property and business;

6. Covenants by the company to keep a register of debenture holders, to insure and to
keep in repair the property charged;

7. Provisions for meetings of the debenture holders;

8. Power to appoint receiver when enforceable;

9. Provision for serving notices to debenture holders by post.

A trust deed usually contains a clause providing that the rights of the debenture holders
against the company or any property charged by the deed may be modified or
compromised by an extraordinary resolution of debenture holders.

Q.7. What is the difference between Preference Share and Debenture.

Ans.:
Preference Share Debenture
1. Preference share is a part of capital of
the company.

2. The preference shareholders have the preferential right to get fixed
percentage of profits before payment of
dividend to the equity shareholders and
repayment of capital during the
winding up of the company.

3. At the time of winding up settlement for preference shareholders is made
after debenture holders.

4. A preference shareholder may get profit
only when there is sufficient profit.

5. Preference share of a subsidiary is added up with outsiders’ interest.
1. Debenture is a loan of the company.

2. The debenture holder entails fixed percentage of interest every year.

3. At the time of winding up settlement for debenture holders is made before
any shareholders.

4. Debenture holder gets agreed
percentage of interest even if there is
no profit.

5. Debentures are always shown as
liability.

58
Q.8. What is the rules regarding the issue of debenture?

Ans.:
Debentures are usually issued as per provisions of the articles and by decision of the
board of directors. A debenture certificate must be ready for delivery within 90 days after
the allotment subject to fulfilling the requirements. Debenture issued at a discount and its
percentage shall have to be submitted to the registrar within 21 days of its issue. A
company can issue debenture to a creditor who has advance money to the company either
as a loan, or credit. A debenture is issued at discount must be shown in the annual
balance sheet till it is written off. Debenture cannot be issued in exchange of shares,
although it can be issued against a loan, or credit. Issue of debenture against share on
reduction means issue of share at a discount, which requires permission of the Court;
otherwise certificate on debentures is illegal. A company may by its resolution validate
any debenture, which it has issued irregularly. But a company cannot issue debenture
with voting power. A redeemable debenture may be re-issued according to Companies
Act 1994, Section 178.

Q.9. Describe the rules regarding the Re-issue of Redeemed debentures.

Ans.:
According to Companies Act 1994, Section 178, redeemed debentures to be re-issued. If
there is any provision to the contrary in the articles, or in the conditions of the issue, or if
there is no resolution showing an intention to cancel the redeemed debentures, the
company shall have the power to keep the debenture alive for the purpose of re-issue. The
company may re-issue its redeemed debentures, either by re-issuing the same debentures
or by issuing other debentures in this place.

Q.10. What is register of debenture holders?

Ans.:
Every company should keep in one or more books a register of the holders of its
debentures and enter therein the following particulars:

a. The name, address and occupation of each debenture holder.

b. Debentures held by each holder, distinguishing each debenture by its number and the
amount paid on these debentures.

c. The date at which each person was entered in the register as a debenture holder, and

d. The date at which any person ceased to be a debenture holder.

Like the register of members, this register should have an index, be open to inspection
and may be closed in the same manner. [Section 176]

59
Q.11. What is register of mortgages?

Ans.:
Every company must keep at its registered office a register of mortgages in which all
mortgages and charges specifically affecting the property of the company and all floating
charges on the undertaking or on any property of the company must entered. The register
must contain a short description of the property charged; the amount of the charge, and
the names of the person entitled to the charge. [Section 174]

Every company to keep at its registered office a copy of every instrument creating any
charges which requires registration. The register and the document should be open for
inspection for those concerned. [Section 168]

Q.12. Discuss about the appointment of receiver?

Ans.:
The Court may appoint a receiver either under the debenture agreement or trust deed. A
receiver has the following powers:

1. To secure charged property and sue or defend suits in the company name;

2. May conduct business with charged property;

3. May sell the property with 7 days notice in newspapers; and

4. Either the debenture holders or the Court appoint them, they are entitled to receive
allowance.

01.10.2005.

60
Directors

Q.1. Who could be a director of an incorporated company?

Ans.:
A company is an artificial being, invisible, intangible and existing only in contemplation
of law. So it needs visible organs to make it work. Hence the directors are needed to run a
company business. Every Public Limited Company shall have at least three (3)
directors. But in the Private Limited Company minimum two (2) directors are required
to run the business. The Companies Act 1994 did not define a director. But it has
identified the directors in Section 2 (1) f as  “Director includes any person occupying
the position of director by whatever name called.” So it is very tough to define a
director, but it may be said that, directors are those persons who manages and controls the
affairs of the company by virtue of the authority given to them by the articles of the
company. The directors are appointed in general meeting of shareholders.

Q.2. Discuss the law relating to Director’s qualification, disqualification, removal,
and appointment from office. Whether the directors are eligible to take loan from
the company. Discuss with reference to section of law.

Ans.:
Qualification and Disqualification of the director:
Qualification of the Director:
The Company Act has imposed very few restrictions as to qualification of the directors.
It is open to the company to impose such conditions as are deemed necessary. The
articles of association have provided some qualifications for such. In fact a share
qualification means to hold certain number of share to become directors and such
conditions are stipulated in the articles of respective company.

Where a qualification is imposed, a director must acquire the qualification shares within
two (2) months of the registration of the articles or as it is stipulated in it. If a director
fails to acquire the qualification shares within the time so stipulated, he thereafter ceases
to hold it. It is presumed that his office has been vacated. No body shall continue the
office of director without holding a specified number of shares to be a director. The
person who become director by virtue of signing the memorandum and articles while
submitted for registration is not require to purchase qualification share.

The qualification shares need not be obtain from the company. The director may have
obtained it from another member by way of transfer or transmission. If a director holds
qualification share jointly with another shareholder is sufficient to qualify. Holding of a
share warrant does not qualify the person for directorship. If someone holds qualification
shares for someone else as a trustee, is good enough to be a director. But a liquidator
cannot claim to be a trustee, thus he cannot be a director.

61
Disqualification of the director:
There are virtually no statutory regulations, which speci fically states about the
disqualification of directors. This disqualification may be arise from several reasons i.e.
general misconduct, unfitness etc. The following persons are disqualified as a director 

1. If he fails to obtain within the time limit specified in Sub-section (1) of Section 97,
or at any time thereafter ceases to hold the share qualification if any necessary for this
appointment.

2. If he is found to be unsound mind by a Court of competent jurisdiction.

3. If he is adjudged insolvent.

4. If he fails to pay calls made on shares held by him within six (6) months from the
date of such calls being made.

5. If he or any firm of which he is a partner, or any private company of which he is a
director, or without the sanction of the company in general meeting accepts, or holds
any office of profit under the company other than that of a managing director, or
manager, or a legal, or technical adviser, or a banker.

6. If he absent himself from three (3) consecutive meetings of the directors without
leave of absence from the board of directors.

7. If he accepts a loan from the company.

8. If he participates in the profits of any contract with the company.

9. If he punished with imprisonment for a term exceeding six (6) months.

So the office of a director will stand vacated on happening of any event as provided
Section 108 and in the articles. If however, for any reason the first or the adjourned
meeting of the company does not proceed validly to fill up the places of the vacating
directors, they will continue in office. In such a case there is no vacancy to which a
successor can be elected.

There is one more limitation in accepting the office of directors. According to SEC no
member of any Stock Exchange can accept the appointment of director in any company,
which is listed in that Stock Exchange.

Removal of Directors:
A director may be removed from office of directorship by two ways. First, he may not be
voted to the seat on requirement at the general meeting. In this way, though eligible, the
director looses his candidature and is out of office of the Board. Second, a director may
be removed from the Board before expiry of his period from office by special resolution.
Section 106 paves the way for such a step. This will not, however, ordinarily apply to a
nominated director or one who is a director ex-officio. A company, whose directors are
appointed under its articles for a definite period, has no inherent power to remove them
before the expiration of the period without first altering the articles. Even a special or
extraordinary resolution of the company may not be effective. It is also to be remember
that directors are appointed by the shareholders and as such directors have no authority
whatsoever, to exclude any body from the board by themselves.

62
Appointment of Directors:
The methods of appointing a director of a company is largely governed by its articles of
association following the provisions on appointment of directors is described in the
Section 92 of the Act. The procedures for appointment of directors are as follows 

1. Appointment of First Directors:
Where the directors have not been named in the articles and subject to the provision for
appointment of directors therein, the subscribers of the memorandum of association shall
be deemed to be the first directors of the company until the directors are appointed in a
general meeting. [Section 91 (1) a]

Companies Act 1994, Section 92 imposed the following restrictions on appointment of
directors’ 
I. Consent in writing by persons to act, as directors must be filed with the registrar.

II. Contracts of directors to take qualification shares must be filed with the registrar, or
sign the memorandum of association by taking qualification shares.

III. A signed consent to act as director should accompany the proposal for directorship
to the company.

2. Appointment of Directors by Shareholders:
The shareholders appoint the directors in general meeting. [Section 91 (1) b] This
appointment process is described in the articles. At the first general meeting of the
company, the whole of the directors shall retire from office and at the general meeting in
every subsequent year One-third (⅓) of the directors shall retire from office, if their
number is not three (3) or multiple of three (3), then the number nearest One-third (⅓)
shall retire from the office. [Section 91 (2) and Schedule-I, Reg. 79]

3. Appointment of Directors by Board of Directors:
According to Companies Act 1994, Section 91 (1), the other directors may fill up any
casual vacancy occurring among the directors. The person so appointed shall be subject
to retirement at the same time as if he become a director on the day on which the director
in whose place, he is appointed was last elected a director. The appointment of director as
an addition to the Board, or in casual vacancy with consequential provisions must be
there in the articles of association of the company.

4. Appointment of Directors by Managing Agent:
Managing agent can appoint a director if so authorized by its articles of a company. The
directors appointed by the managing agent shall not exceed in number One-third (⅓) of
whole number of directors.

5. Appointment of Directors by Government:
Government can appoint the director in case of Statutory Company and Government
Company. Sometimes government appoints the directors to protect minority interest due
to application of minority shareholders. Directors appointed by Government do not need
to purchase any qualification share.

6. Appointment of Directors by Third Parties:
According to resolution of articles of association the third party such as debenture holder,
financing institution etc. can appoint the directors. If there is the provision in the articles
for appointment of directors by third parties, it cannot be altered. So the third parties have
the right to appoint their nominated person as director in the board of directors of the
company.

63

Loan to Directors:
Since directors are in charge of management of the company, a question may arise as to
whether directors can borrow money, or other pecuniary benefits from the company. In
the Companies Act 1994, Section 103 (1) prohibits any loan, or guarantee to any loan, to
any director of the company, or to a firm of which such director is a partner, or a private
company of which such director is member or director. Any contravention of this
provision is punishable under Sub-section (2) of this Section .

However, it is important to note that the prohibition of loan will not apply to a banking
company or to a non-subsidiary private company. Such exclusions point to the fact that
loans to directors of a bank are contemplated, as part of its business and to the directors
of private company are permissible because those are somewhat in the nature of “indoor
deals”.

The new Companies Act under the same Section has introduced certain relief for
directors of public company so far as borrowing from the company is concerned. Those
are that the restrictions will not apply if:

a. The loan concerned is sanctioned by a resolution of the Board,

b. Approved by the general meeting, and

c. Specifically mentioned in the balance sheet of the company.

At the same breath it is further provided that the loan will not exceed 50% of the paid-up
value of shares held by the director taking the loan.

Q.3. Can a director contract with the company of which he is a director?

Ans.:
A director can contract with the company if the Board voted such contract with
contracting director abstaining for being an interested director. The Board must know,
study, and sanction 

a. Any contract in which any director, their relatives, and firms are interested, and

b. Any arrangement in which any of the directors may have a like interest.

Section 105 restricts a director from entering into any contract with the company for the
sale, purchase, or supply of goods and materials except with the consent of the directors.
It is further provided in Section 130 that every director who is directly, or indirectly
interested in any contract, or agreement with the company, must disclose the nature of his
interest at the first meeting of directors after acquisition his interest. He will not vote in
that meeting being an interested director.

64
Q.4. Discuss about the remuneration of directors?

Ans.:
Directors are not the employees of the company. So they are not entitled to any
remuneration as a matter of right unless the articles provide it and fix the amount. Where
the articles are silent, a general meeting may vote the directors remuneration, which is in
the nature of gratuity. Schedule-I, Regulation 70 provides that the company shall be
determined the remuneration of directors in the general meeting from time to time. If a
company stipulates such a provision in its articles and the directors remuneration is fixed
on the basis of it, the company has the right to (a) reduce or increase the remuneration,
and (b) discriminate between directors the remuneration so payable. But if the
remuneration is provided in the articles, it cannot be changed without passing a special
resolution.

Q.5. Discuss the duties and liabilities of director of a Public Limited Company with
the reference to section of law.

Ans.:
Duties of Directors:
The control and management of the company is vested entirely on the directors. It is
however important to draw line of limits of management activities by the directors and by
the management staffs. The manner in which the works of a company is distribute among
the Board of Directors, and the managers, and managing staff, is a business matter to be
decided on business lines.

In ascertaining the scope of duties of directors, it is necessary to consider:
a. The nature of business of the company, and

b. The working manners of business.

Directors are not infallible, but here, the attitudes of directors should be supportive in the
situation and consistent with the articles of association of the company. The directors, in
discharging their duties towards the company, should be attentive to the following:

1. Act honestly and bonafide.

2. Exercise a reasonable degree of skill and diligence.

3. Be cautious and careful about the company’s interest.

4. Though their continuous attention is not expected, but they need to be mindful at least
in Board Meetings, and

5. Act within the scope of the articles.

The directors should take specific care about the following important aspects of their
duties towards the company.

a. Not to make any secret profit.

b. Avoid direct or indirect personal involvement in any transaction of the company.

c. Not to conflict company’s interests with that of his own.

d. Not to enter into contract unless the articles so authorized them.

Although, the directors must of necessity trust the officials of the company to discharge
properly and honestly the responsibilities allocated to them, but they cannot expect to
shirk by leaving everything to others. They monitor the overall activities of the company.

65
Statutory and Management Liabilities of Directors:
As provided in regulations 75 and 76, the directors are liable to comply with the
provisions of the Act, particularly:

a. Registration of the particulars of mortgages and charges.

b. Maintaining register of directors and filing copi es to the registrar.

c. Sending annual list of members and summary of share capital to the registrar.

d. Notifying registrar about changes in capital structure.

e. Sending copies of special resolutions to the registrar.

f. Maintaining minute books of directors and shareholders.

g. Maintaining directors attendance book.

However, since the overall management of the company lies with the directors, they may
shift the above liabilities on the shoulders of company secretary and only monitor
whether the responsibilities are properly discharged. But as the shareholder leave all the
business of the company in the hands of the directors, it is highly incumbent on them that
they act with utmost care and attention for the affairs of the company.

Directors hold in trust the funds provided by the shareholders and are liable for
mismanagement and misapplication of the company funds. However, a director is not
responsible for the fraud or misconduct of his co-directors or the employee of the
company. Directors are not responsible for declaring a dividend but they will be liable if
the dividend is paid out of the capital of the company.

Q.6. Mention the corrective steps necessary for the following lapses by company:
a. Failure in filling the return of allotment.
b. Non-payment of dividend declared in the AGM.
c. Non-filing of consent to act by a director; and
d. Non-acquiring of qualification share by a director in time.

Ans.:
a. Failure in filing the return of allotment:
The company must file with the registrar a return of allotment within sixty (60) days
after allotment according to Companies Act 1994, Section 151. If a company defaults in
complying with the requirements of this section, every officer of the company who is
knowingly a party to the default shall be liable to a fine not exceeding Tk.100 for every
day during which the default continues.

Provided that, in case of default in filing with the registrar within the time, any document
required to be filed by this section, the company or any person liable for the default may
apply to the Court for relief and the Court if satisfied that the commission to file the
document was accidental, or due to inadvertence, or that other ground s it is just and
equitable to grant relief, may make an order extending the time for the filing of the
document for such a period as the Court may think proper.

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b. Non-Payment of Dividend Declared in The AGM:
Dividend is the share of profit payable to the shareholders. Once it is declared it becomes
debt, which must be paid and disbursed within two (2) months from the date of
declaration. The company is obligated to send dividend to the registered addresses of the
shareholders. Once the dividend is paid out, the liability on the company’s part is
discharged. If a shareholder fails to collect the money from the company account, for
whatever reasons, it is a lapse on his part. A dividend unclaimed at the hands of a
shareholder is an arrear dividend. The companies usually keep the unclaimed and unpaid
dividends in a separate account and such account is shown as a current liability in the
annual balance sheet of the company.

c. Non-filing of Consent to Act by a Director:
Every person proposed as a candidate for the office of a director shall sign, and file with
the company, his consent in writing to act as a director. If appointed 

A person shall not act as a director of the company unless he has within thirty (30) days
of his appointment, sign and filed with the registrar his consent in writing to act as a
director.

d. Non-acquiring of Qualification Share by Directors in Time:
A contract of directors to take qualification shares must be filed with the registrar, or sign
the memorandum of association by taking qualification shares. If he is not already
qualified, he shall obtain his qualification within sixty (60) days after his appointment or
such shorter time, which articles may prescribe. [Section 97 (1)]

Any unqualified person act’s as director of the company be shall be liable to fine not
exceeding Tk.200 for every day between the expiration of the said period and last day on
which it is provided that he acted as a director. [Section 97 (2)]

Q.7. Discuss about the retirement/rotation of directors?

Ans.:
The directors of a Public Limited Company are liable to retirement and seek re-election
at the general meetings. At the first general meeting all the directors will retire. Not less
than one-third (⅓) of the total number of directors of a Public Limited Company will
retire at every successive general meeting. [Section 91 (2)]

The directors to retire at every general meeting should be those most senior in office.
However, the managing director will be excluded from the count of one-third (⅓) to
retire. [Regulation 73]

The directors to retire will be eligible for re-election. As to rotation of directors,
Regulations 79 through 82 of schedule-I of the Act will have effect. Any person must
be retire from directorship if he becomes insolvent, or unsound mind, or not obtained the
qualification share within the time limits.

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Q.8. “Directors of companies are not trustees”  Explain the statement.

Ans.:
Directors as trustees:
Directors can be considered as trustee of the company. The shareholders appoint the
directors with the powers and duties to manage the business of the company. The
conducts of the directors are supposed to be governed by the articles of association of the
company.

First of all directors are trustees as regards the property of the company which come into
their hands or under their controls. Although directors are not properly speaking trustees,
yet they have always been considered and treated as trustees of money, which comes to
their hands.

Second, directors are trustees in case of use the power of the company. They work for the
company interest and not for their personal interest.

Third, there is a fiduciary relationship between the company and the directors. So they
are the trustees of the company. A director must not make a secret profit out of his office.
Directors are bound to disclose such profit and returned to the company.

Directors Are Not Trustees:
Directors are not properly speaking trustees due to following limitations 

1. A trustee is a person who is not owner of the property, but as a shareholder directors
are the owner of the company.

2. When any contract made by the directors on behalf of the company is in the name of
the company. But a trustee made any contract in his own name.

3. The control and management of the company is vested entirely on the directors. They
have the interest on it. But the trustees have not any interest for the control of the
property of the company.

Since, the position of a director is not exactly that of a trustee but they hold the position,
which coincides with that of a trustee. So his position will be said as “quasi trustee” to the
company and its property and money.

Q.9. Who is the first director of the company? State the minimum and maximum
number of directors that a company must have? What is the procedure for the
election of the directors? What is the prescribed term of their office?

Ans.:
First Directors of the Company:
Where the directors have not been named in the articles and subject to the provision for
appointment of directors therein, the subscribers of the memorandum of association shall
be deemed to be the first directors of the company until the directors are appointed in a
general meeting. [Section 91 (1) a]

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Number of Directors of the Company:
Every Public Limited Company, and a Private Limited Company which is subsidiary
of a Public Limited Company, shall have at least three (3) directors. [Section 90 (1)]

Every Private Limited Company other than a Private Limited Company, which is the
subsidiary of a Public Limited Company, shall have at least two (2) directors. [Section
90(2)]

The minimum numbers of directors are mention in the above section. Articles of
association of a company determined the maximum numbers of directors. A company can
increase or decrease the number of directors according to its requirements within the
limits mentions in the articles of association. An additional director may be appointed if
necessary.

According to Companies Act 1994, Section 125, the directors appointed by the
managing agent shall not exceed in number one-third (⅓) of the whole number of
directors.

Procedure for the Election of the Directors:
The members elect the directors of a company in general meeting. The subscribers of the
memorandum shall be deemed to be the directors of the company until the first directors
are appointed.

All directors appointed under the articles of association in the course of registration of the
company, must retire at the first general meeting and seek re-election. The shareholders
of the company re-elect the directors. In the subsequent general meeting at least one
third (⅓) of directors are retired and seek re-election.

Prescribed Term of Their Office: (Section  77):
1. The day on which a company shall begins to carry on business, or from the twenty-
eight (28) days after the date of its incorporat ion whichever is earlier, have a
registered office to which all communications and notices may be addressed.

2. Notice of the situation of the registered office, or any change therein shall be given
within twenty-eight (28) days after the date of incorporation, or change, as the case
may be to the registrar, who shall record the same.

3. The inclusion in the annual return of a company of the statement as to the address of
its registered office shall not be taken to satisfy the obligation imposed by this section.

4. If a company carries on business without complying with the requirements of this
section, it shall be liable to a fine not exceeding Tk.200 for every day during which it
so carries on business.

69
Q.10. Discuss in brief about the legal position of a director in a company, registered
in Bangladesh.

Ans.:
The exact position of directors is not defined in the Act. They may be registered as agents
for certain purposes and trustees for other purposes. Yet they are not in full sense any of
those things. There position is peculiar because of the great extent of their powers and
absence of control. It does not matter about their true position but they are really a
commercial person who manages a trading concern for the benefit of themselves and all
other shareholders. So the position of a director is neither confined within limitation nor
it is too wide to do so as they wish. Lets discuss their position under different situations
and different status:

1. Directors as Employees:
Directors are not the employees of the company and as such, not entitled to any
remuneration as a matter of right unless the articles provide for it and fix the amount.

Where the articles are silent, a general meeting may vote the directors remuneration.
Once a director accept the office of remuneration, he takes the status of an employee of
the company to the extent of this new position with his status in directorship remaining
unchanged.

2. Directors as Agents:
A company is an artificial being, invisible, intangible and existing only in contemplation
of law. So it needs visible organs to make it work. Hence the directors are needed to run a
company business. So in the legal point of view they are the appointed agents of the
company.

Limitation of Directors as an agent:
I. The directors are the agent of a company. Any contracts entered into by directors on
behalf of the company will not bind him personally. But he does not act beyond his
capacity and authority mentioned in the memorandum and articles. If he enters into
contracts in his own name without disclosing that he is acting on behalf of the
company, he is personally liable for this.

II. Directors are personally liable for any contracts on behalf of the company without
addition of the word ‘limited’ at the end of its name.

So in the legal point of view directors are agent for the company. But they are not only
agent of the company for several reasons, such as 

a. An agent must work under a chief and carry on his order. But the Company Law
and the articles of association give them more independent. Always they are not
bound to carry on the order of shareholders.

b. Directors are not to be considered as agent for any contract before incorporation.
Though all contracts are conducted by directors before incorporation but during
then the legal entity of the company is not exists. As a result the law of agent is
not applied to determine the liability of this contract.

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3. Directors as trustees:
Directors can be considered as trustee of the company. The shareholders appoint the
directors with the powers and duties to manage the business of the company. The
conducts of the directors are supposed to be governed by the articles of association of the
company.

First of all directors are trustees as regards the property of the company which come into
their hands or under their controls. Although directors are not properly speaking trustees,
yet they have always been considered and treated as trustees of money, which comes to
their hands.

Second, directors are trustees in case of use the power of the company. They work for the
company interest and not for their personal interest.

Third, there is a fiduciary relationship between the company and the directors. So they
are the trustees of the company. A director must not make a secret profit out of his office.
Directors are bound to disclose such profit and returned to the company.

Directors Are Not Trustees:
Directors are not properly speaking trustees due to following limitations 

1. A trustee is a person who is not owner of the property, but as a shareholder directors
are the owner of the company.

2. When any contract made by the directors on behalf of the company is in the name of
the company. But a trustee made any contract in his own name.

3. The control and management of the company is vested entirely on the directors. They
have the interest on it. But the trustees have not any interest for the control of the
property of the company.

Since, the position of a director is not exactly that of a trustee but they hold the position,
which coincides with that of a trustee. So his position will be said as “quasi trustee” to the
company and its property and money.

Real Position of Directors:
The legal position of directors is that they are both agents and trustees of the company. In
fact, they called whatever in a name, they are the really the businessmen and operate the
business for themselves and for the shareholders.

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Q.11. Discuss about the disabilities of directors?

Ans.:
There are some restrictions on power of director to maintain company interest and
shareholders interest. These are 

1. Ineligibility of Bankrupt to Act as Director:
According to Companies Act 1994, Section 99 (1), any person being an undercharged
insolvent shall not be eligible to act as director. If such person acts as director of any
company shall be liable to imprisonment for a term not exceeding two (2) years, or to a
fine not exceeding Tk.5000, or both.

2. Prohibition on Assignment of Office by Director:
According to Companies Act 1994, Section 100, any assignment of his office made after
the commencement of this Act by any director shall void and shall be of no effect.

But the Board of Director of a company can appoint an alternative director in the
absence of original director for a continuous period of not less than three (3) months
from Bangladesh. Provided that appointment shall be authorized by its articles, or by a
resolution passed by the company in general meeting. Such alternate director shall vacate
the office immediately after he receives information that the original director has returned
to Bangladesh. [Section 101]

3. Avoidance of Provisions Relieving Liability of Directors:
According to Companies Act 1994, Section 102, any provision whether contained in the
articles of a company, or in any contract with a company, or otherwise, for exempting
any director, manager, officer, or auditor of the company in respect of any negligence,
default, breach of duty, or breach of trust of which he may be guilty in relation to the
company, shall be void.

Provided that a company may indemnify any of such director, manager, officer, or
auditor against any liability incurred by him in defending any proceedings, whether civil,
or criminal in which judgment is given in his favor, or in which the Court acquits him.

4. Loan Received by Director:
Section 103 (1) of Company Law prohibits any loan, or guarantee to any loan to any
director of the company, or to a firm of which such director is a partner, or to a private
company of which such director is a member, or director. Any contravention of this
provision is punishable under Sub -section (2) of this Section, with the fine, which extend
to Tk.5000, or simple imprisonment for six (6) months in lieu of fine. However, it is
important to note that the prohibition of loan will not apply to a banking company, or to a
non-subsidiary private company.

5. Director Not to Hold Office of Profit:
According to Companies Act 1994, Section 104, Any director, or firm of which such director is a partner, or to a private company of which such director is member, or
director, or manager, or legal, or technical advisor, or banker shall not hold any office of
profit in the company without the consent of the company in general meeting.

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6. Interest by Director in Respect of Contract:
According to Companies Act 1994, Section 105, any director, or firm of which such
director is a partner, or to a private company of which such director is a member, or
director, shall not enter into any contract for the sale, purchase, or supply of goods and
materials with the company.

Every director who is directly, or indirectly interested in any contract, or agreement with
the company must disclose the nature of his interest at the first meeting of directors after
acquisition. He will not vote in that meeting being an interested director. [Section 130
(1)]

7. Registration on Power of Directors:
Section 107 of Company Law restricts the power of the directors of a Public Limited
Company to the extent that they cannot sell, or dispose of the undertaking, or remit any
debts by a director without the expressed consent of the shareholders in a general
meeting.

Directors cannot make any regulation to increase their remuneration without the consent
of the company.

01.10.2005.

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Winding Up

Q.1. What is winding up? Why company wind up?

Ans.:
Winding Up:
Winding up means the ending of a company’s existence. It brings an end to the life of the
company’s artificial personalities and legal existence. In fact winding up or liquidation is
the process by which the assets of the company are collected and realized, the liabilities
discharged, and net surplus if any, distributed in accordance with the company’s articles
of association. So winding up is the process through which ultimate end or dissolution of
the company is performed.

Reasons For Winding Up:
A company may go for winding up for various reasons. Following are the important
reasons among many others:

1. When the company fails to pay its debts;

2. When the company carries with illegal or ultra vires acts;

3. When the company has completed an act for which specific purpose it was established;

4. When it meets with any situation for which it becomes bound dissolute.

Q.2. What is the reasons identified by the Courts for the grant of a petition for
winding up of a company

Ans.:
The reasons identified by the Courts for the grant of a petition for a winding up on just
and equitable grounds have been as follows:

1. Formation of the company for a fraudulent or illegal purpose.

2. Oppression of the minority shareholders by a majority. The acts of oppression must
be of a serious character and not isolated acts of misconduct.

3. Grounds, which would justify dissolution of partnership. This arises where one
director is excluded from participation in management, where serious loss of
confidence in each other has occurred amongst shareholder directors, where deadlock has arisen in the management of the company, or if directors made persistent breaches
in the articles.

4. Exhaustion or impossibility of the purpose for which the company was formed. If a company is formed for specific purposes, which are either no longer capable of
attainment, or which have been achieved, the Court will grant a petition for just and
equitable winding up.

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Q.3. What is the different methods by which a company can be wind up?

Ans.:
According to Companies Act 1994, Section 234, the winding up of a company may be:
a. Compulsory Winding Up, or Winding Up by Court;
b. Voluntary Winding Up;
c. Winding Up subject to the supervision by the Court.

a. Compulsory Winding Up:
When a company is wound up by order of a Court is called a compulsory winding up.
According to Companies Act 1994, Section 241, a company may wound up by the
Court under the following ground:

1. If the company has by special resolution resolved that the company be wound up by
the Court;

2. If default is made in holding the statutory meeting, or in filing the statutory report.

3. If the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

4. If the number of members is reduced, in the case of a private company below two, or
in the case of public company below seven;

5. If the company is unable to pay its debts;

6. If according to the Court opinion it is just and equitable that the company should
wound up.

b. Voluntary Winding Up:
When the members of a company voluntarily wind up the company is called voluntary
winding up. According to Companies Act 1994, Section 286, describes the
circumstances in which a company may wind up voluntary is as follows:

1. If the company in general meeting has passed the ordinary resolution for voluntary
winding up for the following reason 
I. If period is fixed and is expired
II. If any event occurs, on the happing of which the article provides that the
company is to be dissolve.

2. If the company resolves by special resolution that the company be wound up
voluntarily.

3. If the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business, and that is advisable to wind up.

c. Winding Up subject to the supervision by the Court:
When a company has by special or extraordinary resolution resolved to wind up voluntarily, the Court may make an order that the voluntary winding up shall continue,
but subject to 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. [Section 316]

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Q.4. What is the meaning of contributory? What is the liability of the
contributories?

Ans.:
The term “contributory” means every person liable to c ontribute to the assets of a
company in the event of its being wound up, and in all proceedings for determining and
in all proceedings prior to the final determination of the persons who are to be deemed
contributories, includes any person alleged to be a contributory. [Section 237]

The Liability of the Contributories:
The liquidator determined the liability of the contributory during the process of winding
up. [Section 238] The legal heirs of a dece ased member or his representatives are deemed
to step into his shoes in this regard, even in default of payment his property may be made
liable to contribute. [Section 239] In case of an insolvent member his assignee is to
represent him for all the purposes of the winding up. He shall be allow to be paid any
money due from the insolvent in respect of his liability to contribute to the assets of the
company. [Section 240]

Section 235 of Company Law is identified the liability of members as contributories. It
has said that all the existing members are liable to pay the debts, liability, charges and
expenses for the winding up and also determine the adjustment of rights amongst
themselves. A past member is not in any way can be brought to bear the liability, if he
closed to be a member for more than a year. The past members who have ceases to be a
member within one year can only be put to liability if existing contributories fails to meet
the satisfaction of the liquidator. Where the company is limited by share, the liability of
the members is limited only up to the share value remained unpaid. In case of a company
limited by guarantee, the members are liable only up to the amount of guarantee they
have provided. Any sum due to any members by way of dividend, profit, or otherwise
shall not be competitive with any outside creditor who stands in priority against a
members.

Q.5. What is the four conditions that the Court must be satisfied before agree to
pass a winding up order?

Ans.:
The grounds for winding up on just and equitable ground could be many depending on
the circumstances. It is presumed that there is four conditions, which must be satisfied
before the Court agree to pass a winding up order:

1. The petitioner has a tangible interest in the winding up.

2. Loss sustained by the petitioner as a consequence of the oppressive conduct in his
capacity as a shareholder.

3. The petitioner is not acting unreasonably in seeking the winding up where alternative
remedy is available.

4. No evidence of misconduct on the part of the petitioner.

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Q.6. Discuss the power of the Court in respect of winding up.

Ans.:
An application to the Court for winding up of a company shall have to be made either by
the company itself, a contributory, creditor, or by the registrar. [Section 245] A
contributory can only make a petition if he held the shares for more than six (6) months,
or the number of members in the company fell below statutory minimum number.
[Section 222] A registrar cannot present petition for winding up of a company unless he
obtains permission from the government. A Court shall never wind up of a company
until it has provided a fair chance of hearing to all concerns.

The High Court Division of the Supreme Court of Bangladesh has the original
jurisdiction or can be said the Court of first instance in case of company matters. The
original Court may transfer the petition after hearing to any District Court for
prosecution of the winding up process. The Court may after hearing the petition, order
for holding of the statutory meeting, when the petition is based on such ground, it may
pass any other order as it deems necessary and convenient. The moment a Court accept
the petition, it is presumed that, the official liquidator is also appointed forthwith.
[Section 249] The moment a winding up order is passed, all the proceedings against the
company be stayed and transferred to the petition hearing Court, and no further suit is
brought against the company except without the leave of the Court. [Section 251] A
Court may also stay a winding up process during its prosecution upon a petition either by
any creditor or contributor. [Section 253]

Q.7. In a winding up what are the preferential payments to be made?  Please
discuss.

Ans.:
According to Companies Act 1994, Section 325, a company has to pay the creditors in
preferential order, which are as follows:

1. All revenue, taxes, cesses and rates, whether payable to the government or to a local
authority.

2. All wages or salary of any clerk and other servant up to Tk.1000 each.

3. All wages of any labor or workmen up to Tk.500 each.

4. Compensation of any officer or employee of the company in respect of the death or
disablement which payable under the Workmen’s Compensation Act, 1923.

5. All sums due to any employee from a provident fund, a pension fund, and a gratuity
fund, or any other fund for the welfare of the employee maintained by the company.

6. The expenses of any investigation held in pursuance of clause (c) of Section 195 of
this Act.

According to Companies Act 1994, Section 313, the right of secured creditors, if any, is
payable out of the assets of the company in priority to all other claims.

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Q.8. What is official liquidator? What is the power of official liquidator?

Ans.:
Official Liquidator:
An official liquidator is a senior government official who is appointed by the Court and
undertakes all the responsibilities to process the winding up till it is dissolute.

Powers of an Official Liquidator:
According to Companies Act 1994, Section 262, the power of an official liquidator is
two fold. One is as directed or empowered by the Court, and the other is by virtue of the
position he holds as the official liquidator. This power of an official liquidator is as
follow:

1. Power With the Approval of the Court:
An official liquidator subject to approval of the Court may be exercising the following
powers.

a. He may sue on behalf of the company.

b. He may continue with the business of the company.

c. He may honor any contract of the company entered prior to the winding up order.

d. He may sell the properties of the company.

e. He may make agreement on behalf the company.

f. He may take loan on behalf of the company.

g. He may charge the property of insolvent contributor to his assignee.

2. Power Without the Approval of the Court:
An official liquidator may exercise the following powers without the approval of the
Court:

a. He may inspect any document or acquire them without any payment.

b. He may assign any person as his representative as required for winding up process.

c. He may sign any of the company’s documents.

d. He receipts any of the company’s documents.

Q.9. What is the duties of an official liquidator?

Ans.:
Following are the duties of an official liquidator, when it is wound up by the Court:

1. He shall cause to keep all the minutes of general and other meetings and accounts in
proper order.

2. He may call meetings with the creditors and the contributors.

3. He shall prepare the list of creditors along with their credit.

4. After satisfying the demands of creditors he will distribute the net surplus assets
amongst the members proportionately.

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Q.10. Discuss about the types of voluntary winding up process.

Ans.:
There are two types of voluntary winding up, one is by the members and the other is by
the creditors.

Member’s Voluntary Winding Up:
Where the majority of directors declare by swearing an affidavit that, the company is
solvent enough to bear the liabilities of the creditors, it is called the members voluntary
winding up.

Procedures for member’s voluntary winding up:
1. It must call an extraordinary general meeting to pass the resolution complying with
all the necessary provisions of notice, agenda etc.

2. It must pass the extraordinary or special resolution, which has adopted to wind up the
company. Such news in the form of a notice must be published in the official gazette,
and also in daily newspaper within ten (10) days of such decision.

3. The majority of directors must declare by swearing an affidavit with the support of
auditors’ report that they have thoroughly assessed the affairs and property of the
company and the company is solvent enough to meet its debts and that shall not take
more than three (3) years to be paid to the creditors.

4. After passing the resolution, the company shall convene a general meeting and
appoint a liquidator, fix his remuneration and vest all the rights of the company with
him. The power of the directors ceases to exist except so far as the company in general meeting, or liquidator sanctions the continuance thereof.

5. If the winding up process takes more than a year then the liquidator shall cause to
call annual general meeting of the company and submit the report of his progress in
winding up process, account etc. and shall follow every subsequent year till
dissolution of the company. In case of default the liquidator is liable to fine up to
Tk.5000/-.

6. When the liquidator has completed his duties and the company is in the final process
to be wound up, the liquidator shall call a meeting of the company, which shall be
called the final meeting for dissolution. An advertisement in gazette and newspaper notifying the time, place, and object, or agenda of the meeting must be published at
least one (1) month prior to the holding of the meeting. The liquidator there after
holding of the meeting within a week and the registrar will register such immediately
and on expiration of three (3) months he shall declared the company dissolved.

Creditors Voluntary Winding Up:
When the directors does not make any declaration stating that they have assessed the
assets of the company that the company is capable enough to pay its debts, it is called
creditors voluntary winding up. According to Companies Act 1994, Section 242, when a
company is unable to pay its debts exceeding Tk.5000 and the creditor serves a notice to
the company by a registered post and the company fails to pay the debts even after three
(3) weeks, the creditor acquires the right to move the Court to wind up the company.

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Procedures for Creditors Voluntary Winding Up:
1. Without making any declaration by the director about the financial position, decision
of the winding up has to be taken in any general or special meeting.

2. The day or following the day on which the general or special meeting is held the
creditor convene a meeting and send notice to the company.

3. The director of the company must present a full statement of the position of the
company’s affairs together with the list of creditors.

4. The creditor and the contributor may appoint their respective liquidator.

5. The creditor and contributor each may nominate five (5) members to form an
inspection team to inspect the process of winding up.

Q.11. What is the difference between the member’s voluntary winding up and
creditor’s voluntary winding up.

Ans.:
Member’s Voluntary Winding Up Creditor’s Voluntary Winding Up
1. Declaration of solvency is required.

2. Initiated by special resolution.

3. No meeting of creditors is held or is necessary.

4. It is not required any committee of inspection.

5. Members of the company control such winding up.
1. Declaration of solvency is not required.

2. Initiated by special resolution or extraordinary resolution.

3. Meeting of creditors is required whenever meeting of contributors is
held.

4. The creditors appoint the committee of
inspection.

5. Creditors of the company control such winding up.

Q.12. Who may apply for winding up of a company?

Ans.:
According to Companies Act 1994, Section 245, the following persons may submit
petition for winding up of the company under certain conditions:

1. The company itself;

2. All the contributories either alone, or severally;

3. Creditors, present or future either alone or together; and

4. Members or creditors, or together; and

5. Registrar of Joint Stock Companies.

80
Cost Audit

Q.1. What is cost audit? Who can conduct cost audit?

Ans.:
Cost Audit:
Cost audit means an audit of cost accounting records, maintained under Section 181 (1) d
such as particulars relating to utilization of materials, labor, and other items of overhead
cost and such other cost statements, books, and papers that would be required for
conducting the cost audit, of company by a cost auditor and such audit shall be in
addition to audit of accounts under Section 210 of the Companies Act 1994.

Cost audit must be conducted by “Cost and Management Accountant”, which means a
person who is an associate or a fellow of the ICMAB and any Cost Audit firm. Provided
that a cost and management accountant cannot be appointed as a cost auditor unless he
deserves a certificate of practice issued by the ICMAB. Board of directors of the
company can appoint cost auditor and cost auditor will submit cost audit report to the
board. This cost audit report shall not ordinarily be open for inspection by the
shareholders or shall not be submitted to the annual general meeting of the company.

Q.2. Which companies may come within the purview of cost audit as per the said
Act?

Ans.:
Section 220 of Companies Act 1994, speaks about the cost audit for which records
maintained under Section 181 (1) d of the Act. By a gazette notification dated 11-12-
2001 made it mandatory for mills under Sugar Corporation and all Public Limited
Companies. But letter on by a gazette notification dated 12-01-2003, 11 Public Limited
Companies come under this order, which is listed in Dhaka Stock Exchange. Among
these five from power and fuel, and six from jute sector come under this order. These
companies are required to maintain cost accounting records as per above stated section.
The report is to be prepared and submitted in accordance with Cost Audit (Report)
Rules 1997.

Example:
Sugar and Food:
All mills under Sugar Corporation.

Fuel and Power:
BOC Bangladesh Ltd., Padma Oil Co. Ltd., Eastern Lubricant Blenders Ltd., National
Oxygen Ltd., Bangladesh Welding Electrodes Ltd.

Jute:
Jute Spinners Ltd., Northern Jute Manufacturing Co. Ltd., Sonali Aoush Industries Ltd.,
Seleh Carpet Mills Ltd., Mutual Jute Spinners Ltd., Islam Jute Mills Ltd.

81
Q.3. State the provisions of the Companies Act 1994 regarding cost audit.

Ans.:
Section 220 of the Companies Act, 1994 states about the cost a udit, which is appended
below:

Section: 220 (1):
Where in the opinion of the Government, it is necessary to do in relation to any
company required under Section 181 (1) d to include in its books of accounts the
particular referred to therein the Government may, by order, direct that an audit of cost
accounts of the company shall be conducted in such manner as may be specified in the
order by an auditor who shall be a “Cost and Management Accountant” within the
meaning of the Cost and Management Accountants Ordinance, 1977.

Section: 220 (2):
An audit conducted by an auditor under this section shall be in addition to an audit
conducted by an auditor appointed under Section 210.

Q.4. Discuss the qualification and disqualification of an auditor.

Ans.:
Qualification:
1. According to the Chartered Accountant Ordinance 1973, the auditor of a company
must be a Charter Accountant.

2. If all the partner of Bangladeshi Partnership firm is Chartered Accountant then the
partnership firm can be appointed as an auditor.

Disqualification:
According to the Companies Act 1994, the following person or organization shall be
disqualified and cannot be appointed an auditor of the company.

1. Any officer or employee of the company.

2. Any partner or director of the company.

3. Any person who indebt to the company or standing as a guarantor to the company
existing Tk.1000.

4. Any director, or partner, or member of the company engages as managing agent of
the company.

5. Any director holding more than 5% of equity shares of the company engaged as
managing agent of company.

82
Q.5. X and Y Company have been engaged in a listed Public Limited Company as
the statutory auditor for last three years. Whether the same auditor can engage for
the current year as the auditor of said company?

Ans.:
According to the provisions of Companies Act 1994, the statutory auditor for last years
by listed Public Limited Company shall be re-appointed, unless 

a. His written consent has not been obtained prior to such re-appointment; or

b. He is not qualified for re-appointment; or

c. He has given the notice to the company in writing of his unwillingness to be re-
appointed; or

d. A resolution has been passed at the meeting appointing somebody else instead of him
or providing expressly that he shall not be re-appointed.

Provided that for the purpose of passing a resolution, a notice shall be issued prior to the
meeting and such resolution cannot be passed except on the ground of death, incapacity,
or dishonesty, or disqualification of the retiring auditor.

This re-appointment shall be continued for three consecutive years.

Q.6. Discuss the procedure of appointment of an auditor?

Ans.:
The procedure of appointment of an auditor are given below 

1. Appointment by Board of Director:
The board of director shall appoint the first auditor of the company within a month of the
date of registration of the company.

2. Appointment by the Shareholder:
The shareholder of the company must appoint auditors in each general meeting.

3. Appointment by Government:
Where at a general meeting no auditor are appointed, the government may or on request
of shareholders, appoint a person to fill the vacancy.

4. Appointment in a Temporary Vacant Post:
The board of directors may appoint an auditor in a temporary basis if the post of the
auditor is vacant.

5. Re-appointment of Auditor:
If the retired auditors are not disqualified or disagree to be re-appointed, then he can be
re-appointed as an auditor.

83
Q.7. “Cost audit can be used as an effective tool for management performance
evaluation and improvement”.  Explain.

Ans.:
Cost is an expired expense. Of all factors that shape the profit, cost is the prime one. Cost
audit is therefore no less important. Such an audit concentrates on propriety of
expenditure and efficiency of performance. Shareholders will be able to judge the scale of
efficiency, justification of material cost, productivity of man, machine, and material by
cost audit. So cost audit is distinct from the statutory audit, which is particularly helpful
for price fixation, tariff protection and for measuring capacity utilization. It also benefits
the management through internal control by pointing out the actual areas of exceptions.

So from the above discussion it is clear that the cost audit can be used as an effective tool
for management performance evaluation and improvement.

01.10.2005.

84
Meeting and Proceedings

Q.1. What is a statutory meeting? When and how a statutory meeting should be
held? Is there any penalty for non-holding of statutory meetings in time?

Ans.:
Statutory Meeting:
This is the first meeting of the shareholders of the company after its incorporation.
According to Companies Act 1994, Section 83 (1), every company limited by share or
guarantee and having a share capital is to be held a general meeting of the members of
the company within a period of not less than one (1) month and not more than six (6)
months from the date at which the company is entitled to commence business, Which is
known as Statutory Meeting. A Private Limited Company is not required to be
holding such a meeting. The Statutory Meeting is to be convened by notice of 21 clear
days. This meeting is held only once in the lifetime of a company. The purpose of this
meeting is to give an opportunity to the shareholders to discuss various matters in relation
to the flotation of the company.

When a Statutory meeting should be held:
The Statutory Meeting is to be held within a period of not less than one (1) month and
not more than six (6) months from the date at which the company is entitled to
commence business. It is held once in the lifetime of a company.

How a statutory meeting should be held:
The directors are required to send notice of the meeting to all members of the company at
least 21 days before the day on which the meeting is to be held.

At the commencement of the meeting, the chairman will ask the secretary to read the
notice of the meeting. The directors shall place before the meeting a list showing the
names, address and occupations of the members of the company and the number of share
held by them respectively. The list will remain open and accessible to any member of the
company during the continuance of the meeting.

After the secretary has completed reading of the notice of the meeting, the chairman will
give his address explaining the progress made by the company since its incorporation, the
present position and the future prospects. After conclusion of his address, the chairman
invites the member for discussion and questions relating to the statutory report and other
related matters. After discussions of the members the chairman proposes that the
statutory report be approved.

Penalty for non-holding of statutory meeting in time:
If default is made in holding such a meeting, the directors or the defaulting officers may
be fine up to Tk.5000 [Section 83(11)]. The Court may even wind up the company if
default is made in filing the statutory report to the registrar or in holding the statutory
meeting [Section 241(ii)].

85
Q.2. Narrate the procedure for calling a statutory meeting along with the contents of
the statutory Report.

Ans.:
Calling a Statutory Meeting:
a. Notice of the meeting:
The directors are required to send notice of the meeting to all members of the company at
least 21 days before the day on which the meeting is to be held.

b. Statutory Report:
The directors are required to prepare and send to every member a document known as the
statutory report at lest 21 days before the day on which the meeting is to be held. After
sending such a report to the members, a copy of this report is to be filed with the
Registrar of Joint Stock Companies. This report is to be certified by at least two (2)
directors, one (1) of whom to be the managing director and properly dated and signed.
Following are the content of the statutory report 

1. The total number of the shares allotted for different considerations with the
particulars of such considerations.

2. The total amount of cash received on different types of the shares with particulars.

3. An abstract of cash receipts and payments.

4. The names, descriptions and address of the directors, managers, secretary & auditors
of the company.

5. The particulars of any contracts or its modifications.

6. The extent to which underwriting contracts have been carried out.

7. The arrears due on calls from directors, managers and managing agents.

8. The particulars of any commission or brokerage paid to any director, manager or
managing agent.

In case of default is made in holding such a Meeting or in filing the Statutory Report to
the Registrar, the directors or the defaulting officers may be fine up to Tk.5000 [Section
83(11)]. The court may even wind up the company if default is made in filing the
Statutory Report to the Registrar or in holding the Statutory Meeting [Section
241(ii)].

c) Procedure of holding the Statutory Meeting:
At the commencement of the meeting, the chairman will ask the secretary to read the
notice of the meeting. The directors shall place before the meeting a list showing the
names, address and occupations of the members of the company and the number of share
held by them respectively. The list will remain open and accessible to any member of the
company during the continuance of the meeting.

After the secretary has completed reading of the notice of the meeting, the chairman will
give his address explaining the progress made by the company since its incorporation, the
present position and the future prospects. After conclusion of his address, the chairman
invites the member for discussion and questions relating to the statutory report and other
related matters. After discussions of the members, the chairman proposes that the
statutory report be approved.

86
Q.3. What is an annual general meeting? Prepare a draft agenda for an annual
general meeting.

Ans.:
Annual general meeting:
A general meeting of every company must be held within eighteen (18) months from the
date of its incorporation and thereafter once at least in every calendar year and not more
than fifteen (15) months after holding of the last preceding general meeting, which is
known as Annual General Meeting (AGM).

If default is made by the directors in calling the Annual General Meeting, the company
and its officer who are responsible for such a default with a further fine which may
extend to Tk.10000. In case of a continuing defa ult with a further fine of Tk.250 for
every day after the first day during which such default continues.

If the directors make default in calling the Annual General Meeting, the Court may call
or direct the calling of a general meeting of the company on the application of any
member.

Draft Agenda for an Annual General Meeting:
Following are the Agenda of the Eleventh (11) Annual General Meeting of the Padma
Textile Mills Ltd.

AGENDA FOR 11
th
AGM.
1. To confirm the proceeding of the Tenth (10) Annual General Meeting held on the
18
th
June 2003.

2. To receive consider and adopt the audited balance sheet, profit and loss account as at
December 31
st
2003, together with the report of auditors and directors thereon.

3. To declare dividend.

4. To elect directors

5. To appoint auditors for the year 2004 and to fix their remuneration.

6. To transact any other business with the permission of the chairman.

Q.4. What is the different types company meeting?

Ans.:
The various types of company meetings may be classified as follows 

1. Meeting of Shareholders:

a. Statutory General Meeting

b. Annual General Meeting
c. Extra-Ordinary General Meeting

2. Board of Directors Meetings

3. Debenture holders Meetings

4. Committee Meeting

5. Class Meeting

87
Q.5. Discuss the legal provision regarding the Annual General Meeting.

Ans.:
A general meeting of every company must be held within eighteen (18) months from the
date of its incorporation and thereafter holding once at least in every calendar year and
not more than fifteen (15) months after holding of the last preceding general meeting
which is known as Annual General Meeting.

Provided that a company may hold its first Annual General Meeting within a period of
not more than eighteen (18) months from the date of its incorporation. If such general
meeting is held within that period, it shall not be necessary for the company to hold any
Annual General Meeting in the year of its incorporation or in the following year.

Provided further that on an application made by a company within thirty (30) days from
the date of expiry of the period specified for holding the Annual General Meeting the
Registrar may extend the time within which any Annual General Meeting, not being
the first Annual General Meeting, shall be held by a period not exceeding ninety (90)
days or 31
st
December of the calendar year, whichever is earlier [Section 81(1)].

If the directors make default in calling the Annual General Meeting, the Court may call
or direct the calling of a general meeting of the company on the application of any
member [Section 81(2)].

If the directors in calling the Annual General Meeting make default, the company and
its officer who are responsible for such a default shall be punishable with fine of
Tk.10000. In case of a continuing default with further fine, which may extend to TK.250
for every day after the first day during which such default continues [Section 82].

Q.6. Draft a form of proxy for annual general meeting as entailed in regulation 68 of
the schedule-I of the Companies Act, 1994.

Ans.:
An instrument appointing a Proxy may be the following from, or in any other similar
form, which the director shall approve: 

PADMA TEXTILE MILLS LTD.
171, Dhanmondi R/A, Road # 7, Dhaka-1207.

I am sharif Ahmed, 365, Baitul Aman Housing Society, Road # 5, Shamoli, Adabar,
Dhaka- 1207, being a member of the Padma Textile Mills Ltd. hereby appoint Mr.
Nasiruddin, 81 Bhagalpur-lane, Nawabgong, Dhaka-1205, as my Proxy to vote for
me and on my behalf at the ordinary/extra-ordinary general meeting of the company to be
held on the 20
th
October, 2004, and at any adjournment thereof.

Signature of the Proxy…………….
Signature of the Shareholder……………….. Revenue Stamp
Share certificate No.: 07007 Tk.8.00|-
Containing 50 Shares.

88
Q.7. Draft the notice of Annual General Meeting, Extra-ordinary General Meeting
and write a specimen of Dividend Warrant and Directors Report.

Ans.:
PADMA TEXTILE MILLS LTD.
REGISTERED OFFICE: 17, DHANMONDI R/A, ROAD #2 DHAKA-1205.

NOTICE OF THE ELEVENTH ANNUAL GENERAL MEETING .

Notice is hereby given that the Eleventh (11) Annual General Meeting of the
shareholders of Padma Textile Mills Ltd. will be held in the Ballroom of Sonargaon
Hotel, Kawran Bazer, Dhaka on Monday the 20
th
March 2005 at 10:30 a.m. to transact
the following business:

AGENDA

1. To confirm the proceeding of the Tenth (10) Annual General Meeting held on the
18
th
June 2004.

2. To receive consider and adopt the audited balance sheet, profit and loss account as at
December 31
st
2004, together with the auditors report and directors report thereon.

3. To declare dividend.

4. To elect directors.

5. To appoint auditors for the year 2005 and to fix their remuneration.

6. To transact any other business with the permission of the chairman.

Dated, Dhaka, By order of the Board
The 8
th
February 2005.

[Mohammad Shrif]
Company Secretary.

Notes:

1. The Register of Members and the Share Transfer Book of the company will remain
closed from Tuesday the 7
th
March 2005 to Monday the 20
th
March 2005 (both days
inclusive) and during that period no transfer of share will be affected.

2. Any member of the company entitled to attend and vote at the general meeting may
appoint another member as his/her Proxy to attend and vote on his/her behalf. The Proxy
Form must be stamped with revenue stamp of Tk.8 and should be deposited at registered
office of the company not letter than 72 hours before the time appointed for the meeting.

3. Members are requested to notify change of address, if any, to the company.

89

EASTLAND LIMITED
REGISTERED OFFICE: 16/4, KARWAN BAZER, DHAKA.

NOTICE OF THE EXTRA-ORDINARY GENERAL M EETING

Notice is here by given that an Extra-ordinary General Meeting of the company will be
held at the auditorium of the Institution of Engineers, Dhaka, on Monday the 24
th

November 2004 at 3 p.m. to consider and, if thought fit, to pass the following resolution
with or without modification, as a special resolution:

“Resolve that the authorized capital of the company be increased from Tk.80 lakhs
divided into 80000 equity shares of Tk.100 each to Tk.2 crore divided into 200000
equity shares of Tk.100 each.”

“Further resolved that necessary amendments be made in the memorandum and articles
of association of the company to conform to and adapt the same as per the above
resolution.”

Dated, Dhaka. By order of the Board
The 1
st
November 2004.

[Mohammad Sadek Ali]
Company Secretary.
Notes:

1. A member entitled to attend and vote at the meeting may appoint a Proxy to attend in
his/her stead.

2. Such Proxy need not be a member of the company.

3. The Proxy form, a specimen of which is enclosed herewith, has to be deposited at the
registered office of the company at least 48 hours before the meeting.

4. An explanatory statement containing the background of the special business is attached
with notice.

N.B.:
When the notice clearly states, “That the following resolution will be proposed as a
special resolution” instead of “To consider and if thought fit, to pass the resolution, with
or without modification” no amendment can be moved.

90

Specimen of Dividend Warrant:

Azad Co. Ltd.
93, Motijeel C/A, Dhaka-1000

DIVIDEND WARRANT

Mr. Zakir Hossin Date:
11/2, Gopibagh, Dhaka. Folio No.:
Warrant No.:
No. of Share:
Dividend Rate:
Amount Tk.:

Dear sir/Madam,
The company in its Annual General Meeting (AGM) held on 1
st
May 2005, declared
dividend at the rate of Tk.20 Per share of Tk.100 each for the financial year ended 31
st

December 2004. The dividend amount mentioned above has been calculated here under:

Computation:
Dividend @ Tk.20 for purchase 100 shares Tk.2000.

To facilitate and expedite payment the shareholder has agreed to encash the dividend
warrant at per at any of its branches specified at the back of warrant in Bangladesh. This
facility will be available up to 15
th
June. Thereafter, the warrant will be payable on at
National Bank Ltd. Motizheel Branch, Dhaka.

For Azad co. Ltd.

[Zahiruddin Ahmed.]
Company Secretary.
Enclosed cheque No……………

91

Specimen Directors Report:

Director’s Report

Dear Shareholders,

Your board of directors taken pleasure in presenting the 6
th
Annual Report and Audited
Accounts of the company for the year ended 30
th
June 2005.

Financial Result and appropriation:
The company has successfully completed fourth of its commercial operation. During the
year the company has earned revenue of Tk.226.78 million as against Tk.167.83 million
of previous year. The company has earned net operating profit of Tk.39.39 million and
deducting Tk.1.87 million for workers profit participation fund (WPPF).

Dividend:
Your board of director, considering the performance of the company and recommend
payment of dividend Tk.12 for each equity share of Tk.100 each.

Auditors:
The directors here by report that existing auditors M/S. Atakhan & Co. was appoint as
auditor of the company in the Fifth (5) Annual General Meeting. They retire at this
meeting and being qualified has expressed their willingness to continue in the office for
the year 2005-2006.

Appreciation:
The directors wish to place a record their appreciation to all the employees for their
efforts in presenting an excellent operational performance, dispute lot of adversities.

On behalf of the board of directors

[Abu Zafar Zahiruddin Ahmed]

Chairman of the board of director.

92
Q.8. How many days of notice is required to given for general meetings of a
company.

Ans.:
Minimum length of notice required for:
a. Statutory General Meeting 21 days
b. Annual General Meeting 14 days
c. Extra-ordinary General Meeting 21 days
d. Meeting to pass special resolution 21 days
e. Board Meeting No Specific time limit

Q.9. Discuss about the (a) Notice (b) Directors Report and (c) Chairman’s Speech
for holding annual general meeting.

Ans.:
a. Notice of the meeting:
A company must issue a notice to all shareholders regarding the holding of the meeting at
least fourteen (14) days before the date of the meeting. The notice shall specify the place
the day and the hour of the meeting. A copy of director report must be annexed to every
such notice.

The meeting should not be held on a public holiday. It should be held within the business
hours at the registered office of the company or at the place within the town or the city
where the registered office of the company is situated.

b. Directors Report:
The main purpose of the report is to place before the shareholders the state of company’s
affairs and the result of years working and indications of the future prospect. The report
must be attached with the balance sheet and sent to the shareholders along with the notice
for calling the Annual General Meeting. The report deals with the following matters.

1. The state of the company’s affairs.

2. The amount, if any, which the board recommends should be paid as dividends.

3. The amount, if any, which the board proposes to transfer to reserves.

4. Any material changes and commitments affecting the financial position of the
company which have occurred between the end of the financial year of the company
to which the balance sheet relates and the date of the report.

The director’s report shall be signed by the chairman of the board of directors if he is
authorized to do so; otherwise it shall be signed by such number of directors as are
required to sign the balance sheet and profit & loss A/c. of the company.

c. Chairman’s Speech:
Before proceeding to regular business at the Annual General Meeting, the chairman
makes brief speech. In his speech the chairman makes expressions of the condolences,
and congratulations and points out the impact of various economic and political
phenomena on the business of the company. He also comments on the director’s report
and explains the future development plans of the company.
Q.10. Discuss about the business of the annual general meeting.

93

Ans.:
The company in general meeting can do all the acts except those delegated to the
directors and other persons by its articles. Such acts are done by votes of the majority.
When a meeting is convened with notice served to all shareholders, but only a part of
them appear, a majority part of those that appear may pass a valid resolution. It means the
shareholders who on receipt of the notice decide not to attend, leave matters as in the
agenda, to be decided by the attending shareholders.

The normal (ordinary) business done in an Annual General Meeting are as follows,
however, regulation 51 may also be studied:

a. To adopt the statement of annual accounts i.e. the balance sheet and the profit and
loss account together with the report of auditors thereon. [Section 183]

b. To approve the directors report [Section 184]

c. To elect directors in place of those retiring. [Section 91]

d. To appoint auditors and fix their remuneration. [Section 210]

e. To declare dividend (If any) [Section 184]

Any other business to be transacted shall be treated as special business for which special
notice is required to give to the members as per provisions of the Companies Act.
Confirmation and miscellaneous points to be or not to be include in the meeting as
agenda are left with the shareholders to be decided.

Q.11. A public limited company fails to hold annual general meeting and declare
any dividend to the shareholders for the last 3 (three) consecutive years. What are
the punishments to be taken against such failure?

Ans.:
If fails to hold annual general meeting:
A Public Limited Company listed in the Stock Exchange may be de-listed or
suspended, when it has failed to hold its Annual General Meeting for a continuous
period of three (3) years.

If fails to declared any dividend:
A Public Limited Company listed in the Stock Exchange may be de-listed or
suspended, when it has failed to declared dividend or bonus:

1. For five (5) years from the date of declaration of last dividend or bonus; Or

2. In the case of manufacturing companies for five (5) years from the date of
commencement of commercial production; and

3. For five (5) years from the date of commencement of business in all other cases;

94
Q.12. Whether the SEC can take action against the directors including the
managing director for non-holding of overdue AGM.

Ans.:
The Securities and Exchange Commission can take action against the directors
including the managing director for the following reasons 

1. If a listed company default to hold its Annual General Meeting or lay before the
meetings fail to prepare its balance sheet, profit & loss account and cash flow
statement within nine (9) months following the close of its financial year.

2. If a company failure to obtain extension from the Exchange or if the Annual
General Meeting is not held within time of the extension; it shall make the company
liable to penalty at double the rate of extension fees. The extension fees determine by
Dhaka Stock Exchange is as follows-

a. Extension for the 1
st
month or part thereof Tk.5000.00|-

b. Extension for the 2
nd
month or part thereof Tk.10000.00|-

c. Extension for the 3
rd
month or part thereof Tk.15000.00|-

3. No further extension beyond the maximum period of 3 months shall be granted. In
the event of default continuing after the final extension provided hereinabove, the
company shall be liable to an additional penalty at the rate of Tk.1000.00|- per day
for every day of the default and to action of suspension or de-listing as may be
decided by the Exchange. The Exchange may also notify the fact of such default and
the name of the defaulting company by notice and publish the same in the Official
Quotation List of the Exchange.

Q.13. Whether the SEC can take action against the directors including the
managing director for non-filing copies of minutes and list of shareholders to the
Commission & to the Exchange.

Ans.:
If a listed company shall fails to furnish 
1. Copies of minutes of its Annual General Meeting and of every Extra-ordinary
General Meeting to the Exchange and to the Commission within 60 days of such
meeting.

2. A summarized list of shareholders showing the holdings by sponsors, foreigner,
institutions and general public as at 30
th
June and 31
st
December in each calendar
year to the Exchange and to the Commission.

Failure to comply in the said behalf of such company shall liable to pay a sum of Tk.1000.00|- per day for every day during which default continues.

95

Q.14. What is an extra-ordinary general meeting? How is such a meeting convened?

Ans.:
Extra-ordinary General Meeting:
Any meeting of shareholders other than the Statutory and Annual General Meeting is
called the Extra-ordinary General Meeting. It is convened to do some urgent business,
which is not to be deferred till the holding of the next Annual General Meeting. Where
it is necessary to pass a Special or Extra-ordinary resolution an Extra-ordinary
General Meeting has to be called. Such as where a special resolution, say for altering
articles, is required to be pass, it is necessary to called Extra-ordinary General
Meeting.

Convening an Extra-ordinary General Meeting:
1. By the Directors:
The directors can convene an Extra-ordinary General Meeting by passing a resolution
to that effect in the board meeting wherever they think it as necessary.

2. By the Directors on requisition:
The directors must convene an Extra-ordinary General Meeting on the requisition of
the shareholders of not less than one-tenth (
10
1) of the issued share capital of the
company upon which all calls or other sums then due have been paid. The requisition
must state the objects of the meeting and must be signed by requisitionists and deposited
at the registered office of the company. The directors should within twenty-one (21)
days from the date of the deposit of a valid requisition proceed to cause a meeting to be
called and the meeting must be held within three (3) months from the date of the deposit
of the requisition.

3. By the requisitionists themselves:
If the directors fail to call the meeting within the time limits, the requisitionists or
majority of them in value, may themselves call the meeting. The meeting must be
convened within three (3) months from the date of the deposit of the requisition.

The meeting called by the requisitionists shall be called in the same manner as the
meetings called by the directors as far as possible.

The company must repay any reasonable expenses incurred by the requisitionists to them,
and the company out of any sums due or likely to become due to the directors in default
shall retain any sum so repaid.

96
Q.15. Discuss the procedure of holding Extra-ordinary General Meeting.

Ans.:
It may be called by the directors or by the shareholders. The directors at a board meeting
will decide about the calling of an Extra-ordinary General Meeting. In case it is not
possible to hold a valid board meeting, then the directors or one director, even without a
quorum, can act only for calling the Extra-ordinary General Meeting. The board before
the general meeting may ratify his action. Shareholders holding not less than one-tenth
(
10
1) of the issued and paid up capital of the company may send a requisition stating the
reason for such a meeting to the directors. The directors are to issue a notice for calling
such a meeting within twenty-one (21) days of such a valid requisition. The date of the
meeting must be fixed within forty-five (45) days from the date deposit of the
requisition. If the directors fail to convene such a meeting, the shareholders may
themselves arrange and hold such a meeting. The time limit in this case is three (3)
months.

The requisitionists of the meeting are entitled to get all reasonable expenses incurred for
such a meeting from the company. The company can realize the expenses from the
directors in default. It is to be noted that preference shareholders have no right to sign
such a requisition relating to matters other than preference shares. The debenture holders
may requisition this kind of meeting only to have their debenture rights modified.

The EGM may be held at any time of the year, but the notice of such a meeting must be
specify the day, date, time and place of the meeting with of course the object of the
meeting. The more important, however, is that the notice should mention clearly that the
meeting is an Extra-ordinary General Meeting. A lapse in mentioning the name of the
meeting may make the meeting invalid.

The EGM is to be convened by a notice of 21 clear days. Though not restricted by the
Act, it is advisable not to issue notice calling for such a meeting on a declared holiday.
The notice must specify fairly the special business to be transacted and the intention of
the company to treat such resolution of such a meeting as either “ordinary” or “extra-
ordinary” or “special”.

Generally, the notice accompanies explanatory notes dealing the background and
importance of the special business so that the members can fully realize its urgency and
take proper interest in attending the meeting and participate in the deliberations. The
explanatory note, usually in the form of a circular, explains and amplifies the notice, its
importance and significance and the underlying objects of the meeting.

An Extra-ordinary Resolution is one, which needs to be passed by a three-fourth (¾)
majority of the members present with 14
th
clear days notice. The special resolution
likewise needs a three-fourth (¾) majority but it requires a notice of at least 21 clear
days. By clear days it is meant that the date of notice and date of the meeting are to be
excluded from the length of the notice period.

97
Q.16. Discuss about the meeting of the board of directors.

Ans.:
Board meeting:
This means the meeting of the board of directors. The directors are responsible for
formulating policies and administration of the business affairs of the company. That
requires them to meet from time to time discuss and decide matters relating to policy and
for reviewing its affairs and progress. In this way, they exercise their control over the
company and discharge their responsibilities to the shareholders. So the directors have to
meet in a meeting of the board of directors in order to exercise their power.

The board meetings are the most important meetings of the company. In practice, all the
major decisions relating to the company matters are taken in the board meeting. They
also exercise decisive influence on the decisions to be made or approved in the general
meeting of shareholders.

Procedures:
The procedure of the board meeting is less formal than the general meetings and the
directors may regulate their own meeting. Articles may also provide for the codes of
conduct. But those cannot move past the Act. The directors sit for board meeting
frequently. However, the new Companies Act, 1994 requires that the board must meet
once in every three (3) months and at least four (4) times a year. The directors may
meet more often. But they must meet together as a board to constitute a valid board
meeting.

Notice:
The chairman, managing director, or any director can issue notice of calling a board meeting. The company secretary on the requisition of any one of the above shall convene
a board meeting. Such a notice under the signature of the secretary should be qualified by
words, “By order of the Board.”

The length of the notice should be reasonable. No such time is prescribed by the Act. If
all the directors can attend extremely short notice is acceptable. But if a short notice is
issued to exclude a particular director, it will render the meeting void. The notice should
mention the day, date, time, place and number of the board meeting. It should include the
agenda of the meeting.

Proxy:
There is no room for Proxy in the board meting. The merit of directorship is limited to
the appointed individual only, which cannot be delegated to any other person. So no
Proxy is allowed in directors meeting. A director cannot send his representative to attend
and vote for him in a board meeting.

98
Agenda:
The agenda point should be clear, lucid and unambiguous. There is nothing in the Act on
these. However, the agenda needs to be arrayed in good order to transact the matter
conveniently at the meeting. The order of business set out in the agenda should be
adhered to. If for convenience of some directors, it is desired to change the order, the
chairman at the meeting should obtain consent of all directors. The board however, can
take the business in any order as it thinks proper, provided that the directors present
consent to it.

Chairman:
There should be a chairman to preside over the board meeting. The directors may elect a
chairman for their meeting and determine the period of office for which he is to hold the
position (reg. 91). There may be a permanent chairman from the directors. He will
preside over all the board meetings. When he is absent a chairman may elect temporarily
to conduct the meeting. The permanent chairman is usually empowered to act as the
chairman of the general meeting of the shareholders. When in the general meeting there
will be an equality of votes, the chairman of the meeting will have a second and casting
vote which may shape the resolution. To protect that right of the vote, it is usual that
there be a permanent chairman.

Quorum:
The quorum requisite for directors meeting is subject to the provisions of the articles of
association of the company. Regulation 89 of the Company Act provides that the
quorum necessary for the transaction of the business at the board meeting may be fixed; it
shall be three (3) [when the number of directors exceeds three (3)]. Business at the board
meeting will be valid if only the quorum should requisite is present. But this quorum
should consist of disinterested directors. This is because, the directors who are directly or
indirectly interested in certain matters, are not entitled to vote on the resolution of such
matters. This is called disinterested quorum. If at a board meeting there is no quorum, the
meeting will be automatically adjourned to the same day, same time and same place at
the next week. If the day, to which the meeting so adjourned, is a public holiday, then the
meeting will be held on the next working day. These all of course are subject to the
provisions of the articles.

Q.17. What is the requirement of a special resolution under the Companies Act
1994? Give at least 5 cases where special resolution is required.

Ans.:
Special Resolution:
A special resolution is a resolution of members passed by three fourth (¾) of majority as
explained under extra ordinary resolution, of which not less than 21 days notice has been
duly given and the intention to proposed such resolution as special resolution has been
specified in the notice.

Thus special resolution must satisfy three conditions 
a. Proper notice has been given to the members.

b. The intention to pass special resolution has been disclosed in the notice.

c. Vote cast in favor of the resolution are three times the vote cast against the
resolution.

99
The members of the company, who have the right to vote at the meeting, may reduce the
21 days notice period. Special resolution is needed for the following purpose:

1. For alteration of articles of association.

2. For alteration of object clause of the company.

3. For alteration of name clause of the company.

4. For reduction of share capital.

5. For appointment of directors.

6. To determine the remuneration for the director and managing director.

7. Alteration of registered office if the address is already given in the
memorandum of association.

8. Conversion of Private Limited Company into Public Limited Company and
vice versa.

9. Whether the company wishes to be wound up voluntarily.

Q.18. What is the duties and liabilities of a company secretary regarding holding of
statutory meeting of a public limited company.

Ans.:
Following are the duties and liabilities of a company secretary regarding holding of
statutory meeting of a public limited company: 

I. Before the meeting:
1. The secretary must keep in mind the time limit prescribed by the Companies Act for
holding the statutory meeting. If the meeting is not held within that limit or the
statutory report is not filed with registrar as required, the Court may order the
compulsory winding up of the company.

2. He will prepare the statutory report in the prescribed form as well as the notice and
agenda of the meeting.

3. He will prepare a list of members showing names, addresses and number of shares held by each one of them for placing it before the meeting.

4. He will convene a meeting of the board of directors to consider and approve the
statutory report, notice and agenda of the meeting.

5. He will make arrangement for printing the statutory report, notice and agenda of the meeting.

6. He will dispatch the notice of the meeting along with the statutory report to the
members at least 21 days before the meeting.

7. He will file with the registrar a copy of the statutory report certified by at least two
(2) directors.

100
8. He has to make necessary arrangements for holding the meeting.

II. During the meeting:
1. He helps the chairman in ascertaining the quorum and reads the notice of the meeting
as per instruction by the chairman.

2. If directed by the chairman, he has to read the statutory report.

3. He will place the list of members at the meeting and see that it remains open and
accessible to all members during the continuance of the meeting.

4. He had to assist the chairman on any points of procedure and provide necessary
explanations when required.

5. He has to take notes of the proceedings of the meeting.

III. After the meeting:
The secretary has to draft the minutes of the meeting on the basis of notes taken by him
and to get the same approved at the next meeting of the board of directors.

Q.19. What are the duties and liabilities of a company secretary regarding holding
of Extra-ordinary General meeting of a public limited company.

Ans.:
Following are the duties and liabilities of a company secretary regarding holding of
Extra-ordinary General Meeting of a Public Limited Company: 

I. Before the meeting:
1. The secretary must advise the board on the urgency of an issue requiring decision
general meeting of the shareholders. This cannot be deferred till the next Annual
General Meeting. He will convene a meeting of the board of directors to fix the date,
place and agenda for Extra-ordinary general meeting.

2. If a meeting is to be called on the requisition of shareholders, the secretary in
consultation with the chairman shall convene a meeting of the board of directors to
consider the question of the holding the Extra-ordinary General Meeting.

3. If the board of directors decides to hold the meeting, the secretary shall assist the
board in preparing the draft resolutions and explanatory statement.

4. The secretary has to draft a notice for calling the meeting.

5. He shall arrange for printing of notice of meeting, explanatory statement, proxy forms
and admission cards.

6. He will make arrangement for sending notice of the meeting along with the
explanatory statement, proxy forms etc. to the registered address of each members at
least 21 days before the date of the meeting.

101
7. He will prepare a list of proxies and make necessary arrangements for poll.

II. At the meeting:
1. The secretary will take his seat near to the chairman so that he can render prompt
assistance to him.

2. He will make arrangements for collecting the admission cards at the gate of the meeting hall.

3. He should see whether the quorum is present. If the quorum is not fulfilled within half an hour of the scheduled time, the meeting shall be dissolve, if it is called upon the
requisition of members. But if the members do not requisition the meeting and if the
quorum is not fulfilled within half an hour, the meeting shall stand adjourned to the
same day in the next week at the same time & place. No quorum is needed at the adjourned meeting.

4. If the quorum is fulfilled, the secretary with the permission of the chairman shall read
the notice of the meeting.

5. The chairman will take up each item of the agenda one by one and in serial order for discussion. The secretary shall remain ready to give necessary explanations and to
supply documents as may be required by the chairman.

6. He will take down detailed notes of the proceeding of the meeting.

III. After the meeting:
1. He will have to prepare the minutes of the meeting and get them approved and sign
by the chairman in the next board meeting.

2. He has to file the copies of special resolutions, if any, passed in the meeting with the
registrar within 15 days of the meeting.

3. He should see that the minutes are recorded in the minute book.

Q.20. What is the duties and liabilities of a company secretary regarding holding of
Annual General meeting of a public limited company.

Ans.:
Following is the duties and liabilities of a company secretary regarding holding of
Annual General Meeting of a Public Limited Company: 

102

I. Before the meeting:
1. At the close of the financial year, the secretary has to make arrangements for the
preparation of the profit & loss account and the balance sheet of the company and its
subsidiaries.

2. He will have to see that balance sheet and profit and loss account are audited and
certified by the auditors.

3. He will prepare the draft of the director’s report in consultation with the chairman.

4. He will prepare the notice, agenda, and admission card and proxy form of the
meeting.

5. He will prepare the list of dividend and dividend warrants.

6. He will make arrangements for the meeting of the board of directors to transact the
following business:

-To fix the date of the AGM and rate of the dividend.

-To authorize the secretary to close the member register and transfer register.

-To approve the balance sheet, profit & loss account along with director’s report.

-To approve the notice and agenda of the meeting.

-To appoint the auditors and fixed their remuneration.

-To make the proposal for retirement of directors by rotation and their re-election.

7. He will make arrangement for printing the balance sheet, profit & loss account,
director’s report, proxy form, dividend notice & dividend warrants, notice and agenda
of the meeting.

8. He will send notice along with the all-relevant document to the members and auditors of the company.

9. He will make arrangement for publish the notice in the newspapers.

10. He will keep ready the necessary documents and records for making available at the meeting.

11. He will make necessary seating arrangements for shareholders and others.

12. He will make arrangements for refreshments of the members and others attending in the meeting.

103
II. During the meeting:
1. He will make arrange for collecting the admission cards at the gate of the meeting
hall and see that no unauthorized person can enter into the hall.

2. He will obtain the signatures of the members attending the meeting and compare the signatures of the proxies with those in the proxy forms for ensuring the authority of
the proxies.

3. He will help the chairman in ascertaining the quorum.

4. His seat should be close to the chairman so that he can help to furnish any
information needed by the chairman.

5. He will see that books, documents, papers etc. ready at hand, and are arranged
according to the items on the agenda.

6. If a motion is to be moved in the meeting, the secretary should give a copy of the
motion to the member who has been selected to move it.

7. He will read the notice of the meeting. He may have to read the minutes of the
previous meeting if directed by the chairman.

8. Sometimes he is required to read the auditors report if the auditor is absent in the
meeting.

9. He has to take notes of the proceedings of the meeting and resolution passed.

III. After the meeting:
1. After the conclusion of the meeting, the secretary will brief the press, if necessary.

2. He will prepare the minutes of the meeting with the help of his own notes and those of the chairman.

3. He will make necessary changes in the Register of directors and notify the same to
the Registrar.

4. He will send intimations of appointment or reappointment to directors and auditors.

5. He will file the annual return with the registrar along with the copies of the balance
sheet, profit & loss account and resolutions adopted in the AGM within 21 days of
the meeting.

6. He will make arrangement for distribute the dividend.

7. He will take steps for implementation of resolutions passed in the meeting.

104
Capital Market Regulatory Laws & Rules

Q .1. Define Dhaka Stock Exchange. What is the Listing Regulation of Dhaka Stock
Exchange Ltd.?

Ans.:
Dhaka Stock Exchange:
DSE means a market place, which facilitates secondary stock trading of listed securities.

Dhaka Stock Exchange Listing Regulations, 1997:
These Regulations shall apply to all companies and securities applying for listing and
those listed on the Exchange. Mainly it comprises of the following 7 Sections:

1. Listing of Companies.
2. Share Transfer, Book Closure etc.
3. Dividend Declaration.
4. Holding of Annual General Meeting.
5. Reporting to the Exchange.
6. Corporate Disclosure Policy.
7. De-listing and Suspension.

1. Listing of Companies:
(Pre-requisites of companies to be enlisted):

a. The company must be a Public Limited Company, having its minimum paid up
capital of Tk.3 crore.

b. The company must apply to the Exchange with listing fee and require document
before 10
th
days of the issuing of the first prospectus.

c. The Exchange shall decide the question of granting permission within a maximum
period of 6 weeks from the date closure of subscription.

d. Subscribed by at least 500 applicants.

e. Made allotment of share to successful applicant and refund the application money to
the unsuccessful applicant within 4 weeks of the closure of subscription list.

f. The company shall issue the share certificate within 90 days of the closure of the
subscription.

105
2. Share Transfer, Book Closure etc.:

Share Transfer:

a. All listed companies shall after submission to them the duly executed instrument of
transfer of securities together with the related certificates of securities complete all
the transfer formalities: 

I. Within 7 days after submission of the above in all cases excepting Book Closure
II. Within 15 days after submission of the above in case of Book Closure

b. All listed companies shall split any lot of securities into the market lot within 21 days
of submission of application by the shareholder together with the related certificates
and the splitting fee (if any).

Rules of Book Closure:
1. 14 days advance notice to Stock Exchange.

2. Publish it in two (2) dailies.

3. Book Closure for at least 7 days but not more than 15 days at a time and all together
not more then 45 days in a year.

4. No fees for transfer.

5. No stamp duty.

Why and when does Book Closure?

-For Dividend Declaration

-Before AGM

-Before EGM

-Before Right Issue

-Before for any other reasons.

Compulsory Book Closure:
The Company will declare normal Book Closure but compulsory Book Closure will be
declared by the Stock Exchange.

3. Dividend Declaration:

Dividend
Cash Stock Specy Dividend

106
Cash Dividend:

Face Value (FV) Tk.100
Share Premium Tk.800
Market Value (MV) Tk.3000

Share Capital = No. Of Share × Face Value = 5000 × Tk.100 = Tk.500000
Share Premium = No. Of Share × Share Premium = 5000 × Tk.800 = Tk.4000000
Tk.4500000

Market Capitalization = No. Of Share Market Value = 5000 × Tk.3000 = Tk.1500000

[Share capital & share premium will be included in the company balance but market
capitalization will be included in the investor book.]

Dividend declared 30
Dividend Rate = × 100 = ×100 = 30%
Face value 100

Dividend declared 30
Dividend yield = × 100 = × 100 = 1%
Market value 3000

Dividend rate will see the main company.
Dividend yield see the future investor.

Dividend recommendation By The Board of Director.
Dividend declaration By The Shareholder in the AGM.

Note:
Declaration of dividend never exceeds dividend recommendation by the Board of
Director. So the shareholder in the AGM can reduce the rate of recommended dividend
but cannot increase such rate recommended by the Board of Director.

Interim Dividend:
The Board of Director directly declares interim dividend. It need not required for
recommendation to place in the AGM for declaration.

107
Stock Dividend:

Stockholder Equity (Before Stock Dividend):

Share Capital = 5000 Share @ Tk.100 each Tk. 500000
General Reserve/Share Premium Tk.4000000
Tk.4500000
Stockholder Equity (After 1:2 Stock Dividend)
Bonus

Share Capital (5000 + 2500) Shares @ Tk.100
Each
Tk. 750000
General Reserve/Share Premium Tk.3750000
Tk.4500000

Share Capital (5000 + 2500) Shares @ Tk.100
Each
Tk. 750000
General Reserve/Share Premium Tk.3750000
Tk.4500000

Note:
According to Companies Act 1994, dividend can be paid out of share premium account,
which cannot be paid before the commencement of this Act i.e. before 1994.

Intimation of dividend and all other entitlements shall be sent to the Exchange not later
than 14 days prior to the commencement of the book closure.

Every listed company shall dispatch dividend warrants to the shareholders concerned
within 60 days from the date of declaration of such dividend and submit a report of
compliance in this respect within 7 days thereof.

Specy Dividend:

Shareholder Equity (before Stock Specy dividend):

Share Capital (5000 Share @ Tk.100
each)
Tk. 500000
General Reserve/Share Premium Tk.4000000
Investment in share of subsidiary Tk.1000000
Tk.5500000

Shareholder Equity (after Stock Specy dividend):

Share Capital (5000 +2500 =7500 Share @ Tk.100 each) Tk. 750000
General Reserve/Share Premium Tk.4000000
Investment in share of subsidiary Tk. 750000
Tk.5500000

108
4.Annual General Meeting:

Rules of Holding AGM:
a. Once in an English Calendar year.

b. Maximum difference between two AGM is 15 months.

c. The accounts to be placed before the AGM should not older than nine (9) months.

d. Nothing can be given to shareholders other than dividend.

e. Notice at least 14 days advance to the shareholders.

5. Reporting to Stock Exchange:
I. Annual Report

II. Half Yearly Report

III. Half Yearly Shareholders pattern in both half-year

IV. Buy/Sale of sponsors share

V. Price Sensitive Report

I. Annual Report:
The listed company shall send to the Exchange statutory report, annual reports and
audited accounts not later than 14 days before a meeting of shareholders is held to
consider the same.

II. Half Yearly Report:
The Company shall make available to the Exchange and to the all shareholders a half
yearly financial statement before the expiry of one (1) month from the end of half-year
period, which shall be signed by the chairman or chief executive officer and the finance
director or in his absence the chief accountant.

III. Half Yearly Shareholders pattern in both half-year:
The Company shall furnish to the Exchange a summarized list of shareholders showing
the holding by sponsors, foreigners, institutions and general public as at 30
th
June and
31
st
December in each calendar year duly affirmed to be correct as and up to that date
within 30 days thereof.

IV. Buy/Sale of sponsors share:
Every sponsor of listed companies is required to report to the Commission and to the
Exchange in writing about his intention to buy or sell or otherwise dispose of share held
by him in the concerned company within next 30 days.

V. Price Sensitive Report:
Listed companies shall send all price-sensitive information to the Commission and to the
Exchange by fax and special messenger within 30 minutes of the decision taken and shall
also publish the same in two (2) widely circulated daily news paper (one in Bengali &
one in English).

109
6. Corporate Disclosure Policy:
a. A listed company is required to release material information to the public in a manner
designed to obtain its fullest possible public dissemination.

b. The issuer companies shall make full disclosure of all decisions, which when
disclosed may mean price-sensitive information by the same, immediately after the
decisions in two widely circulated daily newspapers, one in Bengali and other in
English.

c. Clarification or Confirmation of Rumours and Reports:
Whenever a listed company becomes or is made aware of a rumour or a report true or
false that contain such information on which have an effect on the trading in the
companies securities or would be likely to have a bearing on investment decisions, the
company is required to publicly clarify the rumour reports as promptly as possible.

How rumours create?
1. Performance

2. Management

3. Expectations

d. Unusual Market Action:

Buy Sales
Q R R Q

1. Beximco Pharma 5000 55 Beximco Pharma 60 2000

2. Square Pharma 4000 3100 Square Pharma 3300 1000

3. Glaxo 500 * 60 Glaxo 61 600 *

4. Reckilt 5000 80* Reckilt 75* 4000

ƒ 1 & 2 is Usual Market Action
ƒ 3 & 4 is Unusual Market Action

Response to Unusual Market Action:
Whenever Unusual Market Action takes place in a listed company’s securities the
company is expected to make inquiry to determine whenever rumours or other
conditions requiring corrective action. Then they take appropriate action. If after the
companies review, the unusual market action remains unexplained it might be appropriate
for the company to announce that there has been no material development in its business
and affairs.

110
e. Unwarranted Promotional Disclosure:
Unwarranted Promotional Disclosure means any base less advertisement circulated in
the newspaper or other media.

Example:
1. Before few days “Shinepukor” circulated in the first page of the newspaper that they
have many property in the Dhaka City.

2. “Raspit” circulated that there share available in London share market.

A listed company should refrain from promotional disclosure activity, which exceeds
what is necessary to enable the public to make informed investment decisions. Such
activity includes inappropriately worded news release, public announcements not
justified by actual development in a company’s affair, exaggerated reports or predictions
etc. This overstated or over-zealous disclosure activity may mislead investor and cause
unwarranted price movements in a company’s securities.

♥What are price-sensitive information and how a listed company is required to
disseminate any price-sensitive information as per SEC’s law?

Ans.:
Price-sensitive information:
Price-sensitive information is such information by the disclosure of which might affect
the market price of the respective securities. Price-sensitive Information may contain
any of the following:

1. Dividend related information.

2. Any sort of financial specification.

3. Declaration of Bonus Share.

4. Declaration of Right Share.

5. Extension or disposal decision of company’s fixed asset.

How a listed company disseminates any price-sensitive information as per SEC’s law:
Listed companies shall send all Price-Sensitive Information to the Exchange by fax or
special messenger within 30 minutes of the decision taken a nd shall also publish the
same in two widely circulated daily newspaper, one in Bengali and the other in
English.

7.De-listing and suspension:
□ a listed company may be de-listed or suspended for any of the following reasons: 
□ if its securities are quoted below 50% of face value for a continuous period of 3 years.
□ if it is failed to declare dividend for the last 5 years.
□ if it is failed to hold AGM for last 3 years.
□ if it has failed to pay listing fees for 2 years.
□ if it has gone to liquidation.
□ if it has failed to comply with the requirements of any of these regulations.

Note: Company can be suspended for above six (6) reasons. But the company cannot be
de-listed without give him an adequate opportunity of hearing.

111

Q. 2. What are the legal requirements of listing of share/securities on a Stock
Exchange?

Ans.:
Following is the legal requirements of shares or securities on a Stock Exchange:
1. Company Law, 1994 section 140.

2. Securities and Exchange Commission requirement.

1. Company Law, 1994 Section 140:
Companies Act 1994, Section 140 states the provisions regarding listing of a company
with Stock Exchange, which are as follows:

1.
a. Name of the Stock Exchange to be stated in the prospectus.

b. Application must be made for permission to the Stock Exchange before 10
th
days of
the first issue of prospectus.

c. Permission for granting listing to be accorded within six (6) weeks from the date of
closing of the subscription, otherwise allotment will be void.

2.
a. In case of application for listing is refused by the Stock Exchange the company shall
repay all money received from application within 30 days without interest after the
10
th
day of the first issue of prospectus or after six (6) weeks from the date of closing
of the subscription.

b. If any such money is not repaid within the aforesaid period the directors of the
company shall be jointly or severally liable to repay that money with interest at the
rate of 5% above the bank rate.

2. Securities and Commission requirement:
a. The company must be a Public Limited Company having its minimum paid up
capital of Tk.30 million.

b. A prospectus to be issued to invites the public for subscription of its share or
debenture.

c. Subscribed by at least 500 applicants.

Listing

General Legal

Company Law, 1994 section 140 SEC Requirement- To
raise capital listing in
the Stock Exchange

112
under some condition
Q.3. State the provisions of the Companies Act 1994 regarding listing of a Company
with Stock Exchange.

Ans.:
Company Law, section 140:
Companies Act 1994, Section 140 states the provisions regarding listing of a company
with Stock Exchange, which are as follows:

1.
a. Name of the Stock Exchange to be stated in the prospectus.

b. Application must be made for permission to the Stock Exchange before 10
th
days of
the first issue of prospectus.

c. Permission for granting listing to be accorded within six (6) weeks from the date of
closing of the subscription, otherwise allotment will be void.

2.
a. In case of application for listing is refused by the Stock Exchange the company shall
repay all money received from application within 30 days without interest after the
10
th
day of the first issue of prospectus or after six (6) weeks from the date of closing
of the subscription.

b. If any such money is not repaid within the aforesaid period the directors of the
company shall be jointly or severally liable to repay that money with interest at the
rate of 5% above the bank rate.

Q.4. What are the pre-requisites of a company to be enlisted with the Stock
Exchange?

Ans.:
Pre-requisites of a company to be enlisted:
a. The company must be a Public Limited Company, having its minimum paid up
capital of Tk.3 crore.

b. The company must apply to the Exchange with listing fee and require document
before 10
th
days of the issuing of the first prospectus.

c. The Exchange shall decide the question of granting permission within a maximum
period of 6 weeks from the date closure of subscription.

d. Subscribed by at least 500 applicants.

e. Made allotment of share to successful applicant and refund the application money to
the unsuccessful applicant within 4 weeks of the closure of subscription list.

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f. The company shall issue the share certificate within 90 days of the closure of the
subscription.

Q.5. What is periodical reports that a listed company sh ould submit to the SEC &
SE? Briefly discuss.

Ans.:
Following periodical reports should be submitted to the SEC & SE by a listed company

a.
Annual Report:
1. Every issuer shall furnish the annual report to the shareholders at least 14 days
before the AGM. A copy of such report shall furnish to the SE on which its securities
are listed and to the Commission.

2. Annual report shall include a balance sheet, profit & loss account, cash flow
statement and notes to the accounts, which are collectively herein referred to as the
financial statements.

3. This financial statement shall be prepared in accordance with the requirements laid
down in the schedule and IAS as adopted by the Institute of Chartered Accountant
of Bangladesh (ICAB).

4. This financial statement shall be audited by a chartered accountant, who is in practice
within the meaning of the Bangladesh Chartered Accounts order 1973 as adopted
by the Institute of Chartered Accountant of Bangladesh (ICAB).

5. This report shall be prepared according to form “B” annexed to the schedule.

b.

Half Yearly Report:
1. Every issuer shall prepare and furnish its balance sheet, profit & loss account and
cash flow statement within one (1) month of the expiry of first half year to its
securities holder, to the Stock Exchange on which its securities are listed and to the
Commission.

2. This report shall be prepared according to form “C” annexed to the schedule.

c.
List of Members:
Every issuer shall prepare a list of member within 3 months of the holding AGM stating
the share holding position of them & submit it to the Commission.

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■ Mode of filing or submission: Any person required by the ordinance or any of the
rules to furnish any document, statement, return or report to the Commission, Stock
Exchange and agencies shall furnish it, either in person or through an agent or send it by
registered post.

Q.6.What are the statements and returns that a listed company should submit to the
Securities & Exchange Commission and Stock Exchange? Briefly discuss.

Ans.:
Following returns and statements are require to submit by the issuer to the Commission
and to the Exchange according to the Securities & Exchange Ordinance 1969 

a. Submission of Return:
1. An issuer of listed securities shall furnish to the securities holders, to the SE and to
the SEC an annual report of its affairs and such statement and other reports as may
prescribe.

2. An issuer of a listed securities shall furnish to the Commission such other documents,
information or explanation relating to its affairs as the Commission may at any time
require by order in writing.

b. Submission of Statements of Beneficial Owner of Listed Equity Securities:
Every director or officer of an issuer who is or has been the beneficial owner of any class
of its listed equity securities and every person who is directly or indirectly the beneficial
owner of more than 10% of any class of such securities shall submit to the Commission
such returns pertaining to the beneficial ownership of such securities in such term and at
such times or at such intervals as may be prescribed.

c. Trading by Director, Officer and Principal Shareholder:
Where any director or officer of an issuer of a listed equity securities or any person who
is directly or indirectly the beneficial owner of not less than 10% of such securities
makes any gain by the purchase and sale or sale and purchase of any such securities
within a period of less than six (6) months, such director or officer or beneficial owner
shall make a report and tender the amount of such gain to the issuer.

Where a director, officer or beneficial owner fails or neglects to tender, or the issuer fails
to recover any such gain within sixty (60) days of a demand thereof, whichever is later,
such gain shall vest in the Commission which may recover the same as an arrear of land
revenue.

d. Compliance Report Any Payment of Declared Dividend:
As per CCI notification dated 15
th
December 1991 requires the listed companies to pay
off the declared dividend to the shareholders within sixty (60) days of declaration and
also submit a report to the Commission within 7 days of the expiry of that sixty (60)
days.

115

e. Submit Report for Transfer of Share or Securities:
As per SEC order, the listed companies to submit a report to the Commission in case of
transfer of share by the company’s sponsors within seven (7) days of such transfer in the
form specified in the order.

Q.7. Discuss the penalty for certain refusal or failure according to section 22 of the
securities & Exchange Ordinance 1969.

Ans.:
Section 22 of the Securities & Exchange Commission ordinance deals with penalties,
which are as follows: 
1. If any person 
a. Refuse or fails to furnish any document, paper or information, which he is required to
furnish by or under this ordinance, or

b. Refuse or fails to comply with any order, direction of the Commission made or
issued under this ordinance, or

c. Contravenes or otherwise fails to comply with provisions of this ordinance:

If the refusal, failure or contravention is willful, the Commission may by order direct that
such person shall pay to the Commission by way of penalty such amount not exceeding
Tk.100000 as may be specified in the order. In case of a continuing default, a further sum
of Tk.10000 for every day after the issue of such order during which, the refusal, failure,
or contravention continues.

2. Any sum payable under Sub-section (1) shall be recoverable as an arrear of land
revenue.

3. No prosecution for an offence against this ordinance shall be instituted in respect of
the same facts on which a penalty has been imposed under this section.

Q.8. Describe the legal provisions of issuing Right Share as per SEC’s issue Rules.

Ans.: Right Issue:
The Commission has already issued Right Issue Rules 1998, on 27
th
July 1998, which
become effective from 25
th
August 1998. The salient features of the rules are as follows:

Requirement of the Securities Law:
Public listed companies are required to comply with The Right Issue Rules, 1998 for
issuing right share. Salient feature of the rules-
1. Filing of Right offer document to SEC along with the filing fee @ 0.25% on total
amount.
2. Required shareholder decision.
3. Offer must be made within 45 days of shareholders decision.
4. Full underwriting by the licensed merchant bankers.
5. Maximum ratio is 3 rights share for 1 held.
6. 3 year lock-in period on sponsors/directors/promoters right holding.
7. Require 2 years time period between the IPO , or last right issue and proposed rights
offer.

116
8. Require distribution of dividend as per commitments given at IPO and 5 years
profitable operation for allowing proposed right offer at premium.
9. Require SEC permission if offered at discount.
10. Previous rights issue should be fully invested in the concerned projects.
11. Offer cannot be withdrawn or cancelled or postponed or varied after announcement
without prior written consent from the SEC.
12. Provision for special audit by SEC paneled auditors, if required.

Q.9. Discuss about (a) Refund and Allotment (b) Special audit at IPO (c) Locked-in
at IPO.

Ans.:
a. Refund and Allotment: The SEC requires the issuer to refund the over subscribed
money to the unsuccessful applicant and also issue the allotment letter to the successful
applicant within 4 weeks of the closure of the subscription lists.

The refereed notification dated 28
th
September, 1997 requires the issuer to refund the
over subscribed money to the applicant resident in Bangladesh by account payee cheque
payable Dhaka or Chittagong as selected by the applicant.

b. Special Audit at IPO: As per notification dated 16
th
September, 1997 the
Commission may direct the sponsors or directors to carry out special audit of the IPO
issuers latest financial statements by SEC paneled audit firm at the issuers costs &
expenses.

c. Locked-in at IPO: In terms of the Commissions notification dated 16
th
September,
1997 the securities which are submitted by the sponsors/promoters/directors in the
prospectus shall be subject to a lock-in period of three (3) years in case of companies
intending to go for IPO from the date of its approval thereof by SEC or from the start of
its commercial production whichever is later.

Q.10. How the Securities & Exchange Commission is constituted? State in brief its
obligations and operational activities.

Ans.:
The Commission shall consist of 
a. A chairman;

b. Two (2) whole time member;

c. An officer of the ministry of finance, not below the rank of a joint secretary to be
nominated by that ministry;

d. A deputy Governor of the Bangladesh Bank, to be nominated by that Bank. The
chairman and the whole-time members are to be appointed by the Government and the
Government shall also determine their conditions of service.

One (1) of the whole-time members shall be appointed as vice-chairman of the
Commission.

Obligation and Operational Activities:
The Securities & Exchange Commission was set up on 3
rd
may 1993 by the Securities
& Exchange Commission Act, 1993 for regulating the capital market of Bangladesh. It

117
has obligations for regulating the activities of Stock Exchange and market
intermediaries, prohibiting unfair and fraudulent trading practices, preventing insider
trading, promoting public awareness and securities investment, developing
professionalism among the market players, conducting research on the capital market and
installing information system.

The Commission operates as an independent regulatory body and supervises market by
establishing the requisite Rules and Regulations.

The concerned laws guide the Securities & Exchange Commissions regulatory
functions.

Q.11. What is the main objectives constituting of the Securities & Exchange
Commission?

Ans.:
The main objectives of constituting the Securities & Exchange Commission are 
1. Protection of interest of investors.

2. Development of securities markets.

3. Proper issue of capital and marketable securities.

Q.12. Narrate the main functions of Securities & Exchange Commission of
Bangladesh under the Securities & Exchange Commission Acts 1993. How is it
helping the development of capital market in Bangladesh?
Or
How the Securities & Exchange Commission helps the management of share
market?

Ans.:
Securities & Exchange Commission was established to regulate public offerings of
securities. It also regulates the activities of the Stock Exchange and market
intermediaries. For this reason SEC can help the management of share market by
performing following functions:
a. Ensuring proper issuance of securities.

b. Protecting the interests of investors in securities.

c. Developing and controlling capital and securities market.

Besides this main functions SEC also perform some specific functions, which are as
follows:

a. Control of business in any Stock Exchange or securities market.

b. Determination and control of the activities of 
-Stockbroker

-Stock dealer

-Share transfer agent

-Banker and manager to issue

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-Underwriter

-Portfolio manager

-Investment adviser etc.

c. Prevention of fraudulent and unfair trading practice.

d. Promotion of education and training for all market intermediaries.

e. Prohibition of beneficiary business.

f. Calling for information from issuers of securities, Stock Exchange etc.

g. Inspection, inquiry and audit in respect of issuers of securities, Stock Exchange etc.

Q.13. Why is listing of shares with any Stock Exchange necessary?
Or
When and why it is obligatory for a Public Limited Company to get enlisted with a
Stock Exchange?

Ans.:
All Public Limited Company having paid up capital of taka 3 crore and more is listed
with the Stock Exchange. Listing of securities refers to enrollment of a company’s
shares and debentures on the official list of securities of a Stock Exchange. Then shares
are required to be quoted and transacted on the floor of the Stock Exchange. In fact no
dealings in securities of a company shall be allowed on the Exchange either on the ready
Quotation Board or Clear List, unless the company or the securities have been listed
and permission for such dealing has been granted.

So in conclusion we can say that a Public Limited Company must be listed with the
recognize Stock Exchange for public floatation of their shares and debenture.

Q.14. What is the procedures for listing of shares with any Stock Exchange at the
time of Initial Public Offering?

Ans.:
Following is the procedures for listing of shares with any Stock Exchange:

1. The company shall apply direct to the Stock Exchange.
[Before 10
th
day from the first issue of prospectus]

2. The company shall submit the following documents along with the application:
-Memorandum of Association and Articles of Association

-Certificate of commencement of business

-No objection certificate

-Audited accounts (3 year if any)

-Members/Shareholders list together with shareholding position

-VAT and Tax identification number

-Feasibil ity study report

-Prospectus

119
-Listing fees (based on capital)

-Initial fees (¼
th
of 1% of the paid up capital)

-Listing Expense Tk.5000

-Undertakings

3. Sending prospectus & form for brokers.

4. 80% Share issuance certificate to the Stock Exchange along with refund distribution
and request Exchange for listing & trading.

Company secretary has to complete the above formalities within such time. So that the
Exchange can listing the company within 6 weeks from the closing of subscription.

Q.15. State the duties & responsibilities of the SEC of Bangladesh.

Ans.:
The Controller of Capital Issue (CCI), a wing of Ministry of Finance, earlier regulated
the securities market of Bangladesh. On 3
rd
may 1993, the SEC was established through
an Act, named “The Securities & Exchange Commission Act, 1993” with the
following responsibilities and duties:

-To ensure proper issuance of securities.

-To protect the interest of the investors in securities.

-To promote development of the capital and securities markets.

-To regulate the capital and securities markets.

SEC is making all the securities market rules and the regulations. There are regulations
by Stock Exchange with the prior approval of SEC.

Q.16. Give a brief account of the steps necessary for public issue of share i.e. steps
necessary of IPO.

120

Ans.:
Following are the steps which is necessary for public issue of share:

Apply to SEC for raising capital

Draft prospectus

Final Application to SE

Prospectus publish

Subscription open

Lottery

Allotment of share

[Then listing with SE]

Issue manager perform all the activities regarding initial public offering of the shares &
securities.

Q.17. What is the basic law in securities market in Bangladesh? What does the
Securities & Exchange Ordinance, 1969 deal with?

Ans.:
Following is the basic law in securities market in Bangladesh:

a. The Securities & Exchange Ordinance, 1969

b. The Securities & Exchange Commission Act, 1993

c. The Depository Act, 1999

The Securities & Exchange Ordinance, 1969:
This mother law of the securities market deals with 35 Sections covering the following
areas:
1. Definitions

2. Issue of Capital

3. Registrations and Regulation of Stock Exchanges

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4. Regulation of Issues

5. Prohibition and Restrictions

6. Enquiries, Penalties, Orders and Appeals

7. Power to make Rules and Regulations and Others

Q.18. Discuss the area covering by the Securities & Exchange Commission Act,
1993.

Ans.:
This is basically framed to establish the present SEC. It consists of 27 Sections covering
the following area:

1. Establishment of the SEC

2. Office of the SEC

3. Formation of the SEC

4. Meeting of the SEC

5. Functions of the SEC

6. Fund of the SEC

7. Audit & Accounts of the SEC

8. Eligibility of the Chairman

9. Employment of Market Intermediaries

10. Penalty etc.

Q.19. How Market Makers can play an important role under The Securities &
Exchange Commission (Market Making) Rules 2000?

Ans.:
According to SEC (Market Making) Rules 2000, Market Maker can play an important
role in the securities market. Market Maker keeps the share price within certain limit.
For this reason share price remain stable within that limit. It prevents excessive gambling
and gives the protection to the innocent investors. It encourages the investors to invest in
the capital market. It also reduces the risk of the issuer because share price does not fall
beyond stated limit.

So in conclusion we can say that the market maker can play an important role by
stabilizing the share price within the limit stated the company.

122
Q.20. What is Central Depository System (CDS)? Will it bring Improvement in the
present share market of Bangladesh?

Ans.:
Central Depository System:
Central Depository System is the system, which facilitates electronic book entry of
securities (Share, debenture etc.), recording and maintaining of securities accounts, and
registering transfer of securities etc. Under this system the ownership of securities can be
changed without any physical movement, or endorsement of certificates and execution of
transfer of instrument.

A depository is like a bank for shares instead of money. Instead of holding shares in the
form of certificate investors have an accounts in the depository and are able to move
securities and settle Stock Exchange transaction by an electronic system and update their
accounts. The core service of a depository is the efficient delivery, settlement and transfer
of securities through a computerized book entry system.

Improvement:
Central Depository System brings improvement in the present share market of
Bangladesh because this is the automated trading system. Under this system all the
securities are traded through depository account. So it provides protection against fake
shares and fraudulent dealing in securities. Besides this, it is a cost effective system.

In conclusion we can say that this system protect the interest of innocent investor by
preventing fraudulent dealing in securities. So it brings improvement in the present share
market of Bangladesh.

Q.21. What is Custodian Bank? How foreign portfolio investor buy or sale share
through this bank?

Ans.:
Custodian Bank:
Custodian Bank is a commercial bank, which deals with share trading of foreign
portfolio. Foreign portfolio investor buy or sale shares from securities market through
custodian bank.

Buying or Selling of share through Custodian Bank:
If foreign portfolio investor wants to buy share, at first they contract with Custodian Bank
such as Standard Chartered Bank, Arab Bangladesh, International Financing Investing &
Commerce Bank (IFIC) etc. Then Custodian Bank deals broker/dealer. Then the
broker/dealer buy shares from securities market like Dhaka Stock Exchange. If foreign
portfolio investor wants to sale share, they do inverse works.

123

Custodial Service:
Custodial Service means activities of the Custodian Bank, which discuss the above.
Custodian Bank is the name of the bank whereas custodial service is the activities of
these Custodian Bank.

Q.22. Mention the conditions under section 2CC of Securities & Exchange
Ordinance, 1969.

Ans.:
Section 2CC of Securities & Exchange Ordinance, 1969 empowers the SEC to impose
any condition for interest of investor, which is not stated in the Securities & Exchange
Ordinance, 1969. In consequence of this empowerment many conditions are include in
the Section 2CC of Securities & Exchange ordinance, 1969. Among this following are
some conditions: 
1. The company shall not account for any upward revaluation of its fixed assets creating
reserve without clearance from the Securities and Exchange Commission.

2. Director from the “Sponsor group”, Institution, and general investor shall be
proportionate to their actual shareholding in the paid up capital. If the holding from
institutional investors is more than 5% but less than 10%, it will have at least one
(1) director on the board.

3. Jumbo share certificate of the Sponsors/Directors shall be in the custody of a
schedule bank. No splitting of share shall be made without prior intimation to the
Commission.

4. Private placement of shares for “Sponsor Group” shall be locked in for 3 years. If
any issuer make private placement with investors the amount so placed including the
name and address of such investors shall be disclosed in details in the financial
structure section of the prospectus.

5. Share certificate shall be issued within 90 days from the close of subscription.

124

6. The accounts of the company shall be audited within 120 days from the close the
financial year of the company. AGM shall be held within 6 months from the close of
the financial year.

7. Dividend shall be payable within 60 days of its declaration, failing which interest
shall be payable @ 18% from the date of declaration and in addition penal provision
will also attract under the Securities & Exchange Ordinance, 1969.

If the company with profit proposes no dividend an agenda shall be placed in the
AGM requiring a special resolution.

8. If the company fails to make any profit for two (2) consecutive years, Securities and
Exchange Commission may appoint auditors for special audit/investigation of the
affairs of the company. The company shall bear the cost of such audit.

9. The company shall maintain separate bank account for Pre-IPO Placement and
proceeds of the IPO. The fund collected through Placement and IPO shall not be
utilized prior to allotment of share and shall be effected through banking channel i.e.
account payee cheque, pay order or bank draft etc.

10. Before opening of subscription the company shall submit to the Commission bank
statement and bank certificate in respect of Pre-IPO Placement of shares before 3
days of opening subscription.

11. The prospectus shall be published in one (1) national daily (widely circulated,
preferably in Bengali).

Provided that information relating to publication of prospectus shall be published in
four (4) daily national newspapers (Bengali and English).

12. The company shall allot to successful applicants and refund to unsuccessful and over
subscribed applicants within 4 weeks from the closing of subscription. If any such
money is not refunded within the aforesaid period, the company shall repay that
money with interests @ 5% above bank rate.
13. Notwithstanding anything contained in Public Issue Rules, 1998 regarding limitation
of time on closure of subscription, the subscription will remain open for consecutive
banking days.

14. The issuer shall furnish report to the Commission on utilization of IPO proceeds
within 15 days of the closing of each quarter. Commission may employ or engage
any person to examine whether the issuer has utilized the proceeds for the purpose
disclosed in the prospectus.

15. All listed companies shall, after submission to them the duly executed instrument of
transfer of securities, complete the transfer formalities:

-Within 7 days except Book Closure

-Within 15 days in case of Book Closure

16. All listed companies shall split any lot of Securities into market lot within 21 days of
submission of application.

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17. All listed companies shall report to the Commission in case of every transfer of
share by the company’s sponsors within 7 days of such transfer.

Q.23. What is the time limit for issuance of share certificate in respect of IPO and
what security measure to be taken to prevent forgery of the issued share certificate?

Ans.:
Time limit for issuance of share certificate:
The Company shall issue the share certificate within 90 days of the closure of
subscription in respect of IPO.

Security measures to prevent forgery of the issued share certificate:
To prevent forgery of the issued share certificate some security measures to be taken such
as size, thickness, format and contents etc. are concerned. However, there is no such rule
framed in Bangladesh in this regard. Based on usage and practice a share certificate
should match and include the following:

1. It should look like a certificate.

2. It should contain a consecutive number.

3. Name of the company with monogram.

4. Specification of the shareholders.

5. Embossed common seal of the company.

6. At least two (2) authorized signatures.

7. Revenue stamp as per Stamp Act (if required).

Share certificate should not be delivered to the shareholders without incorporating the
details of each certificate in the members register and in the scrip book. The best is to
make out the computer print.

Q.24. When a company fails to make any profits for two consecutive years, what
action can be taken by SEC against the company?

Ans.:
If the company fails to make any profit for two (2) consecutive years, the Securities &
Exchange Commission may appoint auditors for Special audit/Investigation of the
affairs of the company. The company shall bear the cost of such audit.

Q.25. Mention the conditions under section 2CC of the Securities & Exchange
Ordinance, 1969 regarding the following:

126
I. Revaluation of Assets
II. No. Of Directors
III. Private Placement
IV. Payment of dividend
V. Return of money of unsuccessful applicants

Ans.:
I. Revaluation of Assets:
The Company shall not account for any upward revaluation of its fixed assets creating
reserve without clearance from the Securities and Exchange Commission.

II. No. Of Directors:
Number of Director of a Public Limited Company at least 3.

Director from the “Sponsor Group”, Institution, and general investor shall be
proportionate to their actual shareholding in the paid up capital. If the holding from
institutional investors is more than 5% but less than 10%, it will have at least one (1)
director on the board.

III. Private Placement:
If any issuer make private placement with investors the amount so placed including the
name and address of such investors shall be disclosed in details in the financial structure
section of the prospectus.

Private placement of shares for “Sponsor Group” shall be locked in for 3 years.

IV. Payment of dividend:
Dividend shall be payable within 60 days of its declaration, failing which interest shall be
payable @ 18% from the date of declaration and in addition penal provision will also
attract under the Securities & Exchange Ordinance, 1969.

After payment dividend within sixty (60) days of declaration, submit a report to the
Commission within 7 days after the expiry of that 60 days.

V. Return of money of unsuccessful applicants:
The Company shall refund the application money to unsuccessful applicants within 4
weeks from the date of closing of subscription.

If the application money of unsuccessful applicants are not refunded within the aforesaid
period, interest @ 5% above bank rate will be paid to them along with the refund money.

Q.26. Discuss the area covering by “The Securities and Exchange Rules, 1987.”

Ans.:
It covers the following area:

1. Qualification, etc. of members of Stock Exchange

2. Manner of transaction of member’s business

3. Maintenance of accounts by members and audit

127
4. Stock Exchanges application for registration

5. Maintenance of books of account, and other documents by members

6. Submission of periodical returns & annual report by the Stock Exchange.

7. Listing of securities

8. Submission of annual report, periodical report by issuers.

Q.27. Why is CDS?

Ans.:
Following is the advantage of this system:

1. Cost effective

2. Working Advance

3. Papers may be copied

4. Paper may lost

5. Prevent fraudulent dealing

Q.28. Discuss the IPO of CDS?

Ans.:
In case of IPO when CDS is effective:
1. With the introduction of CDS, all allotment of IPO shares will be made through
CDS.

2. Any investor may wish to invest in the IPO can do so by opening a depository
account with any depository participant (DP) registered with SEC.

3. Any issuance of share will be recorded in the depository account of the investor and
there will be no requirement for collecting allotment letter or share certificate from
the company.

4. An investor will be required to mention his/her depository account number in the
share application form, for IPO.

Q.29. How shares and debentures are bought and sold in the share market?

128

Ans.:

5
th
date
Share Money
Investor Broker T Broker Investor

T+2 T+2

(T+5) (T+5)
Money Stock Exchange Share
Clearing House
CDBL Share/chaque

T+3 (money) T+3 (share)

Buy in sale out
Fig.: Settlement cycle

T = Trading day
No. of broker in SE = 195.

01.10.2005.

129
Secretarial Practice

Q.1. What is the qualification of a Company Secretary?

Ans.:
The Secretary of a company must be well educated and trained in order to shoulder the
responsibilities of his position successfully. Specifically, he should have the following
qualifications:

A. Professional Qualification:
1. The Secretary needs to have high level of proficiency in both English and Bengali
languages. He must possess the excellent communication ability.

2. The Secretary needs to have the capability of organizing the office efficiently, and
directing and controlling his subordinates effectively.

3. The Secretary must have sound knowledge about the Company Law.

4. The Secretary should also have good knowledge about other laws such as SEC laws,
DSE/CSE Listing Regulations and gazette notifications of SEC etc.

5. Company Secretary must have knowledge about various books of accounts &
accounting system that is statutorily required to be maintained.

6. Company secretary needs to have adequate knowle dge about procedure of various
kinds of meetings of the Company.

7. Company Secretary needs to have adequate knowle dge about the technicalities of
the business of the Company. He must update his knowledge about current affairs.

B. Personal Qualifications:
In addition to the professional qualities, a Secretary needs some personal qualities,
which bring for him success in his career. The Company Secretary plays three (3) types
of role in discharging his duties.

1. A Company Secretary must have high sense of duty and responsibility. He should
be loyal to his superiors. He should be diligent and hard working.

2. A Company Secretary maintaining liaison between the directors and shareholders
and employees of the company as well as between the outsiders like suppliers,
customers, regulatory authorities and general public. So he should have the capacity
to understand people and pleasant temperament to deal successfully with them.

3. The Secretary plays the most important role as an officer of the company. As an
officer he must be a man of decision and energy. He should be able to exercise self-
control, so that he can exercise effective control on his subordinates.

130
Q.2. Whether a public limited Company can be run without a secretary?

Ans.:
The Company Law does not say anything about the appointment of the Secretary. But
the Promoter appoints first Secretary before incorporation. In such a case, the
appointment of the Secretary should be confirmed at the first meeting of the board of
directors. Company Secretary is the spokesman of the board of directors. He deals with
chairman, board of directors, shareholders, employees, and outsiders such as customers,
suppliers, creditors etc. His position is just below that of a director.

So in conclusion we can say that though it is not clearly mention in the Company Law
about the Secretary but in absence of him a Public Limited Company cannot be run.
Promoter or director has to play the role of Company Secretary.

Q.3. Discuss the function & relation of a Company Secretary?

Ans.:

Monitory body (SEC& SE)

Board (MD) Secretary Director

Shareholders

Staff

Recruitment Training Administration Public Relation

Fig: Function & relation of the company secretary.

131
Q.4. What is the role of a Company Secretary in case of lost share.

Ans.:
Following are the role of a Company Secretary in case of lost share:

1. Company Secretary verifies the signature of the shareholder.

2. Ask for G.D. entry regarding lost share.

3. Ask for Paper Publication.

4. Ask for Indemnity Bond.

5. Purchase document/ownership document.

Company Secretary recommends the board to issue a duplicate certificate.

Duplicate issued in lieu of original 112.

Q.5. What is the role of Company Secretary for Listing.

Ans.:
Following is the role of Company Secretary for listing of shares with any Stock
Exchange:

1. The company shall apply direct to the Stock Exchange.
[Before 10
th
day from the first issue of prospectus]

2. The company shall submit the following documents along with the application:
-Memorandum of Association and Articles of Association
-Certificate of commencement of business
-No objection certificate
-Audited accounts (3 year if any)
-Members/Shareholders list together with shareholding position
-VAT and Tax identification number
-Feasibility study report
-Prospectus
-Listing fees (based on capital)
-Initial fees (¼
th
of 1% of the paid up capital)
-Listing Expense Tk.5000
-Undertakings

3. Sending prospectus & form for brokers.

4. 80% Share issuance certificate to the Stock Exchange along with refund distribution
and request Exchange for listing & trading.

Company secretary has to complete the above formalities within such time. So that the
Exchange can listing the company within 6 weeks from the closing of subscription.

132
Q.6. What is the duty and responsibility of a company Secretary in the following
cases:
I. Right Issue of Share
II. Share transfer, transmission & verification of signature

Ans.:
I. Right Issue of share:
Following are the duties of the Secretary regarding Issue of Right Shares:

1. The Secretary is to take steps strictly as per Right Issue Rules, 1998.

2. He is to convene a meeting of the board of directors to consider the following:
-the proposal for right issue and the terms of issue
-approve the date of closing the register of members and transfer books
-to fix up the date, time, place and agenda of the general meeting, if the
proposal issue necessitates the increase of the authorized capital.

3. He shall notice to members relating to the general meeting.

4. In the general meeting resolutions to be passed approving the rights issue along with
right offers document and increase of authorized capital of the company, if any.

If the proposed further issue of shares does not require increase of the authorized
capital of the company, approval of shareholders in ge neral meeting will now be
necessary along with right offer document as per Right Issue Rules, 1998.

5. He shall prepare the list of members showing their present shareholding and the
number of new shares to which they are entitled.

6. He shall convene another meeting of the board of directors to approve the provisional
allotment.

7. On the basis of the provisional allotment, he shall dispatch Letter of Right to the
members of the company along with the following:
-Form of acceptance
-Form of renunciation
-Form of acceptance by nominee
-Form of request for additional shares

8. He shall make arrangement with the bankers of the company for the collection of
money and acceptance forms.

9. He shall take steps to dispose of the shares, which have been declined by the
members.

10. He shall issue final allotment letters to the members or their nominees within 4 weeks
from the date of closing of subscription.

11. He shall file with the Registrar a return of allotment within 60 days of allotment.

12. He shall take steps for preparing and issuing share certificates within 90 days from
the date of allotment.

133

II. Share Transfer, Transmission & Verification of Signature:

Transfer of share:
1. The Secretary must know the relevant provisions of the Articles of Association of
the company regarding transfer of shares.

2. On receipt of a proper transfer deed called the instrument of transfer of shares, duly
stamped and executed by the transferor and transferee.

3. He will see whether the name, address and occupation of the transferor as stated in
the instrument of transfer and register of members.

4. He will verify the signature of the transferor with the specimen signature appearing in the records of the Company.

5. He will see whether the detail information about the transferee is correct.

6. He will see that the transferor and the transferee properly initial any alteration in the
transfer deed.

7. The Secretary will check the register of members to be sure that no duplicate share
certificate has been issued.

8. The consideration for the transfer as shown in the transfer deed should be reasonable.
If the consideration is less than the Stock Exchange quotation the secretary must ask
the parties about the reason behind this.

9. If the Secretary is satisfied that everything regarding the transfer is in order, he will
record the same in the transfer register.

10. The Secretary should then see that every the name of the transferee is recorded in the
Register of Members and the name of the transferor is removed there from.

Verification of Signature:
1. The Company Secretary will verify the signature of the transferor with the specimen
signature appearing in the records of the company.

2. The Company Secretary will obtained the signatures of the members attending the
meeting and verify the signature with the specimen signature appearing in the records
of the company.

3. The Company Secretary will obtain the signature of the Proxy attending in the
meeting and verify the signature with those appearing in the Proxy form.

134

Transmission of Shares:
1. Secretary should determine whether the legal representative or heir of the deceased is
legal or genuine.

2. In case of the joint shareholders the secretary should examine the death certificate of
the deceased produced by surviving joint holders and satisfy himself before
transferring the shares in their name.

3. If the shareholder becomes insane, the Secretary should examine the order of the
Court before transferring the shares to the guardian appointed by the court.

4. If the shareholder becomes bankrupt, the Secretary should examine the order of the
court appointing the official receiver before allowing the transfer.

5. If the legal representatives of the deceased shareholder decide to transfer the share to
a third party, in addition to the usual procedure of transfer, he will be required to
attach the succession certificate or the order of the Court with the instrument of
transfer.

6. If the Secretary is satisfied that all the formalities required in the procedure for
transmission of shares have been met, he will convene a meeting of the board of
director and pass the necessary resolution. Then the Secretary will make necessary
changes in the share certificate and register of members.

Q.7. What is the role of a Company Secretary in case of IPO.

Ans.:
1. Convert into public  if it is private
2. Appointment of manager to the issue
3. Apply to SEC for consent of raising capital
4. Pre-IPO placement determination
5. Agreement with underwriter
6. Prospectus issue (SEC approval)
7. Open subscription
8. Lottery
9. Allotment of share/refund
10. Listing

Q.8. Whether a Company Secretary is an officer of the Company or not?

Ans.:
The Secretary plays the most important role as an officer of the company. Company Act,
1994 Section 225 empowers the Secretary or director or other authorized officer to sign
a document without the common seal of the company. It means that Secretary is an
officer authorized by the Act.

135
Short Note

1. Short Selling:
Short Selling means selling of any shares/debentures in the trading system of Stock
Exchange without having ownership of that instrument or without possessing the same.
Short selling is prohibited in the securities law.

Example:
Suppose, Mr. X has only 50 share of Bx. Pharma. If he sells 100 shares in the trading
system of Stock Exchange, then it will be called as short selling.

2. Insider Trading:
If a person has access to the insider information of a company and based on that he
makes profit/gain on trading of share of that company, then we will call it Insider
Trading.

Condition of Insider Trading:
I. Must access to the insider information
II. Must be gain.

3. Direct Listing:
Direct Listing is a facility offered by Stock Exchange for the unlisted companies to
encourage them for listing without issuing prospectus.

There are some criteria of companies for direct listing, such as-
-Paid up capital of Tk.3 crore (Minimum).
-3 Years operating profit
-Must be public limited company.

Example:
Square Textile.

4. Credit Rating:
Credit Rating is an independent valuation of the state affairs of a company and it is
mandatory in the following cases:
a. When a company goes IPO for issue share at premium.
b. When a company goes for issue debenture.
c. When a company goes for issue of right share.

Credit Rating Company – CRISL Company.

5. Market Maker:
Market Maker is a person nominated by the company and approved by the SEC who
intervenes in the downward and upward change of price of the share to stabilize the
market. As market making is not in practice, there is no Market Maker in our trade.

Example:
Suppose a company have a Market Maker. Company target that limit of share price is
Tk.50 to Tk.70. Then the duty of market maker is to be stabilized the share price within
that limit in the market.

136
6. Over the Counter (O.T.C.):
O.T.C. stands for over the counter. This is one kind of Stock Exchange where non-listed
and de-listed Securities are traded. [No implementation]

7. Circuit Breaker:
Circuit Breaker is the maximum limit of changing in price of securities in a single days
trade. It presents the maximum difference between the opening and closing price of
securities in a day. It prevents excessive gambling and gives the protection to the
innocent investors.

8. Touch-Line Price:
Touch-line Price means the lowest sale price and highest buy price for securities which is
the best offer (sell) and best bid (buy) price for those securities amongst all orders in the
order book.
Buy Sell
Touch-line Price 58 59
57 58
56 55 Touch-line Price

9. Protection Price:
Protection Price means the touch-line price plus (+) or minus (-) of the allowed
percentage variation.

10. Private Placement of Share/Pre-IPO Placement:
Private Placement is a cheaper method of issuing shares. Under this method new
securities are sold directly to large institutional investor instead of being sold to the
general public, such as foreign fund manager.

If any issuer make Private Placement with investors, the amount so placed including the
names and address of such investors shall be disclosed in details in the financial structure
section of the prospectus.

Private Placement is more appropriate to smaller issue.

11. Market Lot and Odd Lot:
The minimum lot of shares of a company offered at the market for transaction is called
the Market Lot of that company. Share Certificates are generally prepared at market lot
of shares to facilitate easy, economic and acceptable transaction in the secondary market.
Suppose 

Face Value (FV) Market Lot
(Tk.) ( No.)
1000 1
100 20
10 500

Let company X has 500 share of unit of face value of Tk.10. X company give bonus 1
share for 2 hold. Then the shareholder will get 250 shares, which is called odd lot. So
odd lot means bonus from market lot.

137
12. Manager to the Issue:
Manager to the Issue is a registered person or organization of the Stock Exchange who
solely undertakes all the activities regarding Initial Public Offering of the shares and
securities of Public Limited Companies.

13. Front Running:
When a broker trades in his own account or any other name knowing that there is a
buy/sell order for substantial shares of a company, and then it would be called as Front
Running.

Example:
Suppose an investor wants to buy 10000 shares. The broker first of all buy some share,
say 1000 share and then sell it to investor at highest price which is called Front
Running.

14. Office of Profit:
Any director other than managing director is restricted from accepting any office of profit
in the company other than his directorship. The term ‘office of profit’ inherently bears
the meaning of salary and other benefits from the company. The board of director may
appoint the managing director and fix his salary and other benefits. Any other director
cannot accept such an office of profit without the consent of the company in the general
meeting as provided in Section 104.

15. Banker to the Issue:
Banker to the Issue means any bank so named in the prospectus to collect monies from
share subscription.

16. Subscription:
Subscription means applying by the general public for any securities offered by any
issuer.

17. Compulsory Listing of Securities:
All Public Limited Companies must enlist with at least one recognized Stock
Exchange.

18. Book Closure:
According to Companies Act 1994 a company is authorized to keep its books closed for
a certain period of the year. It is necessary for the company for ascertaining the position
of its shareholders and declaration of dividend. Generally, the company keeps its books
closed before AGM, EGM, Right Issue, and any other reason. Stock Exchange
required 14 days advance notice before the books to be closed. It should be published at
least two national dailies. The company may keep its books closed for at least 7 days but
not more than 15 days at a time and altogether not more than 45 days in a year. No
transfer fee and stamp duty is required.

19. Compulsory Book Closure:
The company will declare Normal Book Closure, but Compulsory Book Closure will
be declared by the Stock Exchange.

138
20. Specy Dividend:
When a parent/mother company issue its subsidiary or sister concerns share as dividend
to its (parent/mother company) shareholders then we called it specy dividend.
Example:
When square pharma issue 1:2 ratio shares of square textile to square pharmas
shareholder, it will be treated as specy dividend.

If any investor has 2 shares of square pharma then he will get at free of cost 1 share of
square textile.

21. Schedule-I:
Schedule-I is a set of regulation (117) annexed to the Companies Act 1994. It gives the
indication for govern the internal management of the company. Articles of Association of
a company are prepared in compliance with Schedule-I. There are certain mandatory
regulations, which must find their place in the Articles. If any company fails to include
any mandatory regulations in its Articles, it will automatically apply for the company. A
Public Limited Company limited by share may follow Schedule-I instead of Articles of
Association.

22. Stock Exchange:
Stock Exchange means any person who maintains or provides a market place or facilities
for bringing together buyers and sellers of securities.

Example:
DSE,CSE etc.

23. Foreign Portfolio:
Foreign portfolio means any foreign person invested or proposes to invest in shares of
local company through custodian Bank.

24. Custodian Bank:
Custodian Bank is a commercial bank, which deals with share trading of foreign
portfolio.

Foreign portfolio investors buy /sell of share from securities market through custodian
bank.

25. Day Trader:
Day Trader is the person who usually buys share for short term to gain quick profit.
Generally, Day Trader does not transfer shares in his own name.

26. Investor:
Investor is the person who usually buys any share for long-term to gain profit. Investor
transfers the name of share in his name.

27. Mutual Fund:
Mutual Fund means any fund comprising of multiple shares of listed securities.

Now a day there is the mutual fund company, which forms various sources of Mutual
Fund.

139
28. Merchant Bank:
Merchant Bank is not the usual kind of bank. By regulations, it cannot create deposits
from its clients and cannot provide other banking services like commercial bank.
However it plays a vital role in the finance market. Merchant Bank is registered to the
SEC and performs the following jobs:
I. Issue Management
II. Portfolio
III. Underwriting

29. Merchant Banker:
Merchant Banker means any person who is engaged in the business of issue
management, either by making arrangements regarding selling, buying, underwriting or
subscribing to securities as underwriter, manager, consultant, adviser or rendering
corporate advisory service in relation to such issue management.

30. Associate:
Associate means any partner, employee or officer of a company and a related body
corporate over which the sponsors can exercise control.

31. “A”, “B”, “Z”, & “G” company:

A B Z G

Regular in holding AGM. Same Other than A, B, & G. Greenfied IPO.

Declared at least 10% Declared less than 10% No financial report
Dividend in the last AGM dividend in the last to be made.
(IPO). AGM.

For new company (IPO) For new company
EPS at least Tk. 10 per (IPO) EPS is less than
Share. Tk.10 per share.

Example: Example: Example: Example:
Square Pharma Dandy Dyeing Raspit food. Lafarge Surma
Cement.

32. Section 2CC of SEO, 1969:
2CC is one of the Sections of the Securities & Exchange Ordinance 1969, which
empowers the Securities & Exchange Commission to impose any condition for the
interest of investors, which is not stated in the Securities & Exchange Ordinance, 1969.

33. Subsidiary Company:
Subsidiary Company is an enterprise that is controlled by another enterprise.

34. Hours of Operation:
Hours of Operation means the time for trading during which the system is available to
the members for trading.

140
35. Associate Company:
Associate Company is an enterprise in which the investor has significant influence and
which is neither a subsidiary nor a joint venture of the investor.

36. Sister Concern:
Sister Concern means any company or concern in which the issuer has any share or
interest.

37. Sponsors Shares:
Sponsors Shares mean any share owned/held by any person who forms or promotes a
company, his spouse, brother, sister, any lineal ascendant or descendant, in laws, the
company’s directors and associates.

38. Broker:
Broker is a member of Stock Exchange and who is also registered with SEC as broker
of that Exchange. He can only buy/sale shares on behalf of his client. But he cannot trade
himself.

39 Dealers:
Dealer is a member of Stock Exchange and who is also registered with SEC as Dealer
of that Exchange . He cans buy/sale shares on behalf of his client as well as in his own
account.

40. Prospectus:
Prospectus is a printed pamphlet circulated and advertised in the newspapers for the
purpose of communicating with the general public to offer for sale of Companies
securities. The need for capital generation by a public limited company is materialized
through the issuance of this prospectus. A copy of the prospe ctus dated and signed by the
directors must be filed with the registrar of Joint Stock Company before publication. It
must also be in agreement with the conditions laid down by the SEC.

41. Central Depository System:
Central Depository System is the system, which facilitates electronic book entry of
securities (Share, debenture etc.), recording and maintaining of securities accounts, and
registering transfer of securities etc. Under this system the ownership of securities can be
changed without any physical movement, or endorsement of certificates and execution of
transfer of instrument.

42. Underwriter:
The Public Limited Company making initial public offering shall appoint one or more
underwriters, having certificate of registration from the SEC to fully underwrite or place
primary securities on a firm commitment basis.

The issuer shall send notice to the underwriters within 10 days of closure of subscription
calling upon them to subscribe the securities and pay cash within 15 days of the date of
said notice. The issuer shall send proof of subscription and deposit of share money by the
underwriter to the SEC within 7 days of the expiry of the aforesaid period.

141
43. Corporate Governance & CMAs:
Corporate Governance is the system by which corporate entities are directed and
controlled. The structure of corporate governance specifies the distribution of right &
responsibilities among company’s different participants such as board of director,
management, shareholders and other stakeholders. Transparency and accountability are
its major attributes.

CMAs are professional body which is established by “The Cost and Management
Accountants Ordinance, 1977”. Now a day CMA professionals are play a vital role to
implement effective and good corporate governance. For this reason cost audit has been
made mandatory in the Public Limited Company, fuel & power, sugar and food
industries corporation and jute industries etc.

44. Clearing House:
Clearing House means the facilities provided by DSE for completion of transactions
through receipts and delivery of securities and cheque or pay order or demand drafts.

45. Settlement Day:
Settlement Day means the day on which transactions that were carried out by the
members on a trading day are settled by them through delivery of securities and cheque
or pay order or demand draft to the clearing house of DSE. Settlement day ═T+3.

If any settlement or clearance day falls on any holiday, the next day subsequent to the
holiday shall be the settlement or clearance day.

46. Trading Day:
Trading Day means the specific day on which the members in Dhaka Stock Exchange
carry out transactions.

47. Trading Workstation:
Trading Workstation means the computer of the member in which the automated
trading system is installed by DSE.

48. Ordinary Resolution:
Ordinary Resolution is the resolution passed by a simple majority of the members
entitled to be present either in person or by proxy and to vote at the general meeting.
Business declared by the Act or Articles to be transacted by a resolution will mean an
ordinary resolution unless the context otherwise provide. To pass an ordinary resolution
no special time limit is required for the notice, but normal time is to be maintained, which
is 14 clear days.

49. Special Resolution:
A Special Resolution is a resolution of members passed by three- fourths (¾) majority
as explained under extra-ordinary resolution, of which not less than 21 day’s notice has
been duly given and intention to propose such resolution as special resolution has been
specified in the notice.

50. Initial Public Offer:
When any Public Limited Company offers general public to subscribe its shares through
a prospectus, the offer is said Initial Public Offer (IPO).

142

51. Extra- Ordinary Resolution:
An extra ordinary resolution is the resolution passed by a majority of not less than three-
fourth (¾) of such members as being entitled to be present either in person or by proxy.
The intention to pass such resolution as extra-ordinary resolution has been specified in
the notice. The time length of the notice in this case is 14 clear days. Extra-ordinary
resolutions are passed for very limited instances and mainly in winding up case.

52. Proxy:
A Proxy is a written document authorizing the person named therein to vote at a meeting
for and in place of the appointer. The term Proxy is also applied to the appointee. A
shareholder entitled to attend and vote at a meeting is entitled to appoint a Proxy in his
stead to represent him at the meeting. This privilege is allowed by Section 85 and
regulation 61 to 68 of the Act. The person appointed as Proxy may or may not be an
existing member of the company concerned.

53. Managing Agent:
Managing Agent means a person, firm or company by whatever named called, who or
which is entitled to the management of the whole affairs and business of a company by
virtue of an agreement with the company, and under the control and direction of the
directors except to the extent, if any, otherwise provided for in the agreement.

54. One Man Company:
One Man Company is a company in which only one man is the owner of a business
holds the entire capital in the form of fully paid up shares with a few extra members
holding one or two share each, but truly speaking they are the nominees of the former.
The former owner of the business is there by enable to do his business with limited
liability. Such companies are deemed to have properly constituted and there legality is
unimpeachable.

55. Greenfield Company:
Greenfield Company means a Public Company, which has not yet gone into
commercial operation but is in the process. They have already initiated work like opening
L/C, acquiring of land etc. A Greenfield Company is also allowed to the raise capital
through Stock Market. To protect interest of investors Greenfield Company is required
to comply with certain conditions, which are as follows:

a. Sponsors should have a track record of profitability, liquidity and solvency.

b. Sponsors should not be bank or tax defaulters.

c. Sponsors must raise their portion of share capital before public offering.

d. The company must acquire land, complete construction of building, open letter of
credit, and finalize shipment before public offer.

e. The company must make financial and physical plans for implementation of the
project.

143
56. Official liquidator:
The official liquidator is a person who is appointed by the court in case of compulsory
winding up of a company. According to Company Act 1994, the official liquidator is a
person, who conduct the proceeding in winding up a company and performing such
duties in reference thereto as the court may impose. The official liquidator shall be
described by the style of the official liquidator of the particular company in respect of
which he is appointed, and not by his individual name.

57. Contributory:
The term contributory means every person liable to contribute to the assets of a company
in the event of its being wound up, and in all proceedings for determining and in all
proceedings prior to the final determination of the persons who are to be deemed
contributories, includes any person alleged to be a contributory.

58. Issuer:
Issuer means any person who has issued or proposes to issue any securities.

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