(7)company law rgsc ppt

Company Laws & Secretarial
Practices In Bangladesh
5/5/2021 1

Defining Company
A company, formed and registered under the
Companies Act (1994), is regarded by law
as a single person, having specified rights
and obligations (Duties/Responsibilities).
The law confers on a company a distinct
legal personality, with perpetual succession
and a common seal. Therefore a company is
different from its members and the
individuals composing it.
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As Under Sec 2 (1) (d) The
Company Act, 1994:
“Company means a company
formed and registered under
this Act or an existing
company.”
5/5/2021 3

SEPARATE LEGAL ENTITY OF
COMPANY
A company has a legal entity
distinct from and independent of its
members. It has the right to acquire
and dispose of the property, to
enter into contract with third
parties in its own name, and can
sue and be sued in its own name.
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COMPANY
The creditors of the company can recover
their money only from the company and the
property of the company. They cannot sue
individual members. Similarly, the company is
not in any liable for the individual debts of its
members. The property of the company is to
be used for the benefit of the company and
not for the personal benefit of the
shareholders.
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COMPANY
On the same grounds a member cannot
claim any ownership rights in the assets of
the company either individually or jointly
during the existence of the company or in
its winding up. At the same time the
members of the company can enter into
contracts with the company in the same
manner as any other individual can.
5/5/2021 6

COMPANY
The principle of separate legal entity was
explained and emphasized in the famous case of
Salomon Vs. Salomon & Co. Ltd. (1897) A.C. 22.
Fact of the Case
Salomon had for many years carried on a
prosperous business as a leather merchant. In
1892, he decided to convert it into a limited
company.
5/5/2021 7

COMPANY
In the newly formed company, his wife, one
daughter and four sons took up one share each of
£1 to fulfill the statutory requirement of at least
seven members. Salomon, with his two sons,
constituted the board of directors. The purchase
consideration was paid by the company by the
allotment of 20,000 shares of £1 each and £10,000
debentures which gave Salomon charge over all
the assets of the company and the balance was
paid in cash to Salomon.
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COMPANY
The company almost immediately ran into
difficulties and only a year later the then holder
of the debentures appointed a receiver and the
company went into liquidation. The position on
liquidation was as follows: debentures issued to
Salomon- £10,000; unsecured creditors-£7,000
and assets-£6,000. Thus it was found that after
paying the debenture holders, nothing was left
for unsecured creditors.
5/5/2021 9

COMPANY
The unsecured creditors contended that
Salomon and Salomon Co. Ltd. are one and the
same; Salomon could not owe money to himself.
The company was a mere sham and an agent or
nominee for Salomon who remained the real
proprietor of the business. As such Salomon was
bound to pay the unsecured creditors of the
company out of his pocket in spite of the fact
that his shares had already been fully paid up.
5/5/2021 10

COMPANY
But it was held that once the company was
incorporated under the Act, it had separate
legal entity independent of its members.
Salomon who was holding substantially the
whole share capital could also be a creditor
of the company. In this case where Salomon
was a secured creditor, he was entitled to be
repaid in priority over the unsecured
creditors.
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COMPANY
Similarly, in Lee vs. Lee’s Air Farming Ltd. (1960) 3
All E.R. 420 , Lee incorporated a company. He had
himself the Managing Director and Chief Pilot of the
company. He died in an air crash while working for
the company and his widow claimed compensation.
It was held that Lee and Lee’s Air Farming Ltd. were
separate and as such, a claim for compensation was
valid. In effect, the magic of corporate personality
enabled him to be the master and servant at the
same time.
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There are two immediate objectives for
the enactment of this Companies Act.
They are:
a) To inject discipline in the
management
b) To protect the interest of the
investors.
5/5/2021 13

History of Company Laws
1. In 1653 First time East India Start it’s journey by Joint fund & Joint
capital.
2. In 1720 British Parliament take “ The Bubble Act”
“Bubble Act 1720 (6 Geo I, c 18) was an Act of the Parliament
of Great Britain that forbade (banned) all joint-stock companies not
authorized by royal charter. It was passed on 9 June 1720, and was also
known as the Royal Exchange and London Assurance Corporation Act
1719, because those companies were incorporated under it.”
1. In 1825 “The Bubble Act” rejected by Parliament.
2. In 1834 trading company law introduced.
3. Basically in 1844 The Joint Stock Companies Act, 1844 passed by
British Parliament.( First Company Law)
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1. First Indian Company Act, regarding companies, was the
Joint Stock Companies Act of 1850.
2. The act of 1850 was replaced by a new Act bearing the same
name in 1857.
( Limited liability was introduced)
8. Acts relating to companies were passed in
1860,1866,1882,1895,1910, and 1913.
9. The act 1913 remained in force up to 1956
10. The Act of 1956 has been amended
in1960,1963,1965,1969,1971,1984,1988.
11. In 1994 the new company law introduced by our
government.
(Indian companies act 1956 and Pakistan Companies ordinance
1984
5/5/2021 15

Types of Companies :
Private Company
i. Companies limited by shares
ii. Companies limited by guarantee ( guarantee for liquidation)
Public Company
i. Companies limited by shares
ii. Companies limited by guarantee ( guarantee for liquidation)
iii. Unlimited companies
Classification on the Basis of Control:
i. Holding Company
ii. Subsidiary Company
Classification of others:
i. Foreign company
ii. Joint venture company
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Company Limited Liability by Shares: In these companies there is a
share capital, and each share has a fixed nominal value which the
shareholder pays at a time or by the installments. The member is not to
pay anything more than the fixed value of the share, whatever may be
the liabilities of the company.
Company Limited by Guarantee: In these companies, each member
promises to pay fixed sum of money in the event of liquidation of the
company. This amount is called the Guarantee.
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Private Limited Company
As defined in Section 2(q) of the act, a private company means a
company which by its articles:
a) restricts the right to transfer the share, if any; and,
b) prohibits any invitation to the public to subscribe for the
shares , if any, or debentures of the company; and,
c) limits the number of its members to fifty (50) not
including persons who are in the employment of the company.
“A Company incorporates with more than two person and it is
limited to fifty members . In this case it is only a huge partnership
and the liability is unlimited”
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Public Limited Company
In public limited company,
-public can acquire,
-own, and
-sell the share of such type of company at their wishes.
-The company can issue prospectus to the public to subscribe the
share and debentures of the company and, thus, can collect
capital for the company.
“A companies which is constituted with a minimum of seven
members and maximum is unlimited, and members called share
holders. Here the liability is limited up to level of what he is
invested”
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Classification on the basis of control: In accordance with the
basis of control, Companies may be classified into-
1. Holding Company: If a company can control the policies
of another company
(a) through the ownership of its shares or
(b) through control over the composition of its Board
of Directors, the former i.e.
the controlling company is called a Holding Company.
2. Subsidiary Company: The controlled company is
called subsidiary company of holding company.
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Classification of others:
Foreign company:
When a company which is incorporated outside Bangladesh but
establishes business in Bangladesh with same name and
nomenclature (arrangement) with or without a place of business in
the country, it is registered as a foreign company in Bangladesh.
Sec378 to 392
Joint venture company:
An association of two or more individuals or companies engaged
in a solitary business enterprise for profit without actual partnership
or incorporation; also called a joint adventure.
Government company.
A company which are incorporated holly or jointly with state
and central government or 51% & 49% with other joint ventures
or with other public limited companies. Here also liabilities are
limited by shares
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Characteristics of a company:
Legal formation: the company is to be formed according to the producer
prescribed in companies Act in Bangladesh.
Artificial entity: a company possesses independent and separate entity.
Capital: the capital of company is collected through joint contribution in the
form of share capital.
Perpetual existence: company has a perpetual (unending) existence.
Number of shareholders: if the company is a private company then its
maximum number of shareholders is fifty (50) and minimum two (2), and if the
company is public company then the minimum number of shareholders are
seven and maximum number is the number of shareholder.
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Limited liability Company: the liability of shareholder of a
company is limited by the share value.
Public subscription and transferability of share: if the company is
a public company, then it can call the public to subscribe the
share capital and also its shares are freely transferable from one
hand to another. The share capital of private listed company is
transferable among the shareholders.
Separation of ownership from management: in a company, the
ownership is separated from management.
Democratic management: the management of company is done
in a democratic way.
Profit distribution: the earnings of a company are partly
distributed as dividend among shareholder and a portion is kept
for future needs as reserves.
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Differences between private limited company and public
limited company.
=== Private company limited by shares - this is the most common type of company. The
important difference from a public limited company is that a private company may not
offer its shares for sale to the general public. ===
=== Private company limited by guarantee - members of this type of company do not
make any contribution to the capital during its lifetime as they do not purchase shares.
The members' liability is limited to the amount that they each agree to contribute to
the company's assets if it is wound up. ===
=== Private unlimited company - this type of company may or may not have a share
capital and there is no limit to the members' liability. Because there is no limitation on
members' liability, far less of the company's affairs have to be disclosed publicly than is
the case with the other types of company. ===
=== Public limited company - this type of company has a share capital and, the liability
of each member is limited to the amount unpaid on shares that a member holds. The
important difference from a private is that a public limited company may offer its
shares for sale to the general public. It may also be quoted on the stock exchange. ===
5/5/2021 24

The Memorandum of Association (MA) :
The Memorandum of Association is a document which contains
the fundamental rules regarding the constitution and activities
of a company.
The memorandum contains:
- Name of the company;
- Registered office and agent;
- Rules regarding the capital structure
- The liability of the members
- The objectives of the company
- All other important matters
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Contents of Memorandum of Association
Contents of Memorandum of Association According to the Companies Act 1994, the
Memorandum of Association must include the following Clauses:
1. Name Clause
Every company name must end with Limited (Ltd.). No name of the company should be
the name of the existing company, king, queen, president, prime minister, Father of
Nation or anything that signifies government sponsorship.
2. Situation and Address Clause
This clause should include the address and situation of the company, which is mention
in the registration.
3. Area of Business
It should include the current and potential area of the business. It should be written
carefully, because it made the boundary around the business operations.
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4. Objective Clause
This clause is the most important clause of MA. This clause identifies the scope of
the business. Beyond these identified scopes, the business can’t move. For example,
If a company says its objective to do only Shoe business, it cannot do another
business.
5. Liability Clause
This clause tells about the duties and responsibilities of the Owners; i.e., whether
the share holders are liable for their share capital or promise.
6. Capital Clause
This clause includes the amount of capital, its type, each share price, etc.
7. Consent Clause
Here the directors declare in a written statement that they are agreeing to be the
director of the proposed company by buying certain amount of a share. Generally,
the promoters become the directors. This statement should include a witness and
the directors’ signature with their name, address and occupation.
5/5/2021 27

DOCTRINE OF ULTRA VIRES
A company is incorporated for some specified
objects, stated in the memorandum of association
(MOA). It cannot do anything beyond the powers
specified in its MOA. Consequently any act done or
contract made by the company which goes beyond
the MOA or which is not expressly or implicitly
warranted by it, is ultra vires the company. The
result is that such an act or contract is wholly void
and will not be binding upon the company. It cannot
be ratified even by the unanimous vote of all the
members of the company.
5/5/2021 28

The Articles of Association (AA) :
The Articles of Association is a document which contains rules, regulations and bye-laws regarding
the internal management of the company.
The Articles can cover a medley of topics,
◦ the issuing of shares (also called stock), different voting rights attached to different classes
of shares
◦ the appointments of directors - which shows whether a shareholder dominates or shares
equality with all contributors
◦ directors meetings - the quorum and percentage of vote
◦ management decisions - whether the board manages or a founder
◦ transferability of shares - assignment rights of the founders or other members of the
company do
◦ special voting rights of a Chairman, and his/her mode of election
◦ the dividend policy - a percentage of profits to be declared when there is profit or otherwise
◦ winding up - the conditions, notice to members
◦ confidentiality of know-how and the founders' agreement and penalties for disclosure
◦ first right of refusal - purchase rights and counter-bid by a founder.
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Articles of Association
Registration of articles
Application of Schedule
I
Form and signature of
articles
5/5/2021 30

DOCTRINE OF CONSTRUCTIVE
NOTICE OF MOA AND AOA
A company’s memorandum and articles of
association become public documents on
registration. These documents are available for
public inspection in the Registrar’s office on
payment of such fees as may be prescribed.
Every person who deals with the company is
deemed to know the contents of these two
documents. This is known as doctrine of
constructive notice or constructive notice of
MOA and AOA.
5/5/2021 31

Case: KotlaVenkatswami vs. Ram Murthi AIR
(1934) Mad. 579
Fact
All deeds were to be signed by the managing
director, the secretary and a working director as
per AOA of the company. Mr. Ram accepted a
deed from the company which was signed by a
secretary and a working director on behalf of
the company
5/5/2021 32

Decision
It was held that Mr. Ram could not
claim under this deed. If he had
seen the AOA, he would not have
accepted such a deed as it was not
signed by the required persons and
hence was invalid.
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DOCTRINE OF INDOOR
MANAGEMENT
The doctrine of indoor management imposes an
important limitation on the doctrine of constructive
notice. Persons dealing with the company are
presumed to have read these documents. Once they
are satisfied that the company has power to enter
into the proposed transaction, they are required to
do no more. They are not bound to enquire into the
regularity of any internal proceedings. They are
entitled to assume that provisions of AOA have been
complied with by the company in its internal
working.
5/5/2021 34

DOCTRINE OF INDOOR
MANAGEMENT
If the proposed contract is within the scope
of the company as indicated by these two
documents, the company will be bound to
the outsider and the claims of the outsider
will not be affected in any way by the
internal irregularity of the company. This is
known as the doctrine of indoor
management or rule in Royal British Bank
vs. Turquand (1856) 6 E. & B. 327.
5/5/2021 35

DOCTRINE OF INDOOR
MANAGEMENT
Case: Royal British Bank vs. Turquand (1856) 6 E. & B. 327
Fact
The articles empowered the directors to borrow money
provided they were authorized by a resolution passed at the
general meeting of the company. The directors borrowed
money from Mr. Turquand and issued a bond to him without
the authority of resolution passed at the general meeting.
5/5/2021 36

DOCTRINE OF INDOOR
MANAGEMENT
Decision
It was held that the company was liable for the
money to Mr. Turquand because once the articles
authorized the directors to borrow money subject to
a resolution of the general meeting of the company,
Mr. Turquand was entitled to assume that the
directors were borrowing on the authority of the
resolution passed at a general meeting of the
company, he was not required to enquire into the
regularity of the company’s internal proceedings.
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Application of Schedule I
In the case of a company limited by shares
and registered after the commencement of
this Act, if articles 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.
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Form and signature of articles
Articles shall
(a) be printed;
(b) be divided into paragraphs numbered
consecutively;
(c) be signed by each subscriber of the
memorandum, who shall add his address
and description in the presence of at least
two witness who shall attest the signature.
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Registration of memorandum
and articles
(1) The memorandum and articles if any shall be field with the
Registrar who if satisfied that the requirements of this Act have
been complied with shall retain and register them within thirty
days from the date of their receipt and in the event of refusal he
shall communicate the grounds within ten days after that period
to the company.
(2) A person on being aggrieved by a refusal of the Registrar
under sub-section (1) may make an appeal to the Government
within thirty days of the receipt of the refusal order.
(3) The petition of appeal shall be accompanied by a treasury
challan showing of a fee of two hundred fifty taka to be credited
under the head of account specified in this behalf.
(4) The decision of the Government in an appeal under this
section shall be final.
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Prospectus
Defining Prospectus
The document issued in respect of invitation
to the public to subscribe the shares or
debentures of a company is called
prospectus. In fact, it is the set of printed
materials circulated and advertised in the
newspapers.
5/5/2021 41

PROSPECTUS
Contents of Prospectus
Every prospectus issued by or on behalf of a company shall
state the matters and set out the reports specified in parts I
and III respectively of Schedule III(e.g. main objects of the
company, number and classes of shares, names and addresses
of the auditors, particulars of reserves, profits and losses and
assets and liabilities of the company, the rates of dividends
etc.) Under the Public Issue Rules, 1998 the Security
Exchange Commission may also direct the issuing company to
provide some more information and details in the prospectus.
5/5/2021 42

LIABILITY FOR MISSTATEMENTS AND
OMISSION OF FACTS IN THE PROSPECTUS
A prospectus should disclose the whole
picture of the company. It should neither
contain and misstatement (i.e. untrue or
misleading statement) nor omit to disclose
any material fact. If there is any misstatement
or omission of material facts, then the
directors, promoters, the persons responsible
for the issue of the prospectus, and the
company incur a liability for the same, which
5/5/2021 43

may be discussed under the following heads:
1. Civil liability of the persons who have
authorized the issue of the prospectus.
2. Criminal liability of the persons who have
authorized the issue of the prospectus.
3. Liability of the company.
5/5/2021 44

Civil Liability
It means the liability to pay damages or
compensation. When a false prospectus is
issued by the company, then the directors,
promoters or other concerned persons are
liable to pay damages to any person who
suffer any loss by subscribing for the shares or
debentures in the company relying upon the
faith of the prospectus [S. 145]
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Criminal Liability
It refers the liability which imposes punishment on
the offender or criminal. Section 146 of the
Companies Act, 1994 provides that if a prospectus
is issued containing an untrue statement then
every person who has authorized the issue of the
prospectus, shall be punished with imprisonment
which may extend to two years or with fine which
may extend to five thousand taka or with both.
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Liability of the Company
The company is also liable to pay damages for misstatement
in the prospectus. Thus, any person who has been induced
to invest money in the company by fraudulent statement in
the prospectus, may recover damages for fraud either from
the directors etc. or from the company. However, the
company can be made liable if it is proved that the false
prospectus was issued by the directors within the scope of
their authority.
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Dating of prospectus
A prospectus issued by or on
behalf of a company or in relation
to an intended company shall be
dated, and that date shall, unless
the contrary is proved, be taken as
the date of publication of the
prospectus.
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Matters to be stated and reports to be set out in prospectus
Section134-135, Companies act (Bangladesh)1994
Registration of prospectus
Section139, Companies act (Bangladesh)1994
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Promoters
A corporate promoter (also "projector") is a
person who solicits people to invest money into
a corporation, usually when it is being formed.
An investment banker, an underwriter, or a stock
promoter may, wholly or in part, perform the
role of a promoter.
Promoters general owe a duty of utmost good
faith, so as to not mislead any potential
investors, and disclose all material facts about
the company's business
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Types of Promoters
Promoters may be classified into the following types.
Professional Promoters
They are experts who specialize in company promotion. They float the company and
hand it over to the shareholders or their representatives. Promotion is their main
profession or occupation.
Occasional Promoters
There promoters take interest in floating some companies. They are not engaged in
promotion work on a regular basis. They take up the promotion of some company and
once it is over they go to their original profession. For instance, engineers, lawyers etc.
may float some companies.
Entrepreneur Promoters
They are both promoters and entrepreneurs. They conceive idea of a new business
unit, do the groundwork to establish it and subsequently become a part of the
management.
Financier Promoters
Some financial institutions, like investment banks or industrial banks, may take up the
promotion of a company with a view to finding opportunities for investment.
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Functions of Promoters
Discovery of a business idea
The first stage in company promotion is the conception of a new idea. It is the promoter who
conceives the idea of setting up a business. If makes an assessment of the viability of a
particular business.
Detailed investigation
Promoters undertakes a detailed investigation of the viability, profitability and future prospects
of the growth of the proposed activity. To assist then in this venture, they seek the help of
specialists such as chartered Accountants, Cost Accountants, Company Secretary, Engineers.
Organizations engaged in market research and other specialized agencies. Specialists are in a
position to make an objective analysis of their own areas which may help the promoters.
Decisions have to be taken regarding the size, location, layout, man power etc.
Assembling the factors of production
If the proposed endeavor gives promise of success and the promoter is willing to undertake the
risk of forming the business, steps must be taken to assemble various factors of production viz,
land, labor, capital and managerial personnel. Assembly of resources involves making contracts
for the purchase of material, land, machinery, etc.
Entering into preliminary contracts
The promoter enters into contracts with different parties before the registration of the
company. After registration, the company approves these contracts.
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RJSC
The Registrar of Joint Stock Companies and Firms
(RJSC) is the sole authority which facilitates
formation of companies etc.; and keeps track of
all ownership related issues as prescribed by the
laws in Bangladesh.
The Registrar is the authority of the Office of the
Registrar of Joint Stock Companies and Firms,
Bangladesh.
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Historical Background
After the partition of India, the Office of the
Registrar of Joint Stock Companies & Firms under
the Ministry of Commerce was first set up in
Chittagong, the port and 2nd biggest city of
Bangladesh with some files and records of
Companies, Associations (Trade Organizations) and
partnership firms received from Kolkata, India. The
office was transferred to Dhaka, the capital of
Bangladesh in 1962. Currently there are around
110,000 entities registered under RJSC.
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RJSC deals with the following types of
entities:
i.Private companies
ii.Public companies
iii.Foreign companies
iv.Trade organizations
v.Societies, and
vi.Partnership firms
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RJSC accords registration and ensures
lawful administration of the entities under
the provisions of applicable act as under:
i.Companies and Trade Organizations:
Companies Act, 1994 (Amendment of
Companies Act 1913)
ii. Societies: Societies Registration Act, 1860
iii. Partnership Firms: Partnership Act, 1932
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The major functions and activities of RJSC are To
incorporate Companies (including Trade
Organization), Societies and Partnership Firms under
the respective Companies Act 1994, Societies
Registration Act 1860 and Partnership Act 1932, and
To administer and enforce the relevant statutory
provisions of these acts in relation to the
incorporated companies (including Trade
Organization), societies and partnership firms.
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Share and Share Capital
Defining Share
A share is the interest of a shareholder
in the company, measured by a sum of
money for the purpose of liability and
dividends in the first place and of
interest in the second and also
consisting of a series of contracts as
contained in the articles of association.
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Meaning of Share Capital
Simply, capital signifies a particular
amount of money with which a
business is started. In case of
company, the very term ‘share
capital’ refers to the amount of
money raised by the issue of shares.
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Meaning of Stock
The stock is a mere collection of the shares of a
member of a company in a lump sum. When
the shares of a member are converted into one
fund is known as stock. A public company
limited by shares can convert its fully paid-up
shares into stock. However, the original issue of
stock is not possible.
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Types of Share Capital
1. Nominal, Authorized or Registered Capital
This is the maximum amount which a company is
authorized to raise by issue of shares and upon
which it pays the stamp duty and registration fee.
Either the full amount or a part of it can be issued
for subscription and the balance can be issued
whenever the necessity arises.
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2. Issued Capital
Such part of the registered capital that is
offered to the public for subscription is
called the “issued capital” of the company. It
is not obligatory for the company to issue
the whole of the registered capital for
subscription and it may offer only a part of
the nominal capital, retaining the balance for
future requirements.
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3. Subscribed Capital
Subscribed capital means that part of
the issued capital that has been
subscribed or taken up by purchaser of
shares who have been allotted at in
nominal of face value of the Company
and which has been allotted.
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4. Called-up Capital
Called up share capital is that part of share
capital which has been called by the
company for payment. Generally, a company
does not call for the full amount of share at
one lot. It calls for a part of share to be paid,
at the time of allotment. The amount of
share which a company has been called for is
known as called up share capital.
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If the face value of a share is tk.
1000/ but the company requires
only tk. 200/ at present it may call
only tk. 200/ now and the balance
is tk. 800/ at a later date. Tk. 200/ is
the called-up share capital and tk.
800/ is the uncalled share capital.
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5. Paid-up Capital
It means the total amount of
called-up share capital which
is actually paid to the
Company by the members.
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6. Reserve Capital
Reserve Capital is the part of
the uncalled capital which
cannot be called by the
company except in the event
of its winding up.
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Types of Shares
Generally, shares are of two
types:
A. Preference share
B. Equity or Ordinary Share
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A. Preference Share
Preference shares are shares in a company
that are owned by people who have the right
to receive part of the company's profits before
the holders of ordinary shares are paid. They
also have the right to have their capital repaid
if the company fails and has to close.
5/5/2021 70

Kinds of Preference Share
1. Cumulative and Non-Cumulative Preference
Share
2. Participating and Non-participating Preference
Share
3. Convertible and Non-Convertible Preference
Share
4. Redeemable and Non-Redeemable Preference
Share
5/5/2021 71

B. Equity or Preference Share
The equity shares are those
which are not preference
shares, i.e. these shares do
not enjoy any preferential
rights.
5/5/2021 72

Debenture
Defining Debenture
It may be defined as a certificate of loan issued
by the company which creates or acknowledges
an indebtedness of the company. The Companies
Act, 1994 in S. 2(1)(e) provides that “debenture”
includes debenture stock, bonds and any other
securities of a company, whether constituting a
charge on the assets of company or not.
5/5/2021 73

CLASSIFICATION OF
DEBENTURES
The debentures may be of the following kinds:
1. Registered Debentures
2. Bearer Debentures
3. Secured Debentures
4. Unsecured Debentures or Naked Debentures
5. Redeemable Debentures
6. Irredeemable Debentures or Perpetual Debentures
7. Convertible Debentures
8. Non-Convertible Debentures
5/5/2021 74

CLASSIFICATION OF
DEBENTURES
1. Registered Debentures
These are the debentures which are
registered in the name of a particular
person are payable to him. The name of
registered holder is placed on the
debenture certificate and the company’s
register of debentures. These are not
negotiable instruments.
5/5/2021 75

CLASSIFICATION OF
DEBENTURES
2. Bearer Debentures
These are the debentures which are payable to
the bearer (i.e. the holder of the debenture). The
company keeps no register of such debenture
holders. However, if the debentures are secured
they are entered in the register of charges. The
bearer debentures are like cheques etc. are
transferable by mere delivery (i.e. they are
negotiable instruments)
5/5/2021 76

CLASSIFICATION OF
DEBENTURES
3. Secured Debentures
These are the debentures which are
secured by a charge on the property of
the company. In other words, the
repayment of interest and the principal
is secured by way of security. The
charge may be fixed or floating.
5/5/2021 77

CLASSIFICATION OF
DEBENTURES
4. Unsecured Debentures or Naked
Debentures
These are the debentures which are not
secured by any charge on company’s
property. The debenture-holders of
such debentures are the unsecured
creditors of the company.
5/5/2021 78

CLASSIFICATION OF
DEBENTURES
5. Redeemable Debentures
These are the debentures which are paid off after
the expiry of the fixed term. Thus, in case of
redeemable debentures, the company has the
right to pay back the loan to the debenture-
holders after the expiry of the fixed term, and have
its properties released from the charge created in
favour of the debenture-holders. The debentures
may be redeemable at par, or at premium.
5/5/2021 79

CLASSIFICATION OF
DEBENTURES
6. Irredeemable Debentures or Perpetual
Debentures
These are the debentures which contain no clause
as to repayment, or which contain a clause that it
shall not be paid back. Such debentures are
payable in the event of winding up of the
company, or on some serious default of the
company (e.g. when interest is not paid regularly),
or on the happening of some uncertain event.
5/5/2021 80

CLASSIFICATION OF
DEBENTURES
7. Convertible Debentures
These are the debentures which give an
option to the debenture-holders to convert
their debentures into equity or preference
shares at a stated rate of exchange, after a
certain period. [S. 81(3)]. On conversion, the
debenture-holders become the members of
the company.
5/5/2021 81

CLASSIFICATION OF
DEBENTURES
8. Non-convertible Debentures
When the right of conversion of
debentures into shares is not allowed,
e.g. the debenture holders cannot
convert their debentures into shares
after expiry of specified period, it is a
non-convertible debenture.
5/5/2021 82

CHARGE
Defining Charge
A charge is a security given for the
securing the loans or debentures by
a mortgage on the assets of a
company. It is of two types namely
fixed and floating charge.
5/5/2021 83

CLASSIFICATION OF CHARGE
Charge is generally of two types
A) Fixed or Specific Charge and B) Floating Charge
A) Fixed or Specific Charge
A charge is fixed or specific when it is made specifically to
cover assets, which are ascertainable and definite or
capable of being ascertained or defined at the time of
creating the charge. It is against security of certain specific
property (e.g. land, buildings, machineries, etc.) and the
borrower Company looses the right to dispose of that
property as unencumbered.
5/5/2021 84

CLASSIFICATION OF CHARGE
B) Floating Charge
A floating charge is not attached to any definite
property but covers property of fluctuating type (e.g.
stock-in-trade, raw materials). This type of charge is
created on a class of assets both of present and/or
future which in ordinary course of business changes
from time to time and leaves Company free to deal
with the property as it deems fit until the holders of
the charge take step to enforce their security.
5/5/2021 85

Company Management and
Director
Meaning of Director
Company being an artificial person cannot act by itself and acts
instead through human agency. The person through whom it
acts and by whom the business of the company is conducted
are known as directors.
Managing Director
A director, by virtue of an agreement with the Company or of a
resolution passed by the Company in its general meeting or by
its directors or by virtue of its MOA or AOA, while entrusted
with the substantial power of management is known as
managing director.
5/5/2021 86

DISQUALIFICATIONS OF
DIRECTORS
Section 94 provides that a person shall not
be capable of being appointed director of a
company if he has three disqualifications
namely
a) unsoundness of mind, b) undischarged
insolvency c) failure to pay call in shares, d)
minority, e) illness f) grounds mentioned in
AOA.
5/5/2021 87

POWERS OF THE DIRECTORS
Directors manage and supervise the overall affairs of the
company. So, they enjoy all such powers as are necessary for
the effective control and management of the company’s
affairs. The powers of directors are conferred by the
Companies Act, MOA and AOA. Regulation 72 of Schedule I
provides that the business of the company shall be managed
by the directors who may pay all expenses incurred in
promoting and registering the company, and may must not
be inconsistent with the provisions of the Companies Act or
of the AOA.
5/5/2021 88

DUTIES OF DIRECTORS
The duties of directors may
be classified under two
heads:
i. Statutory Duties and
ii. Duties of General Nature
5/5/2021 89

DUTIES OF DIRECTORS
Statutory Duties
There are a number of statutory
duties attached to the office of a
director. The statutory duties begin
with the incorporation of a
company and continue till the
company is liquidated.
5/5/2021 90

DUTIES OF DIRECTORS
Instances of Statutory Duties
1. To deliver the share certificates of all
shares within 3 months after the allotment
[S. 151]
2. To attend the board meeting [S. 96]
3. To hold qualification shares [S. 97]
4. To lay a balance sheet [S. 183]
5/5/2021 91

DUTIES OF DIRECTORS
Duties of General Nature
1. Duty of good faith
2. Duty of reasonable care, skill and diligence
3. Duty to attend meetings
4. Duty not to delegate
5. Duty not to breach of trust
6. Duty to disclose his interest and personal gain
5/5/2021 92

Company Meetings
A meeting may be defined as assembly of
people for a lawful purpose or the coming
together of at least two persons for the
same reason. A company meeting may be
defined as a concurrence or coming together
of at least a quorum of members in order to
transact either the ordinary or special
business of the company.
5/5/2021 93

Company Meetings
Kinds of Company Meeting
1. Meetings of Shareholders
i. Statutory Meeting
ii. Annual General Meeting
iii. Extra- Ordinary General Meeting and
iv. Class Meeting
5/5/2021 94

Company Meetings
2. Meeting of Directors
i. Meeting of the Board of Directors, and
ii. Meeting of the Committee of Directors
3. Meeting of Debenture Holders
4. Meeting of Creditors
5. Meeting of Creditors and Contributors on
the Winding up of the Company
5/5/2021 95

Statutory Meeting
The first meeting of the shareholders of a public
company is known as a statutory meeting. Every
company limited by shares and every company
limited by guarantee and having a share capital shall,
within a period of not less than one month and not
more than six months from the date on which the
company is entitled to commence business, hold a
general meeting of members of the company, which
shall be called the statutory meeting. [Section 83(1)].
This meeting is held once in the life-time of a
company.
5/5/2021 96

ANNUAL GENERAL Meeting
(AGM)
The annual general meeting (AGM) is regarded as
the most important of all company meetings. The
purpose of this meeting is to provide full information
to members of progress made by the company
during the year. Proviso to section 81(1) provides
that the first AGM shall be held within the eighteen
months of its incorporation and if a meeting is so
held, it shall not be necessary for a company to hold
any AGM in the year of its incorporation or in the
following year.
5/5/2021 97

ANNUAL GENERAL Meeting
(AGM)
Subsequent AGM must be
held by the company every
year and the interval between
any two AGMs must not be
more than fifteen months.
5/5/2021 98

EXTRAORDINARY GENERAL
Meeting (EGM)
Reg. 47 of Schedule I provides that all ordinary or
general meetings of the company other than
annual general meetings are called extra-ordinary
meeting. Besides, statutory meetings are also not
extra-ordinary meetings. These meetings are called
in emergencies or on special occasions. They are
convened when it is found necessary to transact
certain business which cannot conveniently be
postponed until the next annual general meeting.
5/5/2021 99

EXTRAORDINARY GENERAL
Meeting (EGM)
All business transacted at an EGM is
deemed to be special business, of
which notice has been duly given
beforehand. An EGM is usually called
for such purposes as alteration of the
memorandum and articles of the
company, increase or decrease of share
capital or reorganization of capital.
5/5/2021 100

RESOLUTIONS
A resolution may be defined as the formal expression
of decision of a meeting on any proposal before it
and provided it conforms to law, is binding on all
members.
The Companies Act recognizes 3 types of resolutions:
i. Ordinary Resolution;
ii. Special Resolution and
iii. Extra-ordinary Resolution
5/5/2021 101

ORDINARY RESOLUTION
A resolution which requires simple majority
of the members entitled to vote and voting
in person, or where proxies are allowed, by
proxy, is called an ordinary resolution. A
resolution shall be an ordinary resolution
when the votes at a general meeting cast by
members in its favour are more than the
votes cast against it.
5/5/2021 102

ORDINARY RESOLUTION
Business Transacted by Ordinary Resolutions
A) Issue of shares at a discount [S. 153]
B) Adoption of statutory report [S. 83]
C) Adoption of Annual Accounts [S. 183]
D) Declaration of Dividend
E) Authorizing Voluntary Winding up Under
Specified Circumstances [S. 286]
5/5/2021 103

EXTRA-ORDINARY RESOLUTION
A resolution shall be called an extra-ordinary
resolution when it has been passed by a
majority of not less than three-fourths of
such members of which notice specifying the
intention to propose the resolution as an
extra-ordinary resolution has been duly
given. [S. 87(1)]
5/5/2021 104

SPECIAL RESOLUTION
A resolution shall be a special resolution when it has
been passed by such a majority as is required for the
passing of an extra-ordinary resolution and not less
than twenty-one days notice specifying the intention
to propose the resolution has been duly given. But, if
all the members entitled to attend and vote at any
such meeting agree, a special resolution may be
passed at a meeting of which less than 21 day’s
notice has been given. [S. 87(2)]
5/5/2021 105

SPECIAL RESOLUTION
Business Transacted by Special Resolution
A) Alteration of the memorandum [S. 21]
B) Alternation of the name of the company
[S. 11]
C) Alteration of the articles of association [S.
20]
D) Reduction of Capital [S. 59]
5/5/2021 106

Winding Up or Liquidation
Defining Winding Up or Liquidation
Winding up or liquidation is a legal
process in respect of a joint stock
company, by which its affairs are wound
up and its assets sold and converted into
hard cash for being divided among the
persons entitled thereto.
5/5/2021 107

Winding Up or Liquidation
Modes of Winding Up
1. Compulsory Winding Up by
the Court
2. Voluntary Winding up and
3. Voluntary Winding up under
the Supervision of the Court
5/5/2021 108

COMPULSORY WINDING UP
The winding up of a company by an order of
the court is called the compulsory winding
up. The company may, by special resolution,
resolve that it be wound up by the court.
The resolution may be passed for any cause
whatsoever. However, the court must see
that winding up is not opposed to public
interest or the interest of the company as a
whole.
5/5/2021 109

When can Court order for Compulsory Winding
up
Section 241 of the Companies Act, 1994 provides
circumstances in which company may be wound
up by Court. Under this section a company may
be wound up by the court:
i) if the company has by special resolution
resolved that the company be wound up by the
court;
5/5/2021 110

ii) if default is made in filing the statutory report or
in holding the statutory meeting;
iii) if the company does not commence its business
within a year from its incorporation or suspends its
business for a whole year;
iv) if the number of shareholders is deduced, in the
case of a private company, below two, or in the case
of any other company, below seven; and
v) if the company is unable to pay its debts.
5/5/2021 111

VOLUNTARY WINDING UP
Of all forms of winding up a company,
voluntary winding up is by far the most
common and popular form. It is altogether
different from compulsory winding up. In
voluntary winding up, the company and its
creditors are left free to settle their affairs
without going to the court. The members
and creditors sit together and put an end to
the business.
5/5/2021 112

So, a company, may, voluntary wind up
affairs, if it is unable to carry on its business,
or if it was formed only for a limited
purpose, or if it is unable to meet its
financial obligation, and etc. It is winding up
that is not controlled by a court of law but
happens because the owners of the
company decide it should happen.
5/5/2021 113

Under section 286 of the Companies Act, a
company may be wounded up voluntarily by
following ways:
A. By passing ordinary resolution
B. By passing special resolution and
C. By passing extra-ordinary resolution
5/5/2021 114

Kinds of Voluntary Winding Up
Under section 290 there are two
types of voluntary winding up:
a) Member’s voluntary winding up
and
b) Creditors voluntary winding up
5/5/2021 115

a) Members Voluntary Winding Up
A voluntary winding up will be
members’ voluntary winding up if a
declaration of solvency has been
made in accordance with the
provisions of the Companies Act.
5/5/2021 116

b) Creditor’s Voluntary Winding Up
A winding up in the case of which no declaration
as to the solvency of the company is made and
delivered to the Registrar [as required in the case
of member’s voluntary winding up under the
provisions of section 290(1) of the Act] and the
shareholder pass a resolution for winding up, the
winding up is known as creditor’s winding up.
5/5/2021 117

VOLUNTARY WINDING UP UNDER
THE SUPERVISION OF THE COURT
When a company wound up subject to the supervision of
court in case of voluntary winding up it is called voluntary
winding up under the supervision of the Court. Section 316 of
the Companies Act,1994 provides that when a company has
by special or extra-ordinary resolution, resolved to wind up
voluntarily the Court may make an order that the voluntary
winding up shall continue, but subject to such supervision of
the Court, and with such liberty for creditors, contributories;
or other to apply to the court and generally on such terms and
conditions as the court thinks just.
5/5/2021 118

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