corporate law p2 section 01Page 1 of 43 shakil & mannanDRECTORS1. (b) Discuss the qualification and disqualification of a director of a company. How directorsare appointed? Can share warrant form the share qualification for directorship? M 06Ans:Qualification of Directors:ArticlesofAssociationofaCompanyusuallyfixtheminimumnumberofshareswhicheveryDirectormustsubscribein ordertobecomeaDirector.Theminimumnumberwhichisdeterminedby theArticlesisknown asthe qualificationnumber of shares ascontainedin Section 97(1) of CA1994. Every Director shall hold that minimum qualification shares within 60 days or within the timeas may be specified in the Articles whichever earlier.AsperSection97(2),ifaftertheexpirationoftheperiodmentionedin sub-section(1) anysuchunqualified person acts as a Director of the Company he shall be liable to pay fine not exceeding Tk.200 per day for the period of holding as an unqualified Director under this section.As per section 92 every person shall not act as a Directors unless he has -- signed and filed with the Registrar to consent in writing to act as such Director and- signedtheMemorandumforanumberofsharesnotlessthanhisqualificationshares,ortaken from the Company and paid or agreed to pay for his qualification sharesDisqualification of Directors:Following persons shall not be eligible for appointment as director: (Sec-94)- An unsound mind, declared by a competent court;- An insolvent or an un-discharged insolvent;- A person applied to be adjudicated as an insolvent and his application is pending.- Any person fails to pay his shares money after it is called up and 180 days have elapsed fromthe last day fixed by the call.- A minor- Any other person/persons as may be prescribed in the article.As per Section 91 of CA 1994 directors are appointed as follows:- Subscriber of Memorandum shall be treated as the first Directors;- Generally Directors are appointed at the AGM by the shareholders among themselves.- One-third of Directors shall retire by rotation in each year;- Existing Director may appoint a person as Directors to fill up any casual vacancy.Share warrant is not taken into consideration for qualification of share of director.corporate law p2 section 01Page 2 of 43 shakil & mannan4(b) State the provisions of Companies Act, 1994 as to appointment of Managing Director.N 05Ans: Appointment of the Managing Director:The Managing Director is normally appointed by the Board of Directors amongst the members of theBoardandconsentoftheshareholdersis tobetakeninthegeneralmeetingoftheCompany.Thefirst Managing Director is appointed by the signatories of Memorandum of Association.As per section 109 of the CA 1994 no Public Company, no Private company which is a subsidiary ofaPublicCompany.shallafterthecommencementofthisAct,appointanypersonasaManagingDirector, if he is a Managing Director or Manager of any other Company.Provided that no appointment shall be made to any person as the Managing director of the Companywithout the consent of the shareholders in the general meeting. .As per Section 110 no Company shall appoint or employ any individual as its Managing Director fora term not exceeding five year at a time.2.(a)Directors are trustees as well as agents of the company" discuss.M 05Ans: Directors are trustee and agent of the Company.Directorsaretrustees aswellasagents of theCompany.All activities,business andtransactionsoftheCompanyforitsdevelopments,promotionsisdonebythedirectorsforandonbehalfoftheCompany like an agent. The articles of association empowered the Directors to do/run the Company.The directors can do the followings for and on behalf of the Company as contained in the articles ofassociation:1. To run the business of the company2. To recommend dividend3. To enter into contract.4. To maintain reserves5. To issue, forfeiture of share6. To issue debenture.7. To Invest fund8. To take redeem loan9. To appoint officers & staffs and to pay their emoluments.The above activities are done by the directors as agent of the Company.Directors are to do all activities as trustee of the Company.All assets resources are to be kept safety and to utilize themfor the interest of the Company.Underany circumstancesDirectorsarenotallowedto useassetoftheCompany fortheirown without theapproval of the Board. Directors are tomaintain proper accounts as required by law andto domanyother activities as trustee of the company. such as:1. To run the Company efficiently.2. To optimum utilization resources.3. To save the Company from losses/damagescorporate law p2 section 01Page 3 of 43 shakil & mannan4. To maintain proper books of accounts..5. To call the AGM.6. To maintain secrecy of the organization.7. To refrain from doing such activities prohibited by the act.In the above sense it is said Directors are trustees of the Company.(b)Discuss the position, powers and liabilities of directors.M 05Ans: Legal position of Directors;There are different views about the legal position of Directors. They have been described sometimesastrusteesofthecompanyandsometimesasitsagents.Neitherviewiswhollycorrectbutbothcontain elements of truth.Fiduciary Position:It is generally agreed that the Directors occupy a fiduciary position in relation to the Company. Theymust make full disclosure of all material facts of the Company.Officers:The Section 2(i)(0) of the Companies Act provides that a Director is an officer of the Company.Power of Directors:Directorsderivetheirpowerandauthorityfromtwosources(i)theArticlesofAssociationoftheCompany and (ii) the Companies Act.Thearticlesofassociationgenerallycontainalistofthepowers,whichmaybeexercisedbyDirectors and the limitation on those powers.All acts and things done by the Board of Directors, within the powers given to it by the articles, arevalid and binding on the company.It may be noted that a Directorindividually has no authority over the affairs of the Company exceptas regards matters, which have been specifically delegated to him by the Board.Liabilities of Directors:TheliabilitiesofDirectorsmay beanalyzedwithreferencetoliability ofDirectorstothirdparties,liabilitytothecompany,liabilityforbreachofstatutorydutiesandliabilityforactsofhisCo-Directors. Directors' liability may be civil liability, criminal liability and unlimited liability.Civil Liability:The directorsmay: undercertain circumstances,beliable topay compensationtotheCompany andto outsiders, as such:1. Untrue statements in the prospectus.2. Ultra vires acts.Criminal liability:Forcertain breaches of duty theCompanies Act imposes criminalliabilitiesu0070toDirectorssuchas:1. Untruestatementsinprospectus,failingtokeepcertainregister,falsificationofbooksandreports etc.corporate law p2 section 01Page 4 of 43 shakil & mannan1. Discuss the duties and functions of promoters and Directors of a company.N 04Ans: Duties and functions of Promoters:The main duties and functions of a promoter is to undertake to form a Company with reference toagreement for the project. He has to handle all legal formalities for formation of a Company.Promoters may have three possible positions:1.He may be a promoter to acquire the property for the company in which case, all the rules ofagency would apply. Accordingly, any profit he may make will belong to the company.2.He may acquire the property himself and then decide to form a Company and sell theproperty to it in which case no question of agency or trusteeship arises. He can make whatbargain he chooses without being under any obligation to disclose the profits.3.He may acquire the property with a view to resell it to the Company which he intends topromote, in which case he becomes' bound by the fiduciary obligation and if he makes aprofit he must disclose it to the Company.4.A promoter may be issued share for his remuneration or as founder share.Duties and functions of Directors:1. Distribution of work: among the staff2. Every director must act honestly and in the interest 'of the Company. . ,3. A Director must exercise such degree of skill and diligence as would amount to thereasonable care.4. A Director should perform his duties at a greater degree of skill.5. A Director should attend the Board or other ,meetings and should act according to thedecision of the meeting. .6. To hold the AGM.7. Tomaintain proper books of accounts.8. Recommendation of dividend. '9. Disclosure of information as required by the Act and as required by others Act, rules,regulations and regulatory authorities.1(b)When office of a director stands vacated?M 04Ans: Vacation of the office of the DirectorAspersection108oftheCompaniesAct,theofficeofaDirectorshallbecomevacantunderthefollowing circumstances:1. If he fails to obtain within the due time or at any time thereafter ceases to hold the qualificationsshares, if any, necessary for his appointment; or2. If he is found to be of unsound mind by a competent court; or3. If he is adjudged an insolvent; or4.Ifhefailstopay caIlsmoneymadeonhiminrespectofsharesheldbyhimwithinsixmonthsfrom the date of such caIls being made; or5. If he or any firm of which he is a partner or any private company of which he is a director, withoutthe sanction of the company in general meeting accepts or holds any office of profit under thecompany other than that of a managing director or manager or a legal or technical adviser or acorporate law p2 section 01Page 5 of 43 shakil & mannanbanker; or6. If he absents himself from three consecutive meeting of the Directors or from all meetings of theDirectors for a continuous period of three months, whichever is the longer, without leave of absentfrom the Board of Directors; or7. If he or any firm of which he is a partner or any private company of which he is a director acceptsa loan or guarantee from the company in contravention of section 103; or8. If he acts in contravention of section - 105.(c)Explain briefly the procedures of rotation of director.M 04Ans: Rotation of Directors(1) At the first general meeting of the company the whole of the directors shall retire from office, andatthegeneralmeteringin every subsequentyearone-thirdofthedirectors forthe timebeing or,iftheir number is not three or a multiple of three then the number nearest to one-third shall retire fromoffice(2) The Directors to retire in every year shall be those who have been longest in office since their lastelection, but as between persons who become directors on the same day those to retire shall (unlessthey otherwise agree among themselves) be determined by lottery.(3) A retiring director shall be eligible for re-election.(4)Thecompany atthegeneral meeting atwhich adirectorretires Inmanneraforesaidmay fill upthe vacated office by electing a person thereto.(5) Thedirectorsshallhavepoweratanytimeandfromtimetotime,toappointapersonasanadditionaldirectorwhoshallretirefromofficeatthenextfollowingordinarygeneralmeetingbutshall be eligible for election by the company at that meeting as an additional director.2(b)Section 103 lays down about directors loan - rewrite the contents in you way. N 02Ans: Loan of directorsSection 103 (1) of CA t994 states that no company, other than a lending company mentioned belowshallmakeany loanorgiveany guaranty oranysecurityinconnectionwithaloanmadeby thirdparty to - .a) Any Director of the lending company;b) Any firm in which any Director of the lending company is a partner;c) AnyprivatecompanyofwhichanyDirectorofthelendingcompanyisaDirectororMember;d) Any public company, the Managing agent, Manager or Director where of this accustomedto act in accordance with the directions of any Director of the lending Company;How ever the loan may be givenin case of banking company or theloan is approved by the boardand AGM.corporate law p2 section 01Page 6 of 43 shakil & mannanPROSPECTUS1(b) What is prospectus? Do all the companies issue it ?N 05What do you know about silent features / registration of prospectus?N 05What could be an alternative to prospectus? Write a few lines about it?List the financial contents of prospectus.What remedies are available to an applicant who has been induced to buy shares of a companyby a material miss-representation of facts in a prospectus?Ans: Prospectus:Aprospectusisaninvitationtothepublictopurchasesharesordebentureofacompany.Inotherwords,aprospectusmaybedefinedasanydocumentthatincludesanynotice,circular,advertisement or other discernment inviting offers from the public for the subscription or purchase ofany share or debentures of a body corporate. Prospectus has the following characteristics:1. It is a document described or issued as a prospectus;2. It includes any notice, circular, advertisement to the public for sale of securities;3. It is an invitation to the public;4. The public is invited to subscribe the shares or debentures of a Company.No,allthecompaniesdonotissueaprospectus.OnlythePublicLimitedCompanieshavingpermission from the Securities and Exchange Commission may issue a prospectus.Registration of Prospectus:Before publication of a prospectus inviting people to subscribe shares or debentures of a Company, acopy oftheprospectusmustbedeliveredtotheRegistrarforregistrationonorbeforethedateofpublication. It should l2.e signed by the Directors or proposed Directors of the Company or by theiragent. On the face of the prospectus delivered to the Registrar for registration, it should be stated thatacopyhasbeendeliveredforregistration;andmustcontainalistofstatementsincludedintheprospectus.Theregistrarshallnotregisteraprospectusunlesstheprospectuscontainsalltherequired elements as per companies act 1994, public issue rules 2006 and other SEC regulations andthe prospectus isaccompaniedby theconsentinwritingofthepersonIfany,namedtherein astheauditor, legal adviser, attorney, solicitor, banker or broker of the Company to act in that capacity. Noprospectus shall be issuedmore than 90 days after the date on which a copy thereof is delivered forregistration. If a prospectus is issued without delivering a copy thereof to the Registrar, the Companyand every person from those who have knowingly been a party to the issue of the prospectus shall bepunishable with a fine which may extend to 5,000 taka (Section 138)Alternative to a prospectusAsperSection-141aPublicLimitedCompanyhavingasharecapitalandnotissuingprospectusmustatleast31daysbeforethefirstallotmentofsharesordebentures,filewiththeRegistrarforregistrationastatementinlieuofprospectus.Thestatementmustbeintheformprescribedinschedule-IVoftheCompaniesAct-1994.Everyprivatelimitedcompanywhichisconvertedtoapublic limited company shall also a statement in lieu of Prospectus as per Schedule-V.corporate law p2 section 01Page 7 of 43 shakil & mannanThe financial contents of prospectus:(a) If the company had no revenues from operations in each of the last two years, the company's planofoperationsforthenexttwelvemonthsshallbedescribedintheprospectuswhichshall,amongothers include:1. a discussion of its cash requirement; -2. a summary of any product research and developments;3. any expected purchase or sale of land;4.any expected change in the number of employees.(b) If the Company had revenue from operations in above period shall include the following:1. Resources of cash;2. Expected capital expenditure;3. Cause of changes of income, cost, operating expenses and net profit;4. Seasonal aspects of business;5. Loan taken by the company;6. Taxation yet to be paid;7. Operating and finance lease;8. Payment to manager to the issue, underwriter.Remedies available to the shareholders for untrue statement in the prospectusIn case of untrue and misleading information furnished in the prospectus its promoters and directorswillbeheldliable.TheshareholdersmayclaimtorefundthevalueofsharesallottedandtheShareholdersmay claimdemurrageforanylossesincurredforsuchmisstatementfurnishedintheprospectus. But they cannot retain the share and claim the demurrage simultaneously.4.WhatisProspectus?Whatareitsmaincontents?Isitobligatoryonacompanytoissueprospectus?Whataretherightsofashareholderagainstthecompanyanditsdirectorsandpromoters for untrue and misleading statements in the prospectus?M 02Ans: Prospectus, Information to be included in Prospectus as per SEC listing regulation:A prospectus is. aninvitation by the offer or company tothe public to purchase shares or debentureofthatcompany.Inotherwordsaprospectusmaybedefinedasany documentthatincludesanynotices, circular, advertisement or other document inviting deposits from the public or inviting offersfrom the public for the subscription or purchase of any share or debentures of a body corporate.As per SEC listing regulation following documents are to be included in the prospectus:Information to be included in the prospectus:1. Cover page:h) Name of the companyi) The amount and type securities being issuedj) The offering price of securities .corporate law p2 section 01Page 8 of 43 shakil & mannank) The amount 9f commission being paidI) The name and address of underwritersm) The date of prospectusn) Consent clause in bold type2. Table of Contents (in side cover page):3. Risk factors4. Use of proceeds5. Description of business6. Description of property19. Plant of operation and discussion of financial condition20. Director and officers21. Involvement of officers and directors in certain legal proceedings22. Certain relation ship and related transactions23. Executive compositions24. Option granted to officers. directors and employees25. Transaction with promoters26. Ownership of the companies securities27. Determination of offering price28. Plan of distribution29; Market for securities being offered30. Financial statements requirements etc.Do all the companies issue a prospectus?All the companies do not issue a prospectus. Only the Public Limited Companies having permissionfromtheSecuritiesandExchangeCommissionmayissueaprospectus.Apubliclimitedcompanywhich does not issue a prospectus, it shall issue a statement in lieu of prospectus.AsperSection-14laPublicLimitedCompanyhavingasharecapitalandnotissuingprospectusmustatleast31.daysbeforethefirstallotmentofsharesordebentures,filewiththeRegistrarforregistrationastatementinlieuofprospectus.Thestatementmustbeintheformprescribedinschedule IV of the Companies Act-l 994.In case of untrue and misleading information furnished in the prospectus its promoters and directorswillbeheldliable.TheshareholdersmayclaimtorefundthevalueofsharesallottedandtheShareholdersmay claimdemurrageforanylossesincurredforsuchmisstatementfurnishedintheprospectus. But they cannot retain the share and claim the demurrage simultaneously.corporate law p2 section 01Page 9 of 43 shakil & mannanFOREIGN COMPANY1.OneofyourprospectiveclientsfromUSAiscontemplatingtostarttheirbusinessinBangladesh. The client requests your opinion overthe legalposition of openingtheir businessintheformofLiaisonOffice,Branch)Officeandformingasubsidiaryintermsof:(i)legalsteps; (ii) taxation and (iii) remittances and employment.N 06Ans: Regulations relating to legal steps, taxation, remittances and employment of a ForeignCompany:Asper section378(a)oftheCompaniesAct(CA)1994,anyCompanyincorporatedoutsideBangladeshwhich,establishaplaceofbusinesswithinBangladeshshallbetreatedasaForeignCompany. The following regulations are related to Foreign Companies:Legal Steps as required by the CA 1994:Registration of foreign Companies:Ascontainedin section-379aForeignCompanycanberegisteredinBangladesh.TheForeignCompanies,whichafterthecommencementofthisActestablishaplaceofbusinesswithinBangladeshshall,withinonemonthoftheestablishmentoftheplaceofbusiness,deliverthefollowing documents to the Registrar for registration.(a)Acertifiedcopy ofthecharterorstatutesormemorandumandarticlesoftheCompany orotherInstrumentconstitutingordefiningtheconstitutionoftheCompany;andiftheinstrumentisnotwritteninBengaliorEnglishlanguagesacertifiedBengaliorEnglishtranslation thereof;(b)The full address of the registered or principal office of the Company;(c)A list of the Directors and Secretary if any, of the Company;(d)ThenameandaddressorthenamesandaddressesofoneormorepersonsresidentinBangladesh, authorized to accept on behalf of the Company service of process and any noticeor other document required to be served on the company;(e)The full address of the office of the Company in Bangladesh, which is to be deemed to be itsprincipal place of business in Bangladesh.Accounts of Foreign CompaniesEveryForeignCompanyshall,ineverycalendaryearmakeoutaBalanceSheet.ProfitandLossAccount, GroupAccount(if itis aholding company)andsuch otherdocumentsandinformation asrequired by the Act and deliver 3 copies of the same to the Registrar (section-380).corporate law p2 section 01Page 10 of 43 shakil & mannanObligation to state name, etc of Foreign CompanyEvery foreign company shall -a) in every prospectus inviting subscription in Bangladesh for its shares or debenture, state thecountry in which the company is incorporatedb) exhibit on the out side of every office or place where it carries on business, the name of thecompany and the country of incorporation in legible English or Bengali Character;c) disclose the name of the company, country of incorporation in English and Bengali in allbills, letter head, notices and other official publications (section 381).As per section 388 the company shall submit a certified copy of the prospectus to the Registrar if thecompany wants to issue prospectus offering to the public for-subscription of shares/debentures.Other related regulationsThe Company shall be registered with the Board of Investments (BOI) as a foreign company or ajoint venture company by paying prescribed fees to Government.Clearance from the Office of the EnvironmentA clearance letter from of the office of the Environmen1is to be obtained by paying adequate feesalong with complying to other formalities to the Government.Obtaining a trade licenseA trade license is also to be obtained by paying prescribed fees from the City Corporation or UnionPorishad concerned as the case may be to run its business in any City corporation, Pouroshabha orUnion Parishad area.TIN NumberThe company would require TIN number from the Income Tax Office concerned as per ITOrdinance 1984 & recurrent finance bill.VAT registrationThe Company will be registered with the Divisional Officer, VAT and collect a certificate of VATregistration, i.e. 'VAT-8' as per VAT Act 1991.Registration, permission, approval, license will also be required from the regulatory authoritiesrelated to the nature of business of the Foreign Company.Taxation of Foreign CompaniesIncome Tax:The foreign Company may get special Tax benefit if it is located in Export Processing Zone (EPZ).In this case, the Company will get tax exemption period for 10 years. .No Income Tax will becorporate law p2 section 01Page 11 of 43 shakil & mannandeducted at source from the income of the Company as well as from the import value of theCompany. In case the company is an export oriented one it will pay no Duties, Tax, VAT, etc. onimport of raw materials. After the Tax holiday period the Company will also enjoy 50% Income taxrelief on its export earnings.VAT:The VAT rate for export of items of any company. But if the company sells its products locally itwill pay VAT as per 1991and amendments thereto.Remittance and EmploymentAfter registration of the Company by the Registrar, it will take permission from the Bangladesh Bankthrough the board of Investment for remittance from the overseas by way of loan, equity, etc. and forremittance from Bangladesh for payment of dividend.interest etc. For recruitment of any foreignersin the company, the company will take work permit of. the employees from the Board of Investment.For Bangladeshi employees no such permission is required to work in foreign companies.corporate law p2 section 01Page 12 of 43 shakil & mannanMEETING & RESOLUTION3(a)State the procedures of calling annual general meting and extraordinary generalmeeting of a company. State what businesses are transacted in annual general meeting.N 06Ans : Annual General MeetingAspersection81(1)ofthecompaniesact1994companyshallholdoneannualgeneralmeeting(AGM)ofthecompanyineveryGregoriancalendaryearButtheperiodfromoneAGMtonextAGM shall not exceed 15 months, Every company shall hold its first AGM after incorporation within18 months from the date of incorporation.Butas perSECregulationstheAGMistobeheldwithin6monthsfromtheendofits accountingyear.ForcallingAGMnoticetotheshareholdersistobegivenatleast14daysbeforetheAGM,mentioningthedate,time,agendaandvenueofthemeetingtherein.Theannualreportofthecompany is to be accompanied.Extra ordinary general MeetingAs per section.84, the above meeting can be called on requisition from holders of 1/10th members or1/10holdersofpaid-upcapital.IftheDirectorsdonotcause ameetingtobecalledwithintwenty-one days from the date of the requisition being so deposited, the requisitionists or a majority of theminvaluemaythemselvescallthemeeting,butineithercaseanymeetingsocalledshallbeheldwithin three months from the date from the deposit of the requisition. Notice for holing the meetingistobe given atleast 21 days before the date ofthemeeting. TheAgenda of the meeting is tobementioned in the notice.Following businesses are generally transacted in the AGM1. Adoption of annual financial statements and auditors' report thereon;2. Declaration of Dividend;3. Appointment of Auditors and fix their remuneration;4. Appointment of Director(s) after requirements thereof:5. Any other matter with the permission of chair.(b) What are the different types of resolutions envisaged in the Companies Act 1994? Haw andin which meeting a special Resolution of a Company is passed?N 06Ans: Different type of resolutions:(i) Ordinary resolution (ii) Special resolution (iii) Extra-ordinary resolution. (ii) Special resolution:corporate law p2 section 01Page 13 of 43 shakil & mannanThis is passed in extra ordinary general meeting by the three fourth majority of the members presentin person or by proxy where proxy is allowed. Notice for which 21 days specifying the intention topropose the resolution is to be give before the date of the meeting [Section 87 (2)]Special resolutions are necessary for the following purposed:i) To change the name of the Company;ii) To alter the Memorandum of Association;iii) To alter the Articles of Association;iv) To reduce the share capital;v) To convert any portion of the capital, uncalled in to reserve capital;vi) To appoint inspectors to investigate the company's own affairs;vii) For winding-up of a Company voluntarily.3.The following are some points noted by Company Secretary of a listed company immediatelyafter the Board meeting for approval of accounts:-(i) Interim dividend 20% already paid; proposed final dividend 20% in addition to interim.(ii) Auditors-existing auditors have consented to their re-appointment.(iii) Acquiring 40% stake in an existing company.(iv) Appointment and remuneration of Chief Financial Officer approved.(v) Capital expenditure of up to 10% of equity.(vi) Bonus issue utilizine: all available reserves.(vii)Increase in paid up capital through further issue to existing shareholders.DraftanoticefortheforthcomingannualGeneralMeeting(AGM)ofthecompanyandtheagendacontainingitemsthat arenormallyincludedin anAGM formembers'approval.Alsocommentonanyaspectthatisnotinaccordancewiththeprovisionsofthecompanylaworrelated rules.N 05Ans: Notice of the Annual General Meeting:Notice is hereby given that the 1211A1nnual General Meeting of the Shareholders of TPL CompanyLtd.willheldat10.00amonWednesday,the20thDecember,2007attheBDRDarbarHall,Pilkhana Dhaka to transact the following business.A G E N D Al.To receive,consider and adoptthe Director's Report and the Balance Sheet together with theProfit&LossAccountof theCompanyfortheyearendedon June30,2007alongwith the'Auditors Report thereon.2.To declare dividend as recommended by the Board of Directors @20%3. To appoint Auditors for the year 2007-2008 and to fix their remuneration.corporate law p2 section 01Page 14 of 43 shakil & mannan4. To elect Directors.5. Totransactany otherbusinesswhich may betransactedatan ordinary general meeting withthe permission of the chair.Dated: 30 OCT. 2007For and on behalf of the BoardSDCompany SecretaryThe matter relating toacquiring 40% stake, appointment of CEO, capital expenditure and new issueof shares are not the matter of business to be transacted in the AGM.3(b)Differentiate between ordinary resolution, special resolution and extra ordinary resolution.M 05Ans: Ordinary Resolution:Thisispassedby themajorityvoteofmemberspresentatageneralmeeting.Sucharesolutionispassed in the ordinary way and deals with ordinary business', such as passing of accounts, appointingdirectors, auditors, and declaration of dividends and so on.Special resolution:This is passed in a general meeting by the three-fourths majority of the members present in person orby proxy, provided notice for such meeting specifying the intention to propose the resolution is givenat least twenty-one days before the date of the meeting.Special resolutions are required: (a)to change the name of the company with consent of the registrar;(b)to alter the memorandum;to alter the articles.-(e)etc.Extra Ordinary resolution:This is passed by such majority vote at a meeting of which 14 days notice has been given. The noticemustspecifytheintentiontoproposetheresolutionasanextra-ordinaryresolution-Section-87(i).Suchresolutionisnecessarywhenacompanyissoughttobewound-upvoluntarilyonthegroundofthatitcannotcontinueits businessonaccountofitsliabilitiesandalsoforanumberofother reasons.corporate law p2 section 01Page 15 of 43 shakil & mannan5(a)What are the different type of resolutions laid down in the companies act, 1994? Pleasewrite down the purposes of the resolutions.M 04Ans: Kind of resolutions:There are three kinds of resolutions. These are:1. Ordinary resolution;2. Special resolution;3. Extra-ordinary resolution.Types of resolutionPurpose of resolution1. Ordinary resolution - Passing of Accounts- Appointment of Directors- Declaration Dividend2. Special resolution - Changing the name of the company- Alteration of M/A, NA- Reduction of capital- Winding-up of company voluntarily.3. Extra-ordinary resolution - Winding up of a company voluntarily.3 (c) Prepare a hypothetical company's' Report from the Chairman of the Board of Directorsto the shareholders for the ensuing Annual General Meeting.N 03Ans: Hypothetical report of the Chairman of the Board . Itisindeedagreathonorandprivilegesformeto'greetyouall,onceagain,tothis10thannualGeneral Meeting of your Company It also gives me immense pleasure to place before you the annualreportalongwiththeauditedaccountsofyourcompanyandauditorsreportthereonfortheyear2006.Business Condition:2006experiencedyetanothersuccessfulyearbothintermsofsalesandprofitabilitydespitethevolatile political situation andeconomy of the country. Your share price has gone up by 100%. Wewere able to overcome all odds situation prevailed during the year.Expansion program:Introduction of 10 show rooms for enhance the distribution net work of our product to the customers.corporate law p2 section 01Page 16 of 43 shakil & mannanFinancial aspects:- Sales revenue was gone lip by 50% compared to last year- Net profit before tax has has been increased by 25% compared to last year- Shareholders equity has gone up to Tk. 400 per share- Fixed assets and investment rose up to Tk. 5,000 millionHuman resources:Theachievementwouldnothavebeenpossiblewithoutthededicationandcommitmentofouremployees who are the foundation of our company.Conclusion:Here I would like to take this opportunity on behalf of the Board of Directors and express my deepestappreciationtoallourvaluedcustomersfortheirconfidenceinourproduct,totheemp10yeesfortheirtirelessefforts,tothesuppliersfortheirqualitygoods,to,thefellowshareholdersandmosthonoredshareholders for'theircontinuous support andinterestforthe welfare of thecompany.Weshall however continue to seek this last support & confidence upon us.Thank you allChairman of the Board.3(b) How do you distinguish between Statutory Meeting and Extra Ordinary Meeting?N 01Ans : Statutory Meeting:Everycompanylimitedbysharesandeverycompanylimitedbyaguaranteeandhavingasharecapital is required to hold a statutory meeting of the members of the company within a period of sixmonthsandnotlessthanonemonthfromthedateonwhichthecompanybecomesentitledtocommence its business ( section -83)Extra ordinary Meeting:All meetings of the shareholders otherthan the annual meetingorthoseprovidedforinthearticlesare known asextraordinary general meetings.These meetings may becalledby theDirectorseither"suomoto" or on the requisition of not less than 1/10th shareholders.corporate law p2 section 01Page 17 of 43 shakil & mannanCOMPANY FORMATION3(a) State the steps involved in the formation of a company under the Companies Act 1994? M 06Ans: Formation of a Company:2 (two) or more persons (not more than 50) and 7 or more persons (unlimited) may form a Private oraPublicLimitedCompanyrespectivelybysubscribingtheirsignatureintheMemorandumofAssociation.They may form- a Company limited by shares;-a Company limited by guarantee;-an unlimited Company.There are 3 stages for formation of a company -(i) Promotion;(ii) Registration;(iii) Commencement of business.Promotion stages (i) Promoters(ii) Clearance of name(iii) Sponsors' equity(iv) Consent of the Directors(v) Selection of objectives.Registration:(i) Submission of Memorandum & Articles of Association.(ii) Payment of stamp duty & Registration fees.(iii) Obtaining certificate of incorporation.Commencement of business:-For a Private Limited Company, the business of the Company can be commenced after getting theregistration i.e. certificate of incorporation.-ForaPublicLimitedCompany,theCompanyshallobtainthecertificateofcommencementofbusiness from the Registrar.corporate law p2 section 01Page 18 of 43 shakil & mannanWINDING UP3.(b)Whoareauthorizedtomakeanapplicationtothecourtforthewindingupofacompany?HowdoesthewindingupaffectthepositionofservantsandtheDirectorsofthecompany? Tabulate the difference between the winding up of a company / company limited byshares and the dissolution of a partnership.M 06Ans: Application to the Court for winding-up:According to Section239,thewinding-upofaCompany may bedoneinanyoneofthefollowingthree ways:1. Compulsory winding up by court.2. Voluntary winding up by the members or by creditors.3. Voluntary winding up under the supervision of the court.In above all cases winding up may be made by the application of:1. Any member of the Company with the special resolution;2. Any member of the Company with the Extra-ordinary resolution;3. The regulatory authority in case of default in filing the statutory meeting, report, etc.;4. Any creditors/members if the Company is unable to pay its debts.Winding up affecting the position of officersAs per section - 252 (3) a winding up order by the court executedas a dismissal or discharge of theservant of the company. Such discharge relives the servant from all obligations under his contract orservice. The powers of the directors are also usually ceased on the winding up of a company.(a) Misfeasance: Under section 331, if any promoter, director, liquidator or officer of the Companyhasmisappliedorretainedmoney orproperty of the Company orhasbeenguilty ofmisfeasanceorbreach of trust, the court may, on the applicationof the liquidator or of any creditor or contributory,examineintohisconductandorderhimtorepayorrestoremoneyorpropertyortopaycompensation.(b) Criminal Liability: Section-332 provides punishment for falsification, or fraudulent secretion ofany of the books, papers of securities of the Company which is being wound-up.Differencebetweenthewindingupofacompany/companylimitedbysharesandthedissolution of a partnership:Sl. No.Pont ofDifferencesWinding up of a company Dissolution ofpartnership firm01Meaningofwindingup/dissolutionThe activities of the company is ended Dissolutionofpartnershipamong all partners02Related LawsCA 1994 Partnership ACT 193203LiabilityoftheownerLiability is limited Liability is unlimited04DistributionofassetsAs per CA 1994 As per partnership deedcorporate law p2 section 01Page 19 of 43 shakil & mannan05Causeofwindingup / dissolutionBythedeathofamember,itisnotwoundupbecauseithasperpetualsubsectionPartnershipwilldissolveby the death of a partner2 (a)Discuss thecircumstanceson whichthecourt orders forwindingup of aCompany on"just and equitable" ground.M 05Ass:Just and equitable groundIftheCourtisofopinionthatitisjustandequitableifthecompanyshouldbewoundup,thecompany wouldbewoundupcompulsorily :Theinterpretation of justandequitable clausedependson the facts of each case, the Court may order winding up of a company in case of just and equitableground:(1) When the object for which it was incorporated has substantially failed or it is impossible to carryon the business of the company except at a loss or the existing and provable assets are inadequate tomeet the liabilities;(2) When the majority of the shareholders are using their powers unfairly; or(3) Where there is a deadlock in the management of the company; or(4) Where public interest is likely to be prejudiced; (5) When the company was formed to carry out fraudulent or illegal business;(6) When the company is a mere bubble and does not carryon any business.(b) When company is deemed to be unable to pay its debts and' what consequences may followfor such inability of payment of debts by a companyM 05Ans: The Company unable to pay its debt would fall under following consequences: -As per section242, under the following circumstances a Company may be treated as unable to payits debt:i)AnycreditorsissuedemandnoticeforhisreceivableamountformorethanTk.5,000.00andcompany does not take any action neglected for 3 weeks.(ii) Any order passed by the court for payment but no action is taken by the company.(iii) If the Court is satisfied that the company is unable to pay its debt.As per section 241 a company shall be wound-up compulsorily if it is unable to pay its debt. As persection 286 a Company may be wound-upvoluntarily if the Company is unable to pay its debt andany extra ordinary resolution is passed for winding up of the Company.corporate law p2 section 01Page 20 of 43 shakil & mannan2(b)State the circumstances in which a company may be wound up by the court.Ans: As per section 241, a Company shall be wound up if the Company:i) Passed a special resolution for winding up of the company by court.ii) Fails to furnish statutory report or fails to hold statutory meeting.iii) Suspend its business operation for one year or fails to commence business within one year of itsincorporation.iv) Members reduced to less than 2 or 7 for Private & Public Limited company respectively.v) Unable to pay it's debt.vi) Court is satisfied that it is just and equitable to wind-up the Company.(c)InwhichgroundtheregistrarofJointStockCompanycanpresentapetitionforwinding up a company?Ans: Petition for winding up by the RegistrarUnder the following grounds as contained in Section - 197(b) the Registrar of Joint stock Companiesand firms can present a petition for winding up a company as per Section-204ofCA 1994:i) That the ,business of the company is being conducted with intent to defraud its creditors,members, any other persons or otherwise for a fraudulent or unlawful purposes; or(ii) That the persons concerned in the formation of the company or the management of its affairshave in connection therewith been guilty of fraud, misfeasance or other misconduct towardsthe company or towards any of its members; or(iii) That the members of the company have not been given all the information with respect to itsaffairs which they might reasonably expect.2(b)How does money paid in advance of calls rank in winding up of a company?M 03Ans: Reserve capitalIn case of reserve capital the share money is not called up until the winding-up of the company. Thecall money is required to meet up its winding up expenses.4(a)What is a contributory?M 03Ans: ContributoryAs per section 237 of CA 1994, any person who is liable to contribute to the fund of the company aspertheprovisionoftheacttomeetupitsfinancialobligationatthetimeofitswindingup.Thecontributory may include:- Any past and present directors- Any shareholderscorporate law p2 section 01Page 21 of 43 shakil & mannan (b)Towhatextentarethedifferenttypesofcontributoriesliableonthewindingupofacompany?M 03Ans: Extent of liabilities of different types of Contributories:i) A past member shall not be liable to contribute if he ceased to be a member for one year before thecommencement of the winding up;ii) A past member shall notbe liable to contribute in respect of any debt or liability created afterheceased to be a member;iii)ApastmembershallnotbeliabletocontributeunlessitappearstotheCourtthattheexistingmembersareunabletosatisfy thecontributionsrequiredtobemade by theminpurchaseofthisact;iv)Incaseofacompanylimitedbyshares,nocontributionsshall)berequiredfromanymemberexceeding the amount of unpaid share capital;v)In caseof a company limitedby guarantee,nocontributionshall berequiredfromexceeding theamount of under taken to be contributed by him in the event of winding up;5 (c)Statetherequirementofaliquidatortocallgeneralmeetingattheendofeachyearaccording to section 295 of the Companies Act, 1994.M 02Ans: Liquidator to call General MeetingAs per section295,in theevent of thewinding upof company continuing formore than oneyear,the liquidatorshallsummon ageneralmeeting ofthecompany attheendofthefirstyearfromthecommencementofthewindingupandofeachsucceedingyear,orassoonthereafterasmaybeconvenient within ninety days, of the close of the year, and shall lay before the meeting an account ofhis acts and dealings.Iftheliquidatorfailstocomplywiththissection,heshallbeliabletoafinenotexceedingfivehundred taka.5(a)What are the grounds on which a company may be compulsorily wound up? N 01Ans: As per section 241 a company shall be wound up if the company:i) Passed a special resolution for winding up of the company by court.ii) Fails to furnish statutory report or fails to hold statutory meeting.ijj) Suspend it's business operation for one year or fails to commence business within one year of it'sIncorporationiv) Members reduced to less than 2, 7 for Private & Public Limited Company respectively.v) Unable to pay it's debt.vi) Court is satisfied that it is just and equitable to wind-up the company.corporate law p2 section 01Page 22 of 43 shakil & mannanAUDITOR3(a)Discuss the provisions of the Companies Act, 1994 relating to auditors as to:- M 05(i) appointment;(ii) qualifications;(Hi) rights, and;(iv) duties(v) terminationAns: Appointment and Remuneration of Auditors, Section-210. . Auditors are appointed in the Annual General Meeting by the Shareholders; First Auditors of the Company is appointed by the Directors; The Directors may appoint Auditors in case of casual vacancy; The Govt. may appoint an Auditor if the above authorities fail to appoint an Auditor; Auditor's remuneration is to be fixed by the authority of appointing the Auditor.Qualification of Auditors, Section - 212:The auditor shall be a Chartered Accountant as per P.O. 2 of 1973.Following persons are not eligible for appointment as Auditor of the Company: Officers and staff of the Company. Any partner, staff or officers of the officers and staff of the Company. AnypersonindebtedtotheCompanyformorethanTk.1,000.00orindebtedbyanyGuarantee for the above amount. Any Director, Partner, Member of Managing Agent firmThe SEC regulation imposed some additional qualifications for appointment of Auditors.Rights and duties of Auditor, Section-213. The Auditors have right to access any books of accounts, information, voucher, statement asrequired to perform the audit work. Theauditorsmayrequireanyinformationexplanationfromanyofficers,staffoftheCompany for the audit.They should investigate the followings: Security given against loan andadvanceswhetheritissecuredornot andwhetherthetermsare detrimental to the interest of the company. Thetransactions,whichhavebeenshowninthebooksofaccounts,whethertheyaredetrimental to the interest of the company. Whetherornotanyassets,shares,debentureoranyothersecurities,havebeensoldlowerthan the purchase price (other than banking). Any loan and advances have duly been shown or not by the company. Whether or not any personal expenditure has been shown in the revenue account.corporate law p2 section 01Page 23 of 43 shakil & mannan Anyshareissuedincashwhetherthecashactuallyreceivedornotandwhetherthepresentation in the Balance Sheet for the same is misleading or not.The auditors will enclose the audit Report with the Accounts and their report shall include:Whether or not they have obtained all information and explanations as required by them;i. Whether ornot the Balance Sheet and Profit & Loss Accounts exhibits a true and fair reviewof the state of affairs of the company;ii. Whether or not proper books. of Accounts have been maintained;iii. WhetherornottheBalanceSheetandProfitandLossAccountareinagreementwiththebooks of Accounts kept by the company;iv. IfanyanswerisinthenegativetheAuditorshoulddisclosethefactandreporttotheshareholders.Termination of AuditorAs per companies act auditors are not easily changeable. For changing auditors a special notice is tobegiven u/s 211ofthe companiesActbutasper section 210(Ga)nosuch decisionforchangesofauditors can be taken unless their death, incapability, dishonesty, disqualification etc.1(a) "Auditors verify the books & records after expenses have been incurred" - In suchsituation should they be held responsible for non-business expenditure shown in the business?N 02Ans : Responsibility of Auditors The Auditors have right to access any books of accounts, information, voucher, statement asrequired to perform the audit work. Theauditorsmayrequireanyinformationexplanationfromanyofficers,staffoftheCompany for the audit.They should investigate the followings: Security given against loan andadvanceswhetheritissecuredornot andwhetherthetermsare detrimental to the interest of the company. Thetransactions,whichhavebeenshowninthebooksofaccounts,whethertheyaredetrimental to the interest of the company. Whether or not any assets, shares, debenture or any other securities have been at a price soldlower than the purchase price (other than banking). Any loan and advances have duly been or not shown by the company. Whether or not any personal/unusual expenditure has been shown in the revenue account.corporate law p2 section 01Page 24 of 43 shakil & mannan Anyshareissuedincashwhetherthecashactuallyreceivedornotandwhetherthepresentation in the Balal1ceSheet for the same is misleading or not. The main duties of auditors are to Report to the shareholders that the Financial Statements arefree from all material miss statements. Whether or not they have obtained all information and explanations as required by them; Whether ornot the Balance Sheet and Profit & Loss Accounts exhibits a true and fair reviewof the state of affairs of the company; Whether or not proper books of Accounts have been maintained; WhetherornottheBalanceSheetandProfitandLossAccountareinagreementwiththebooks of Accounts kept by the company;If any answer is in the negative the Auditor should disclose the fact and quantified.Theauditorsshallhaveexercisedsuchcompetenceandskillasrequiredandasmaybedesirablefrom them as auditor to datedany non business expenditure are includedin the business. If they fallto detect and if it is material, the auditors will definitely be held liable.(c)TheActhasgivenaperpetualrightofofficeofAuditorsoftenagainstthecommonshareholders but not the stake owners in management"-What are your views?N 02Ans: Perpetual right of AuditorsAs per Companies Act auditors are not easily changeable. For changing auditors a special notice is tobe given U/S 211 of the Companies Act but as per section 210(Ga) nosuch decision for changes ofauditorscan be taken other than their death, incapability, dishonesty, disqualification etc.This section provides the auditor their perpetual rights of the auditors. The management has no righttoterminateauditorsintentionallyfortheirpersonalground.TheSECregulationsoverruledthesection. As per SEC regulations the Auditor should be changed after 3 consecutive years.Howeveritisconventionfortheauditortoholdtheiroffice for atleast3years.ButthisrightisabsentforthestakeholdersonthemanagementintheCompaniesAct.ButIthinkthisrightalsoreestablishedby theSECregulationundermanywaysbyadoptingthemainaspectsofCorporateGovernance.corporate law p2 section 01Page 25 of 43 shakil & mannanMA & AA1. (a) State the points of difference between the Memorandum of Association and the Articlesof association of a Limited Company.M 06Ans: The differences between the Memorandum and Article of Association are as follows:Sl. No.Memorandum Articles1 ThememorandumisthefundamentalconstitutionoftheCompanydeterminingitsobjectives.The Articles are rules regarding internalManagement:2 Memorandum is the main guidelineof the company/articlesAny rulesinthearticles contrary tothememorandum are invalid.3 AlterationofMemorandumisdifficult,insomecasesitrequiresCourt's permissionAlternation of article is easy;it requiresa special resolution only.4 Memorandum defines the power ofthe CompanyArticles define the internal regulationand Management process.5 Acts done by the company beyondthe power of the memorandum isvoid which cannot be ratified.Acts done by the Company beyond thearticles can be ratified by theshareholders provided they are withinthe power of the Memorandum.6 There are 5 clauses There are long list of clauses.2(a) Acompany was incorporatedin December, 2004. Due toanerror,regulationsrelatingtothe conduct of meetings of members were not included in the Articles of Association submittedbytheCompanytotheRegistrarofJointStockCompaniesforregistration.Howcanthemembers'meetingwouldberegulatedintheabsenceofsuchregulationsinthecompany'sArtic1es?Cansuchregulationsbeincludednow intheArticles ofAssociation and,ifso,howand what will be the status of such addition?N 05Ans: Regulations relating to the absence of the ArticlesAsper section-18ofcompaniesAct1994theCompanywillconductthemeetingofitsmemberwhich shall be governed as per the regulation contained in the "Schedule-I."The company can change the Article of Association by passing aspecialresolution as containedinSection-20 subject to the limitations as specified in Section-85 and Memorandum of Association.corporate law p2 section 01Page 26 of 43 shakil & mannan3. What is the purpose of stating the "object clause" of a company in its memorandum? Can itbe altered? How?N 04Ans: Objective Clause:Objective clause is one of the important elements of Memorandum of Association. The main objectsofthecompanyaredisclosedclearlyintheobjectiveclause.TheCompaniesAct1994requiresdisclosingthemainobjectivesrelatingtoformacompanyunderhisAct.Themainobjectsandobjectsincidentalareidentifiedintheobjectiveclausetoenablethemembersofthecompany,itscreditorsandthepublictoknowtherangeofactivitiesofthecompany.Withoutstatingobjectiveclause no company can be registered under this Act.A company can change the objective clause under the following circumstances(Section- 12):1. To carryon its business-more economically and efficiently.2. To attain its business operation by new and improved way.3. To enlarge the area of operation.4. To carryon some operation which will be more advantageous for the interest of the company.5. To restrict, abandon any of its objects.6. To amalgamate with any other company or body.Objective clause can be changed by passing a special resolution and having permission of the court.corporate law p2 section 01Page 27 of 43 shakil & mannanBOOK of ACCOUNTS3(a)what documents, register apd books are to be maintained in a company's registeredofficeM 04Ans: Books of Accounts, Documents Registers are to be maintainedAs per Section - 181 following books of Accounts, records are to be kept by the Company:Records relating to:1. All receipts and payments2. All purchase and sales;3. All assets and liabilities;4. Records relates to the production, process, distribution, wages and overhead;5. Booksandaccountsandrecordsaretobekeptandretainedforatleast12yearsfortheCompany;6. penaltyfornon-complianceissixmonthsimprisonmentorwithfineofTk.5,000orwithboth.In addition to above following documents are also to be maintained by the company:- A register of members- A register of minutes (b)Who can inspect all those documents and books and take copies thereof? What do youknow about time limit, if any, in this regard? What purpose an extra ordinary resolution canbe used?M 04Ans: Inspection of books of accounts etc, of companies, Section - 182The books of account, records and papers of every company shall be kept open for inspection duringbusinesshoursby theRegistrarorby suchotherGovernmentofficerasmaybeauthorizedby theGovernment in this behalf.Theinspectingpersonmay,duringthecourseofinspectionmadeorcausetobemadecopiesofbooks of account and other books as he deems to be required.There is no time limit for such inspection other than only the inspection is to be made or the books ofaccounts to be kept open during business hours.Extra-ordinary resolution (Section-87(i)This is passedby such majority as is required for the passing of a special resolution ata meeting ofwhich 14 days notice has been given. The notice must specify the intention to propose the resolutionasanextra-ordinaryresolution(Section-87(i).Suchresolutionisnecessarywhenacompanyissought to be wound-up voluntarily on the ground that it cannot continue its business on account of itsliabilities and also for a number of other reasons. (Sec-87)corporate law p2 section 01Page 28 of 43 shakil & mannan2(c) Critically comment on the books of accounts and the access of Registrar to the books asthe shareholders are the owners of the Company.N 01Ans:AscontainedinSection-194,theRegistrarmaymakeanapplicationtothefirstclassmagistratehaving jurisdiction for an order for the seizure of suchbooks andpapers. The magistratemay consider the application of registrar and order as necessary after hearing.corporate law p2 section 01Page 29 of 43 shakil & mannanCONVERTION PRIVATE AND PUBLIC COMPANY1(a)State the provisions for conversion of a Private Ltd. Company to a Public Ltd.Company as laid down in section231of the Companies Act 1994.N 01Ans: Conversion of a private limited company to a public limited companyAprivatelimitedcompanyhavingatleastsevenmemberscanbeconvertedintoapubliclimitedcompanybyalteringitsarticlesinsuchmannerthattheynolongerincludetheprovisionswhich,under clause of subsection (1) of section 2of the companies Act, are required to be included in thearticles of a' company in order to constitute it a private company. From the date of such alteration thecompany ceasestobe a privatelimitedcompany andisrequiredtobesubmittedwith theregisteraprospectus or a statement lieu of prospectus within a period of 30 days (Section - 231)(b)ItisalsopossibletoconvertaPublicLtd.CompanyintoaPrivateLtd.COl.11pany.Narrate the procedures.N 01Ans: Conversion of a public limited company to a private limited company according to section232 -A public limited company,having not more than 50, member of members at the time of conversion,maybeconvertedintoaprivatelimitedcompanybyalteringitsarticlesbypassingaspecialresolutionsoastoexcludeprovisionsifany,inthearticlesofassociationapplicabletopubliccompany and include therein provisions applicable to a private company.If thecompany hassecuredcreditors,theirwritten consentshallhavetobe obtainedbefore passingsuch resolutions. If the shares are listed with stock exchange(s) are to be de listed.(c)What' are the differences between a Private and a Public Ltd. CompanyN 01Sl. NoPont of DifferencesPrivate Limited Public Ltd.01Minimum no. of membersTwo Seven02Maximum no. of membersFifty Unlimited03Issuance of share in the publicProhibited Shares can be issued04Transfer of share Restricted to transferTransferable05Listing Can not be listed Can be listed with stock exchange06No. of directors Minimum 2 directorsMinimum 3 directors07 CommencementofbusinessAssoonasafterregistrationAfterobtainingcertificateofcommence of businesscorporate law p2 section 01Page 30 of 43 shakil & mannanSHARE TRANSFER4(a)In what circumstances can the directors decline or refuse a transfer of sharesN 05Ans: Clause 20(1) of Schedule - I:The directors may decline to register any transfer of shares not being fully paid up shares, to a personofwhom they donot approve,and may also declinetoregister any transfer of shares on which thecompany has lien.Thedirectorsmaysuspendtheregistrationoftransferduringthefourteendaysimmediatelypreceding the ordinary general meetings in each year.The directors may decline to recognize any instrument of transfer or refuse to registersuch transfer,unless(a) theinstrumentoftransferisaccompaniedby thecertificateofsharetowhichitrelates;and(b) Such evidence as the Directors may reasonably require to show the right of the transferorto make the transfer has been furnished.(c) Form 117 is duly filled up.(b)Draft a specimen notice of refusal to register transfer of shares.N 05Ans: NOTICEI do hereby beg to draw your .kind self that the Board of Directors in the meeting held on declined torecognize the transfer of enclosed number of shares as applied by youon due to the non submissionof form 117 from your end.By order of the board.Company Secretary.c)How shares of a company are transferred / State the time limit for registration oftransfer of shares. What are the restrictions for transfer of shares?N 05Ans: Completion of share transferAsperclause12(2)oflistingsregulationstheCompanyshallcompletesharetransferandhavereadyfordeliverythesharecertificateslodgedforregistrationoftransferwithin45daysoftheapplicationforsuchtransferanditsregistration.Thetransferinstrumentistobefilledupbythetransferor and the transferee and to be submitted to the company for necessary action. The transfer ofshares requires Board's appointmentButatpresent,theelectronicsshares(demat)requireno formof117fortransfer.Justavalidintention of sale and buy is to submit to the broker house for sales, buy, transfer of shares. It transfersautomatically and instantly.corporate law p2 section 01Page 31 of 43 shakil & mannanRestrictions for transfer of sharesThemain restrictionfortransferofshareisthatanyshareswhenitispledgedtoany body againstany loan or the company has a lien on the share.Incase ofsharesof aPvt.LimitedCompany is restricted.Theshareisnottransferablewithouttheconsentofallthemembersaswellascomplyingwithal1regulation'containedintheArticlesofAssociation of the company.(d)Draft a hypothetical resolution of transfer of shares to be adopted by a board ofdirectors.N 05Ans: Minutesof120thBoardMeetingheldon4thMarch2007ofABCCo.Ltd.atitsregistered office House No.5, Road No. 16, Dhanmondi, Dhaka.A meeting of the Board of Director of Tanmoy Company limited was held on at its registered office.Following members of the Board were present:1. Mr. X2. Mr. Y3. Mr.ZMr. X, Chairman of the Board presided over the meeting.Following business were transacted in the meeting:Agenda: IProposal of transfer of shares of share Ider Mr. T.TheboardwasinformedthatMr.Tappliedfortransferof100sharesfromhisnametoMr.Kandform117andrelatedsharecertificateswere'submitteddulyfornecessary action.Afterdiscussionthe Board decided as Follows:"The proposal for transfer of shares is approved".AstherebeingnootherissuestodiscussthemeetingendedwithvoteofthankstoandfromtheChair.Mr. LMr. XCompany SecretaryChairman of the Board of Directorscorporate law p2 section 01Page 32 of 43 shakil & mannanSHARE PREMIUM, REDUCTION and DISCOUNT4. (a) Discuss the procedures of issuance: shares at a -premium. How does the companies actprovided for application of Receipts from premium?N 05Ans: Issuance of a share at a premiumACompanycanissueshareatapremiumhavingpermissionfromtheSecuritiesandExchan~eCommission. A share premium account is to be opened and the amount of premium to be transferredto the share premium accountApplication of premium received on issue of shares:A share premium account is to be opened which can be used for the following:(i)Un-issued share capital to be issued to the member as fully paid Bonus share.(ii)To write off preliminary expenses.(iii) To write off discount, commission and expenses on issue of share or debenture of thecompany(iv) To pay premium payable on redemption of redeemable preference share or debenture of thecompany. (Section-57)1(c). Discuss the provisions ,of the Companies Act, 1994 as to the issue of shares at a discount.M 05Ans:Following rules relates to the issuance of shares at a Discount:1 It should be an existing company which has issued share earlier;2 Court permission must be taken and to be confirmed at Annual General Meeting; .3Maximum rate would be 107, which is to be confirmed at Annual General Meeting;4 TheCompanyshallnotissueshareatadiscountwithinoneyearfromthedateofcommencement of business; ,5 The shares tobe issued within 6 months from thedate of the approval of the Court to issueshare at discount.4(a)What are the pre-conditions of reduction of share capital of a companyAns: Reduction of share capitalAscontainedin section59ofthecompaniesAct1994,anycompanylimitedbyshareifitisauthorizedbyitsArticles,bypassinganspecialresolution,havingapprovalfromtheCourtcanreduce the share capital as follows:By reducing or extinguishing the liability on any shares not paid-up.Cancel any paid-up share capital which is lost or not represented on the assets.Repay the capital, which is in excess of the wants of the company.Reduce the share capital and shares as required by alteration of memorandumcorporate law p2 section 01Page 33 of 43 shakil & mannanPrecondition for reduction of share capitalReductionofsharecapitalispossibleonlybypassingaspecialresolutionandconfirmedbythecourt. Thecourtwouldenquireintotheobjections,if any raisedby the creditors.In this respectthecourt settles the list of creditors entitled to object and issue public notices. On hearing the objections,the court may confirm the reduction or such terms and conditions as it may deem fit (sec. 62)The orderof thecourtalong withall relevantpapers/documents aretobesubmittedtotheregister.Theregisterafterverificationshallissueacertificatearidthiscertificateshallbetreatedthattheprocedures for reduction of share capital is confirmed.(b)What are the procedures of reduction ofshare capital and how the same is confirmed?N 04Ans: Procedures of reduction of share capitalAspecialresolutionistobepassedforreductionofsharecapital.Aspersection60whereacompany has passed a resolution for reducing its share capital it shall furnish petition to the Court foran order confirming the reduction.Aspersection64orderoftheCourtconfirmingreductionwillberequired.TheCourtifsatisfiedwith respect to every creditor of the company who under this act is entitled to object to the reduction,that either consent to the reduction has been obtained or his debt or claim has been discharged or hasbeen determined or has been secured, may make an order confirming the reduction or such terms andconditions as it thinks fit.As per Section 65 the Registrar shall on production to him register the following documents, namely:(a)thecertifiedcopyoftheorderofthecourtconfirmingthereductionofthesharecapitalofacompany;(b) a copy of the minutes approved by the court showing the following;i. the amount of the reduced share capital;ii. the number of shares into which it is to be dividendiii. the nominal value of each such share;iv. the amount if any at the date of registration, deemed to be paid up on each such shareOn theregistration undersub-section(i)andnotbefore,theresolutionforreducing sharecapital asconfirmed by the order so registered shall take effects.(c) Notice of the registration shall be published in such manner as the court may direct.(d)TheRegistrarshallcertifyunderhishandtheregistrationoftheorderandminutes,andhiscertificateshallbeconclusiveevidencethatalltherequirementsofthisActwithrespecttoreduction ofsharecapital havebeen compliedwithandth;tthesharecapital ofthe company issuch as is stated in the minute.corporate law p2 section 01Page 34 of 43 shakil & mannanPROMOTER2(b)Whatarethethree possible/legalpositions ofpre-incorporationcontractsofacompany?What are the exceptions to those contracts?N 05Ans: Pre- incorporation contract:A company cannot be bound by a contract which was made on its behalf by any person and includinga promoter before the Company itself had been formed.The Company cannot even ratify any pre-incorporation contract and the promoters will be personallyliable. In this regard, a fresh contract can be accorded by the Company after the incorporation.In these circumstances, the simplest and safest course for promoter is to bring the negotiation tothepoint of agreement but to postpone any binding contract until the company is formed and can enterintothecontractforitself.In this regarda fresh contractcanbeaccordedby the company aftertheincorporation.OTHERS2.YourclientisalistedcompanyinbothDhakaandChittagongStockExchanges.BoardofDirectorsofyourclientcompanydecidedtomergewithanothercompany.Youareaskedtoadviseyourclientonthelegalstepstofollowinlinewiththeregulatoryrequirementsofrelevant corporate and regulatory authorities of Bangladesh.N 06Ans: Regulations relating to compromise for amalgamation/Merger of CompaniesA Company if it is authorized by its Articles may decide to merge with other Company by passing aspecial resolution having permission from the court.WhereacompromiseorarrangementisproposedbetweentwoCompaniestheprocessofsuchcompromise or arrangement is to be conducted in a manner as the Court directs.As per section 228(2)if amajority in numberrepresenting three-fourths invalueof creditors or ofmembersasthecasemaybe,presenteitherinpersonorbyproxyatthemeeting,agreetoanycompromiseorarrangement,thecompromiseoragreementshallifsanctionedbythecourtbebinding on all the creditors, members and the company .As per section 228(4) a certified copy of the order of the Court is to be filed with registration.WhereanapplicationisplacedbeforetheCourt forthesanctioningofacompromisearrangementpurposebetween the companiesinconnection with aschemeforreconstruction of any company orcompaniesfortheamalgamationofanytwoormorecompanies,andthatundertheschemethewhole any part of under taking and the property of the company concerned in the scheme (transferorcompany) is to be transferred to another company (transferee company)in this regardthe court mayorder that:a)the transfer to the transferee company of the whole or any part of the undertaking and of theproperty or liabilities of any transferor company;corporate law p2 section 01Page 35 of 43 shakil & mannanb)the allotting or apportioning by the transferee company of any shares, debentures. policies orother like interests in that company to or for any person;c)the continuation by or against the transferee company of any legal proceeding pending by oragainst any transferor company ;d)this dissolution, without winding up, of any transferor company;e)such incidental, consequential and supplemental matters as are necessary to secure that thereconstructionor amalgamation shall be fully and effectively carried out:-A scheme or contract involves the transfer of shares or any class of shares in a company (TransferorCompany) to another company (Transferee Company). Within 120 days after making of the offer onthat behalf by the transferee company, the offers is to be approved by the holders of not less than3/4th in value of the shared affected.4.YouareCompanySecretaryofapubliclimitedcompany.Inthecomingmonththecompany'sannualgeneralmeetinghastobeheldforwhichtheBoardofDirectorsmeetingneeds to be convened. M 06Following items are included on the agenda: investment in an associated company approval of the annual financial statements; issue of shares to new foreign shareholders; approval of new company logo; remunerationoftherecentlyappointedChiefFinancialOfficer&ChiefExecutiveOfficer; and recommendation of final dividend.Someofthedirectorsrepresentingtheforeignshareholderswith30%shareholding/representationontheBoardmaynotbeabletoattendthemeeting.Youhavebeenaskedbythesenon-residentdirectorstogettheirapprovalonthedecisionsthroughcircularresolutionorbyanyothermeans.Discussonthissuggestioninthelightofthecorporate laws and practices.Ans:ABoardofDirectorsmeetingisrequiredafterendofthefinancialyearofaCompanyandbeforetheAnnualGeneralMeetingisheld.ThemaincauseoftherequirementsoftheBoardofDirectors meeting is for the Approval of annual accounts, Recommendation of dividend, Proposal forappointmentofAuditorsandtofixtheirremuneration,retirement&appointmentofDirectors,etc.which are to be placed before the shareholders for approval in the AGM.As per section-95 of the Companies Act 1994, the notice of the Board of Directors meeting is to beserved to the Bangladeshi address. But notice of such meeting can be served out side Bangladesh byFax e-mail or otherwise as may determined by the Articles of Associations of the Company.The decision of the Board meeting of the Company is taken by the majority vote of the members oftheBoardpresentwhichrequiresquorum.The quorumoftheBoardmeetingisdeterminedby thecorporate law p2 section 01Page 36 of 43 shakil & mannanArticles.TheabsenceofanymembersoftheBoardwillnothamperthedecisionoftheBoardmeeting if quorum exists.In this case, the member(s) of the Board are living outside Bangladesh which represents 30% votingpower of the Board but not majority.It may be opined that the notice of the Boardmeeting is to beservedtotheirBangladeshiaddressby FaxtotheaddressoftheMembersoftheBoard.Butpriorapproval or any other kinds of approval is not required to hold the meeting or to take decision in theBoard meeting.However,theDirectorsmaysendtheiropiniontotheBoardbyfax,e-mail,phoneorotherwiserelating to the agenda mentioned in the notice that may be placed before the Board for decision. Anyother procedure may be followed if the Articles of Association provides any guideline in this respect.1(a) "All listed companies are public companies but not vice-versa"-Discuss the statement.N 05Ans: Listing CompaniesAs per listing regulations clause 7(1), only the public limited Company can be listed with the StockExchanges.As per companiesAct1994, Securities ofa privatelimitedCompany areprohibitedfortransfer andit cannot be sold publicly. So, the Stock exchanges deal with those securities which aretransferable.So,noprivatelimitedcompanyiseligibleforlistingwithanystockexchangebutapublic limited Company is not mandatory to be listed. It is the discretion of the shareholder/sponsorspubliclimitedcompanyastowhethertheirCompanywillbeplacedtotheStockExchangesforlisting. so it can be said that "All listed companies are public companies but not vice-versa."2.(c) What are illegal associations? State the effect of an illegal association.N 05Ans: Illegal Association:(Section-4)No company. Association, Partnership shall be formed consisting of 10 membe6for banking businessandmorethan20membersforotherbusinessunlessitisregisteredunderthisAct.IfanyAssociation is formed contravening this section it shall be an illegal association.Effect of an illegal associationEvery memberof the company, association, or partnership carrying on business in contravention ofthis section shall be personally liable for all liabilities incurred in such business.Anypersonwhoisamemberofthecompany,association,partnershipformedin contraventionofthis section shall be punishable with fine not exceeding five thousand taka.1(a)What is meant by the term ultra viresM 05Ans: Meaning of the term "ultra vires":Any transaction, activity orbusiness done by theCompany beyond the power of the MemorandumandArticlesofAssociationis"ultravires"i.e.void.TheCompany cannotdoanythingoutsidethememorandum of association.corporate law p2 section 01Page 37 of 43 shakil & mannan(b)What is the effect of an "ultra vires" transaction as far as the company and its directorsare concerned? M 05The company and its Director's shall do all activities within the power of Memorandum and ArticleofAssociation any transaction beyond the power is "ultra vires" and the transaction will not bind theCompany, effect of an ultra vires transaction relating to the Memorandum and Article of Associationare as follows: .1. Transaction beyond the memorandum.2. Transaction beyond the article of association.Transaction beyond the memorandum:Thetransactionis-ultraviresandvoid.ItwillnotbindtheCompanyandtheDirectorswillbepersonally liable.Transaction beyond the Articles:Thetransactionisalsoultraviresanddirectorsarepersonallyliable,butifthetransactionisincidental or consequential then the transaction will be valid and binding on the company.5(a)AsenvisagedinthePublicIssueRules,1998,asamendeduptodate,mentionthevariousriskfactorstobedescribedintheProspectusbyanIPOaspiringpubliclimitedcompany and use of the proceeds of the IPO funds.M 05Ans: Public issue rules 1998, risk factorsAscontainedinthePublic.issuerules1998thefollowingriskfactorsaretobedescribedintheprospectus:a) No recent receipt of revenues;b) Poor financial conditions;c) Industry risks;d) Currency risks;e) Market and technology related risks;f) Potential or existing government regulations;g) Potential changes in global or national policies;h) No operating historyUse of Proceeds:(a)The prospectus shall alsoreflect howthenetproceeds ofthe offeringshall beused;indicatetheamount to be used for each purpose.(b)Theprospectusshallincludeaschedulementioningthestagesofimplementationandtheutilization of funds received through initial public offering, mentioning about the appropriate date ofcompletion of the project and the projected date of full commercial production.corporate law p2 section 01Page 38 of 43 shakil & mannan(c) If there are contracts covering any of the activities of the company for which the proceeds of saleof snares are to be used, such as contracts for the purchase of land or contracts for the construction ofbuildings, the prospectus shall disclose the termsof such contracts, and copies of the contracts shallbe filed with the commission as annexure to the prospectus.(b) Draft a plan of operation and the financial conditions to be incorporated in the Prospectusby a public limited company according to Public Issue Rules, 1998.M 05Ans: Plan of operation and Discussion of Financial Condition to be incorporated:(a) If the company had no revenues from operations in each of the last two years, the company'splan of operations for the next twelve months shall be described in the prospectus which shall,among .others include:1. a discussion of its cash requirement;2. a summary of any product research and developments;3. any expected purchase or sale of land;4. any expected change in the number of employees; (b) If the Company had revenue from operations in above period it shall include the following:1. Resources of cash;2. Expected capital expenditure;3. Cause of changes of income, cost, operating expenses and net profit;4. Seasonal aspects of business;5. Loan taken by the company;6. Taxation yet to be paid;7. Operating and finance lease;8. Payment to manager to the issue underwriter.c) What are the requirements of presenting financial statements by an IPO aspiring publiclimited company.M 05Ans: Presentation of financial statement in the prospectus for IPO has some requirements. These are:I.The prospectusshall includea financial statementandareportthereonas required by CompaniesAct 1994.2. The audited accounts andit should be as per BAS & BSA respectively. The financial statementsshall include:(a) Summary of earnings for 5 years or existence periods which ever is higher;(b) A consolidated Balance Sheet to be submitted to the SEC for the above period.(c) A profit and loss account, cash flow statements for the above periods to be submitted to the SEC.corporate law p2 section 01Page 39 of 43 shakil & mannan5 (b) Under what circumstances may a company limited by sharesN 041. pay interest out of capital;2. write off preliminary expenses?Ans: Power of company to pay interest out of capital(i) Power of company to pay interest out ofcapitalin certain cases where any shares of a companyare issuedfor the purpose of raising money todefray the expenses of the construction of any worksorbuildingorthe provisionofany plantwhichcannotbemade profitableforalengthenedperiod,the company may pay interest on so much of that share capital as is for the time being paid up for theperiod and subject to the conditions and restrictions in this and may charge the same to capital as partof the cost of construction of the work or building or the provision of plant(ii)Thewritingoffofpreliminaryexpensesisthediscretionofthecompany.ThecompanymayamortizethepreliminaryexpensesoverseveralaccordingperiodsasmaybedeterminedintheArticle of association or as per the decision of the Board of Directors meeting. (c)Discuss about the powers of "the court to rectify the Register as stated in theCompanies Act, 1994.M 04Ans:AscontainedinSection-194theRegistrarmaymakeanapplicationtothefirstclassMagistrate having jurisdiction for an order for the seizure of such books and papers.The Magistratemay consider the application of Registrar and order as necessary after hearing.5(b)Discuss the provisions of section 150 of the Act about the Restriction on Commencement ofBusinessM 05Ans: Certificate of commencement of business, (Section 150)Acompany(PublicLimited)shallnotcommenceanybusinessorexerciseanyborrowingpowersunless:(a) Shares held subject to the payment of whole amount thereof in cash have been allotted to anamount not less than the minimum subscription;(b) Every Director of the company paid in cash each of the share held;(c) A certificate of compliance by the Company Secretary or a Director that above formalitieshave been complied;(d) A statement in lieu of prospectus has been submitted where no prospectus is issued for invitationto subscribe the share to the public.corporate law p2 section 01Page 40 of 43 shakil & mannan(c) State the requirements for Return of allotment u/ s 151 of the companies act 1994. M 05Ans: Features as to allotmentAs contained in the Section-151 of CA 1994,acompany havingshare capital makesany allotmentof shares, the company shall within 60 days thereof, file with the Registrar the following documents:(a)Areturnofallotment,statingthemember,nominalvalueofshares,namesaddress,nationality, amount paid-up in Cash;(b) Amount paid-up other than in cash, any contract, vendor's agreement.(c)Number of shares allotment and its nominal value.(d)Share allotted against any immovable property.4.Do the articles constitute a contract between -(a) a company and its director;(b) a company and its members;(c) a company and its non-members;(d) a company and its auditors/solicitors?Give reasons for your answer.N 03Ans: Do the Articles constitute a contract betweena) A company and its Directors:Yes,thesignatoriesofthemembersofthecompanyarethefirstdirectorsandthereafterallthedirectorsareliabletocomplyalltherulesregulationcontainedinthearticles.AftersubmissionoftheformconsentofthedirectortoactconstitutesacontractwiththecompaniesArticlesofAssociation (A/A).b) A company and its members:Yes, the members of the company and the company as per rules regulation contained in the A/A.c) A company and its non-membersNo,butifany contractismadewith anynon-members then itbindshimtoactasacontact,aspercompany's A/A.d. A company and its AuditorsThe contract of the auditor is as per companies act and other relevant regulations but not with the a/a.corporate law p2 section 01Page 41 of 43 shakil & mannan2(c)What contracts are required to be made under the Seal of a company?M 03Ans: Use of common sealThecommonsealofthecompanyshallnotaffixedtoanyinstrumentexceptbytheauthorityofresolution of the Board of Directors, and in the presence of at least two Directors and of the secretaryorsuchotherpersonasthedirectorsmayappointforthepurpose,andthosetwodirectorsandsecretary or other person as aforesaid shall sign every instrument to which the seal of the company isso affixed in the their presence.5.Discussthepropositions(i)thatdividendsmustnotpaidoutofcapital;(ii)thatdividendsmay only be paid out of profits.M 03Ans: Payment of dividend out of profitDividendispaidout ofprofit ofthecompany.ButtheCompaniesActhasnotmentionedanythingaboutthecompositionofprofit.i,ecapitalprofitofrevenueprofit.The-dividendcanpaidoutofcapital profit if the profit is realized.But the dividendmust not be paid out of capital which reducesthe capital and the company will not be able to maintain its financial strength-for continuity.But dividend may be paid out of profit acquired by the company after making all adequate provisionasrequiredby thepolicy,regulationsetc.Generally dividendsarepaidfromtherevenue profitforthe year. But in some cases dividend can be paid out of capital profit if it is realized in full.2(c)The act seems not reasonably vocal about the interest of the minority shareholder -Comment in your way.N 02Ans: Interest of minority shareholders:The companiesActundersection233theminority shareholderscaneitherindividually orjointlyapply to the court that:i. The affairs of the company are being conducted or power of Directors are being exercisedin a manner prejudicial to the minority share holders;ii. The company is acting to discriminate the interest of them;iii. A resolution ofthemembers,debentureholdershas beenpassedtotheeffectthatthereare discriminating of the interest of them.The minority can pray for such order of the court for safe guard of their interest.The court shall fix a date of hearing on that and after hearing can pass order for:a) cancellation of or modification of such resolution transaction;b) conducting the company's affairs such a manner as may be specified in the order; .c) for amending any provision of the M/A, A/A.corporate law p2 section 01Page 42 of 43 shakil & mannanThis simple section has been inserted in the Companies Act 1994. But absence of matters relating toholding of Board meeting, AGM or major decision of the company can also be noted. This is why itcan be observed that the not as vocal as it was required.3. Explain floating charges and fixed charges. When does a floating charge crystallize? What isa debenture?Pointoutthedifferencesbetweenshareholdersanddebentureholders.Enumerate the remedies available to debenture holders.N 02Ans: Floating Charge and fixed chargeA charge on property is created when it is made liable for the payment of the money. A charge maybefixedorfloating.A fixedchargein onewhich createslegalinterestof aspecific property of thecompany oralltheproperty ofthecompany.Thusa fixedchargeisequivalenttoamortgage.Thecompany can sell, lease, etc. of the property subject to the right of the charge holder.The floating charge does not amount tomortgage.The owner of such a property can deal wit itandthe transferee gets it, free of charge.Meaning of Debenture:Debentureisasecurityinstrument.Whenthecapitalofthecompanyisnotsufficienttomeettheneeds ofbusinessofthecompany,itcanraisefundintheformofissuingDebenture.ActuallyDebenturerepresentsloan ofthecompany.Debentureisusually issuedIn Bonds by acompany andisofferedby means of prospectus like issuance of share.Sl. No. Shareholders Debenture holders01Owner Yes No02Right toDividends/ loss Interest03CreditorNo. Yes04Rights Equity owner Lender05Fixed No Fixed dividend Interest is fixed06Profit Dividend is a part of profit after taxInterest charged in PnL AccountsRemedies available to the debenture holder when his debenture is in "jeopardy"Any of the following measures can be taken by the Debenture holder:iv.He may file a suit for the recovery of the money by sale of the assets which were charged forthe payment of the money.v.He may file an application for appointment of a receiver to the courtvi.He may present petition to the court for winding up of the companyvii. He may sale the charged properties as per the terms of the debenturecorporate law p2 section 01Page 43 of 43 shakil & mannan2(b) What are the facts available in Solomon V. Solomon & Co. Ltd. Case (1897) and what washeld by the Court in that case?M 02Ans: Solomon vs. Solomon and co. Ltd. (1897)The essential distinction between a company and its memberwasestablishedby the decision of thehouse of lords in Solomon Vs. Solomon and co. Ltd.(I897) the facts were as follows:Mr.Solomonhadfor30yearscarriedonsuccessfulbusinessassoletraderinthemanufactureofboots and shoes. In 1892 he formed a company, in those days the minimum number of share holderswas 7 and he had one share issued to himself, his wife and five for -his children. His wife held shareas his nominees. He then transferred his business to the company avalue of over pound 39,000, thisprice was very much in excess of the true value but as Solomon owned the company no on was therebydeprived.Hetookthepricepartlyin2000nos.ofshare@pound1share,partlyincashwithdrawn from the business in the course of transfer, and partly in a pound 10,000 debenture issuedby the company and secured by floating charge on its assets.The effect was that whoever held the debenture had a claim to the assets (to the extent of $10,000) inpriorityoftheclaimsofanyothercreditorsofthecompany.SoSolomonbecomesthesecuredcreditors of the company.The business ofthecompany didnotprosper.Solomonpledgedhisdebenturetotheborderedwholenthim5000incashwhichSolomoninturnpaidoverthecompany.Eventuallythecompanybecameinsolvent,iftheDebentureswererepaidinfulltherewillbenothingleftfortheothercreditors.In the confused law suit which followed, the creditors advanced to main arguments:a) The sale transaction was sham and do Solomon was still the owner of the business and liableforits debts;b)Thecompanywasirregularlyformedbecause6ofthe7shareholdersweremerenomineesofSolomon.Argument;a)Prevailed in the high court but was rejected by the court of appeal which up held argumentb) The house of lords turned down argument (b) also and held that Solomon and his companywas two separate person with the result that:i) The business was owned by and its debts were liabilities of the company not of Solomonpersonally; andii)Although Solomon owned beneficiary all theissuedshares of the company he (andbroderipashisSuccessor)couldalsobeasecuredcreditorwithenforceablerightsagainstthecompany in that Capacity.---------End---------