Discuss the circumstances on which the court orders for winding up of a Company on "just and equitable" ground.

Just and equitable ground:-

lf the Court is of opinion that it is just and equitable if the company should be wound up, the company would be wound up compulsorily .The interpretation of just and equitable clause depends on the facts of each case, the Court may order winding up of a company in case of just and equitable ground :

1. When the object for which it was incorporated has substantially failed or it is impossible to carry on the business of the company except at a loss or the existing and provable assets are inadequate to meet the liabilities; or

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; or

5. When the company was formed to carry out fraudulent or illegal business;

6. When the company is a mere bubble and does not carry on any business.

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Discuss the duties and functions of promoters. Directors and Auditors of a company

Duties and functions of Promoters:

The main duties and functions of a promoter is to undertake to form a Company with reference to agreement 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 of agency 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 the property to it in which case no question of agency or trusteeship arises. He can make what bargain 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 to promote, in which case he becomes bound by the fiduciary obligation and if he makes a profit he must disclose it to the Company.


Duties and functions of Directors:
 
1. Distribution of work: among the staff;
2. 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 the reasonable 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 the decision of the meeting.
6. To hold the AGM.
7. To maintain 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.

Duties and functions of Auditor:
 
The main duty of an Auditor of a Company is to express an independent opinion on the financial statements prepared by the company. The auditor should conduct the Audit in accordance with BSA to obtain a reasonable assurance about whether the financial statements are free from all material misstatements. The auditor shall inquire into the following.

a) Whether loans and advances made by the company on the basis of security which have been properly secured and whether the terms on which they have been made are not prejudicial to the interests of the company or its members.

b) Whether transactions of the company which arc represented merely as book-entries are prejudicial to the interests of the company.

c) Where the company is not an investment company or a banking company, whether so much of the assets of the company as consist of shares, debentures and other securities, have been sold at a price less than its purchased price by the company.

d) Whether personal expenses have been charged to revenue account.

e) Whether it is stated in the books and paper of the company that any shares have been allotted for cash, whether cash has actually been received in respect of such allotment and if no cash has actually been so received, whether the position as stated in the accounts, books and the balance sheet is correct, regular and not misleading.

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Draft a hypothetical resolution of transfer of shares to be adopted by a board of directors.

Minutes of 120th Board Meeting held on 4th March 2007 of ABC Co. Ltd. at its registered 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. X
2. Mr. Y
3. Mr. Z

Mr. X, Chairman of the Board presided over the meeting.

Following business were transacted in the meeting:

Agenda: 1 Proposal of transfer of shares of shareholder Mr. T

The board was informed that Mr. T applied for transfer of 100 shares from his name to Mr. K and form 117 and related share certificates were submitted duly for necessary action. After discussion the Board decided as follows:

"The proposal for transfer of shares is approved".

As there being no other issues to discuss the meeting ended with vote of thanks to and from the Chair.

Mr. L                                                                              Mr. X
Company Secretary                                                      Chairman of the Board of Directors

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State the time limit for registration of transfer of shares.

Completion of share transfer

As per clause 12(2) of listings regulations the Company shall complete share transfer and have those ready for delivery the share certificates lodged for registration of transfer within 45 days of the application for such transfer and its registration.

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Draft a specimen notice of refusal to register transfer of shares.

A specimen notice of refusal to register transfer of shares.

                                                                       NOTICE

I do hereby beg to draw your kind self that the Board of Directors in the meeting held on……………………. Declined to recognize the transfer of enclosed number of shares as applied by you on …………………….. due to the non submission of form 117 from your end.

 

By order of the board.
Company Secretary.

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In what circumstances can the directors decline a transfer of shares?

Clause 20(1) of Schedule -I:

The directors may decline to register any transfer of shares not being fully paid up shares, to a person of whom they do not approve, and may also decline lo register any transfer of shares on which the company has lien. The directors may suspend the registration of transfer during the fourteen days immediately preceding the ordinary general meetings in each year. The directors may decline to recognize any instrument of transfer or refuse to register such transfer, unless –

a) the instrument of transfer is accompanied by the certificate of share to which it relates; and 

b) Such evidence as the Directors may reasonably require showing the right of the transferor to make the transfer has been furnished.

c) Form 117 is duly filled up.

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Differentiate between ordinary resolution, special resolution and extra ordinary resolution.

Ordinary Resolution:

This is passed by the majority vole of members present at a general meeting. Such a resolution is passed in the ordinary way and deals with ordinary business, such as passing of accounts, appointing directors, 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 or by proxy, provided notice for such meeting specifying the intention to propose the resolution is given at 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;
c) to alter the articles etc.

Extra Ordinary resolution:

This is passed by such majority vote at a meeting of which 21 days notice has been given. The notice must specify the intention to propose the resolution as an extra-ordinary resolution [Section-87(i)]. Such resolution is necessary when a company is sought to be wound-up voluntarily on the ground of that it cannot continue its business on account of its liabilities and also for a number of other reasons.

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Discuss the provisions of the Companies Act, 1994 relating to auditors as to: 1. appointment; 2. qualifications; 3. rights, and; 4. duties.

Appointment and Remuneration of Auditors:

1. Auditors are appointed in the Annual General Meeting by the Shareholders;
2. First Auditors of the Company is appointed by the Directors;
3. The Directors may appoint Auditors in case of casual vacancy;
4. The Govt. may appoint an Auditor if the above authorities fail to appoint an Auditor;
5. Auditor's remuneration is to be fixed by the authority of appointing the Auditor.

Qualification of Auditors:
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: 

1. Officers and staff of the Company.
2. Any partner, staff or officers of the officers and staff of the Company.
3. Any person indebted to the Company for more than Tk.1,000 or indebted by any Guarantee for the above amount.
4. Any Director, Partner, Member of Managing Agent firm

The SEC regulation imposed some additional qualifications for appointment of Auditors.

Rights and duties of Auditor:
1. The Auditors have right to access any books of accounts, information, voucher, statement as required to perform the audit work.

2. The auditors may require any information explanation from any officers, staff of the Company for the audit.

 They should investigate the followings:

1.  Security given against the loan and advances whether it is secured or not and whether the terms are detrimental to the interest of the company.
2.  The transactions, which have been shown in the books of accounts, whether they are detrimental to the interest of the company.
3.  Whether or not any assets, shares, debenture or any other securities have been sold lower than the purchase price (other than banking);
4.  Any loan and advances have duly been shown or not by the company.
5. Whether or not any personal expenditure has been shown in the revenue account;
6. Any share issued in cash whether the cash actually received or not and whether the presentation 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:

1. Whether or not they have obtained all information and explanations as required by them;
2. Whether or not the Balance Sheet and Profit & Loss Accounts exhibits a true and fair review of
   the state of affairs of the company;
3. Whether or not proper books of Accounts have been maintained ;
4. Whether or not the Balance Sheet and Profit and Loss Account are in agreement with the books
   of Accounts kept by the company;

If any answer is in the negative the Auditor should disclose the fact and report to the shareholders.

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Discuss the position, powers and liabilities of directors.

Legal position of Directors:

 
There are different views about the legal position of Directors. They have been described sometimes as trustees of the company and sometimes as its agents. Neither view is wholly correct but both contain elements of truth.

Fiduciary Position:

 
It is generally agreed that the Directors occupy a fiduciary position in relation to the Company. They
must make full disclosure of all material facts of the Company.
 

Officers:

 
The Section 2(i) (o) of the Companies Act provides that a Director is an officer of the Company.

Power of Directors:

 
Directors derive their power and authority from two sources (i) the Articles of Association of the Company and (ii) the Companies Act.
 

The articles of association generally contain a list of the powers, which may be exercised by Directors 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, are valid and binding on the company. It may be noted that a Director individually has no authority over the affairs of the Company except as regards matters, which have been specifically delegated to him by the Board.

Liabilities of Directors:

 
The liabilities of Directors may be analyzed with reference to liability of Directors to third parties, liability to the company, liability for breach of statutory duties and liability for acts of his Co-Directors. Directors' liability may be civil liability, criminal liability and unlimited liability.

Civil Liability:

 
The directors may, under certain circumstances, be liable to pay compensation to the Company and to
outsiders, such as:
1. Untrue statements in the prospectus.
2. Ultra vires acts.

Criminal liability:

 
For certain breaches of duty the Companies Act imposes criminal liabilities upon Directors such as: Untrue statements in prospectus, failing to keep certain register, falsification of books and reports etc.

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How does the winding up affect the position of officers of the company?

Winding up affecting the position of officers

As per Section - 252(3), a winding-up order by the court executed as a dismissal or discharge of the servant of the Company. Such discharge relieves the servant from all obligations under his contract of
service. 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 Company has misapplied or retained money or property of the Company or has been guilty of misfeasance or breach of trust, the court may, on the application of the liquidator or of any creditor or contributory, examine into his conduct and order him to repay or restore money or property or to pay compensation.

(b) Criminal Liability: Section-332 provides punishment for falsification, or fraudulent secretion of any of the books, papers of securities of the Company which is being wound-up.

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Discuss the procedures of issuing shares at a premium. How does the Companies Act provide for application of 'Receipts' from premium?

Issuance of a share at a premium

 
A Company can issue share at a premium having permission from the Securities and Exchange Commission. A share premium account is to be opened and the amount of premium to be transferred to the share premium account

Application 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 the company.
iv. To pay premium payable on redemption of redeemable preference share or debenture of the company.

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What are illegal associations?

Illegal Association: (Section-4)

 
No company, Association, Partnership shall be formed consisting of 10 member for banking business and more than 20 members for other business unless it is registered under this Act. If any Association  is formed contravening this section it shall be an illegal association.

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What are the three possible positions of pre-incorporation contracts of a company?

Pre- incorporation contract:

A company cannot be bound by a contract which was made on its behalf by any person and including a promoter before the Company itself had been formed. The Company cannot even ratify any pre-incorporation contract and the promoters will be personally liable. In this regard a fresh contract can be accorded by the Company after the incorporation.

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A company was incorporated in December, 2004. Due to an error; regulations relating to the conduct of meetings of members were not included in the Articles of Association submitted by the Company to the Registrar of Joint Stock Companies for registration. How can the members' meeting would be regulated in the absence of such regulations in the company's Articles? Can such regulations be included now in the Articles of Association and, if so, how and what will be the status' of such addition?

Regulations relating to the absence of the Articles

As per Section-18 of Companies Act 1994 the Company will conduct the meeting of its member which shall be governed as per the regulation contained in the "Schedule-L" The company can change the Article of Association by passing a special resolution as contained in Section-20 subject to the limitations as specified in Section-85 and Memorandum of Association.

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What is prospectus? What do you know about registration of prospectus?

Prospectus:

A prospectus is an invitation to the public to purchase shares or debenture of a company. In other words, a prospectus may be defined as any document that includes any notice, circular, advertisement or other document inviting offers from the public for the subscription or purchase of any 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.

Registration of Prospectus:

 
Before publication of a prospectus inviting people to subscribe shares or debentures of a Company, a copy of the prospectus must be delivered to the Registrar for registration on or before the date of publication. It should be signed by the Directors or proposed Directors of the Company or by their agent.
 

On the face of the prospectus delivered to the Registrar for registration, it should be stated that a copy has been delivered for registration; and must contain a list of statements included in the prospectus. The registrar shall not register a prospectus unless the prospectus contains all the required elements as per Companies Act 1994, Public Issue Rules 1998, and other SEC regulations and the prospectus is accompanied by the consent in writing of the person if any, named therein as the auditor, legal adviser, attorney, solicitor, banker or broker of the Company to act in that capacity. No prospectus shall be issued more than ninety days after the date on which a copy thereof is delivered for registration. If a prospectus is issued without delivering a copy thereof to the Registrar, the Company and every person from those who have knowingly been a party to the issue of the prospectus shall be punishable with a fine which may extend to five thousand taka (Section 138)

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"All listed companies are public companies but not vice-versa" - Discuss the statement.

Listing Companies

As per listing regulations clause 7(1), only the public limited Company can be listed with the Stock Exchanges. As per Companies Act 1994, Securities of a private limited Company are prohibited for transfer and it cannot be sold publicly. So, the Stock exchanges deal with those securities which are transferable. So, no private limited Company is eligible for listing with any stock exchange but a public limited Company is not mandatory to be listed. It is the discretion of the shareholder/sponsors public limited company as to whether their Company will be placed to the Stock Exchanges for listing. So it can be said that "All listed companies are public companies but not vice-versa."

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Who are authorized to make an application to the court for the winding up of a company?

Application to the Court for winding-up:

According to Section 239, the winding-up of a Company may be done in any one of the following three 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:

i. Any member of the Company with the special resolution;
ii. Any member of the Company with the Extra-ordinary resolution;
iii. The regulatory authority in case of default in filing the statutory meeting, report, etc.;
iv. Any creditors/members if the Company is unable to pay its debts.

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What are the difference types of resolutions envisaged in the Companies Act 1994? What are the processes of passing a special resolution?

Different type of resolutions:

i. Ordinary resolution
ii. Special resolution
iii. Extra-ordinary resolution.
 

Special resolution:

This is passed in a General meeting by the three-fourth majority of the members present in person or by proxy if proxy is allowed, Notice for which specifying the intention to propose the resolution is to be given before 21 days the date of the meeting.

Special resolutions arc necessary for the following purposes:

1. To change the name of the Company;
2. To alter the Memorandum of Association;
3. To alter the Articles of Association;
4. To reduce the share capital;
5. To convert any portion of the capital, uncalled in to reserve capital;
6. To appoint inspectors to investigate the company's own affairs;
7. For winding-up of a Company voluntarily.

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Discuss the qualification and disqualification of a director of a company. How directors are appointed?

Qualification of Directors:

Articles of Association of a Company usually fix the minimum number of shares which every Director must subscribe in order to become a Director. The minimum number which is determined by the Articles is known as qualification number of shares as contained in Section 97(1) of CA 1994. Every Director shall hold that minimum qualification shares within 60 days or within the lime as may be specified in the Articles whichever is earlier.

As per Section 97(2), if after the expiration of the period mentioned in sub-section (1) any such unqualified 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 Director unless he has -

1. signed and filed with the Registrar to consent in writing to act as such Director and;
2.signed the Memorandum for a number of shares not less than his qualification shares, or taken from the Company and paid or agreed to pay for his qualification shares.

Disqualification of Directors:

Following persons shall not be eligible for appointment as director: (Sec-94j:

1.  An unsound mind, declared by a competent court;
2. An insolvent or an un-discharged insolvent;
3. A person applied to be adjudicated as an insolvent and his application is pending;
4. Any person fails to pay his shares money after it is called up and 180 days have elapsed from the last day fixed by the call;
5. A minor;
6. Any other person/persons as may be prescribed in the article.

As per Section 91 of CA 1994 directors are appointed as follows:

1. Subscriber of Memorandum shall be treated as the first Directors;
2. Generally Directors are appointed at the AGM by the shareholders among themselves;
3. 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.

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How and in which meeting a special Resolution of a Company is passed?

Special resolution:

This is passed in a General Meeting by the three-fourth majority of the members present in person or by proxy where proxy is allowed. Notice for which 21 days specifying the-intention to propose the resolution is to be given before the date of the meeting. Special resolutions are necessary for the following purposes:
 

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.
viii. To pay interest out of capital for raising money to meet expenses of construction work;
ix. To convert public limited company to private limited company.

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