1

Contents Company Law ChapterVI 6.1 Definitions

6.2 6.3 Incorporation or Modes of Forming Company Different Types of Company

Pages 6
9 11 12 15 16 17 18 20 25 26 26 31 33 34 40 44 46 57 60 66 67

6.3.1 Private Company 6.3.2 Public Company 6.3.3 Registered Company 6.3.4 Unregistered Company 6.3.5 Company Limited by Shares 6.3.6 Company Limited by Guarantee 6.3.7 Unlimited Company 6.3.8 Associations not for Profit 6.3.9 Foreign Companies 6.3.10 Banking Companies 6.4 Instruments relating to Incorporation of Company

6.4.1 The Memorandum of Association 6.4.2 The Articles of Association

6.4.3 Prospectus 6.4.4 Share Capital and Shares 6.4.5 Stock 6.4.6 Debentures 6.5 Persons involving in Company Business

6.5.1 Promoters

6.5.2 6.6

Directors Winding up

68 69 70 75

6.6.1 Compulsory Winding- up or Winding-up by the Court 6.6.2 Voluntary Winding up

6.6.3 Winding up Subject to Supervision of the Court

82

Chapter VI Company Law

Today the most important form of business organization in Myanmar is the corporation. The concept of the corporation is not new. Since the olden days, men had the idea of conducting business in the form of organizations, which would not be affected by changes in membership. The organizations would go on although deaths of its members or withdrawal or incoming of new members occurred there. The organization has such a legal personality, it can own, separate from its members. Because of its legal personality, it can own property and enjoy certain privileges indefinitely. In fact, such characteristics of a separate personality and that of a continuous life are essential ingredients of the corporation. The corporation, having a separate legal entity is quite different from that of a partnership firm, there, the partnership dissolves with the death or withdraws of one of its partners.

The member of the corporation will not be liable for the debts or obligations of the corporation itself. They will be liable only to the extent of what they have bought their shares. This fact also differs from that of the provisions of Partnership Act, which provides that each and every partner of the firm will be liable jointly and severally for any act of the firm. Again, a member of a corporation can transfer his share to another as he likes without having the need to get consent from the other members.

The procedure for forming a corporation under State Law is prescribed by law respectively. Although the law regarding the forming of a corporation will differ from State to State, the general requisites will be the same.

To form a corporation, three or more persons known as incorporators prepare and sign on instrument known as a certificate of incorporation.

The instruments required upon incorporation are:

(1)

Memorandum of Association

(2)

Articles of Association

(3)

Statement of National Capital

(4)

Declaration of Compliance with the provisions of the Companies Act 1948.

So once registered according to the law, a company becomes incorporated.

A person becomes a shareholder in a company by purchasing a share certificate either from the company under a contract known as subscription agreement or from another shareholder.

In the present day situations as to the commercial transactions, one who has got the knowledge of the law relating to Companies will lead to success in his business dealings.

In Myanmar, the laws relating to corporation are "The Myanmar Companies Act" 1913; the Myanmar Companies Rules 1940, and the Special Company Act 1950. The Myanmar Companies Act" 1913 was amended twice in 1989 and 1991.

6.1

Definitions

"Company" means a company formed and registered under this Act or an existing company. ( Section 2(2))

" Articles " means the articles of association of a company as originally framed or as altered by special resolution including the regulations contained in Table "A" in the first schedule annexed to this Act. ( Section 2(1))

"Memorandum" means the memorandum of association of a company as originally framed or as altered in pursuance of the provisions of this Act. ( Section 2(10))

"Myanmar Company " means (a) in the case of a company having a share capital, a company whose entire share capital is, of all times, owned and controlled by the citizens of the Union of Myanmar.

(b) in the case of a company limited by guarantee but not having a share capital, a company which is, at all times owned and controlled by the citizens of the Union of Myanmar.

"Foreign Company " means (a) any company other than a Myanmar company or a special company formed under the Special Company Act 1950.

(b) a company incorporated outside the Union of Myanmar and having an established place of business in the Union of Myanmar.

"Company carrying on international trade " means a Company which is a subsidiary Company or branch in a foreign country for the purpose of a trading. carrying on International Trade) (Company

Stockholder Stockholder means a person becomes a stockholder in a company by purchasing stock either from the company under a contract known as a " subscription agreement or from another stockholder ". A stockholder purchases a stock from another stockholder by receiving from the seller his " certificate of stock " properly endorses.

Stock Exchange is that Purchases of stock from stockholders are done at the stock exchanges. These exchanges are operated by member broker concerns who act as agents in the buying and selling of stocks of customers. For purposes of trading with each other on behalf of their principals, the brokers meet in a central co-operatively run building that is called a stock exchange. According to the stock exchange rules,

stockbrokers who belong to the exchange are not allowed to deal with the stock unless it is appeared on the stock list. Sometimes unlisted stocks are bought and sold off at the exchange, and that is called " over-the-

counter " transactions.

over-the-counter

6.2

Incorporation or Modes of Forming Company

Any seven or more persons (or, the company to be formed will be a private company, any two or more persons) associated for any lawful purpose may, by subscribing their names to a memorandum of association and otherwise complying with the requirements of this Act in respect of a registration, form on incorporated company, with or without limited liability (that is to say), either-

10

(1)

a company having the liability of its members limited by the memorandum to the amount, if any, unpaid on the shares respectively held by them (in this Act termed as a Company

Limited by Shares ); or

(2)

a company having the liability of its members limited by the memorandum to such amounts; as the members may respectively thereby undertake to contribute to the assets of the company in the event of its being wound up (in this Act termed as a Company Limited by Guarantee ) or

11

(3)

a company not having any limit on the liability of its members (in this Act termed as an Unlimited Company .)

Thus, companies may be classified mainly as;-

(1)

a company limited by shares ,

(2)

a company limited by grantee and

(3)

an unlimited company ,

the provisions of section 6, 7 and 8 are to be complied with in drawing the memorandum of associations in each particular case.

6.3

Different Types of Company

There are many kinds of companies:-

1. Private Company 2. Public Company

12

3. RegisteredCompany 4. Unregistered Company 5. Company limited by shares

6. Company limited by guarantee

7. Unlimited company

8. Associations not for profit

9. Foreign Companies 10. Banking Companies

6.3.1 Private Company Section 2 (13) of the Act defines a private Company as: (1) which restricts the right to transfer the shares , if any;

(2)

limits the number of its members to fifty not including

persons who are in the employment of the company;

(3)

prohibits any invitation to the public to subscribe for the

shares or debentures.

13

There may be two persons holding one or more shares jointly, but they will be treated as a single member.

The liability of a member of a Private Company is limited. In fact, the law does not impose strict control on a private company so that it can do business with limited liability. Because it has no authority to invite the public to subscribe for shares, there is no risk that the general public would be defrauded or their monies wasted.

It can therefore be noted that-

(1)

Only two signatories to the memorandum of association will be sufficient to form a private company.

14

(2)

It is not necessary to hold a statutory meeting or file a report as in the case of a public company.

(3)

Neither it is necessary to issue a prospectus nor file a

statement in lieu of prospectus .

(4)

It can commence business immediately on incorporation and allot shares as it likes.

(5)

The minimum number of director is one instead of two.

(6)

The age limit of seventy years for directors does not apply.

(7)

A person may be a director of any number of private companies and draw any remuneration.

(8)

Directors can be appointed by a single resolution and obtain loans from the company.

15

6.3.2 Public Company Section 2 (13) of the Companies Act defines a public company as follows: "It means a company registered and incorporated under the Myanmar Companies Act or registered under the other subsisting laws regarding the law of company."

It does not restrict the right to transfer the shares where it does have a share capital. It does not limit the number of members to fifty. It allows an invitation to the public to subscribe for its shares. Every public company should have at least three directors and the directors of a company are collectively called the Board of Directors.

16

6.3.3 Registered Company Under section (22) of the Myanmar Companies Act, the

memorandum and the articles (if any) shall be filled with the Registrar and he shall retain and register them.

As to the effect of registration, the provision of section 23 lays down that:

(1)

on the registration of memorandum of a company, the

Registrar shall certify under his hand that the company is incorporated, and in the case of a limited company that the company is limited.

(2)

from the date of incorporation mentioned in the certificate of

incorporation, the subscribers of the memorandum, together with such other persons as may from time to time become members of the company, shall be a body incorporated by the name contained in the memorandum. They will have the right to exercise all functions of an incorporated

17

company, having a perpetual succession and a common seal. But in the event of winding up of the company, they will be liable to contribute to the assets of the company.

Where a certificate of incorporation is issued, it shall be a conclusive proof that all the requirements of this Act are duly complied with.

6.3.4 Unregistered Company An 'Unregistered Company' means any partnership, association or company, consisting of more than seven members , which is not registered under the Myanmar Companies Act. It is not a legal person and has no existence apart from its members. It is similar to a partnership in which each and every partner is personally liable for the debt of the firm. But as a Company, its capital may be divided into shares that are transferable .

18

The business may be continued although death or bankruptcy of its members occurs there. Its management may be vested in a body of Directors as distinguished from its members. The Company registered outside the Union of Myanmar (i.e. foreign companies) may be wound up as an unregistered company outside Myanmar.

6.3.5 Company Limited by Shares

Companies with limited liability may be limited either by guarantee or by shares. In a company limited by shares, the capital is divided into a number of shares, and the liability of each member is limited to the

19

amount for the time being unpaid on the shares which he has agreed to take up.

The Memorandum of Association of a company limited by shares contains five clauses.

(1)

The name of the company followed by the word "Limited", except in an unlimited Company or associations not for profit.

(2)

The domicile of the Company, i.e., whether its registered office is to be situated in Myanmar or not.

(3)

The objects of the Company.

(4)

In limited companies, a declaration is that the liability of the members is limited.

(5)

The amount of capital, and the shares into which it is divided.

20

The memorandum must be signed by not less than seven members, or not less than two in a private company, agreeing to take up not less than one share each.

6.3.6 Company Limited by Guarantee

Section 27 of the Myanmar Companies Act is laid down as follow (1) In the case of a company limited by guarantee and not having

a share capital, and registered after the commencement of this Act, every provision in the memorandum or articles or in any resolution of the company purporting to give any person a right to participate in the divisible profits of the company otherwise than as a member shall be void.

21

(2)

For the purpose of the provisions of this Act relating to the

memorandum of a company limited by guarantee and of this section, every provision in the memorandum or articles, or in any resolution, of any company limited guarantee and registered after the commencement of this Act, purporting to divide the undertaking of the company into shares or interests, shall be treated as a provision for a share capital, notwithstanding that the nominal amount or number of the shares or interests is not specified thereby.

The Characteristics of a Limited Company are fifteen in Number

(1)

It has a separated legal entity which is not affected by changes in its membership. It may contract, sue and be sued in its own name and capacity.

22

(2)

Share holder's right of a limited company is limited to the amount he has agreed to pay. This liability does not exceed when his shares are fully paid.

(3)

In a public company, membership is limited by the number of shares issued and authorized, and cannot be less than sevenmembers. But in a private company minimum

membership is two, and maximum is fifty. (

(4)

For winding-up purposes, petitions must be presented if the number of members falls short of sevenfor a public company and twofor a private company. Limited liability continues for

23

only six months after membership falls below the minimum. Thereafter the members are severally liable for the new debts contracted by the company. (

(5)

Rights of management are delegated to directors who alone can act on behalf of and bind the company.

(6)

The Articles of Association regulate rights of access to the books. Copy of accounts must be filled in the registrar of companies and is open to inspection by the public.

(7)

Powers are defined by the Memorandum of Association, which can be altered within the limits of the Companies Act. Powers and duties of the directors are defined by the Articles

24

of Association and can be varied by passing a special resolution of the company in general meeting. (

(8)

A limited company is subject to the Companies Act 1948, 1967 and 1976 law which cannot be varied.

(9)

The authorized capital is fixed by the Memorandum of Association. Although it can be increased by resolution of the company in general meeting, it cannot be reduced except by special resolution sanctioned by the Court.

(10) Shares are freely transferable in the case of public companies. But in the case of private companies, shares are transferable subject to restrictions imposed by the Articles of Association. (

25

(11) Accounting records.

(12) Audit is compulsory. (13) Profits are distributed in the form of dividend at the general meeting.

(14) Death duties are payable on the market-value of shares held by the deceased.

(15) Profits are subject to corporation tax.

6.3.7

Unlimited Company

In an unlimited company, the liability of the members for the debts of the company is unlimited. The name of the company always excludes the word "limited". The situation of the registered office must be mentioned in the Memorandum, and also that of the objects of the company in full statement.

26

The Articles of Association must state the number of members, and the amount of share capital to its members in membership must be notified to the Register of Companies within (15) days of such increase.

As to its privileges, it does not need to pay ad valoremduty on its capital. It can return the capital to its members without the intervention of the Court. It can purchase its own shares. It can make loans to its directors. Without its knowledge, it cannot be the subsidiary or holding company of a limited company.

6.3.8 Associations not for Profit

27

There are companies that do business and realize profits, but do not divide it among their members. Their object is generally to promote commerce, art, science, etc. Management of the business rests on the committee of management. It can be formed only on the approval given by the government, e.g. Institute of Medical Research, Law Societies Chamber of Commerce, etc., so also that it may be revoked by the government.

6.3.9

Foreign Companies A foreign company is a company incorporated outside the Union of

Myanmar, and any company other than a Myanmar Company or a Special Company formed under the Special Company Act. 1950.

A Foreign Company falls into two main classes:-

28

(1)

A foreign company incorporated in Myanmar other than a "Myanmar" company, or a Special Company formed under the Special Company Act 1950 (where part of the equity belongs to the State).

(2)

A foreign company incorporated outside Myanmar and having an established place of business in Myanmar (a foreign branch).

In fact, a "Myanmar Company" is defined as a company having a share capital fully owned and controlled by citizens of Myanmar. It, therefore, follows that a company with one or more foreign shareholders would be classified as a "Foreign Company".

There is a pre-requisite for any foreign company. It must obtain a "Permit to Trade" under section 27 (A) of the Act before it can carry on or continue to carry on its business in Myanmar.

29

Therefore, a Myanmar Company becoming a foreign company by virtue of a share transfer to a foreign is required to apply for a "Permit to Trade".

Every foreign company or branch in existence in Myanmar or newly set up is required to apply for a "Permit to Trade" to the Ministry of National Planning and Development, before it can apply for registration of the company or the branch with the Registrar of the Companies Registration office under the above Ministry.

After a Permit to Trade has been received and on signing agreement to the conditions attached to the issue, any foreign company or a foreign branch can apply for incorporation or registration with the Registrar, Companies Registration Office.

30

In practice, the drafts of Memorandum and Articles of Association in English and Myanmar for the purpose of Joint Venture with a State Enterprise must be approved by the Attorney General and the Ministry of National Planning and Development, and will notify the acceptance of these documents and classify the Joint Venture Company, as a Special Company under the Special Company Act, 1950.

If a foreign company makes default in complying with the requirements of section 27(A) of the Myanmar Companies Act to obtain a Permit to Trade, the company and every officer or agent of the company shall on conviction be liable to a fine not exceedingfive hundred kyatsor in the case of further default, fifty kyats for every day during which the default continues.

31

Every foreign company or branch which has been granted a Permit to Trade is required to bring capital in to Myanmar in foreign currency acceptable to the Myanmar Foreign Trade Bank. For this purpose, the Capital Structure Committee will fix the amount, determined on a uniform, reasonable and acceptable basis.

For the purpose of establishing a foreign Company in Myanmar, one must also be accustomed to that of the following Laws namely: -

(1)

Union of Myanmar Foreign Investment Law and Procedure.

(2)

Special Company Act 1950 and

(3)

State-owned Economic Enterprise Law.

6.3.10 Banking Companies A "banking company " means which carries on its principal business the accepting of deposits of money on current or otherwise, subject to withdrawal by cheque, draft or order. The different kinds of business that

32

can be engaged by the banking company are provided in section 277 F of the Myanmar Companies Act, which totals to sub-sections (17) number.

No banking company incorporated under this Act shall commence business unless shares have been allotted to an amount sufficient to field a sum of at least fifty thousand kyatsas working capital, and unless a declaration duly verified by an affidavit signed by the directors and the manager that such a sum has been received by way of paid-up capital has been filed with the Registrar.

33

It shall maintain a reverse fund, which is to be stated as follows: -

(1)

borrowing, raising or taking up of money.

(2)

drawing, making, accepting, buying, selling, collecting and dealings in Bills of Exchange, Hundis, Promissory Notes, Travelers Cheques, etc.

(3)

carrying on of agency guarantee and indemnity business.

(4)

undertaking of any business.

(5)

undertaking the administration of estates as executor; trustee or otherwise.

(6)

powering to do all necessary acts in reference to the property of the company.

34

(7)

doing all such other things as are incidental or conductive to the promotion or advancement of the business of the company.

6.4

Instruments relating to Incorporation of Company

Documents and documentation required for formation of a company is discussed in this portion.

6.4.1 The Memorandum of Association The memorandum means the memorandum of association of a company as originally framed or as altered in pursuance of the Myanmar Companies Act.

The memorandum shall

(a)

be printed both in Myanmar and English

35

(b)

be divided into paragraphs numbered consecutively, and

(c)

be signed by each subscriber (who shall add his address, nationality and description) in the presence of at least one witness who shall attest the signature.

In the case of a Company Limited by Shares; -

(1)

the memorandum shall state(a) the name of the company, with "Limited" as the last word in its name;

(b)

that the register office of the company will be situated in the Union of Myanmar.

(c)

the objects of the company.

(d)

that the liability of the members is limited.

36

(e) the amount of share capital with which the company proposes to be registered, and the division thereof into shares of a fixed amount.

(2) (

Subscriber of the memorandum shall take less than one share.

(3)

Each subscriber shall write opposite to his name the number of shares he takes.

In the case of a Company Limited by Guarantee;(1) the memorandum shall state:(a) the name of the company, with "limited" as the last word in its name.

37

(b)

that the registered office of the company will be situated in the Union of Myanmar.

(b) ( (c) ( (d)

theobjects of the company.

that the liability of the members in limited.

that each member undertakes to contribute to the assets of the company in the prevent of its being wound up while he is a member, or within one year afterwards, for payment of the debts and liabilities of the company contracted before he ceases of winding up and for adjustment of the right of the contributories among themselves, such amounts as may be required not exceeding a specified amount.

38

(2)

if the company has a share capital-

(a)

the memorandum shall also state the amount of share capital with which the company proposes to be registered and the division thereof into shares of a fixed amount;

(b)

no subscriber of the memorandum shall take less than one share,

(c)

each subscriber shall write opposite to his name the number of shares he takes.

In the case of Unlimited Company ;-

39

(1) the memorandum shall state;-

(a)

the name of the company.

(b)

that the registered office of the company will situated in the Union of Myanmar.

be

(c)

the objects of the company.

(2) if the company has a share capital-

(a)

no subscriber of the memorandum shall takes less than one share.

(b)

each member shall write opposite to his name the number of shares he takes.

The effect of incorporation of a company is that, from the date of its incorporation, the company acquires separate legal entity, which is quite

40

distinct from the status of the shareholders. The company in its contractual capacity can make contracts, which are binding on the others as well as binding on itself. It means that it can sue and can be used.

6.4.2

The Articles of Association "Articles" means the articles of association of a company as

originally framed or as altered by special resolution according to the regulations contained in Table A in the first Schedule annexed to the Act.

In fact, the Articles of Association contain the regulations for running the company, and define the rights of the members, and the powers and duties of the directors.

Generally, the Articles of association must statethe number of members and the amount of share capital of any; increase in membership

41

must be notified to the Registrar of companies within (15) days of such increase taking place etc.

Articles shall(a) be printed both in Myanmar and English.

(b)

be divided into paragraphs numbered consecutively, and

(c)

be signed by each subscriber of the memorandum of Association (who shall add his address, nationally and description) in the presence of at least one witness who shall attest the signature.

The Articles must be signed by not more than seven persons, or not less than two in a private company, where each agrees to take up not less than one shares. It must be lodged with the Register, who, if satisfied that everything being accomplished, will issue a certificate of Incorporation.

42

The memorandum and Articles shall, when registered bind the company and the members thereof to the same extent as if they respectively had been signed by each member and contained a covenant on the part of each member, his heirs, and legal representatives, to observe all the provisions of the memorandum and of the Articles subject to the provisions of this Act. All the money payable by any member to the company under the memorandum or Articles shall be a debt due from him to the company.

Distinction between Memorandum and Articles -

43

(1)

The Memorandum is the fundamental document, whereas the Articles are just subsidiary.

(3)

The Memorandum regulates all the major and external affairs of the company, but the articles deal only with the internal affairs or management.

(4)

The Articles are the regulations for the internal management of a company to achieve its objects. Within its powers as laid down in the Memorandum, a company can make any articles it likes. But in case of the Articles, it must not be inconsistent with the Memorandum.

(5)

Memorandum being the primary or fundamental document cannot be altered easily. But in the case of Articles, alteration can bedone by special resolution.

44

(5)

Every company must be registered together with

its

Memorandum. But a public limited company with a share capital, if it complies with Table A, may not have Articles, so that the question of registration becomes unnecessary.

(6)

While Memorandum deals with the objects of the Company, stating its capital and its nationality, the Articles deal with those rules as to the manner in which the company is to function.

6.4.3 Prospectus One of the essential documents in forming a company is the prospectus;

45

" Prospectus " means a circular issued by the promoters or the directors of a company to induce the public to subscribe for shares. The term " prospectus " as defined by the Company Act is as follows:- "any

prospectus, notice, circular, advertisement or other invitation to the public for subscription or purchase of any shares or debentures of a company ".

Every prospectus shall be dated. It must also be registered and there must be a copy which is also registered.

It

must

include

the

script

stating

the

description,

name,

nationalization, address and qualification of the directors. It must mention a minimum subscription within a fixed period otherwise the company cannot proceed with the formation of the company.

46

It is important to be noted that such a prospectus should be published. But before such publication, a copy of it must be delivered to the registrar for registration which is to be signed by every person named there in as a director or proposed director of the company or his duly authorized agent. No prospectus shall be issued more than (90) days after such provision is not followed, the company as a whole and also every person who is knowingly a party to the issue of such prospectus, shall be liable to be punished with fine which may extend to five thousand kyats.

Generally, everything stated in the prospectus must be correct and true, and also material facts must be disclosed. Therefore any misstatement or nondisclosure will amount to be fatal to the contract.

The law does not provide that every company must issue a prospectus. In the case of a private company, there is no need to issue a

47

prospectus because there is no invitation to the public to purchase the shares allotted by the company.

6.4.4

Share Capital and Shares

In every memorandum of a company, there is to be stated the amount of capital with which it proposes to start its bus iness. This is called the "authorized capital" of the company.

Ordinarily, we understand the word "capital" as a fixed amount of money with which a business is carried out. But in company Law, it is used in the following (4) senses-

(1) Nominal Capital

(2) Authorized Capital

(3) Issued Capital

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(4) Paid-up Capital

Example ; Share-capital of a company shall consist of 500,000 shares which must again be divided into 100 shares of k 5000/ each.

Nominal Capital Authorized Capital Issued or Subscribed Capital Paid-up Capital -

1 million K. 1,000,000,000 100,000,000 2500,000 -

According to section 75 (1) of the Act, where any notice, advertisement or other official publication of a company contains a statement of the amount of the authorized capital of the company, such notice, advertisement or other official publication shall contain a statement in an equally prominent position and in equally conspicuous characters of the amount of the capital which has been subscribed and the amount paid up.

49

75 (2) Any company which makes default in complying with the requirements of the section and every officer of the company who is knowingly a party to the default shall be liable to a line not exceeding one thousand kyats.

Share

Section 2 (16) of the Act defines ' share ' as follows: " Share " means share in the share capital of the company, and includes stock except when a distinction between stock and shares is expressed or implied.

The term 'share' has been defined by farewell J. in Board of Trusts

vs. Steel Brothers as follows:-

50

farewell J Brothers -

Board of Trusts vs. Steel

"The interest of the shareholder in the company, measured by a sum of money, for the purpose of liability in the first place and of interest in the second; and that a share is not a sum of money but is an interest measured in a sum of money and made up to various rights contained in the contract.

A share is therefore moveable property, transferable in the manner provided by the articles of the company, the definition of 'goods' as defined by the sale of Goods Act includes also 'shares'.

A 'share' in a company is an individual unit of capital and is indivisible, but can only be transferred as a complete unit.

Types of Shares

Shares may be ;-

51

(1)

Preference

(2)

Ordinary

(3)

Bonus

(4)

Share warrants -

(1)"Preference shares" are those which are entitled by the share holders to a fixed rate of dividend, and also with the additional right to have any arrears of dividend paid out of any future profits before any dividends are paid on other classes of shares. Preference shares ma y again be divided into two categories:-M;pm;ay;

(1) cumulative and,

(2)

non-cumulative.

Cumulative preference shares entitled the shareholders to a fixed

rate of dividend, and also with the additional right to have any arrears of

52

dividend paid out of any future profits before any dividends are paid on other classes of shares.

Non-cumulative preference shares only carry a right to a fixed

dividend out of the profits of any year, and if there are insufficient profits in that year to pay the full dividend, they have no right to have the arrears made up of future profits.

The rights of preference shareholders are governed by the Memorandum and Articles of Association.

(2)"Ordinary shares " entitled to holders to the divisible profits remaining after prior interests (if any) have been satisfied. They may again be divided into-

53

(1)

Preferredand (2) Deferred.

The preferredcarrying a preferential right to a fixed rate of dividend, and the deferred being entitled to the whole, or a proportion of the surplus profits after provision has been made for dividends on all classes on shares having prior rights, ordinary shares are commonly referred to as "equities".

(3 ) "Bonus Shares " When a company does not chose to distribute all its profits or extra profits during any particular year, it may issue fully paid up bonus shares, in proportion to their holdings, if the articles so provide. The company is thus able to increase its capital. At the same time the shareholders get their dividends in the shape of fully paid-up shares.

54

(4)Share Warrant
Section 43 (1) of the Act states that "A Company limited by shares, if so authorized by its articles, may, with respect to any full paid-shares, or to stock, issue under its common seal a warrant stating that the bearer of the warrant is entitled to the shares or stock therein specified, and may be provided by coupons or otherwise for the payment of the future dividends on the shares or stock included in the warrant, in this Act termed as a " Share warrant ".

Section 43 (2) further states that "Nothing in this section shall apply to a private company." ()

55

It can also be seen from the provision of section (44) that a share warrant shall entitle the bearer thereof to the shares or stock therein specified, and the shares or stock may be transferred by delivery of the warrant.

On the issue of the share-warrant, the name of the members is to be struck off the Register, because the share has been fully paid up and that he will be no way liable to pay.

The holder of the share-warrant continues to be the member of the company for the purpose of receiving the dividends and also possesses the power to vote at general meetings.

According to the provision of section (46), he shall not be qualified in respect of the shares or stock specified in the warrant for being a director or manager of the company.

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But on the surrenderof the share-warrant, the date of the surrender shall be entered in the Register, as if it were the date at which a person ceased to be a member.

Above all it should be noted that because a share-warrant is a document which is easily transferable, it is a negotiable instrument. When the deferred is entitled to the whole or a proportion of the surplus profits, after a provision has been made for dividends on all classes of shares having prior rights, ordinary shares are commonly referred to as "equities".

Share Certificate

A share certificate is a certificate issued by the company under its common seal specifying the share held by any member. It is a document which enables its holders to show a good prima facie marketable title to the shares.

57

Every company shall, within three months after allotment of shares or debentures, or within three months after the registration of the transfer of such shares, issue a certificate of share.

To be a valid certificate, it must have a common seal of the company affixed to it, and stamped. One or more directors must sign it. It should state the name, address, and occupation of the holder, number and amounts paid.

It is a prima facie evidence of the title of the member to such shares.

6.4.5 Stock

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" Stock " is the aggregate of fully paid up shares since section 2 (16) of the Act defines "shares" which includes stock. A company cannot issue stock.

A company cannot issue stock in the instance; if it wishes to issue stock, it must first issue shares and then convert them into stock when they are fully paid.

If so authorized by the articles, the company may alter the conditions of its memorandum so as to convert all or any of its paid -up shares into stock or reconvert that stock into paid-up shares of any denomination.

Distinctions between "Share" and "Stock" (1) a share is an individual unit of capital and is individual, whereas a stock consists of capital consolidated into bulk, which can be made

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divisible into monetary fractions. Thus it is mentioned as 'a bundle of shares'.

(2)

Stock must be paid-up, whereas shares need not be.

(3)

Each share must be distinguished by a separate number unit all the shares of the class are fully paid-up and must be ranked pari pursu for all purposes. But stock need not be distinguished as such.

Effect of conversion of Shares into Stock: Section (52) provides that, where a company having a share capital has converted any of its shares into stock, it shall file a notice to the register of such conversion, together the register of members, and shall show the amount of stock held by each member.

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It is therefore clear that a share can be either fully paid-up or partly paid-up. But in case of stock, there must be fully paid-up shares so that it can be converted or transferred. It can be transferred easily.

Stock has a % value. The main purpose of converting the shares into stock is to enable the mercantile people to deal easily in the course of their business.

6.4.6 Debentures The word 'debenture' has not been defined in the Act. According to Palmer, the word signifies "any instrument under seal, evidencing a deed, the essence of it being the admission or indebtedness". Hence, it can be said that a debenture means no more than an acknowledgement of a debt.

Commonly, the word debenture is generally used to signify a security for money. It usually creates by way of security.

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Therefore, a debenture is a written acknowledgement of a debt by a company. It is entitled to get a payment of interest. It does not form part of the capital and interest payable on debenture is a debt and may be paid out of capital.

If the company fails to give interest on the debentures, the trustee s can enforce payment according to the terms it embodied in the trust. A contract with a company to take up and pay for any debentures of the company may be enforced by a decree for specific performance.

Classification of Debentures

Debentures may be classified into (3) kinds: -

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(1)

Debentures payable to the bearer.

(2) (3)

Debenture payable to a registered holder

Perpetual debentures.

(1)

"Debentures payable to bearer"

Can be transferred by delivery and the holder of it for consideration is entitled to benefit under it not withstanding any defect in the title; i.e., it can be transferred as a negotiable instrument. Notice of the transfer need not be given to the company and no stamp duty payable on the transfer.

(Notice)

(2)

"Debenture payable to a registered holder

It is only transferable in the manner specified in the Act. Therefore it shall not be lawful for the company to register a transfer of debentures of the company unless there is aproper instrument of transfer duly stamped and executed by the transfer, and the transfer has been delivered to the

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company along with the scrip. This is because the transfer is made in writing.

(3)

Perpetual Debentures

Debentures may sometimes be perpetual in nature, which are redeemable only on the happening of the contingency however a made of any kind be present at the date fixed for the repayment of debentures. Debentures may even be payable on demand. If debentures issued are "irredeemable" or "perpetual" there would be no time within which the company would be bound to pay them. Hence, it is to be noted that the debenture holder or the creditor cannot, at any particular time, compel the company to redeem them.

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Types ofDebentures;-

1.

simple debenture,

2. 3.

secured debenture and,

floating charge.

(1)

" A simple debenture " or " naked debenture " carries no charge on assets of a company.

(2)

" A secured debenture " carries either fixed charge on a specific assets or a floating charge on all or more of the assets.

A fixed charge is a mortgage on specific assets so that the company losses the right to deal with the assets charge, except with the consent of the mortgage.

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(3)

Floating Charge, is a charge on a class of assets, present and future,

which in the ordinary course of business is changing from time to time, and attaches to the property included there in priority to the general liabilities of the company. A floating charge is not a mortgage. It is

anequitable charge and thus differs from a fixed charge. It is the one,
which is shifting in its nature, hovering over, and so speaks, floating with the property. It does not attach itself to any specific property of the company.

The chief characteristic of a floating charge is that it does not crystallize into a fixed security until "some event occurs or some act on the part of the mortgage is done"; the event is referred to any of the events mentioned in the charge on happening where of the money secured is immediately payable.

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For example: -

1.

An account of default of payment of interest for three months.

(2)

For distress of levying execution against the property of the company for the period of seven days, commencement for winding up.

On the determination of any of the events mentioned in the charge, the debenture holder must take action, such as to get a receiver appointed to enforce the security.

A floating charge requires registration under section 109 (1) of the Act.

6.5

Persons involving in Company Business

The persons run the company business and the persons involving in it are named differently from partnership.

6.5.1 Promoters

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There is nothing in the Act where is defined the term " promoter ". It is not a legal term but just a commercial term. Judge Coeburn defined the : one who undertakes to form a company with reference to a given

project, and to get it going, and who undertakes the necessary steps to accomplish that purpose . I
v w

connected with the company is not a promoter. Thus legal advisors, surveyors, engineers etc., are not to be called as promoters.

''

The legal status of a promoter stands in the some way as a director. He stands in the fiduciary position towards the company.

may pay a promoter. Sometimes, shares are given to him as fully or partly paid up, in consideration of his services to the company.

6.5.2

Directors

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The first directors of a company are generally named in the Articles of Association. Every public company should have at least three directors but a private company (whether a subsidiary of a public company or not) should have at least two. The directors of a company are collectively referred to in the Act as the "Board of Directors". Only an individual shall be appointed as director.

Thus, nobody corporate or asocial or firm shall be appointed as directors. The person appointed as a director must be the one who is of sound mind; he must not be the one who is insolvent, or convicted of an offence involving moral turpitude; he cannot be appointed as a director if he has not paid his qualification shares; and he must not be the one who has been disqualified by the Court or being removed by the Government by notification in the official Gazette.

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The remuneration of directors is to be determined by the express provisions in the Articles or a resolution of the company in general meeting.

6.6

Winding up

The " winding up " or " liquidation " of a company means where the affairs of a company are wound up, and its right and claims of the creditors are to be paid out of the assets of the company, including the contributions by its members to the extent to which it may be necessary. (

Section 155 (1) of the Act provides the modes of winding-up of a company as follows: -

(1)

by the Court; or

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(2) (2)

voluntary; or

subject to the supervision of the court.

6.6.1 Compulsory Winding- up or Winding-up by the Court

A company may be wound up by the court

1. if the company has by special resolution resolved that the company be wound up by the Court;

2. if default is made in filing the statutory report or in holding the statutory meeting;

3. if the company does not commence its business within a year from its incorporation, or suspends its business for a whole year;

4. if the number of members is reduced in the case of private company, below two; or, in the case of any other company, below seven.

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5. if the company is unable to pay its debts;

6. if its license is withdrawn in accordance with the provisions of section 55 of the Union Bank of Burma Act, 1952; 7. if the Court is of opinion that it is just and equitable that the company should be wound up.

( )

In Chan Tha Zay Co. vs. U Ohn Maung and One 1963,B.L.R(C.C) P.499 the matters related were winding up of a company Section 162

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and 166, Myanmar Companies Act Application by two members of a company on grounds of misconduct and mismanagement whether "just and equitable".

The Petitioner had applied to the court for winding up of the respondent company of which they were members, on grounds, of misconduct and mismanagement, under Sec 162 and 166 of the Burma Companies Act. At the hearing, the main charges were mismanagement of the Board of Directors, post and present, inefficiency and wastage, and the gloomy prospects of the company to make profits in the future.

It was held that a sufficient has not been made out to render it just and equitable for the court to order a winding up of the company. A company is like a family of people who have pooled their resources to work together and share the profits, sticking together in good times and in bad. When problems arise about the management of their affairs, the natural and reasonable thing for the members of the family to do is to get

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together and discuss the problems and arrive at their solutions. The family of shareholders is thus the domestic forum of the company where matters such as management and the sharing of risks and of rewards must be discussed and decided. It is only when decision cannot be arrived must be discussed and decided. It is only when decision cannot be arrived at the domestic forum and taken a hand in the management of the affairs of the company or the drastic step of winding it up. Here the petitioners have disdained to voice their feelings to seek their remedies at the domestic forum and rushed to the court instead.

The following persons are those who will be entitled to petition:

1.

the company itself,

2.

any creditor of the company,

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3. a contributory or contributories and

4.

the registrar.

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6.6.2 Voluntary Winding up

Section 203 of the Act provides that a company may be wound up voluntarily on the following accounts

Section 203 Myanmar Company Act 1. when the period (if may) fixed for the duration of the company by the articles expires, or the event (if any) occurs on the occurrence of which the articles provide that the company is to be dissolved, and the company in general meeting has passed a resolution requiring the company to be wound up voluntarily;

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2.

if the company resolves by special resolution that the company be wound up voluntarily;

3.

if the company resolves by extraordinary resolution to the effect that it cannot by reason of its liabilities continue its business and that is advisable the wound up;

A resolution passed as states above is called a "resolution for voluntary winding up". Within (10) days of passing such as resolution, the company must give notice by advertising in the official Gazette and also in some newspaper (if any) and by circulating in the district where the registered office of the company is situated. For default, the company will be liable to a fine subject to the default continues.

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When the company is wound up voluntarily, the company shall, from the commencement of the winding up, cease to carry on its business except in so far as it may be necessary for the beneficial winding up of the company.

There are two different modes of voluntary winding up:

1.Member's voluntary winding up Sec: 208.

2 .Creditor's voluntary winding up Sec: 209.

1.Member's Voluntary Winding up

Although the company is solvent, the directors of the company or a majority of the directors may, when there are more than two at a meeting of the directors before the date on which the resolution for the winding up of the company is to be proposed and sent out, make a declaration verified by an affidavitthat within three years the company will be able to

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pay all its debts in full. Such a declaration is to be supported by a report of the company's auditors and it must be registered. And on the day of the meeting, the company shall appoint a liquidator or liquidators for the purpose of winding up.

2.Creditors' Voluntary Winding up The company, when it becomes insolvent, shall cause a meeting of the creditor of the company to be summoned for the day or the next day or the following day, on which there is to be held the meeting for at which the resolution for voluntary winding up is to be proposed . Notices must be sent to each of the creditor and such a notice must be advertised in the prescribed manner.

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The directors of the company shall make a full statement of the position of the company's affairs together with the list of the creditors of the company and the estimated amount of their claims.

One of the directors shall be appointed among themselves to preside at the said meeting. For the default of such a procedure, the company, directors, or a director, as the case may be, shall be liable to a fine not exceeding one thousand kyats.

A liquidator shall be appointed for such voluntary winding up for the purpose of winding up the affairs and distributing the assets of the company. If no person is appointed by the creditors, the person nominated by the company shall act as liquidator.

Liquidator in a voluntary winding up proceeding is not, strictly speaking, a trustee for the creditors or of contributories of the company, nor he is an officer of the Court. His position is that of a paid agent of the

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company and therefore he has to perform his duties with high standard of care and due diligence is required. For his negligence, he will be liable to pay damages.

As regards his specific powers and duties, section 212 of the Act provides that he can issue notices for unpaid calls and that he can bring and defend suits in the name of the company. He shall exercise on the business of the company so far as may be necessary for the beneficial winding up of the company.

He, therefore, has the power to sell or transfer the property of the company, which must be done by selling or transferring the property of the company, and which must be done by public auction or if necessary by private contract. To determine any question arising out of the winding up process he may apply to the court for such determination.

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6.6.3 Winding up Subject to Supervision of the Court

This is the third method of winding up section 221 provides that such a kind of winding up can be done when a creditor, contributor y or the voluntary liquidator himself applies for a supervision of the Court. The Court will then grant an order to follow such a course which is necessary and desirable in the interest of the company or the contributories or the creditors.

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KEY TERMS w Foreign Company Stockholder -

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another stockholder Private Company Public Company -

RegisteredCompany Unregistered Company Foreign Companies Banking Companies I v -v Profits -

Winding up Associations not for Profit-

ProspectusPromoters Exercise Questions State how a company can be formed under the Companies Act.(Chapter 6) What do you mean by the term "Memorandum"? Explain how memorandum of different companies can be formed. (Chapter 6)

1. 2.

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3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18.

19.

What do you mean by the term "articles"? Give a brief account on its importance.(Chapter 6) What is the difference between "Memorandum" and "Articles" ? (Chapter 6) State what facts should include in the Memorandum of Association under Myanmar Companies Act.(Chapter 6) What particular points should be included in drawing up the Articles of Association under Myanmar Companies Act?(Chapter 6) What are the contents of the prospectus? Describe.(Chapter 6) Define the term "Promoter".(Chapter 6) Define "Private Company" and state its privileges.(Chapter 6) Define "Public Company" and state its legal position. (Chapter 6) What is the difference between registered company and unregistered company? Mention.(Chapter 6) What are the characteristics of a limited company?(Chapter 6) What is a "Foreign Company"? State the effectiveness of its incorporation.(Chapter 6) State the position of the directors of a company.(Chapter 6) What is the "Share Capital"?(Chapter 6) Define the term "shares"? Give a brief account on different kinds of shares.(Chapter 6) What do you mean by the term "Stock"? State the differences between "Share and Stock".(Chapter 6) Define the meaning of the following terms;(a) "stock exchange" (b) "share certificate" (c) "share warrant" (d) "debenture" (e) "floating charge"(Chapter 6) What are the procedures to be followed in compulsory winding up of a company?(Chapter 6)

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20.

When can a voluntary winding up of a company be made? State its modes.(Chapter 6) 21. What are the consequences of winding-up of a company? (Chapter 6)