Nature

Association
Independent Legal Entity: Salomon v Salomon
& Co. Ltd., Lee V. Lee’s Airforming Ltd. (1961)
A.C. 12
Permanent
Liability is limited: Shares V. Guarantee
Shares are transferable
Can sue and be sued
Centralized management
Question: Communist/socialist idea? Religious
also
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Company versus Partnership
Distinct from members no separate entity
Perpetual succession uncertain life
Limited liability unlimited joint &
several liability
Private Co.-minimum 2 minimum 2
maximum 50 maximum 20
Public Co.- minimum7
maximum unlimited
Winding up by an order of agreement by notice,
by Court
the Court
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Kinds
1. Chartered: East India Company
2. Statutory: Bangladesh Bank
3. Registered: A. Limited-
i. Limited by shares
ii. Limited by guarantee: non trading/profit
B. Unlimited: Microsoft, AIG
C. Public & Private
4. Private: Sec. 2(1)(q) a private company-
i) limits the number of its members to fifty
not excluding persons who are in its
employment
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ii) restricts the right of transfer of shares, if any;
iii) prohibits any invitation to the public to
subscribe for its shares or debentures, if any.
5. Holding & Subsidiary: A holding control a
subsidiary- a) by holding more than 50% of
the normal value of issued equity capital or b)
by holding more than 50% of its voting rights
or
c) by securing to the right to appoint the
majority of the directors directly or indirectly.
6. Government: not less than 51% of the paid up
capital is held by the Government.
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More rules in determining subsidiary of another- (a)
shares held or power exercisable by that other
company in a fiduciary capacity
(b) in absence of fiduciary capacity the shares are
held or the power is exercisable by a person as a
nominee and on behalf of that other company,
(c) such person/nominee can’t acquire any
debentures or of a trust deed for securing any issue
of such debentures;
(d) if any shares are held or power is exercisable, not
being as nominee but by way of security of the loan
[then such power shall not be treated as being held
or exercisable by such company or its nominee.]
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Incorporation:
i. Promotion: process of organizing and
planning the finances.
ii. Registration:
a. Memorandum of association
b. Articles of Association
c. the agreement
d. written consent of the directors
e. statutory declaration to fulfill all
requirements.
iii. Capital subscription & iv. Commencement
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The certificate for commencement:
i. shares payable in cash must have been allotted
upto the amount of minimum subscription
ii. every director had paid the company in cash
application and allotment money on his shares.
iii.No money should have become refundable for
failure to obtain permission for shares or
debentures to be dealt in any recognized stock
exchange.
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Prospectus (Ss. 134-151)
A document which invites deposits from the public or
invites offers from the public to buy shares or
debentures of the company. It must contain-
 written consent made by an expert
 registration by the registrar
 the name of the stock exchange.
A public company where no prospectus issued-within
three days after the first allotment of either shares or
debentures, there has been delivered to the Registrar
for registration a statement in lieu of prospectus.
Under section 142 such statement be deemed to be a
prospectus.
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Going to public: General rule
i. Where not less than 25% of the paid-up share capital
of a private company is held by one or more bodies’
corporate such a private company shall become a
public company from the data in which such 25% is
held by body corporate
ii. Where the average annual turnover of a private
company is not less than Rs. 10 crores during the
relevant period, such a private company shall
become a public company after the expiry of the
some period ( in India three months) from the last
day of the relevant period when the accounts show
the said average annual turnover
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iii. When a private company holds not less than 25% of
the paid up share capital of a public company the
private company shall become a public company from
the date on which the private company holds such 25%
iv. Where a private company accepts, after an invitation
is made by an advertisement of receiving deposits from
the public other than its members, directors or their
relatives, such private company shall become a public
company.
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Memorandum of Association
It is the constitution and charter of the company
contains name clause, registered office
clause, object clause (objects must be legal,
clear, definite and not contrary to the
Company Act 1994 and public policy),
capital clause, liability clause, and
subscription clause.
Amendment of Memo
i. Special Resolution
ii.Confirmation by Government
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Articles of Association
Contains the rules and regulations framed within
the powers of the company.(classes of shares &
rights; issue, allotment, transfer & forfeiture of
shares; debt, notice, dividend, account,
directorship etc.)

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233. Power of Court to give direction for
protection interest of the minority(member/share
debenture holder):
 bring to the notice of the court by application
that
 the affairs of the company are being conducted
or the powers of the directors are being
exercised in a manner prejudicial to one or more
of them or in disregard of his or their interest; or
 the company is acting or is likely to act in a
manner which discriminated or is likely to
discriminate the interest of any/them;
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 a resolution of the members, debenture holders
or any class of them has been passed or is likely
to be passed which discriminates or is likely to
discriminate the interest of one/them
and pray for safeguarding his or their interest.
 The Court shall send a copy to the Board and
fix a date for hearing the application it may
make such order as prayed for including a
direction-
(a) to cancel or modify any resolution or
transaction ; or

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(b) to regulate the conduct of the company's
affairs in future in such manner as is
specified therein.
(c) to amend any provision of the
memorandum and articles of the company.
 within 14 days the order should be sent to
Registrar in writing.

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The doctrine of shareholder oppression
attempts to safeguard the close corporation
minority investor from the improper exercise of
majority control.
First, oppression as 'burdensome, harsh and
wrongful conduct.., a visible departure from the
standards of fair dealing and a violation of fair
play on which every shareholder who entrusts
his money to a corporation is entitled to rely."
Second, some courts link oppression to breach
of an enhanced fiduciary duty owed from one
close corporation shareholder to another.
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Third, a number of courts tie oppression to the
frustration of the reasonable expectations of the
shareholders.
Protection procedure:
• One Share – One Vote
• Proxy by mail allowed
• Shares not blocked before Meeting
• Cumulative Voting/Proportional Representation
• Oppressed Minority
• Pre-emptive Right to New Issues
• The Percentage of Share Capital to Call an
Extraordinary Shareholder Meeting has to be less or
equal to 10% of the votes.
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 Meeting

Shareholders Directors Creditors

General-------Class Board Committee
Debenture Creditors
holder /Liquidition
Statutory

Annual

Extraordinary

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Winding Up
process of dissolution to cease to exist
 liquidation in realization of the assets
 Legal/judicial step in ending life of company.
Modes
 by the Court
 voluntary: i. by members' voluntary activity; ii.
Creditors' voluntary activity
 by the supervision of the Court.

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Winding up by Court
Section 241. If—
 special resolution permits or
 default is made in filing the statutory report or in holding the
statutory meeting or( application by shareholder)
 the company does not commence its business within a year
from its incorporation, or suspends its business for a whole
year or
 the number of members is reduced, in the case of a private
company below 2 or in the case of any other company below 7
or
 the company is unable to pay its debts (app. by Registrar) or
 the Court is of opinion that it is just and equitable that the
company should be wound up (establishment of prima facie
case)
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just and equitable means and includes-
 the object for which it is created is gone or
impossible
 mismanagement/ deadlock in the management
 oppression of minority shareholders
 fraudulent or illegal
 existence is bubble rather than real.
No 3 is not available when suspension of
business is due to temporary causes and there
are reasonable prospects for starting of business
within a reasonable time.
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Official liquidator
Court will appoint during the pendency of the case. He
will
A. submit a preliminary report to Court of Company’s
 cash and negotiable securities;
 debts due from contributories;
 debts due to and securities, if any, available to the
company,
 movable and immovable properties belonging to;
 unpaid calls.
B. convene a meeting of the creditors to determine
whether or not a committee of inspection shall be
appointed to act with him.
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Powers of The Liquidator
 powers exercisable with the sanction of the
Court e.g., to give a list of the name of
preferential creditors if the Court demands it
and
 powers exercisable without the sanction of the
Court e.g., to call a meeting to find out the
name of the preferential creditors.

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280. Power to arrest absconding contributionary:-The
Court, at any time either before or after making a
winding up order and on proof of probable cause
for believing that a contributory is or about to quit
Bangladesh or otherwise to abscond, or to remove
or conceal any of his property, for the purpose of
evading payment of calls or of avoiding
examination respecting the affairs of the company,
may cause the contributory to be arrested and his
books and papers and movable property to be sized,
and him and them to be safe custody until such
times as the Court may order.
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Voluntary Winding Up
 when the period, if any, fixed for the duration of the
company by the articles expires, or the even, if any
occurs, on the occurrence of which 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;
 if the company resolves by special resolution that
the company be wound up voluntarily;
 if the company resolves by extraordinary resolution
to the effect hat it cannot by reason of its liabilities
continue its business, and that it is advisable to wind
up.
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Voluntary winding up may be happened by-
i. member: when company is solvent but member
wants to dissolve it.
ii. creditor: company is insolvent and unable to
pay the debt.

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Consequential proceeding of winding up
 Send the copy of order to Registrar &
Liquidator
 Order will act as discharge to all officers and
employees
 No more suit against the company
 Winding up Versus bankruptcy
 disposition of the property
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