Table of ContentsIntroduction.........................................................2Company..............................................................4

Objects and Purposes of Company Legislation..........................4Essential Features of a Company......................................5

Types of Companies...................................................6Essential Steps to Form a Company....................................8

Memorandum of Association............................................9Articles of Association.............................................10

Difference between Memorandum of association and Articles of Association.........................................................10

Prospectus..........................................................11Misstatement in the prospectus......................................12

Person Liable for untrue statement..................................12The extent of the liability for untrue statement....................13

Share Capital.......................................................14Meeting.............................................................14

Types of Meeting....................................................15Rules of procedure regarding meetings...............................16

Resolution..........................................................17

Introduction

Company Law under which the formation, registration or

incorporation, governance and dissolution of a firm is

administered and controlled.

Modern company law was introduced in England in 1844 when Joint

Stock Company Act was passed. The Act provided for the first time

that a company could be incorporated by registration without

obtaining a Royal Charter or sanction by a special Act of

Parliament. The office of the Registrar of Joint Stock Companies

was also created. But the Act denied to members the facility of

limited liability. The English Parliament in 1855 passed the

Limited Liability Act providing for limited liability to the

members of a registered company. The act of 1844 was superseded

by a comprehensive Act of 1856, which marked the beginning of a

new era in case of company law. This Act introduced the modern

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mode of creating companies by means of memorandum and articles of

association.

The final enactment to bear the title of Companies Act was the

companies Act, 1862. By these acts some of the modern provisions

of the company were clearly laid out. First of all, two

documents, (a) the memorandum of association, and (b) articles of

association formed the integral part for the formation of a

limited company. Secondly a company could be formed with

liability limited by guarantee. Thirdly, any alteration in the

object clause of the memorandum of association was prohibited.

Provisions for winding up were also introduced. Thus, the basic

structure of the company as we know had taken shape. Sir Francis

Palmer described this Act as the ‘Magna Carta’ of co-operative

enterprises. But tge companies (memorandum of association) Act,

1890 made relaxation with regard to change un the object clause

under the leave of the court obtained on the basis of special

resolution passed by the members in general meeting. Then the

liability of the directors of a company was introduced by the

Director’s liability Act 1890 and the compulsory audit of the

company’s account was enforced under the Companies Act, 1990.

The concept of private company was introduced for the first time

in the companies Act, 1908 (earlier ones were called public

companies). Two subsequent acts were passed in 1908 and 1929 to

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consolidate the earlier Acts. The companies Act 1948, which was

the Principal Act in force in England was based on the report of

a committee under Lord Cohen. This Act introduced inter alia

another new form of company known as exempt private company.

Another outstanding feature of 1948 Act was the emphasis on the

public accountability of the company. Generally recognized

principles of accountancy were given statutory force and had to

be applied in the preparation of the balance sheet and profit and

loss account. Further, the 1948 legislation extended the

protection of the minority (Section 210) and the powers of the

Board if Trade to order an investigation of the company’s affairs

(Section 164-175); and for the first time the shareholders in

general meeting was given power to remove a director before the

expiration of his period of office. The independence of auditor’s

vis-à-vis the directors were strengthened.

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Company

This refers to an association of a number of persons, formed for

some common purpose and registered according to law relating to

companies. The company Act, 1994 states that a company means, ‘a

company formed and registered under this Act or an existing

company.’ In Bangladesh the Company Act 1994 is applicable e.g.

ACI Consumers Limited is a company due to fulfilling all the

conditions under Company Act, 1994.

Justice John Marshal said, ‘A company is an artificial being,

invisible, intangible and existing only in contemplation of law’

Explanation

A company, formed and registered under the Company Act, is

regarded by law as a single person, having specified rights and

obligations. The law confers on a company a distinct legal

personality, with perpetual succession and a common seal.

Therefore a company is different from its members and the

individuals composing it.

Objects and Purposes of Company Legislation

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The company is a form of business organization in which the funds

of a large number of investors are managed by a few persons for

the purpose of earning profits which are shared by all the

investors. The main objects are:

1. Encourage investments in companies by providing certain

facilities e.g. limitation of liability, transferability of

shares etc.

2. Ensure due and proper administration of funds and assets of

companies in the interest of the investing public.

3. Prevent malpractices by directors and managers.

4. Arrange for investigation into the affairs of companies and

provide for effective audit in dealing with cases of

dishonestly and fraud in the corporate sector.

Essential Features of a Company

The principal characteristics of an incorporated company can be

summarized as follows:

1. Registration: A company must have registration under Company

Act 1994 but in partnership, registration, registration is

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not compulsory. E.g. Square Pharmaceuticals is a company due

to registration under Company Act, 1994.

2. Voluntary association: A company is an association of many

persons on a voluntary basis.

3. Legal personality: A company has a legal personality, e.g.

loan is issued to a company in order to being its legal

entity.

4. Contractual capacity: The shareholder of a company can enter

into contract with the company and can be an employee of the

company.

5. Management: A company is managed by the Board of Directors,

whole time directors, Managing Directors or manager.

6. Capital: A company must have a capital, otherwise it cannot

work. E.g. Enron Corporation was declared bankrupt in 2001

due to shortage of capital.

7. Permanent existence: A company must have permanent

existence. The death or insolvency of an owner or an

investor or a shareholder does not affect its existence e.g.

M/S Islam Group is running even after the death of its owner

Zahirul Islam.

8. Common seal: A company must have a common seal.

9. Limited liability: The liabilities of the shareholders of a

company are usually limited e.g. United Airways Bangladesh

Limited’s share price is Tk. 100 then its shareholder is

liable for only this amount for holding each share.

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10. Registered office: A company must have a registered

office.

11. Transferability: The shareholder of a company can

transfer its share and ordinarily the transferee becomes a

member of the company.

12. Not a citizen: A company is not a citizen, although it

may have domicile.

13. Residence: A company has a residence.

14. No fundamental rights: Though a company has no

fundamental rights, it can challenge a law as void if the

law happens to violate fundamental rights of citizens.

15. Social objective: The company has duties towards the

community, its workers, the national economy and progress.

16. Centrally administered: The administration of a company

law is entrusted to the government.

Types of Companies

There are two types of companies:

1. Private Company

2. Public Company

1) Private Company: A private company is one which by its

articles:

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a) Restricts the right of the members to transfer their shares

b) Limits the number of members to 50

c) Prohibits any invitation to the public to subscribe for any

shares in or debentures of the company, sec. 31 (1)(iii).

Private company can be classified as-

i. Limited by shares

ii. Limited by guarantee

2) Public Company: All companies other than private companies are

called public companies, that mean the company have the following

characteristics:

a) Members can transfer their shares

b) Number of whose members is not limited

c) Can invite to the public to subscribe for any shares in or

debentures of the company.

Public company can be classified as:

i. Limited by shares

ii. Limited by guarantee

iii. Unlimited Companies

I. Limited by Shares

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The company whose member is not liable to pay anything

more than the fixed value of the share, whatever the

liabilities of the company is, is known as limited by

shares. E.g. if a company’s share price is Tk. 100, than

its shareholder is liable for only this amount for

holding each share. Most companies are this type of

company.

II. Limited by Guarantee

The company whose members required to buy a share of

fixed value and also give guarantee for a further sum in

an event of liquidation. Then this type of company is

known as company limited by guarantees. There is no

liability to pay anything more than the value of share

other than the guarantee e.g. if a company share is Tk.

100 then shareholder’s liabilities is Tk. 100 plus the

amount guaranteed.

III. Unlimited Company

The company whose shareholder’s liability is unlimited as

partnership firm is known as unlimited company. Such

companies are permitted under the Company Act.

Essential Steps to Form a Company

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Before a company can be formed the following steps must be

completed:

1. Memorandum of articles: The memo and articles must be

prepared. These two documents must be filled when application is

made for the registration and incorporation of the company.

2. Sanction of central government: If it is proposed to have a

paid up capital for more than 3crs. Sanction of central

government must be obtained under the capital issue at 1996. This

exemption is not available to the monopoly companies and

companies with foreign shareholding with more than 40%.

3. License: if the company is formed intend to participate in an

industry which is included in the scheduled annexed to the

industries at 1951; a license must be obtained under that act.

4. Registration and certificate of incorporation: The company

must be registered in accordance with the provisions of the

company act 1956 and the certificate of the incorporation must be

obtained.

These four steps are required to form a private company. In case of public company,

some other steps are required to be taken before it can commence the business

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5. Prospectus: the prospectus or the statement in lieu of

prospectus must be issued and registered with the registrar.

6. Minimum subscription: The minimum subscription must be made

and thereafter all the allotment of the share must be made.

7. Certificate of Commencement: the certificate of commencement

must be obtained from the registrar.

Memorandum of Association

The Memorandum of Association is a document which contains the

fundamental rules regarding the constitution and activities of

the company. It is the basic document which lays down how a

company is to be constituted and what work it shall undertake. It

contains the rules regarding

The capital structure

The liability of the members

The object of the company etc.

Memorandum of association will contain

Name clause

Situation clause

Object clause

Operation clause

Liability clause

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Subscription clause

The purpose of the memorandum is to enable the members of the

company, its creditors and the public to know what is the range

of its activities.

Articles of Association

The Article of Association is a document which contains rules,

regulations, and bye-laws regarding the internal management of

the company. Articles must not violate any provisions of the

memorandum or the provision of the company act. The members of

the company are entitled to have copies of the memo and articles

on payment of a small fee.

An article of association is also containing:

Alter, purchase, forfeiture of shares

Power and remuneration of the directors

Profit, winding up etc.

Difference between Memorandum of association and Articles of Association

The distinction between the memorandum and articles of

association can e summed up as follows:

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Memorandum of Association Articles of Association1. The memorandum is the

fundamental charter of the

company determining its

constitutions and

objectives.

1. The article determines the

rules regarding internal

management.

2. Any rule in the memorandum

contrary to the article is

valid.

2. Any rule in the article

contrary to the memorandum

is invalid.

3. It can be altered only

after the adaptation of

certain formalities.

3. It can be altered easily.

4. Certain clauses of the

memo cannot be altered

without the sanction of

the Central Government and

of the Court.

4. Articles can be altered by

passing a special

resolution.

5. The memo defines

The powers of the company

The relationship between

the company and the

5. Articles defines and

regulate

The relationship between

the company and the

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members

The relationship between

the company and also non-

members.

members.

The relationship between

the members.

Prospectus

A Prospectus has been defined in the Act as ‘’ any documents

described or issued as a prospectus and include any notice,

circular, advertisement or other document inviting deposits from

the public or inviting offers from the public for the

subscription or purchase of any share in, or debenture of a body

corporate’’- Sec. 2(36)

So prospectus is actually

A document

It includes any notice, articles, advertizing, invitation

It invites public to subscribe shares, debenture.

Misstatement in the prospectus

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The public invest money in the purchase shares and debentures of

the companies on the basis of statements contained in the

prospectus. Misstatement and false statements in the prospectus

are the instruments through which dishonest company promoter may

practice fraud on the public. This untrue statement is a

statement in the prospectus which produces a wrong impression of

the actual facts. It is not only false statement but also

A statement which is misleading in the form and context in

which it is included

An omission (of any matter) which is calculated to mislead.

Person Liable for untrue statement

Section 62(10 of the act provides that the following persons are

liable (and punishable) for untrue statement in the prospectus.

a) Every person who is a director of the company at the time of

the issue of the prospectus.

b) Every person who is authorized himself to be named and is

named in the prospectus either as a director, or a shaving

agreed to become a director, either immediately or after an

interval of time.

c) Every person who is a promoter of the company.

d) Every person who has authorized the issue of the prospectus.

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The extent of the liability for untrue statement

The companies act imposes the following liabilities on the person

responsible for the untrue statements in the prospectus.

a) Civil Liability: Section 62(1) provides that such persons

are liable to pay compensation for any loss or damage which

any person may suffer from the purchase of any share or

debenture on the basis of untrue statement.

b) Criminal liability: section 63(1) provides that every person

who has authorized the issue of prospectus containing untrue

statement shall be punishable with

Imprisonment which may extend to two years, or

Fine money which may extend to 5000, or

Both

c) Liability under the law of fraud: The law relating to fraud

prvides that when a person to enter into a contract by

fraud, he is entitled

To rescind the contract and

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To get compensation for the loss or damages which he

may suffered.

d) Penalty for fraudulently inducing persons to invest money:

Any person who fighter knowingly or recklessly make any

untrue statement in the prospectus that induces or attempts

to induce public to invest money in that company, the person

shall be punished with

Imprisonment which may extend to five years, or

Fine money which may extend to tk. 10000 or

Both

Share Capital

The term capital in connection with company information, may mean

any one of the following things;

1. Nominal capital or Authorized capital: Nominal capital or

Authorized capital is the total face value of the shares

which the company is authorized to issue by its memorandum

of association.

2. Issued capita: Issued capital is the part of authorized

capital which is actually offered to the public for sale.

3. Subscribed capital: Subscribed capital is the part of

authorized capital which is taken up and accepted by the

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4. Paid up capital: Paid up capital is the amount of money

actually paid by the subscribers or credited as so paid.

5. Uncalled capital: The unpaid portion of the subscribed

capital is called uncalled capital.

Meeting

In a meeting, two or more people come together to discuss one or

more topics, often in a formal setting. It is an act or process

of coming together as an assembly for a common purpose.

A meeting is a gathering of two or more people that has been

convened for purpose of achieving a common goal through verbal

interaction, e.g., sharing information or reaching agreement.

Meeting may occur face to face or virtually, as mediated by

communication technology, e.g., a telephone conference call, a

skype conference call or a video call conference.

Types of Meeting

The Companies Act provides following types of meeting:

1. Statutory Meeting

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2. Annual General Meeting (AGM)

3. other General Meeting

These are described bellow:

1. Statutory Meeting:

Every public company Limited by Shares and every company limited

by Guarantee and having a share capital, must within a period of

not less than one month and not more than six month from the date

at which the company is entitled to commerce business ,hold a

general meeting of members which is to be called Statutory

Meeting. In this meeting the members are to discuss a report by

directors, known as Statutory Report, which contains particulars

relating to formation of the company –sec 165(1).

2. Annual General Meeting:

General Meeting of a company means a meeting of its members for

specific purposes.The first AGM must hold within a period not

more than 18 months from the date of its incorporation and then

should hold every year. Not more than 15 months shall be elapse

between the date of one AGM to the next.

If any company default to arrange meeting according to the above

rules then ,the provision of section 166 and 167 are not complied

with company and every officers of the company in default be

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fined (Maximum fine-tk.5000, if continuing default further fine

tk.250 per day)

3. Other General Meetings:

The Board of Directors can be compelled to hold a General Meeting

upon request or requisition made for it, under the following

conditions-sec 169:

a. The requisition must be signed by embers holding at least

1/10th of the paid up capital of the company, in case of

having share capital; And by the members holding at least

1/10th of the total voting power in others cases.

b. The requisition must be set up the matters which will be

considered at meeting.

c. The requisition must be deposited at the register office of

the company.

Rules of procedure regarding meetings

The general rules of procedure as regards shareholders meeting

can be summarized as follows:

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1. Proper authority: The Board of Directors is the proper

authority to pass a resolution at duty convened Board

meeting to convene a meeting

2. Notice (Sec 172): Notice must be given to i) all members

entitled to vote upon the matters which the proposed to be

default in the meeting, ii) the legal representative of

deceased or insolvent members coming under category, and

iii) the auditors of the company. Notice must be given at

least 21 days before the meeting.

3. Agenda; The explanatory statement (Sec 173): The act states

that notice must annex an “Explanatory statement” which

contained all the material facts relating to each item of

the business, indicating the nature and extend of interest

of every director and manager of the company.

4. The Quorum (Sec 174): Quorum means minimum number of members

required to hold a meeting. According to the Act, quorum is

constituted by 5 members personally present in case of

public company and 2 members in case of private company. The

articles may be prescribe larger number. If there is no

quorum within half an hour of the notified time for starting

the meeting, it is dissolved automatically adjourned to the

same day at the same hour and place or at such other day,

hour and place as the board may determine. No quorum is

necessary in any adjourned meeting. If the meeting is called

upon requisition, no further meeting on same notice is

permitted.

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5. Chairman (Sec 175): Unless otherwise laid down in the

Article, the members personally present at the meeting shall

elect a chairman from amongst themselves by show of hands.

6. Proxy (Sec 176): Any member entitled to attend and vote in

the meeting can appoint another person to attend and vote on

his behalf. The person appointed is called Proxy. A member

entitled to vote can inspect the proxy from deposited, if he

gives 3 days notice of his intention to do so.

7. Method of Voting (Sec 177-185): A resolution are to be voted

through the following ways:

a. In the first instance, by show of hands

b. By poll.

Resolution

To take decisions about important matter related to the company

in meeting with the approval of the majority of members is known

as resolution. The Act 1956 classifies resolution in the

following types:

i. Special Resolution

ii. Ordinary Resolution

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i. Special Resolution: A special resolution is nesessay for

deciding important matters.

ii. Ordinary Resolution: All matters required not to be

decided by a special resolution, may be decided by

ordinary resolution. An ordinary resolution is passed,

when the member of votes in its favor exceeds cast

against it.

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