company law presentation - unitedworld school of business

7/28/2019 Company Law Presentation - Unitedworld School of Business

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Company Law


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Meaning of Shares A part or portion of a larger amount that is divided amonga number of people, or to which a number of peoplecontribute.

Definition of SharesShare- Share is defined as an interest having a money value andmade up of diverse rights specified under the articles of association .

Classification of sharesUnder the Companies Act, 1956 the shares are classified into twotypes-

Preference SharesEquity Shares


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Preference Shares

Preference share capital is the sum total of preferenceshares. These shares carry the following preferentialrights over equity shares:

As regards dividends, to be paid a fixed amount or anamount calculated at a fixed rate;On winding up of the company, to return of capitalpaid up.

There are four types of preference shares:

Cumulative preferred, for which dividends must bepaid including skipped dividends.Non-cumulative preferred, for which skippeddividends are not included.


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Participating preferred, which give the

holder dividends plus extra earnings basedon certain conditions.Convertible preferred, which can beexchanged for a specified number of sharesof common stock.

Preference shares may further be classified

as-

Redeemable Preference Shares

Irredeemable Preference Shares


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Equity SharesEquity shares are those shares which areordinary in the course of company's business.They are also called as ordinary shares. These

share holders do not enjoy preference regardingpayment of dividend and repayment of capital.Equity shareholders are paid dividend out of theprofits made by a company. Higher the profits,

higher will be the dividend and lower the profits,lower will be the dividend.


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Share Capital

Share capital means the capital raised bythe company by issue of shares.

Types of Share Capital

Authorized Share CapitalThis is the capital with which the company is

registered. It comprises of the total face valueof the shares in a company. It is also calledTotal or Nominal Capital of the company.


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Issued Capital

The entire authorized capital may not berequired to be raised by the company initially.The company issues shares to the extent of itsrequirement. This is called Issued Capital.Issued Capital is always less than the

Authorized or Nominal Capital, or equal to it.Subscribed Capital

That part of issued capital which is agreed to betaken up by the public, is called the SubscribedCapital.


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Paid-up CapitalThe amount actually paid by the subscribers towards thecapital accepted by them is called Paid -up Capital. Theentire amount of the share money may not be paid upimmediately.

Called up CapitalCalled up capital is a part of subscribed capital which hasbeen called up by the company for payment.

For example - If 10,000 shares of Rs. 100 each have beensubscribed by the public and of which Rs. 50 per share has beencalled up. Then the subscribed capital of the Company works out toRs. 1,00,000 of which the called up capital of the Company is Rs.50,0000.


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Un-called Capital

The may not require the full amount of thesubscribed capital and therefore, it may call uponly a part of the capital subscribed and thatpart which has not been called up i.e., the

remainder of the subscribed capital is calledUn-called Capital .

Allotment of SharesThe allotment of shares by the company shall

be made in accordance with Sections69,70,72and 73 of the companies Act.

Application for shares is an offer and allotment

of shares by the company is an acceptance of the offer. Allotment can be made on a written or


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The following rules are to be observed :1. A prospectus or a statement in lieu of prospectus

shall be filed with the Register.2. No allotment of shares shall be made to public unless

the minimum subscription amount stated in theprospectus is raised and received by the company.

3. Application for shares should be made to the companyin the prescribed from called Application Form.

4. No allotment shall be made until the beginning of the5 th day after a date on which the prospectus is issuedor such later time as may be specified in theprospectus.


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5. The beginning of the 5 th day or such later time shall becalled time of the opening of the subscription list .

6. Every company intended to offer shares or debentures tothe public for subscription, before such issues shall makean application to one or more recognized stock exchangesfor permission.

7. The amount payable on application on each share shall notbe less than 5% of the nominal amount of the share.

8. The whole of the application money should have been paidto and received by the company in cash.

9. All money received from applicants for shares shall bedeposited and kept deposited in a scheduled beenobtained, then until the entire amount payable onapplication for shares in respect of the minimum

subscription has been received by the company.


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Effect of Irregular Allotment

Within two months after the holding of thestatutory meeting of the company.

In any case where the company is not requiredto hold a statutory meeting or where theallotment is made after the holding of thestatutory meeting, within two months after the

date of allotment, and not later.

The allotment shall be a voidable even if thecompany is in course being wound up.


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Transfer of Shares

AOA (Articles of Association) provides for the procedureof transfer of shares. It is a voluntary action of theshareholder.

It can be made even by a blank transfer In such casesthe transferor only signs the transfer form without makingany other entries.

In case it is a forged transfer, the transferors signature isforged on the share transfer instrument.


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The share of a company are freely transferable.The share holder can transfer his share to anyperson without the consent of other member.

Company can not impose absolute restrictionson the rights of the members to transfer their shares.

Transmission of shares is by operation of law,e.g. by death, insolvency of the shareholder etc.


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CONTENT OFPROSPECTUS


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WHAT IS PROSPECTUS ?

Prospectus means any documentdescribed or issued as a prospectus andincludes any notice, circular,

advertisement or other document invitingdeposits from the public or inviting offersfrom the public for the subscription or

purchase of any shares in, or debenturesof a body corporate.


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The prospectus must include the following

sections:1. Important information on the scheme2. Definitions of the technical terms which are

used throughout the Prospectus3. Principal features of regarding the company

and the scheme. The information contained in

this section should be read in conjunction withthe full prospectus. This include following


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Structure of the Company;Investment Objective, policies and restrictions

Fund IncomeManager, registrar and secretaryCustodian and BankersBase Currency of the fund

Applications for purchase of sharesDealingDealing priceCharges

Minimum InvestmentManagement and Custodian FeesAccounting reference dateSponsoring stockbroker Stock exchange listing


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4. Description of the company and its management

5. Investment objectives, policies and restrictions.This includes a description of the scheme'sinvestment objectives, including its financial

objectives, investment policy, and an indication of any techniques and instruments which may beused for the purposes of efficient portfoliomanagement, and of any borrowing powers which

may be used in the management of the scheme.6. The shares including a description of the shares

in each fund and of the founder shares.


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7. Purchasing and Repurchasing of Shares. Thissection would typically include the proceduresand conditions for the repurchase, redemption andcancellation of shares and details of thecircumstances in which repurchase or redemptionmay be suspended.

8. The manager, registrar and secretary i.e. name,registered office and head office if this is differentfrom the registered office and status. The mainactivity should also be included.

9. The custodian i.e. name, registered office andhead office if this is different from the registeredoffice and status. The main activity should also beincluded.


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11. Conflicts of Interest. This includes a description of the

potention conflicts of interest which could arise between thedirectors, the management company, or the Custodian and theScheme.

12. Taxation i.e. an indication of the tax provisions applicable to

the Scheme including details of whether deductions are madeat source from the income and capital gains paid by theScheme to holders of Units.

13. Accountants' report at the time the Company was formed

14. General Information15. Determination of the Net Asset Value (NAV)16. Suspension of the determination of the Net Asset Value


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17. Allocation of assets and liabilities of Funds18. Schedule of fees19. Directory with contact details of the Scheme,

Manager, Registrar and secretary, custodian,

sponsoring stockbroker, auditors and legal advisers.


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Procedure for issuing shares under a prospectus

The Prospectus together with an applicationform is made available to the general public.Receiving applications along with the

application money. Minimum subscription mustbe received before allotment Allotment of shares at directors discretion Allotment advice is communicated to theapplicant. Allotment monies may be required atthis stage.Making calls for payment of balance money, if

any.


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DividendThe sharing of profits in the going concerns andthe distribution of the assets after the winding upcan be called as dividends

It will be distributed among the shares holders

The dividends can be declared and paid out of:Current profitsReservesMonies provided by the government and thedepreciation as provided by the companies.It can be paid after presenting the balance sheetand profit and loss account in the AGM


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Other than the equity shareholders, eventhe preferential shareholders can get thedividends. Rather they are the first ones toget the dividends.

Dividends are to be only in cash, if otherwise specified in the AOA.In exceptional cases, even the central

government may permit the payment of interest to shareholders , even thoughthere is no profit.


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Bonus ShareFree shares of stock given to current shareholders,

based upon the number of shares thata shareholder owns. While this

stock action increases the number of shares owned,it does not increase the total value.

This is due to the fact that since the total number of shares increases, the ratio of number of shares held to number of shares outstanding remainsconstant.


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Right Share

A security giving stockholders entitlement to purchasenew shares issued by the corporation at a predetermined price (normally less than the currentmarket price) in proportion to the number of shares

already owned.A rights issue is an issue of rights to buyadditional securities in a company made to thecompany's existing security holders.

Rights are issued only for a short period of time, after which they expire


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As a shareholder, you essentially have three optionswhen considering what to do in response to the rightsissue.

1.Take up the rights to purchase in full

2. Ignore the rights issue

3 Sell your rights to other investors


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Sweat Equity Share

Sweat Equity Shares means equity shares issued bythe company to employees or directors at a discountor for consideration other than cash for providingknow how or making available rights in the nature of intellectual property rights or value additions.(Section 79A of the Companies Act, 1956 )

Conditions 1. Such issue is authorised by a special resolution of the company in the general meeting


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2. Such resolution specifies the number of shares,current market price, consideration, if any, and theclass or classes of the directors or employees towhom such shares are to be issued.

3. Such issue is after an expiry of one year from thedate on which the company was entitled tocommence business .

ESOP (E l St k O hi


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ESOP (Employee Stock OwnershipPlan)

An employee stock ownership plan (ESOP) is a definedcontribution plan that provides a company's workerswith an ownership interest in the company.In an ESOP, companies provide their employees withstock ownership, typically at no cost to the employees.Shares are given to employees and are held in the ESOPtrust until the employee retires or leaves the company.There are annual limits on the amount of deductiblecontributions an employer can make to an ESOP. ESOPsare governed by federal pension laws, called theEmployee Retirement Income Security Act, or ERISA .


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Forfeiture of SharesThe articles generally give powers to Board of Directorsto forfeit shares as under:

If a member fails to pay any call or installment of a call,and

Any other circumstance which the articles may provide.The articles may also provide that the failure by amember to fulfill any engagement with any other member would forfeit his share.Power of forfeiture is not inherent in a company andtherefore this power exists only when it is given by thearticles.


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Ceiling Limit The total sweat equity shares issued during

the year should not exceed 15% of the total paid-upequity share capital in a year or shares of the value of Rs.5 crores of rupees.

Lock-in period The shares shall be locked in for a period of 3

years from the date of allotment.


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The benefits for the company include increased cash

flow, tax savings, and increased productivity fromhighly motivated workers.


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MEMORANDUM OF

ASSOCIATION


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Memorandum means the memorandum of association of acompany as originally framed or as altered from time totime in pursuance of any previous companies law or of thisact. According to Section 2(28) of the Companies act.The Memorandum of Association is a document whichcontains the fundamental rules regarding the constructionand activities of a company. It is the basic document whichlays down how the company is to be constituted and whatwork it shall undertake. The purpose of the memorandum isto enable the members of the company, its creditors, and the

public to know what its powers are and what is the range of its activities. The memorandum contains rules regarding thecapital structure, the liability of the members, the objects of the company, and all other important matters relating to thecompany. The memorandum is altered only after certainformalities are observed.


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THE FORM AND CONTENTS OF THE MEMORANDUM

Section 13 : The Act lays down that the memorandum of a association of every company shall contain the following particulars :

1. Name Clause The name of the company with the word limited at the end of the name of

a public company and the words private Limited at the end of the name of a private company.

2. Situation Clause The name of the State in which the registered office of the is to be situated.

3. Objects Clause

4. Liability of the members5. Details of share capital of the company6. Subscription or Association clause

THE NAME CLAUSE(Sec 20)


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THE NAME CLAUSE(Sec. 20)

A company being a separate legal entity must have a

name. A company may select any name which doesnot resemble the name of any other company and itshould not contain the words like king, queen,

emperor, government bodies and the names of world bodies like UNO, WHO, World Bank etc.

REGISTERED OFFICE CLAUSE(Sec 146)


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REGISTERED OFFICE CLAUSE(Sec. 146)

Every company should have a registered office, the address of whichshould be communicated to the Registrar of Companies. This helpsthe Registrar to have correspondence with the company. The place of registered office can be intimated to the Registrar within 30 days of incorporation or commencement of business, whichever is earlier.

OBJECT CLAUSE(Sec 13& 149)


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OBJECT CLAUSE(Sec. 13& 149)

This is one of the important clauses of the

Memorandum of Association. It determines therights and powers of the company and also definesits sphere of activities.


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LIABILITY CLAUSE(Sec. 13)

This clause states that the liability of themembers is limited to the value of shares heldby them. It means that the memes will be liable

to pay only the unpaid balance of their shares.The liability of the members may be limited byguarantee. It also states the amount whichevery member will undertake to contribute tothe assets of the company in the event of itswinding up.

CAPITAL CLAUSE(S 13)


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CAPITAL CLAUSE(Sec. 13)

The clause states the total capital of the proposed

company. The division of capital into equity sharecapital and preference share capital should also bementioned. The number of shares in each category

and their value should be given. If some specialrights and privileges are conferred on any type of shareholders, mention may also be made in theclause to enable the public to know the exact natureof capital structure of the company.

SUBSCRIPTION OR ASSOCIATION


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SUBSCRIPTION OR ASSOCIATIONCLAUSE(Sec.13)

This clause contains the names of signatories to the

memorandum of association. The memorandummust be singed by at least seven persons in the causeof public limited company and by at least two

persons in the case of private limited company. Eachsubscriber must take at least one share in thecompany. The subscribers declare that they agree toincorporate the company and agree to take theshares stated against their names. The signatures of subscriber are attested by at least one witness each.The full addresses and occupations of subscribers

and the witnesses are also given.


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ARTICLE OF ASSOCIATION



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Section 2(2) of the Companies Act defines Articles

as the Articles of Association of a company asoriginally framed or as altered from time to time in pursuance of any previous companies law or of this Act. But it is not clearly defined what is an Article of Association. Basically Article of Association containsthe rules and regulations relating to the management of companies internal affairs. It is similar to as a

partnership deed in a partnership.Memorandum defines the area or business of thecompany. A company cannot operate beyond the limitsof its memorandum. At the same time an Articlecontains the rules and regulations of the business of thecompany. Therefore, Article is subordinate to, and

controlled by the Memorandum.

IMPORATANCE OF ARTICLE OF ASSOCIATION


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IMPORATANCE OF ARTICLE OF ASSOCIATION

Under sec 36, the memorandum and the articleswhen registered, shall bind the company anditsmembers to the same extent as if it had been signed

by them and had contained a covenant ontheir partthat the memorandum and the articles shall beobserved. With respect to the above section, theimportance of articles of association can be summed

up as follows:

Campus Overview


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Campus Overview

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Ahmedabad Kolkata

Infinity Benchmark, 10 th Floor, Plot G1,Block EP & GP,Sector V, Salt-Lake,

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Mumbai

Goldline Business CentreLinkway Estate,Next to Chincholi FireBrigade, Malad (West),Mumbai 400 064.


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