Company Act

ABOUT COMPANY ACT:
Subject: Business Law
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History of company Act:

The early history of company law of India was laid in the British Companies Act 1844 on the basis of which the Joint Stock Companies Act 1850, the first company law for the sub-continent, was formulated. This act was based on 'unlimited liability'. The Indian Companies Act 1913 was actually the amended and reformed version of The English Companies Act 1908.

Companies Act from Bangladesh perspective:

Companies Act 1994 governs company law in Bangladesh. It received the assent of the President of the People's Republic of Bangladesh on 11 September 1994 and was published in the Bangladesh Gazette, Extra, and 12 September 1994. Before its performance in 1994, company law was governed by the Companies Act 1913 which was amended in 1915, 1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984.

Company:

The word 'Company' is an amalgamation of the Latin word 'Com' meaning "with or together" and 'Pains' meaning "bread". Originally, it referred to a group of persons who took their meals together. A company is nothing but a group of persons who have come together or who have contributed money for some common person and who have incorporated themselves into a distinct legal entity in the form of a company for that purpose. Generally the term ‘company’ is used to describe an association of a number of persons, formed for some common purpose and registered according to the law relating to companies.

 Lord Justice Lindly defines a company as follows: ‘By a company is meant associations of many persons who contribute money or money’s worth to common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is the capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of capital to which each member is entitled is his share.”

                                     As per the Companies Act 1994 a company means, “A company formed and registered under this Act or an existing company.”

Characteristics of a company:

The principal characteristics of an incorporated company can be stated as follows:

1. Registration: In case of a company, registration is essential. In fact a company comes into existence only after the registration under the Companies Act. But a statutory Corporation is formed and commence business as notified or stated in the Act and as passed in the Legislature.

2. Voluntary association: A company is an association of many persons on a voluntary basis. Therefore a company is formed by the choice and consent of the members.

3. Legal personality: A company is regarded by the law as a single person. It has a legal personality. This rules applies even in the case of “One Man Company.”

4. Contractual capacity: A shareholder of accompany, in its individual capacity, cannot bind the company in any way. The shareholder of a company can enter into contract with the company and can employee of the company.

5. Management: A company is managed by the Board of Directors, whole time directors, Managing Directors or Manager. These persons are selected in the manner provided by the Act and the Articles of Association of the company. A shareholder, as such, cannot participate in the management.

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

7. Permanent existence: The Company has Perpetual Succession. The death or insolvency of a shareholder does not affect its existence. A company comes into end only when it is liquidated according to provisions of the Company Act.
8. Registered office: A company must have a registered office.

9. Common seal: A company is a artificial person and does not have a physical presence. Therefore, it acts through its Board of Directors for carrying out its activities and entering into various agreements. Such contracts must be under the seal of the company. The common seal is the official signature of the company. The name of the company must be engraved on the common seal. Any document not bearing the seal of the company may not be accepted as authentic and may not have any legal force.

10. Limited liability: The liability of the members of the company is limited to contribution to the assets of the company upto the face value of shares held by him. A member is liable to pay only the uncalled money due on shares held by him when called upon to pay and nothing more, even if liabilities of the company far exceeds its assets. On the other hand, partners of a partnership firm have unlimited liability i.e. if the assets of the firm are not adequate to pay the liabilities of the firm, the creditors can force the partners to make good the deficit from their personal assets. This cannot be done in case of a company once the members have paid all their dues towards the shares held by them in the company.

11. Transferability: The shareholder of a company can transfer its share and ordinarily the transferee becomes a member of the company.

12. Statutory obligation: A company is required to comply with various statutory obligations regarding management, e.g., filling balance sheet, maintaining proper accounts books and registers etc.

13. Separate legal entity: On incorporation under law, a company becomes a separate legal entity as compared to its members. The company is different and distinct from its members in law. It has its own name and its own seal, its assets and liabilities are separate and distinct from those of its members. It is capable of owning property, incurring debt, borrowing money, having a bank account, employing people, entering into contracts and suing and being sued separately.

14. Separate property: A company is a distinct legal entity. The company’s property is its own. A member cannot claim to be owner of the company's property during the existence of the company.

15. Not a citizen: A company is an artificial person, not a natural person; therefore a company is not a citizen, although it may have a Domicile.

16. Residence: A company has a residence (for taxation and other purpose).

17. 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. In order to succeed the company must prove that the impugned law is expropriatory of a citizen’s property.

18.  Social objective: The present view as regard the legal nature of Company Law is that Company is a social institution having duties and responsibilities toward the community, its workers, the national economy and progress.

19. Centrally administrated: The administration of Company Law is entrusted to Central Government, etc.

Kinds/types of company:

There are mainly two types/kinds of companies-Private Company and Public company.

Private Company: Private Company means a company whose articles of association contain the following restrictions:

1.      There must be some restrictions upon the right of its members to transfer their shares in the company. Any restriction which will enable the directors to maintain the maximum of fifty members will serve the purpose of the Act. The restriction is not necessary in the case of private company not being limited by shares.

  

2.      The number of its members must be limited to fifty, which shall be exclusive of members who are or were in the employment of the company. Joint holders of shares are treated as a single number.

3.      The company must prohibit any invitation to the public to subscribe for its shares or debentures.                  

Private companies enjoy a number of exemptions from the operation of the Act. These exemptions are commonly known as the privileges or advantages of a private company.

Following are some of the privileges and exemptions of a private limited company:-

       

1.      Minimum number is members is 2 (7 in case of public companies)

2.      Prohibition of allotment of the shares or debentures in certain cases unless statement in lieu of prospectus has been delivered to the Registrar of Companies does not apply.

3.      Restriction contained in Section 81 related to the rights issues of share capital does not apply. A special resolution to issue shares to non-members is not required in case of a private company.

4.      Restriction contained in Section 149 on commencement of business by a company does not apply. A private company does not need a separate certificate of commencement of business.

5.      Provisions of Section 165 relating to statutory meeting and submission of statutory report do not apply.

6.      One (if 7 or less members are present) or two members (if more than 7 members are present) present in person at a meeting of the company can demand a poll.

7.      In case of a private company which not a subsidiary of a public limited company or in the case of a private company of which the entire paid up share capital is held by the one or more body corporate incorporated outside India, no person other than the member of the company concerned shall be entitled to inspect or obtain the copies of profit and loss account of that company.

8.      Minimum number of directors is only two. (3 in case of a public company), etc.

When private company becomes public company:

A private company becomes public company because of the following reasons:

1.      Convention by default: When a default is made in complying with the requirements of definition, the company ceases to be entitled to the privileges and exemptions enforced by the Act. However may grant relief where the default was accidental, or due to inadvertence or to some other sufficient cause or that no other grounds it is just and equitable to grant relief.

2.      Conversion by operation of law: A private company becomes a public company when twenty-five percent or more of its paid-up capital is held by one or more other companies. In computing a deceased person shall be excluded. Within three months from the date on which a private company becomes a public company, the fact should be notified to be Register.

3.      Conversion by choice: A private company may also become public company by its own choice. It may at any time pass a special resolution deleting from its articles the requirements of definition and then from the date of alteration, it becomes a public company. Within thirty days a prospectus or a statement in lieu of the prospectus should be filed with the register.

Public Company:

As per the Company Act 1994, a public company means all companies other than private companies. Public companies may be classified into three types: Companies limited by shares, Companies limited by guarantee, unlimited companies.

 

1. Companies limited by shares: In these companies there is a share-capital, and each share has a fixed nominal value which the shareholder pays at a time or by installments. The number is not liable to pay anything more than the fixed value of the share, whatever may be the liabilities of the company. Many companies of Bangladesh belong to this class.

2. Companies limited by guarantee: In these companies, each member promises to pay a fixed sum of money in the event of liquidation of the company. This amount is called guarantee. Sometimes the members are required to buy a share of fixed value and also give a guarantee for further sum in the event of liquidation. There is no liability to pay anything more than the value of the share (where there is a share) and the guarantee. A guarantee company must have articles, but share capital is not necessary.

3. Unlimited Companies: The liability of members of an unlimited company is unlimited. Therefore their liability is similar to that of the liability of the partners of a partnership firm. An unlimited company must have articles of association stating the numbers of members and the share capital, if any, with which it is proposed to be registered.

When public company becomes public company:

A public company may be converted into a private company by changing its articles so as embody the requirements of definition and with the approval of the Government. Conversion does not affect the identity of the company.

Other types of companies: Other than private and public companies, there are several types of companies. These are discussed below:

1. Government Companies: Government companies any company in which not less than 51% of the paid up share capital is held by the Central Government or any State Government or partly by the Central Government and partly by the one or more State Governments and includes a company which is a subsidiary of a government company. Government Companies are also governed by the provisions of the Companies Act. However, the Central Government may direct that certain provisions of the Companies Act shall not apply or shall apply only with such exceptions, modifications and adoptions as may be specified to such government companies.

2. Foreign Companies: “Foreign Company” means a company incorporated in a country outside Bangladesh under the law of that other country and has established the place of business in Bangladesh. Within thirty days of establishment of business in Bangladesh, the company should submit the following documents with the register:

         

v      A certified copy of its memorandum or articles or any other instrument of its incorporation,

v      The full address of registered office abroad,

v      Names etc, of its directors and secretary.

v      The name or names or names of person in Bangladesh authorized to accept documents in Bangladesh,

v      The full address of its principal place of business in Bangladesh, etc.

3. Holding and subsidiary company: A company shall be deemed to be subsidiary of another company if:-

v  That other company controls the composition of its board of directors ; or

v  That other company holds more than half in face value of its equity share capital

v  Where the first mentioned company is subsidiary company of any company which that other's subsidiary. e.g. Company B is subsidiary of the Company A and Company C is subsidiary of Company B, therefore Company C is subsidiary of Company A.

The control of the composition of the Board of Directors of the company means that the holding company has the power at its discretion to appoint or remove all or majority of directors of the subsidiary company without consent or concurrence of any other person.

4. Illegal associations: Illegal association means an association that has a certain number of members without any registration. An important aim of the Companies Act is to eliminate such association. Following are some consequences of illegality: First, every member of such association is personally liable for liabilities incurred in the business and is also punishable with fine. Secondly, the members cannot maintain an action in respect of any contract made by the association. Lastly, it is well established that the members cannot sue each other or association for contribution, apportionment, recovery or partition of assets, etc.

Distinction between private and public company:

The main points of differences between the public and private companies are enumerated below:

1.      Number of members: The number of members in a private company cannot be less than 2 and cannot be more than 50, while in a public company, the numbers of members cannot be less than 7 but there no limit is defined for maximum numbers of members.

2.      Restrictions on transfer of shares: In a private company there must be regulations restricting the transfer of shares while in a public company there need not be any restrictions.

3.      Restriction on invitation to public: A private company cannot invite to purchase its shares or debentures while a public company may do so.

4.      Restriction on name: A private company must add the word “Private Limited” at the end of its name while there is no such restriction in case of a public company.

5.      Prospectus: A private company need not file a prospectus or a statement in lieu of prospectus while a public company must file prospectus.

6.       Issue of rights share: When a public company proposes to increase its subscribed capital by the issue of new shares, it must be offered first to the existing equity shareholders pro rata, unless the member in a general meeting decide otherwise. This provision does not apply to private companies.

7.      Commencement of business: A private company can commence business immediately on incorporation, whereas a public company has to wait until it obtains a certificate for the commencement of business.

8.      Statutory meeting and statutory report: A private company needs to hold the statutory meeting or file the statutory report whereas a public company needs not do so.

9.      Managerial remuneration: In the case of public companies there are certain limits to managerial remuneration. This does not apply to a private company which is not a subsidiary of a public company.

10.  Number of directors: The Act provides that a private company must have at least 2 directors and a public company must have at least 3 directors.

11.  Company’s own share: In a private company any person can get financial assistance for purchasing companies share while in a public company there is no such assistance.

12.  Procedure of meeting; The law relating to the procedure of meeting is relaxed in a private company but in a public limited company there is no such thing.

13.  Appeal against transfer: Under certain circumstance, shareholders have no right to appeal against the Board of Directors, if refuses the registers there transfer of shares.

14.  Memo of contract: In the case of public company, if an agent enters into an agreement in which the company is undisclosed principal, he must make a memorandum of the contract and keep it with the company; otherwise the agreement is not binding on the company. The rule is not applicable to a private company, unless it is subsidiary of a public company, etc.

 

Distinction between partnership and company:

 The main points of differences of a company and partnership firm are as follows:

1.      Regulating Act: A partnership firm is governed by the provisions of Partnership Act 1932, whereas a company is governed by the provisions of the Company Act 1994.

2.      Numbers of members: In a partnership firm the minimum number of members/partners is 2 and the maximum number of members/partners is 10(for banking business) and 20(for other businesses) whereas in a company the minimum number of members is 2 for private company and 7 for public company and the maximum number of members is 50 for private company and unlimited for public company.

3.      Entity: A partnership firm has no separate legal entity distinct from the members composing it whereas a company has separate legal entity different from its members.

4.      Liability: In a partnership firm, each partner has unlimited liability and is personally liable for all debts of the firm while in a company a shareholders has limited liability.

5.      Mutual agency: In partnership each partner has implied authority to bind the co-partners by acts done, whereas in a company a shareholder has no such authority, there being no mutual agency between various shareholders.

6.      Management: In case of a partnership firm, all partners of a firm are entitled to take part in the management of the business, but in case of company the right to control and manage the business is vested in the board of directors.

7.      Registration: A partnership business may or may not be registered but in case of partnership registration is essential.

8.      Transfer of share or interest: In case of a partnership firm, a partner cannot transfer his interest without the consent of all other partners, but in case of a private company a member can transfer his share when he has a prior permission of the Board of Directors and in case of a public company there is no such restriction.

9.      Audit: The audit of the accounts of a company is a legal necessity but it is not so in the case of a partnership carrying on business if the annual total sales, turnover or gross receipts in business do not exceed Tk.40 lakhs.

10.  Winding up: A partnership firm can be wound up at any time by any partner, but, in case of a company, no one member can require it to be wound up at will and winding up involves legal formalities, etc.

 Memorandum of association:

The Memorandum of Association is a document which contains the fundamental rules regarding the constitution and activities of a company. It is the basic document which lays down how the company to be constituted and what work it shall undertake. The Act lay down that the memorandum of a association of every company shall contain the following particulars:

1.                          Name clause: The first clause of the memorandum states the name of the proposed company. The name of a company with the word “limited” at the end of the name of a public company and the word “ private limited” at the end of  a private company.

2.                          Registered office clause: The second clause of the memorandum states the state in which the registered office of the company shall be situated. After in the corporation the exact address of registered office should be sent to the registrar.

3.                          Objects clause: The third clause of the memorandum states the objectives of the proposed company. The company carries on business with other people’s money and, therefore, the investors must be must be informed of the objects in which their money is going to be invested. People are more willing to invest in one kind of object than in others. Secondly, the creditors of the company are paid out of the company’s assets and they feel protected when they know that the assets can be used only for the authorized object.

The objects clause has to be divided into two sub clauses:

                                  

a)      Main objects: This sub-clause states the main objects to be pursued by the company on its incorporation and the objects incidental or ancillary to the main object;

b)      Other objects: This sub-clause may state any other objects which are not included in the first sub-clause.

4.                          Liability clause: The fourth clause has to state the nature of liability that the members incur. The clause will state whether the liability of the members shall be limited, and, if so, whether limited by share or by guarantee.

5.                          Capital clause: The last clause states the amount of capital with which the company is proposed to be registered and the kinds, number of the value of shares into which the capital is to be divided.

Alternation of memorandum:

Alternation of name: A company may change its name at any time by passing a special resolution and with the prior approval of the central Government. Where a company has been registered with a name which is undesirable, the same may be changed by an ordinary resolution. Alternation name does not affect rights and obligation of the company.

Alternation of registered office and object clauses:ing of registered office from one state  to another and alternation of object may affect not merely the company share holders , but also its creditor , dealers, employees.

An alternation is allowed when it is necessary for any of the following purpose-

1.                          To enable the company to carry on its business more economically or more efficiently.

2.                          To enable the company to attain its object by new and improved means.

3.                          To enlarge the locale of the company operation.

4.                          To enables the company to carry on some new business which under existing circumstances may conveniently.

5.                          To enables the company to restrict or abandon any of the objects specified in the memorandum.

6.                          To enable the company to sell or dispose of the whole or any part of its undertaking.

Doctrine of ultra virus:

A company is incorporated for some specified objects, stated in its memorandum of association. It cannot do anything outside the power specified in it memorandum.

Consequently any act done or any contract made by the company which goes beyond the memorandum or which is not expressly or implicitly warranted by it  is ultra  the company. It cannot be ratified even by the unimous vote of all the members of the company.

A company had been formed , and its object clause was as follows ; to make and sell or lend  hire, the railway carriage and wagons and all kind of railways plant, fittings, machinery and rolling stock and carry on the business of mechanical engineers and general contractors.

The contract was held to be ultra vires the company by the House of Lords and hence it was null and void. The term general contractor must be taken to indicate the making generally of such contracts as are connected with the business of mechanical engineers. if the term  general contractors’ is not so interpreted, it would authorize the making of contract of any and every description, such as for instance, fire and marine insurance and the memorandum, in place of specifying the particular kind of business would therefore, be altogether, unmeaning.

Effect of ultra vires transactions:

1. Injunctions: a company is created for the object stated in its memorandum. Individuals who buy shares in the company are entitled to believe that their money will not be risked in any business not stated in the company’s memorandum.
2. Personal liability of directors for ultra vires payments: the directors must see to it that the funds of the company are used for carrying on the authorized business as stated in its memorandum.

3. Liability for breach of warranty of authority: director entering into ultra vires may be liable to the third party for breach of warranty of authority

4. Ultra vires acquired property: if the funds of the company have been spent ultra vires in purchasing some property, its right over the property will be protected.  thus in a case where a company telephone wires were cut and it had no power in the memorandum to put the wires it was held entitled to recover damage for the injury.

5. Ultra vires contracts: a company which is ultra vires the company will have no legal effect. It is absolutely void. Such contracts are not binding upon the company and it can neither sue nor be sued on them.

Articles of association:

The Articles of Association is a document which contains rules, regulations and bye-laws regarding the internal management of the company. Articles must not violate any provision of the memorandum or any provision of the Companies Act. The rules laid down in the articles must always be read subject to the rules contained in the memorandum.

Alternation of articles:

Firstly, Empower every company to alter its article at any time the authority of a special resolution of the company. An alternation is not invalid simply because it changes the company constitution. A company was allowed by changing articles to issue preference shares when its memorandum was silent on the point.

Secondly, a company may change its articles even if the alternation would operation as a breach of contract. If the contract is wholly dependent upon the company article the company would not be liable in damage if it commit breach of contract by changing it article.

Thirdly, the alternation must not constitute a fraud on the minority. It should not be an attempt to deprive the company or its minority shareholders of something that in equity belong to it or to them.

Lastly, no alternation can require a member to purchase more shares in the company or increase his liability in any manner except with his consent in writing.

Doctrine of indoor management:

The doctrine of indoor management imposes an important limitation on the doctrine of co constructive notice; person dealing with the company are presumed to have read these documents. Ones they are satisfied that the company has power to enter into the proposed transaction; they are required to do no more. They are not bound to enquire into the regularity of any internal proceedings. They are entitled to assume to assume that provision of articles have been compiled with by the company in its internal working. If the proposed contract is within the scope of the company as indicated by these to document, the company will be bound to the outside and claims of the outside will not be affected in any way by the internal irregularity of the company thus known as the doctrine of indoor management or rule in royal British bank

In the above case the articles empowered the directors to borrow money provided they were authorized by a resolution passed at the general meeting of the company. The directors borrowed money from the and issue a bond to him without the authority resolution passed at the general meeting.

The rule was follows premier industrial bank ltd. v.carlton mfg. co. ltd where it was stated. If the directors have power and authority to bind the company but certain preliminary are required to be gone through on the part of the company before that power can be duly exercise, then the person contracting with the director is not bound to see that all thus preliminary is have been observed.

Expectation to the Doctrine of indoor management:

1. Knowledge of irregularity: a person dealing with the company will not be entitled to protection under this rule if he has notice.
2. Forgery: it may be noted here that the rule in the Turquand case does not protected a person where forgery is involved
3. Negligence on the part of the outside: if an individual is put upon enquiry he cannot claim the benefit under the turquand case in the circumstances under which he would have discovered irregularity if he had made the proper inquiring.
4. No knowledge of articles: in order to claim protection , under the rule of “ indoor management “ knowledge of articles is essential.

Meeting of the company:

The companies Act provides for the following types of meetings:

a)      Meeting of the shareholders:

1. Statutory meeting
2. Annual general meeting
3. Extra-ordinary general meeting
4. Class meeting

b)     Others meetings:

1. Meetings of creditor
2. Meeting of the debenture.

c)      Meeting of the directors.

1. Statutory meeting: The first meeting of the shareholders of a public company is known as statutory meeting. It has to be called within six month from the date on which the company is entitled to commerce business, but it cannot be held within one month from that date.

2. Annual general meeting: Every company Is required to call at least one meeting of its shareholders in each year. This meeting known is annual general meeting. The first general meeting must be held within eighteen month from the date of incorporation, and then no meeting will be necessary for the year of incorporation. Therefore one meeting must be held every year.

3. Extraordinary general meeting:

Any meeting than the annual general meeting is known as an extraordinary general meeting. The director may call it whenever they think fit and must call it when it is requisitioned by the shareholders.

Power of company law Board to call meeting:

 By the company Act. 1974, the power of the court to call a meeting has transferred to the company law board. The power of the board, being of judicial nature, the board is likely to follow the principles on which the courts have been acting.

Procedure of meeting:

Meeting should be called by a properly constituted meeting of the board of director. Where

Noticed was issued by the secretary of the company without the authority of the board of directors. Proper noticed of the meeting should be given to the members. Notice should be given twenty one days before the date of the meeting.

Resolution

Resolutions are of two types- 1) ordinary resolution and 2) special resolution. A resolution is said to be ordinary when the votes cast in favors of it’s at a general meeting of company exceed the votes, If any cast against it.

v  Ordinary resolution: It means a resolution passed by a simple majority of the shareholder present and voting. A special resolution, other hand, requires the support of a three fourth majority of shareholders present and voting.

The following procedure is to be adopted-

1. A requisition in writing, with a copy of the resolution must be deposited with the company.
2. The requisition must be signed by members holding at least 1/10 of the total voting power.
3. The requisition may require the circulation to the members, along with the resolution.
4. The requisitions’ must pay the expenses necessary for circulating the notice and the statement.

v  2) Special resolution: If any member proposes to move a resolution requiring special notice, the intention must be notified to the company at least 14^th days before the meeting. Sometimes an ordinary resolution also requires a special 14^th days notice. Such a notice is necessary for example, for removing a director or an auditor or for proposing the appointment of a new director. Every member has a right to give a special notice of this kind relating to a proposed resolution, but he does not have the right to have the resolution included in the agenda of the meeting unless he is supported by as many members as can requisition a meeting or can requisitions a meeting or can ask for circulation of a member’s resolution.

The following condition must be satisfied-

a.       The notice calling the general meeting must specify that a special resolution will be moved.

b.      The number of votes cast in favor of the resolution whether by show of hands or by poll.

Special resolution is required for the following issue-

A)    Alternation of memorandum for changing the place of registered office from one state to another or alternation of object.

B)    Change of the name of the company with the consent of the central government

C)    Alternation of the articles of the company.

Circulation of member’s resolution:

The holders of one twentieth of the total voting power of all the members’ having the right to vote or one hundred members holding shares on which at least one lakh taka have been paid can propose a resolution by serving on the company a requisition six weeks before the meeting, otherwise within two weeks.

Numbers of director:

The directors of a company are selected according to the articles of association of the company and provisions of the companies Act.

The number of director of directors to be appointed to the board of directors of a company is determined by the articles. The Act provides that there must be at least 3 directors in a public company and at least 2 directors in other companies.

The company can increase the number of directors beyond the maximum fixed by the articles provided previous sanction of the central Government is obtained. Where the maximum fixed by articles is 12 or less, the number can be increase without government approval.

DIVIDEND:

The terms dividend means the part of profits which is paid to the shareholders of a company.

Dividend may also be defined as receipt of a part of the profit of a trading company by the members in proportion to their respective share. A trading company is formed for the purpose of earning profits.

Rules regarding dividend:

1.      The board of director of the company determine what portion of the net profit earned by the company during its financial year is to be distributed to the shareholders.

2.      The amount or rate of dividend determined by the board must be sanctioned by the member of the company in a general meeting.

3.      Dividend may be paid in proportion to the nominal value of the share or in proportion to the capital actually paid up on each share.

4.      Dividend cannot be paid out of capital. It must be paid out of profits of that year or out of the profit of any previous financial year.

5.      Since dividends are to come out of profits, the rate of dividend recommended by the board of director will depend on – a) how the profit and loss accounts are made up. B) the valuation of asset and the rate of depreciation . And c) the percentage of profit transferred to the reserve fund of the company.

6.      Reserves from the commencement of the amendment of 1974- no dividend shall be declared or paid by a company for any financial year out of the profit of the company for that year providing depreciation according to section205.

7.      Dividend are payable in cash or cheque. But the capitalization of profit by the issue of the fully paid-up bonus shares.

8.      Any dividend payable in cash may be paid cheque or warrant sent through the post.

Winding up:

the winding up or liquidation of a company means the termination of the legal existence of a company by stopping it s business, collecting its assets and distributing the asset among creditor and share holders, in the manner laid down in the Act. According to professor whereby its life is ended and its property administrated for the benefit of its creditors and members.

Mode of winding up:

There are three methods of winding up a company:

1. Compulsory winding up by the court:
2. Voluntary winding up under the supervision of the court.
3. Voluntary winding up by the members themselves or by the creditor:

Compulsory winding up by the court:

Compulsory winding up takes place when a company is directed to be wound up by an order  of court.

A company may be wound up by the court under the following-

a.       Special resolution of the company: if the company has , by special resolution resolved that the company be wound up by court.

b.      Default: if default is made in delivering the statutory report to the registrar or in holding the statutory meeting.

c.       Reduction members: if the numbers of members reduced , in the case of a public company to below seven, and in the case of a private company to below two.

4. Voluntary winding up by the members themselves or by the creditor:

Voluntary winding up means winding up by the members themselves without the intervention of the court.

Company can be wound up voluntary under the following cases—

1. By an ordinary resolution of the members passed in a general meeting in the following

a)      Where the duration of the company was fixed by articles and the period has expired.

b)      Where the article provided for winding up on the occurrence of any event and the specified event has occurred.

2. By a special Resolution is passed by the members in all other cases.

The end