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Company law uwsb

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Company law uwsb

  1. 1. Company LawCompany Law
  2. 2. Meaning of Shares A part or portion of a larger amount that isdivided among a number of people, or to which anumber of people contribute.Definition of SharesShare- Share is defined as “an interest having a moneyvalue and made up of diverse rights specified underthe articles of association”.Classification of shares Under the Companies Act, 1956 the shares areclassified into two types-Preference SharesEquity Shares
  3. 3. Preference SharesPreference share capital is the sum total ofpreference shares. These shares carry the followingpreferential rights over equity shares: As regards dividends, to be paid a fixed amountor an amount calculated at a fixed rate; On winding up of the company, to return ofcapital paid up.There are four types of preference shares: Cumulative preferred, for which dividends mustbe paid including skipped dividends. Non-cumulative preferred, for which skippeddividends are not included.
  4. 4.  Participating preferred, which give the holderdividends plus extra earnings based on certainconditions. Convertible preferred, which can beexchanged for a specified number of shares ofcommon stock. Preference shares may further be classified as-“Redeemable Preference Shares”“ Irredeemable Preference Shares”
  5. 5. Equity Shares Equity shares are those shares which are ordinary inthe course of companys business. They are also calledas ordinary shares. These share holders do not enjoypreference regarding payment of dividend andrepayment of capital. Equity shareholders are paiddividend out of the profits made by a company. Higherthe profits, higher will be the dividend and lower theprofits, lower will be the dividend.
  6. 6. Share Capital Share capital means the capital raised by thecompany by issue of shares.Types of Share Capital Authorized Share Capital This is the capital with which the company isregistered. It comprises of the total face value ofthe shares in a company. It is also called ‘Total orNominal Capital’ of the company.
  7. 7.  Issued Capital The entire authorized capital may not be requiredto be raised by the company initially. The companyissues shares to the extent of its requirement. Thisis called ‘Issued Capital’. Issued Capital is always lessthan the Authorized or Nominal Capital, or equal toit. Subscribed Capital That part of issued capital which is agreed to betaken up by the public, is called the ‘SubscribedCapital’.
  8. 8.  Paid-up Capital The amount actually paid by the subscribers towardsthe capital accepted by them is called ‘Paid-up Capital’.The entire amount of the share money may not bepaid up immediately. Called up Capital Called up capital is a part of subscribed capital whichhas been 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 hasbeen called up. Then the subscribed capital of the Companyworks out to Rs. 1,00,000 of which the called up capital of theCompany is Rs. 50,0000.
  9. 9.  Un-called Capital The may not require the full amount of thesubscribed capital and therefore, it may call up only apart of the capital subscribed and that part whichhas not been called up i.e., the remainder of thesubscribed capital is called ‘Un-called Capital’.Allotment of SharesThe allotment of shares by the company shall bemade in accordance with Sections 69,70,72and 73 ofthe companies Act. Application for shares is an offerand allotment of shares by the company is anacceptance of the offer. Allotment can be made ona written or an oral application.
  10. 10. 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 publicunless the minimum subscription amount stated inthe prospectus is raised and received by thecompany.3.Application for shares should be made to thecompany in the prescribed from called “ApplicationForm”.4.No allotment shall be made until the beginning ofthe 5thday after a date on which the prospectus isissued or such later time as may be specified in theprospectus.
  11. 11. 5. The beginning of the 5thday 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 make anapplication to one or more recognized stock exchanges forpermission.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 been obtained,then until the entire amount payable on application forshares in respect of the minimum subscription has beenreceived by the company.
  12. 12. Effect of Irregular AllotmentWithin two months after the holding of thestatutory meeting of the company.In any case where the company is not required tohold a statutory meeting or where the allotment ismade after the holding of the statutory meeting,within two months after the date of allotment, andnot later.The allotment shall be a voidable even if thecompany is in course being wound up.
  13. 13. Transfer of Shares AOA (Articles of Association) provides for theprocedure of transfer of shares. It is a voluntaryaction of the shareholder. It can be made even by a blank transfer –In suchcases the transferor only signs the transfer formwithout making any other entries. In case it is a forged transfer, the transferor’ssignature is forged on the share transfer instrument.
  14. 14. The share of a company are freelytransferable. The share holder can transfer hisshare to any person without the consent ofother member.Company can not impose absolute restrictionson the rights of the members to transfer theirshares.Transmission of shares is by operation of law,e.g. by death, insolvency of the shareholderetc.
  15. 15. CONTENT OF PROSPECTUS
  16. 16. WHAT IS PROSPECTUSWHAT 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 orpurchase of any shares in, or debenturesof a body corporate.´
  17. 17. The prospectus must include the followingsections:1. Important information on the scheme2. Definitions of the technical terms which areused throughout the Prospectus3. Principal features of regarding the companyand the scheme. The information contained inthis section should be read in conjunction withthe full prospectus. This include following
  18. 18.  Structure of the Company; Investment Objective, policies and restrictions Fund Income Manager, registrar and secretary Custodian and Bankers Base Currency of the fund Applications for purchase of shares Dealing Dealing price Charges Minimum Investment Management and Custodian Fees Accounting reference date Sponsoring stockbroker Stock exchange listing
  19. 19. 4. Description of the company and its management5. Investment objectives, policies and restrictions.This includes a description of the schemesinvestment objectives, including its financialobjectives, investment policy, and an indication ofany techniques and instruments which may beused for the purposes of efficient portfoliomanagement, and of any borrowing powers whichmay be used in the management of the scheme.6. The shares including a description of the sharesin each fund and of the founder shares.
  20. 20. 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.
  21. 21. 11. Conflicts of Interest. This includes a description of thepotention 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 tothe 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 formed14. General Information15. Determination of the Net Asset Value (NAV)16. Suspension of the determination of the Net Asset Value
  22. 22. 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.
  23. 23. 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 applicationmoney. Minimum subscription must be receivedbefore allotment Allotment of shares at director’s discretion Allotment advice is communicated to theapplicant. Allotment monies may be required atthis stage. Making calls for payment of balance money, ifany.
  24. 24. DividendThe sharing of profits in the going concernsand the distribution of the assets after thewinding up can 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 balancesheet and profit and loss account in the AGM
  25. 25. Other than the equity shareholders, even thepreferential shareholders can get thedividends. Rather they are the first ones to getthe dividends.Dividends are to be only in cash, if otherwisespecified in the AOA.In exceptional cases, even the centralgovernment may permit the payment ofinterest to shareholders , even though there isno profit.
  26. 26. Bonus ShareFree shares of stock given  to  current shareholders, based  upon  the number of  shares  that a 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 remains constant.
  27. 27. Right Share A security giving stockholders entitlement to purchase new  shares  issued  by  the  corporation  at  a predetermined  price  (normally  less  than  the  current market  price)  in  proportion  to  the  number  of  shares already owned.  A rights  issue is  an  issue  of  rights  to  buy additional securities in  a company made  to  the companys existing security holders.  Rights are issued only for a short period of time, after which they expire
  28. 28. As a shareholder, you essentially have three options when considering what to do in response to the rights issue.1.Take up the rights to purchase in full 2. Ignore the rights issue 3 Sell your rights to other investors
  29. 29. Sweat Equity Share“Sweat  Equity  Shares”  means  equity  shares  issued  by the company to employees or directors at a discount or  for  consideration  other  than  cash  for  providing know 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       
  30. 30. 2. Such  resolution  specifies  the  number  of  shares, current  market  price,  consideration,  if  any,  and  the class  or  classes  of  the  directors  or  employees  to whom such shares are to be issued.3. Such  issue  is  after  an  expiry  of  one  year  from  the date  on  which  the  company  was  entitled  to commence business.
  31. 31. ESOP (Employee Stock Ownership Plan)ESOP (Employee Stock Ownership Plan) An employee stock ownership plan (ESOP) is a defined contribution  plan  that  provides  a  companys  workers with an ownership interest in the company. In  an  ESOP,  companies  provide  their  employees  with stock ownership, typically at no cost to the employees. Shares are given to employees and are held in the ESOP trust until the employee retires or leaves the company. There  are  annual  limits  on  the  amount  of  deductible contributions  an  employer  can  make  to  an  ESOP. ESOPs are governed by federal pension laws, called the Employee  Retirement  Income  Security  Act,  or “ERISA”.
  32. 32. Forfeiture of Shares The articles generally give powers to Boardof Directors to forfeit shares as under: If a member fails to pay any call or installment of acall, and Any other circumstance which the articles mayprovide. The articles may also provide that the failure by amember to fulfill any engagement with any othermember would forfeit his share. Power of forfeiture is not inherent in a company andtherefore this power exists only when it is given bythe articles.
  33. 33. Ceiling LimitThe total sweat equity shares issuedduring the year should not exceed 15% of the totalpaid-up equity share capital in a year or shares of thevalue of Rs.5 crores of rupees.Lock-in periodThe shares shall be locked in for aperiod of 3 years from the date of allotment.
  34. 34. The benefits for the company include increased cash flow, tax savings, and increased productivity from highly motivated workers.
  35. 35. MEMORANDUM OF ASSOCIATIONMEMORANDUM OF ASSOCIATION
  36. 36. “Memorandum means the memorandum of association of a company as originally framed or as altered from time to time in pursuance of any previous companies law or of this act.” – According to Section 2(28) of the Companies act.The  Memorandum  of  Association  is  a  document  which contains the fundamental rules regarding the construction and activities of a company. It is the basic document which lays down how the company is to be constituted and what work it shall undertake. The purpose of the memorandum is to 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  the capital structure, the liability of the members, the objects of the company, and  all  other  important matters relating to the company.  The  memorandum  is  altered  only  after  certain formalities are observed.
  37. 37. THE FORM AND CONTENTS OF THE MEMORANDUMSection 13 : The Act lays down that the memorandum of aassociation of every company shall contain the following particulars :1. Name ClauseThe name of the company with the word “limited” at the end of thename of a public company and the words “private Limited” at theend of the name of a private company.2. Situation ClauseThe name of the State in which the registered office of the is to besituated.3. Objects Clause4. Liability of the members5. Details of share capital of the company6. Subscription or Association clause
  38. 38. THE NAME CLAUSE(Sec. 20)THE NAME CLAUSE(Sec. 20)A company being a separate legal entity must havea name. A company may select any name whichdoes not resemble the name of any other companyand it should not contain the words like king, queen,emperor, government bodies and the names ofworld bodies like UNO, WHO, World Bank etc.
  39. 39. REGISTERED OFFICE CLAUSE(Sec. 146)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 ofregistered office can be intimated to the Registrar within 30 days ofincorporation or commencement of business, whichever is earlier.
  40. 40. OBJECT CLAUSE(Sec. 13& 149)OBJECT CLAUSE(Sec. 13& 149)This is one of the important clauses of theMemorandum of Association. It determines therights and powers of the company and also definesits sphere of activities.
  41. 41. LIABILITY CLAUSE(Sec. 13)LIABILITY CLAUSE(Sec. 13)This clause states that the liability of the membersis limited to the value of shares held by them. Itmeans that the memes will be liable to pay only theunpaid balance of their shares. The liability of themembers may be limited by guarantee. It also statesthe amount which every member will undertake tocontribute to the assets of the company in theevent of its winding up.
  42. 42. CAPITAL CLAUSE(Sec. 13)CAPITAL CLAUSE(Sec. 13)The clause states the total capital of the proposedcompany. The division of capital into equity sharecapital and preference share capital should also bementioned. The number of shares in each categoryand their value should be given. If some specialrights and privileges are conferred on any type ofshareholders, mention may also be made in theclause to enable the public to know the exact natureof capital structure of the company.
  43. 43. SUBSCRIPTION OR ASSOCIATIONSUBSCRIPTION OR ASSOCIATIONCLAUSE(Sec.13)CLAUSE(Sec.13)This clause contains the names of signatories to thememorandum of association. The memorandummust be singed by at least seven persons in thecause of public limited company and by at least twopersons in the case of private limited company.Each subscriber 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 ofsubscriber are attested by at least one witness each.The full addresses and occupations of subscribersand the witnesses are also given.
  44. 44. ARTICLE OF ASSOCIATION
  45. 45. ARTICLE OF ASSOCIATIONARTICLE OF ASSOCIATIONSection 2(2) of the Companies Act defines Articlesas the Articles of Association of a company asoriginally framed or as altered from time to time inpursuance of any previous companies law or of thisAct. But it is not clearly defined what is an Article ofAssociation. Basically Article of Association containsthe rules and regulations relating to the management ofcompanies internal affairs. It is similar to as apartnership 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, andcontrolled by the Memorandum.
  46. 46. IMPORATANCE OF ARTICLE OFIMPORATANCE OF ARTICLE OFASSOCIATIONASSOCIATIONUnder sec 36, the memorandum and the articleswhen registered, shall bind the company anditsmembers to the same extent as if it had been signedby 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 summedup as follows:
  47. 47. THANK YOU
  • JoBandla

    Mar. 5, 2021
  • VickeyManral

    Oct. 26, 2017

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