Registration of Prospectus
A copy of the prospectus must be delivered to the Registrar for registration before the
publication of an invitation to subscribe shares or debentures of a company.
The prospectus must be signed by the directors or proposed directors of the company or their
agent and must state that a copy has been delivered for registration.
The prospectus must contain a list of statements included and be accompanied by the consent in
writing of any named auditor, legal adviser, attorney, solicitor, banker, or broker.
The registrar will not register the prospectus unless it meets the requirements mentioned.
The prospectus cannot be issued more than 90 days after delivery for registration.
If a prospectus is issued without delivering a copy to the Registrar, the company and any person
who knowingly participated in the issue will be subject to a fine of up to 5,000 taka.
Example:
A company wants to publish a prospectus inviting people to subscribe shares.
The company delivers a copy of the prospectus to the Registrar for registration and it is signed
by the directors or their agent.
The prospectus contains a list of statements and the consent in writing of the named auditor.
The registrar registers the prospectus as it meets all the requirements.
The company can now publish the prospectus, but it cannot be issued more than 90 days after
delivery for registration.
If the company issues the prospectus without delivering a copy to the Registrar, they and any
person who knowingly participated in the issue will be subject to a fine.
Penalty for untrue statement in Prospectus
Section 146 states that if a prospectus includes any false statement, those who authorized the
issue of the prospectus can be punished with imprisonment, a fine, or both.
The punishment can be avoided if the person proves that the false statement was immaterial or
that they had reasonable grounds to believe it was true.
Examples:
A company issues a prospectus that includes a false statement about their financial position.
The persons who authorized the issue of the prospectus can be punished with imprisonment, a
fine, or both, unless they can prove that the false statement was immaterial or that they had
reasonable grounds to believe it was true.
If the false statement was minor and did not affect the decision of investors to subscribe to the
shares, the person may be able to prove that it was immaterial and avoid punishment.
If the person had relied on inaccurate information provided by an expert, they may be able to
prove that they had reasonable grounds to believe the false statement was true and avoid
punishment.
Capital
Nominal or authorized share capital: This is the maximum amount of money that a company
is allowed to raise through the sale of shares, as stated in its Memorandum of Association. This
is also called the "registered capital".
Issued share capital: This is the portion of the authorized capital that is actually offered to the
public for sale.
Subscribed share capital: This is the portion of the issued capital that is taken up or accepted
by the public.
Paid up capital: This is the amount of money that has actually been paid by the subscribers or
credited as paid.
Reserve capital: This is the portion of the company's capital that is not immediately available
for use, but can only be called up in the event of the company's winding up.
Example: A company has an authorized capital of $1,000,000. Out of this, $500,000 is issued to
the public for sale, and $400,000 is subscribed and accepted by the public. The paid up capital
would be $300,000, as that is the amount actually paid by the subscribers. The remaining
$100,000 would be the reserve capital.
Summary of Preference Shares, Ordinary Shares and Deferred Shares:
Preference shares:
i. They are entitled to a fixed rate of dividend before any dividend is paid to ordinary shares.
ii. They might be cumulative or non-cumulative.
iii. If cumulative, any shortfall of profit must be made up in the succeeding years.
iv. If non-cumulative, uncollected dividends do not accumulate.
Ordinary shares:
i. Entitled to dividend out of the company's net profits after the fixed dividend on preference
shares has been paid.
Deferred shares/Founder's shares:
i. Usually allotted to promoters and underwriters as consideration for services or commission.
ii. Particulars of the contract must be filed with the Registrar and number of shares must be
stated in the prospectus.
iii. Usually entitled to a proportion of profits after paying the dividend on all other issued shares.
Redeemable preference shares
1. Redeemable preference shares can only be redeemed by the company if it's allowed in the
company's articles and laws.
2. The company can only redeem the shares if they are fully paid and if the redemption is
done from the profits of the company or from the proceeds of a new issue of shares
3. If the shares are redeemed from profits other than the proceeds of a new issue, the
redeemed amount must be transferred to a special fund called the "capital redemption
reserve fund."
4. If the redemption is done from the proceeds of a new issue, the premium for the
redemption must be paid from the company's profits before the shares are redeemed
5. The redemption of preference shares can be done on any terms as long as they follow the
rules and regulations set by the company's articles.
If the company doesn't follow these rules, it and its officers can be fined up to 2,000 taka.
Example:
A company, ABC Ltd, has some redeemable preference shares. According to its articles of
association and laws, it can buy back these shares if it wants to. However, before doing so, it
must make sure that the shares are fully paid and the redemption can only be done from the
profits of the company or from the proceeds of a new issue of shares. The company must also
transfer the redeemed amount to the "capital redemption reserve fund" if it's redeemed from
profits other than the proceeds of a new issue. If the redemption is done from the proceeds of a
new issue, the premium for the redemption must be paid from the company's profits. The
company must also follow all the rules set in its articles while doing the redemption.
Stock refers to the ownership in a company represented by shares
Once the shares of a company have been fully paid, they can be converted into stock if
authorized by the company's articles of association.
Conversion into stock is a way to easily show the capital of the company and the interest of the
members, but it does not change the rights of the members.
To convert the shares into stock, a notice must be given to the Registrar and the register of
members must show the amount of stock held by each member instead of the amount of shares.
Minimum Subscription
When a company wants to sell shares to the public, it must have a prospectus which tells the
minimum amount of money it wants to raise from the sale of these shares before it can start its
business operations. The minimum amount is either set by the company's directors or by the
people who signed the memorandum. The company cannot give out any shares to the public until
it has raised the minimum amount stated in the prospectus and received at least 5% of that
amount in cash. This minimum amount is calculated based on certain factors.
✔The purchase price of any necessary property.
Vii. The preliminary expenses, including commissions payable for the sale of shares.
Viii. Repayment of any money borrowed by the company for the above two purposes.
. Working capital. - Details.
The amount of minimum subscription stated in the prospectus shall be reckoned exclusively of
any amount payable otherwise than in cash. All moneys received from applicants for shares shall
be deposited and kept in a scheduled bank until the certificate to commence business is obtained.
Alteration of Capital
The share capital of a company can be increased by issuing new shares. This can be done in a
general meeting of the company. If the increase in the share capital goes beyond the registered
capital, the company must notify the Registrar of this increase within 15 days. This notice must
include details about the type of shares that were affected by the increase.
Increase share by issuing new share
When a company wants to increase its share capital by issuing new shares, it has to follow
certain procedures as per section 155. These procedures include:
1. Offer the new shares to existing shareholders in proportion to their current holdings.
2. Give a notice to the shareholders specifying the number of shares offered and the time
limit for accepting the offer (which should be at least 15 days from the date of the offer).
3. If the shareholders do not accept the offer within the specified time limit or decline it, the
directors may sell the unaccepted shares in a manner that they believe is best for the
company.
Consolidation of shares: The company, if allowed by its articles, can consolidate or
combine its existing shares into a smaller or larger number of shares in a general meeting.
This means that the company can change the number of shares a person holds into a different
amount. For example, if a person holds 10 shares, the company can change it into 5 larger
shares or 20 smaller shares. The company must notify the Registrar of this change within 15
days. If the company fails to do so, it may face a fine.
Subdivision of shares: If authorized by the articles, a company can divide its shares into
smaller amounts in a general meeting. This means that the company can change the number
of shares a person holds into a smaller amount. For example, if a person holds 10 shares, the
company can change it into 20 smaller shares.
Cancellation of shares: A company may cancel any share that has not been subscribed for or
agreed to be subscribed for by anyone. This means that the company can eliminate some of
its shares, reducing its total share capital.
Restriction on purchase by company or loans by Company for purchase of its own
shares:
Section 58(1)
A company that is limited by shares cannot buy its own shares or the shares of another public
company it is a subsidiary of, unless the decrease in capital is done and approved in the way
specified by sections 59 to 70 of the Companies Act, 1994.
58(2)A company that is limited by shares and is not a private company or a subsidiary of a
public company, cannot provide financial help directly or indirectly (like through a loan,
guarantee or security) for buying its own shares or the shares of another company. This rule
does not apply if lending money is part of the company's regular business, and the company
is just lending money as it usually does.
Section 58(3) of The Companies Act, 1994: (If a company acts in contravention of this
section, the company, and every offer of the company who is knowingly and willfully in
default shall be liable to a fine not exceeding five thousand Taka.)
Section 58(4) of The Companies Act, 1994: Nothing in this section shall affect the right of
a company to redeem any shares issued under section 154.
Section 59(1) of The Companies Act, 1994 says that a company that is limited by shares and
has permission in its articles, can reduce its share capital in any way. This reduction can be
done by a special resolution. The company can also cancel or reduce the liability of its shares
if they are not fully paid-up or if it has any paid-up share capital that is in excess of what it
needs. If necessary, the company can change its memorandum (which has information about
its share capital) by reducing the amount of its share capital and its shares.
Transfer of Share
Section 30(1) of The Companies Act, 1994 says that a member's shares and interests in a
company are considered as movable property and can be transferred according to the
company's articles.
As per regulation 18 of schedule I of The Companies Act, 1994, both the transferor and
transferee must sign the transfer document for a share in the company. The transferor is still
considered the owner of the share until the transferee's name is added to the company's
register of members.
Shares in the company must be transferred using the form prescribed in regulation 19 of
schedule I of The Companies Act, 1994.
REGULATIONS FOR MANAGEMENT OF A COMPANY LIMITED BY SHARES
Section 21 of The Companies Act, 1994 states that a company's shares can have different
rights, such as preferred rights, deferred rights, or other special rights. This can include
restrictions on things like dividends, voting, and the return of share capital. These rights can
be determined by the company through a special resolution.
If at any point, the company's shares are divided into different classes, the rights attached to
each class can be changed with the consent of three-fourths of the issued shares of that class
or with the approval of an extraordinary resolution passed at a separate general meeting of
the holders of the shares of that class.
For this separate general meeting, the provisions of the regulations relating to general
meetings will apply, but with the necessary quorum being two people holding or representing
by proxy one-third of the issued shares of the class.
Example: A company has two classes of shares, Class A and Class B. Class A shares have
preferred rights to receive dividends, while Class B shares do not have any special rights.
The company wants to change the rights of Class B shares so that they also receive preferred
dividends. This change can be made with the consent of three-fourths of the Class B
shareholders, or by passing an extraordinary resolution at a separate general meeting of the
Class B shareholders, where the quorum needed will be two people holding or representing
by proxy one-third of the issued Class B shares.
4.No shares can be offered to the public unless a minimum of 5% of the nominal value of the
share is payable upon subscription.
5.The directors must comply with the provisions of the Companies Act 1994 (Sections 148
and 151) when allotting shares.
Every registered shareholder is entitled to a certificate specifying the shares they hold and the
amount paid for them, without paying any additional fees.
The company is not obligated to issue multiple certificates for shares held jointly by multiple
persons, and delivery of a certificate to one of the joint holders is considered sufficient
delivery to all.
If a share certificate is damaged, lost, or destroyed, it can be renewed by paying a fee (not
exceeding Taka 5) and providing evidence and indemnity as required by the directors.
Lien
1.The company has the right to hold onto (lien) a share that has not been fully paid for until
all the money owed on it has been paid.
-This lien applies to any money owed to the company by the owner of the share, including
any dividends payable on the share.
-The company's directors can choose to exempt a share from this lien at any time.
Example:
Let's say an individual buys 100 shares of a company for TK 1000 each, but only pays TK
500 per share at the time of purchase. The company has a lien on the remaining TK 500
owed on each share, and the individual cannot receive any dividends on these shares until the
full TK 1000 has been paid.
2. -The company may sell any shares on which it has a lien, as decided by the directors.
-The sale can only take place if some amount is currently payable for the shares and after 14
days of giving a written notice to the registered holder of the shares demanding payment.
-The notice must state the amount that is currently payable.
Ex….Suppose a person named John holds a share in a company and has not paid the amount
that was payable for the share. In this case, the company has a lien on John's share. The
company may sell John's share if the directors think it is appropriate. However, the sale of
the share can only take place if the amount that John is supposed to pay is due and if a notice
has been sent to John demanding payment. The notice must be sent in writing and must state
that the amount is payable and demand payment of the due amount. The notice must also be
sent at least 14 days prior to the sale of the share.
3.. -The company can sell shares that have a lien on them in any way they see fit
-The sale can only happen if there is a sum of money currently due and payable in relation to
the share
-The company must give written notice of the sale and demand payment of the current debt
-The sale proceeds will be used to pay off the current debt and any remaining amount will go
to the person who was entitled to the shares before the sale
-The person who buys the shares will be registered as the new holder and they don't have to
worry about any irregularities or invalidities in the sale process
Example:
A company has a lien on some shares because the owner of those shares hasn't paid all the
money they owe the company. After giving written notice and waiting for 14 days, the
company decides to sell those shares. The sale proceeds are used to pay off the current debt
and the remaining amount goes to the previous owner of the shares. The person who buys the
shares becomes the new registered holder of those shares and does not need to worry about
any issues with the sale process.
Conversion of Share into stock
Converting Shares into Stock:
The company directors may convert fully paid-up shares into stock with the approval of the
company in a general meeting.
The directors may also re-convert the stock back into fully paid-up shares of any
denomination.
Transferring Stock:
Stockholders may transfer their stock in the same manner and subject to the same regulations
as the shares that the stock was converted from.
The directors may set a minimum amount of stock that can be transferred and restrict or
prohibit the transfer of fractional amounts of that minimum.
The minimum transfer amount cannot exceed the nominal amount of the original shares.
The directors may also restrict or prohibit the transfer of stock.
Example:
The directors of a company have the approval of the company in a general meeting to convert
100 fully-paid shares into stock.
The holder of the stock may choose to transfer 50 units of stock, subject to the restrictions
and regulations set by the directors.
Holders of stock have the same rights and privileges as if they held the shares from which the
stock arose (such as dividends, voting at meetings, etc.)
Regulations of the company that apply to paid-up shares also apply to stock, with the words
"share" and "shareholder" including "stock" and "stockholder".
Example:
Let's say there is a company named XYZ Inc. and it has two types of ownership, shares and
stock. A person named John holds 20 shares in XYZ Inc. and another person named David
holds 50 units of stock. Both John and David have the same rights, privileges and advantages
regarding dividends, voting at meetings and other matters. They are both considered as
"shareholders" and "stockholders." Any regulations of the company that apply to paid-up
shares also apply to the stock.