Key definitions and concepts of company Law

Company
According to Sec. 2 (1) (c) the Companies Act, 1994-Company means a
company formed and registered under this Act or an existing company.
Thus, a company is an association of persons formed under the Companies Act,
1994 with a view to achieving some common objectives. Though a company is
regarded a legal person, it possesses similar rights and owes similar obligations
like a natural person.
Partnership
Section 4 of the Partnership Act, 1932 defines the tern partnership in the
following words:
Partnership is the relation between persons who have agreed to share the
profits of a business carried on by all or any of them acting for all.
In short, a partnership is the relation between two or more persons who carry on
a business enterprise in which the profits and losses are shared proportionately.
The maximum number of members that can exist in partnership is 10 in case of
a firm carrying on banking business and 20 in case of any other business. This
restriction is placed by the Companies Act, 1994 (Sec. 4) and not the
Partnership Act, 1932.
Joint Venture Company
It refers to an association of two or more individuals or companies engaged in a
solitary business enterprise for profit without actual partnership or
incorporation. It is a contractual business undertaking between two or more
parties. It is similar to a partnership business, with one key difference: a
partnership generally involves an ongoing, long-term business relationship,
whereas a joint venture is based on a single business transaction. Individuals or
companies choose to enter joint ventures in order to share strengths, minimize
risks, and increase competitive advantages in the marketplace.
For example, a high-technology firm may contract with a manufacturer to bring
its idea for a product to market; the former provides the know-how, the latter
the means.
Co-operative Society
A co-operative society is a means for forming a legal entity to conduct business.
It means a voluntary association of persons who conduct business together to
promote their common economic interest. It works on the principle of self-help
as well as mutual help.
The main objective is to provide support to the members. Nobody joins a
cooperative society to earn profit. People come forward as a group, pool their
individual resources, utilise them in the best possible manner, and derive some
common benefit out of it.
Sole Trading Business & Sole Trader

A sole trading business means a business which is wholly owned and run by
a single person who receives all profits and has unlimited liability for all losses
and debts. The single person who owns and runs such a business is called a
sole proprietor or sole trader. It is to be noted that to set up a sole trading
business, no legal filing requirements or fees and no professional advice is
needed. One just literally goes into business on ones own and the law will
recognise it as having legal form.
Limited Liability
It means the fact that the liabilities of the shareholders are limited to the extent
of the value of shares held by them or the amount guaranteed by them. Thus,
their personal or private property cannot be attached for debts of the company.
This advantage attracts many people to invest their savings in the company.
Unlimited Liability
It means the fact that the liability of the shareholders is unlimited and their
personal or private property can be utilized to meet the debts of the company.
However, in this case, the shareholders liability extends beyond the value of
shares held by them.
Limited Company
A limited liability company refers to the company in which the members bear
limited liabilities. Here members liability is confined to a limited amount and
they are not personally liable for the payment of all liabilities of company.
For example, in the event of winding up of the company, if the assets of the
company cannot meet its liabilities, then personal property of the members
cannot be utilized to meet companys liabilities.
Unlimited Company
An unlimited company is one in which the members liability is unlimited. Thus,
in such companies, the members remain personally liable for the payment of all
liabilities of company.
For example, in the event of winding up of the company, if the assets of the
company become insufficient to pay its liabilities, the personal property of the
members will be utilized to meet companys liabilities.
Company limited by Shares
It refers to the company which has a share capital and in which the liability of
each member is limited by the Memorandum to the extent of face value of
share subscribed by him.
In other words, during the existence of the company or in the event of winding
up, a member can be called upon to pay the amount remaining unpaid on the
shares subscribed by him. Such a company is called company limited by shares.
A company limited by shares may be a public company or a private company.
Company Limited by Guarantee
It means the company which may or may not have a share capital and the
members thereof promise to pay the companys debts up to a fixed sum in the

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event of liquidation of the company. Such a company may be a public company

or a private company.
Government Company
A Company of which not less than 51% of the paid up capital is held by the
Central Government of by State Government or Government singly or jointly is
known as a Government Company. It includes a company subsidiary to a
government company. The share capital of a government company may be
wholly or partly owned by the government, but it would not make it the agent of
the Government.
Foreign Company
It means any company incorporated outside Bangladesh but has an established
place of business in Bangladesh.
Private Company
Sec. 2 (1) (q) of the Companies Act, 1994 provides,
Private company means a company which by its articlesRestricts the right to transfer its shares, if any,
Prohibits any invitation to public to subscribe for its shares or debenture, if
any,
Limits the number of its members to fifty not including persons who are in
its employment.
Thus, in a private company, the members cannot transfer their shares and the
number of members cannot exceed 50 (minimum 2).
Invitation to public to subscribe for its shares is not allowed.
Public Company
Sec. 2 (1) (r) of the Companies Act, 1994 speaks,
Public company means a company incorporated under this Act or under any
law at any time in force before the commencement of this Act and which is not
a private company.
In short, a public company is one the AOA (articles of association) of which dont
provide any restrictions onthe transfer of shares,
maximum number of members and
the invitation to public seeking their subscription for its shares.
The minimum limit of its member is 7.
Holding & Subsidiary Company
When a company holds majority of shares i.e. more than 50% of the
equity shares of the another company, the former is called holding company or
parent company and the latter is called subsidiary company.
EXAMPLE: B is a company incorporated under the Companies Act, 1994
having share capital of TK 6 lacs divided into 6000 shares of TK 100 each. Out
of the total shares, 3100 shares are held by A, another company. In this
case, A is a holding company and B is the subsidiary company. The concept is
illustrated with chart-

Memorandum of Association (MOA)

The memorandum of association (MOA) is the first and most important
document of a company which informs the general public of the company name,
its share capital, the address of its registered office, the objects of the company
etc.
Articles of Association (AOA)
The articles of association are the second most important document of a
company which contains rules and regulations for internal management or
affairs of the company.
Ultra-Vires Transactions
Transactions performed by the company going beyond its powers granted by its
memorandum are known as ultra-vires transactions.
Indoor Management Role
A person dealing with a corporation assuming that he or she is acting in good
faith and without knowledge of any irregularity need not inquire about the
formality of the internal proceedings of the corporation, but is entitled to
assume that there has been compliance with the articles and bylaws. This
principle, known as the indoor management rule, was authoritatively laid down
in the 19th century case of Royal British Bank v Turquand (1856).
Outsider Rights
The rights which attach to the outsiders of the company i.e., the third persons
who are not the members of the company are called outsider rights.
Interestingly, a member will be considered an outsider, if he does not purely
remain in a capacity of a member.
EXAMPLE: A member as a solicitor, promoter or a director is considered an
outsider in the company laws as he possesses a capacity other than that of a
member. Thus, such a member has no right to enforce the articles of
association against the company as the articles of association do not create a
contract between the outsiders and the company.
Prospectus
A prospectus means any invitation made to the general public inviting it to
deposit money with the company or to take shares or debentures of the
company. Such invitation may be in the form of a document or a notice, circular,
advertisement etc. The sole requirement is that the invitation must be issued to
the public.
Promoters
According to Sec. 145 (6) (a) of the Companies Act of 1994,
Promoter means a promoter who was a party to the preparation of the
prospectus or of the portion thereof.

In short, the term promoters can be defined as those persons who think of
forming a company, take necessary steps to accomplish that purpose and thus
actually bring the company into existence.
Pre-incorporation Contracts
The pre-incorporation contracts are those contracts entered by the promoters
on behalf of the company before its incorporation.
EXAMPLE: A contract for the purchase of assets for the proposed company is a
pre-incorporation contract.
Separate Legal Entity
It means that a company is separate and distinct from its members. As a result,
the members cannot be held liable for the acts or debts of the company.
However, a company can sue or be sued in its own name and hold the property
in its own name as well. This principle was successfully adopted in the famous
case Salomon v. Salomon and Co. Ltd. (1897).
Lifting the Corporate Veil
By the decision of Salomon v. Salomon and Co. Ltd. (1897), we knew that there
is a fictional veilbetween the company and its members and the company is a
separate legal entity distinct from its members. Thus, lifting the corporate
veil means disregarding or ignoring the separate legal entity of the company
and examining the character of the persons who are in real control of the
company.
In other words, where a fraudulent and dishonest use is made of the legal entity,
the individuals concerned will not be allowed to take shelter behind the
corporate personality. In this regards the court will break through the corporate
shell and apply the principle of what is known as lifting or piercing through the
corporate veil.
Meeting
Generally, a meeting is defined as a gathering of a number of persons for
transacting any lawful business. A company meeting must be convened and
held according to the provisions of the Companies Act, 1994 and rules framed
thereunder.
Quorum
The term quorum means the minimum number of members that must be
present at the meetings of the company. Sec 85 of the Companies Act, 1994
provides for the quorum of a meeting of the company and that is 5 members for
public company and 2 members for private company.
Statutory Meeting
Statutory meeting means the first meeting of the members of the company
after its incorporation which is held within 6 months from the date at which the
company is entitled to commence its business. According to Sec. 83 of the

Companies Act, 1994, this type of meetings must be held within 6 months from
the date of incorporation.
Annual General Meeting (AGM)
It is the regular meeting of the members of the company which must be held
once in each year in addition to any other meetings. Sec. 81 of the Companies
Act, 1994 deals with AGM.
Extra-ordinary General Meeting
The meeting which is called for dealing with some urgent special business is
called the extra-ordinary general meeting. The statutory and annual general
meetings cannot be regarded as the extra-ordinary general meetings. As
per Sec. 84 of the Companies Act, 1994, the requisition of the holders of not
less than 1/10th on the issued share capital of the company is a must for calling
an extra-ordinary general meeting.
Class Meeting
Generally, there two classes of shareholders, namely equity shareholders and
preference shareholders. When any class of these two types of shareholders
calls a general meeting, it is called a class meeting.
Meetings of Directors
Meetings of Directors mean the meetings of the Board of Directors which need
to be held at least once in every three calendar months. However, there must
be at least four meetings of the Board of Directors in every year. [Sec. 96 of the
Companies Act, 1994]
Resolution
The proposal which is voted at the meeting and accepted by the members is
termed as resolution.
Ordinary Resolution
Ordinary resolution means the resolution which is passed by simple majority of
members (entitled to vote either in person or by proxy) is called the ordinary
resolution. The term simple majority denotes to the situation where the votes
cast in favour of the resolution are more than the votes cast against the
resolution.
EXAMPLE: At a general meeting of the company, 1000 members were present.
Out of these 1000 members, 501 members casted their votes in favour of the
resolution, and the remaining 499 members casted their votes against the
resolution. In this case, the resolution is said to be passed by simple majority
(501 members).
Special Resolution
Special resolution means the resolution which is passed by special majority of
the members i.e.,by the support of 3/4th majority of the members present and
entitled to vote at a meeting. For the purpose of such a resolution, at least a
twenty one days notice is required to be given to the members specifying the
intention to propose the resolution as a special resolution. [Sec. 87 of the
Companies Act, 1994]

EXAMPLE: At a general meeting of the company, 1000 members were present.

Out of these 1000 members, 750 members casted their votes in favour of the
resolution, and the remaining 250 members casted their votes against the
resolution. In this case, the resolution is said to be passed by special majority
(750 members which is 3/4th majority of 1000 members).
Minutes
The term minutes means the written record of the proceedings of every
general meeting and of every meeting of its Board of Directors. Sec. 89 of the
Companies Act, 1994 deals with minutes.
Share
The term share is defined in Sec. 2 (1) (v) of the Companies Act of 1994,
which reads as below:
Share means a share in the share capital of a company, and includes stock
except where a distinction between stock and share is expressed or implied.
Justice Farewell gave an exhaustive definition in the case Borlands
Trustees vs. Steel Bros. (1901):
A share is the interest of a shareholder in the company, measured by a sum of
money for the purpose of liability and dividends in the first place, and of interest
in the second; and also consisting of a series of contracts as contained in the
articles of association.
In short, the capital of a company is usually divided into different units of a fixed
amount and each unit is called a share. Thus, the persons who hold the shares
of a company are called the shareholders of the company.
Stock
Stock means the aggregate of fully paid up shares legally consolidated. In other
words, it is a set of shares put together in a bundle.
Share Certificate
Share certificate is a document issued by the company to its every shareholder
certifying that he is the holder of the specified number of shares in the
company.
Share Warrant
A share warrant is a document specifying certain shares, and stating that its
bearer is entitled to the shares specified therein. It may be noted that a share
warrant, as the substitute for a share certificate, is issued by the company
under its common seal.
Equity or Ordinary Shares
The equity or ordinary shares are those which dont enjoy any preferential
rights. Thus, for the purpose of dividends (during the continuance of the
company) and repayment of the capital (in the event of winding up) these
shares rank after the preference shares.
Preference Shares

The preference shares are those which enjoy some preferential rights over the
equity or ordinary shares. Thus, for the purpose of dividends (during the
continuance of the company) and repayment of the capital (in the event of
winding up) these shares get preference over the equity shares.
Cumulative Preference Shares
The Cumulative Preference Shares are those which are assured of the
dividends every year even if there are no profits in a particular year. If in a
particular year, there are no profits to pay the dividends, the unpaid dividends
of such preference shares is treated as arrear. Thus, the unpaid dividends
accumulate and are paid if there are sufficient profits in the subsequent year.
Non-Cumulative Preference Shares
Non-cumulative preference shares are those which do not get any dividend if in
the particular year there are no profits to pay their preferential dividends. Their
dividends do not accumulate and are not carried forward to the subsequent
year. Thus, the unpaid dividends cannot be claimed when there are sufficient
profits in the subsequent year.
Participating Preference Shares
The participating preference shares are those which, in addition to their
preferential dividends, are also entitled to participate in the surplus profits or
surplus assets.
Here the term surplus profits means the balance of profits which is left after
paying the fixed amount of dividends to the preference shareholders and some
dividend to the equity shareholders. The term surplus assets means the
balance of assets which is left after paying back both the preference and equity
shareholders.
Non-participating Preference Shares
The non-participating preference shares are those which are not entitled to
participate in the surplus profits or surplus assets. They are only entitled to a
fixed rate of dividend. Usually, the preference shares are deemed to be nonparticipating.
Deferred Shares
The deferred shares are those which are issued to the promoters or the founders
of the company in return of their contribution in forming the company. These
shares are also called promoters shares. The deferred shareholders rank after
the ordinary shareholders in terms of satisfying the claims.
Share Capital
A company usually raises an amount of money by issue of shares and the
amount so raised is called share capital or capital.
Authorised capital
Authorised capital means the maximum amount of share capital which is
mentioned in the companys memorandum of association (MOA) with which the
company plans to be registered. By issuing the shares, a company

is authorised to raise only the amount of share capital which is fixed in the
memorandum. This type of share capital is also termed
as nominal or registered capital.
Issued Capital
Issued capital means the part of the authorised capital which is offered to the
public for subscription. The company has no obligation to issue whole of its
authorised capital. It may be noted that the company cannot issue the capital to
the public exceeding the authorised capital.
Subscribed Capital
Subscribed capital means the part of the issued capital which is subscribed by
the public.
Called-up Capital
Called-up capital means the part of subscribed capital which is called
(demanded) by the company to be paid. The rest part of subscribed capital
which is not called by the company is called uncalled capital.
Paid-up Capital
The total amount of money paid by the shareholders as the part of called-up
capital is called the paid-up capital.
Reserve Capital
Reserve capital refers to the part of the uncalled capital which cannot be called
by the company except in the event of its winding up. According to Sec. 74 of
the Companies Act, 1994, the company may, be special resolution, declare that
a portion or whole of the uncalled capital shall not be called except in the event
of its winding up.
Debenture
Sec. 2 (1) (e) of the Companies Act, 1994 says,
Debenture includes debenture stock, bonds and any other securities of a
company, whether constituting a charge on the assets of company or not.
According to Topham:
Debenture the holder usually arising out of a loan and most commonly secured
by charge.
In short, debenture is a certificate of loan issued by the company which creates
or acknowledges a debt due from the company.
Fixed Charge
A charge is said to be fixed when it attaches to any specific property. Thus, the
company is not allowed to dispose of that specific property without the assent of
the holders of the charge.
Floating Charge
A charge is said to be floating when it is floating, i.e. which does not attach to
any definite or specific property. Thus, the company can dispose of its property

without the consent of the holders of the charge as if no charge were created on
that property.
Dividends
The profits of the company which are distributed among its members are called
dividends. It is noteworthy that dividends must be paid only out of companys
profits. The payment of dividends cannot be made out of companys capital.
Winding Up/ Liquidation of the Company
The term winding up of a company is defined as the process or the
proceedings by which a company is dissolved.
According to Prof. Gower,
Winding up of a company is the process whereby its life is ended and its
property is administered for the benefit of its creditors and members. And an
administrator, called a liquidator, is appointed and he takes control of the
company, collects its assets, pays its debts and finally distributes any surplus
among the members in accordance with their rights.
In short, the winding up is the process of putting an end to the life of the
company. During this process, the debts of the company are paid off out of the
assets of the company and the surplus or remaining assets are distributed
among the members in proportion to their rights in the company.
Winding Up by Court
Sec. 241 of the Companies Act, 1994 speaks about winding up by court. As per
Sec. 241, a company may be wound up by the court;
if the company has, by a special resolution, resolved that the company
may be wound up by the court; or
if default is made in filing the statutory report or in holding the statutory
meeting; or
if the company does not commence its business within a year from its
incorporation or suspends its business for a whole year; or
if the number of members is reduced, in case of a private company below
2, or, in case of a public company below 7; or
if the company is unable to pay its debts; or
if the court is of the opinion that it is just and equitable that the company
should be wound up.
Voluntary Winding Up
Voluntary winding up means the winding up by the members or creditors
themselves without any intervention of the court. Sec 286 of the Companies
Act, 1994 deals with the cases in which the company may be voluntarily wound
up.
Members Voluntary Winding Up
The term members voluntary winding up refers to the winding up in which a
declaration of solvency is made and delivered to the Registrar (for registration)
as per the provisions of the Companies Act. [Sec. 290 of the Companies Act,

1994]. The declaration of solvency means the declaration in which the

directors of the company states that the company has no debts, or that it will be
in a position to pay its debts in full. [Sec 290 (1)]
Creditors Voluntary Winding Up
The term creditors voluntary winding up refers to the winding up in which no
declaration of solvency is made and the company is in a position that it is
unable to pay its debts in full. As in such a situation, the interest of the creditors
is involved, they are given the powers to control and supervise the winding up
of the company.
Winding Up Subject to the Supervision of the Court
Sec. 316 of the Companies Act, 1994 provides that when a company has, by
special or extraordinary resolution, resolved to wind up voluntarily, the court
may make an order that the voluntary winding up shall continue subject to
supervision of the court, and on such terms and conditions as the court thinks
just.

Official Liquidator
An official liquidator is an officer who helps the court in conducting the winding
up proceedings. Generally, such an officer takes all the properties of the
company into his custody and acts in the name of the company with the
sanction of the court. [SS. 260 & 262 of the Companies Act, 1994]
Contributory
The term contributory means every person who is liable to contribute to the
assets of the company in the event of its being winding up. [Sec. 237 of the
Companies Act, 1994]
Thus, on the commencement of the winding up of a company, its shareholders
are called contributories. Interestingly, the holders of fully paid up shares are
also considered contributories though their liability is nix.
Managing Agent
According to Sec. 2 (1) (l) of the Companies Act of 1994, a managing agent is
a person, firm or company who or which is entitled to manage the whole affairs
of a company by virtue of an agreement with the company, and under the
control or direction of the directors so far as provided in the agreement.
Managing Director
According to Sec. 2 (1) (m) of the Companies Act of 1994, a managing director
is the director who is entrusted with the substantial powers of management
which would not otherwise be exercisable by him.
The substantial powers of management means the powers to take decision
concerning some policy matters e.g., pricing of products, buying and selling,
appointment of employees etc.
Class rights

Generally, there two classes of shareholders, namely equity shareholders and

preference shareholders. The rights which attach to any of these classes of
shareholders are known as the class rights.
Majority Rule
A company is governed and managed by the will of the majority of its
shareholders and the minority is not allowed to bring an action about a thing
which has fairly been substantiated by the majority of shareholders. It is known
as the majority rule or the rule of supremacy of the majority. The rule is well
established in the famous case of Foss v. Harbottle (1843).
Secured Creditor
Secured creditor means the creditor who has a charge on the companys assets
for the repayment of his dues.
Reconstruction
The term reconstruction may be defined as the transfer of the business and
the undertaking of one company to another new company formed for carrying
on the same business.
Amalgamation
The term amalgamation may be defined as the combination of two or more
existing companiesto form a new company. In this process, one existing
company is absorbed into and blended with another existing company and thus,
the business of those companies is carried on by a new company (which is the
result of the combination of the companies).
Misfeasance
Misfeasance means willful misconduct or willful negligence which results in loss
to the company.