LAW 5112 Capital and Financing

LAW 5112
Corporate Law and Governance MBA
4/29/2012
By Ombella J.S: Contacts: ombella@gmail.com or 0713227298
Public Company Limited by Shares Perspectives
CAPITAL AND FINANCING OF A COMPANY
4/29/2012
Capital and Financing of A company
In modern company law the term capital is used to cover;
Share capital-Funds subscribed by members Loan capital-funds provided by commercial finance providers and investors holding debentures or debenture stocks. All funds whether provided by members creditors or retention of profits plus the assets in which funds has Ombella J.S: Contacts: been invested. By
4/29/2012 ombella@gmail.com or 0713227298 3
Share: What is it?

The interests of a share holder in a company The interest is what is owned and gives a share holder certain rights as defined by the articles. Thus a share is what is used by the company in determining the rights in the first place and in the second place the liabilities of a member in the company
4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 4
continuation
Traditionally, however, the capital of the company can still be in a different unit that shares that is stocks. A stock is one unit of the company capital comprising several number of shares put together. Example a company may wish that every 100 shares be bound to form one Unit of stock.
Share and stock distinguished
A share is a distinct individual unit of a capital in a company and
Stock is not divided into equal parts/denomination Subject to the articles Stocks may be bought or sold in any convenient multiples or sub division Stocks bears no distinguishing numbers as shares do
shares can be bought and sold in a whole units
Shares are required to be distinguished
A company can issue shares directly
Companies can not issue stocks directly it can only convert its fully paid up shares into stock
4/29/2012
Terminologies applied in this topic
Nominal Capital
authorized
or
Registered
Is the sum mentioned in the capital clause of Memorandum and articles of Association of a company. It is a maximum amount which the company raises by issuing shares and on which the registration fee is paid.
4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298
Issued Capital
This refers to the nominal value of shares which are offered to the public for subscription This is because the co. in most cases does not issue all capital at once In all circumstance it can not exceed he authorized capital
4/29/2012
Subscribed capital
This is the part of the issued capital which has been subscribed or taken by purchasers of the shares and allotted to them. This may be less than issued capital and can not exceed registered Capital.
4/29/2012
Called up capital
Is the part of the issued capital which have been called upon the shares. The tendency is that the company does not require the members to pay full for their shares. Thus the amount required to be paid is what is termed as the called up capital
4/29/2012
10
Paid up capital
Is the amount of called up shares capital which is actually paid to the company by the members. At the time when a member of a company have failed to pay steps like forfeiture or surrender of shares can be done by the company and the party respectively.
4/29/2012
11
Categories of shares in a company
The categorization can lead into four main classes of shares, these includes; Equity shares/ ordinary shares Preference shares Deferred or founders Shares Corporate shares
Equity shares/ ordinary shares

Members holding them are said to have equity in the company. Ordinary shares have a right to return of capital and payment of dividend ranking after preference shares,
Ordinary shares claim the pool of surplus assets in the solvent winding up after the return of capital to all other shareholders. Ordinary shares usually carry one vote per share
Preference shares
It carries preferential rights in respects of dividend at a fixed amount or at a fixed rate. It also carries preferential rights in regard to payment of capital on winding up or otherwise
4/29/2012
14
Classes of preference shares

Cumulative or Non Cumulative Redeemable and Non redeemable preference shares, see section 61 of the Companies Act and section 58 of the Companies Decree Participating or non participating preference shares.
4/29/2012
15
Deferred or founders Shares

Are issued to the founders of the company as a reward to heir services. They get a portion of the profit if the dividend on ordinary shares exceeds a certain fixed amount. Their rights are determined by the memorandum or articles.
4/29/2012
16
Corporate shares
Are the shares created by a company for issue to its employees. They are given to the managing staff and employees of the company
The company pays for them to the employees as fully paid up shares The companys trustee will look after these shares in the event of an employee leaving the company
4/29/2012
17
The capital Clause of the memorandum of Association of a company

The capital Clause of a company states the amount of the capital with which it is registered, divided into shares of fixed amount. The capital is called authorized, nominal or registered capital A company at any time can alter its capital clause as it wishes
4/29/2012
18
Alteration of the capital clause section 64/61 of the co Act& Decree respectively
Such powers may only be exercised by the company in general meeting and that must be authorized by the articles of association. A company can alter its capital clause in any of the following manners/ ways: a) Increase its share capital by new shares b) Consolidate and divide all or any of its share
CONTINUATION
c) Convert all or any of its paid up shares
into stock d) subdivide its shares, or any of them, into shares of smaller amount e) Cancel shares which have not been agreed to be taken Take note that alteration may be in terms of increasing or reducing or even restructuring the capital clause of the company
4/29/2012
20
Reduction of share Capital s 69/ 66 of the Co. Act & Decree respectively
A company can do either of the following: Extinguish or reduce the liability on any of its shares in respect of share capital not paid up; or Either with or without extinguishing or reducing liability on any of its shares;
cancel any paid up share capital which is lost;

Continuation
pay off any paid up share capital which is in excess of the requirements of the company,
alter its memorandum by reducing the amount of its share capital and of its shares accordingly
4/29/2012
22
continuation
Under the companies Act as opposed to the Decree there should be a lapse of about 35 days from the date of passing of a special resolution to the date of it coming into effect, The same alteration need be registered to the registrar of companies for it to be effective see section 69 (3).
continuation
This approach under the act has made a less intervention of the court in the process of reduction of the share capital of the company That requirement seem to have been substituted by the requirement of the declaration of solvency by the Director's accompanied by the Auditors Report
continuation
Also the reduction need be gazzetted see section 69(4) of the Act Creditors whose interest seemed to be jeopardized have a right to object in court in 28 days after the resolution has been gazzeted, see section 71 of the Act
Formerly the resolution were to be filed in court for confirmation if the creditors will not object see section 67 of the Decree.
Stages for reduction in summary

Special resolution
Directors certificate of solvency Special resolution for reduction be gazzeted and announced in local news paper.
Elapse a period of 35 days Registration to the registrars office
Effects for non Compliance of the procedures:

Read section 71 (2) (b) and (3) Read Section 72 (2) of the Companies Act
4/29/2012
27
Other modes of Reduction of share capital of a company
A company may alternatively reduce its share capital in the following ways:
Forfeiture of shares, Surrender of shares, and Redemption of shares.
4/29/2012
28
Why reducing the capital of a company
Generally the capital of the company need to remain as registered
Returning surplus capital; Releasing a liability to pay up capital, thus reducing the nominal value of the shares; Eliminating losses, which may be preventing the payment of dividends;
Cont..
Redemption of shares where there are insufficient distributable reserves; As part of a scheme of arrangement where there is a merger of two large companies of similar size; and Distribution shareholders. of
4/29/2012
dividends
to
30
Increase of the share capital of the company

Regarding the increase of the share capital, the company whenever so wishes is required to give a notice of the increase to the registrar within 30 days after the passing of the resolution authorizing the increase see section 66(1) of the Act The decree seem silent on this aspect
4/29/2012
31
Debt financing of a corporation

Debt capital is a common way of financing business enterprises and for successful companies, Debt capital represents the obligation of a company to repay the loan made by the debt holder.

That is making payments of principal sum and interest on a fixed schedule

Debentures
The most usual form of borrowing by a company is by issue of debentures The term debenture means; a document which either creates a debt or acknowledges it, or; an acknowledgment of debt and obligation or covenant to pay. This obligation is in most cases accompanied by charges.
continuation
Debentures are therefore, a form of security which may be bought and sold in such a way as shares. In order to give lenders some security against non payment of their loans a charge is often made against the assets of the company.

Commonly prospectus
are
4/29/2012
issued
through
34
continuation
As a general matter debts do not have the participation, voting, conversion and redemption rights that constitute the fundamental ingredients of equity securities. The debenture holders are regarded as and are the creditors of the company and not members
Classes of debentures
According to negotiability
a) b) Bearer debentures Registered debenture
According To Security:
a) Secured debenture, b) Unsecured debenture
4/29/2012
36
continuation
According to Permanence:
a) Redeemable debentures; b)Irredeemable debentures see section 68/88 of the Act & decree respectively
4/29/2012
37
Coverage so far:
Meaning of capital of a company Share capital
Maintenance of the capital
Debt capital
Meaning and types
4/29/2012
38
CHARGES ON THE ASSETS OF THE COMPANY
Whenever a company has power to borrow, it has also powers to security for the debt by a charge on all or any of its properties. Charge means an interest or right which a lender or creditor obtains in the property of the company by way of security that the company will pay back the debt.
Fixed charge
Is a charge which is against a specific, clearly and well defined property of the company. The property under charge is defined at the time of creation of charge.
The nature and identity of the property does not change during the existence of the charge. The company cannot transfer the property so charged before paying J.S:the creditor By Ombella Contacts: 4/29/2012 ombella@gmail.com or 0713227298 40 whose interest is protected under it
Floating charge
It is a charge on the classes of assets of the company both now and future That class of assets is one which, in the ordinary course of business of the company, is changing from time to time. It is contemplated by the charge that, until some steps are taken by or on behalf of those interested in the charge, the company may carry on business in ordinary way.
Consequences of a Floating Charge

The company can; Deal with the property on which a floating charge is created, till the charge crystallizes. Not withstanding the floating charge, create specific mortgage of its property having priority over the floating charge. Sell the whole of the undertaking if that is one of its objects specified in the memorandum, in spite of the floating charge on undertaking. See Re Foster v Borax Co. [1901] 1 Ch 326
4/29/2012
42
CRISTALIZATION OF A FLOATING CHARGE
When a charge holder takes some steps to enforce his charge, a floating charge becomes a fixed charge on the assets covered by that charge. At this time the company can not dispose off the cared assets without first paying off the charge holder
4/29/2012
43
When does a floating charge become fixed
A floating charge will become fixed upon the following conditions:

Cessation of the business of the company. Upon the commencement of winding up of the company. If a debenture holder, having become entitled to realize the securities by the reasons of the fact that the principal money has become payable (due).
REGISTRATION OF CHARGES
Every company must keep a register of charges affecting its assets The registrar must contain short description of the property charged, the amount of the charge the name of the person entitled to the charge See part iv of the companies Act for details, especially section 96/97 and 100/ 92 of Act & decree)
Duty to register
It is the duty of the company to register the charges. Read section 100 of the CA However the interested person may register it on his own cost and claim for compensation from the company Read section 102 on the content of the charge register at the registrars office
Effects of Registration:
It acts as a notice to the public at large that the charge holder has an interest in the charged property.
Once a certificate of charge is issued by the registrar, it is conclusive evidence that, the document creating the charge is properly registered.
4/29/2012
47
CONSEQUENSES OF NONREGISTRATION
A charge which is compulsory registerable but which is not registered is void See section 96 of CA
Omission to register the particulars of charge as required is punishable with fine. See section 101 (2) of the Companies Act
48
Memorandum of satisfaction
Under section 104 of the companies act it is provided that, the registrar may, on evidence being given to his satisfaction that the debt for which any registered charge was given has been paid or satisfied , may order that a memorandum of satisfaction be entered on the register, and shall if required furnish the company with the copy there of
MANAGEMENT OF A COMPANY
DIRECTORS
4/29/2012
50
Introduction
A company is not a natural person so it works through people called Directors. These are officers who constitute the board of directors. A company therefore can not work on its own although it is a person

Thus it relies much to the natural person for it to operate.

51
Question: Who is a director?

The companies Act defines a Director to mean, "Any person occupying the position of director by whatever name called." Such a definition is not exhaustive, thus does not provide a clear picture of who directors are? See section 2 of the Act
continuation
In Abadin Railway Co. v. Black Bros (1854) stated that; Directors are a body to whom is delegated a duty of managing general affairs of a Co. "A corporate body can only act through agents and it of course the duty of those agents so to act as best to promote the interest of corporation whose affairs they are conducting"
continuation
In determining whether a person is a director or not it does not depend on the name but on the nature of the office has. That is the activities he performs and duties and liabilities that binds such a person in relation to the company. That he must have control, over direction, conduct, management and superintendent of the affairs of the Company.
4/29/2012
54
Continuation
According to Lord Denin, directors are the directing mind of the company since the company
His lordship gave a clear position regarding the directors of the company as the directing mind of the company since it is as such not a natural person.
Lord Denins position
A company may in many ways be likened to a human body. It has a brain and a nerve centre which controls what it does. It also has hands which hold the tools and act in accordance with directions from the centre.
4/29/2012
56
Continuation
Some of the people in the company are mere servants and agents who are nothing more than the hands to do the work and cannot be said to represent the mind or will. Others are directors and managers who represent the directing mind and will of the company and control what it does.
Continuation
The state of mind of these managers is the state of mind of the company and is treated by the law as such.
See Bolton (Engineering) Co Ltd v TJ Graham & Co Ltd, HL, [1957] 1 QB 159. At page 172
4/29/2012
58
Minimum number of Directors

For every company the minimum number of directs in each and every company must be two except for One man company. The law sets the minimum of two directors it is advisable however that one of theme must be a natural person. See section 3 and 186 of the Company Act. See also section 25 of the Business law(Miscellaneous Amendment )Act
4/29/2012
59
QUALIFICATION OF DIRECTORS
The provisions of the Act provides for the qualifications that a director should posses these qualifications include. Age; a director should be of age of majority i.e. not below 21 years and should not be of an age above 70 years.

What did the rule intend to bring in the aspect of company management?
Continuation
The rule intends to fill in the lacuna that was left with the Companies Ordinance. It also bring in the aspect of maturity in decision making as it directs on the minimum and maximum age limit.

Of important to note is that the Act does not prohibit having directors of lower age than 21 but not than 18.
continuation
It also allows a life time director in as much as he was so appointed before the Act come into force.
Directors must also be of sound mind Directors must not be disqualified by any other laws
4/29/2012
62
Continuation
Director must not be disqualified by any other order of the court as per section 196 Companies' Act Directors must have share qualifications, where the articles of Association of the company so direct. See, section 142 (1) of Companies Act.
4/29/2012
63
Types of Directors
There are four types of directors in a company:

Shadow Director Alternate Directors De Facto Directors Executive Directors
4/29/2012
64
Shadow Directors
Is any person, other than a professional adviser, with whose instructions the Directors of the company normally comply (a person in accordance with whose directions or instructions the Directors of a company are accustomed to act). He is a person who is not a directors but on his influence to the directors, they rely much
Continuation
And implement his advice and they are accustomed as such so to act. This should be distinguished from a professional adviser who does his advice openly and when required. A shadow director hides behind the directors and does not claim to be a director In Re Hydrodam (Corby) Ltd, [1994] 2 BCLC 180
Cont..
Shadow directors are bound by the terms of the companies Act in the same way as it applies to the directors of the company Read: Bourne N. (1994) Business Law and Practice, Cavendish Publishing Ltd London, UK pp 113
4/29/2012
67
Continuation
The court stated that in order for someone to be a shadow Director four things must be shown:
(a) there should be those who are the proper or de factor Directors of the company (b) that the person directed those Directors on how to act in relation to the company, (c) that those Directors acted in accordance with those By Ombella J.S: Contacts: directions and
4/29/2012 ombella@gmail.com or 0713227298 68
continuation
(d) that they were accustomed so to act.
As such this class of directors differ from a de facto director in the sense that they do not pose and claim to be as directors
After they have given the advice they do not go father to show as if they are directors
Alternate Directors
The articles of association may provide for the appointment of alternate Directors.
They are persons, who are nominated by Directors to act in their absence.
4/29/2012
70
Cont.
They can only be appointed with the agreement of the majority of the Directors and he is entitled generally to perform all the functions of his appointer in his absence.
4/29/2012
71
De Facto Directors
Is a person who has not been validly appointed or who is disqualified but whom, in effect, occupies the position of, and acts as if he was a director. He is a person :
who assumes to act as a Director and who is held out as a Director by the company and he claims and purports to be a Director though he has never actually or validly been appointed as such
Continuation
One need to undertake the functions that are to be carried out by a director for him to be referred as a de facto director. In Re Richborough Furniture Ltd, Lloyd J. [1996] 1BCLC 507. stated his opinion, also in Secretary of State for Trade and Industry v. Tjolle [1998]1BCLC
Test for de facto Director
For someone to be made liable as a de facto Director, the court would have to have clear evidence that :
he had either been the sole person directing the affairs of the company or, if there were others who were true Directors, that he was acting on an equal footing with the others in directing the affairs of the company.
4/29/2012
74
Continuation
If it is unclear whether the acts of the person in question are referable to an assumed Directorship, or to some other capacity such as a shareholder or, as here, a consultant, the person in question must be entitled to the benefit of doubt.
Read the following cases on De-Facto Director and Shadow directors:

NSW v Drysdale [1978] 22 ALR 161,
Mistnorm P/L v Yasseen [1996] 14 ACLC 1387

Executive Directors
Are directors concerned with the actual management of the company, They are involved in the day to day management of the Company. They are engaged by the company to work on full time basis. Generally, he must have a contract with the company that gives him the position as such
Cont
He have extensive management powers delegated to him by the articles and may, in practice, have specific titles within the company, for example, Managing Director Read:
Bourne N. (1994) Business Law and Practice, Cavendish Publishing Ltd London, UK pp 113 Dine Janet (5th Ed) (2005) Company Law, Palgrave Macimillan Hampshire UK page By Ombella J.S: Contacts: 165 4/29/2012 ombella@gmail.com or 0713227298 77
A managing director
Is a director who by virtue of :

an agreement with the company (employment contract say for example) or of a resolution passed in the general meeting or by its board of directors or by virtue of its memorandum or articles of association,
Continuation
Is entrusted with substantial powers of management, which would not be otherwise exercisable by him. It thus include a director occupying the position of the managing director regardless of the name called.
4/29/2012
79
POSITION OF A DIRECTOR
Question: What is the relationship between the directors and the company? Directors as Agents or trustees of the Company;
a Company being an artificial person acts through directors who are elected representatives of shareholders. They are in eyes of law agents of a Company for which they act on its behalf.
Continuation
The law of relationship.
Agency
regulates
their
They are more than agents because they have some independent powers. They are not bound to consult the shareholders in most matters and the articles of Association gave them power to exercise such things without necessary consulting shareholder.
Continuation:
It is even much true currently where the directors are not bound by any thing in the Memorandum of association of the company
Eastern Railway Co. v Itein it was stated that; (1872) LR & CH APP 149 are mere trustees or agents of the Co; that the trustees of Cos' money and properly and agent in the transaction they enter on to on behalf of Co.
Trusteeship and directors

They must account for all the Companies' money and property which they exercise control on. They are trustees of the power entrusted into them in the sense that they must exercise them honestly in the interest of the Company and shareholders and not on their own interest.
Fiduciary position
Directors position is that of fiduciary in nature. They stand to work for the benefit of the other who is a company. As such they should not consider their interest first but that of the company. In Re Forest Dean Coal mining Co., (1879) 10ChD 450
Continuation
Directors have been called:

trustees or commercial trustees and sometimes they have been called managing partners, It is immaterial how they are called but the role they play. They stand in a fiduciary position towards the company in respect of their powers and capital under their control.
4/29/2012
85
DIRECTORS OF A COMPANY
DUTIES OF DIRECTORS
4/29/2012
86
Introduction
We should remind ourselves that being a company director is a wonderful thing for the person who is a company director. But it is a position of great responsibility which involves running the affairs of a company for the benefit of other people. It is a heavy responsibility we should not water down. Godsmith-UK 2006
continuation
Directors duties have been spread out over numerous statutes and case decisions making it difficult for directors to know when they may have breached their duties to the company. The statutory l duties of directors replace those previously decided and set by case law.
Continuation
It is important that any director whether of a big or small company is familiar and complies with their duties.
Ignorance is no defense and; the consequences can be severe both for the company and personally. As a director you must always act in the best interests of the company.
Duties of Directors
Duty of care and Skills: section 185 Duty to act in good faith: section 182 Duty to disclose interest: section. 209 Duty in relation to employees: section 183 Duty to exercise Powers for proper purposes: section 184 Contractual Duty.
90
Duty of care and Skills:

There are no minimum skill that a director is expected by the law to demonstrate They are expected to demonstrate the reasonable care and skill of any other director of his knowledge and skill would have done. They are as such allowed to entrust their duties to any other delegated individuals
Continuation
Directors remain liable for the final decision.

The duty does not prevent a director from relying on the advice or work of others, but the final judgment must be his responsibility. He clearly cannot be expected to do everything himself. in certain circumstances directors may be in breach of duty if they fail to take appropriate advice for example, legal advice By Ombella J.S: Contacts: Goldsmith, 4/29/2012 ombella@gmail.com or 0713227298
92
Duty to act in good Faith

Directors have a duty to act bonafide and in good faith in the interest of the Company It is thus not in the interest of the company if the act is aimed at benefiting their own desires or rather the interest of a third party instead of that of a company. See an answer at; Keith Abott, etal (2007) (8th Edition) Business law pg 429
Continuation
As such the directors must promote the successes of the Company. As a Director one must act in good faith for the success of the company and benefit of the shareholders having regard to the likely consequences of any decision long term. This will include considering the interests of:
employees, business relationships with suppliers,

Continuation
-Customers and others, the impact on the community and environment, maintaining the reputation of the company for having high standards of business conduct, acting fairly between members of the company and; subject to the legal requirements, to consider and act in the interests of creditors. Read: Peoples Department Stores Inc vs Wise [2004] 244 DLR (4th) 564
4/29/2012
95
Duty to disclose interest. See section.
This is sometimes referred to as a non-conflict rule, it imposed a duty upon a director not to place himself in a position where his duty to the company and his personal interests conflicts.
Avoidance of personal Profits: Disclosure of interests
4/29/2012
96
Duty in relation to employees

Directors are required to have regard to the interest of the employees and the members as well. This duty is enforceable like any other duties director owe to the company. This may feature much during mergers where caution need to be taken to reduce loss of jobs by employees
Duty to exercise Powers for proper purposes
This is the duty that arises itself from the roots of the fiduciary position of the directors to the company. In the case of Bristol &West Building Society v Mothew (1998) Ch. 1
4/29/2012
98
Continuation
Millett L.J.: stated that,

for or on behalf of another in a particular matter in circumstances which give rise to a relationship of trust and confidence. A fiduciary must act in good faith,
must not make profit out of his trust, he must not place himself in a position where his duty and his interest conflict,
A fiduciary is someone who has undertaken to act
4/29/2012
99
continuation
he may not act for his own benefit or the benefit of a third person without the informed consent of the principal.
Mills v Mills where Dixon J said: "Directors of a company are fiduciary agents, and a power conferred upon them cannot be exercised in order to obtain some private advantage or for any purpose foreign to the power
4/29/2012
100
How to determine proper purposes

It must be shown that the substantial purpose of the directors was not improper nor in breach of their duties as a director. Honest or altruistic behaviour does not prevent a finding of improper conduct. Whether acts were performed for the benefit of the company is objectively determined
Continuation
The courts must determine whether, but for the improper or collateral purpose, the directors' powers would not have been exercised
4/29/2012
102
Examples of improper conducts

Exercising the Board's power to issue shares with the substantial motive of defeating the voting power of existing shareholders by creating a new majority Failing to give proper full information in a notice of a general meeting; Using company funds to seek their reelection to the Board of directors;
Continuation
Read the case of Permanent Building Society v Wheeler [1994] 12 ACLC 674 See section 184 of the Companies Act
4/29/2012
104
Contractual Duty.
In addition to the above duties, a director should remember his/her contractual duties under employment contract. Also beware of your rights and responsibilities as both an employee and a director
4/29/2012
105
Coverage so far:

Types of Directors Position of directors Duties of Directors
4/29/2012
106
COMPANY MANAGAEMENT
MEETINGS OF THE COMPANY
4/29/2012
107
Introduction
A company is an association of several persons. Decisions are made according to the view of the majority. These dicissions take place at the various meetings, which take place between members and between the directors
4/29/2012
108
Types of meetings in a company
Generally, meetings in a company are of the following types:

Class meetings Meetings of members Meeting of the Board of directors Other meetings
Meetings of the creditors
4/29/2012
109
Class Meetings
Are meeting which are held by holders of a particular class of shares, e.g. preference shareholders. Such meetings are normally called when it is proposed to vary the rights of that particular class of shares. At such meeting, these members discuss the pros and cons of the proposal and vote accordingly.
continuation
(See provisions on variations of shareholders rights s. 73 of Companies Act. Class meetings are held to pass resolution which will bind only members of the class concerned, and only members of that class can attend and vote. Procedures for calling are the same as AGM unless otherwise stated in Articles of Association
Meetings of the Board of Directors:

Meeting of the Board of Directors as and when the Board so decide Meeting of a Committee of the Board depending on the number of comettee that may be established in a company
4/29/2012
112
Meeting of creditors:
A company, either as a running concern or in the event of winding up, has to make certain arrangements with its creditors. Meetings of creditors are called for purposes of 261 & 262, a co. may enter into:
arrangements with creditors with the sanction of the Court for reconstruction or any arrangement with its creditors.
Members Meetings
These are meetings where the members/shareholders of the company meet and discuss various matters. Members meetings are of the following types
4/29/2012
114
Annual general meeting see section 133

This is kind of meeting required to be held every company in each year. The company may however hold its 1st AGM within 18 months after the date of its incorporation and, no more that 15 months must elapse between two AGM.
4/29/2012
115
Continuation
The notice calling the meeting must state the time, date and place of the meeting must be mentioned in the notice. It must be accompanied by :
a copy of the annual accounts of the company, directors report on the position of the company for the year and auditors report on the accounts.
Continuation
Companies having share capital should also state in the notice that a member is entitled to attend and vote at the meeting and is also entitled to appoint proxies in his absence.
The AGM must be held on a working day during business hours at the registered office of the company or at some other place within the city, town or village in which the registered office of the company is situated
117
Legal effects of not conducting the Annual General Meeting
In case of default in holding an annual general meeting, the consequences are provided under section 133(4) & (7).
4/29/2012
118
Usually Business of an AGM

Directors lay by the Co. annual accounts and reports for the most recent financial period. Auditors term of office ends at AGM, so they must be re-appointed or new auditors must be appointed. Declaration of dividends to be paid to the shareholders Re-appointment of appointment of new directed to replace the retiring
continuation
A notice of not less than 21 days is required 64 the AGM as per s. 135 of Co. Act 2002.
4/29/2012
120
EGM section 134 for Co. Act 2002
Extraordinary general meeting is any meeting which is not AGM. Such meeting are called by board of directors for some reasons
4/29/2012
121
continuation
An explanatory statement of the special business must also accompany the notice calling the meeting. The notice must/should also give the nature and extent of the interest of the directors or manager in the special business, as also the extent of the shareholding interest in the company of every such person.
Who can call for EGM

S. 134 (2) provided that the directors must call an EGM if requisitioned by holds of 10% of paid up capital of the co. Also the provision of section 137 of Act the court can, on its own motion or on application by any member who entitled to vote in any type of meeting in the Co; order the holding of any type of such meetings to be conducted (whether AGM or EGM).
123
Convening meetings:
In convening the meeting the following must be taken in account. Notice of the meeting to be issued not less than 21 days.
Authority to call the meeting, that is the meeting should be convened by required authority that is directors. Thus, if a person without authority issued a notice of meeting this void.
Conditions of a valid meeting:

Must be properly convened Parties calling the meeting must be properly authority to do so There must be a proper and an adequate notice The meeting must be legally constituted (i.e. Chairperson & quorum) Business at the meeting must be validly conducted in accordance with the regulations governing the meeting.
Voting rights of the members of a company

The member of a company has a right to vote for any motion posed in a company. The voting right is mainly exercised by way of shares. The more number of shares one have the more the voting rights a person has. However, voting may also be done by way of show of hands.
Proxy s. 138 Co. Act 2002:
A member may appoint another person to attend and vote at the meeting on his behalf.
A member may appoint different proxies for the different shares he holds in the Co. Also he can appoint different proxies in the sense that if one fails then the other may do so.
Is this same to Company representative in meetings see section 141 of the Companies Act
4/29/2012
127
Under what conditions doe a proxy vote

Conditions: Company be a Company having share capital Not to appoint two proxies to attend or one occasion. Proxy not to work/vote except on poll.
4/29/2012
128
continuation
However, a poll is allowed if a prescribed no of members demand a poll as stated in the MEMAT section 139(1)(b). A Co. cannot refuse a demand for a poll made by:
At least 5 members having the right to vote Any members representing one tenth or more of the total voting rights
Revocation of a proxy
A proxy can be revoked by a member at any time and is automatically revoked by death or insolvency of a member. A member may revoke his proxy by himself before the proxy have voted, once a proxy has exercised the right to vote, a member can not retract his vote
Quorum:
Means the minimum no of persons who must be present for the meeting to be valid. A meeting which invalid quorum is void same as the decision there too. The articles of Association of a Co. shall provide for a quorum without which a meeting shall not constitute a quorum. See section 136 of the companies Act
MAJORITY RULE IN COMPANY LAW &
MINORITY PROTECTION
4/29/2012
132
Meaning of Majority Rule

Majority rule is a principle that derives itself from the fact that only the majority of the votes in the company can determine the fate of the company. That is as log as the majority has passed the resolution then the it is immaterial that few members of the company did not vote for it
Continuation
The court will not therefore intervene the resolution passed by the majority since by agreeing to be a member in such a company, the shareholders agreed to submit to the will of majority of the members. Therefore the decision of the majority is the decision of the company
4/29/2012
134
CONTINUATION
Majority rule has its root in the famous case of Foss v Harbottle In this case the court ruled out as follows:
The wrong done to the company was one which could be ratified by the majority of members. The company was the proper plaintiff for wrongs done to the company, and the company can act only through its majority By Ombella J.S: Contacts: shareholders. 4/29/2012 ombella@gmail.com or 0713227298 135
Continuation
The majority of members should be left to decide whether to commence proceedings against the directors. Therefore, the court will not interfere with the company as long as all its decisions are covered under the articles and memorandum of association of a company.
4/29/2012
136
Continuation
In an Indian case Rajahmundry Electric Supply Co v Nageshwara Rao the court had the following to say: The court will not in general, intervene at the instance of shareholders in matters of internal administration, and will not interfere with management of the company by its directors so long as they are acting within the powers conferred on them under the articles of association.
Importance's of the rule

That a company is a separate legal person different from its members. The wrong done to the company should therefore be pursued by the company itself and no one else (Say its shareholders). It also helps to limit the possibility of multiplicity of suit
4/29/2012
138
Minority shareholders Protection

Minority shareholders refer to the members of the company who hold less than fifty percent of the shares in a company in an ordinary resolution. This means therefore that these members in a company may not determine the fate of the company but the majority who can ordinarily pass a resolution in their favour
Continuation
With the growing trend of private companies where the possibility of a lot of shares being concentrated into the hands of a single shareholder the rule that the majority shall determine the fate of the company may be misused to the detriments of the minority. Thus the law need to protect them against this possible abuse by the majority
140
Minority protection in Tanzania

Where the act complained of is ultra vires or illegal; Where a shareholder's personal rights are infringed; Where the act complained of requires more than an ordinary resolution (e.g. a special resolution) Where there is 'fraud on the minority'.
Continuation
Winding up on the 'just and equitable' ground. CA 2002, under section 233 under Chapter ten of the Act - the statutory remedy for 'unfairly prejudicial conduct'. Rules of conducting a meeting
4/29/2012
142
-ENDThanks for being attentive Presented by Ombella J.S HoD Research and Outreach Services Directorate of Quality Assurance & LL.M Programme Coordinator Faculty of Law Mzumbe University

LAW 5112 Capital and Financing

Hochgeladen von

Dokumentinformationen

Originalbeschreibung:

Copyright

Verfügbare Formate

Dieses Dokument teilen

Dokument teilen oder einbetten

Freigabeoptionen

Stufen Sie dieses Dokument als nützlich ein?

Sind diese Inhalte unangemessen?

Copyright:

Verfügbare Formate

LAW 5112 Capital and Financing

Hochgeladen von

Copyright:

Verfügbare Formate

LAW 5112

Corporate Law and Governance MBA

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Public Company Limited by Shares Perspectives

CAPITAL AND FINANCING OF A COMPANY

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Capital and Financing of A company

In modern company law the term capital is used to cover;

4/29/2012 ombella@gmail.com or 0713227298 3

Share: What is it?

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 4

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 5

Share and stock distinguished

A share is a distinct individual unit of a capital in a company and

shares can be bought and sold in a whole units

Shares are required to be distinguished

A company can issue shares directly

Terminologies applied in this topic

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Categories of shares in a company

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 12

Equity shares/ ordinary shares

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 13

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Classes of preference shares

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Deferred or founders Shares

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

The capital Clause of the memorandum of Association of a company

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 19

c) Convert all or any of its paid up shares

cancel any paid up share capital which is lost;

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Stages for reduction in summary

Elapse a period of 35 days Registration to the registrars office

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 26

Effects for non Compliance of the procedures:

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Other modes of Reduction of share capital of a company

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Why reducing the capital of a company

Generally the capital of the company need to remain as registered

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 29

Increase of the share capital of the company

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Debt financing of a corporation

That is making payments of principal sum and interest on a fixed schedule

4/29/2012 By Ombella J.S: Contacts: ombella@gmail.com or 0713227298 33

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

Maintenance of the capital

By Ombella J.S: Contacts: ombella@gmail.com or 0713227298

CHARGES ON THE ASSETS OF THE COMPANY

Consequences of a Floating Charge

CRISTALIZATION OF A FLOATING CHARGE

When does a floating charge become fixed

A floating charge will become fixed upon the following conditions: