Basics of the Companies Act, 1994

Dr. Md. Mosharref Hossain

Introduction and Background

Companies Act 1994 (Act XVIII of 1994) governs COMPANY LAW in Bangladesh. It received
the assent of the President of the People's Republic of Bangladesh on 11 September 1994 and
was published in the Bangladesh Gazette, Extra, 12 September 1994. Before its enactment in
1994, company law was governed by the Companies Act 1913 which was amended in 1915,
1920, 1926, 1930, 1932, 1936, 1938, 1949 and 1969, 1973 and 1984.
The early history of company law of India was laid in the British Companies Act 1844 on the
basis of which the Joint Stock Companies Act 1850, the first company law for the sub-continent,
was formulated. This act was based on 'unlimited liability'. Through a major amendment in the
Joint Stock Companies Act 1850 in 1857, the provision of unlimited liability was replaced by
'limited liability' and the act was renamed as The Companies Act 1857. With the expansion of
trade and commerce in the sub-continent, the Companies Act 1857 was amended in 1860, 1866,
1882, 1887, 1891, 1895, 1900 and 1908. The Indian Companies Act 1913 was actually the
amended and reformed version of The English Companies Act 1908.
The Companies Act 1994 has 11 parts. Part-I contains the preliminary aspects of the act
including the short title of the act, commencement and extent, definitions of various terms. Part-
II is concerned with formulation and incorporation of companies, including bank companies, and
memorandum of association for various types of companies, articles of association, general
provision for registration of memorandum and articles of association, associations not for profit,
and companies limited by guarantee. Part-III mainly narrates the rules for share capital,
registration of unlimited company as limited, and the limited liability of directors. This part
states the rules and procedures for distribution of share capital of companies and the provisions
for reduction of share capital.
Part-IV states the framework for regulating the management and administration of companies,
the requirements for having a registered office of a company with a distinct name at a specific
place, the provisions for penalties for non-disclosure of name, and the way to show the
authorized, subscribed and paid up capital of companies. It contains the procedures and rules for
holding meetings of companies, provisions and procedures for appointment of company
directors, their responsibilities, rights and obligations, powers, tenure, loans to and from a
company, and their relationship with the managers, and managing agents of a company. This part
includes the rules and conditions for appointment of managing agent, the provision for contracts
and execution of deeds, power of companies to use their seal abroad, rules regarding company
prospectus, the powers of a company to pay interests, commissions and discounts and to allocate
and issue additional shares, the provisions for information and procedure as to mortgage and
other unregistered charges. Issuing and redemption of debentures, appointment of receivers, and
their submission of returns, and registration of charges are also the concerns of this part. It also
provides requirements and rules to keep proper accounts, preparation and submission of balance
sheets, other statements and records, as well as provisions for penalty for not keeping proper
books of accounts.
Further, this part states the provisions for statements to be published by banking and certain other
companies; the power of the registrar of joint stock companies to investigate into and seize any
accounts, statements, records and information; the requirements and procedures for inspection
and audit of company affairs; appointment of auditors; their powers and duties, qualification,
remuneration, etc.; provisions for service; issue and authentication of company documents;
provisions for arbitration and compromise; and rules of conversion of private company into
public company, and protection of interest of minority shareholders.
Part-V of the act provides details of the mode and methods of winding up, liabilities of
contributories and their successors, procedures and options of winding up, ordinary and
extraordinary power of courts to be involved in the winding up process, appointment of official
liquidator and their powers and duties, settlement of debts of companies and transfer and
distribution of assets and liabilities. Part-VI deals in matters relating to the registered office/s of
companies; appointment of registrar/s by the government; their powers and responsibilities,
payment of registration fees and submission of returns and documents to registrar by the
companies. Part-VII interprets the rules of application of the act to companies formed and
registered under former Companies Acts. Part-VIII identifies and defines the companies capable
of being registered, the various aspects required for registration and the power to substitute
memorandum and articles for deed of settlement, etc.
The main concern of Part-IX of the act is the procedure for winding up of unregistered
companies. This part explains the meaning of unregistered companies; procedure for their
winding up; power to stay or restrain proceedings; suits stayed on winding up order; directions as
to property in certain cases; and the status of provisions of this part cumulative. The contents of
Part-X include the requirements for establishing foreign companies in Bangladesh, rules for
regulating them, preparation, maintenance, audit and submission of their accounts to the host
country regulators; notice for closure of foreign companies in Bangladesh; and restrictions on
sales and offer for sale of shares. Finally, Part-XI is supplemental and relates legal proceedings,
offences, etc. The subject matters elaborated in it are cognizance of offences, application of
fines, power to require limited company to give security for costs, and penalty for wrongful
withholding of property.
The Companies Act has twelve schedules. The following is a list of them along with the section
numbers: Regulation for management of a company limited by shares (sections 2, 17, 18, 86,
367); table of fees to be paid to the registrar (sections 348, 363); particulars of prospectus and
reports incorporated in it (section 135); statement in lieu of prospectus (section 141);
memorandum and articles of associations of the various types of companies; summary of share
capital and lists of shareholders/directors in accordance with Part One of the Companies Act
1994 (section 36); specimen of company balance sheets and instruction for profit and loss
accounts (section 185); and statements to be published by bank and insurance companies,
deposits/provident/welfare associations (section 192).

Defining Company
“Company means a company formed and registered under this Act or an existing company”. –
Sec 2 (1), The Companies Act 1994.
“A company is a voluntary association or organizations of many persons who contribute money
or money’s worth to a common stock and employs it in some trade or business and who share the
profit or loss arising therefrom.”- Justice Lindley.

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Common Characteristics of a Company

Artificial Entity – Voluntary Organization – Perpetual succession – Creation of Law – Common

Seal – Division of capital – limited liability – Separation of ownership from control –
Democratic control – Transferability of shares – Number of members.

Types of Companies
A. Companies Limited by Shares (Public Ltd. Company and Private Ltd. Company)
B. Companies Limited by Guarantee
C. Unlimited Companies
Difference between Public Ltd. Company and Private Ltd. Company

Public Limited Company Private Limited Company

Minimum number of member is 7 and the Minimum number of members is 2 and
maximum number is unlimited. maximum 50.
At least 3 directors. At least 2 directors.
Can issue IPO Can not issue IPO
Statutory meeting and report is mandatory. It is not required.
An audit firm must audit financial statement. It is not mandatory.
Its financial statement is open for public It is not open for public disclosure.
disclosure.
It has no restriction in transferring of shares. It restricts to transfer of shares.
Certificate of commencement is required to start Certificate of incorporation is sufficient to
business operation. start business operation.

Formation of a Company

- Verification of Company Name to the Registrar of the Joint Stock Companies.

- When verified, the Memorandum of Association (M/A) and Articles of Association (A/A)
must be prepared and submitted to the Registrar of the Joint Stock Companies along with the
application form.
- In case of public limited company, a duly signed list of persons has to be consented as
directors of the company with their consent.
- Declaring that all the requirements of the Act have been complied with.

After these, if the Registrar is satisfied with the requirements submitted, he issues a certificate,
which is called “Certificate of Incorporation” to a public limited company as well as to a private
limited company. After getting this certificate a private limited company can start its business
operation. But for a public limited company, it requires to obtain another certificate, which is
called “Certificate of Commencement”. For obtaining this certificate a public limited company
has to –
a) Issue a prospectus or statement in lieu of prospectus
b) Ascertain that minimum subscription has been collected
c) Ascertain that the directors’ qualifying share have been collected
d) Declare about the required formalities has been made according to the Act.

After obtaining the “Certificate of Commencement”, a public limited company can start its
business operation.

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Types of Shares of a Public Limited Company

A. Ordinary Share/ Equity Share

B. Preference Share
- Cumulative and Non Cumulative Preference Share
- Participating and Non-participating Preference Share
- Redeemable and Irredeemable Preference Share
Meetings

- Annual General Meeting - Ist AGM within 18 months (after certificate of incorporation). 2 nd
AGM– within 15 months from previous date.
- Statutory Meeting - Once in a whole life (after certificate of commencement, not < 30 days
but not > 180 days ).
- Extraordinary General Meeting - minimum one tenth of share holders can call upon this
meeting

Winding-up
By the Court - A company may be wound up by the court

1) If the company has by special resolution resolved that the company be wound up by the
court or
2) If default is made in filing the statutory report or in holding the statutory meeting or
3) If the company does not commence its business within a year from its incorporation or
suspends its business for a whole year or
4) If the number of members is reduced in the case of a private company below 2 or in the
case of any other company below 7 or
5) If the company is unable t o pay its debt etc.

Voluntary or
Subject to Supervision of Court

Opening a Bank Account of a Company

A banker has to obtain the following requirements from a company to open an account with the
bank:
1. Duly completed account opening form
2. Specimen signature card with the signatures of the authorized official with copies of
power of attorney (if any)
3. Copies of Memorandum of Association and Articles of Associations
4. Certificate of Incorporation (Attested Copy)
5. Certificate of Commencement (Attested Copy), in case of public limited company
6. List of Directors under the signature of the Chairman of the company
7. Certified copy of a resolution of the Board regarding the execution of the papers and
conduct of the account
8. Copies of the latest financial statements
9. Bank must keep on record of the address of the registered office of a company. Legal
notice to be served at the registered office.