SHARES , SHAREHOLDERS , SHARE CAPITAL

SHARES

pp 743- 753

ALLOTMENT OF SHARESDISTRIBUTION OF APPLICATION FORMS FOR SECURITIES IS AN INVITATION TO OFFER TO BUY.AN APPLICATION TO BUY SECURITIES IS AN OFFER TO BUY.ALLOTMENT IS ACCEPTANCE. ALLOTMENT GIVES RISE TO A CONTRACT.

ALLOTMENT OF SHARES

Allotment to be valid must fulfil these requirements:

Minimum subscription , Sec 69

Receipt of application money, S69/3

Statement in lieu of Prospectus,S70

Opening of subscription list, S72

Listing on a stock exchange, S73

ALLOTMENT OF SHARESAllotment to be valid must fulfil these requirements:Allotment to be made according to AoA , by the persons authorisedMust be completed within reasonable time , and must be communicated to allottees Must be as per the terms of the offer

CERTIFICATE OF SHARES, S113

EVERY COMPANY MAKING AN ALLOTMENT OF SHARES OR DEBENTURES IS REQUIRED TO DELIVER CERTIFATES OF SHARES OR DEBENTURES TO ALL ALLOTTEES WITHIN THREE MONTHS OF THE ALLOTMENT.A ‘REGISTER OF MEMBERS’ IS REQUIRED TO BE MAINTAINED.

DEMATERIALIZED SHARESDematerialized securities are securities that are not on paper and a material certificate to that effect does not exist. They exist in the form of entries in the electronic records of organizations called depositories.

Essentially, in the demat system, the shares are held in a dematerialized form. This system works through a depository who is registered with the Securities and Exchange Board of India (SEBI) to perform the functions of a depository. For Example : NSDL www. nsdl.com , CDSL

RETURN OF ALLOTMENTSEC 75 REQUIRES COMPANIES TO FILE AN OFFICIAL REPORT CALLED ‘A RETURN AS TO ALLOTMENT’ WITHIN 30 DAYS OF ALLOTMENT WITH THE REGISTRAR OF COMPANIES.SHARES CAN BE SOLD AT PAR OR ON PREMIUM, OR AT A DISCOUNT WITH CLB’S APPROVAL .

TRANSFER OF OWNERSHIP OF SHARES

THERE ARE TWO MECHANISMS FOR OWNERSHIP TRANSFER OF SHARES FROM ONE HOLDER TO ANOTHER:

TRANSFER, Sec 82TRANSMISSIONBoth transferor and transferee are entitled to apply for registration of transfer to the company as per procedure defined in Sec 108

SHAREHOLDERS OR MEMBERS

pp 753- 761

SHAREHOLDERS OR MEMBERS

A person capable of contracting may become a member of a co. by:

SUBSCRIBING TO THE MEMORANDUM

ALLOTMENT IN A PUBLIC ISSUE

TRANSFER OR TRANSMISSION

TAKING QUALIFICATION SHARES

SHARE CAPITAL

pp 761- 769

SHARE CAPITAL

THE AMOUNT OF CAPITAL STATED IN MEMORANDUM AT THE TIME OF REGISTRATION IS CALLED AUTHORISED CAPITAL OF THE COMPANY.

THE ISSUED CAPITAL CAN BE THE WHOLE OR ANY PART OF THE AUTHORISED CAPITAL.

SHARE CAPITALTHE PART OF THE ISSUED CAPITAL WHICH HAS BEEN ALLOTTED IS CALLED THE SUBSCRIBED CAPITAL .THE ACTUAL AMOUNT RECEIVED IS THE PAID-UP CAPITAL .THE UNCALLED CAPITAL CAN BE CONVERTED INTO RESERVE CAPITAL .

KINDS OF SHARES/ STOCKS 85, 86 : Indian Cos. can issue only :1. EQUITY SHARES (OR STOCK) :

All those shares which are not preference shares are equity shares (or ordinary or common stock) .2. PREFERENCE SHARES (OR STOCK) :

They have both of the following rights: (1) Preferential dividend , (2) Preferential pay back on winding up of the company .

KINDS OF SHARE CAPITALPREFERENCE SHARES may beCUMULATIVE OR NON-CUMULATIVEPARTICIPATING OR NON-PARTICIPATINGUnless otherwise specified, they are normally Cumulative and Non- participatingThey have to be REDEEMABLE within 20 years from an account, maintained separately from profits available for dividends , called “Capital Redemption Reserve Account”. (Sec 80 , 80-A )

ALTERATION OF CAPITAL

FURTHER ISSUE – rights issue, bonus issue , ESOPs & Sweat equity

REDUCTION

BUY-BACK- register , destruction

POWER TO CONVERT LOAN INTO CAPITAL AND VICE VERSA etc.

STUDY MORE ASPECTS OF CAPITAL MARKETS & ISSUES FROM WEBSITES OF:

- Investment and Merchant Bankers , Investment cos., Brokers - SEBI - NSDL , CDSL , other depositories, - Credit Rating Agencies like CRISIL etc - BSE , NSE , OTCEI , other stock exchanges

CORPORATE GOVERNANCE

DIRECTORS

AND

OTHER MANAGERIAL PERSONNEL

pp 769-790

DIRECTORS

SECTION 252:EVERY PRIVATE COMPANY WILL HAVE AT LEAST 2 DIRECTORS.EVERY PUBLIC COMPANY WILL HAVE AT LEAST 3 DIRECTORS.ALL THE DIRECTORS TOGETHER ARE CALLED ‘BOARD OF DIRECTORS.’

DIRECTORSDIRECTORS ARE THE HIGHEST LEVEL OF MANAGEMENT AND THEY ACT AS THEORGANS OF THE COMPANYTRUSTEES OF THE COMPANY HAVING POWERS IN TRUST OR GOOD FAITH TO ISSUE SHARES,APPROVE TRANSFERS OF SHARES ,MAKE CALLS etc.AGENTS OF THE COMPANY

APPOINTMENT OF DIRECTORS

THE FIRST DIRECTORS ARE APPOINTED BY THE SUBSCRIBERS AND THEY HOLD OFFICE UPTO THE FIRST AGM OF THE COMPANY.

SUBSEQUENT DIRECTORS ARE APPOINTED BY THE MEMBERS AT THE MEETING.

APPOINTMENT OF DIRECTORS

ALL THE DIRECTORS IN A PRIVATE COMPANY CAN BE GIVEN A PERMANENT APPOINTMENT BY A SINGLE RESOLUTION.

IN CASE OF A PUBLIC COMPANY ONLY ONE THIRD CAN BE PERMANENT .

APPOINTMENT OF DIRECTORS

OTHERS, WHO RETIRE IN ROTATION, ARE TO BE REAPPOINTED OR REPLACED AT THE RATE OF ONE THIRD ANNUALY.

THE APPOINTMENT IS MADE BY AN ORDINARY RESOLUTION.

QUALIFICATION OF DIRECTORS

SHARE QUALIFICATION, SEC 270: IF AOA OF THE COMPANY SO REQUIRES, A DIRECTOR MUST OBTAIN A CERTAIN NO. OF QUALIFICATION SHARES (NOT EXCEEDING Rs 5,000 IN VALUE) WITHIN TWO MONTHS OF HIS APPOINTMENT.

DISQUALIFICATIONS FOR DIRECTORS : SEC 274

A PERSON CANNOT BE A DIRECTOR IF HE IS

OF UNSOUND MIND

AN UNDISCHARGED INSOLVENT

HAS BEEN SENTENCED TO SIX MONTHS OF JAIL WITHIN 5 YRS

A FRAUDULENT PERSON DISQUALIFIED UNDER SEC 203

VACATION OF OFFICE OF DIRECTORS : SEC 283,284A DIRECTOR HAS TO VACATE OFFICE IF HE ABSENTS HIMSELF FROM 3 CONSECUTIVE MEETINGS OF THE BOARDHE IS REMOVED BY COURT OR BY AN ORDINARY RESOLUTIONHE IS DIRECTOR IN MORE THAN 20 COMPANIES.

POWERS OF DIRECTORS

THE BOARD OF DIRECTORS , AS MIND AND ORGANS OF THE COMPANY, IS ENTITLED TO EXERCISE ALL SUCH POWERS, AND DO ALL SUCH ACTS AND THINGS, AS THE COMPANY IS AUTHORISED TO EXERCISE AND DO.

POWERS OF DIRECTORSSEC 292 PROVIDES THAT THE FOLLOWING POWERS CAN BE EXERCISED ONLY BY THE BOARD :

TO MAKE CALLS ON SHARES

TO BORROW MONEY

TO ISSUE DEBENTURES

TO INVEST FUNDS OF THE COMPNAY

TO MAKE LOANS

POWERS OF DIRECTORSTHE FOLLOWING POWERS CAN BE EXERCISED BY THE BOARD ONLY WITH THE APPROVAL OF THE SHAREHOLDERS IN A GENERAL MEETING :

SALE OR LEASE OF PROPERTY

BORROWINGS BEYOND PAID-UP CAPITAL AMOUNT

CONTRIBUTIONS BEYOND Rs 50,000 FOR CHARITY.

DUTIES OF DIRECTORSTHE DIRECTORS HAVE FOLLOWING DUTIES TO THE SHAREHOLDERS,INVESTORS ,AND TO PUBLIC :

DUTY OF GOOD FAITH

DUTY OF CARE

DUTY TO ATTEND BOARD MEETINGS ,NOT TO DELEGATE,TO DISCLOSE INTEREST

MEETINGS OF DIRECTORSDIRECTORS HAVE TO HAVE A BOARD MEETING

AT LEAST ONCE IN THREE MONTHS ,

AT LEAST FOUR TIMES IN A YEAR.

NOTICE OF MEETING MUST BE GIVEN TO EVERY DIRECTOR.

OTHER MANAGERIAL PERSONNEL

THE DAY TO DAY MANAGEMENT OF THE AFFAIRS OF THE COMPANY IS DELEGATED BY THE BOARD TO PROFESSIONAL MANAGERS APPOINTED BY THE BOARD.

OTHER MANAGERIAL PERSONNEL

MANAGING DIRECTOR OR WHOLETIME DIRECTOR OR EXECUTIVE DIRECTOR

PRESIDENT OR GENERAL MANAGER OR MANAGER

COMPANY SECRETARY

SEC 5:OFFICER WHO IS IN DEFAULTFOR THE PURPOSE OF ANY PROVISION IN THIS ACT WHICH ENACTS THAT AN OFFICER OF THE COMPANY WHO IS IN DEFAULT SHALL BE LIABLE TO ANY PUNISHMENT OR PENALTY, WHETHER BY WAY OF IMPRISONMENT, FINE OR OTHERWISE, THE EXPRESSION "OFFICER WHO IS IN DEFAULT" MEANS ALL THE FOLLOWING OFFICERS OF THE COMPANY, NAMELY :-(A) THE MANAGING DIRECTOR OR MANAGING DIRECTORS;(B) THE WHOLE-TIME DIRECTOR OR WHOLE-TIME DIRECTORS;(C) THE MANAGER;

SEC 5 : OFFICER WHO IS IN DEFAULT

(D) THE SECRETARY;(E) ANY PERSON IN ACCORDANCE WITH WHOSE DIRECTIONS OR INSTRUCTIONS THE BOARD OF DIRECTORS OF THE COMPANY IS ACCUSTOMED TO ACT;(F) ANY PERSON CHARGED BY THE BOARD WITH THE RESPONSIBILITY OF COMPLYING WITH THAT PROVISION :

PROVIDED THAT THE PERSON SO CHARGED HAS GIVEN HIS CONSENT IN THIS BEHALF TO THE BOARD

MEETINGS

pp 790 - 797

COMPANY MEETINGS STATUTORY MEETING : S 165 AGM : S 166 Extraordinary general meeting : S 169 CLB has power to call meetings : S 186 PROCEDURE OF MEETINGS :

NOTICE , CONTENTS OF NOTICE QUORUM CHAIRMAN VOTING RIGHTS KINDS OF BUSINESS & RESOLUTIONS MINUTES

DIVIDENDS , ACCOUNTS AND AUDIT

pp 797 - 807

DIVIDENDSDIVIDENDS MEAN THE SHARE OF PROFITS OF THE COMPANY THAT FALLS TO EACH INDIVIDUAL MEMBER OF THE COMPANY.

IT IS THE PORTION OF THE CORPORATE PROFITS WHICH HAS BEEN SET ASIDE AND DECLARED BY THE COMPANY FOR DISTRIBUTION TO MEMBERS.

DIVIDENDS

TWO FUNDAMENTAL RULES GOVERNING DIVIDEND PAYMENT:1.DIVIDENDS SHOULD NEVER BE PAID OUT OF CAPITAL.2.DIVIDENDS SHOULD BE PAID OUT OF PROFITS ONLY- EITHER CURRENT OR ACCUMULATED.

PAID-IN CAPITAL VS PROFITS

WHICH IS MORE PERMANENT, PAID-IN CAPITAL OR RETAINED EARNINGS?

PAID-IN CAPITAL IS MORE PERMANENT BECAUSE CORPORATIONS USE THEIR RETAINED EARNINGS FOR DECLARING DIVIDENDS TO THE STOCKHOLDERS.

DIVIDEND DATESA CORPORATION MUST DECLARE A DIVIDEND BEFORE PAYING IT.

THE BOARD OF DIRECTORS ALONE HAS THE AUTHORITY TO DECLARE A DIVIDEND.

DIVIDEND DATES

DECLARATION DATEDECLARATION DATE

DATE OF RECORDDATE OF RECORDPAYMENT DATEPAYMENT DATE

THREE RELEVANT DATES FOR DIVIDENDS ARE:

COMPULSORY RESERVES

THE COMPANY IS REQUIRED TO MAINTAIN A COMPULSORY RESERVE ,CALLED FREE RESERVE , OUT OF ITS PROFITS AS PRESCRIBED BY THE CENTRAL GOVERNMENT BEFORE ANY DIVIDEND IS DECLARED.

UNPAID DIVIDEND ACCOUNT

THE COMPANY IS REQUIRED TO MAINTAIN AN UNPAID DIVIDEND ACCOUNT IN A SCHEDULED BANK.ANY UNCLAIMED DIVIDEND IS TRANSFERRED TO THIS ACCOUNT. ACCUMULATIONS IN THIS ACCOUNT ARE TRANSFERRED TO CENTRAL GOVERNMENT AFTER 3 YEARS.INVESTOR CAN CLAIM WITHIN 7 YEARS FROM GOVT.

EFFECT OF DIVIDEND DECLARATION

ONCE DECLARED A DIVIDEND BECOMES A STATUTORY DEBT FROM THE COMPANY TO ITS SHAREHOLDERS.

DIVIDEND MUST BE PAID WITHIN 42 DAYS FROM THE DATE OF DECLARATION.

CAPITALISATION OF PROFITS

PROFITS OR FREE RESERVES CAN BE CAPITALISED AND BONUS SHARES CAN BE ISSUED TO THE EXISTING SHAREHOLDERS.

ACCOUNTSAS DIVIDENDS CAN BE PAID ONLY OUT OF SURPLUS EARNINGS AND THE CAPITAL MUST BE PRESERVED,THE COMPANIES ACT PROVIDES ELABORATE RULES FOR THE WAY ACCOUNTING FOR THE COMPANY IS TO BE DONE.

ACCOUNTING STANDARDSSECTION 211 PRESCRIBES THAT EVERY PROFIT AND LOSS ACCOUNT AND EVERY BALANCE SHEET SHALL COMPLY WITH ACCOUNTING STANDARDS IN FORCE.THE NATIONAL ADVISORY COMMITTEE ON ACCOUNTING STANDARDS & ICAI DECIDE THESE STANDARDS.

ACCOUNTSEVERY COMPANY IS REQUIRED TO MAINTAIN AT ITS REGISTERED OFFICE BOOKS OF ACCOUNTS SHOWING:ALL SUMS RECEIVED AND EXPENDEDALL SALES AND PURCHASESALL ASSETS AND LIABILITIESUTILISATION OF MATERIAL & LABOUR FOR MANUFACTURING

ACCOUNTS AT AGMAT EVERY AGM THE BOARD OF DIRECTORS HAVE TO LAY BEFORE THE SHAREHOLDERS:1.BALANCE SHEET FOR THE YEAR2.PROFIT AND LOSS ACCOUNT3.DIRECTORS’ REPORTA COPY OF SUCH ACCOUNTS AND REPORTS (THE ANNUAL REPORT) MUST HAVE BEEN SENT TO EVERY SHAREHOLDER 21 DAYS BEFORE THE AGM.THE ACCOUNTS MUST HAVE BEEN AUDITED AND AUDITORS’ REPORT MUST ACCOMPANY THESE REPORTS.

AUDIT : SEC 224-233STATUTORY AUDIT OF ACCOUNTS IS CARRIED OUT BY AUDITORS WHO ARE APPOINTED BY SHAREHOLDERS IN EVERY AGM.

RETIRING AUDITORS CAN BE REAPPOINTED.

AUDITORS CAN BE REMOVED BY SHAREHOLDERS BEFORE THE EXPIRY OF THEIR TERM.

QUALIFICATIONS OF AUDITORS

A PERSON CANNOT BE APPOINTED AN AUDITOR UNLESS HE IS A CHARTERED ACCOUNTANT.A PARTNERSHIP FIRM OF AUDITORS WHOSE PARTNERS ARE ALL CA’s CAN BE APPOINTED.A BODY CORPORATE,AN OFFICER OR EMPLOYEE OF THE COMPANY OR THEIR RELATIVES CANNOT BE AUDITORS.

POWERS AND DUTIES OF AUDITORS

EVERY AUDITOR HAS THE RIGHT OF ACCESS TO THE BOOKS OF ACCOUNTS AND VOUCHERS OF THE COMPANY.AUDITORS MUST EXAMINE AND CERTIFY THAT THE COMPANY MAINTAINS ITS ACCOUNTS AS PER REQUIREMENT AND THE AFFAIRS OF THE COMPANY COMPLY WITH LAW.

DUTIES OF AUDITORS

THE AUDITORS VERIFY THE ACCURACY OF ACCOUNTING RECORDS,VALIDITY OF TRANSACTIONS ,AND COMPLIANCE OF THE BUSINESS WITH STATUTORY REQUIREMENTS.

DUTIES OF AUDITORSTHE AUDITOR HAS TO SUBMIT A REPORT TO THE MEMBERS OF THE COMPANY , AND THEY ARE UNDER NO RESPONSIBILITY TO PERSONS OTHER THAN SHAREHOLDERS.AUDITORS ARE LIABLE FOR EXERCISING DUE CARE AND SKILL IN DISCHARGE OF THEIR DUTIES.

DUTIES OF AUDITORSFOR EXAMPLE, IF THEY APPROVE OF ACCOUNTS SHOWING FALSE INCOME ,THEY WILL BE LIABLE FOR THE EXTRA INCOME TAX PAYABLE,OR FOR EXTRA DIVIDEND PAID ON THE BASIS OF SUCH ACCOUNTS.

SPECIAL AUDITSTHE GOVERNMENT CAN ORDER SPECIAL AUDIT OF A COMPANY IF THE AFFAIRS ARE NOT MANAGED ACCORDING TO SOUND BUSINESS PRACTICES.

BY LAW,MANY COMPANIES ARE REQUIRED TO UNDERGO COST AUDIT CONDUCTED BY COST ACCOUNTANTS.