business lawchapter-6..company law.pdf

8/14/2019 Business LawChapter-6..Company law.pdf

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ContentsCompany Law

ChapterVI Pages6.1 Definitions 6

6.2 Incorporation or Modes of Forming Company 9

6.3 Different Types of Company 11

6.3.1 Private Company 12

6.3.2 Public Company 15

6.3.3 Registered Company 16

6.3.4 Unregistered Company 17

6.3.5 Company Limited by Shares 18

6.3.6 Company Limited by Guarantee 20

6.3.7 Unlimited Company 25

6.3.8 Associations not for Profit 26

6.3.9 Foreign Companies 26

6.3.10 Banking Companies 31

6.4 Instruments relating to Incorporation of Company 33

6.4.1 The Memorandum of Association 34

6.4.2 The Articles of Association 40

6.4.3 Prospectus 44

6.4.4 Share Capital and Shares 46

6.4.5 Stock 57

6.4.6 Debentures 60

6.5 Persons involving in Company Business 66

6.5.1 Promoters 67


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6.5.2 Directors 68

6.6 Winding up 69

6.6.1 Compulsory Winding- up or Winding-up by the Court 70

6.6.2 Voluntary Winding up 75

6.6.3 Winding up Subject to Supervision of the Court 82

Chapter VICompany Law

Today the most important form of business organization in

Myanmar is the corporation. The concept of the corporation is not new.

Since the olden days, men had the idea of conducting business in the

form of organizations, which would not be affected by changes in

membership. The organizations would go on although deaths of its

members or withdrawal or incoming of new members occurred there. The

organization has such a legal personality, it can own, separate from its

members. Because of its legal personality, it can own property and enjoy

certain privileges indefinitely. In fact, such characteristics of a separate

personality and that of a continuous life are essential ingredients of the

corporation. The corporation, having a separate legal entity is quite

different from that of a partnership firm, there, the partnership dissolves

with the death or withdraws of one of its partners.


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The member of the corporation will not be liable for the debts or

obligations of the corporation itself. They will be liable only to the extent

of what they have bought their shares. This fact also differs from that of

the provisions of Partnership Act, which provides that each and every

partner of the firm will be liable jointly and severally for any act of thefirm. Again, a member of a corporation can transfer his share to another

as he likes without having the need to get consent from the other

members.


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The procedure for forming a corporation under State Law is

prescribed by law respectively. Although the law regarding the forming

of a corporation will differ from State to State, the general requisites will

be the same.

To form a corporation, three or more persons known as

incorporators prepare and sign on instrument known as a certificate of

incorporation.

The instruments required upon incorporation are:

(1) Memorandum of Association

(2) Articles of Association

(3) Statement of National Capital

(4) Declaration of Compliance with the provisions of theCompanies Act 1948.


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So once registered according to the law, a company becomes

incorporated.

A person becomes a shareholder in a company by purchasing a

share certificate either from the company under a contract known as

subscription agreement or from another shareholder.

In the present day situations as to the commercial transactions, one

who has got the knowledge of the law relating to Companies will lead to

success in his business dealings.

In Myanmar, the laws relating to corporation are "The Myanmar

Companies Act" 1913; the Myanmar Companies Rules 1940, and the

Special Company Act 1950. The Myanmar Companies Act" 1913 was

amended twice in 1989 and 1991.

6.1 Definitions


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"Company means a company formed and registered under this Actor an existing company. ( Section 2(2))

"Articles means the articles of association of a company asoriginally framed or as altered by special resolution including the

regulations contained in Table "A" in the first schedule annexed to this

Act. ( Section 2(1))

Memorandum means the memorandum of association of acompany as originally framed or as altered in pursuance of the provisions

of this Act. ( Section 2(10))

Myanmar Company means(a) in the case of a company having a share capital, a

company whose entire share capital is, of all times,

owned and controlled by the citizens of the Union of

Myanmar.


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-

(b) in the case of a company limited by guarantee but nothaving a share capital, a company which is, at all times

owned and controlled by the citizens of the Union of

Myanmar.

(

Foreign Co mpany means (a) any company other than a Myanmar company or a

special company formed under the Special CompanyAct 1950.

-

(b) a company incorporated outside the Union of Myanmarand having an established place of business in the

Union of Myanmar.


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Company carrying on international trade means a Company whichis a subsidiary Company or branch in a foreign country for the purpose of

a trading.

(Company

carrying on International Trade)

StockholderStockholder means a person becomes a stockholder in a company

by purchasing stock either from the company under a contract known as a

"subscription agreement or from another stockholder ". A stockholderpurchases a stock from another stockholder by receiving from the seller

his "certificate of stock" properly endorses.

Stock Exchange is that Purchases of stock from stockholders aredone at the stock exchanges. These exchanges are operated by member

broker concerns who act as agents in the buying and selling of stocks of

customers. For purposes of trading with each other on behalf of their

principals, the brokers meet in a central co -operatively run building that

is called a stock exchange. According to the stock exchange rules,


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stockbrokers who belong to the exchange are not allowed to deal with the

stock unless it is appeared on the stock list. Sometimes unlisted stocks

are bought and sold off at the exchange, and that is called " over-the-counter" transactions.

over-the-counter

6.2 Incorporation or Modes of Forming Company

Any seven or more persons (or, the company to be formed will be a

private company, any two or more persons) associated for any lawful

purpose may, by subscribing their names to a memorandum of association

and otherwise complying with the requirements of this Act in respect of a

registration, form on incorporated company, with or without limited

liability (that is to say), either-


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(1) a company having the liability of its members limited by thememorandum to the amount, if any, unpaid on the shares

respectively held by them (in this Act termed as a CompanyLimited by Shares); or

(2) a company having the liability of its members limited by thememorandum to such amounts; as the members may

respectively thereby undertake to contribute to the assets of

the company in the event of its being wound up (in this Act

termed as a Company Limited by Guarantee) or


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(3) a company not having any limit on the liability of itsmembers (in this Act termed as an Unlimited Co mpany .)

Thus, companies may be classified mainly as;-

(1) a company limited by shares ,

(2) a company limited by grantee and

(3)

an unlimited company ,

the provisions of section 6, 7 and 8 are to be complied with in

drawing the memorandum of associations in each particular case.

6.3 Different Types of CompanyThere are many kinds of companies:-

1. Private Company 2. Public Company


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3. RegisteredCompany 4. Unregistered Company 5. Company limited by shares

6. Company limited by guarantee

7. Unlimited company

8. Associations not for profit

9. Foreign Companies

10. Banking Companies

6.3.1 Private Company Section 2 (13) of the Act defines a private Company as:-

(1) which restricts the right to transfer the shares , if any;

(2) limits the number of its members to fifty not includingpersons who are in the employment of the company;

(3) prohibits any invitation to the public to subscribe for theshares or debentures.


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There may be two persons holding one or more shares jointly, but

they will be treated as a single member.

The liability of a member of a Private Company is limited. In fact,

the law does not impose strict control on a private company so that it can

do business with limited liability. Because it has no authority to invite the

public to subscribe for shares, there is no risk that the general public

would be defrauded or their monies wasted.

It can therefore be noted that-

(1) Only two signatories to the memorandum of associationwill be sufficient to form a private company.


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(2) It is not necessary to hold a statutory meeting or file a

report as in the case of a public company.

(3) Neither it is necessary to issue a prospectus nor file a

statement in lieu of prospectus .

(4) It can commence business immediately on incorporationand allot shares as it likes.

(5) The minimum number of director is one instead of two.

(6) The age limit of seventy years for directors does not

apply.

(7) A person may be a director of any number of private

companies and draw any remuneration.

(8) Directors can be appointed by a single resolution and

obtain loans from the company.


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6.3.2 Public CompanySection 2 (13) of the Companies Act defines a public company as

follows:-

"It means a company registered and incorporated under the

Myanmar Companies Act or registered under the other subsisting laws

regarding the law of company."

It does no t restrict the right to transfer the shares where it does havea share capital. It does not limit the number of members to fifty. It allowsan invitation to the public to subscribe for its shares. Every public

company should have at least three directors and the directors of a

company are collectively called the Board of Directors.


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6.3.3 Registered Company Under section (22) of the Myanmar Companies Act, the

memorandum and the articles (if any) shall be filled with the Registrar

and he shall retain and register them.

As to the effect of registration, the provision of section 23 lays

down that:

(1) on the registration of memorandum of a company, the

Registrar shall certify under his hand that the company is incorporated,

and in the case of a limited company that the company is limited.

(2) from the date of incorporation mentioned in the certificate of

incorporation, the subscribers of the memorandum, together with such

other persons as may from time to time become members of the company,

shall be a body incorporated by the name contained in the memorandum.

They will have the right to exercise all functions of an incorporated


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company, having a perpetual succession and a common seal. But in the

event of winding up of the company, they will be liable to contribute to

the assets of the company.

Where a certificate of incorporation is issued, it shall be a

conclusive proof that all the requirements of this Act are duly compliedwith.

6.3.4 Unregistered Company An 'Unregistered Company' means any partnership, association or

company, consisting of more than seven members , which is not registeredunder the Myanmar Companies Act. It is not a legal person and has no

existence apart from its members. It is similar to a partnership in which

each and every partner is personally liable for the debt of the firm. But as

a Company, its capital may be divided into shares that are transferable.


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The business may be continued although death or bankruptcy of its

members occurs there. Its management may be vested in a body of

Directors as distinguished from its members. The Company registered

outside the Union of Myanmar (i.e. foreign companies) may be wound up

as an unregistered company outside Myanmar.

6.3.5 Company Limited by SharesCompanies with limited liability may be limited either by guarantee

or by shares. In a company limited by shares, the capital is divided into a

number of shares, and the liability of each member is limited to the


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amount for the time being unpaid on the shares which he has agreed to

take up.

The Memorandum of Association of a company limited by shares

contains five clauses.

(1) The name of the company followed by the word "Limited", except

in an unlimited Company or associations not for profit.

(2) The domicile of the Company, i.e., whether its registered office is

to be situated in Myanmar or not.

(3) The objects of the Company.

(4) In limited companies, a declaration is that the liability of the

members is limited.

(5) The amount of capital, and the shares into which it is divided.


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(

The memorandum must be signed by not less than seven members,

or not less than two in a private company, agreeing to take up not less

than one share each.

6.3.6 Company Limited by Guarantee Section 27 of the Myanmar Companies Act is laid down as follow-

-

(1) In the case of a company limited by guarantee and not having

a share capital, and registered after the commencement of this Act, everyprovision in the memorandum or articles or in any resolution of the

company purporting to give any person a right to participate in the

divisible profits of the company otherwise than as a member shall be

void.


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(2) For the purpose of the provisions of this Act relating to the

memorandum of a company limited by guarantee and of this section,

every provision in the memorandum or articles, or in any resolution, of

any company limited guarantee and registered after the commencement of

this Act, purporting to divide the undertaking of the company into shares

or interests, shall be treated as a provision for a share capital,

notwithstanding that the nominal amount or number of the shares or

interests is not specified thereby.

The Characteristics of a Limited Company are fifteen in Number

(1) It has a separated legal entity which is not affected bychanges in its membership. It may contract, sue and be sued

in its own name and capacity.


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(2) Share holder's right of a limited company is limited to the

amount he has agreed to pay. This liability does not exceed

when his shares are fully paid.

(

(3) In a public company, membership is limited by the number of

shares issued and authorized, and cannot be less than

sevenmembers. But in a private company minimum

membership is two, and maximum is fifty.

(

(4) For winding-up purposes, petitions must be presented if the

number of members falls short of sevenfor a public company

and twofor a private company. Limited liability continues for


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only six months after membership falls below the minimum.

Thereafter the members are severally liable for the new debts

contracted by the company.

(

(5) Rights of management are delegated to directors who alone

can act on behalf of and bind the company.

(

(6) The Articles of Association regulate rights of access to thebooks. Copy of accounts must be filled in the registrar of

companies and is open to inspection by the public.

(

(7) Powers are defined by the Memorandum of Association,

which can be altered within the limits of the Companies Act.

Powers and duties of the directors are defined by the Articles


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of Association and can be varied by passing a special

resolution of the company in general meeting.

(

(8) A limited company is subject to the Companies Act 1948,

1967 and 1976 law which cannot be varied.

(

(9) The authorized capital is fixed by the Memorandum of

Association. Although it can be increased by resolution of the

company in general meeting, it cannot be reduced except byspecial resolution sanctioned by the Court.

(

(10) Shares are freely transferable in the case of public companies.

But in the case of private companies, shares are transferable

subject to restrictions imposed by the Articles of Association.

(


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(11) Accounting records.

(12) Audit is compulsory.

(13) Profits are distributed in the form of dividend at the general

meeting.

(14) Death duties are payable on the market-value of shares held

by the deceased.

(15) Profits are subject to corporation tax.

6.3.7 Unlimited Company

In an unlimited company, the liability of the members for the debts

of the company is unlimited. The name of the company always excludes

the word "limited". The situation of the registered office must be

mentioned in the Memorandum, and also that of the objects of the

company in full statement.


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The Articles of Association must state the number of members, and

the amount of share capital to its members in membership must be

notified to the Register of Companies within (15) days of such increase.

As to its privileges, it does not need to pay ad valoremduty on itscapital. It can return the capital to its members without the intervention

of the Court. It can purchase its own shares. It can make loans to its

directors. Without its knowledge, it cannot be the subsidiary or holding

company of a limited company.

6.3.8 Associations not for Profit


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There are companies that do business and realize profits, but do not

divide it among their members. Their object is generally to promote

commerce, art, science, etc. Management of the business rests on the

committee of management. It can be formed only on the approval given

by the government, e.g. Institute of Medical Research, Law Societies

Chamber of Commerce, etc., so also that it may be revoked by the

government.

6.3.9 Foreign Companies A foreign company is a company incorporated outside the Union of

Myanmar, and any company other than a Myanmar Company or a Special

Company formed under the Special Company Act. 1950.

A Foreign Company falls into two main classes:-


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(1) A foreign company incorporated in Myanmar other thana "Myanmar" company, or a Special Company formed

under the Special Company Act 1950 (where part of the

equity belongs to the State).

(

(2) A foreign company incorporated outside Myanmar and

having an established place of business in Myanmar (a

foreign branch).

(

In fact, a "Myanmar Company" is defined as a company having ashare capital fully owned and controlled by citizens of Myanmar. It,

therefore, follows that a company with one or more foreign shareholders

would be classified as a "Foreign Company".

There is a pre-requisite for any foreign company. It must obtain a

"Permit to Trade" under section 27 (A) of the Act before it can carry on

or continue to carry on its business in Myanmar.


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Therefore, a Myanmar Company becoming a foreign company by

virtue of a share transfer to a foreign is required to apply for a "Permit to

Trade".

Every foreign company or branch in existence in Myanmar or

newly set up is required to apply for a "Permit to Trade" to the Ministry

of National Planning and Development, before it can apply for

registration of the company or the branch with the Registrar of the

Companies Registration office under the above Ministry.

After a Permit to Trade has been received and on signing agreement

to the conditions attached to the issue, any foreign company or a foreign

branch can apply for incorporation or registration with the Registrar,

Companies Registration Office.


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In practice, the drafts of Memorandum and Articles of Association

in English and Myanmar for the purpose of Joint Venture with a State

Enterprise must be approved by the Attorney General and the Ministry of

National Planning and Development, and will notify the acceptance of

these documents and classify the Joint Venture Company, as a Special

Company under the Special Company Act, 1950.

If a foreign company makes default in complying with therequirements of section 27(A) of the Myanmar Companies Act to obtain a

Permit to Trade, the company and every officer or agent of the company

shall on conviction be liable to a fine not exceedingfive hundred kyatsor

in the case of further default, fifty kyats for every day during which thedefault continues.


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Every foreign company or branch which has been granted a Permit

to Trade is required to bring capital in to Myanmar in foreign currency

acceptable to the Myanmar Foreign Trade Bank. For this purpose, the

Capital Structure Committee will fix the amount, determined on a

uniform, reasonable and acceptable basis.

For the purpose of establishing a foreign Company in Myanmar,

one must also be accustomed to that of the following Laws namely: -

(1) Union of Myanmar Foreign Investment Law and Procedure.

(2) Special Company Act 1950 and

(3) State-owned Economic Enterprise Law.

6.3.10 Banking Companies A "banking company" means which carries on its principal business

the accepting of deposits of money on current or otherwise, subject to

withdrawal by cheque, draft or order. The different kinds of business that


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can be engaged by the banking company are provided in section 277 F of

the Myanmar Companies Act, which totals to sub-sections (17) number.

No banking company incorporated under this Act shall commencebusiness unless shares have been allotted to an amount sufficient to field

a sum of at least fifty thousand kyatsas working capital, and unless a

declaration duly verified by an affidavit signed by the directors and the

manager that such a sum has been received by way of paid-up capital has

been filed with the Registrar.


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It shall maintain a reverse fund, which is to be stated as follows:-

(1) borrowing, raising or taking up of money.

(2) drawing, making, accepting, buying, selling, collecting anddealings in Bills of Exchange, Hundis, Promissory Notes,

Travelers Cheques, etc.

(3)

carrying on of agency guarantee and indemnity business.

(4) undertaking of any business.

(5) undertaking the administration of estates as executor; trusteeor otherwise.

(6) powering to do all necessary acts in reference to the

property of the company.


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(7) doing all such other things as are incidental or conductive tothe promotion or advancement of the business of the

company.

6.4 Instruments relating to Incorporation of CompanyDocuments and documentation required for formation of a company

is discussed in this portion.

6.4.1 The Memorandum of Association The memorandum means the memorandum of association of a

company as originally framed or as altered in pursuance of the Myanmar

Companies Act.

The memorandum shall

(a) be printed both in Myanmar and English


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(b) be divided into paragraphs numbered consecutively, and

(c) be signed by each subscriber (who shall add hisaddress, nationality and description) in the presence of

at least one witness who shall attest the signature.

In the case of a Company L imited by Shares;-

(1) the memorandum shall state-

-(a) the name of the company, with "Limited" as the last

word in its name;

(b) that the register office of the company will be situated

in the Union of Myanmar.

(c) the objects of the company.

(d) that the liability of the members is limited.


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(e) the amount of share capital with which the companyproposes to be registered, and the division thereof into

shares of a fixed amount.

(2) Subscriber of the memorandum shall take less than one share.

(

(3) Each subscriber shall write opposite to his name the number

of shares he takes.

(

In the case of a Compan y Limited by Guarantee;- -

(1) the memorandum shall state:- -

(a) the name of the company, with "limited" as the lastword in its name.


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(b) that the registered office of the company will be

situated in the Union of Myanmar.

(b) theobjects of the company.(

(c) that the liability of the members in limited.(

(d) that each member undertakes to contribute to the assetsof the company in the prevent of its being wound up

while he is a member, or within one year afterwards, for

payment of the debts and liabilities of the company

contracted before he ceases of winding up and for

adjustment of the right of the contributories amongthemselves, such amounts as may be required not

exceeding a specified amount.


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(2) if the company has a share capital-

(a) the memorandum shall also state the amount of sharecapital with which the company proposes to be

registered and the division thereof into shares of a fixed

amount;

(b) no subscriber of the memorandum shall take less thanone share,

(c) each subscriber shall write opposite to his name thenumber of shares he takes.

In the case of Unlimited Company ;-


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(1)the memorandum shall state;-

(a) the name of the company.

(b) that the registered office of the company will be

situated in the Union of Myanmar.

(c) the objects of the company.

(2)if the company has a share capital- (a) no subscriber of the memorandum shall takes less than

one share.

(b) each member shall write opposite to his name thenumber of shares he takes.

The effect of incorporation of a company is that, from the date of itsincorporation, the company acquires separate legal entity, which is quite


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distinct from the status of the shareholders. The company in its

contractual capacity can make contracts, which are binding on the others

as well as binding on itself. It means that it can sue and can be used.

6.4.2 The Articles of Association Articles means the articles of association of a company as

originally framed or as altered by special resolution according to the

regulations contained in Table Ain the first Schedule annexed to the Act.

In fact, the Articles of Association contain the regulations for

running the company, and define the rights of the members, and the

powers and duties of the directors.

Generally, the Articles of association must statethe number of

members and the amount of share capital of any; increase in membership


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must be notified to the Registrar of companies within (15) days of such

increase taking place etc.

Articles shall-

(a) be printed both in Myanmar and English.

(b) be divided into paragraphs numbered consecutively, and

(c) be signed by each subscriber of the memorandum of

Association (who shall add his address, nationally and

description) in the presence of at least one witness who shall

attest the signature.

The Articles must be signed by not more than seven persons, or not

less than two in a private company, where each agrees to take up not less

than one shares. It must be lodged with the Register, who, if satisfied that

everything being accomplished, will issue a certificate of Incorporation.


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The memorandum and Articles shall, when registered bind the

company and the members thereof to the same extent as if they

respectively had been signed by each member and contained a covenant

on the part of each member, his heirs, and legal representatives, to

observe all the provisions of the memorandum and of the Articles subject

to the provisions of this Act. All the money payable by any member to

the company under the memorandum or Articles shall be a debt due from

him to the company.

Distinction between Memorandum and Articles -


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(1) The Memorandum is the fundamental document, whereas the

Articles are just subsidiary.

(3) The Memorandum regulates all the major and external affairsof the company, but the articles deal only with the internal

affairs or management.

(4) The Articles are the regulations for the internal managementof a company to achieve its objects. Within its powers as laid

down in the Memorandum, a company can make any articles

it likes. But in case of the Articles, it must not be inconsistentwith the Memorandum.

(5) Memorandum being the primary or fundamental documentcannot be altered easily. But in the case of Articles, alteration

can bedone by special resolution.


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(5) Every company must be registered together with itsMemorandum. But a public limited company with a share

capital, if it complies with Table A, may not have Articles, so

that the question of registration becomes unnecessary.

(6) While Memorandum deals with the objects of the Company,stating its capital and its nationality, the Articles deal withthose rules as to the manner in which the company is to

function.

6.4.3 Prospectus One of the essential documents in forming a company is the

prospectus;


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"Prospectus" means a circular issued by the promoters or thedirectors of a company to induce the public to subscribe for shares. The

term "prospectus" as defined by the Company Act is as follows:- "anyprospectus, notice, circular, advertisement or other inv itation to the publicfor subscription or purchase of any shares or debentures of a co mpany ".

Every prospectus shall be dated. It must also be registered and there

must be a copy which is also registered.

It must include the script stating the description, name,

nationalization, address and qualification of the directors. It must

mention a minimum subscription within a fixed period otherwise thecompany cannot proceed with the formation of the company.


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It is important to be noted that such a prospectus should be

published. But before such publication, a copy of it must be delivered to

the registrar for registration which is to be signed by every person named

there in as a director or proposed director of the company or his duly

authorized agent. No prospectus shall be issued more than (90) days after

such provision is not followed, the company as a whole and also every

person who is knowingly a party to the issue of such prospectus, shall be

liable to be punished with fine which may extend to five thousand kyats.

Generally, everything stated in the prospectus must be correct and

true, and also material facts must be disclosed. Therefore any

misstatement or nondisclosure will amount to be fatal to the contract.

The law does not provide that every company must issue a

prospectus. In the case of a private company, there is no need to issue a


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prospectus because there is no invitation to the public to purchase the

shares allotted by the company.

6.4.4 Share Capital and Shares

In every memorandum of a company, there is to be stated the

amount of capital with which it proposes to start its business. This is

called the "authorized capital" of the company.

Ordinarily, we understand the word "capital" as a fixed amount ofmoney with which a business is carried out. But in company Law, it is

used in the following (4) senses-

(1)Nominal Capital

(2)Authorized Capital

(3) Issued Capital


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(4) Paid-up Capital

Example ; Share-capital of a company shall consist of 500,000 shares

which must again be divided into 100 shares of k 5000/ each.

Nominal Capital 1 million

Authorized Capital K. 1,000,000,000

Issued or Subscribed Capital 100,000,000

Paid-up Capital 2500,000

- -

- -

--

- -

According to section 75 (1) of the Act, where any notice ,advertisement or other official publication of a company contains a

statement of the amount of the authorized capital of the company, such

notice, advertisement or other official publication shall contain a

statement in an equally prominent position and in equally conspicuous

characters of the amount of the capital which has been subscribed and the

amount paid up.


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75 (2) Any company which makes default in complying with the

requirements of the section and every officer of the company who is

knowingly a party to the default shall be liable to a line not exceeding

one thousand kyats.

Share

Section 2 (16) of the Act defines 'share ' as follows:-

-

"Share" means share in the share capital of the company, andincludes stock except when a distinction between stock and shares is

expressed or implied.

The term 'share' has been defined by farewell J. in Board of Trustsvs. Steel Brothers as follows:-


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(1) Preference

(2) Ordinary

(3) Bonus

(4) Share warrants-

(1)"Preference shares are those which are entitled by the shareholders to a fixed rate of dividend, and also with the additional right to

have any arrears of dividend paid out of any future profits before any

dividends are paid on other classes of shares. Preference shares may

again be divided into two categories:-M;pm;ay;

(1) cumulative and,

(2) non-cumulative.

Cumulative preference sharesentitled the shareholders to a fixedrate of dividend, and also with the additional right to have any arrears of


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dividend paid out of any future profits before any dividends are paid on

other classes of shares.

Non-cumulative preference shares only carry a right to a fixeddividend out of the profits of any year, and if there are insufficient profits

in that year to pay the full dividend, they have no right to have the arrears

made up of future profits.

The rights of preference shareholders are governed by the

Memorandum and Articles of Association.

(2) Ordinary shares entitled to holders to the divisible profitsremaining after prior interests (if any) have been satisfied. They may

again be divided into-


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(1) Preferredand (2) Deferred.

The preferredcarrying a preferential right to a fixed rate of

dividend, and the deferred being entitled to the whole, or a proportion of

the surplus profits after provision has been made for dividends on all

classes on shares having prior rights, ordinary shares are commonly

referred to as "equities".

(3) Bonus SharesWhen a company does not chose to distribute all its profits or extra

profits during any particular year, it may issue fully paid up bonus shares,

in proportion to their holdings, if the articles so provide. The company is

thus able to increase its capital. At the same time the shareholders get

their dividends in the shape of fu lly paid-up shares.


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It can also be seen from the provision of section (44) that a share

warrant shall entitle the bearer thereof to the shares or stock therein

specified, and the shares or stock may be transferred by delivery of the

warrant.

On the issue of the share-warrant, the name of the members is to be

struck off the Register, because the share has been fully paid up and that

he will be no way liable to pay.

The holder of the share-warrant continues to be the member of the

company for the purpose of receiving the dividends and also possesses

the power to vote at general meetings.

According to the provision of section (46), he shall not be qualified

in respect of the shares or stock specified in the warrant for being a

director or manager of the company.


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But on the surrenderof the share-warrant, the date of the surrender

shall be entered in the Register, as if it were the date at which a person

ceased to be a member.

Above all it should be noted that because a share-warrant is a

document which is easily transferable, it is a negotiable instrument. When

the deferred is entitled to the whole or a proportion of the surplus profits,

after a provision has been made for dividends on all classes of shares

having prior rights, ordinary shares are commonly referred to as

"equities .

Share Certificate

A share certificate is a certificate issued by the company under itscommon seal specifying the share held by any member. It is a document

which enables its holders to show a good prima faciemarketable title tothe shares.


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Every company shall, within three months after allotment of shares

or debentures, or within three months after the registration of the transfer

of such shares, issue a certificate of share.

To be a valid certificate, it must have a common seal of the

company affixed to it, and stamped. One or more directors must sign it. It

should state the name, address, and occupation of the holder, number and

amounts paid.

It is a prima facie evidence of the title of the member to suchshares.

6.4.5 Stock


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"Stock" is the aggregate of fully paid up shares since section 2 (16)of the Act defines "shares" which includes stock. A company cannot issue

stock.

A company cannot issue stock in the instance; if it wishes to issue

stock, it must first issue shares and then convert them into stock when

they are fully paid.

If so authorized by the articles, the company may alter the

conditions of its memorandum so as to convert all or any of its paid-up

shares into stock or reconvert that stock into paid-up shares of anydenomination.

Distinctions between Share and Stock -(1) a share is an individual unit of capital and is individual, whereas a

stock consists of capital consolidated into bulk, which can be made


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divisible into monetary fractions. Thus it is mentioned as 'a bundle

of shares'.

(2) Stock must be paid-up, whereas shares need not be.

(3) Each share must be distinguished by a separate number unit all theshares of the class are fully paid-up and must be ranked pari pursu for all purposes. But stock need not be distinguished as such.

Effect of conversion of Shares into Stock: - -

Section (52) provides that, where a company having a share capital

has converted any of its shares into stock, it shall file a notice to the

register of such conversion, together the register of members, and shall

show the amount of stock held by each member.


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It is therefore clear that a share can be either fully paid-up or partly

paid-up. But in case of stock, there must be fully paid -up shares so that it

can be converted or transferred. It can be transferred easily.

Stock has a % value. The main purpose of converting the shares

into stock is to enable the mercantile people to deal easily in the course

of their business.

6.4.6 DebenturesThe word 'debenture' has not been defined in the Act.

According to Palmer, the word signifies "any instrument under seal,

evidencing a deed, the essence of it being the admission or indebtedness".

Hence, it can be said that a debenture means no more than an

acknowledgement of a debt.

Commonly, the word debenture is generally used to signify a

security for money. It usually creates by way of security.


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Therefore, a debenture is a written acknowledgement of a debt by a

company. It is entitled to get a payment of interest. It does not form part

of the capital and interest payable on debenture is a debt and may be paid

out of capital.

If the company fails to give interest on the debentures, the trustees

can enforce payment according to the terms it embodied in the trust. Acontract with a company to take up and pay for any debentures of the

company may be enforced by a decree for specific performance.

Classification of Debentures

Debentures may be classified into (3) kinds: -


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(1) Debentures payable to the bearer.

(2) Debenture payable to a registered holder

(3) Perpetual debentures.

(1) "Debentures payable to bearer

Can be transferred by delivery and the holder of it for consideration is

entitled to benefit under it not withstanding any defect in the title; i.e., it

can be transferred as a negotiable instrument. Notice of the transfer need

not be given to the company and no stamp duty payable on the transfer.

(Notice)

(2) Debenture payable to a registered holder

It is only transferable in the manner specified in the Act. Therefore

it shall not be lawful for the company to register a transfer of debentures

of the company unless there is aproper instrumentof transfer duly stampedand executed by the transfer, and the transfer has been delivered to the


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company along with the scrip. This is because the transfer is made in

writing.

(3) Perpetual Debentures

Debentures may sometimes be perpetual in nature, which are

redeemable only on the happening of the contingency however a made of

any kind be present at the date fixed for the repayment of debentures.

Debentures may even be payable on demand. If debentures issued are"irredeemable" or "perpetual" there would be no time within which the

company would be bound to pay them. Hence, it is to be noted that the

debenture holder or the creditor cannot, at any particular time, compel the

company to redeem them.

)


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Types ofDebentures;-

1. simple debenture,

2. secured debenture and,

3. floating charge.

(1) "A simple debenture" or "naked debenture" carries no charge onassets of a company.

(2) "A secured debenture" carries either fixed charge on a specific

assets or a floating charge on all or more of the assets.

A fixed charge is a mortgage on specific assets so that the company

losses the right to deal with the assets charge, except with the consent of

the mortgage.


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(3) Floating Charge,is a charge on a class of assets, present and future,which in the ordinary course of business is changing from time to time,

and attaches to the property included there in priority to the general

liabilities of the company. A floating charge is not a mortgage. It is

anequitable charge and thus differs from a fixed charge. It is the one,which is shifting in its nature, hovering over, and so speaks, floating with

the property. It does not attach itself to any specific property of the

company.

The chief characteristic of a floating charge is that it does not

crystallize into a fixed security until "some event occurs or some act on

the part of the mortgage is done"; the event is referred to any of the

events mentioned in the charge on happening where of the money secured

is immediately payable.


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For example: - 1. An account of default of payment of interest for

three months.

(2) For distress of levying execution against the property of the

company for the period of seven days, commencement for winding

up.

On the determination of any of the events mentioned in the charge,

the debenture holder must take action, such as to get a receiver appointed

to enforce the security.

A floating charge requires registration under section 109 (1) of the

Act.

6.5 Persons involving in Company Business The persons run the company business and the persons involving in

it are named differently from partnership.

6.5.1 Promoters


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There is nothing in the Act where is defined the term "promoter". Itis not a legal term but just a commercial term. Judge Coeburn defined the

: one who u ndertakes to form a compan y with reference to a givenproject, and to get it going, and who undertakes the necessary steps toaccomplish that purpose. I v w connected with the company is not a promoter. Thus legal advisors,

surveyors, engineers etc., are not to be called as promoters.

''

The legal status of a promoter stands in the some way as a director.He stands in the fiduciary position towards the company.

v w q

may pay a promoter. Sometimes, shares are given to him as fully or partly

paid up, in consideration of his services to the company.

6.5.2 Directors


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The first directors of a company are generally named in the Articles

of Association. Every public company should have at least three directors

but a private company (whether a subsidiary of a public company or not)

should have at least two. The directors of a company are collectively

referred to in the Act as the "Board of Directors". Only an individual

shall be appointed as director.

Thus, nobody corporate or asocial or firm shall be appointed as

directors. The person appointed as a director must be the one who is of

sound mind; he must not be the one who is insolvent, or convicted of an

offence involving moral turpitude; he cannot be appointed as a director if

he has not paid his qualification shares; and he must not be the one who

has been disqualified by the Court or being removed by the Government

by notification in the official Gazette.


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The remuneration of directors is to be determined by the express

provisions in the Articles or a resolution of the company in general

meeting.

6.6 Winding upThe "winding up" or "liquidation" of a company means where the

affairs of a company are wound up, and its right and claims of the

creditors are to be paid out of the assets of the company, including thecontributions by its members to the extent to which it may be necessary.

(

Section 155 (1) of the Act provides the modes of winding-up of a

company as follows: -

(1) by the Court; or


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(2) voluntary; or

(2) subject to the supervision of the court.

6.6.1 Compulsory Winding- up or 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 companybe wound up by the Court;

2. if default is made in filing the statutory report or in holding thestatutory meeting;

3. if the company does not commence its business within a year fromits incorporation, or suspends its business for a whole year;

4. if the number of members is reduced in the case of privatecompany, below two; or, in the case of any other company, below

seven.


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5. if the company is unable to pay its debts;

6. if its license is withdrawn in accordance with the provisions ofsection 55 of the Union Bank of Burma Act, 1952;

7. if the Court is of opinion that it is just and equitable that thecompany should be wound up.

-

()

In Chan Tha Zay Co. vs. U Ohn Maung and One 1963,B.L.R(C.C)

P.499 the matters related were winding up of a company

Section 162


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and 166, Myanmar Companies Act Application by two members of a

company on grounds of misconduct and mismanagement whether "just

and equitable".

The Petitioner had applied to the court for winding up of the

respondent company of which they were members, on grounds, of

misconduct and mismanagement, under Sec 162 and 166 of the Burma

Companies Act. At the hearing, the main charges were mismanagement of

the Board of Directors, post and present, inefficiency and wastage, and

the gloomy prospects of the company to make profits in the future.

It was held that a sufficient has not been made out to render it just

and equitable for the court to order a winding up of the company. A

company is like a family of people who have pooled their resources to

work together and share the profits, sticking together in good times and

in bad. When problems arise about the management of their affairs, the

natural and reasonable thing for the members of the family to do is to get


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together and discuss the problems and arrive at their solutions. The

family of shareholders is thus the domestic forum of the company where

matters such as management and the sharing of risks and of rewards must

be discussed and decided. It is only when decision cannot be arrived must

be discussed and decided. It is only when decision cannot be arrived at

the domestic forum and taken a hand in the management of the affairs of

the company or the drastic step of winding it up. Here the petitioners

have disdained to voice their feelings to seek their remedies at the

domestic forum and rushed to the court instead.

The following persons are those who will be entitled to petition:

1. the company itself,

2. any creditor of the company,


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3. a contributory or contributories and

4. the registrar.


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6.6.2 Voluntary Winding upSection 203 of the Act provides that a company may be wound up

voluntarily on the following accounts

Section 203 Myanmar Company Act

1. when the period (if may) fixed for the duration of thecompany by the articles expires, or the event (if any) occurs

on the occurrence of which the articles provide that the

company is to be dissolved, and the company in general

meeting has passed a resolution requiring the company to be

wound up voluntarily;


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2. if the company resolves by special resolution that thecompany be wound up voluntarily;

3. if the company resolves by extraordinary resolution to theeffect that it cannot by reason of its liabilities continue its

business and that is advisable the wound up;

A resolution passed as states above is called a "resolution for

voluntary winding up". Within (10) days of passing such as resolution,

the company must give notice by advertising in the official Gazette and

also in some newspaper (if any) and by circulating in the district where

the registered office of the company is situated. For default, the company

will be liable to a fine subject to the default continues.


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When the company is wound up voluntarily, the company shall,

from the commencement of the winding up, cease to carry on its business

except in so far as it may be necessary for the beneficial winding up of

the company.

There are two different modes of voluntary winding up:

1.Member's voluntary winding up Sec: 208.

2.Creditor's voluntary winding up Sec: 209.

1.Member's Voluntary Winding up

Although the company is solvent, the directors of the company or amajority of the directors may, when there are more than two at a meeting

of the directors before the date on which the resolution for the winding

up of the company is to be proposed and sent out, make a declaration

verified by an affidavitthat within three years the company will be able to


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pay all its debts in full. Such a declaration is to be supported by a report

of the company's auditors and it must be registered. And on the day of the

meeting, the company shall appoint a liquidator or liquidators for the

purpose of winding up.

2.Creditors' Voluntary Winding up

The company, when it becomes insolvent, shall cause a meeting of

the creditor of the company to be summoned for the day or the next day

or the following day, on which there is to be held the meeting for at

which the resolution for voluntary winding up is to be proposed. Notices

must be sent to each of the creditor and such a notice must be advertised

in the prescribed manner.


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The directors of the company shall make a full statement of the

position of the company's affairs together with the list of the creditors of

the company and the estimated amount of their claims.

One of the directors shall be appointed among themselves to

preside at the said meeting. For the default of such a procedure, the

company, directors, or a director, as the case may be, shall be liable to a

fine not exceeding one thousand kyats.

A liquidator shall be appointed for such voluntary winding up for

the purpose of winding up the affairs and distributing the assets of the

company. If no person is appointed by the creditors, the person

nominated by the company shall act as liquidator.

Liquidator in a voluntary winding up proceeding is not, strictly

speaking, a trustee for the creditors or of contributories of the company,

nor he is an officer of the Court. His position is that of a paid agent of the


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company and therefore he has to perform his duties with high standard of

care and due diligence is required. For his negligence, he will be liable to

pay damages.

As regards his specific powers and duties, section 212 of the Act

provides that he can issue notices for unpaid calls and that he can bring

and defend suits in the name of the company. He shall exercise on the

business of the company so far as may be necessary for the beneficial

winding up of the company.

He, therefore, has the power to sell or transfer the property of the

company, which must be done by selling or transferring the property of

the company, and which must be done by public auction or if necessary

by private contract. To determine any question arising out of the winding

up process he may apply to the court for such determination.


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-

()

KEY TERMS w -

-

-

Foreign Company - Stockholder -


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another stockholder - -

Private Company -

Public Company -

RegisteredCompany -

Unregistered Company -

Foreign Companies -

Banking Companies -

-

Iv -

-

-

-

-v - Profits -

Winding up -

Associations not for Profit-

Prospectus-

Promoters -

Exercise Questions1. State how a company can be formed under the Companies

Act.(Chapter 6)2. What do you mean by the term "Memorandum"? Explain how

memorandum of different companies can be formed.

(Chapter 6)


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20. When can a voluntary winding up of a company be made? State its

modes.(Chapter 6)21. What are the consequences of winding-up of a company?

(Chapter 6)