INTRODUCTION TO

COMPANY LAW

Farzana Yeasmin Mehanaz

Faculty of Law
Eastern University
 DEFINITION OF A COMPANY
■ Statutory definition of Company:
■ Sec 2 (1) (c) of the Companies Act 1994 provides, that a “
company means a company formed and registered under this Act
or an existing company.”
■ Company: The company pursuant to Haney “ is an incorporated
association, which is an artificial person created by law, having
separate entity, with a perpetual succession and a common seal.
Cont…
■ According to CJ Marshal, “a corporation is an artificial being, invisible,
intangible, existing only in contemplation of the law.”
■ A company is constituted by a group of people, for the purpose of carrying
on a business with a view to make a profit. A company is formed, guided
and regulated in Bangladesh, by the law stipulated in the Companies Act,
1994.
■ Characteristics of a Company:
1. Its an organization of some persons;
2. It’s a legal person created by law;
3. It has separate legal entity;
4. It exists only by operation of law.
THE COMPANIES ACT 1994

■ The 1994 Act has been passed consolidating and

amending the laws relating to companies and other
associations.
■ In 1977 the law Reform committee in order to remove the
lacuna in the law and to meet the surge of problems,
especially with regard to foreign investments suggested
re-enactment of the company laws. On the basis of the
said recommendation, the present Act has been enacted.
The object of the 1994 Act, is:
– to ensure the accountability in the workings of the board of directors,
– to preserve the rights of the minority shareholders,
– to safeguard the interests of the investors,
– to open the affairs of the company to the public,
– to specify the relationship between the holding company and subsidiary
company,
– to remove the disparity between the companies in the private and public
sector,
– to make the formation & dissolution of companies easier and;
– to loosen the governmental control over the affairs of management of the
company.
 TRADING STRUCTURES
■ Sole Ownership (e.g. a shop owned by a person)
They are not
■ Partnership ( for e.g Partnership between family members/friends) Companies

■ Private limited company (LTD)

■ Public limited company (LTD)
 SOLE TRADER
■ As the name suggests, the sole trader operates alone and, as
such, is the simplest form of trading structure.
■ Liability: The liability of the sole trader is total. This means
that there is no distinction between what belongs to the trader
personally and what belongs to the business.
■ Therefore, the debts of the business are the personal
responsibility of the trader, who can be pursued by creditors of
the business and, in extreme cases, this can lead to the trader
being declared bankrupt.
 Cont…
■ Ownership and Control:

– sole trader alone, have complete control over the business and are answerable to no one in
the decisions which they take.

– Can make the decisions and bear the consequences of those decisions. Moreover, since there
is no distinction between the assets of the business and their own personal assets, they legally
own all assets of the business and can dispose of them as they wish.

■ Accountability and regulation:

– There is very little regulation and official accountability associated with a sole trader status.

– sole traders are not required to file annual accounts or reports. This is because sole traders
are not required to register with the Companies house, unlike Public or Private Ltd
Companies, both of which must register the company prior to starting their business.
 PARTNERSHIP
■ A Partnership arises where minimum two and maximum
20 (10 banking sector) people go into business together.
This is done simply by agreement between two parties.
■ Liability: As with a sole trader, there is no distinction
between the assets of the partnership and the assets of the
individual partners.
■ Therefore, the partners can be pursued personally for the
debts of the partnership.
Cont…
■ Ownership and control:
– partners are accountable to each other and so must agree on
decisions affecting the operation of the partnership.
– partners must bear the consequences of each other’s decision making.
In this way, if one partner makes an error which results in the
partnership being sued for damages, each of the partners will be held
liable for the money owed.
■ Accountability and regulation: As with the sole trader, there is relatively
little accountability or regulation attached for a partnership and no
requirement to file reports and accounts with any official regulator.
 PRIVATE LIMITED COMPANY
■ The private Ltd Company is the most common trading structure. The
company is created by a process of incorporation by individuals known as
the promoters.
■ Promoters are the ones who initially incorporate the company. They are the
first shareholders and often also the directors.
■ Liability:
– limited companies (both private and public) own assets which are
entirely separate from those of the owners.
– Therefore, as a general rule, the creditors of the company can only
pursue the company’s assets to settle any debt.
– They cannot pursue the personal assets of the owners, who are said to
have limited liability. This is the most important advantage to forming a
limited company.
Cont…
■ unlimited company
– There is also a category of ‘unlimited company’ where
the company is registered as a separate legal entity, but
members remain liable for the company’s debts in much
the same way as a sole trader or partnership.
– As might be expected, such companies are far less
common than limited companies.
Cont…
■ An unlimited company or private unlimited company is a
hybrid company incorporated with or without a share capital (and similar
to its limited company counterpart) but where the legal liability of the
members or shareholders is not limited.
■ its members or shareholders have a joint, several and non-limited
obligation to meet any insufficiency in the assets of the company to enable
settlement of any outstanding financial liability in the event of the
company's formal liquidation.
■ It does not have to file public accounts and thus offer greater secrecy.
Cont…
■ Ownership and control:
– Most limited companies are owned by ‘members’ who each
own a number of shares in the company. For this reason
they are also known as ‘shareholders’.
– Usually each share has a vote attached to it and so the
members are able to vote on important decisions affecting
the company, although the day- to- day management of the
company is left to the directors.
Cont…
– However, it is possible that all of the shareholders of a very
small company are also directors.
– One Important distinction between limited companies and
the sole trader/partnership model is that, for every share that
the company sells, it also transfers control in the form of
votes.
– In this way, if a sole trader registers their enterprise as a
limited company, they will lose ultimate control of the
business if they sell shares to other people as those new
members will be able to vote on how the company is run.
Cont…
■ Accountability and regulation:
– Unlike a sole trader or partnership, trading by means of a private
limited company involves a considerable degree of accountability and
regulation.
– Companies are accountable to their shareholders by means of regular
meetings and also by means of a series of registers which the company
is required to keep in order to comply with the provisions of the CA
1994.
– In addition to ‘internal’ accountability to its members, a company is
also subject to ‘external accountability’ to the wider public. This
process is supervised by the Registrar of Companies.
PUBLIC LIMITED COMPANY (PLC)
– is the largest and most complex trading structure. Like the private limited
company, it is created by a process of registration.
– The crucial difference between private and public companies is that only the later
may offer shares for sale to the public.
– This confers an enormous advantage for public companies, which can raise vast
sums of money by advertising their shares to the public.
– By contrast, private companies can only raise relatively small sums by
incorporators themselves.
– In this way, a business which requires massive investment for new products (such
as car manufacturers or pharmaceutical companies) are mostly public
companies.
Cont…
■ Liability:
– Like private companies, there is a legal barrier between the
assets of public companies and those of the shareholders.
– This means that the company’s creditors can only pursue the
assets of the company, and not those of the individual
shareholders, who enjoy ‘limited liability’.
– This is vitally important for members of public companies,
given the huge sums of money which are involved.
Cont…
■ Ownership and control:
– As with private Ltd companies, there is a distinction between
ownership (which lies with the shareholders) and control
(which lies with the directors).
– However, unlike private companies, where the directors may
also own all of the shares, public companies, may have many
thousands of shareholders and a relatively small board of
directors.
– Here, the distinction between ownership and control is much
more pronounced.
Cont…
■ Accountability and regulation:
– Public companies are subject to a far greater burden of
accountability and regulation than private companies.
– This is imposed primarily by the CA 1994, which allows less
freedom to the directors of public companies and which
requires more information to be disclosed.
– The justification for this is the gulf between ownership and
control in public companies, which can enable the directors
to mislead shareholders more easily, especially so when the
directors of public ltd companies deal with huge sums of
money.
Miscellaneous
 Read the difference between a company and partnership at
pages (55-57) from the book Fundamentals of company Law
with Law of Partnership by AI Khan, fifth edition, ( 2014).
 Read the Characteristics of a company at pages 44-47 from
the above book Fundamentals of company Law with Law of
Partnership. Two of the most important characteristics of a
company are described below, however, students must read
all the fundamental characteristics from the book.