Law Asignment

8/6/2019 Law Asignment

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Assignment Corporate Law

MASTER OF BUSINESS ADMINISTRATIONMBA III( Session 2010-2012)

Submitted to:

Mr. Taqueer Ahmad

Submitted by:

Nawaz Sharif Roll No. 04

Department of Management Sciences

Minhaj University Lahore


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Member (of a Limited Liability Company)

Definition:

A memberof a limited liability company (LLC) is an owner of the company. Members inan LLC are equivalent to partners in a partnership.

The members determine how much each member will share in the duties of thebusiness and in the profits and losses of the business. All rights and responsibilities ofmembers are spelled out in the Operating Agreement of the LLC. An LLC can have onlyone member - a "single member LLC;" almost every state allows single-member LLC's.

The members of the LLC have a limited liability for debts of the business, unless they

have personally guaranteed loans or other debts.

Single Member Limited Liability Companies

Over the years, there has been confusion regarding Single Member Limited LiabilityCompanies in general and specifically, how they can report and pay employment taxes.

An LLC is an entity created by state statute. The IRS uses tax entity classification,which allows the LLC to be taxed as a corporation, partnership, or sole proprietor,

depending on elections made by the LLC and the number of members. An LLC isalways classified under federal law as one of these types of taxable entities.

A multi-member LLC can be either a partnership or a corporation, including corporation.To be treated as a corporation, an LLC has to file Form 8832, Entity ClassificationElection (PDF), and elect to be taxed as a corporation. A multi-member LLC that doesnot so elect will be classified under federal law as a partnership.

A single member LLC (SMLLC) can be either a corporation or a single memberdisregarded entity. Again, to be treated under federal law as a corporation, the SMLLChas to file Form 8832 and elect to be classified as a corporation. An SMLLC that does

not elect to be a corporation will be classified by the existing federal guidance as adisregarded entity which is taxed as a sole proprietor for income tax purposes.

Employment tax and certain excise tax requirements for an SMLLC that is adisregarded entity have changed over the past few years. In August, 2007, finalregulations (T.D. 9356) (PDF) were issued requiring disregarded single member LLCsto be treated as the taxpayer for certain excise taxes accruing on or after January 1,


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2008 and employment taxes accruing on or after January 1, 2009. SMLLCs willcontinue to be disregarded for other federal tax purposes.

For employment taxes, prior to the regulation changes, the single member owner of adisregarded SMLLC was responsible for reporting and paying employment taxes.

Before January 1, 2009 the single member owner could file using either the name andEIN assigned to the SMLLC, or the name and EIN of the single member owner. Even ifthe pre-January 1, 2009 employment tax obligations were reported using thedisregarded SMLLC's name and employer identification number, the single memberowner retains ultimate responsibility for collecting, reporting and paying overemployment taxes for those periods.

As of January 1, 2009, Notice 99-6 is obsolete and the SMLLC will be responsible forcollecting, reporting and paying over employment tax and excise tax obligations usingthe name and EIN assigned to the LLC.

An LLC applies for an EIN by filing Form SS-4, Application for Employer IdentificationNumber, and completing lines 8 a, b, and c. An SMLLC that is a disregarded entity thatdoes not have employees and does not have an excise tax liability does not need anEIN. It should use the name and TIN of the single member owner for federal taxpurposes. However, if a SMLLC, whose taxable income and loss will be reported by thesingle member owner, nevertheless needs an EIN to open a bank account or if state taxlaw requires the SMLLC to have a federal EIN, then the SMLLC can apply for andobtain an EIN.


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Share allotment

The act of giving some shares in a new company to people who have applied forthem.

What is Allotment of Shares?

Allotment of Shares; Procedures regarding allotment of shares; Steps regardingallotment of shares

Meaning: It means an appropriation of a certain number of shares to an applicant inresponse to his application for shares. Allotment means distribution of shares amongthose who have submitted written application.

Procedures regarding Allotment of Shares:

(1) Fulfillment of statutory conditions which need to be fulfilled:The companysecretary has to see that the statutory conditions regarding the allotment of shares arefulfilled before the Board proceeds to allot the shares.

The following are the statutory conditions which need to be fulfilled:(i) Valid offer and acceptance: There should be a valid offer and acceptance for the

allotment to be a valid one. Here the company is the offertory and the acceptors are thegeneral public. If there is no company to offer then there would be no public to accept.

(ii) Unconditional Allotment: The allotment must be absolute and unconditional and

also as per the terms and conditions mentioned in the application. The allotment shouldbe unbiased, and not according to the caste, creed, and religion. It is not that richshareholders pay more on the shares and the poor share holders pay less on theshares. All have to pay the same price on the shares.

(iii) Collection of minimum subscription amount: The minimum subscription amount

as noted in the prospectus has been received within 120 days of the issue ofprospectus.


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(iv) Receipt of application money: Not less than 5% of the nominal value of the sharehas been secured and has been received along with the applications.

(v) Deposition of application of money in a scheduled bank: All application money

received along with the applications must be deposited in a scheduled bank. It cannotbe withdrawn until the company gets trading certificate or where such certificate isalready received or till the minimum subscription amount is received.

(vi) Filing of prospectus with the registrar: A copy of the prospectus or statement inlieu of prospectus has been duly filed with the registrar and at least three days haveelapsed after such filing before the allotment is taken up.

(vii) Time of allotment: No allotment of shares can be effected until the beginning of

the fifth day from the date of issue of prospectus. The subscription list must be openedfor at least 3 days as disclosed in the prospectus.

(viii) Proper communication: The allotment must be duly communicated to the

applicant through post i.e. registered post with necessary details.

(ix) Allotment strictly as per documents issued: The Board of Directors have tomake the allotment of shares strictly as per the documents issued which include theprospectus and the application form. The provisions made in the Memorandum of

Association and the Articles of Association must also be given due consideration.

(x) SEBI nominee: If the issue is over subscribed, the shares are allotted on aproportionate basis. SEBI's nominee is associated while finalizing the basis of allotment.The purpose is to see that the allotment is done on a fair and just basis. The allotmentalso needs to be approved by a leading stock exchange.

(2) Appointment of allotment committee: The secretary informs the Board, that theshare applications are received and are ready for allotment. If the issue is justsubscribed or under subscribed, the Board will do the allotment of shares, but if theissue is over subscribed, the Board appoints an allotment committee to do the allotmentwork. The allotment committee will study the problem, prepare a report and submit tothe Board.

(3) Board meeting for finalization of allotment formula: A meeting of the Board ofDirectors will be called to finalize the allotment formula, which is being prepared by theallotment committee. If the shares are listed, the allotment formula is to be finalized withthe approval of the concerned Stock Exchange Authorities.

(4) SEBI's association with allotment work: A representative of SEBI need to beassociated while finalizing the allotment formula. For this, the company has to requestSEBI to nominate a public representation for allotment work. SEBI's nominee isnecessary when the issue is over subscribed.


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(5) Signature of chairman on application and allotment list: The secretary has tosee that every sheet of application and allotment list is signed by the chairman. Thesecretary also has to sign the application and allotment lists.

(6)Resolution of the Board for allotment: The secretary has to see that the Boardpasses a resolution regarding the allotment of shares and authorizing him to issueletters of allotment and letters of regret.

(7) Issue of letters of allotment and letters of regret: After the Board's resolution toallot shares, the secretary prepares the allotment list. Then he will send allotment lettersto those who have been allotted shares and regret letters to those who could not beallotted shares.

(8) Refund / Adjustment of application money: The secretary has to make suitablearrangement for the repayment of application money sent by the applicant. The

refunded application money is made to those share holders who bot could be allottedshares. The refund order is sent along with the letters of regret. If an applicant has beenallotted a smaller number of shares than the number applied for, the secondary has toadjust the excess amount with the amount due on allotment.

(9) Collection of allotment money: The secretary has to make suitable arrangementswith the Company's Bankers for collection of allotment money against the allotmentletters.

(10) Arrangement relating to letters of renunciation: To renounce means to give up.Certain applicants who are being allotted shares do not want them, so they return theshares back to the company. this is known as renunciation. The blank form of letter ofrenunciation and letter of request for allotment along with the letter of renunciation dulyexecuted and the original letter of allotment from the renounces, the secretary has tomake necessary changes in the Application of Allotment list in order to enter the namesof the new allot-tees.

(11) Arrangement relating to splitting of allotment letters: Splitting means putting

the shares in one or more names. In case any allotted requests for a split of theallotment letter, the secretary places such a request before the Board for approval.Once the Board approves the splitting of the allotment letter, the secretary has to enterthe details of the split in a separate list of split allotments and issue the necessary 'split'letters.

(12) Submission of return of Allotment: Every company whether public or private andhaving a share capital and within 30 days of allotment is required to send to theRegistrar, a document known as the "Return of Allotment". The return of allotmentcontains various details on allotment of shares such as the nominal value of sharesallotted, names and addresses of allotted, amount paid or payable on each share andparticulars of bonus shares and shares issued at discount. The secretary has to see


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that these documents are prepared and submitted in time to the Registrar.

(13) Preparation of Register of members and issue of share certificates: Thesecretary has to prepare the Register of members from the Application and Allotmentlists. He has to see that the shares certificates are properly printed, sealed, signed and

distributed to all the allot-tees within three months after the allotment of shares. He hasalso to see that the share certificates are issued against the letters of allotment.


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What is a share?

A share is simply a divided-up unit of the value of a company. If a company is worth100 million, and there are 50 million shares in issue, then each share is worth 2

(usually listed as 200p in the money pages.) As the overall value of the companyfluctuates so does the share price.

Shares can, and do, go up and down in value for various reasons. However, suchmovements are not usually for the most obvious of reasons.

It would be very simple if a share were priced solely on what the company in questionowned - its buildings, cars, computers, value of contracts in the pipeline etc.

The total value minus company borrowings would be divided by the number of shares inissue and there would be the value of each individual share. But there is a fly in the

ointment called "sentiment".

Why market sentiment matters

In general, share prices rise on the expectation (rather than the publication) ofincreased future profits and fall on published facts.

If this sounds entirely mad, bear in mind that if an analyst predicts that ABC Companywill double its profits then the price will rise at the time of the prediction.

When the results come through, revealing that profits have gone up "only" 75%, the

price will probably fall because the current facts are less exciting than the earlierprediction.

Understanding this apparent nonsense is key to appreciating the behavior of markets ingeneral, and individual shares in particular.

Why companies want to please shareholders

Professional investors buy shares in the hope of benefiting from a rising stream ofincome over the long term.

When profits are distributed to the shareholders the payments are known as"dividends". The capital value of a share - its quoted price - moves mostly in line withexpectations of long term dividend payment.

There are myriad reasons why the expectation may become better or worse. Areduction in alcohol duty would guarantee a rise in distilling companies making whisky.

An increase in VAT would hit retailers. More technically, a positive or negative


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assessment of a company's management ability could change investor sentimentenormously.

So why do companies go through all this daily public examination and give shareholdersvotes to - in extremis - remove directors from their positions of power?

The simple answer is that "floating" - selling shares in their companies to anonymousinvestors - raises millions of pounds to allow those same companies to expand intobigger and hopefully better businesses. Companies and shareholders alike have aresponsibility to each other.


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Company limited by guarantee

Definition

Incorporatedfirm without share capital, and in which the liability of its members is

limited to the amount each one of them undertakes to contribute at the time the firm is

wound up.

Limited by Guarantee Company

Company limited by guarantee without a share capital

This is a private company and the minimum number of members is 7 and the maximum is 50. Itis a company which has not been established to earn profits for its members but rather to carryout a specific purpose.

The members liability is only the amount they have undertaken to contribute to the assets of thecompany, being not less than 1 in the event that the company is wound up. Limited ByGuarantee companies do not have share capital, they are not required to raise funds from themembers and they still retain the benefits of limited liability and a separate legal entity.

This type of company is favored by groups of people coming together for a common purpose; itis used for charitable and professional bodies who wish to have the protection of limited liability.

The most commonly uses for Limited by GuaranteeCompany are:

y Charities - Charitable status can be applied for to the Revenue Commissioners onprojects which are set up for charitable, scholastic or religious purposes

y Residential Associationsy Property managementy Educationaly Sports clubsy Trade Associationsy Professional bodies

y Associations

Advantages of Companies Limited by Guarantee:

y They have legal identities separate from its membersy Individual members are almost totally protected against liabilityy They can buy and sell property in the name of the organizationy They can take or defend legal proceedings in its own name


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What is dividend?

A dividend is the distribution of profits to a company's shareholders.

The primary purpose of any business is to create profit for its owners, and the dividendis the most important way the business fulfills this mission. When a company earns aprofit, some of this money is typically reinvested in the business and called retainedearnings, and some of it can be paid to its shareholders as a dividend. Paying dividendsreduces the amount of cash available to the business, but the distribution of profit to theowners is, after all, the purpose of the business.

Some companies pay "stock dividends" rather than cash dividends, in which caseshareholders receive additional stock shares.

The amount of the dividend is determined every year at the company's annual generalmeeting, and declared as either a cash amount or a percentage of the company's profit.The dividend is the same for all shares of a given class (that is, preferred shares orcommon stock shares). Once declared, a dividend becomes a liability of the firm.

When a share is sold shortly before the dividend is to be paid, the seller rather than thebuyer is entitled to the dividend. At the point at which the buyer is not entitled to thedividend if the share is sold, the share is said to go ex-dividend. This is usually twobusiness days before the dividend is to be paid, depending on the rules of the stockexchange. When a share goes ex-dividend, its price will generally fall by the amount ofthe dividend.

The dividend is calculated mainly on the basis of the company's unappropriated profitand its business prospects for the coming year. It is then proposed by the ExecutiveBoard and the Supervisory Board to the annual general meeting. At most companies,however, the amount of the dividend remains constant. This helps to reassure investors,especially during phases when earnings are low, and sends the message that thecompany is optimistic with respect to its future performance.

Some companies have dividend-reinvestment plans. These plans allow shareholders touse dividends to systematically buy small amounts of stock often at no commission.Dividends are not yet paid in gold certificates although this idea has been discussed bymining companies such as Goldcorp.

Companies have often avoided paying dividends for several reasons:

y Company management and the board believe that it is important for the companyto take advantage of opportunities before it, and reinvest its recent profits in orderto grow, which will ultimately benefit investors more than a dividend payout atpresent. This reasoning is sometimes right, but is often wrong, and opponents ofthis reasoning (such as Benjamin Graham and David Dodd, who complained


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about the practice in the classic 1934 reference Security Analysis) usually notethat this comprises company management dictating to the business's ownershow to invest their own money (i.e. the profit of the business).

y When dividends are paid, shareholders in many countries, including the UnitedStates, suffer from double taxation of those dividends: the company pays income

tax to the government when it earns any income, and then when the dividend ispaid, the individual shareholder pays income tax to the government on thedividend payment. This is often used as justification for retaining earnings, or forperforming a stock buyback, in which the company buys back stock, therebyincreasing the value of the stock left outstanding. The shareholder pays noincome tax on this transaction.


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What Is Share Capital?In Companies, the words Capital and Share Capital are used interchangeably. The

raising of capital by issuing the shares is known as Share Capital. Share Capital is a

permanent liability of a company. Memorandum of Association must contain all the

features of a companys share capital i.e. amount, its division into shares etc.

Types of Share Capital:-

1. Nominal, Authorized or Registered Capital: - It is the registered capital of a

company. It is the amount which the company is authorized to issue. Any

company whether public or private cannot issue shares more than the amount

of its authorized capital. This amount is stated in Memorandum of Association.

E.g. if the amount of capital mentioned in Memorandum of Association is 10,

00,000, then this will be the Nominal, Authorized or Registered Capital of the

company.

2. Issued Capital: - Issued Capital is a part of Nominal or Authorized Capital,which has been issued by the company for public subscription. A company cannotissue all of its authorized capital at once. It can never be more than NominalCapital. And the Un-issued Capital is the difference between the authorized andissued capital. e.g. if the company has issued shares of Rs.5,00,000 out of thenominal capital of Rs.10,00,000, then Rs.5,00,000 will be the issued capital of thecompany.

3. Subscribed Capital: - It is that part of Nominal Capital which has been actually

subscribed by general public for cash or in kind. If the whole issued capital hasbeen subscribed by the public, then issued capital becomes the subscribed capital.e.g. suppose if the issued capital is Rs.5,00,000 and the applications werereceived for only 4,00,000 shares, then Rs.4,00,000 would be the SubscribedCapital of the company.

4. Called Up Capital: - The amount of subscribed capital, which the company hasasked its members to pay, is known as Called Up Capital. e.g. if the face value ofeach share is Rs.10 and the company has demanded only Rs.5 from itsshareholders then out of the total subscribed capital of Rs.4,00,000, Rs.2,00,000will be the Called up capital.

5. Paid-Up Capital: - The part of Called Up Capital which has been paid by theshareholders to the company is known as Paid-Up Capital and the remaining partof the Called-Up Capital is known as Unpaid Capital. e.g. suppose out of called upcapital of Rs.5 per share, only Rs.3 per share has been paid by the shareholders,then the Paid up Capital of the company will be Rs.1,20,000.


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6. Uncalled Capital: - The amount on shares which has not been called by thecompany from its shareholders to pay is known as Uncalled Capital. The companymay call upon its members to pay the uncalled amount on shares. e.g. theremaining Rs.5 which has not been called by the company is known as Uncalledcapital.

7. Reserve Capital: - A company may by special resolution convert the uncalledcapital into reserve capital. Reserve Capital is that part of uncalled capital whichcan be called upon by the company only in the event of Winding up.


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Law Asignment