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Introduction to Business MGT 211

LESSON 11

WINDING UP OF COMPANY

A company is created by law and when the legal existence of company abolishes or comes to

an end it is called winding up of a company or liquidation of company.

MODES OF WINDING UP

A company can be wound up in the following three ways:

Winding up of Joint Stock Company

Compulsory

Voluntary

Under the

Winding up

Winding Up

Supervision

by Court

of Court

By Members

By Creditors

COMPULSORY WINDING UP BY COURT

According to Section 305 of Companies Ordinance, a company may be wound up by court

under the following circumstances:

1. Special Resolution

If a special resolution has been passed by the company for winding up.

2. Statutory Meeting

If the company fails to submit statutory report to the Registrar for failure to hold statutory

meeting within specified time.

3. Commencement of Business

If a company fails to start its business within one year from the date of incorporation or

postpones its business for one year.

4. Reduction in Members

If the number of members fall below seven in case of public company and below two in case of

private company.

5. Satisfaction of Court

If the court is not satisfied with the working, management and business affairs of the company

6. Payment of Loans

If a company is unable to pay its debts.

7. Unlisted

If a company declares itself unlisted due to any reason.

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Introduction to Business MGT 211

VOLUNTARY WIDNIGN UP

A joint stock company may be wound up voluntarily in following two ways:

1. By Members

According to section 362 of Companies Ordinance, 1984, the members can wind up a

company voluntarily under following circumstances:

(i ) Expiry of Period

A company may be wound up voluntarily by the members, after the expiry of period, by

passing resolution in the general meeting.

(ii) Statutory Declaration

If majority of directors makes a statutory declaration to registrar that the company will be able

to pay its debts in full within one year.

(iii) Special or Ordinary Resolution

After submitting the statutory declaration to the registrar, the company, in general meeting

passes an ordinary or special resolution to wind up the company.

(iv) Appointment of Liquidators

In general meeting, the company appoints liquidators to wind up the company's affairs. Within

ten days after the appointment must be sent to registrar.

(v) Final Meeting

After winding up the affairs of company, the liquidators call the general meeting of the

shareholders. In this meeting, the liquidators must submit the final accounts of company's

affairs to the members.

(vi) Dissolution

Within one week of general meeting, liquidators must file a copy of full accounts to the

registrar. At the end of 3 months from the date of registration of return, the company shall be

dissolved and its name will be struck off by the Registrar of Joint Stock company.

2. By Creditors

The Members can wind up a company voluntarily under following circumstances:

(i) Statutory Declaration

In case of creditors voluntary winding up, it is not necessary for the company to make a

statutory declaration regarding its solvency.

(ii) Special Resolution

A general meeting of the company's shareholders is called to pass an extra ordinary resolution

for the dissolution of the company because it cannot continue its business due to heavy

liabilities.

(iii) Creditors' Meeting

On the same or next day, a meeting of creditors must be called by the company. A notice of

meeting must be sent to each creditor.

(iv) Statement of Affairs

In the creditors' meeting, the directors must submit a statement of affairs of the company,

together with a list of creditors of the company and estimated amount of their claims.

(v) Intimation to Registrar

The information regarding the notice of passed resolution must be sent to the registrar within

ten days after the date of creditors' meeting.

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Introduction to Business MGT 211

(vi) Appointment of Liquidator

The creditors and shareholders nominate the persons to act as liquidators in their respective

meetings. the opinion of the creditors is preferred.

(vii) Inspection Committee

The creditors and shareholders, in their respective meetings can appoint eh inspection

committee consisting of five persons in each case.

(viii) Liquidators' Remuneration, Rights and Duties

The inspection committee fixes the remuneration, rights and duties of the liquidators.

(ix) Final Meeting

In the final meeting, the liquidators place before them the full accounts of the company's affairs

and a copy of these accounts is also sent to registrar within 7 days.

(x) Dissolution

The registrar registers the documents, sent by the company, After 3 months from the date of

registration, the company will be dissolved.

VOLUNTARY WINDING UP UNDER THE SUPERVISION OF COURT

According to section 396 of Companies Ordinance, a voluntary winding up of a company can

also be carried under the strict registration of the court.

1. Resolution

At first, company has to pass special resolution for the voluntary winding up of the company.

2. Supervision Order

Following are the common grounds on which the court issues the supervision order:

1. The liquidator performs his duty in partial manner.

2. The winding up resolution is obtained by fraud.

3. The liquidator does not strictly observe the rules of winding up the company

3. Power of the Court

The court has the power to appoint an additional liquidator, or to remove any liquidator.

4. Dissolution

After the supervision order is made, the liquidator may exercise his powers in winding up of a

company. On completion of winding up, the court will make an order that the company is

dissolved.

SHARE CAPITAL

In simple words, the term "capital" means the particular amount of money with which a

business is started.

In company, share capital means the amount contributed by the shareholders.

DEFINITION

According to alan Issacs,

Share capital is that part of the capital of a company that arises from the issue of

shares.

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Introduction to Business MGT 211

L. B. Curzon says,

Share capital is the total amount which a company's shareholders have contributed or

are liable to contribute as payment for their shares.

KINDS OF SHARE CAPITAL

According to Companies Ordinance, 1984, the following are the kinds of share capital:

1. Authorized Capital

This is maximum amount of capital with which a company is registered or authorized to issue.

It is divided into shares of small value.

For example, the authorized capital of the company Rs. 10,00,000 divided into

1,00,000 shares of Rs. 10 each.

2. Issued Capital

It is a part of authorized capital which is offered to the general public for sale.

For example, a company has an authorized capital of Rs. 10,00,000 dividend into 1,00,000

shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So it means

issued capital is Rs. 2,00,000.

3. Un-Issued Capital

It is a part of authorized capital which is not offered to the general public for sale.

For example, a company has an authorized capital of Rs. 10,00,000 divided into 1,00,000

shares of Rs. 10 each. It offers 20,000 shares of Rs. 10 each to general public. So it means

un-issued capital is Rs. 8,00,000 consisting of 80,000 shares of Rs. 10 each.

4. Subscribed Capital

That part of issued capital for which application are sent by the public and which are accepted

is called subscribed capital.

For example, out of 20,000 shares offered by the company, the general public takes up only

10,000 shares. So subscribed capital, is Rs. 1,00,000.

5. Called up Capital

A company may require payment of the par value either in installments or in lump sum. So

amount of shares demanded by company is known as "called up capital".

For example, out of 10,000 shares taken by public, company requires a payment of 6 per

share. So "called up" capital of the company is Rs. 60,000 (10,000 share @ Rs. 6).

6. Un-Called up Capital

A company may require payment of the par value either in installments or in lump sum. So

amount of shares not demanded by company is known as "un-called up capital".

For example, out of 10,000 share taken by public, the company requires a payment of 6 per

share. So "un-called up" capital of the company is rs. 40,000 (10,000 shares @ Rs. 4).

7. Paid up Capital

It is that part of called up capital which is actually received by the company. If some

shareholders could not pay all the money of called up capital, such money is called as "calls in

arrears" or "calls unpaid".

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Introduction to Business MGT 211

8. Reserve Capital

The capital which is reserved for unexpected events or for future needs is called reserve

capital. Company decides not to call up some part of uncalled up capital until winding up. It is

normally kept for the payment of debts at the time of winding up.

9. Redeemable Capital

A company can obtain redeemable capital by issue of:

(a)

Participation Term Certificates

(b)

Musharika Certificate

(c)

Term Finance Certificate