UNIT I

Company-A is an association or collection of individuals, whether natural persons, legal persons, or a mixture of both. Company members share a common purpose and unite in order to focus their various talents and organize their collectively available skills or resources to achieve specific, declared goals. take various forms such as:

 Voluntary associations which may be registered as a Nonprofit  A group of soldiers  entity with an aim of gaining a profit  Financial entities and Banks

A company or association of persons can be created at as so that the company in itself can accept for civil responsibility and taxation incurred as members perform (or fail) to discharge their duty within the publicly declared "birth certificate" or published policy.

Because companies are legal persons, they also may associate and register themselves as companies - often known as a . When the company closes it may need a "death certificate" to avoid further legal obligations.

Meanings and definitions

A company can be defined as an "artificial person", invisible, intangible, created by or under law, with a discrete legal entity, perpetual succession and a common seal.[citation needed] It is not affected by the death, insanity or insolvency of an individual member.

Types For a country-by-country listing, see Types of business entity.

 A company limited by guarantee. Commonly used where companies are formed for non-commercial purposes, such as clubs or charities. The members guarantee the payment of certain (usually nominal) amounts if the company goes into insolvent liquidation, but otherwise they have no economic rights in relation to the company. This type of company is common in England. A company limited by guarantee may be with or without having .  A company limited by shares. The most common form of company used for business ventures. Specifically, a is a " company in which the liability of each is limited to the amount individually invested" with being "the most common example of a limited company."[2] This type of company is common in England and many English-speaking countries. A company limited by shares may be a o publicly traded company or a o Privately held company.  A company limited by guarantee with a share capital. A hybrid entity, usually used where the company is formed for non-commercial purposes, but the activities of the company are partly funded by investors who expect a return. This type of company may no longer be formed in the UK, although provisions still exist in law for them to exist.[5]  A limited-liability company. "A company—statutorily authorized in certain states—that is characterized by limited liability, by members or managers, and limitations on ownership transfer", i.e., L.L.C.[2] LLC structure has been called "hybrid" in that it "combines the characteristics of a and of a or ". Like a corporation it has limited liability for members of the company, and like a partnership it has "flow-through taxation to the members" and must be "dissolved upon the death or bankruptcy of a member".[6]  An with or without a share capital. A hybrid entity, a company where the liability of members or for the debts (if any) of the company are not limited. In this case doctrine of veil of incorporation does not apply.

Less common types of companies are:

 Companies formed by letters patent. Most corporations by letters patent are corporations sole and not companies as the term is commonly understood today.  Charter corporations. Before the passing of modern companies legislation, these were the only types of companies. Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks), or modern societies that fulfill a quasi regulatory function (for example, the Bank of England is a corporation formed by a modern charter).  Statutory Companies. Relatively rare today, certain companies have been formed by a private statute passed in the relevant jurisdiction.

Note that "Ltd after the company's name signifies limited company, and PLC () indicates that its shares are widely held."[citation needed]

In legal parlance, the owners of a company are normally referred to as the "members". In a company limited or unlimited by shares (formed or incorporated with a share capital), this will be the shareholders. In a company limited by guarantee, this will be the guarantors. Some offshore jurisdictions have created special forms of offshore company in a bid to attract business for their jurisdictions. Examples include "segregated portfolio companies" and restricted purpose companies.

There are however, many, many sub-categories of types of company that can be formed in various jurisdictions in the world.

Companies are also sometimes distinguished for legal and regulatory purposes between public companies and private companies. Public companies are companies whose shares can be publicly traded, often (although not always) on a regulated exchange. Private companies do not have publicly traded shares, and often contain restrictions on transfers of shares. In some jurisdictions, private companies have maximum numbers of shareholders.

A parent company is a company that owns enough voting stock in another firm to control management and operations by influencing or electing its ; the second company being deemed as a of the parent company. The definition of a parent company differs by jurisdiction, with the definition normally being defined by way of dealing with companies in that jurisdiction.

A government-owned corporation, state-owned company, state-owned entity, state enterprise, publicly owned corporation, government business enterprise, commercial government agency, public sector undertaking or parastatal is a legal entity created by a government to undertake commercial activities on behalf of an owner government. Their legal status varies from being a part of government to stock companies with a state as a regular stockholder. There is no standard definition of a government-owned corporation (GOC) or state- owned enterprise (SOE), although the two terms can be used interchangeably. The defining characteristics are that they have a distinct legal form and they are established to operate in commercial affairs. While they may also have public policy objectives, GOCs should be differentiated from other forms of government agencies or state entities established to pursue purely non-financial objectives.[1]

Government-owned corporations are common with natural monopolies and infrastructure such as railways and telecommunications, strategic goods and services (mail, weapons), natural resources and energy, politically sensitive business, broadcasting, demerit goods (alcohol) and merit goods (healthcare).

Different Types of Corporations: Advantages/ Disadvantages of Corporations

Anyone who operates a business, alone or with others, may incorporate. This is also true for anyone or any group engaged in religious, civil, non-profit or charitable endeavors. You do not have to be a business giant to be able to have the financial and other benefits of operating a corporation. Given the right circumstances, the owner(s) of a business of any size can benefit from incorporating.

General Corporation

This is the most common corporate structure. The corporation is a separate legal entity that is owned by stockholders. A general corporation may have an unlimited number of stockholders that, due to the separate legal nature of the corporation, are protected from the creditors of the business. A stockholder's personal liability is usually limited to the amount of investment in the corporation and no more.

Advantages  Owners' personal assets are protected from business debt and liability  Corporations have unlimited life extending beyond the illness or death of the owners  Tax free benefits such as insurance, travel, and retirement plan deductions  Transfer of ownership facilitated by sale of stock  Change of ownership need not affect management  Easier to raise capital through sale of and bonds

Disadvantages  More expensive to form than proprietorship or  More legal formality  More state and federal rules and regulations

Close Corporation

There are a few minor, but significant, differences between general corporations and close corporations. In most states where they are recognized, close corporations are limited to 30 to 50 stockholders. In addition, many close corporation statutes require that the directors of a close corporation must first offer the shares to existing stockholders before selling to new shareholders.

This type of corporation is particularly well suited for a group of individuals who will own the corporation with some members actively involved in the management and other members only involved on a limited or indirect level.

S Corporation

With the Tax Reform Act of 1986, the Corporationbecame a highly desirable entity for corporate tax purposes. An Corporationis not really a different type of corporation. It is a special tax designation applied for and granted by the IRS to corporations that have already been formed. Many entrepreneurs and owners are partial to the Corporationbecause it combines many of the advantages of a sole proprietorship, partnership and the corporate forms of business structure.

S Corporations have the same basic advantages and disadvantages of general or close corporation with the added benefit of the Corporationspecial tax provisions. When a standard corporation (general, close or professional) makes a profit, it pays a federal corporate income tax on the profit. If the company declares a dividend, the shareholders must report the dividend as personal income and pay more taxes.

S Corporations avoid this "double taxation" (once at the corporate level and again at the personal level) because all income or loss is reported only once on the personal tax returns of the shareholders. However, like standard corporations (and unlike some partnerships), the Corporationshareholders are exempt from personal liability for business debt.

CorporationRestrictions

To elect Corporationstatus, your corporation must meet specific guidelines. As a result of the 1996 Tax Law, which became effective January 1, 1997, many of these qualifying guidelines have been changed. A few of these changes are noted below:  Prior to the 1996 Tax Law, the maximum number of shareholders was 35. The maximum number of shareholders for an Corporationhas been increased to 75.  Previously, Corporationownership was limited to individuals, estates, and certain trusts. Under the new law, stock of an Corporationmay be held by a new "electing small business trust." All beneficiaries of the trust must be individuals or estates, except that charitable organizations may hold limited interests. Interests in the trust must be acquired by gift or bequest -- not by purchase. Each potential current beneficiary of the trust is counted towards the 75 shareholder limit on Corporationshareholders.  S Corporations are now allowed to own 80 percent or more of the stock of a regular , which may elect to file a consolidated return with other affiliated regular C corporations. The Corporationitself may not join in that election. In addition, an is now allowed to own a "qualified subchapter S subsidiary." The parent Corporationmust own 100 percent of the stock of the subsidiary.  Qualified retirement plans or Section 501(c)(3) charitable organizations may now be shareholders in S Corporations.  All S Corporations must have shareholders who are citizens or residents of the United States. Nonresident aliens cannot be shareholders.  S Corporations may only issue one class of stock.  No more than 25 percent of the gross corporate income may be derived from passive income.  An Corporationcan generally provide employee benefits and deferred compensation plans.  S Corporations eliminate the problems faced by standard corporations whose shareholder- employees might be subject to IRS claims of excessive compensation.  Not all domestic general business corporations are eligible for Corporationstatus. These exclusions include: o A financial institution that is a bank; o An insurance company taxed under Subchapter L; o A Domestic International SaleCorporation(DISC); or o Certain affiliated groups of corporations.

Keep in mind, these lists of qualifying Corporationaspects are not all-inclusive. In addition, there are specific circumstances in which an Corporationmay owe income tax. For more detailed information about these changes and other aspects regarding Corporationstatus, contact your accountant, attorney or local IRS office.

How to File as an

To become an S Corporation, you must know the mechanics of filing for this special tax status. Your first step is to form a general, close or professional corporation in the state of your choice. Second, you must obtain the formal consent of the corporation's shareholders. This consent should be noted in the corporation's minutes. Once the filing is approved, your company must complete Form 2553, Election by a Small Business Corporation. This form must be filed with the appropriate IRS office for your region. Please consult the IRS' instructions for Form 2553 to determine your proper deadline for completing and submitting this form.

The Company Corporation can assist you in preparing and submitting the IRS Form 2553 as part of your incorporating process. Please see our online order form for additional details.

Limited Liability Company (LLC) LLCs have long been a traditional form of business structure in Europe and Latin America. LLCs were first introduced in the United States by the state of Wyoming in 1977 and authorized for pass- through taxation (similar to partnerships and S Corporations) by the IRS in 1988. With the recent inclusion of Hawaii, all 50 states and Washington, D.C. have now adopted some form of LLC legislation for both domestic and foreign (out of state) limited liability companies.

Many business professionals believe LLCs present a superior alternative to corporations and partnerships because LLCs combine many of the advantages of both. With an LLC, the owners can have the corporate liability protection for their personal assets from business debt as well as the tax advantages of partnerships or S Corporations. It is similar to an Corporationwithout the IRS' restrictions.

Advantages  Protection of personal assets from business debt  Profits/losses pass through to personal income tax returns of the owners  Great flexibility in management and of the business  LLCs do not have the ownership restrictions of S Corporations making them ideal business structures for foreign investors

Disadvantages

LLCs often have a limited life (not to exceed 30 years in many states) Some states require at least 2 members to form an LLC, and LLCs are not corporations and therefore do not have stock -- and the benefits of stock ownership and sales.

As with the Corporationlisting, these lists are not inclusive. For more detailed information, please be sure to speak with a qualified legal and/or financial advisor.

Important Note Regarding the Federal Taxation of LLCs:

Before January 1, 1997, the Internal Revenue Service determined whether a limited liability company would be taxed "like a partnership" or "like a corporation" by analyzing its legal structure or by requiring the members to elect the tax status on a special form. Effective January 1, 1997, the IRS has simplified this process.

Pursuant to these new IRS regulations, if a limited liability company has satisfied IRS requirements, it can be treated as a partnership for federal tax purposes. As such, LLCs are required to file the same federal tax forms as partnerships and take advantage of the same benefits. However, this is still a highly technical area, and if you require further information, it is recommended that you communicate with the Internal Revenue Service or consult a competent professional such as a qualified tax accountant or attorney.

To go public or remain private–that’s a nettlesome question for many companies. A has sold a portion of the business to the public via an initial . IPOs can generate intense news coverage, such as Google ‘s recent deal, and going public can be seen as coming of age for companies in hot sectors.

A private company is held by a handful of people, often the founder and a few others.

Many believe privately held companies are small and of little interest. There are tons of small companies but some big names are also privately held, including , Ikea International, Mars and Hallmark Cards. (See: “America’s Largest Private Companies.”)

Domino’s Pizza went public in July. Until a few years ago, United Parcel Service and Wall Street heavy hitter Goldman Sachs were privately held.

A public company, publicly traded company, publicly held company, or public limited company (in the United Kingdom) is a limited liability company that offers its securities (stock/shares, bonds/loans, etc.) for sale to the general public, typically through a , or through market makers operating in over the counter markets. Public companies, including public limited companies, must be listed on a stock exchange depending on their size and local legislation.

Public companies are not to be confused with Government-owned corporations – also known as publicly owned companies – which are also sometimes called public companies.

Securities of a public company

Usually, the securities of a publicly traded company are owned by many investors while the shares of a privately held company are owned by relatively few shareholders. A company with many shareholders is not necessarily a publicly traded company. In the United States, in some instances, companies with over 500 shareholders may be required to report under the Securities Exchange Act of 1934; companies that report under the 1934 Act are generally deemed public companies. The first company to issue shares is generally held to be the Dutch East India Company in 1601[citation needed], but quasi-corporate entities, often trading or shipping concerns, are known to have existed as far back as Roman times.

Advantages

Publicly traded companies are able to raise funds and capital through the sale (in the primary or secondary market) of their securities, whether debt or equity. This is the reason publicly traded corporations are important: prior to their existence, it was very difficult to obtain large amounts of capital for private enterprises. The profit on stock or bonds is gained in form of dividend or capital gain to the holders of such securities.

The financial media and analysts will be able to access additional information about the business.[clarification needed] Disadvantages

Privately held companies have several advantages over publicly traded companies. A privately held company has no requirement to publicly disclose much, if any, financial information; such information could be useful to competitors. For example, publicly traded companies in the United States are required by the SEC to submit an annual Form 10-K containing a comprehensive detail of a company's performance. Privately held companies do not file Forms 10-K; they leak less information to competitors, and they tend to be under less pressure to meet quarterly projections for sales and profits.

Publicly traded companies are also required to spend more for certified public accountants and other bureaucratic paperwork required of all publicly traded companies under government regulations. For example, the Sarbanes–Oxley Act in the United States does not apply to privately held companies. The money and income of the owners remains relatively unknown by the public.

Stockholders

In the United States, the Securities and Exchange Commission requires that firms whose stock is traded publicly report their major shareholders each year.[1] The reports identify all institutional shareholders (primarily, firms owning stock in other companies), all company officials who own shares in their firm, and any individual or institution owning more than 5% of the firm's stock.[1]

Privatization

A group of private investors or another company that is privately held can buy out the shareholders of a public company, taking the company private. This is typically done through a leveraged buyout and occurs when the buyers believe the securities have been undervalued by investors. In some cases, public companies that are in severe financial distress may also approach a private company, or companies to take over ownership and management of the company. One possibility would be to participate in a fresh round of share-rights issue calculated to provide the share-buyer with a super majority. With a super majority, the company could then be de-listed i.e. privatized.

In addition, one publicly traded company may be purchased by one or more publicly traded company(ies), with the bought-out company either becoming a subsidiary or of the purchaser(s) or ceasing to exist as a separate entity, its former shareholders receiving either cash, shares in the purchasing company or a combination of both. When the compensation in question is primarily shares then the deal is often considered a merger. and joint ventures can also be created de novo - this often happens in the financial sector. Subsidiaries and joint ventures of publicly traded companies are not generally considered to be privately held companies (even though they themselves are not publicly traded) and are generally subject to the same reporting requirements as publicly traded companies. Finally, shares in subsidiaries and joint ventures can be (re)-offered to the public at any time - firms that are sold in this manner are called spin-outs. Most industrialized jurisdictions have enacted laws and regulations that detail the steps that prospective owners (public or private) must undertake if they wish to take over a publicly traded corporation. This often entails the would-be buyer(s) making a formal offer for each share of the company to shareholders. Normally some form of supermajority is required for this sort of the offer to be approved, but once it happens then usually all shareholders are compelled to sell at the agreed-upon price and the company either becomes a subsidiary, ceases to exist or becomes privately held.

Trading and

The shares of a publicly traded company are often traded on a stock exchange. The value or "size" of a company is called its market capitalization, a term which is often shortened to "market cap". This is calculated as the number of shares outstanding (as opposed to authorized but not necessarily issued) times the price per share. For example, a company with two million shares outstanding and a price per share of US$40 has a market capitalization of US$80 million. However, a company's market capitalization should not be confused with the fair market value of the company as a whole since the price per share are influenced by other factors such as the volume of shares traded. Low trading volume can cause artificially low prices for securities, due to investors being apprehensive of investing in a company they perceive as possibly lacking liquidity.

For example, if all shareholders were to simultaneously try to sell their shares in the open market, this would immediately create downward pressure on the price for which the share is traded unless there were an equal number of buyers willing to purchase the security at the price the sellers demand. So, sellers would have to either reduce their price or choose not to sell. Thus, the number of in a given period of time, commonly referred to as the "volume" is important when determining how well a company's market capitalization reflects true fair market value of the company as a whole. The higher the volume, the more the fair market value of the company is likely to be reflected by its market capitalization.

Another example of the impact of volume on the accuracy of market capitalization is when a company has little or no trading activity and the market price is simply the price at which the most recent took place, which could be days or weeks ago. This occurs when there are no buyers willing to purchase the securities at the price being offered by the sellers and there are no sellers willing to sell at the price the buyers are willing to pay. While this is rare when the company is traded on a major stock exchange, it is not uncommon when shares are traded over- the-counter (OTC). Since individual buyers and sellers need to incorporate news about the company into their purchasing decisions, a security with an imbalance of buyers or sellers may not feel the full effects of recent news.

Difference Between Public & Privately Held Companies by James Green, Demand Media

The principal difference between public and privately held companies is that public companies have shares that can be publicly traded on a . A privately held company might become a publicly held company by conducting an initial public offering, which is the offering of shares of the company to the public. Becoming a public company entails a number of changes to the firm, including management differences, business strategy, valuation methods and legal obligations.

Management of Publicly Held Companies

Publicly held companies tend to be run by a board of directors because when a company is publicly owned, the firm will be compelled to increase . Shares that increase in value are more desirable for investors, who are then less likely to sell the shares. Publicly held companies thus employ professionals that specialize in increasing shareholder value. Shareholder value is not only considered in the short run but also in the long run. Long-term profit strategy, which might include consideration for the next 10 years of the company, is thus a major factor in public company management.

Management of Privately Held Companies

Privately held companies are less focused on increasing the value of the company because few shareholders exist. If shareholders do exist, then the shares of the company will not be publicly listed. Privately held companies, however, can have a group of investors. Instead of a board of directors, the business decisions of a privately held company are undertaken by either the business owners or investors. Because managers are less focused on increasing the value of the company in the short term, it can have increased flexibility in short- and long-term business decisions.

Related Reading: The Difference Between Public Vs. Private Grant Funding

Legal Obligations

Publicly owned companies, because they are partially owned by the public, are obliged to disclose corporate financial information. This is because of government legal requirements. In the United States, these legal requirements are set by the Securities and Exchange commission, which mandates that publicly held companies issue financial reports on a quarterly basis. These reports include profit statements and future forecasts, and are prepared by a certified accountant. The company's shareholders can then take the appropriate investment decisions. Privately owned companies, by contrast, do not have to take such measures.

Valuation

The management structure and legal obligations of public and privately held companies has an effect on valuation. Remember that when more of a certain share is bought, the value goes up, and vice versa. With publicly held companies, the shares are listed on the stock markets. If an investor sells his shares, these shares can easily be repurchased by another investor. In contrast, it is not as easy finding a buyer for stock of privately owned companies because investor circles are smaller and less information is known about the firm. Thus, the value of privately owned companies may fluctuate more than that of publicly owned firms.

Corporate Accountability'

In conjunction with the annual financial reports, which the Securities and Exchange Commission requires corporations to produce, many corporations choose to produce corporate accountability reports to satisfy demands from the public and shareholders. Private organizations, not a government body, set standards for social and environmental responsibility that they expect public companies to meet and be account for. Corporate accountability is also important to shareholders concerned with ethical investing.

The memorandum of association of a company, often simply called the memorandum (and then often capitalised as an abbreviation for the official name, which is a proper noun and usually includes other words), is the document that governs the relationship between the company and the outside. It is one of the documents required to incorporate a company in the United Kingdom,[1] Ireland, India, Bangladesh, Pakistan and Sri Lanka, and is also used in many of the common law jurisdictions of the Commonwealth.

Requirements

While it is still necessary to file a memorandum of association to incorporate a new company,[2] it no longer forms part of the company’s constitution and it contains limited information compared to the memorandum that was required prior to 1 October 2010. The Companies (Registration) Regulation 2008 in fact included pro-forma Memoranda.

It is basically a statement that the subscribers wish to form a company under the 2006 Act, have agreed to become members and, in the case of a company that is to have a share capital, to take at least one share each. It is no longer required to state the name of the company, the type of company (such as public limited company or private company limited by shares), the location of its registered office, the objects of the company, and its authorized share capital.[3] Companies incorporated prior to 1 October 2009 are not required to amend their memorandum. Those details which are now required to appear in the Articles, such as the objects clause and details of the share capital, are deemed to form a part of the Articles.

Capacities

The memorandum no longer restricts the activities of a company. Since 1 October 2009, if a company's constitution contains any restrictions on the objects at all, those restrictions will form part of the articles of association.

Historically, a company's memorandum of association contained an objects clause, which limited its capacity to act. When the first limited companies were incorporated, the objects clause had to be widely drafted so as not to restrict the board of directors in their day to day trading. In the Companies Act 1989, the term "General Commercial Company" was introduced which meant that companies could undertake "any lawful or legal trade or business." In , a company's articles of association (called articles of incorporation in some jurisdictions) is a document which, along with the memorandum of association (in cases where the memorandum exists) form the company's constitution, defines the responsibilities of the directors, the kind of business to be undertaken, and the means by which the shareholders exert control over the board of directors.

Contents

 1 Overview  2 United Kingdom  3 Other countries  4 Content  5 Directors  6 Shareholders  7 Memorandum of association  8 Board meetings  9  10 Resolutions  11 Model articles of association  12 Companies Act 2006  13 Notes  14 See also  15 External links

Overview

A company is an incorporated body so there should be some rules and regulations formed for the management of its internal affairs and conduct of its business as well as the relation between the members and the company. Moreover, the rights and duties of its members and the company are to be recorded. This is why Articles of Association are necessary. The Articles of Association is a document that contains the purpose of the company as well as the duties and responsibilities of its members defined and recorded clearly. It is an important document which needs to be filed with the Registrar of Companies.

United Kingdom

In the Table A of Schedule 1 of the Companies Act, 1956 is given a model regulations for the management of the company limited by shares. All or any of the regulations contained in

The Article of Association contains the following details:

1. The powers of directors, officers and the shareholders as to voting etc., 2. The mode and form in which the business of the company is to be carried out. 3. The mode and form in which the changes in the internal regulations can be made. 4. The rights, duties and powers of the company as well as the members who are included in the Articles of Association.

The article is binding not only to the existing members, but also to the future members who may join in the future. The hires of members, successors and legal representatives are also bound by whatever is contained in the Article. The Articles bind the company and its members as soon as they sign the document. It is a between the company and its members. Members have certain rights and duties towards the company and the company have certain obligations towards its members. At the same time the company also expects some duties and obligations which the member has to fulfil for the smooth functioning of the company.

Other countries

The term articles of association of a company, or articles of incorporation, of an American or Canadian Company, are often simply referred to as articles (and are often capitalized as an abbreviation for the full term). The Articles are a requirement for the establishment of a company under the law of India, the United Kingdom, Pakistan and many other countries. Together with the memorandum of association, they are the constitution of a company. The equivalent term for LLC is Articles of Organization. Roughly equivalent terms operate in other countries, such as Gesellschaftsvertrag in Germany, statuts in France, statut in Poland,[1] статут (Latin: statut) in Ukraine, Jeong-gwan in South Korea.

In South Africa, from the new Companies Act 2008 which commenced in 2011, articles and memoranda of association have been replaced by a "memorandum of incorporation" or "MOI". The MOI gives considerable more scope to vary how to the company is governed than the previous arrangement.[2][3]

Content

The following is largely based on British Company Law, references which are made at the end of this Article.

The Articles can cover a medley of topics, not all of which is required in a country's law. Although all terms are not discussed, they may cover:

 the issuing of shares (also called stock), different voting rights attached to different classes of shares  valuation of intellectual rights, say, the valuations of the IPR of one partner and, in a similar way as how we value real estate of another partner

 the appointments of directors - which shows whether a shareholder dominates or shares equality with all contributors  directors meetings - the quorum and percentage of vote  management decisions - whether the board manages or a founder  transferability of shares - assignment rights of the founders or other members of the company do  special voting rights of a Chairman, and his/her mode of election  the dividend policy - a percentage of profits to be declared when there is profit or otherwise  winding up - the conditions, notice to members  confidentiality of know-how and the founders' agreement and penalties for disclosure  first right of refusal - purchase rights and counter-bid by a founder

Directors

A Company is essentially run by the shareholders, but for convenience, and day-to-day working, by the elected Directors. Usually, the shareholders elect a Board of Directors (BOD) at the Annual General Meeting (AGM), which may be statutory (e.g. India).

The number of Directors depends on the size of the Company and statutory requirements. The Chairperson is generally a well-known outsider but he /she may be a working Executive of the company, typically of an American Company. The Directors may, or may not, be employees of the Company.

Shareholders

In the emerging countries there are usually some major shareholders who come together to form the company. Each usually has the right to nominate, without objection of the other, a certain number of Directors who become nominees for the election by the shareholder body at the AGM. The Treasurer and Chairperson is usually the privilege of one of the JV partners (which nomination can be shared). Shareholders may also elect Independent Directors (from the public). The Chair would be a person not associated with the promoters of the company, a person is generally a well-known outsider. Once elected, the BOD manages the Company. The shareholders play no part till the next AGM/EGM.

Memorandum of association

The Objectives and the purpose of the Company are determined in advance by the shareholders and the Memorandum of Association (MOA), if separate, which denotes the name of the Company, its Head- Office, street address, and (founding)Directors and the main purposes of the Company - for public access. It cannot be changed except at an AGM or Extraordinary General Meeting (EGM) and statutory allowance. The MOA is generally filed with a Registrar of Companies who is an appointee of the Government of the country. For their assurance, the shareholders are permitted to elect an Auditor at each AGM. There can be Internal Auditors (employees)as well as an External Auditor.

Board meetings

The Board meets several times each year. At each meeting there is an 'agenda' before it. A minimum number of Directors (a quorum) is required to meet. This is either determined by the 'by-laws' or is a statutory requirement. It is presided over by the Chairperson, or in his absence, by the Vice-Chair. The Directors survey their area of responsibility. They may determine to make a 'Resolution' at the next AGM or if it is an urgent matter, at an EGM. The Directors who are the electives of one major shareholder, may present his/her view but this is not necessarily so - they may have to view the Objectives of the Company and competitive position. The Chair may have to break the vote if there is a tie. At the AGM, the various Resolutions are put to vote.

Annual General Meeting

The AGM is called with a notice sent to all shareholders with a clear interval. A certain quorum of shareholders is required to meet. If the quorum requirement is not met, it is canceled and another Meeting called. If it at that too a quorum is not met, a Third Meeting may be called and the members present, unlimited by the quorum, take all decisions. There are variations to this among companies and countries.

Decisions are taken by a show of hands; the Chair is always present. Where decisions are made by a show of hands is challenged, it is met by a count of votes. Voting can be taken in person or by marking the paper sent by the Company. A person who is not a shareholder of the Company can vote if he/she has the 'proxy', an authorization from the shareholder. Each share carries the number of votes attached to it. Some votes maybe for the decision, others not.

Resolutions

There are two types of decision, known as an Ordinary Resolution and a Special Resolution.

A Special Resolution can be tabled at a Director's Meeting. The Ordinary Resolution requires the endorsement by a majority vote, sometimes easily met by partners' vote. The Special Resolution requires a 60,70 or 80% of the vote as stipulated by the constitution of the Company. Shareholders other than partners may vote. The matters which require the Ordinary and Special Resolution to be passed are enumerated in Company or . Special Resolutions covering some topics may be a statutory requirement.

Model articles of association

In the United Kingdom, model articles of association, known as Table A have been published since 1865.[4] The articles of association of most companies incorporated prior to 1 October 2009 – particularly small companies – are Table A, or closely derived from it. However, a company is free to incorporate under different articles of association, or to amend its articles of association at any time by a special resolution of its shareholders, provided that they meet the requirements and restrictions of the Companies Acts. Such requirements tend to be more onerous for public companies than for private ones.

Companies Act 2006

The Companies Act 2006 received Royal Assent on 8 November 2006 and was fully implemented on 1 October 2009. It provides a new form of Model Articles for companies incorporated in the United Kingdom. Under the new legislation, the articles of association will become the single constitutional document for a UK company, and will subsume the majority of the role previously filled by the separate memorandum of association.[5]

Differences between articles of association and memorandum of association? In: Intellectual Property, Small Business and Entrepreneurship [Edit categories] Answer: 1) MoA:

It is along with the application of starting of a company.

I think it confines & defines the objective of a company.

MoA is also called Charter of a Company.

The main aim of MoA is to let the investors know where their money is invested.

It has 2 objectives; Main Objective & Subsidiary Objectives.

MoA has 6 clauses:

@ The Name Clause @ The Registered Office Clause @ The Object Clause @ The capital Clause @ The Liability Clause @ The Association Clause.

2) AoA:

It is internal management of the company.

It shows what type of power / responsibilities / authority the investors have..

Its by laws that governs management of internal affairs defines duties / rights / powers / number of directors of the company.

It also show that what is mode & form in which business is to be carried out subordinating to MoA & can not supersede object set by MoA.

MEMORANDUM OF ASSOCIATION AND ARTICLES OF AS SOCIATION

The Memorandum of Association and the Articles of Association are two important basic documents of a company, which together form the constitution of a Company. Both serve different functions and purposes and therefore, are important for different classes of people, who deal with the company. These two documents lay down the boundary within which the Company can operate. The Memorandum of Association, often simply called the Memorandum, is also called the Charter of a Company and is useful to investors to know what are the objectives of the company, amount of authorized share capital, whether the liability of the members is limited or not, how the company invests the money and utilize it, how it will work according to objectives incorporated in it, etc. It is the document that is required to be filed with the Registrar of Companies for incorporating a company. This document defines the relationship between the company and the outsiders. Anything done the Memorandum (i.e., beyond the legal capacity) is void against the company. Subsequently, it cannot be ratified even by the share holders at a General Body meeting. The Memorandum is a public document and can be inspected by any one at any time, usually at the public office, - the Registrar of Companies - where it is lodged. The Articles of Association of a company or simply the Articles contains rules and regulations, which govern the internal management of the Company. The Article of Association is subordinate to the Memorandum. Therefore, any provisions of the Articles which go against or beyond the provisions of Memorandum are null and void. The Articles of a company contains the organization and its control, issue of shares, voting rights of different classes of share holders, Director's powers, the appointment of directors, the director's meetings, the quorum and percentage of vote, transferability of shares, the dividend policy, winding up, etc. The Articles is binding not only on the existing members, but also on the future members who may join in future. The Article binds the company and its members as soon as they sign the document, as it is a contract between the company and its members. Just like a Company has certain obligations towards the members, so also members have certain rights and duties to perform towards the company for smooth functioning of the company. M.J. SUBRAMANYAM, XCHANGING, MUMBAI

Ultra vires

Ultra vires is a Latin phrase meaning literally "beyond powers", and slightly less literally (from interpolating the definite article "the", not found in Latin) "beyond [the] powers", although its standard legal translation and substitute is "beyond power". If an act requires legal authority and it is done with such authority, it is characterized in law as intra vires (nearly literally "within [the] powers", after interpolating "the"; standard legal translation and substitute, "within power"). If it is done without such authority, it is ultra vires. Acts that are intra vires may equivalently be termed "valid" and those that are ultra vires "invalid".

In corporate law, ultra vires describes acts attempted by a corporation that are beyond the scope of powers granted by the corporation's objects clause, articles of incorporation or in a clause in its Bylaws, in the laws authorizing a corporation's formation, or similar founding documents. Acts attempted by a corporation that are beyond the scope of its charter are void or voidable.

1. An ultra vires transaction cannot be ratified by shareholders, even if they wish it to be ratified. 2. The doctrine of estoppel usually precluded reliance on the defense of ultra vires where the transaction was fully performed by one party. 3. A fortiori, a transaction which was fully performed by both parties could not be attacked. 4. If the contract was fully executory, the defense of ultra vires might be raised by either party. 5. If the contract was partially performed, and the performance was held to be insufficient to bring the doctrine of estoppel into play, a suit for quasi contract for recovery of benefits conferred was available. 6. If an agent of the corporation committed a tort within the scope of his or her , the corporation could not defend on the ground the act was ultra vires.

Several modern developments relating to corporate formation have limited the probability that ultra vires acts will occur. Except in the case of non-profit corporations (including municipal corporations), this legal doctrine is obsolescent; within recent years, almost all business corporations are chartered to allow them to transact any lawful business. The Model BusinesCorporationAct of the United States states that: "The validity of corporate action may not be challenged on the ground that the corporation lacks or lacked power to act." The doctrine still has some life among non-profit corporations or state-created corporate bodies established for a specific public purpose, like universities or charities.

According to American laws, the concept of ultra vires can still arise in the following kinds of activities in some states:

1. Charitable or political contributions 2. Guaranty of indebtedness of another 3. Loans to officers or directors 4. Pensions, bonuses, stock option plans, job severance payments, and other fringe benefits 5. The power to acquire shares of other corporations 6. The power to enter into a partnership

In the United Kingdom, the Companies Act 2006 sections 31 and 39 greatly reduced the applicability of ultra vires in corporate law, although it can still apply in relation to charities and a shareholder may apply for an injunction, in advance only, to prevent an act which is claimed to be ultra vires.

In many jurisdictions, such as Australia, legislation provides that a corporation has all the powers of a natural person[1] plus others; also, the validity of acts which are made ultra vires is preserved.[2]

Meaning and definition of prospectus and the various contents of a prospectus.

After the receipt of certificate of incorporation, if the promoters of a public limited company wishes to issue shares to the public, he will issue a document called prospectus. It is an invitation to the public to subscribe to the share capital of the company. The companies Act, 1956 defines prospectus as any document described or issued as a prospectus and include any notice, circular, advertisement or other documents inviting deposits from the public or inviting offer from the public for the subscription of shares. It is circulated among the public in printed pamphlets. It gives all necessary information about the company so that the prospective shareholders may fully understand the objectives and the plans of the company.

Objectives:

Prospectus is issued with the following broad objectives:

It informs the company about the formation of a new company.

It serves as a written evidence about the terms and conditions of issue of shares or debentures of a company.

It induces the investors to invest in the shares and debentures of the company.

It describes the nature, extent and future prospectus of the company.

It maintains all authentic records on the issue and make the directors liable for the misstatement in the prospectus.

Contents:

The following important matter are included in the prospectus:

The prospectus contains the main objectives of the company, the name and addresses of the signatories of the memorandum of association and the number of shares held by them.

The name, addresses and occupation of directors and managing directors. The number and classes of shares and debentures issued.

The qualification share of directors and the interest of directors for the promotion of company.

The number, description and the document of shares or debentures which within the two preceding years have been agreed to be issed other than cash.

The name and addresses of the vendors of any property acquired by the company and the amount paid or to be paid.

particulars about the directors, secretaries and the treasures and their remuneration.

The amount for the minimum subscription.

If the company carrying on business, the length of time of such .

The estimated amount of preliminary expenses.

Name and address of the auditors, bankers and solicitors of the company.

Time and place where copies of balance sheets, profits and loss account and the auditors report may be inspected.

The auditor's report so submitted must deal with the profit and loss of the company for each year of five financial years immediately preceding the issue of prospectus.

If any profit or reserve has been capitalized, the particulars of such capitalization will be stated in the prospectus. Liability under the Financial Service and Markets Act 2000 (FSMA)

Any sale of shares in the UK must have a prospectus containing information about those shares in terms of FSMA. This, in summary, must include the information necessary to enable investors to make an informed assessment of the rights attached to the shares and the prospects of the company issuing the shares. Misstatements in, and omissions from the necessary information in the prospectuses, can give rise to both civil and criminal liabilities for the 'persons responsible for the prospectus'. This is a specific category of people set out in the Prospectus Rules which are made by the Financial Conduct Authority and govern the publication and content of prospectuses in the UK. To avoid such liabilities, it is standard practice to adopt a lengthy verification of the information found in the prospectus to ensure that such information is wholly accurate and does not have any material omissions. Persons responsible for the prospectus

The obligation to include the necessary information is supported by the Prospectus Rules read with FSMA which include provisions establishing civil liability for the contents of the prospectus. This extends only to information which is within the knowledge of those responsible for the prospectus/listing particulars or which it would be reasonable for them to obtain by making enquiries. The persons responsible for the prospectus/listing particulars are:

 The company itself  The directors at the time when the prospectus is submitted to the stock exchange. However, a director is not responsible if the prospectus is published without their knowledge or consent and, on becoming aware of its publication, the director immediately gives reasonable public notice that it was published without their knowledge or consent;  Each person who has authorised themselves to be named, and is named, in the prospectus as a director. This covers the situation when A plc. makes a offer for B plc. and some or all of the directors of B plc. agree to join the board of A plc. In the prospectus of A plc., the directors of B plc. who have agreed to join the board of A plc. are 'persons responsible' for the prospectus  Each person who accepts, and is stated in the prospectus as accepting, responsibility for the prospectus/listing particulars or part thereof  Any other person who has authorised the contents, or any part of, the prospectus Other claims

At least four possible claims aside from those under FSMA can be brought against those responsible for the prospectus/listing particulars. These are actions for negligent misstatement, claims under the Misrepresentation Act 1967, actions for damages in deceit and claims under contract. Negligent misstatement

If someone relies on a misstatement made by another person who owes a duty of care to them, they will be able to claim for any damage they have suffered as a result. For a duty of care to arise, a special relationship must exist between the person giving the information and the one relying on it. Generally, this special relationship does exist between a company which has published a prospectus and any subsequent purchaser of the shares described in the prospectus. Misrepresentation Act 1967 and Misrepresentation Act (Northern Ireland) 1967 (the 'MRA')

A person may be able to rescind the contract for acquisition of shares and/or claim damages under the MRA if they acted on an incorrect or misleading statement in the prospectus/listing particulars or an omission from it. Rescission means the setting aside of the contract and restoring of the parties to their original positions. Under the MRA, a claim for damages can only be made against the other party to a contract. Accordingly, the original investor would have a claim against the issuing company but not against its directors. This is in contrast to the claim under FSMA which does allow claims against the directors and other persons responsible. Deceit

An investor can claim damages for deceit against the company's directors or other persons responsible if the misstatement was fraudulently made, i.e. if it was made in any of the following circumstances:

 With knowledge that the statement was false  Without belief in its truth  Recklessly, without caring whether it is true or false

Promoter may refer to:

 Promoter (entertainment), one who makes arrangements for events  Tour promoter, individuals or companies responsible for organizing a live concert tour or special event performance  Corporate promoter, an entity who takes active steps in the formation, organization, or financing of a corporation  Promoter (genetics), a regulatory region of DNA usually located upstream of a gene, providing a control point for regulated gene transcription  Promoter (catalysis), an accelerator of a catalyst, though not a catalyst itself  Promoter (role variant), one of the sixteen personality types of the Keirsey Temperament Sorter  Promoter (Catholic church), an office of the Catholic Church such as Promoter of the Laity, Promoter of Peace and Justice, or Promoter of the Faith (also known as the Devil's advocate)  Promotor (Dutch, Belgian, or German academia), a full professor of a Dutch, Flanders, or German university who formally promotes a PhD candidate to doctor, and is (formally) the principal supervisor during the doctoral research.  The Promoter, also known as The Card

Rights duties and liabilities of promoters of a company? A promoter is not an agent for the company which he is forming, because a company cannot have an agent before it comes into existence. Further more, he is not a trustee for the company because there is no company yet in existence. The promoter stands in fiduciary relation to a company and to those persons becomes shareholder later, the promoter is accountable to the company like an agent and trustee. He cannot make any secret profit. He must disclose everything to the company. He is personally liable for all contract made by him with third party on behalf of company. Before incorporation a company has no legal existence and so cannot make a contract. A promoter, therefore, has no legal right to claim remuneration for his services. If the promoter enters into a contract with the company about his remuneration, after the incorporation of company, then directors are liable to pay remuneration. The remuneration may be paid in any of these ways. If a commission on business or property taken over by the company through him. A company may give him a lump sum amount in cash. Some shares can be allotted to him. He may take a commission at a fixed rate on shares sold. He may take an option to subscribe for certain non-issued shares of company at par within a fixed period.

A debenture is a document that either creates a debt or acknowledges it, and it is a debt without collateral. In corporate finance, the term is used for a medium- to long-term debt instrument used by large companies to borrow money. In some countries the term is used interchangeably with bond, loan stock or note. A debenture is thus like a certificate of loan or a loan bond evidencing the fact that the company is liable to pay a specified amount with interest and although the money raised by the debentures becomes a part of the company's capital structure, it does not become share capital.[1] Senior debentures get paid before subordinate debentures, and there are varying rates of risk and payoff for these categories.

Debentures are generally freely transferable by the debenture holder. Debenture holders have no rights to vote in the company's general meetings of shareholders, but they may have separate meetings or votes e.g. on changes to the rights attached to the debentures. The interest paid to them is a charge against profit in the company's financial statements.

 A movable property.  Issued by the company in the form of a certificate of indebtedness.  It generally specifies the date of redemption, repayment of principal and interest on specified dates.  May or may not create a charge on the assets of the company.[2]  Corporations often issue bonds of around $1,000, while government bonds are more likely to be $5,000.

Debentures gave rise to the idea of the rich "clipping their coupons," which means that a bondholder will present their "coupon" to the bank and receive a payment each quarter (or in whatever period is specified in the agreement).

There are also other features that minimize risk, such as a "sinking fund," which means that the debtor must pay some of the value of the bond after a specified period of time. This decreases risk for the creditors, as a hedge against inflation, bankruptcy, or other risk factors. A sinking fund makes the bond less risky, and therefore gives it a smaller "coupon" (or interest payment). There are also options for "convertibility," which means a creditor may turn their bonds into equity in the company if it does well. Companies also reserve the right to call their bonds, which mean they can call it sooner than the maturity date. Often there is a clause in the contract that allows this; for example, if a bond issuer wishes to rebuy a 30 year bond at the 25th year, they must pay a premium. If a bond is called, it means that less interest is paid out.

Failure to pay a bond effectively means bankruptcy. Bondholders who have not received their interest can throw an offending company into bankruptcy, or seize its assets if that is stipulated in the contract.

Security in different jurisdictions

In the United States, debenture refers specifically to an unsecured corporate bond,[3] i.e. a bond that does not have a certain line of income or piece of property or equipment to guarantee repayment of principal upon the bond's maturity. Where security is provided for loan stocks or bonds in the US, they are termed 'mortgage bonds'.

However, in the United Kingdom a debenture is usually secured.[4]

In Canada, a debenture refers to a secured loan instrument where security is generally over the debtor's credit, but security is not pledged to specific assets. Like other secured debts, the debenture gives the debtor priority status over unsecured creditors in a bankruptcy; however debt instruments where security is pledged to specific assets (such as a bond) receive a higher priority status in a bankruptcy than do debentures[citation needed].

In Asia, if repayment is secured by a charge over land, the loan document is called a mortgage; where repayment is secured by a charge against other assets of the company, the document is called a debenture; and where no security is involved, the document is called a note or 'unsecured deposit note'.[5]

Convertibility

There are two types of debentures:

1. Convertible debentures, which are convertible bonds or bonds that can be converted into equity shares of the issuing company after a predetermined period of time. "Convertibility" is a feature that corporations may add to the bonds they issue to make them more attractive to buyers. In other words, it is a special feature that a corporate bond may carry. As a result of the advantage a buyer gets from the ability to convert, convertible bonds typically have lower interest rates than non-convertible corporate bonds. 2. Non-convertible debentures, which are simply regular debentures, cannot be converted into equity shares of the liable company. They are debentures without the convertibility feature attached to them. As a result, they usually carry higher interest rates than their convertible counterparts.

What are the major differences between debentures and shares?

The major differences between debentures and shares (1) Rights the Debentures constitute loan and only a creditor of the company. The shares represents a part of the share capital of the capital. (2) Approval in debentures question of getting approval for payment of interest does not arise. In shares, Dividend is payable only when it is recommended by the Board and approved by the general meeting of the shareholders. (3) Liability in the debentures is not having such liability. In share sholder’s liability is limited to the unpaid amount of the shares. (4) Return of Capital in debentures are redeemable either at a fixed date or at the option of the company during the lifetime itself. In shares are non-repayable during the lifetime of the company except in the case of redeemable preference shares. (5) Charge on Assets in the Debentures are generally secured and shares have no charge on the assets of the company.

Bonus Issue

Shareholders are awarded additional securities (shares, rights or warrants) free of payment. The nominal value of shares does not change.

A Bonus Issue, which is sometimes referred to as "Scrip Issue" or "Capitalisation Issue", is effectively a free issue of shares - paid for by the company issuing the shares out of capital reserves.

Please note that a Bonus Issue should NOT be seen as a Dividend, like for example a STOCK DIVIDEND event.

A company calls a Bonus Issue to increase the liquidity of the company's shares in the market. Increasing the number of shares in circulation reduces the share price.

The term 'Bonus Issue' is generally used to describe what is technically a capitalisation of reserves. The company, in effect, issues free shares paid for out of its accumulated profits (reserves).

Theoretical example, company ABC calls a 1 for 4 Bonus issue:

. For every four shares you own in ABC you will receive one additional free share i.e. you will own 5 shares of ABC plc after the issue . The number of shares issued increases by 25% . The share price adjusts proportionately; if the market price was 100 cents before the issue, it will adjust to 80 cents as the number of shares have increased . The Earnings Per Share (EPS) and Dividend Per Share adjust proportionately, but the ratios remain the same . The issued share capital increases by 25%, although this is offset by the reduction in the capital reserves.

Let us say you purchased 1000 shares in ABC plc at 100p per share. For Capital Gains tax purposes, the Bonus shares are treated as the same asset and acquired at the same time as your existing ABC plc shares. There is no immediate liability to CGT when you receive the bonus shares, but there could be a capital gains tax liability when you come to dispose of the shares. In order to determine your capital gains when you come to make a full or part disposal of your ABC plc holding, you need to adjust the base cost of your shares, reducing the cost per share as follows:

Before Bonus Issue you own: 1000 x shares ABC plc @ total cost = £1,000 Base cost per share = 100p

In this example, you receive 1 new Bonus Issue share for every 4 shares held. If you own 1000 shares, (1000/4 = 250) then you will receive 250 new bonus shares.

After Bonus Issue: You previously owned 1000 shares in ABC plc which you bought for £1,000. You then received 250 bonus issue ABC plc shares, at no additional cost. And so, pooling the new shares together with your original holding, you now own a total 1,250 shares in ABC plc with total combined cost of £1,000. As you can see the base cost per share is therefore reduced:

1250 x shares ABC plc @ total cost = £1,000 New base cost per share = 80p

When you make a full or part disposal of your ABC plc shares, it is the new reduced base cost that you use in your Capital Gain calculations.

Example (that happened in reality):

RBS 2007 Bonus Issue (source www.rbs.com)

The Bonus Issue was approved by shareholders at the Annual General Meeting on 25 April 2007 and took effect on 8 May 2007. It had the effect of lowering the price per share, aligning them closer with the average share prices for FTSE 100 companies and other banking stocks at the time. Why were the Bonus Shares issued? The Group's share price had been trading for some time at a price which was high relative to the average share price of companies trading on the London Stock Exchange. The directors believed that many shareholders prefer to deal in shares with a lower price per share, which is more in line with the stock market as a whole. Therefore, in March 2007 the directors proposed to adjust the level of the price per share by issuing, by way of a bonus issue, two new ordinary shares for every one ordinary share held by shareholders. The Bonus Issue was approved by shareholders at the Annual General Meeting on 25 April 2007 and took effect on 8 May 2007. It has had the effect of lowering the price per share, aligning them closer with the average share prices for FTSE 100 companies and other banking stocks. How has this affected the value of my shareholding? The Bonus Issue should not have affected the overall value of any Group shares you held at close of business on 4 May 2007. Although the value of each share at the start of trading on Tuesday 8 May 2007 will be about one third of its closing value on 4 May 2007, you will now have three times the number of shares than you previously held (See Note for example). Remember, Group shares will continue to fluctuate in accordance with market factors prevailing at any given time. Did I have to do anything to get the Bonus Issue Shares? No. All shareholders on the Register at close of business on 4 May 2007 (the Bonus Issue Record Date) qualified for the Bonus Issue Shares. Do I need to keep my old share certificate? Yes. The existing share certificates are still valid and need to be kept in addition to the new Bonus Issue share certificate due to be sent to you as soon as possible after Monday 14 May 2007. Will I need my old share certificate - I think I've lost it? Yes. The existing share certificates are still valid and need to be kept in addition to the new Bonus Issue share certificate due to be sent to you as soon as possible after Monday 14 May 2007. If you have lost your existing share certificate(s), please write to Computershare, quoting your full name and Shareholder Reference Number, company name (RBS) and the number of shares making up the missing certificate. When will CREST accounts be credited? CREST accounts were credited with the Bonus Issue shares on Tuesday 8 May 2007. When will dealings in the Bonus Issue Shares start? Dealings in the Bonus Issue Shares commenced on Tuesday 8 May 2007. Note:- Example of how your shareholding has been affected by the Bonus Issue: For example purposes, let us assume that prior to the Bonus Issue you held 100 RBS Shares. The terms of the Bonus Issue are that for every 1 share you held at close of business on 4 May 2007 (the Record Date), you will have received 2 Bonus Issue Shares. As such, you will now hold three times the number of RBS shares you previously held. In this example, you would now have 300 RBS shares (100 existing shares + 200 Bonus Issue Shares). However, the price of each share will have been lowered by the market to reflect the allocation of the Bonus Issue Shares.