public company buy its own shares or provide financial hell) for the Purchase

No company, limitcd by shares and no company limited by guarantee having share capital, has the power to buy its own shares except when the

share capital of the company is legally reduced in pursuance of Sections 100 to 104 or where shares are to be purchased for prevention of oppression

and miSllaJulgement under Section 402 of the Companies Act ISection 77(1)]. This is because buying of its own shares by a company im’oh’es

permanent reduction of capital without the sanction of the court i 11 violation of the law. Any reduction of capital contrary to these Sections (100 to 104 and

4(2) is illegal and ultra vires since the preservation of capital is one of the most important aims of the Act, hence the restriction on pllTchase of its own

shares by a company has been laid down under Section 77.

Further, Scction 77(2) provides that no public company, and no private company can give any financial a.sistance in any shape towards the purchase of

its own shares or of its holding company, except in the following cases:

Where a loan is made by a banking company in the ordinary course

of its businc:ss.

When.: provision of money is made under a scheme (e.g., a pensionscheme) to cItable trlstees to buy fully paid shares in the company to be hc1d for the

benefit of the employecs of the company including directors holding

salaried post. .

3. Where loans are made by a company to employees other than directors to enable them to buy fully paid shares in the company to be held by them as

beneficial owners. Such loan shall not exceed the amoilllt of six month’s salary or wages of such employees..

In case of contravention of the above provisions. the company and every officer ofthe company who is in default, shall be puuishable with fine which may

extend to Rs. 10,000.

It must be noted that forfeiture of shares for non-payment of calls and valid surrender of shares does not amount to purchase of own shares by a company

The “guidelines regarding the issue of bonus shares” prescribed by

SEBI, must be complied with. It is worth noting that SEBI guidelines are to be complied with by listed public companies only. Unlisted public companies or

private companies need not comply with SEBI guidelines.

A listed public company intending to issue bonus shares has to inform the stock exchange in advance, if proposal to issue bonus shares is communicated

to the Board of Directors of the company as agenda papers. Otherwise advance.intimation to stock exchange is not required [SEBI circular dated

14.2.2000]

SEBI Guidelines 011 Issue of Bonus Shares (issued on 19.1.2000]. SEBI guidelines dated 19.1.2000 (which are similar to earlier guidelines dated

shares of the company jointly

define minimum paid up capital of Rs. I lakh or such higher paid up capital as may be prescribed, and by its Articles
(i) restricts the right of the members to transfer shares, if any;
(ii) limit the number of its members to fifty, excluding members who arc or were in tbe employment of the company.
(iii) prohibits any invitation to the public to subscribe for any shares in, or debentures of the company; and
(iv) prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.
The words 'if any' used in sub-clause (a) above signifies that a’ private company having no share capital, need not contain in its Articles, tI1is restriction because it carries no meaning for such a company. For the purpose of counting the number of members in compliance of sub-clause (b) above. the following points should be noted
(i) present employee or ex-employees who bad become members when they were employees and had continued to be members cessation of employment, and
(ii) where two or more persons bold one or more shares of the company jointly, tbey shall be treated as a 'single member'.
(iii) By virtue of Sec. 3(1) (iv), defining a public company, a private limited company which is a subsidiary of a public company will be a public company, even if it is incorporated as a private company. Existing Private Companies. The Companies (Amendment) Act 2000
also provides that every private company existing on the date of commencement ofthe Amendment Act (i.e. 13th December 2000) having a paid up share capital of less than Rs. 1 lakh, shall witI1in a period of two years from the date of commencement of the Amendment Act, enhance its paid up share capital to Rs. 1 lakh. If it fails to comply this provision with in the specified time limit. the company shall be deemed to be a defunct company and its name shall be stmck off from the Register of Companies maintained by tlle Registrar of Companies and thus, it will cease to be a company from such date. However, a private company registered uls 25 as 'licenced company has been exempted from cOl:plying with the requirement
of minimum paid up capital. A private company which has paid up capital of less than Rs. 1 lakh will be an illegal association if the number of its members is more than 20 (ormore than lOin case of a banking company). If the number of members is below 20 (or below 10 in case of a banking company), it will be a valid association of persons, but the liability of its members shall be unlimited.

Suitable particularly to ventures uired heavy investment of funds

This form of organisation is suitable particularly to ventures uired heavy investment of funds and hnical know-how played an important role. The company
form of organisation has a legal existence separate from its members and it functions through its common seal. The seal of the company is an official
s:gnature of the company.Modern business may be run in different fonus, prominent among them are sole proprietorship, partnership and company. Sole
proprietorship and partnership forms are not suitable for a large scale business because of their deficiencies in tenus of limited resources, -instability and
unlimited liability.The limitations of these two forms of business organisations, complexity of modern business, large scale production necessitated the
birth of the joint.stock company form of organisation which made way for the availability of huge funds with limited liability for the member-owners. It made
possible for the large number of people to share the ownership of a business with limited liability and liquidity of funds.