Legal Opinion issuance of bonus shares

Mr. Z


Dear Sir,

Re: Legal Opinion.

We refer to your letter dated June 04, 2007 on the above subject.

From perusal of your letter, it appears that you require our legal opinion on some issues regarding issuance of bonus shares, transferring 100% shares of Company 1 (Company 1) to Company 2, (“Company 2”), conversion of Company 1 from a private limited company to a public limited company and issue regarding enlistment of Company 1 as publicly listed company. We have perused your queries referred to us.


Query 1: Company 1 (Company 1) has been enjoying Tax Holiday from NBR for five years from 01.10.02 to 30.09.07. As of 31st March 2007 the Tax Holiday reserve of Company 1 stood at Tk. 21 crore and the un appropriated profit of Company 1 stood at Tk.  27 crore. Now, Company 1 wants to capitalise Tk. 48 crore by issuing Bonus Shares as dividend. Whether or not this would be permissible under law?

Opinion: Dividend normally has to be declared and paid in accordance with the Articles of Association of a company.

According to Article 161 of the Articles of Association of Company 1, no dividend shall be payable except out of the profits of the Company.

According to Article 162 of the Articles of Association, the declaration of the Directors as to the amount of the net profits of the Company at any time available for payment of dividends shall be conclusive.

According to Article 175, the Company may, upon the recommendation of the Directors, by Ordinary Resolution direct payment of a dividend in whole or in-part by the distribution of specific assets. In our opinion, this article covers the issuance of bonus shares as dividends.

Therefore, Company 1 may capitalize Tk. 48 crore by issuing Bonus Shares as dividend in their Annual General Meeting (“AGM”), provided the Directors of Company 1 declares the Tax Holiday reserve of Tk. 21 crore and the un appropriated profit of Tk. 27 crore as profits of Company 1.

Query 2: Whether Company 1 can issue Bonus Share at Premium?

Opinion: As a general rule, when a company issues further shares, the company sells those shares at a premium to match the actual price of the shares on the market. However, bonus shares are not sold. They are given as dividends and are fully paid up shares. The bonus shares are issued for distribution of the profit of the Company, therefore, we do not see any scope for the company to issue bonus shares at premium. However, the Company may seek guidance and clarification from Securities and Exchange Commission in this regard.

Query 3: At present, Company 2 (“Company 2”) is 100% owner of Company 1. Marico Group has a company in UAE called MME. What are the due diligence for transferring 100% shares of Company 1 (“Target Shares”) to MME from Company 2?

Opinion: MME (the “Purchaser”) may purchase all the Target Shares of Company 1 from Company 2 and three others (“the Sellers”) by the following route:

1.      There will be a Sale and Purchase Agreement of Target Shares between the Purchaser and the Sellers. The Agreement will not only document the transfer of the Target Shares but all the corporate actions and documents that are required for a legally valid transfer of the Target Shares to be undertaken or furnished by both the Sellers and the Purchaser.

2.      A private limited company requires a minimum of 2 shareholders and hence, the Purchaser will have to nominate at least another individual to hold part of the transferred Target Shares.

According to Section I, Rule 3 of Chapter 14 of the Guideline for Foreign Exchange Transactions issued to ADs in Foreign Exchange by Bangladesh Bank, transfer of Bangladeshi shares and securities from one non-resident holder to another non-resident would not require prior Bangladesh Bank approval. Therefore, we are of the opinion that, no prior permission of Bangladesh Bank is required for the transfer of 100% shares of Company 1 from the Sellers to the Purchaser, both being non-residents.

However, in order to be on the safe side, it is advisable that Company 1 should seek necessary clarification from Bangladesh Bank and BOI regarding this matter.

Query 4: Company 1 is at present a private limited company. You require us to provide you with a checklist for the conversion of Company 1 from a private limited company to a public limited, including the changes in the Memorandum and Articles of Association which are necessary to effect conversion.

Opinion: The provisions for conversion of private company into public company is provided in section 231 of the Companies Act, 1994. Pursuant to the said provisions of law, in order to convert Company 1 into a public company, the following procedures need to be observed:

i)                    Raise the number of member up-to seven or more. Therefore, the numbers of shareholders of Company 1 has to be increased from 4 shareholders to at least 7 shareholders.

In order to increase the shareholders of Company 1, the Board of Directors of Company 1 has to issue a minimum of 1 (one) share each to 3 (three) new shareholders. However, before such issuance, the existing shareholders will have to give no objection letters addressed to the chairman stating that they have no objection to the further issue in order to satisfy the requirement under section 155 (1) of the Companies Act 1994.

ii)                   Hold an Extra-Ordinary General Meeting to alter the Articles of Association of Company 1 for the following amendments:

a)      to delete Article 5 from the Articles of Association so that the Articles of Association no longer include the provisions which, under clause (q) of sub-section (1) of section 2 of this Act, are required to be included in the articles of a private company. Article 5 should be revised to include provisions corresponding to clause (r) of sub-section (1) of section 2 of the Companies act, which are required to be included in the articles of a Public Limited Company.

b)      to  delete any reference of the word “private”,

c)      to amend/delete/revise those Articles which are not applicable to a public company in particular Articles 36, 37, 38, 39, 40, 41, 80, 101, 120 and 125.

iii)                 File with the Registrar of Joint Stock Companies (RJSC) within 15 days from the date of the EGM a copy of the Special Resolution.

iv)                 File with the RJSC within 30 days after the date of the EGM either a prospectus or a statement in lieu of prospectus containing the particulars set out in Part I and the reports specified in Part II of Schedule IV to the Companies Act subject to the provisions contained in Part III of that Schedule.

Please note that in accordance with section 231(2) of the Companies Act, 1994 if default is made in complying with the aforesaid provision regarding filing with the RJSC, Company 1 and every officer who is in default, shall be punishable with imprisonment or with a fine, or with both.

Query 5: Company 1 wants to acquire a publicly listed company and then merge with that company. In this way, Company 1 aspires to become listed with the Stock Exchange. What are the due diligence for the acquisition?

We understand that you have orally instructed us not to address the issue as stated in your query No. 5 since you do not require our opinion on this issue at this stage. Accordingly, we are not addressing the issue.

If you have any further query, please do not hesitate to contact the undersigned.

Thanking you.

Yours faithfully,


For: “The Lawyers & Jurists”