RE: Legal Opinion regarding amendment of the Memorandum of Association of COMPANY 1.
We refer to your letter no. COMPANY 1/Memart/2007/1330 dated 21 November 2007 and our legal opinions dated April 22, 2007 and August 09, 2007 on the above subject.
COMPANY 1 (“COMPANY 1”) is looking into the prospect of doing brokerage house business. In our opinion dated August 09, 2007, we gave our opinion that there is no express clause in the Memorandum of Association (“MoA”) of COMPANY 1 permitting COMPANY 1 to do stock brokerage business. Hence the Board of COMPANY 1 in its 97th Meeting has resolved that the MoA of COMPANY 1 be reviewed by us and room be created for carrying on stock brokerage business.
In the circumstances stated above, you have requested us to review the MoA of COMPANY 1 and to give our legal opinion regarding the changes are that required to be done to the MoA in order for COMPANY 1 to carry on stock brokerage business and all other businesses that COMPANY 1 may conduct within the scope of the Financial Institutions Act.
Please note that, according to Section 4 (b) of the Securities and Exchange Commission (Stock Dealer, Stock Broker and Authorised Representative) Rules 2000, no Merchant Banker, Portfolio Manager or Trustee of a Mutual Fund is eligible to obtain a registration certificate to act as a stock dealer or stock broker from Securities and Exchange Commission (“SEC”). We assume that is COMPANY 1 is already registered as a Merchant Banker or Portfolio Manager with SEC. Therefore, SEC may refuse to issue COMPANY 1 with a registration certificate to act as a stock dealer or stock broker.
Moreover, according to Section 15 (2) of the Financial Institutions Act 1993 (“the Act”), a financial institution shall not carry on any kind of business other than financing business and the business specified in the Financial Institutions Act.
When Section 2 (k) is read with Section (j) of the Act, it is apparent that a Financial Institution may only carry on the following businesses:
(i) Give loan or advances for industry, commerce, agriculture or housing, or
(ii) Carry on business of underwriting or acquisition of, or the investment or re-investment in shares, stock, bonds, debentures or debenture stock securities issued by the Government or any local authority, or
(iii) Carry on the business or hire purchase transactions including leasing of machinery or equipment, or
(iv) Finance venture capitals; and
including the business of merchant banks, investment companies, mutual associations, mutual companies, leasing companies or building societies.
The business of stock brokerage apparently does not fall under the permitted businesses, which a financial institution may carry on according to the Act. Therefore, COMPANY 1 may not carry on the business of stock brokerage by itself.
However, notwithstanding the above, COMPANY 1 may carry on the business of stock brokerage by incorporating another entity as a subsidiary company of COMPANY 1 or by acquiring Crest Securities Limited as a subsidiary of COMPANY 1 and then do the business of stock brokerage house through that Company, provided that:
1) The share capital, owned by COMPANY 1 in the new company, is less than 25% of the paid up share capital reserves of COMPANY 1 (in accordance with Section 16 of the Financial Institutions Act 1993);
2) COMPANY 1 has obtained all necessary permissions from all relevant authorities; and
3) provided that the following amendments are made to the MoA of COMPANY 1:
After Clause III (38), the following Clause be inserted as Clause III (39):
(39) To set up or operate any subsidiary enterprise as may be considered proper by the Company.
After Clause III (44), the following Clause be inserted as Clause III (45):
(45) To do any other business which the Government, Bangladesh Bank and/or any other body exercising lawful authority may from time to time specify as a form of business that is lawful for a financial institution to engage in and carry out all such activities as are permissible for a financial institution to perform under the Financial Institutions Act 1993 and any subsequent statutory amendment or replacement thereto or any other statute/ordinance;
COMPANY 1 may make the above alteration by a special resolution passed in a General Meeting of the company and the alteration shall take effect after it is confirmed by the High Court on petition.
Regarding carrying on all other businesses that COMPANY 1 may conduct within the scope of the Act, the MoA of COMPANY 1 already contains provisions for carrying on all the permitted businesses, which a financial institution may carry on according to the Act. Nevertheless, we suggest you to add the above new Clause III (45) to cover all future businesses which a financial institution may be permitted to do by the relevant authority or statute.
If you have any further inquiries please do not hesitate to contact us.
For: “The Lawyers & Jurists”