Legal Opinion regarding declaration of Stock Dividend by Company 1.

Mr. Z

Address….

Dear Sir,

RE: Legal Opinion regarding declaration of Stock Dividend by Company 1.

We refer to your letters dated May 09, 2007 and May 13, 2007 and our letter dated May 12, 2007 on the above subject.

From perusal of your letter and the provided documents it appears that, Company 1 (“COMPANY 1”) is offering its share through Initial Public Offer (“IPO”). The subscription started on May 06, 2007 and ended on May 10, 2007. The lottery for the allotment of the said subscription was held on June 12, 2007.

In these circumstances, you have requested us to give our legal opinion regarding the following issues:

a)      Whether it will be in order for COMPANY 1 to recommend stock dividend against profit for the year 2006 in their board meeting to be held on May 14, 2007 and to declare the stock dividend in the AGM to be held within May 2007.

b)      Whether the IPO allotees, in whose favour allotment letters will be issued by COMPANY 1 after 12 June 2007, can dispute the said action of COMPANY 1.

OUR OPINION:

First Query:

Whether it will be in order for COMPANY 1 to recommend stock dividend against profit for the year 2006 in their board meeting to be held on May 14, 2007 and to declare the stock dividend in the AGM to be held within May 2007.

Response:

COMPANY 1 has a legal obligation under section 81 of the Companies Act 1994 to hold a general meeting called the annual general meeting every year but so that not more than fifteen months elapse between the meetings. Moreover, according to section 184 of the Companies Act, a report of the Boards of Director of COMPANY 1, with respect to, inter alia, the amount, which the Board recommends should be paid by way of dividend, has to be attached to every balance sheet and has to be laid before the company in the general meeting.

Dividend normally has to be declared and paid in accordance with the Articles of Association of a company. We have not been provided with the Articles of Association of COMPANY 1.

Provided that, COMPANY 1 operates within the provisions of its Articles of Association when they recommend stock dividend against profit for the year 2006 in their board meeting to be held on May 14, 2007 and declare the stock dividend in the AGM to be held within May 2007, we are of the opinion that, COMPANY 1 shall be acting within the law.

Second Query:

Whether the IPO allotees, in whose favour allotment letters will be issued by COMPANY 1 after 12 June 2007, can dispute the said action of COMPANY 1.

Response:

According to law a company is under a duty to pay dividends to those members whose name appear on the register of members at the time of declaration of dividend.

According to section 42 of the Companies Act, a company may, on giving seven day’s previous notice by advertisement in some newspaper circulating in the district in which the registered office of the company is situated, close the register of members for any time or times not exceeding in whole forty-five days in each year but not exceeding thirty days at a time.

As a general rule, companies rely on the said section 42 and close their register of members for a period of time up till holding the AGM. The shareholders, whose name appears in the register of members on the closing date of the register, are the ones who are entitled to the dividend of that year.

In the present case, COMPANY 1 shall recommend stock dividend against profit for the year 2006 in their board meeting to be held on May 14, 2007 and shall declare the stock dividend in the AGM to be held within May 2007. If the register of members of COMPANY 1 is closed for a period of time up till the holding of the 2006 AGM then  the shareholders, whose name appear in the register of members of COMPANY 1 on the closing date of the register, shall be the only ones who shall be entitled to the dividend of 2006.

The IPO allotees will be issued allotment letters by COMPANY 1 after 12 June 2007. Consequently, their name will appear on the register of members at a date after 12 June 2007. As such, we are of the opinion that, the IPO allottees are not entitled to the stock dividend of 2006, which shall be declared on May 2007 by COMPANY 1. Therefore, the IPO allotees have no legal right to dispute the declaration of dividend for the year 2006 by COMPANY 1.

If you have any further inquiries, please do not hesitate to contact us.

Thanking you.

Yours faithfully,

………………….

For: “The Lawyers & Jurists”

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