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Economic Analysis And Corporate law In An Organization

6341 Downloads I Published: 15 Jan ,2019


Corporate law is the part of company law which includes shareholders, directors, employees and other members. There is growing concern that in which various types of rights, duties and obligation which have to be follow by them. All people are liable for fulfil their duties according to law. Every company having a power to issue bonus share to their shareholders whenever they thinks fit. In the given scenario it has been stated that Waldmart Ltd is proposes to issue bonus shares to their existing shareholders and increasing their dividend as well to $1.25 cents which is more then last year's dividend with 25%. on the other hand, Jim Smith is the manager of better super Ltd who holding 4% share in the Waldmart. This person is also unhappy with the proposal of company related to issue of bonus share (Hillier, Grinblatt and Titman, 2011).

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Task 1

The rights of the company is mentioned in their constitution so that, they have to maintain their performance according to their rules and regulation which are mentioned in that. They have to follow various types of rules and regulation in order to smooth running of business and provide proper satisfaction to their shareholders. In the given scenario it is stated that Waldmart proposes to issue bonus share to their existing shareholders up to $1.25 which 25% more then last year's dividend. According to the constitution of Waldmart company is able to issue bonus share to them. Further, organization have a power to issue and they can issue whenever they think fit. Because constitution of this company give the power to issue bonus share. But share holders having no rights to compel them for not to issue the share in next AGM (Annual General Meeting). AGM is held by every company once in a year in which they take major decisions in this this meeting after discussion with other members (Gaughan, 2010). Every shareholders having a right to attend and and present their views on that as well through which they are able to take part in major decision of the company.

Constitution of organizations has mentioned various types of rights and duties which is have to fulfil the by company as well as by its members. If they not to do so they are directly liable for the punishment (Chen, 2011). Thus, organization issue this type share when they have excessive profit. According to given scenario it is clear that Waldmart proposes to issue bonus according to the constitution which is not in against of it. On the basis of law every firm having a rights and to issue them but they must ensure that have to follow all their duties and rules which is mentioned in the companies act, 2013. Various types of provisions are mentioned in this act which is have to use by them at the issue of shares. Shareholders play an important role in every business organization or they are taking part in the every major decisions which are taken by them (Tirole, 2010). At time of purchasing share they are also able to receive various rights. Every entity is responsible to protect those rights of them and try to provide services and dividend which they want according to the policies and procedure of act.

According to section 63 of companies act, 2013, Waldmart can issue bonus shares out of their reserves, security premium account which is maintained by every company and capital redemption reserve account. But before issue they have to follow further rules according to the Articles of Association of company (Branson, 2011). After that resolution must be passed in the board meeting which is recommended by the shareholders and also ordinary resolution must be paase4d by the general meeting. Further, bonus shares which is passed by the company are must be fulfilled all the terms and conditions which are mentioned in the Articles and Memorandum of association of the company.

On the basis of given case, Waldmart having a right to issue bonus share to their existing shareholder and according to the constitution of the company (Gevurtz, 2011). They can do so after passing resolution by shareholders. Waldmart only share those shares after pass resolution by their existing shareholders. This is the important procedures of every company. So that, in the given case shareholder can imposed restriction for issue of shares in next AGM. On the other hand, Jim Smith who is the manager of better super Ltd and hold 4% of shares in Waldmart Ltd. He is also against company for issue of bonus shares (Armstrong, Balakrishnan, and Cohen, 2012).

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In case Chandrakant Mulraj v Tata engg. Locomotive co. Ltd (1985), it has been stated that the issue of bonus share is able to increase the number of shares of company (Sun, Stewart and Pollard, 2010). Through this companies are able to improve their market presence.

Task 2

According to companies act, 2013 every after issue bonus shares or any type of legal activity must able to received resolution which is passed by the shareholders. Shareholders are the members of the company which are hold the share and received dividend against them. According to the corporate law shareholders are not liable for the liability of corporate but only liable up to the amount of their shareholdings. But they responsible ton pay amount to the company in which price they receive from them (Lynn, 2011). When person purchased share from them they get membership and along with this they also receive some rights which are as aligned below:

The shares which they purchased, having a right to sell them and also they are able to received dividends. Also having a rights to purchased further shares whenever company issued. So that, on the basis of given scenario shareholders are able to stop directors from increasing the dividends when it is commercially unwise to do so. Waldmart is not able to do any thing which is against the commercial and not in a right to do it. In the corporate law it is clearly mentioned that directors can able to issue bonus shares which are according to the law and follow the provision which is according to act (Olson and Briggs, 2011). No company can go again to the law otherwise they have to face various types of complexities which are against to provisions.

According to given scenario Waldmart is not able to share bonus shares to their existing shareholders if it is against the law and not enforceable by law at any cost. Every companies responsible to follow guidelines which are mentioned under to act. Otherwise National Companies Law Tribunal is can able to take action against them and also imposed them some restriction on them and they to fulfil guidelines which are provided by them. Shareholders are able to stop directors which for any wrongful act which is done by the company (Hiller, 2013). Authority gives an better advantage to shareholders for take best decision regarding company and try to avoid things which are against the law. They have to make sure that Waldmart have to take corrective actions which are according to the law and able to comply with the mentioned provisions as well. According to the given scenario companies are able to fulfil rules, regulations and duties which they have to be follow them.

Task 3

According to the given scenario, shareholder are able to vote against remuneration report and a second strike is achieved them Waldmart have to face various types of consequences which is not at all beneficial for them (Agrawal, 2013). These consequences are able to drag down the performance of organization and try to avoid things which are not beneficial for them as well. If shareholders are against the decision then company not able to survive because through this resolution is not be passed. In strike employees are temporary stop work. During this period companies have to redress the grievances of their customers. But there must be legal strike which are enforceable by law. Illegal strikes are not be consider the companies because these are not enforceable by law (Belal and Roberts, 2010). There is a growing concern, that it must be used by shareholders or any person in order to change policies and rules which are continuously used by them. Further, various types of consequences are faced by the Waldmart and its directors as well (corporate laws. 2016). Some consequences are as aligned below:

If shareholders are vote against the remuneration report then resolution is able to pass and company as well as its directors are not able to take decision regarding any matter.

Through strike companies are not able to easily survive in the market and which can drag down their performance as well. If second strike is received then Waldmart have to redress the grievances of their members and fulfil their rights as well. In this condition companies are not able to grow and also loss their development process. They are not able to easily attain their target and objectives (Muchlinski, 2012). Through they are loss market present which reduce their profit margin. Waldmart is not able to comply with the standard level of rules and regulation. Also they have to follow entire rules and policies which are mentioned in the Companies act.

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According to the given scenario, if shareholders and Jim Smith who is also a shareholder of Waldmart and holding 4% shares of company are vote against the remuneration report then and received second strike then various types of consequences are faced by the company as well as its directors. According to the corporate law, if companies are going to issue bonus share then they have to get an resolution which is passed by their shareholders (Martynova and Renneboog, 2010). This is the main procedure of companies act which is followed by every organization. At the time of taking major decision they have to take advice or consent through resolution which is passed by them.


On the basis of above report it has been concluded that, every company is able to issue bonus shares to their existing shareholders whenever they thinks fit. According to given scenario Waldmart is proposes to issue bonus share to their shareholders which they can be do so because it is clearly mentioned in their constitution. If they are not giving vote to the remuneration report. Through this companies as well as its directors are able to consequences which are not even good for their success. Further, shareholders play an important role in every business organization through their decision are also very important them which they provide through resolution which is passed by them.


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