1.

Introduction to Companies Page 1

Ch # 1: Introduction to Company Law and Companies

This chapter deals with the basics of the Companies Act 2017, and different type of
companies allowed to be registered under the Companies Act 2017. Moreover this
chapter highlights the authorities under the Companies Act 2017 that can exercise
powers on the registered companies. The chapter also highlights a special type of
association that is registered under the Companies Act 2017 to act as an association not
for profit.

Main Contents of the Chapter

 Introduction of Companies Act 2017
 Type of Companies
 Authorities under Companies Act 2017
 Association not for profit

Syllabus Area Covered by the chapter

A 1.1: Companies Act, 2017

(Section 1-8, 14(2), 42-44, 45, 52, 54, 254, 255)
A 1.4: Companies (General Provisions & Forms) Regulations, 2018
(Regulation 8)

Level of Completeness:
100% (except referential & transitional provisions)
1. Introduction to Companies Page 2

Introduction of Companies Act 2017

Short title, extent and commencement (Sec 1)

 Name: Companies Act, 2017

 Extends to Whole Pakistan

Company – 2(17)
A company formed and registered under this Act or the company law;

Company law – 2(18)

The repealed Companies Act, 1913 (VII of 1913), Companies Ordinance, 1984(XLVII of 1984), Companies
Ordinance, 2016 (VI of 2016) and also includes this Act unless the context provides otherwise;

Body corporate or Corporation – 2(9)

Includes
 A company incorporated under this Act or company law; or
 A company incorporated outside Pakistan, or
 A statutory body declared as body corporate in the relevant statute, but does not include
- A co-operative society registered under any law relating to cooperative societies; or
- Any other entity, not being a company as defined in this Act or any other law for the time being
which the concerned Minister of the FG may, by notification, specify in this behalf;

Application of Act to non-trading companies with purely provincial objects (Sec 3)

For not trading corporations, whose objects are confined to a single Province
 Minister-in-Charge (Minister) of the Provincial Government (PG) may exercise the powers
of concerned Minister of the Federal Government (FG) or Commission (SECP)
 Where licence is issued by PG or its concerned Minister under this section, the company
shall mention this fact in all its documents.
 If such a company extends its operational activities beyond territorial limits of respective
province, it shall be liable to a penalty of level 3 and be wound up on application by SECP.

Different levels of penalty suggested by the Companies Act, 2017 (Sec 479)

Level Limit of penalty Per day penalty during which the default continues
1 Upto Rs.25,000 Upto Rs.500
Tutor 2 Upto Rs.500,000 Upto Rs. 1,000
Note 3 Upto Rs.100 million Upto Rs.500,000

Act to override memorandum, articles, etc. (Sec 4)

 The provisions of this Act shall have effect notwithstanding (despite) anything contained in
any other law or MOA or AOA or in any contract or agreement executed by it or in any
resolution passed in general meeting directors meetings.
 Any conflicting (with Companies Act) provision contained in such documents shall be void.
1. Introduction to Companies Page 3

Type of Companies

In your earlier papers you have understood that companies have some distinguishing
features over partnerships and sole proprietorships such as:
Separate legal personality
 Company can enter into contracts with other persons
Tutor  A company owns its own assets
 A company is personally liable to pay tax on its income (profits).
Note
Limited liability
The liability of the owners of a company for the debts of the company is limited to the
amount of their investment in the company.
Transfer of ownership and perpetual succession
 Shareholders can transfer their share in the ownership of company to someone else,
 It does not affect the legal status or legal existence of company.
 Company continues to exist (unaffected by change in ownership)

Companies by virtue of registration

Under Companies Act 2017 (Sec 14), a company may be registered as:
 Company limited by shares
 Company limited by guarantee
 Unlimited Company

Company limited by shares – Sec 2(20)

A company; having the liability of its members limited by the memorandum to the extent of amount, if
any, remaining unpaid on the shares respectively held by them;

Company limited by guarantee – Sec 2(19)

A company having the liability of its members limited by memorandum to such amount as the members
may respectively thereby undertake to contribute to the assets of the company in the event of its being
wound up;

Unlimited company – Sec 2(71)

A company not having any limit on the liability of its members;

Additional provision as to companies limited by guarantee (Sec 45)

 A company limited by guarantee may have share capital.

 Every provision in the MOA/AOA, or in any resolution, declaring to divide the undertaking
of the company into shares or interests shall be treated as a provision for a share capital
(even if the nominal amount or number of the shares or interests is not mentioned at all).
 For company limited by guarantee and not having a share capital, every provision in MOA/
AOA/ any resolution aiming to give any person, other than member, a right to participate in
the divisible profits of the company shall be void.
1. Introduction to Companies Page 4

Public and Private Companies

Public company – 2(52)

A company which is not a private company
Listed company – 2(38)
A public company, body corporate or any other entity whose securities are listed on securities exchange
Private company – 2(49)
A company which, by its articles,—
 Restricts the right to transfer its shares, if any;
 Limits the number of its members to 50 not including persons who are in employment of company;
 Prohibits any invitation to the public to subscribe for the shares, if any, or debentures or redeemable
capital of the company:
Provided that, where two or more persons hold one or more shares in a company jointly, they
shall, for the purposes of this definition, be treated as a single member
Single Member Company – 2(65)
Which has only one member.
(Process of registration is same as private companies)

Non complying the restrictions of private company as imposed by definition (Sec 52)
 Company shall cease to be entitled to the privileges and exemptions of private companies
 Company or any other interested person can apply to SECP for relief from consequences:
 SECP may make an order of relief, on terms and conditions deemed fit, if it is satisfied that:
- Failure to comply was Accidental or due to inadvertence or other sufficient cause or
- On other ground it is just and equitable to grant relief

Holding company and subsidiary company

Holding company - 2(37)

Company which is another Co’s holding company if, but only if, that other company is its subsidiary;

Subsidiary company or Subsidiary - 2(68)

In relation to any other company (i.e. holding), means a company in which the holding company
 Controls the composition of the board; or
(can appoint or remove all or a majority of the directors)
 Exercises or controls more than 50% of its voting securities either by itself or together with one or
more of its subsidiary companies (layers):
Provided that such class or classes of holding companies shall not have layers of subsidiaries
beyond such numbers, as may be notified,
A company shall be deemed to be a subsidiary company of the holding company even if the
above control is of another subsidiary company of the holding company;
Note: the expression “company” includes any body corporate;

Wholly owned subsidiary” - 2(74)

A company shall be deemed to be a wholly owned subsidiary of another company or the statutory body if
all its shares are owned by that other company or the statutory body.
1. Introduction to Companies Page 5

Authorities under Companies Act 2017

Securities and Exchange Commission of Pakistan – The SECP (Sec 7, 8 & 54)

 SECP shall exercise such powers and perform such functions as are conferred by this Act.
 Such powers and functions of SECP shall be in addition to those given in SECP Act, 1997.

Reference to the Court

 Concerned Minister of Federal Government or SECP may make a reference to the Court
 Reference can be made on any question or matter, considered to be of special significance,
requiring orders etc concerning affairs of company/class of companies/action of officer.
 Officer in this section includes an auditor, liquidator or agent of the company.
 On such a reference, court may make such order as it may deem just and equitable.

 SECP commenced its operations on 1st January 1999.

 SECP replaced Corporate Law Authority
 SECP regulates the affairs of Companies, Insurance Companies, Banking Companies,
Modarbas & Non-Banking Finance Companies
 SECP’s Head office is at Federal Capital, Islamabad
Tutor  SECP has 8 regional offices
Note - 1 at Federal Capital i.e. Islamabad
- 4 at provincial capitals
- 3 in other major cities i.e. Multan, Faisalabad and Sukkur.

Service of documents on SECP or registrar

A document or information may be served on SECP or registrar against an acknowledgement

or by post or courier service or through electronic means or in any other manner as may be
specified.

Document - 2(26)
Includes any information or data recorded in any legible form or through use of modern electronic
devices or techniques whatsoever, including books and papers, returns, requisitions, notices, certificates,
deeds, forms, registers, prospectus, communications, financial statements or statement of accounts or
records maintained by financial institutions in respect of its customers;

E-service - 2(27)
Any service or means provided by the SECP for the lodging or filing of electronic documents

Electronic document - 2(28)

Includes documents in any electronic form and scanned images of physical documents
1. Introduction to Companies Page 6

Reg # 8 - Companies (General Provisions & Forms) Regulations, 2018

Service of documents on Commission, registrar or company
 An application/document required to be submitted to SECP/Registrar as per companies
Act shall, unless otherwise proved, be deemed to have been received or delivered to it or
him on the day on which it is received by its or his office.
 An application or any document required to be served on the company/officers as per
Companies Act or related rules or regulations shall be served at the registered office of the
company against an acknowledgement or by post or courier service or through electronic
means including facsimile and email or by leaving it at the registered office of the company.
(A document may also be served at residential address of officers if deemed necessary)

Registrar

Registrar - 2(57)
A registrar, an additional registrar, an additional joint registrar, a joint registrar, a deputy registrar, an
assistant registrar or such other officer as may be designated by SECP, performing duties and functions
under this Act;

Power of registrar to call for information or explanation (Sec 254)

 Where registrar is of opinion that any information, explanation or document is necessary

with respect to any matter in any document submitted to him or received by him, he may,
by a written order, call upon company and any of its present or past directors, officers or
auditors to furnish such information, explanation or document, within 30 days
 Person who ceased to hold office more than 6 years before date of order not be compelled
 It shall be the duty of company and all above specified persons to furnish the required
information, explanation or documents
 If no or inadequate information/explanation is furnished; Registrar may call for inspection
of such books and papers as considers necessary within specified time
 It shall be duty of company and such persons to produce such books and papers.
 If company/any person refuses or makes default in following requirements of this section
- Company shall be liable to level 2 penalty; and
- Every defaulting officer shall be punishable with imprisonment of either description for
a term of not more than 2 years, and be liable to fine which may extend to Rs. 1 million
- Court may make an order directing the company to produce such books or papers
 On receipt of such information or explanation or books and papers, registrar may annex
the same (or any copy/extract) to the original document submitted to him
 Registrar may attach info/explanation/books or copy/extract of it with original document
 If info/explanation/books not furnished within specified time, or is unsatisfactory
Registrar may report the circumstances in writing to SECP.
1. Introduction to Companies Page 7

Seizure of documents by registrar, inspector or investigation officer (Sec 255)

 If registrar, inspector or investigation officer has reasonable ground to believe that books
and papers relating to, any Company/Chief Executive/Officer/Associate may be destroyed,
mutilated, altered, falsified or secreted, he may, after obtaining permission of SECP:
- Without warrants, enter such place where such books and papers are kept;
- Search that place in the manner specified in order; and
- Seize / retain such books and papers, or any other item, as he considers necessary.
 Registrar may also authorise any officer (not below the rank of assistant registrar) for this
 Registrar shall return books and papers seized as soon as may be (not later than 30 days)
 SECP may, after providing Company an opportunity to show cause against order proposed
to be made by it, allow registrar to retain such for a further period not exceeding 30 days:
 Registrar may, before returning take copies/extracts or put identification marks
 Every search or seizure made under this section shall be carried out in accordance with
provisions of Code of Criminal Procedure, 1898 (Act V of 1898)
 A search-warrants from the concerned Magistrate may be obtained where:
- He thinks that any person or occupants of any place may create hindrance, resist search;
- Such document or thing is not known to be in the possession of any person;
- General search is required for any proceedings, inspection or investigation; or
- Any person will not or would not produce any document or thing as required
 After obtaining warrant he may also direct local police, authority or any agency to provide
necessary assistance to such person.

Further Retention / Freezing

 In case of seizure of any property, material or thing in relation to any offense under this Act
or administered legislation (as per SECP Act 1997) or scheduled offences, he may retain the
same as a case property and produce it as and when required during the trial as per law.
 If SECP has reason to believe that it is proceeds of crime of any offence under this Act or
administered legislation, it may pass an order to freeze account, securities and any other
property etc for not more than 30 days.
 Any aggrieved person may approach the Court and obtain order for release of aforesaid
after expiry of 30 days of such seizure/freezing etc, if he can satisfy the Court that the same
is not associated with any offence under this Act or any administered legislation
 Court while passing release order may impose such restriction and condition as deemed fit.

Court (Sec 5, 6)

Court - 2(23)
A Company Bench of a High Court having jurisdiction under this Act;

Jurisdiction of the Court

 Court shall be High Court having jurisdiction at the place of registered office of company.
 No civil court or any other court shall have jurisdiction to entertain cases of companies
 For winding up, the place which was registered office of Co for longest duration during
preceding 180 days shall be taken for considering jurisdiction
1. Introduction to Companies Page 8

Creation of Benches

 In each High Court, there shall be one or more company benches on permanent basis
 These to be constituted by the Chief Justice of relevant High Court
 There shall be a Registrar (Registrar of Company Bench) duly notified by Chief Justice of
respective High Court who shall be assisted by any officers assigned by that Chief Justice.
 Registrar shall perform all functions assigned to it under this act including all ministerial
and administrative business (e.g. receipt of petitions, applications, written replies, issuance
of notices, service of summons and other functions or duties as may be prescribed u/s 423)
 Chief Justice, if think fit, may also establish a secretariat in each Company Bench in a
prescribed form and manner to provide secretarial support and other prescribed functions.

Procedure of the Court

Written submissions to the court

 All written submissions to the Court shall be filed with Registrar of Company Bench.
 Written submissions shall, among other things, include:
- A petition/application setting out concise statement of facts, grounds and relief claimed;
- A written reply with particulars of set off, if any;
- Affidavit(s) of facts by petitioner/applicant/respondent/other persons in support of the
case, duly attested by the oath commissioner (or as may be provided under the rules);
- Any other relevant documents in possession of petitioner/applicant/respondent
- Any application for discovery of documents or interim injunction, if required;
- A list of any case law along with a summary of same on which petitioner/applicant is
placing reliance;
- Address for effecting service, mobile number, email and fax or any other mode notified
by the Court; and
- Any other document as may be required by the Registrar of the Company Bench.

Issuance of summons to respondents

 Where any petition or application is filed, summons may be issued by Registrar along with
a copy of petition or application and annexed documents annexed therewith
 It shall be served on respondent through any one or more of the following modes:
- The bailiff (court official)
- Process-server of Court, through registered post by courier
- By publication in one English language and one Urdu language daily newspaper
- Through electronic modes (if so directed by the Court) in addition to other modes
 Respondent shall file a written reply and particulars of set-off (if any) with the concerned
Registrar within 30 days from date of first service
 If respondent fails to file the reply, a report shall be submitted by Registrar before Court
 Court may proceed ex-parte and announce final order on the basis of documents available.
1. Introduction to Companies Page 9

Presentation of the case before court

 On proper receiving of all written submissions and after ensuring that all copies properly
supplied to parties, Registrar shall present the case file to the Court on a day fixed under
notice to parties, within 45 days of the first service of notices or any extended time by court
 Court, after consulting counsel of parties, shall fix a date and allocate time for hearing.
 No adjournment shall be granted once the Court has fixed a date of hearing
 It is duty of parties to ensure presence of their respective counsel / alternate arrangements
 Only in exceptional circumstances beyond control of a party, Court may grant another
opportunity of hearing
(subject to payment of Rs.10,000 or such higher amount as may be determined by Court)

Process of hearing:
 Court shall continue with the proceedings and decide the matter on the basis of documents
and affidavits placed before Court, in a summary manner
 Court shall pass final orders within 120 days from date of presentation of the case
 Court may, if it is in the interest of justice, conduct the proceedings on a day to day basis
 Court may, if deems fit, may impose costs up to Rs 100,000/- per day or such higher
amount as the Court may determine against any party to the proceeding causing the delay.

Cross Examination
 If court thinks fit, in exceptional circumstances, it may order attendance of the relevant
deponent (depositor of affidavit etc) for cross examination by such opposing party as the
Court deems fit
- Court may refer the matter to Registrar or any other for recording of cross examination
- Recording of cross examination shall be completed within 30 days from date of order
(Extension till additional 15 days on payment of Rs.10,000/- or any higher amount)
- All questions and answers along with objections shall be duly recorded in writing;
- Registrar shall have the powers of Civil Court under the Code of Civil Procedure, 1908
for the purposes of this cross examination
 Court may take notice of serious misstatements and non-disclosure of facts by any party
and dismiss petition or application or close the right of defence and pass a final order
(higher of costs of proceedings or fine up to Rs.100,000/- shall be levied on defaulting one)
 Registrar shall place any application for interim relief including any interlocutory order
before the Court for adjudication immediately upon its filing.
 Provisions of the Qanun-e-Shahadat (Order)1984 and the Code of Civil Procedure, 1908
shall not apply to the proceedings under this section except to such extent as the Court may
determine in its discretion.

Appeal to Supreme Court

 Any person aggrieved by any judgment or final order of Court may, within 60 days, file a
petition for leave to appeal in the Supreme Court of Pakistan:
 No appeal or petition shall lie against any interlocutory (temporary) order of Court
1. Introduction to Companies Page 10

Association not for profit (Sec 42 to 44)

Licence from SECP

 Licence may be granted if SECP is satisfied that:

- It is formed as limited company for promoting commerce, art, science, religion, health,
education, research, sports, protection of environment, social welfare, charity or any
other useful object;
- It intends to apply the company’s profits and other income in promoting its objects; and
- It prohibits the payment of dividends to the company’s members; and
- Such company’s objects and activities are not and shall not, at any time, be against the
laws, public order, security, sovereignty and national interests of Pakistan,
 Such association shall not add the words “Limited” or “(Guarantee) Limited”, to its name.
 Licence may be of a specific period
 Licence may be granted on such conditions & subject to such regulations as SECP thinks fit
 Those conditions shall be inserted in and deemed part of MOA and/or AOA.
 MOA & AOA shall be in accordance with the form set out in Table F in the First Schedule or
as near thereto as circumstances admit and approved by the SECP.
 Association shall enjoy all privileges and be subject to all obligations of a limited company.

Revocation of Licence

SECP may at any time by order in writing, revoke such licence with such directions as it may
deem fit, on being satisfied on any of the following:
 Company/management has failed to comply with any of the terms or conditions of licence;
 Any of the requirements of this section or any connected regulations are not met;
 Affairs of company are conducted in a manner prejudicial to public interest; or
 Company has made a default in filing with registrar its financial statements or annual
returns for immediately preceding 2 consecutive financial years;
 Company has acted against the interest, sovereignty and integrity of Pakistan, the security
of the State and friendly relations with foreign States;
 Number of members is reduced, below 3;
 The company is
- Conceived or brought forth for unlawful or fraudulent activities;
- Run and managed by persons who fail to maintain proper and true accounts or they
commit fraud, misfeasance or malfeasance in relation to the company;
- Run and managed by persons involved in terrorist financing or money laundering;
- Managed by persons who refuse to act according to MOA or AOA or the provisions of
this Act or failed to carry out the directions or decisions of the SECP or the registrar; or
- Not carrying on its business or is not in operation for 1 year; or
 It is just and equitable that the licence should be revoked:
Before revocation, SECP shall give notice and an opportunity to be heard to the company
1. Introduction to Companies Page 11

Effect of revocation of licence

 Company shall stop all its activities except the recovery of money owed to it, if any;
 Company shall not solicit or receive donations from any source; and
 All the net assets of the company shall, in a specified manner, be transferred to another
company licensed u/s 42, preferably having similar or identical objects, within 90 days of
revocation or any extended period (if allowed by the SECP)
 After such transfer, the members and officers of the first company or any of their family
members shall not be eligible to hold any office in later company for next 5 years.
 A reasonable amount to meet expenses of voluntary winding up or making an application
to the registrar for striking off the name may be retained by the company.

Process
 After compliance of above requirements, BOD shall file within 15 days, a report to registrar
containing such information and documents as may be specified.
 Within 30 days of acceptance of the report by registrar BOD shall
- Initiate necessary proceedings for voluntary winding up; or
- Make an application to registrar for striking the name of company off the register
(if it has no assets and liabilities)
 If requirements not complied with on a timely basis; SECP may appoint an administrator to
manage affairs of company and initiate proceedings for winding up.
 The provisions of this act (section 291) shall apply mutatis mutandis to this administrator

Any officer making default in complying with any requirement of sections 42 & 43 shall, along
with other actions, be punishable by a penalty not exceeding level 2 (Sec 44)
Other Restrictions on Association Not for Profit
 Payment of remuneration by company or its subsidiary entity for services or otherwise to
members of the company (or their family member) shall be prohibited (whether holding
Circular an office in the company/subsidiary or not)
 This prohibition shall also apply till 5 years after a member quits from his membership
 Subscribers to MOA & AOA shall continue to be a member unless allowed by SECP
(Proposed new director in that place shall not be appointed unless allowed by SECP)
 Application to quit from membership and new director shall be submitted to SECP (in
terms of Rule 30) including the following documents regarding the incumbent director
- Copy of CNIC or Passport (if a foreign national)
- Minutes of meeting where proposal to appoint/opt new director was approved
- Resume along with affidavit by incumbent director / member that he/she
a) Has sufficient skills, expertise & resources for attainment of objects of
company;
b) Has not been associated with money laundering or terrorists financial
activities;
c) Is not defaulter of loans etc
 Company shall not (directly/indirectly) participate in any political campaign for elective
public office or other political activities similar to those of a political party or contribute
any funds or resources for any such cause (Just like section 184 of Companies Act)