PAPUA NEW GUINEA UNIVERSITY OF TECHNOLOGY

DEPARTMENT OF BUSINESS STUDIES

AC414 - COMPANY LAW LECTURE NOTES

UNIT TWO- FORMATION OF THE COMPANY

UNIT CONTENT
Study Unit Title Learning Page
Outcomes
2.1 INTRODUCTION KAC 2
2.2 Ways of forming Companies KC 2
2.2.1 By Royal Charter (Chartered Companies) KC 2-3
2.2.2 By Act of Parliament (Statutory Companies) KC 3
2.2.3 By Registration (Registered Companies) KC 3
2.2.3.1 Certification & Registration of foreign KCA 3-4
Companies
(a) The first option is to register as an Overseas KCA 4-5
Company in PNG
(b) The second option is to incorporate/register a KCA 5
new company in PNG
2.2.3.2 Incorporation/Registration of Companies KCA 5
(a) Right To Apply for Registration KCA 5
(b) Forms to Complete KCA 5-6
(c) IPA Fees KCA 6
(d) Electronic Filing KCA 6
(e) Essential Requirements KCA 6-7
(f) Application for Registration KCA 7
(g) Registration & Certificate of Incorporation KCA 7-8
(h) Post Incorporation Requirements KCA 8
(i) Company Seal KCA 8
(ii) Registration for VAT and GST purposes KCA 8
(iii) Employment Register KCA 8-9
(iv) Goods and Services Tax (GST) KCA 9
(v) Trading licences KCA 9
(vi) Opening a Bank account for the company KCA 9

Unit Objectives
By the end of this Unit, students will be able to register a company. They will know the process
involved, the relevant legislations to consult, the forms to use, the appropriate authorities to
consult during registration of companies and the fees involved in incorporating a company.

Learning Outcome

INITIALS WORDS PARTICULARS

A Application Draw, Design, Apply, evaluate, Synthesise

etc.

C Comprehension Explain, Discuss, Differentiate etc.

K Knowledge Define, Identify, List etc.

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DEPARTMENT OF BUSINESS STUDIES

2.1 INTRODUCTION

In order for individuals or groups of people to engage in business activities with the
aim of making profit, it is prudent to incorporate/register a business entity. The type
of business entity registered and used depends on the concerned individual(s).

In Papua New Guinea (PNG) there are various business entities that can be registered
and used as vehicles to conduct business activities. They include Sole Proprietorship,
Agency, Partnership, Joint venture, Trust, Company etc.

It is important to note that companies and other business entities in PNG are creatures
of statute1. As such, they are governed by their respective legislations.

In PNG, the legislation(s) that govern companies are the Companies Act 1997
together with its amendments2 and the Companies Regulation 1988.

Note that the process of incorporating a company in PNG is quite simple and
relatively cheap compared to other jurisdictions.

2.2 WAYS OF FORMING COMPANIES

In the United Kingdom (UK) and its former colonies3 there are three main ways in
which a company can be formed. These are;

2.2.1 By Royal Charter (Chartered Companies)

A royal charter can be defined as a grant or right issued by a monarch under

royal prerogative to an individual or corporation to start a company.4

Companies created by royal charter are known as chartered companies5.

Promoters6 of the proposed company petition the Privy Council7 attaching

draft proposed Charter to the petition.

1 Lord Halsbury LC remarked in Salomon v Salomon & Co Ltd 1; “Companies are creatures of statute and must
therefore be governed by the statute itself,”
2 The recent amendment being Companies (Amendment) Act 2014
3 Most of the United Kingdom’s former colonies are now members of the Commonwealth, thus are often referred
to as commonwealth nations. Papua New Guinea is a member of the Commonwealth.
4 FinacBooks.com/uk/royal-charter
5 A Chartered Company is defined as “an association with investors or shareholders that is incorporated and
granted rights (often exclusive rights) by royal charter (or similar instrument of government) for the purpose of
trade, exploration, and/or colonialization.”... En.m.wikipedia.org/wiki/Chartered company
6A Promoter is a person who is engaged in promoting the formation and incorporation of the Company. He
conceives the idea of setting up the business and took the steps for the formation of the Company. However, the
persons who assist in the incorporation of the company are the Professionals and not the promoters.
https://learn.quicko.com ›
7“Privy Council is a formal body established with a group of senior politicians from House of Lords of House of
Commons that provide advise to the monarch on these government businesses that fall out of departmental
ministries including issuing orders of council.”… FinacBooks.com/uk/royal-charter

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DEPARTMENT OF BUSINESS STUDIES

The formation and use of this types of companies has become outdated
because of other efficient methods of incorporating a company.

These days, royal charter is mainly used to incorporate learned societies and
professional bodies whose main aim lies in public interest. Examples include
BBC, Bank of England, the Royal Opera House etc.

More importantly, in contemporary society, Royal Charter is no longer used

to incorporate trading companies.

2.2.2 By Act of Parliament (Statutory Companies)

Companies can and are also formed by the Parliament passing an Act.

Companies formed through the passing of legislation are referred to as

statutory companies and are essentially a government entity.

The nature of each statutory corporation and control of same is provided in the
Act of Parliament that created it. Thus, each statutory corporation is different
from others.

Examples of Statutory Corporations in PNG include Papua New Guinea Forest

Authority (PNGFA), National Fisheries Authority (NFA), Internal Revenue
Commission (IRC), Intellectual Property Office of PNG (IPOPNG),
Independent Consumer & Competition Commission (ICCC) etc.

Note that there have been several instances where the government of PNG has
privatized statutory corporations. When that happens, the statutory corporation
is incorporated as a registered company under the Companies Act 1997.

2.2.3 By Registration (Registered Companies)

In PNG most companies have been and are formed by registration under the
Companies Act 1977 (as amended) or one of the preceding Companies Act.

The Investment Promotion Authority (IPA) is responsible for the

administration of the Companies Act 1977.

Apart from the IPA, Provincial Governments and Urban Authorities also issue
various licenses8. It is the responsibility of the interested persons to ensure
they comply with all the relevant laws.

Despite a few differences, the registration of both domestic and foreign

enterprises/companies9 are catered for by the companies Act 1997.

2.2.3.1 Certification & Registration of Foreign Companies

8 Usually referred to as Trading License and allow for an incorporated company to conduct business in the
province that issues it.
9 Foreign Company or enterprise is a business entity which is wholly owned or that is 50 percent or more owned or

controlled and managed by non-citizens.

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All foreign enterprises/companies intending to ‘carry on business’10 in PNG

must first apply for certification with the IPA11. The application form to use is
form 3 under schedule 1 of the Investment Promotion Regulation 1992.
Supporting documentation which normally go together with form 3 includes:
- Copy of Certification of Incorporation, and
- Budget/Cash flow forecast, and
- Positions and nationalities of staff to be employed, and
- CV or Personal Profile, and
- Police clearance report or Character check, and
- Passport copy, and
- Value of initial capital investments, and
- Copies of any agreements.

Note that it is mandatory for overseas companies to register with IPA12.

They can then register a company under the Companies Act 1997. However, at
this point, the foreign investor has two options as to how to go about
registering a company;

(a) The first option is to register as an Overseas Company in PNG.

What is the process?

Companies Act 1997 states that an application for registration of an overseas

company13 shall be submitted to the Registrar in the prescribed form14 which
is form 46.

Note that form 46 and other relevant forms ensure that the essential
requirements as stipulated in the Companies Act 1997 are met. These includes
requirements such as companies including copies of its certificate of
incorporation and constituent documents with the application, having, at least
one director who is a resident of Papua New Guinea, or having, a registered
office that is accessible to the public, or having an address for service that is
not a postal address, or having a constitution (this is not mandatory but rights
will be limited without one), or having an official company name ending with
the abbreviation “Ltd”, and a business name used for trading purposes.

Once this form has been properly completed it is to be forwarded to the

Registrar, who upon receiving same must register the application and issue a
certificate of registration15.

Note also that if ‘the Registrar receives a notice of a change of name or

alteration of constitution other particulars of an overseas company’16, the

10 See section 382 of Companies Act 1997 for definition of the phrase “Carrying on Business”.
11 Section 28 of Investment Promotion Act 1992.
12 Section 383 of the Companies Act 1997 makes it mandatory for overseas companies to register with IPA.
13 Section 386 of the Companies Act 1997
14 Schedule 1, Form 46 of the Companies Regulation 1998.
15 Section 387(1) (b), & (2) of the Companies Act 1997.

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Registrar shall enter the new name or particulars on the register and (where
appropriate) issue a new certificate of registration for the company recording
the change of name or other particulars.

Take note that certified and registered overseas companies also have to apply
for and be granted ‘Trading Licenses’ from the different provinces and urban
authorities where they will conduct their business.

(b) The second option is to incorporate/register a new company in

PNG. (See below)

2.2.3.2 Incorporation/Registration of Companies

(a) Right To Apply for Registration.

Who can apply for the registration of a company? According to section 12 of

the companies act 1997, “Any person may, either alone or together with
another person, apply for registration of a company under this Act, despite the
contrary in any other Act.”

(b) Forms to Complete

In PNG a company is registered by filing the required forms and documents

with the Registrar of Companies who is s a public official appointed by the
appropriate Minister17. These forms can be located in the Companies
Regulation 1998.

The relevant forms18 to complete and submit are;

Form Description Section of

Number Companies
Act 1997

Form 1 Application for registration of a company. Section

13(1)(a)
Including details of company’s addresses (registered office,
address for service and postal address); director details (full name,
nationality, date of birth and residential and postal addresses);
secretary (if any, same details as directors); shareholder details
(including number and class of shares issued to each shareholder
and whether the shareholder is a natural person or a registered
entity); and whether a constitution has been adopted and include a
certified copy of the proposed constitution and also accompanied
by a notice reserving a name for the proposed company.

Form 2 Consent of each proposed director of the company. 13(1)(b) &

16 In accordance with Section 388 (2), or 389 (1) of the Companies Act 1997.
17 Section 394 of the Companies Act 1997
18 Forms 1, 2, 3, 4, and 6 can be found in Schedule 1 of the Companies Regulation 1998.

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236(f)
The consent includes a certificate that the director is not
disqualified from being appointed as a director of a company. The
minimum number of directors is one who must be a PNG resident.

Form 3 Consent of each secretary (if any). 13(1)(c) &

236(f)
There is no requirement to have a secretary.

Form 4 Consent of each shareholder of the proposed company. 13(1)(d)(i)

Form 6 Application for reservation of company name. 23(1)

(c) IPA Fees

The registration process will obviously entail fees that will have to be paid
with the various forms being submitted. This is true for foreign companies
being registered in PNG as well as new companies being incorporated under
the companies act 1997.

It is prudent for those intending to register companies to check with IPA

regarding fees payable as they are susceptible to change.

(d) Electronic Filing

An important feature made available for the use of those wanting to

register/incorporate companies came about as a result of the Amendment of
Companies Act 199719.

The Companies (Amendment) Act 2014 facilitates online filing. An outcome

of this amendment is that persons wanting to register a company can now fill
in the electronic copies available online at the IPA website and submit same.

(e) Essential Requirements

Before registering a company, it is important to make sure that the company to

be registered has the following essential requirements20. It must have;

- A name [Note: the name should not contravene any law, be misleading
or identical to the name of another company], and

- One or more shares, and

- One or more shareholders, and

19 The Companies (Amendment) Act 2014

20 These essential requirements are specifically stated in section 11 of the Companies Act 1997

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- One or more directors [Note: at least one director must be a resident of

PNG. A company is not required to appoint a secretary but can if it
wants], and

- A physical address in PNG (a P O Box will not be acceptable).

(f) Application for Registration

After completing all the forms and other documentation required, the same are
then submitted to the Registrar of Companies.

Note that the application must be ‘in the prescribed form. The relevant
forms/documents must be signed and consent must be given by the proposed
Director(s)21, Secretary(s)22, shareholder(s)’23. These must be ‘accompanied
by a notice reserving a name for the proposed company; and where the
proposed company is to have a constitution, accompanied by a certified copy
of the company's constitution’24.

Furthermore, an application must also state; ‘…

- the number of persons named as directors of the proposed company;
and

- the number of persons (if any) named as secretaries of the proposed

company; and

- the postal address of the proposed company; and

- the registered office of the proposed company; and

- the address for service of the proposed company.’25

(g) Registration & Certificate of Incorporation.

After the Registrar receives a properly completed application for registration

of a company, the Registrar shall register the application; and issue a
certificate of incorporation in the prescribed form26.

21Section 13(1)(b) of the companies Act 1997 states that a Director must provide “a certificate that he is not
disqualified from being appointed or holding office as a director of a company”.
22 Note that a company is not required to appoint a secretary but can if it wants.
23 Section 13(1)(d)(i) & (ii) of the companies Act 1997 reads;
“…a document in the prescribed form signed by every person named as a shareholder, or by an agent of that
person authorized in writing, containing his consent to being a shareholder and to taking the class and number of
shares specified in the document; and (ii) where the document has been signed by an agent, the instrument
authorizing the agent to sign it;”
24 See section 13(e) & (f) of the companies act 1997.
25 See section 13(2)(a)(b)(c)(d) & (e) of the companies act 1997.

26 Section 14 of the Companies Act 1997.

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The issuance of a certificate of incorporation of a company is conclusive

evidence that all the requirements of this Act as to registration have been
complied with; and on and from the date of incorporation stated in the
certificate, the company is incorporated27.

The effect of incorporation is that ‘a company becomes a legal entity in its

own right separate from its shareholders and will continues in existence until it
is removed from the register’28

(h) Post Incorporation Requirements

Having registered your company does not necessarily mean you have
complied with all legal requirements. There are still a few considerations that
have also to be complied with.

Fulfilling those considerations ensures the smooth operation of your company.

(i) Company Seal

Even though there is no express legislation requiring a company seal, it is

prudent to have a company seal.

This will be helpful for a variety of reasons including; when issuing share
certificates, entering into deeds and contracts and so forth.

A company seal can be obtained from most print shops within a few days.
Company seals cost about K50 depending on the size and design.

(ii) Registration for VAT and GST purposes

The income Tax Act 1959 requires that companies register for Value Added
Tax (VAT) and Goods & Services Tax (GST).

The prudent course of action is to seek tax advice from qualified legal
professionals or from the Internal Revenue Commission (IRC).

Take for instance, the requirement that a company must (unless exempted by
the Commissioner General) appoint a PNG resident to be a public officer. The
appointment is required to be made within 3 months from the date the
company starts business operations or derives income.29

Companies which fail to comply are penalised.

(iii) Employment Register

Obviously, a company will employ individuals in order to commence

operations. Usually, a company may need to register as a “group employer” if

27 Section 15 of the Companies Act 1997.

28 Section 16 of Companies Act 1997.
29 Section 354 of the Income Tax Act 1959

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it will employ more than one employee in PNG with a weekly salary of more
than 126 Kina per week. If this is the case then the company must register as
a “group employer”. The process involves submitting a written notice to the
Internal Revenue Commission (IRC).

(iv) Goods and Services Tax (GST)

Any business or individual whose annual turnover exceeds (or is likely to

exceed) 250,000 Kina must register for GST. A business with a turnover of
less than 250,000 Kina (or about AUD$125,000) per year can register for GST
on a voluntary basis. Registration forms are available for download
at http://www.irc.gov.pg/tax_forms.html.

(v) Trading licences

Most provinces and urban authorities require business to apply for and obtain
trading licences from them prior to commencing operations. For instance, the
Lae City Authority issues trading licences to business operating within Lae,
Morobe Province. Companies which fail to comply can be penalised.

(vi) Opening a Bank account for the company

Obviously after incorporation, a company is required to have its own bank

account which is separate from its members, shareholders or parent
companies.

The process of opening a bank account usually ensures that the company
complies with tax requirements from IRC, requirements of incorporation from
IPA, Trading Licences from Provincial Governments and Urban Authorities
and so forth.

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