Corporate Law

The Companies Ordinance 1984

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 Types of business organization
• Sole Trader
• Partnership
• Company

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 WHAT IS A COMPANY ?
DEFINITION:
“A Company is an association of persons
united for a common purpose. According to
the Companies Ordinance, 1984, “Company
means a company formed and registered
under the Companies Ordinance.”

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 Kinds of Companies
Companies formed under the Companies
Ordinance, 1984 are of three kinds, namely:
(a) Companies limited by Shares
(b) Companies limited by Guarantee
(c) Unlimited Companies

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 Company limited by Shares
• A Company in which the liability of the
members is limited to the nominal value of
the shares (s.16).
• When the liability of the Company is limited
by shares it means that no member can be
called upon to pay more than the nominal
amount of his shares

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 Company limited by Guarantee
• A company in which the liability of the
members is limited to the amount which each
has undertaken, by the Memorandum of
Association, to contribute to the assets of the
company in the event of a winding-up (s.17)

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 Statutory Companies
• The Companies which are incorporated by a special act of legislature or
under an ordinance are named as statutory companies. For Instance,
State Bank of Pakistan, National Bank of Pakistan, PICIC (Pakistan
Industrial & Credit Investment Corporation), Pakistan Steel etc.
• The companies under the special act of legislative have been mostly
invested with special powers.
• They also enjoy special rights and privileges which are not available to
companies incorporated under the companies ordinance 1984.

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 Registered Companies
A company which is formed and registered under the
companies ordinance 1984 is known as a registered
company. The companies ordinance provides registration of
following four(04) types of companies.
– Company limited by shares
– Company limited by guarantee
– An unlimited company
– Association not for profit

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 Company Limited by shares…
It is the company which keeps the liability of its members limited up to
the value of the shares purchased by them. It is essential for such
companies to use the word ‘Limited’ at the end their names.
Functional Division of Companies
• Private Companies
• Public Companies

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 … Company Limited by shares
• Private Companies
A private company is an association of minimum two and
maximum fifty share holders. It restricts the rights of its members
to transfer their shares in the company. It also prohibits any
invitation to the public to subscribe to its share or debentures.
Public Companies
• A public company must have at least seven share holders, but
there is no limit to the maximum number. Public company issues a
prospectus for inviting people to purchase its shares. The shares of
a public company are freely sold and purchased in the stock
market.

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 Company Limited by guarantee

• It is the company in which the liability of its

members is limited up to the amounts
guaranteed by each member at the time of
winding up the company.
• This type of company is formed mostly for
taking non business operations such as clubs
and charitable institutions, the examples are
stock exchanges, arts councils, ICAP or ICMA
etc.
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 An Unlimited Company
• An Unlimited company is registered without
any limit on the liability of their members
• Every member of the company is liable to the
full extent of his personal asset for all the
debt of a company while he was a member.
• The unlimited company, due to great risk do
not exist in Pakistan.

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 Association Not for Profit.
• It is registered under section 42 of the companies ordinance
without the addition of the word ‘Limited’ to its name, it is
registered with limited liability.
• The association enjoys all the privileges and obligations of a
limited company.
• It is formed for promoting commerce, arts, science, religion,
charity or any other object.
• The Federal Government grants license to the association
that is capable of being formed as a company.

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 CLASSIFICATION ON THE BASIS OF OWNERSHIP
• Holding Company
• Subsidiary Company

Holding Company
A company is said to be the holding company of the other, if it owns or holds
more than 50% of the share capital of the other company, or it has control of
more than 50% of its directors.
Subsidiary Company
A company is said to be the subsidiary of the other company when one of
the following conditions are fulfilled.
(I) Formation of ‘Board of Directors’ is controlled by another company.
(II) The other company controls more than half of the voting rights of this
company.
(III) The other company owns more than 50% share capital of this company.

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 STEPS REQUIRED IN REGISTRATION OF A COMPANY…

• Getting Promoters Together: Those who form

the company are known as promoters who
must get together to work out the skeleton of
the company.
• Appointment of Advisor: Promoters appoint
legal advisors who under the guidance and
instructions of promoters, prepare
memorandum and articles of association,
prospectus, and deal with the office of the
registrar of the company.
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 … STEPS REQUIRED IN REGISTRATION OF A
COMPANY
Preparation of company documents: The
companies’ ordnance requires preparation of
following documents before the company
applies for registration
1. Memorandum of Association
2. Article of association
3. Prospectus

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 … STEPS REQUIRED IN REGISTRATION OF A
COMPANY
Submitting application with the registrar: An application for
registration is submitted along with the registration fee through the
registrar of the company with attachment of following documents
1. Memorandum of Association
2. Articles of association
3. Prospectus
4. List of names and addresses of directors
5. Signed statement of directors or the secretary that all the required
legal formalities have been completed.
6. Address of the registered office of the company.

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… STEPS REQUIRED IN REGISTRATION OF A
COMPANY
Declaration of qualifying shares: All the directors, have to submit a
declaration certificate that they have taken up qualifying shares and
have paid up the money
Issuance of Registration Certificate: On the issuance of registration
certificate by registrar, private company can start its business
immediately, while public company cannot until it gets another
certificate known as ‘Commencement Certificate’.
Publication of Prospectus: On the receipt of the registration
certificate the company issues prospectus which is an invitation to
the public to buy shares of the company.
Commencement Certificate: After raising capital through prospectus,
the company applies for the commencement certificate. After
obtaining this certificate the public can start its actual operation

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 BASIC LEGAL DOCUMENTATION

• Memorandum of Association
• Articles of Association
• Prospectus

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 Memorandum of Association…
• It is a document issued by a company for the guidance
of general public
• it is known as the “charter of the company” which
explains to the public name, address, capital, objectives
and liability of the company.
• It defines its limitation and powers and guides
shareholders and creditors of the company.
• It is divided in to five clauses

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 …Memorandum of Association
• CLAUSES OF MEMORANDUM
Name Clause
A company may adopt any name but it should not resemble the name of any other company
and should not contain the words like king, queen, govt. bodies, UNO etc. The name should
not be objectionable in the opinion of the government. The word ‘limited’ must follow the
name of the company in case of ‘Public’ company, while ‘(private) limited’ must follow with
the name of company in case of ‘Private’ company
Domicile (Situation) Clause
Every company must have a registered office, a memorandum must mention the name of the
province and exact address where the company has its registered office
Objective Clause
A company must specifically, expressly and clearly mention its objectives for which it has been
formed.
Capital Clause
This clause mention the authorize capital of the company, the company’s subscribed, called
up, and paid up capital should not exceed it.
Liability Clause
This clause shows that the liability of the share holders of the company is limited to the
amount invested by them.

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 Articles of Association…
• It is a document explaining rules and regulations
regarding the internal affairs of the company, according
to company’s ordinance 1984, every company
registered by shares must prepare and file articles of
association with the registrar of the companies.
• If a company does not prepare and file its own articles
then Table ‘A’ of the company’s ordinance would apply
for a private company articles of association are not
binding.

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 … Articles of Association
CONTENTS OF ARTICLES
– Amount of share capital issued, transmission of share
– Rights of share holder regarding voting, dividend, return of capital
– Rules regarding issue of shares and debentures
– Procedures as well as regulations in respect of making calls on shares
– Manner of transfer of shares
– Rules regarding appointment of directors, managing directors, agents,
secretaries, treasures
– Number, qualification, remuneration, powers and liabilities of directors
– Declaration of dividends
– Convening and conduct of meetings with reference to notice, forum, polls, proxy,
resolutions etc
– Rules regarding the forfeiture and surrender of shares
– Matters relating account and audit
– Rules regarding winding up of a company

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 Prospectus

• It is an invitation, advertisement or circular asking people to invest

and subscribe in the share capital or debenture of the company.
• For a private company prospectus is not required, even for a public
company it is not compulsory.
• If a public company does not want to issue prospectus, it must, then
file a statement in lieu of prospectus with the registrar.
• The prospectus must be signed by at least two directors.
• In prospectus the detail description regarding the establishment of
the company, its characteristics and its estimated future is given.

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 STATEMENT IN LIEU OF PROSPECTUS

• According to company ordinance, if a public

company is not issuing a prospectus on its
formation, it then must file a statement in
lieu of prospectus with the registrar of the
company three days before the allotment of
shares of debentures
• Must be signed by each director and include
all the information that should be given in
the prospectus.

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 MANAGEMENT OF THE COMPANY

• Shareholders
• Directors Chief
Executive
• Chief Executive
Directors

Shareholders

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 COMPANY MEETINGS

A public company is required to call a

meeting with shareholders with certain
agenda to be discussed there and to get their
vote on important affairs.

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 Statutory Meeting…

It is the first meeting of the members of a

public limited company. Statutory meeting
must be held at least after three month and
before six months since the registration of
the company.

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 …Statutory Meeting
• Notice of the meeting: a notice of the statutory meeting to the
shareholders must be issued at least 21 days before the meeting.
• Issue of Report: statutory report must also be issued at last 21 days
before the meeting is held, and it must be signed by at least three
directors, one being the chief executive.
• Nature of proceedings of the Meeting: in the meeting following
proceedings take place:
a. name, address, nationality, profession of all members
(shareholders).
b. the member present at the meeting have the right to discuss any
matter relating to the formation of the company or arising out of the
statutory report.

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 Annual General Meeting…

Every public company must hold a general

meeting of its members within eighteen
months from the date of formation and
within fifteen months every year after first
meeting.

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 …Annual General Meeting
• Notice of the meeting: a notice of the annual general
meeting to the shareholders must be issued at least 21
days before the meeting.
• Nature of proceedings of the Meeting: in the meeting
following proceedings take place:
a. consideration and adoption of the audited annual
accounts.
b. declaration of the dividends.
c. the election and appointment of the directors.

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 Extra-Ordinary General Meeting
• All general meetings of a company other than annual general
meeting and statutory meeting are known as extra-ordinary general
meeting.
• It is conducted when an annual general meeting is not due under the
law but pressing affairs have come up to be discussed with the
shareholders.
• The meeting can be called:
a. by directors to consider any matter which they think it
necessary.
b. by directors on the requisition of the shareholders representing
not less than one-tenth of the voting power.
c. by the requisiteness if the directors do not proceed within 21
days of calling the meeting.

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• What are shares and debentures?
• A debenture is an unsecured loan you offer to a
company. The company does not give any
collateral for the debenture, but pays a higher
rate of interest to its creditors. In case of
bankruptcy or financial difficulties, the
debenture holders are paid later than
bondholders.

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• Debentures are different from stocks and
bonds, although all three are types of
investment. Below are descriptions of the
different types of investment options for small
investors and entrepreneurs.

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• Debentures and Shares
When you buy shares, you become one of the
owners of the company. Your fortunes rise and
fall with that of the company. If the stocks of the
company soar in value, your investment pays off
high dividends, but if the shares decrease in value,
the investments are low paying. The higher the
risk you take, the higher the rewards you get.

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• Debentures are more secure than shares, in
the sense that you are guaranteed payments
with high interest rates. The company pays
you interest on the money you lend it until the
maturity period, after which, whatever you
invested in the company is paid back to you.

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• The interest is the profit you make from
debentures. While shares are for those who
like to take risks for the sake of high returns,
debentures are for people who want a safe
and secure income.

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• What is redemption of shares and
debentures?
Redemption of Shares The process whereby a
company can redeem shares through
repayment of the nominal value to the
shareholder.

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• Discount on issue of shares and debentures?
Issue of shares at discount: A company may
issue shares at a discount i.e. at a value below
its par value.

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• Difference between shares and debentures?
Shares forms ownership of the company ,
where as Debentures are the debt for any
company. Shares investments returns in form
of share in profit (dividend on shares) whereas
Debentures returns with...

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• What are the differences between share and
debenture?
SHARES- 1.share holder is the real owner of
the company. Share holders have no fixed
dividend rate. Share holders have no maturity
period. Shares are not redeemed. Shares are
more volatile.

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• Difference between debenture and
preference shares?
DEBENTURES ARE THE LOAN OF THE
COMPANY WHEREAS PREFRENCE SHARES ARE
THE PART OF SHARE CAPITAL

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