Corporate Law and

Corporate Governance
Lecture 7
Ummar Ziauddin
LLM Berkeley, Barrister of Lincoln’s Inn
Relevant reading
• These lecture slides
• Additional material shared separately
Agenda
• Unincorporated Business Associations
• Partnerships
• Limited Liability Partnerships
• Companies
• Societies
• Trusts
• Charities
Choosing a business form
• Combination of 3 things
I. You need capital – so does your form facilitate investment.
II. The Business form should mitigate or minimize the risks involved.
III. The business form needs to have an organizational structure.
Sole Proprietor/Unincorporated Association
• One person on his own.
• No legal filing requirements.
• Usually kick start things with savings or loans.
• No distinction between personal and business assets.
• No organizational structure.
• No limited liability.
Partnership
• Lets expand on the sole trader and assume his business is expanding.
• The sole trader considers entering into a partnership.
• In Pakistan, The Partnership Act of 1932 governs the partnerships.
• 2(b)"business" includes every trade, occupation and profession.
• It defines partnership as:
• “Partnership" is the relation between persons who have agreed to
share the profits of a business carried on by all or any of them acting
for all.
• Persons who have entered into partnership with one another are
called individually "partners" and collectively "a firm" and the name
under which their business is carried on is called the "firm name".
• The relation of partnership arises from contract and not from status.
• Generally partnership does not facilitate investment as all the
partners share the risk
• The concept of indemnity is based on a contractual agreement made
between two parties, in which one party agrees to pay for potential
losses or damages caused by the other party. A typical example is an
insurance contract, whereby one party (the insurer, or the
indemnitor) agrees to compensate the other (the insured, or the
indemnitee) for any damages or losses, in return for premiums paid
by the insured to the insurer and pool the funds
A Partner is entitled to
i. Participate in the management.
ii. An equal share of profit.
iii. An indemnity in respect of liabilities.
iv. Not to be expelled from other partners.
v. Partnership will end on the death of the partner.
• NO LIMITED LIABILITY
• Registration of partnership is not compulsory by law but it’s better to
do so.
• There must be a written agreement between the partners
• Partnership deed or agreement is a document in which mutual rights
and obligations of all the partners and conditions relating to
partnership and the regulations governing its internal management
and organizations are documented, the said deed should be signed by
all the partners.
• When the firm is dissolved by mutual consent of partners, deed of
dissolution is executed. The dissolution deed provides for the
valuation of assets including distribution of the same amongst the
partners. The deed of dissolution should clearly mentions debts,
liabilities and obligations of the firm who will pay or discharge the
same in the audit and accounts.
• Deed of dissolution should be registered.
• Firm can continue on dissolution of partnership say death of partner,
but on dissolution of firm, partnership will automatically end.
• A firm can be dissolved by agreement, by compulsory dissolution, by
happening of certain contingencies or by order of the court.
• Ordinarily, it is individuals who constitute partnerships.
• A lunatic can also be a partner through his guardian.
• Similarly, a minor can be admitted to the benefits of a partnership but
he is not responsible for loss.
• Apart from the natural persons, a limited company can also enter into
partnership not only with a natural person but also with another
limited company.
• However, a firm cannot be a partner in another firm
• Partners are personally liable for business debts.
• A partner is also legally bound by business transactions made by him
or by his partners and can be held personally liable for those
transactions.
• The liabilities of partners are unlimited
Procedure for registration
• 58. Application for Registration.— (1) The registration of a firm may
be effected at any time
• by sending by post or delivering to the Registrar of area in which any
place of business of the firm
• is situated or proposed to be situated, a statement in the prescribed
form and accompanied by the
• prescribed fee, stating -
• (a) the firm name,
• (b) the place or principal place of business of the firm,
• the names of any other places where the firm carries on business,
• (d) the date when each partner joined the firm,
• (e) the names in full and permanent addresses of the partners, and,
• (f) duration of the firm.
• The statement shall be signed by all the partners, or by their agents
specially authorized in this behalf.
• (3) A firm name shall not contain any of the following words, namely:-
• “Government” "Jinnah", "Quaid-e-Azam", or words expressing or
implying the sanction, approval or patronage of the "Federal
Government” or any Provincial Government or of the "Quaid-e-
Azam", except when the Provincial Government signifies its consent
to the use of such words as part of the firm name by order in writing.
• (3A) A firm name shall not contain the name of the "United Nations" or its
abbreviations through the use of its initial letters or of any subsidiary body
set up by that body unless it has obtained the previous authorization of
the Secretary General of the United Nations in writing.
• (3B) A firm name shall not contain the name of the "World Health
Organization" or its abbreviations through the use of its initial letters
unless it has obtained the previous authorization of the Director-General
in writing.
• (3C) A firm name shall not contain any word which may be declared by the
Provincial Government, by notification in the official Gazette to be
undesirable:
Effect of Non Registration
• 69. Effect of non-registration – (1) No suit to enforce a right arising
from a contract or conferred by this Act shall be instituted in any
Court by or on behalf of any person suing as a partner in a firm
against the firm or any person alleged to be or to have been a partner
in the firm unless the firm is registered and the person suing is or has
been shown in the Register of Firms as a partner in the firm.
• 2) No suit to enforce a right arising from a contract shall be instituted
in any Court by or on behalf of a firm against any third party unless
the firm is registered and the persons suing are or have been shown
in the Register of Firms as partners in the firm.
Effect of Non Registration
• 3) The provisions of subsections (1) and (2) shall apply also to a claim
of set-off or other proceeding to enforce a right arising from a
contract, but shall not affect –
• a) the enforcement of any right to sue for the dissolution of a firm or
for accounts of a dissolved firm….
BREAK
Limited Liability Partnerships (Limited
Liability Partnership Act, 2017)
• 2(d) "body corporate ' includes, (i) limited liability partnerships under
this Act;
• 2(n) ”limited liability partnership means a partnership registered
under this Act;
• 2(o) ”limited liability partnership agreement” means any written
agreement between partners of the limited liability partnership which
determines mutual rights and duties of the partners and their rights
and duties in relation to the limited liability partnership;
• 3. Separate legal personality.—(1) A limited liability partnership shall
be a body corporate by registration under this Act and shall be a legal
entity separate from its partners.
• (2) A limited liability partnership shall have perpetual succession.
• Any change in the partners of a limited liability partnership shall not
affect the existence, rights or liabilities of the Limited Liability
Partnership.
• (3) Any change in the partners of a limited liability partnership shall
not affect the existence, rights or liabilities of the Limited Liability
Partnership.
• 8. Partners.—(1) Any individual or body corporate or company may
become a partner in a limited liability partnership:
Provided that an individual shall not be capable of becoming a partner
of a limited liability partnership, if,---
• (a) he has been found, to be of unsound mind by a court of
competent' jurisdiction and the finding is in force; or
• (b) he is an undercharged insolvent; or
• (c) he has applied to be adjudicated as an insolvent and his
application is pending.
• 9. Minimum number of partners.—(1) Every limited liability partnership
shall have at least two partners.
• (2) If at any time the number of partners of a limited liability partnership
is reduced below two and the limited liability partnership carries on
business for more than six months or such other period as may be
prescribed while the number is so reduced, the person who is the only
partner of the limited liability partnership during the time that it so
carries on business after those six months or such other period as may be
prescribed and has the knowledge of the fact that it is carrying on
business with him alone, he shall be liable personally for the obligations
of the limited liability partnership incurred during that period.
• 12. Relationship of partners.—(1) Save as otherwise provided by this Act, the mutual rights
and duties of the partners of a limited liability partnership, and the mutual rights and duties of
a limited liability partnership and its partners, shall be governed by the limited liability
partnership agreement between the partners.
• (2) The limited liability partnership agreement and any changes made therein shall be filed with
the Registrar in the form and manner, accompanied by such fee, as may be prescribed by the
Commission through regulations.
• (3) An agreement in writing made before the incorporation of a limited liability partnership
between the persons who subscribe their names to the incorporation document may impose
obligations on the limited liability partnership, provided such agreement is ratified by all the
partners after the incorporation of the limited liability partnership.
Explanation.—Any reference to a resolution of partners for a particular matter is a reference to a
resolution passed by all or such number of partners as may be required by the limited liability
partnership agreement for that matter.
• 15. Extent of liability of limited liability partnership.—(1) A limited liability
partnership is not bound by anything done by a partner in dealing with a person, if,---
• (a) the partner in fact has no authority to act for the limited liability partnership in
doing a particular act; and
• (b) the person knows that he has no authority or does not know or believe him to be a
partner of the limited liability partnership.
• (2) A limited liability partnership is liable if a partner of the limited liability partnership
is liable to any person as a result of a wrongful act or omission on his part in the
course of business of the limited liability partnership or with its authority.
• (3) An obligation of a limited liability partnership, whether arising in Contract or
otherwise, is solely obligation of the limited liability partnership.
• 18. Form of contribution.—(1) The form and value of contribution to
the partnership of a partner, if any, will consist of moneys, negotiable
instruments, properties including valuable rights, intangibles,
knowledge and skills, etc. be decided mutually by the partners…
• (2) The monetary value of contribution of partners representing
intangible properties including valuable rights, intangibles, knowledge
and skills etc. may be accounted for and disclosed in the accounts of
the limited liability partnership which can be valued reliably and can
be legally enforced, subject to the conditions as may be prescribed by
the Commission through regulations.
Company

• An association of persons united for a common object.

• Artificial legal person created by law, having a separate legal entity
with perpetual succession and a common seal.
• S.2(7) “company" means a company formed and registered under this
Ordinance or an existing company.
• It can carry out business in its own name
• It can sue and be sued in its own name
• It can hold property in its own name
• It can incur losses/profits that are its own and not that of the
members.
• It should have a seal of perpetuity.
• It should have “limited liability” i.e. liability of the shareholders should
be limited to the extent of their shares in the company. Limited
liability simply means no liability beyond the shares bought.
Types of Companies
i. Private Companies
ii. Public Companies
iii. Single Member Companies (a private company with a single member)
iv. Listed Company
v. Holding company and its subsidiaries
vi. Public Interest Company
vii. Public Sector Company
viii.Company limited by guarantee
ix. Shariah Compliant Company
(This is not exhaustive list)
• 2(49) ―private company‖ means a company which, by its articles(a)
restricts the right to transfer its shares; (b) limits the number of its
members to fifty not including persons who are in the employment of the
company; and (c) 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;
• 2(52) "public company" means a company which is not a private
company;
• 2(37) ―holding company‖, means a company which is another
company‘s holding company if, but only if, that other company is its subsidiary;
2(68) ―subsidiary company‖ or “subsidiary”, in relation to any other company
(that is to say the holding company), means a company in which the holding
company (a) controls the composition of the board; or (b) exercises or
controls more than one-half of its voting securities either by itself or together
with one or more of its subsidiary companies:
Provided that such class or classes of holding companies shall not have layers
of subsidiaries beyond such numbers, as may be notified,
• 2(38) ―listed company‖ means a public company, body corporate or any
other entity whose securities are listed on securities exchange;
• 2(53) “public interest company‖ means a company which falls under the criteria as
laid down in the Third Schedule to this Act or deemed to be such company under
section 216;
• 2(54) ―public sector company‖ means a company, whether public or private, which
is directly or indirectly controlled, beneficially owned or not less than fifty-one
percent of the voting securities or voting power of which are held by the
Government or any agency of the Government or a statutory body, or in respect of
which the Government or any agency of the Government or a statutory body, has
otherwise power to elect, nominate or appoint majority of its directors and includes
a public sector association not for profit, licenced under section 42: Provided that
nomination of directors by the Commission on the board of the securities exchange
or any other entity or operation of any other law shall not make it a public sector
company;
• 2(64) ―Shariah compliant company” means a company which is
conducting its business according to the principles of Shariah;
• 2(65) ―single member company‖ means a company which has only
one member;
• Company limited by shares
2(20) means 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; (private, public and
single member companies are all illustrations of of it)
• Company limited by guarantee
2(9) "company limited by guarantee" means a company having the
liability of its members limited by the memorandum to such amount as
the members may respectively thereby undertake to contribute to the
assets of the company in the event of its winding up;
• A company limited by guarantee is a distinct legal entity from its
owners, and is responsible for its own debts.
• The personal finances of the company’s guarantors are protected.
They will only be responsible for paying company debts up to the
amount of their guarantees.
• 'Limited' status builds trust and confidence amongst clients and
investors - this type of professional credibility is valuable and can help
a company achieve its objectives more effectively.
• 216. Company deemed to be a public interest company in certain
circumstances.—(1) Notwithstanding anything contained in this Act, a
company shall be deemed to be a company with public interest as envisaged
in the Third Schedule. (2) Upon being deemed as a company with public
interest, the company shall be required to comply with such disclosure and
reporting requirements as may be specified by the Commission. (3) The
Commission may as specified, after giving an opportunity of hearing to a
company or class of companies, by an order in writing exempt such
company from the requirements of this section if the Commission
determines that such exemption is in the interest of the public: Provided
that such order shall be posted on the official website of the Commission.
Societies (THE SOCIETIES
REGISTRATION ACT, 1860)
• 1.   Societies formed by memorandum of association and
registration.− Any seven or more persons associated for any literary,
scientific or charitable purpose, or for any such purpose as is
described in section 20 of this Act, may by subscribing their names to
a memorandum of association and filing the same with the Registrar
….form themselves into a society under this Act.
• 2.   Memorandum of association.− The memorandum of association
shall contain the following things (that is to say)−
•       the name of the society:
•       the objects of the society:
•       the names, addresses, and occupations of the governors, council,
directors, committee or other governing body to whom, by the rules of
the society, the management of its affairs is entrusted.
•       A copy of the rules and regulations of the society, certified to be a
correct copy by not less than three of the members of the governing
body, shall be filed with the memorandum of association
• 20.   To what societies Act applies.− The following societies may be
registered under this Act:-
•       Charitable societies, societies established for the promotion of
science, literature, or the fine arts, for instruction, the diffusion of
useful knowledge, the foundation or maintenance of libraries or
reading rooms for general use among the members or open to the
public, or public museums and galleries of painting and other works
of art, collections of natural history, mechanical and philosophical
inventions, instruments, or designs.
• 12. Societies enabled to alter, extend or abridge their purposes.− Whenever it shall
appear to the governing body of any society registered under this Act, which has been
established for any particular purpose or purposes, that it is advisable to alter, extend
or abridge such purpose to or for other purposes within the meaning of this Act, or to
amalgamate such society either wholly or partially with any other society, such
governing body may submit the proposition to the members of the society in a written
or printed report and may convene a special meeting for the consideration thereof
according to the regulations of the society.
• But no such proposition shall be carried into effect unless such report shall have been
delivered or sent by post to every member of the society ten days previous to the
special meeting convened by the governing body for the consideration thereof, nor
unless such proposition shall have been agreed to by the votes of three-fifths of the
members delivered in person or by proxy, and confirmed by the votes of three-fifths of
the members present at a second special meeting convened by the governing body at
an interval of one month after the former meeting.
• 15. Member defined − Disqualified members.− For the purposes of this Act
a member of a society shall be a person who, having been admitted therein
according to the rules and regulations thereof, shall have paid a subscription
or shall have signed the roll or list of members thereof, and shall not have
resigned in accordance with such rules and regulations; but in all proceedings
under this Act no person shall be entitled to vote or to be counted as a
member whose subscription at the time shall have been in arrear for a period
exceeding three months.
• 16. Governing body defined.− The governing body of the society shall be the
governors, council, directors, committee, trustees or other body to whom by
the rules and regulations of the society the management of its affairs is
entrusted.
Do Societies have separate legal personality
Consider the following provision from the Societies Act, 1860
5.   Property of society how vested.− The property, movable and
immovable, belonging to a society registered under this Act, if not vested in
trustees, shall be deemed to be vested, for the time being, in the governing
body of such society, and in all proceedings, civil and criminal, may be
described as the property of the governing body of such society by their
proper title 

• So, the property of the society is not vested in the society itself but in the
governing body constituting individuals.  
• Consider another provision

6.   Suits by and against societies.− Every society registered under this Act may sue
or be sued in the name of the president, chairman, or principal secretary, or trustees,
as shall be determined by the rules and regulations of the society, and, in default of
such determination, in the name of such person as shall be appointed by the
governing body for the occasion 

• So any action in the court is not instituted against a society but against the
individuals of the society. 
• Whereas we know body corporate or companies can sue and be sued in their own
name and property vests in the body corporates or companies.
Trusts (THE TRUST ACT 1882 )
• 3. Interpretation Clause "Trust" - A “trust” is an obligation annexed to the
ownership of property, and rising out of a confidence reposed in and
accepted by the owner, or declared and accepted by him, for the benefit
of another, or of another and the owner: the person who reposes or
declares the confidence is called the “author of the trust”: the person
who accepts the confidence is called the “trustee”: the person whose
benefit the confidence is accepted is called the “beneficiary”: the
subject-matter of the trust is called “trust-property” or “trust-money”:
the “beneficial interest” or “interest” of the beneficiary is his right
against the trustee as owner of the trust-property: and the instrument, if
any, by which the trust is declared is called the “instrument of the trust”:
• 4. Lawful purpose - A trust may be created for any lawful purpose.
The purpose of a trust is lawful unless it is (a) forbidden by law, or (b)
is of such a nature that, if permitted, it would defeat the provisions of
any law, or (c) is fraudulent, or (d) involves or implies injury to the
person or property of another, or (e) the Court regards it as immoral
or opposed to public policy.
• 5. Trust of immovable property- No trust in relation to immovable
property is valid unless declared by a non-testamentary instrument in
writing signed by the author of the trust or the trustee and registered,
or by the will of the author of the trust or of the trustee.
• Trust of movable property- No trust in relation to movable property is
valid unless declared as aforesaid, or unless the ownership of the
property is transferred to the trustee. These rules do not apply where
they would operate so as to effectuate a fraud.
• 6. Creation of trust - Subject to the provisions of Section 5, a trust is
created when the author of the trust indicates with reasonable
certainty by any words or acts (a) an intention on his part to create
thereby a trust, (b) the purpose of the trust, (c) the beneficiary, and
(d) the trust-property, and (unless the trust is declared by will or the
author of the trust is himself to be the trustee) transfers the trust-
property to the trustee.
• 7. Who may create trusts - A trust may be created (a) By every person
competent to contract1 , and (b) With the permission of a principal
Civil Court of original jurisdiction, by or on behalf of a minor; But
subject in each case to the law for the time being in force as to the
circumstances and extent in and to which the author of the trust may
dispose of the trust property.
• 9. Who may be beneficiary - Every person capable of holding property
may be a beneficiary.
Fiduciary Role of Trustee spelled out
• 14. Trustee not to set up title adverse to beneficiary - The trustee
must not for himself or another set up or aid any title to the trust-
property adverse to the interest of the beneficiary.
• 15. Care required from trustee - A trustee is bound to deal with the
trust property as carefully as a man of ordinary prudence would deal
with such property if it were his own; and, in the absence of a
contract to the contrary, a trustee so dealing is not responsible for the
loss, destruction or deterioration of the trust-property.
• 17. Trustee to be impartial - Where there are more beneficiaries than one, the
trustee is bound to be impartial, and must not execute the trust for the advantage
of one at the expense of another. Where the trustee has a discretionary power,
nothing in this section shall be deemed to authorize the Court to control the
exercise reasonably and in good faith of such discretion.
• 18. Trustee to prevent waste - Where the trust is created for the benefit to several
persons in succession and one of them is in possession of the trust-property, if he
commits, or threatens to commit, any act, which is destructive, or permanently
injurious thereto, the trustee is bound to take measures to prevent such act.
• 51. Trustee may not use trust-property for his own profit - A trustee may not use
or deal with the trust-property for his own profit or for any other purpose
unconnected with the trust.
• 77. Trust how extinguished - A trust is extinguished – (a) When its
purpose is completely fulfilled; or (b) When its purpose becomes
unlawful; or (c) When the fulfillment of its purpose becomes
impossible by destruction of the trust-property or otherwise; or (d)
When the trust, being revocable, is expressly revoked.
• 78. Revocation of trust - A trust created by will may be revoked at the
pleasure of the testator. A trust otherwise created can be revoked
only – (a) Where all the beneficiaries are competent to contract- by
their consents; (b) Where the trust has been declared by non-
testamentary instrument or by word of mouth- in exercise of a power
of revocation expressly reserved to the author of the trust; or (c)
Where the trust is for the payment of the debts of the author of the
trust, and has not been communicated to the creditors at the
pleasure of the author of the trust.
Cheers!