Business Law

Business Law
Spring 2011
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WHAT IS LAW?
MEANING?
DEFINITION?
WHAT DO YOU SAY?
Rules and Regulations

Human Rights
Basics of Behavior
Social Norms
Orders established by Govt.
Guidelines applicable and to be followed by
everybody without any discrimination
Prescribed boundaries for the people of the country
VARIOUS MEANINGS AND DEFINITIONS
One view is that it is not capable of definition

But this cannot be the answer nor solve the problem
The confusion in defining law arises out of the different
purposes to be achieved e.g.:
Law has been defined by various individuals from different
points of view
Various schools of law define it from different angles:
-basis of nature
-on source
-terms of effect on society
-end or purpose of law
MEANINGS AND DEFINITIONS—Contd.
A universal and uniform definition is difficult. The

evolution of society is of a dynamic nature and hence
the difficulty in accepting a definition by all. One
reason in defining law is the different types of
purpose sought to be achieved:
HORSE to a zoologist, a traveller, polo player, for some
article of food etc.
DEFINITIONS---Contd.
There have been and will continue to be different

definitions of law:
 ARISTOTLE (384-322 B.C.) ‘a pledge that citizens of a
state will do justice to one another’
 PLATO ( 427-347 B.C.) believed that law was a form of
social control.
 SIR WILLIAM BLACKSTONE (1723-1780) ‘ a rule of civil
conduct prescribed by the supreme power in a state,
commanding what is right, and prohibiting what is wrong’
MEANINGS AND DEFINITIONS: Contd.
Generally and the most commonly accepted

definition is “ A rule of action to which men are
obliged to make their conduct comfortable”
“Law is the command of the sovereign. It imposes a
duty and is backed by a sanction. Command, duty
and sanction are three elements of law”
All these definitions vary but all are based on law consists
of enforceable rules governing relationships
among individuals and between individuals and
their society.
LAW MAKING:PROCESS
LEGISLATION: The making of law. The act of

enacting or legislating laws.
Difference between Law and Ordinance

Bill----Proposal
Committees of the House
Approval by the Legislature
Assent by the President.
WHY STUDY LAW?
Obvious! Course Requirement

Study of law improves powers of reasoning, clarity of thought
and the ability to analyze and express complicated ideas
A greater appreciation of the workings of the system and the
parts that ensure it’s functioning.
Law forms the foundation on which any civilized society is
based. Nature has its own laws. So does society.
Law effects all aspects of life and society and is the
mechanism for change employed by governments across the
globe.From the protection of life and liberty, through
corporate law to international relations, the law is the central
stage.
PURPOSE OF LAW
Object of law is to maintain law and order in the

country i.e. police functions
Another view ‘limit natural liberty’; Man is born free
but is in chains everywhere.
Hindu view , purpose of law is the welfare of the
people in the world and also salvation after death.
Muslim: ‘ the end of the law is to promote the
welfare of man both individually and socially, not
merely in respect of life on this earth but also life
hereafter.
KINDS OF LAW
1. IMPERATIVE LAW. Imposed upon on men by some authority. Emphasis

on the will and physical force of the organized political community.
2. PHYSICAL OR SCIENTIFIC LAW . Laws of science e.g. law of gravity
3. NATURAL or MORAL LAW. Universal rules of governance. Principles of
natural justice. Divine Law.
4. CONVENTIONAL LAW. Rules or regulations of voluntary organizations
e.g. associations, clubs etc.
5. CUSTOMARY LAW. Customs, practices, traditions with historical
sanction and support e.g. jirga
6. TECHNICAL LAW. For efficient conduct of business e.g building laws,
laws of health
7. INTERNATIONAL LAW. Sum of laws and rules recognized by civilized in
their dealings with each other
8. CIVIL LAW. Municipal Law.
ADVANTAGES AND DISADANTAGES.
Uniformity and certainty to the administration of justice.

Avoids the dangers of arbitrary, biased and dishonest
decisions.
Fixed principles protect the administration of justice from
the errors of individual judgment
More reliable than whims, wishes and desires.
1. Rigidity.
2. Conservative
3. Formalism
4. Complex.
ADVANTAGES AND DISADVANTAGES—Contd.
Law is of interest to all persons, not just to lawyers.

Those entering the world of business will find
themselves subject to numerous laws and
government regulations. A basic knowledge of these
laws and regulations is beneficial—if not essential—
to anyone contemplating a successful career in the
business world of today.
STARTING BUSINESS
Purpose in starting business is to be successful. Every

business venture contains certain inherent risks, and
any number of alternatives. Before starting the first
thing to consider the legal form operating under
because has a number of advantages and
disadvantages e.g.:
COMPANY: has a higher tax rates, stricter laws,
elaborate accounting procedures, legality, forms,
statements etc.
PARTNERSHIP require registration of business
STARTING BUSINESS—Contd.
Successful business is a tight hold on expenditures;

anything that does not make money, protects
investment should not be ventured to especially in
the beginning. The most important element of
eventual success will be the soundness of planning
before starting business. Success takes planning and
planning involves and includes an understanding
and grasp of Business Laws
STARTING BUSINESS
ENTREPRENEUR: One who initiates and assumes the

financial risks of a new enterprise and undertakes to
provide or control its management.
Question before entrepreneur what form of business
organisation choose for his business endeavour:
OPTIONS:
1. Sole Proprietorship
2. A Partnership
3. A Corporation (Limited Company)
SOLE PROPRIETORSHIP
 Simplest form
 Owner is the business
 Business without creating a separate business organisation
ADVANTAGES:
1. Proprietor receives all the of the profits (all risks
assumed)
2. Easier, less costly than to start any other kind of business
3. Entails more flexibility compared to other organisations
4. Free to make any decision concerning the business
5. Pays only personal income tax (relatively less)
SOLE PROPRIETORSHIP
DISADVANTAGES:
1. Alone bears losses or liabilities incurred by the business
2. Unlimited liability or legal responsibility for business
obligations incurred
3. Opportunity to raise capital is limited mostly to personal
funds
4. Lack of continuity upon death of proprietor.
Automatically dissolved
5. If transferred to family members new proprietorship
created
BUSINESS
BUSINESS LAW IN PAKISTAN
Legal form under which operating

Main forms of business organizations by PRIVATE sector in
Pakistan:
Sole Proprietorship
Partnership
Limited Liability Company
Joint venture: Created in contemplation of a limited activity or a
single activity.
PUBLIC SECTOR. Where the Government undertakes an
enterprise either a statutory corporation or limited company.
For medium and large scale business in Pakistan limited
company is the preferred form
ADMINISTRATION OF JUSTICE
A look at the hierarchy and system of courts in

Pakistan.
FEATURES:
Courts are federal and provincial in nature.
System made up differing in levels of legal superiority
System separated by jurisdiction
STRUCTURE:
Supreme Court of Pakistan
Federal Shariat Court of Pakistan
ADMINISTRATION OF JUSTICE—Contd.
High Courts (one in each Province and in Capital)

District Courts (one in each District)
Judicial Magistrate Courts (criminal trials)
Judicial Magistrate Courts (every town and city)
Executive Magistrate Courts (summary trial)
Civil Judge Court.
SPECIAL TRIBUNALS AND BOARDS:

Special and specific purpose
Banking Courts
Services Tribunal
Income Tax Tribunals
Anti Corruption Courts
Anti Narcotic Courts
Anti Terrorist Courts
SPECIAL TRIBUNALS AND BOARDS:

Special and specific purpose
Banking Courts
Services Tribunal
Income Tax Tribunals
Anti Corruption Courts
Anti Narcotic Courts
Anti Terrorist Courts
Labour Relations Court.

Board of Revenue
Special Magistrate Courts
Consumer Courts
STRUCTURE
SUPREME COURT OF PAKISTAN

Apex Court
Final forum for legal and constitutional issues
Appellate and constitutional jurisdiction
Suo moto powers to try Human Rights matters
17 permanent judges
Permanent seat in Islamabad with Registeries in Lahore,
Karachi,Peshawar and Quetta
Its judges supervised by the Supreme Judicial Council.
Exclusive jurisdiction over disputes between and among provincial
governments
Appellate jurisdiction over the decisions of the High Courts.
STRUCTURE---Contd.
FEDERAL SHARIAT COURT

Creation of Presidential Order of 1980 ‘to scrutinise all
laws in Pakistan that are against Islamic values’
Examine any law that may be ‘repugnant’ to the
injunctions of Islam, as laid down in the Holy Quran and
the Sunnah.
If repugnant Court to give notice to Government
Examine any decision of criminal court relating to
application of ‘Hudud’
 The Court’s decisions are reviewed by the Shariat
Appellate Bench of the Supreme Court
STRUCTURE---Contd.
Consists of 8 Muslim judges including the Chief

Justice
Of the 8 judges 3 are required to Islamic
scholars/ulema
The Shariat Appellate Bench of the Supreme Court
consists of 3 Muslim judges of the Supreme Court
and 2 ulema appointed by the President
STRUCTURE—Contd.
HIGH COURTS:
One in each Province and one in ICT
Appellate courts for all civil and criminal cases in
each respective province
Authority laid down and derived from the
Constitution
Writ—order issued commanding a person to do a
certain act therein specified e.g. writ in the nature of
habeas corpus, mandamus
Appellate jurisdiction over the lower courts
STRUCTURE---Contd
DISTRICT AND SESSIONS COURTS:

Exist in every district of each province
Have criminal and civil jurisdiction.
When hearing a criminal case called the Sessions
Court
When hearing a civil case called the District Court
District and Sessions Judge has executive and
judicial powers all over the District
Executive matters are brought before the District and
Sessions Judge
STRUCTURE—Contd.
CIVIL JUDGE/JUDICIAL MAGISTRATE COURTS:

Numerous in every town and city
Local jurisdiction covering one or more police stations in
the area
When hearing civil suits known as Civil Judge cum Judicial
Magistrate
Magistrate (powers u/s 30 of Cr P.C.) hears all criminal
matters other than those carrying death penalty.
Can pass sentence of up to 7 years imprisonment
If thinks higher sentence deserved then has to refer to
higher court with its recommendations
STRUCTURE—Contd.
The judges of Tribunals (except Consumer and Special

Magistrate Courts) are of District and Sessions
judges or of having similar qualifications
OTHERS:
Family Courts: West Pakistan Family Courts Act
1964. Cases heard in Court of Family Judge or Civil
Judge when no separate Court Appeal with High
Court
Juvenile Courts: Cases heard by Judicial Magistrates
APPOINTMENT OF JUDGES
SUPREME COURT:
Are made under the provisions entailed in the 18th
Constitutional Amendment
Previously it was made by the President on the
recommendations of the Chief Justice of the
Supreme Court
Following the judgment of the Supreme Court in Al-
Jehad Trust case the President was bound to act on
the recommendations of the Chief Justice
APPOINTMENT OF JUDGES—Contd.
Now a Judicial Commission (C.J., 2 senior judges of

the S.C., A.G. and Minister for Law) and will
recommend to a Parliamentary Committee
HIGH COURTS:
Same manner as Supreme Court
DISTRICT AND SESSIONS JUDGES:
Appointed by the relevant High Courts
From a pool of subordinate judges and lawyers
APPOINTMENT OF JUDGES—Contd.
Lawyers must have at least 10 years experience as an

advocate with good standing and pass an
examination conducted by the High Courts.
Promotion is of senior civil judges from the judiciary
on seniority basis
CIVIL JUDGES:
Selected after an examination conducted by the
Provincial Public Service Commission
Appointment of Judges--Contd
Competitive exams are held annually
The High Court then appoints on the
recommendations of the Public Service Commissions
Open to candidates with a law (LL.B ) degree and 3
years experience as an advocate
PRELIMINARY
PURPOSE:
Every Act (law) has a purpose for which it is enacted (made).
CHAPTERS AND SCHEDULES:
Every Act is divided in Chapters. Every Chapter deals with a
particular subject. Schedules are part of the Act; often
containing rules dealing detail a subject dealt summarily within
the Act.
SECTIONS,SUB-SECTIONS, CLAUSES AND SUB-CLAUSES
Every Chapter has a subject. Each aspect of this subject is dealt
with in a separate section. Each section deals with a particular
topic. Its various aspects are then dealt in separate sub-sections
which is further divided into clauses and sub-clauses
PRELIMINARY—Contd.
DEFINITIONS:
Where and when a word is specifically defined it has a special
meaning otherwise it has ordinary dictionary meaning. A
specific meaning over rules the ordinary dictionary
meaning
TWO TYPES:
1. EXCLUSIVE DEFINITION: Gives a precise meaning
completely replacing ordinary meaning. Excludes all other
meanings. Begins with the word ‘MEANS’
2. INCLUSIVIVE DEFINITION: Expansive definition.
Begins with ‘INCLUDES’. Has both elements
PRELIMINARY—Contd.
PROVISO:
Normally varies the meaning or operation of a section, sub-
section. Makes an exception to the main provision
EXPLANATION:
Specifies the meaning of a word, term or phrase which is
ordinarily capable of signifying more than one meaning or
interpretation
CONTD.
Law divided into PARTS and each deals with a
particular subject e.g. Part II Jurisdiction of Courts.
Part III SECP, Part IV Incorporation of Companies
Sections
Sub Sections
DEFINITIONS: The word or a term specifically defined
has a special meaning assigned to it and replaces its
ordinary meeting. Otherwise have their ordinary
dictionary meaning e.g.
Proceed in alphabetical order
Section 2 (7) “Company” means a company formed and
registered under this Ordinance or an existing Company
COMPANIES
COMPANIES
INTRODUCTION
Companies are a familiar part of everyday life
especially capitalist market economy
 Buy food supply gas, electricity, telecommunications,
banks, newspapers, watch television
‘Company’ brings to mind an organisation concerned
with marketing and collection of payments for
products and services.
Our concern is the legal entity which owns the
business.
INTRODUCTION –Contd.
This type of organization is created by law

Exists only by virtue of the law
The idea is the separate personality of the company
as an artificial person capable of owning property,
being a party to contracts, and being a claimant and
a defendant in the legal proceedings.
The limited liability company is said to be the
greatest single discovery of modern times, even less
than steam or electricity
INTRODUCTION—Contd.
Why? Because a huge proportion of world’s wealth is

generated by companies
Companies used as a tool for running a commercial
enterprise
Starting a business venture on such a scale requires
money which can be done by raising a loan or
inviting people to contribute to the capital. The
former is expensive and the latter is resorted in case
of companies
INTRODUCTION---Contd.
For running and for managing the interests of the

large number of investors the company has a formal
‘constitution’ (Memorandum and Articles of
Association) which sets out the voting and other
rights of all the members (shareholders) of the
company; those who have contributed.
Limited liability: If a company becomes unable to
pay its debts, the members of the company will not
have to contribute towards paying the of the
INTRODUCTION---Contd.
company’s debts out of their own private funds; they

are liable to pay only the amount they have paid, or
have promised to pay for their shares. It thus
encourages risk taking.
‘Legal person’—entity separate from the persons
actually involved in it. This fictional legal person
owns the property of the business, owes the money
that is due to business creditors and is unchanging
even though the people involved in the business
come and go.
COMPANIES ORDINANCE, 1984
COMPANIES ORDINANCE. Legal regime for establishment and

regulation of companies in Pakistan
SECP. Securities and Exchange Commission of Pakistan for
administration of companies and Registrar of Companies appointed
by SECP.
COMPANY LAW IN PAKISTAN:
1. Companies Act 1913 was adopted in Pakistan in Pakistan after 1947

2. Administered by Provinces till 1973 (new Constitution) and then
taken over by Federal Government.
3. New law promulgated on October 8, 1984 . Previous law repealed.
4. To cater for needs of expanding sectors the law amended in 1991,
1999 and 2002
CONTD:
A company is an artificial person created by law, endowed with a perpetual succession and
an entity apart from its members. It signifies assent by means of common seal. It is
capable of holding property, incurring debts, and suing and being sued in the same
manner as an individual
Under the law three different types of companies:
Limited by shares
Limited by Guarantee
Unlimited liability
Two types of limited companies:
A Private Limited
A Public Limited (Listed and Unlisted)

OBJECTIVES
OBJECTIVES OF COMPANIES ORDINANCE: The

entire scheme is meant to protect the interest of the
creditors and shareholders and not to put their
interest at risk by interim arrangements.
The law has been enacted for the purpose of regulating
all matters relating generally to all types of
companies
OBJECTIVES--- Contd.
It encompasses all legal rules and regulations for

business registration with SECP and is enforced by
the agency. Provides legal protection to business
community of Pakistan, with SECP keeping a close
check on financial and corporate entities to ensure
shareholders’ interest
Healthy growth of the corporate enterprises
Protection of investors and creditors
Promotion of investment
Development of economy
COMPANY: CHARACTERISTICS
Five core characteristics:

1. Legal personality/entity
2. Limited Liability
3. Transferable Shares
4. Centralized management under a board structure
5. Shared ownership by contributors of capital
CONTD:
 Granted a charter/permission (incorporated) by the

competent authority (SECP/Registrar of Companies)
 A separate legal entity distinct from its members is created
with its own privileges and liabilities
 It can sue and can be sued
 Creation of a specific law safeguarding the interests of the
stakeholders. Not to put their interest at risk by interim
arrangement
 Management operate the company
 As they are ‘born when issued a certificate of incorporation
they also ‘die’ when they go bankrupt
LIMITED LIABILITY
If the company fails shareholders normally only

stand to lose their investment and the employees
their jobs but neither will be further liable for debts
that are outstanding against the company’s creditors.
Can be convicted of criminal offence like fraud,
misstatements etc.
KINDS OF COMPANIES
THREE:
1. Company Limited by Shares. Each person becoming a member
(shareholder) of the company acquires one or more shares in
which the Company’s capital is divided. His liability is limited to
his share holding.
2. Company Limited by Guarantee. Liability limited by
Memorandum of Association to such amount as members may
respectively undertake to contribute to the assets on being
wound up .
3. Unlimited Company. More akin to a partnership where each
member liable to all the debts of the company. He is free from his
liability at the end of the year from his ceasing to be a member.
CONTINUED
May be registered under the Law as:

Private: restricts number of members to 50, invitation to public
to subscribe and right to transfer its shares
Public: Three or more persons associate to form. Not Private
deemed to be public
Listed/Quoted
Unlisted/Unquoted.
A company limited by shares, whether private or public, is the
most common vehicle for carrying out business in Pakistan.
Single Member: Only one subscriber to the Memorandum of
Association. A private limited company for all intents and
purposes of the Company Ordinance
PRIVATE vs. PUBLIC
Differences:
1. Subscription
2. Transfer of shares
3. Members
4. Upper Limit of Members
5. Certificate of Commencement
6. Min. subscription
7. Prospectus or statement in lieu of
8. Filing of Accounts
9. Qualification of Auditors
10. Investment in associate company
PRIVATE vs. PUBLIC -Contd:
11. Restriction on CEO

12.Statutory Meeting and Report
ADVANTAGES OF PRIVATE COMPANY

FORMATION OF COMPANIES.
Usually it takes a lot of funding and tons of efforts to

establish a business. For a company to be formally
and properly established several steps need to be
undertaken.
PROMOTION: in which the promoters of the
company have to formulate and file all the necessary
documents with the Registrar of Companies
Incorporation: or the carriage of the formal
registration process of the company that gives it
FORMATION OF COMPANIES--Contd
a recognisable status in the formal business sector.

Raising of capital: this facilitated by incorporation
as it gives credibility and makes the company eligible
for being granted loans as capital
The official start of the business is the end of the
elementary steps of forming a company but is the
beginning of the company’s interaction with its
clientele
FORMATION OF COMPANIES—Contd.
For formation of companies in Pakistan
Secp.gov.pk
‘PROMOTERS’ GUIDE”
FORMATION OF COMPANIES--Contd
1.PROMOTION: Preliminary steps for registration

and floatation
 Persons who assume the task of promotion are
called promoters; maybe individuals, syndicate,
association etc.
 Promoter is less a term of law and more of
business.
 He has the desire that the company be formed and
is prepared to take the required steps.
2.REGISTRATION: Preparation and submission of

necessary documents and deliver them to Registrar
of Companies.
Memorandum of Association of the Company
Articles of Association of the Company
3.FLOATATION: When a company has been
registered and has received its certificate of
incorporation it is ready for floatation; can go
ahead with raising capital to commence business and

carry it on satisfactorily. This involves:
Issuance of Prospectus (invite public to subscribe)
Submit statement in lieu of prospectus(if capital to
be raised privately)
Certificate of Commencement: essential for every
public company.
1. File an application to the Registrar of Companies for availability of

name. The Registrar of Companies then issues a certificate
reminding that the proposed name is available. This is to ensure
against duplication and deception
2. File Memorandum and Articles of association with the Registrar of
Companies in the Province where the proposed company is to be
incorporated along with other prescribed forms.
3. On registration the Registrar issues a Certificate of Incorporation
and a private limited can commence business immediately.
4. A public limited company can commence business only after a
Certificate of Commencement of Business is issued by the Registrar
5. A public limited company intending to have its shares listed must
obtain permission from the relevant Stock Exchange
DEFINITIONS.
MEMORANDUM OF ASSOCIATION .
Sets out the constitution of the Company. The foundation on
which the Company’s structure is based. Defines scope of
activities. Tells what it does spelling out its objectives
1. Name
2. Province of registration.
3. Objects
4. Limited by shares or guarantee
A STATEMENT OF THE OBJECTS OF THE COMPANY, ITS

POSITION AND ITS RELATION TO THE WORLD
WITHOUT
DEFINITIONS– Contd:
ARTICLES OF ASSOCIATION
A document regulating the rights of the member of
company among themselves. The manner in in which the
business of the company shall be conducted. Dealing with
the whole internal arrangement of the Company.
Originally framed when the Company incorporated.

Subsequent changes by special resolution
RULES AND REGULATIONS PRESCRIBED FOR THE

INTERNAL MANAGEMENT OF A COMPANY.
PROSPECTUS
A document which invites persons to take shares in a company

and set forth the advantages of the company. Contains the
information for invitation of subscription from the public
Any notice, circular, advertisement or other intimation,
offering to the public for subscription, or purchase of any
shares or debentures of a company
1. Discussed and approved by the Board of Directors
2. Public companies issuing prospectus required to file
application to SECP for approval of prospectus for
publication.
3. Date of application to SECP and no publication unless
prospectus registered with SECP
PROSPECTUS—Contd.
Prospectus to include:
Memorandum
Number of shares fixed
Particulars of directors and managers
Minimum subscription before allotment
Number and amount of shares and debentures
Particulars of vendors
Auditors
Interest of every director
LIABILITY OF PERSON ISSUING PROSPECTUS IF IT IS NOT

ACCORDING TO PROVISIONS OF LAW.
SHARE CAPITAL
The share capital of a Company goes under different

names;
1. Authorised Capital: stated in the Memorandum of
Association and which the company is authorised to
issue
2. Issued Capital: The full authorised capital may not
be initially issued; it is that capital that has been
issued
3. Paid Up Capital: that part of the issued capital which
has been actually paid for by the shareholders.
SHARE CAPITAL & SHARES
A share signifies:
1.
The interest of a shareholder in a company
Right to receive dividend
Vote at the meeting
Share in surplus of assets (if any) on winding up
2.Liability in the company to pay on call until shares
fully paid up
3.Right to transfer subject to provisions of Articles of
Association.
SHARES—Contd.
4. A binding agreement between the company and

shareholder as spelt out in the Articles of
Association.
SHARE OF A COMPANY IN THE HANDS OF A

SHAREHOLDER SIGNIFIES A BUNDLE OF
RIGHTS AND OBLIGATIONS
SHARES
Prospectus: Invitation to the public to make offers to the

company
Application: from the public is an offer to take them
Allotment: acceptance of the offer by the company creating
a contract between the parties
Allotment complete when notice of allotment issued.
Registered: Name of share allottee is entered in the
Register and becomes a member of the company
Shareholder : The person who holds a share by having his
name on the register.
Distinctive number for each share
SHARES: TRANSFER
Transfer: The making over to another the document(shares in

public companies) by one to another. An act of a member.
Transmission: By devolution of law e.g. by death, bankruptcy etc.
PROCEDURE:
 Apply: Transferor or transferee to the Company
 Checking and Verification: By the Company
 Notice: Maybe issued by Company
 Processed
 Approval: BOD or Committee of BOD
 Register of Members: Entry and Delivery
Normally transfer of shares is not refused by Company
(defective/invalid)
MANAGEMENT
Articles of Association: Rules and Regulations drawn up for the

conduct of a Company.
DIRECTORS
1. First Directors determined in writing by majority of subscribers
of the memorandum
2. Hold office till first AGM
3. One who directs a business
4. Persons of the select body of shareholders of a Company
5. Delegated duty to manage affairs of the Company
6. Trustees of Company’s assets
7. Not trustees of individual shareholders
8. Enters into contract on behalf of Company
DIRECTORS----Contd.
9. Number of Directors:
SMC: At least one
Private: Not less than two
Unlisted Public: Not less than three
Listed Public: Not less than seven
DIRECTORS’ REPORT.
Attach with every Balance Sheet:
1. State of Company’s affairs
2. Recommendation for dividend
3. Re-appropriation of profits
4. Disclose material changes
5. Explanation on any adverse remarks of auditors.
MANANGEMENT: Contd.
CHIEF EXECUTIVE
An individual entrusted with powers to manage to affairs of the
Company
Subject to control and direction of directors
Includes a director or any other person
First appointment within 15 days of commencing business by
Directors. Hold office till first AGM
Subsequent by the BOD within 14 days of vacancy
Till successor appointed continues to work
‘Conflict of Interest’; directly or indirectly engage in any business
which directly competes with the business of the Company.
MANAGEMENT: Contd.
SECRETARY:
An officer of the Company
Responsible for the compliance by the Company of
its statutory duties
Listed company shall have whole time Secretary
Prescribed qualifications under the Law
MANAGEMENT: Contd.
AUDITORS:
To carry out ‘audit’ an examination of accounts
which may be detailed or administrative.
Comply with directions
Appointed at each AGM
Hold office till conclusion of next AGM
Removal through Special Resolution.
COMPANY MEETINGS
STATUTORY MEETING
Limited Company (share capital and guarantee) not less than three
months or more than 6 months of entitled to commence business
hold general meeting
Held once in a lifetime
Purpose to put before shareholders all important facts –shares taken
up, monies received, contracts entered, preliminary expenses
Furnish particulars for shareholders to discuss
Management, method and prospects
STATUTORY REPORT: Report submitted by the directors 21 days

before the Statutory Meeting to every member
MEETINGS: Contd.
ANNUAL GENERAL MEETING:

First meeting within eighteen months of its
incorporation
Subsequent once at least in one year, within four
months close of financial year
At it consider accounts ,B.S. Profit and Loss Account,
Auditors and Directors Reports.
Declaration of dividend
Appointment /remuneration of auditors
Election/appointment of directors.
MEETINGS: Contd.
EXTRA ORDINARY GENERAL MEETING

All general meetings other than Statutory or AGM
Conduct special business
Called in three ways:
1. Directors on their own initiative
2. By the directors on requisition by shareholders
3. By those requisitioning it
MEETING OF BOARD OF DIRECTORS:

 Quorum
 Minimum number of meetings
RESOLUTIONS
Any proposal at a Company Meeting and put to the

vote
Ordinary: decided by a bare majority
Extraordinary or Special: requires a majority of
three-fourths to carry it
Resolution by Circulation: Urgent, cannot wait for
next BOD
AUDIT AND ACCOUNTS
It is mandatory for every company to maintain proper books of

account. Maintained for:
1. Cash receipts and payments i.e. Cash Book
2. Revenue and expenditures
3. Assets
4. Liabilities
5. Cost accounting records
 Books to be kept at Company’s registered office
 Can be inspected by Directors during business hours in office
 If members wish to inspect then the place, time, conditions
etc. are determined by directors
AUDIT and ACCOUNTS---Contd.
Company auditors has right of access to books of accounts

Auditors duty to make a report to the members of the
company on the books of account
Registrar of Companies can inspect books for reasons
recorded in writing
Authenticated: B.S. P/L Ac approved by Directors
INTERNAL AUDIT:
Listed Company to have internal audit function
Audit Committee of the BOD
WINDING UP
Artificial Person. ‘Born’ has to ‘die’

Winding up is the closing up of a company’s concern,
which may be by reason of insolvency, or otherwise
Winding up is a proceeding by means of which the
dissolution of a company is brought about and its
assets realised and applied in payment of its debts,
and after satisfaction of the debts, the balance, if any,
remaining is paid back to the members in proportion
to the contribution made by them to the capital of
the company
WINDING UP----Contd.
Modes of winding up:

1. Compulsory winding up by the Court e.g. special
resolution by the Company, defaults (statutory reports
etc.), unable to pay debts, violation of Company’s
Ordinance, Memorandum of Association etc.
2. Voluntary winding up by:
a) Members
b) Creditors
3. Voluntary winding up under the supervision of the
court
WINDING UP---Contd.
BANKRUPTCY: In it the whole estate, both legal and

equitable, is taken out of the bankrupt and is vested in
the trustee
WINDING UP : The estate, legal or equitable, still
remains in the company until its dissolution
DISSOLUTION: Puts an end to the existence of a
company i.e. completely wound up or court feels that
official liquidator cannot proceed with the winding up
LIQUIDATION: Process of distributing a bankrupt’s
estate i.e. realising the assets and paying the money over
to the creditors.
LAW RELATING TO PARTNERSHIP
PARTNER:
One who partakes or shares with another
An associate
One who has a share with another or others in some
commercial, manufacturing or other undertaking
One who dances with another.
An associate in a firm. A member of a firm or
partnership.
PARTNERSHIP
PARTNERSHIP:
The state or condition of being a partner
The association of two or more persons for the purpose of
undertaking and prosecuting conjointly any business,
occupation, or calling
That which subsists between persons who have agreed to
combine their property, labour skill in some business and to
share the profits thereof between them
A type of business entity in which partners share with each the
profits or losses of the business.
FIRM:
Persons who enter into partnership are collectively called a firm
PARTNERSHIP—Contd.
Persons who enter into partnership with one another

are individually ‘partners’ and collectively a ‘firm’
and the name under which their business is carried
on is called the ‘firm name’
Partners may choose any name as their firm’s name
provided id does not go against the rules relating to
trade name or goodwill----mislead the public into
confusing with a firm already in existence or words
which express or imply sanction, approval or
patronage of the Government
PARTNERSHIP--Contd
In Pakistan for small to medium size business set ups the
common mode of business.
Advantage of structural flexibility and formality of
relationship between partners.
Maybe registered or not. Not compulsory
Registered firms have the advantage of tax and
consequences of litigation.
Favoured over corporate structure (companies) as no
dividend is levied.
But partners exposed to greater personal liability than the
shareholders of a company.
PARTNERSHIP LAW IN PAKISTAN
PARTNERSHIP ACT 1932

Originally it was contained in and formed part of the
Contract Act,1872 (Chap.XI) which was repealed and in its
place was passed a comprehensive law.
Is the law governing regulation of partnerships in Pakistan.
Law passed by the Indian Legislature in 1932.
The Governor General of India gave assent on
April 8, 1932.
No.IX of 1932
Adopted and followed by the Government of Pakistan
PARTENERSHIP ACT—Contd.
SCHEME OF LAW:
Divided into 8 Chapters
Sections 74
Schedule 1
CHAPTERS:
1. Preliminary
2. The Nature of Partnership
3. Relations of Partners to One Another
4. Relations of Partners to Third Parties
PARTNERSHIP ACT—Contd.
5. Incoming and Outgoing Partners

6. Dissolution of a Firm
7. Registration of Firms
8.Supplemental
SCHEDULE:
Fees Prescribed
DEFINITIONS
Intention to economise words

Does not lay down general principles
With reference to the whole Act and with reference to
the content
‘ACT OF A FIRM’
 Binds every one of the partners
An act in which every one of them had actually
participated
Gives rise to a right enforceable by or against the firm
DEFINITIONS—Contd.
‘BUSINESS’:
Includes every trade, occupation and profession.
Includes and not Means.
An Inclusive and not Exhaustive definition
General and vague
Broadly, any activity which, if successful, would
result in profit
Must be in existence
May be temporary or permanent (indefinite)
DEFINITIONS—Contd.
PARTNERSHIP:
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 individually called ‘partners’ and
collectively a ‘firm’ and the name under which their
business is carried on is called the ‘firm name’
A voluntary act between two or more persons.
PARTNERSHIP---Contd.
Placing their money, effects, labour and skill, or

some or all of them
In lawful commerce or business
Understanding that there shall be communion of
profits or thereof between them.
Contains the following elements/essentials
PARTNERSHIP---Contd.
ESSENTIALS:
Association of two or more persons to carry on a
business
An agreement entered into by all concerned
Agreement must share the profits
Business must be carried on.
Carried on by all or any of the persons concerned
acting for all.
PARTNERSHIP--- Contd.
All elements must be present before a group of persons can

be called partners. Only then a partnership can be said to
come into existence.
 Elements may appear to overlap but are distinct
Existence of partnership is a question of fact.
Association of two or more persons:
 There must be at least two persons who should join
together to constitute a partnership.
 A group of persons with no legal relations (no mutual
rights and liabilities) not a partnership
 No existence or responsibility separately from its partners.
ESSENTIALS OF PARTNERSHIP—Contd.
An Agreement:
Entered into by all persons concerned
Partnership arises only as a result of an agreement,
express or implied
Created by a contract, it does not arise by operation of law
e.g. joint operation (heirs on death )
Voluntary contractual
Lawful agreement; founded on good faith, for lawful object
between competent persons. Fulfill all the essentials of a
valid contract.
Can even come into being upon an oral agreement
ESSENTIALS OF PARTNERSHIP—Contd.
Sharing Profits:
Must be an agreement to share profits arising out of
the business
An essential element of partnership agreement
Different from clubs, societies, charitable
associations etc.
How to be shared left to the parties themselves
Sharing of losses not essential.
Profits refer to net profits.
ESSENTIALS OF PARTNERSHIP---Contd.
Carrying of Business:
‘Business’ as defined i.e. any trade, occupation or
profession.
May be temporary or permanent (indefinite).But must be in
existence.
Agreement to carry on business at a future time does not
result in present partnership.
Must be carried on by all or by any concerned acting for all
Business must be lawful
Mutual agency
True test of partnership.
CARRYING ON BUSINESS—Contd.
Partnership based on the idea of mutual agency.

Every partner assumes a dual role i.e. that of a
principal and agent.
Action of each partner is binding on the other; agent
and principal.
Liable to account for all.
Contract in the name of the firm.
PARTNERS
Can be entered into by every competent person

Attained age of majority
Of sound mind
Disqualified from any law to which he is subject
Unsound mind
Married woman is competent
Minor cannot become a partner but can be admitted
to benefits of partnership.
PARTNERS--- Contd.
WORKING PARTNER:
Not necessarily a partner in business
Maybe only an employee
Gets a share in the net profits
Remuneration for services rendered.
FIRM
Firm:
Persons who have collectively entered into
partnership with one another is collectively called a
firm
Name under which business is carried is Firm Name.
Business under any name or style
Taking care of rules like trade name, goodwill etc.
ILLEGAL PARTNERSHIP
Object of partnership is unlawful. Section 23 of

Contract Act
Number of persons entering into partnership exceed
the permitted. Section 4 of Companies Act.1913:
1. Business of banking—more than 10
2. Any other business—more than 20
 With an alien enemy (alien friend); enjoys civil and
personal rights as a citizen
 Against international comity.
PARTNERSHIP---DISTINGUISHED
CO-OWNERSHIP
Akin but different
Partnership result of an agreement
Mutual rights and obligations different
Consent of all trade/business: Examples
Transfer of interests
PARTNERSHIP---DISTINGUISHED
COMPANY:
1. Person---Legal
2. Creation– Legal formalities/agreement
3. Transfer of interest
4. Agents of others
5. Liability to debts
6. Contract
7. Private arrangements
8. Number
PARTNERSHIP DISTINGUISHED--Contd.
9.Death—Dissolution
10. Property
11. Restrictions
12. Sue and be sued
13. Decree
14.Registration
15. Shareholder
PARTNERSHIP & COMPANY—DISTINGUISHED.
1.PARTNERSHIP is not a 2. Creation of

distinct legal person, but PARTNERSHIP is
is made of the persons purely a matter of
composing it. agreement between the
COMPANY is a distinct parties such an
legal person agreement need not
even be in writing.
Creation of COMPANY
involved elaborate legal
formalities
PARTNERSHIP & COMPANY--DISTINGUISHED
3. In a FIRM partner can 4.Each partner is prima

transfer his interest with facie the agent of others,
the consent of other and can bind them by
partners. his contract made in the
Shares in a COMPANY course of business of the
(especially Public) are partnership.
generally freely Shareholders in a
transferable. COMPANY are not the
agents of one another.
CONTD.
5. Each PARTNER is liable 6. A PARTNER cannot

in full for the debts of contract with the firm.
the firm A shareholder in a
The liability of the COMPANY can contract
Company’s shareholders with the COMPANY.
is limited by shares or
guarantee.
CONTD.
7. PARTNERS may make 8.In PARTNERSHIP

any private maximum number of
arrangements among members is restricted
themselves e.g buy In COMPANY no
others’ shares. maximum number.
Arrangements in Minimum is prescribed
COMPANY are regulated
by law e.g Company
cannot buy its member’s
shares
CONTD.
9. Death of a partner dissolves a PARTNERSHIP

Death or retirement of shareholder does not dissolve the
COMPANY.
10. Property may be the common property of PARTNERS.
Property belongs to the COMPANY and not its members
11. Restrictions contained in partnership deed will not effect
third parties, who are not aware of it
Restrictions in Articles of Association effect third parties also.
12. A FIRM cannot sue or be sued.
A COMPANY can in its own name.
PARTNERSHIP/DISTINGUISHED---Contd.
CLUB:
Entirely different
Club members not liable for acts of other members
Not liable to be creditor of club
Liability—extent of Club’s regulations
No implied authority i.e. bind other members of the
club.
CONTD.
13. Decree against the FIRM can be executed against

the partners.
Decree against the COMPANY cannot be executed
against its shareholders.
14.For a PARTNERSHIP registration is optional
For a COMPANY it is compulsory
15 A FIRM cannot be a shareholder. in a company
A COMPANY can be a shareholder in another
company.
PARTNERSHIP DISTINGUISHED—Contd.
TRADE ASSOCIATION:
Mutual agency does not exist
PARTNERSHIP---EXISTENCE
HOW TO DETERMINE:
Real relation between the partners
Mainly a question of fact
Onus to prove on the appellant
PARTNERS—RELATIONS TO ONE ANOTHER
Relations between partners defined

Freedom to arrange their own affairs among
themselves
Mutual rights and duties regulated by contract
Duties and liabilities on a partner:

1. Duty of good faith and common advantage
 Carry on business to the greatest common advantage
 Just and faithful to each other
PARTNERS—RELATIONS TO ONE ANOTHER—Contd.
Use knowledge and skill for benefit of firm

Not personal advantage
In case of loss to firm by fraud of a partner---
indemnify firm (make good the loss)
2. Duty to render true accounts and full information:

 Not to mix with personal business
 Disclose full facts.
PARTNERS---RELATIONS TO ONE ANOTHER—Contd.
Rights and duties of partners determined by contract

between them.
Contract varied only by consent of all partners
In conduct of business every partner has right to:
1. Take part in conduct of business
2. Access, inspect and copy books of account
3. Express opinion. Majority opinion
Mutual rights and liabilities. Subject to contract:

1. Not entitled to any remuneration
2. Entitled to share equally
3. Advance by partner to firm (over and above capital)
entitled to profit (interest)
PROPERTY OF FIRM:
Inclusive definition
1. All property and rights originally brought to the
stock of the firm
2. Acquired by purchase or otherwise during the
course of the business
3. Goodwill of the business
4. Rights and interests acquired with money
belonging to the firm. Deemed.
PARTNERS—RELATIONS TO ONE ANOTHER---Contd.
GOODWILL:
Not defined
“The whole advantage, whatever it may be, of the
reputation and connection of the firm”
Intangible
Easy to describe, difficult to define
It is benefit and advantage of the good name,
reputation and connection of a business
GOODWILL---Contd.
No independent existence

Cannot subsist by itself
Attached to business
Attribute of a business, trade or profession.
APPLICATION OF PROPERTY:
Shall be held
Shall be used
By the partners
Used by the partners
Exclusively for purposes of business
Common benefit of all partners
One partner cannot use assets for personal benefits
PERSONAL PROFITS OF PARTNERS

Subject to contract
If a partner derives personal profits ----
transaction, use of property or connection---
of the firm. Shall account for and pay to the firm
Carries on any business----same structure and
competing with the firm. Shall account for and pay
profits made in that business.
Cannot carry on competing business during

subsistence of partnership
In that case pay to firm all profits.
RIGHTS AND DUTIES AFTER CHANGE IN FIRM

General rules laid down for determination of rights
and duties of partners. No effect on registration.
Three situations. In case of:
Change in constitution: Rights and duties remain the
same as immediately before change
After expiry of term of firm, remain the same
Additional undertakings are carried out
1. CHANGE IN CONSTITUTION
 Partnership not dissolved
 Mutual rights and duties of partners
 Remain same in reconstituted firm
 Same as immediately before reconstitution
2. AFTER EXPIRY OF TERM OF OFFICE:

 In spite of being constituted for fixed term carries
on business
 Term expired
 Mutual rights and duties remain the same
 Same as before expiry.
3. ADDITIONAL UNDERTAKINGS ARE CARRIED

OUT:
Originally constituted to carry out one or more
undertakings
Carries out other undertakings
Mutual rights and duties in the new undertaking
same as in old
PARTNERS—RELATIONS TO THIRD PARTIES.
Rights and duties of partners as regards to third

parties
PRINCIPAL AND AGENT.
Agency is the essence of partnership
Partner is both an agent and principal
Relation between partners of principals
To third parties agents of the firm
Acting on behalf of firm can bind co-partners
Acting in personal capacity—personal liability
PARTNERS—RELATIONS TO THIRD PARTIES
IMPLIED AUTHORITY:
Important
The act of a partner which binds the firm
This authority of the partner which binds the firm is
his ‘implied authority’
To exercise implied authority necessary that:
1. Act must be done in the conduct of business of the
kind carried on by the firm
PARNERS—RELATIONS TO THIRD PARTIES—Contd.
2.Must be done in the way which is usual in such

business
3. Must be done in the firm name or in any other
manner expressing or implying an intention to bind
the firms
Relevant factors:
Nature of business
Practice of persons engaged in it.
PARTNERS—RELATIONS TO THIRD PARTIES—Contd.
FRAUDULENT ACT----IMPLIED AUTHORITY?

Liability of firm on fraudulent act of partner
Partner’s implied authority
Factor—principal answerable for acts of agent
Firm liable
Firm not liable if collusion between partner and
third party
If third party bona fide then firm liable
IMPLIED AUTHORITY
ACTS OF THE PARTNER WHICH DO NOT BIND
THE FIRM:
1. Submit dispute relating to firm’s business for
ARBITRATION.
2. Open on behalf of firm BANK ACCOUNT
3. Compromise/relinquish CLAIM (part) of firm
4. WITHDRAW suit/proceeding filed on behalf of
firm
5. ADMIT liability in suit/proceeding against firm

6. ACQUIRE immovable property on behalf of firm
7. TRANSFER immovable property belonging to firm
8. ENTER into PARTNERSHIP on behalf of firm
May also include:
 Bind the firm by giving GUARANTEE in respect of
debts of third parties.
 SET off PERSONAL DEBTS against debts due to
firm.
SET OFF DECREE obtained by firm for less than the

decreed amount
ACCEPT FULLY PAID SHARES in satisfaction of
debts due to firm.
LIABILITY OF PARTNER
1. RIGHTFUL ACT:
Every partner jointly and severally responsible
2.WRONGFUL ACT:
Wrongful act/omission during ordinary course of
Business loss to third party then firm responsible
PARTNERS---RELATIONS TO THIRD PARTIES.
4. MISAPPLICATION:
Partner or firm misapplies money or property
Received from third party firm is liable
5.HOLDING OUT:
Where a person by word or conduct induces another to
believe him and acts accordingly he cannot subsequently
deny the existence of such facts
Becomes personally responsible
Does not become member in the firm
Not entitled to any rights as against those in the firm
Does not become agent of the firm
MINORS (according to law)

Cannot be a partner
May be admitted to benefits of partnership
Cannot declare as partners but only that entitled
to benefits.
No partnership wholly of minors.
RIGHTS:
1. Admitted to benefit
2. May inspect/access accounts
3. Share property and profits
4. Sue for accounts on severing ties with firm
5. On attaining majority option of becoming member
6. On attaining majority option to leave
7. Not personally responsible for acts of firm
LIABILITIES:
1. Share liable for acts of firm. Within 6 months of
majority can sever connection
2. On majority if a member then personally
responsible to third parties
3. Fails to give public notice he becomes a member
after 6 months.
PARTNERS---INCOMING AND OUTGOING
Partnership a contract based on good faith implies that

no new partner can be introduced without the
consent of all the partners
INCOMING PARTNER:
Subject to contract between partners
Introduction subject to consent of all existing
partners
Not liable to any acts of firm before coming a partner
Liability after becoming a partner
http://forum.xda-developers.com/showthread.php?t=841076).
PARTNERS—INCOMING AND OUTGOING
A new partner usually has no personal liability.

Unless he expressly agrees
Liability of a minor on becoming a member from the
time he was admitted to benefits of partnership
OUTGOING PARTNER:
Leaves the firm. No longer a partner in the
partnership. Subject to contract not entitled to
benefits. Becomes outgoing by:
1. Retirement
2. Expulsion
3. Insolvency
4. Death.
PARTNERS—INCOMING AND OUTGOING—Contd.
RETIREMENT:
Three rules how a partner can retire:
With the consent of all partners
In accordance with an express agreement by all partners
Giving written notice to all to all partners
Liability on Retirement
To third party for acts before retirement; discharged by
an agreement with third party and reconstituted firm
Otherwise liability continues until public notice given
EXPULSION:
Governed by contract
Majority cannot expel except in good faith
Conferred by express agreement
If conferred powers then exercised by majority
Liability on Expulsion:
Same as in case of retirement.
INSOLVENCY:
The condition which marks a person’s liability to meet full
monetary obligations. Ceases to pay debts in the ordinary
course of business or cannot pay as they become due
On being declared an insolvent ceases to be a partner on
the date of order
Firm not necessarily dissolved depending on the contract
Firm automatically dissolved if all partners (but
one)declared insolvent
Liability:
After insolvency estate not liable to any act of firm
Firm not bound by acts of partner
DEATH:
If by agreement firm not dissolved on death estate
of deceased not liable to any act of firm
If by agreement firm dissolved surviving members
responsible till public notice given
DISSOLUTION OF FIRM
So far:
1. Formation of partnership
2. Nature of partnership
3. Rights and liabilities of partners
4. Partners inter se third persons.
5. Changes in a firm without dissolution i.e
reconstitution where business continues as
before.
DISSOLUTION—Contd.
Literal Meaning:
Breaking Up.
Of partnership:
The discontinuance of a partnership from any legal
cause. Breaking up or the extinction which subsisted
between all the partners of the firm. There are
various ways of dissolution of firm. It may take place:
DISSOLUTION---Contd
1. AGREEMENT:
By agreement (consent) between all the partners or according to
the contract amongst themselves
2.COMPULSORY:
Occurrence of events making dissolution unavoidable e.g.
 Insolvency of all partners or all except one (when only one
remains then no longer a partnership)
 Unlawful business. When object of partnership is illegal and
carrying on of business becomes unlawful
3. CONTINGENCIES:
Activities for which firm constituted coming to an end, it cannot
function and stands dissolved on its own death
Expiry of the fixed term for which the firm was

constituted
The undertaking or particular adventure for which
constitutes firm has been completed
Death of partner as partnership based on personal
relations
A partner declared insolvent
4. AT WILL:
Any partner can give notice in writing to all partners
of his intention to dissolve. Definite term not
specified exists only during pleasure of all partners.
Dissolution from date mentioned in notice if not then
from date of communication of notice
DISSOLUTION---Contd.
5. BY COURT
Seven grounds in which the Court on any can order
dissolution on a suit filed by a partner
Unsound mind: As it is necessary to protect the interest
of the insane and other partners
Permanent Incapacity: Due to illness, mental or physical
but should be of permanent nature, incapable of
performing duties
Conduct: Guilty of conduct to effect carrying of business;
moral turpitude, professional misconduct. Connected
with business and damage it.
DISSOLUTION AND AFTER.
Liability for acts of partners:

Liable to third parties until public notice is given.
Not to prejudice and protect rights of third parties
Right of business: Apply property of firm in payment
of debts and liabilities of firm. Surplus to be
distributes amongst partners.
Authority: of partners binding each other continue
in order to finish unfinished business and complete
dissolution. Authority to wind up
DISSOLUTION AND AFTER—Contd.
Settlement of accounts: Losses first paid out of

profits, then capital and lastly partners individually
on basis of sharing profit ratio
Assets of firm first debts of third parties, then partners
ratably for advances (distinguish from capital),
followed by capital and balance if any divided ratably
Debts: Joint debts paid from property of firm and
separate from separate property of firm
 Goodwill: It can be included in assets and can be
sold separately or along with property of firm
REGISTRATION OF FIRMS
Law provides for registration of firms but has not

imposed any penalties for non registration
Non registration does not partnership agreement
void
Optional for a firm to get itself registered or not
Prudence dictates registration is implications of non
registration are serious
Non registration imposes certain disabilities for
enforcing claims in courts
REGISTRATION OF FIRMS.
Each Province has its own Rules

Registrars of firms appointed by the Provincial
Government and defines areas of jurisdiction.
PROCRDURE:
1. Application by firm to Registrar of Firms on
prescribed form:
 Name of firm
 Place or principal place of business
 Names of any other place where business is carried
on
REGISTRATION OF FIRMS—Contd.
Date on which each partner joined the firm

Names and permanent address
Duration of firm
Signed and verified by all partners. Restriction on
use of names like Government, Jinnah etc.
Sending/submitting the application to the Registrar
of Firms in the area of jurisdiction. Registration is
only of a firm which is in existence and not which
has been dissolved.
Registration takes place after receipt of statement (application)

by Registrar and after verifying all particulars filed and
compliance made makes an entry in the Register of Firms
Once a firm has been registered further and subsequent
changes like:
Name and place of business
Opening and closing of branches
Name and addresses of partners
Changes in and dissolution of a firm
Can be made by intimating the Registrar who shall make an
entry in the Register of Firms
In case of a court order regarding a registered firm

the Registrar shall make consequential entries in the
Register
The Register of Firms is open to inspection by any
person on payment of prescribed fees
The entries and any subsequent changes in Register of
Firms is conclusive proof of facts. Original
documents filed with the Registrar shall be the
conclusive proof.
NON REGISTRATION:
Mentioned earlier is not mandatory and does not make
a partnership illegal but its effects:
1. If firm not registered and person suing not
registered as a partner cannot bring a suit to
enforce a right arising from a contract
 Against the firm
 Against any past or present partner of firm
2. No suit to enforce a right arising from a contract

shall be instituted by or on behalf of firm against any
third party
But this does not effect the right of a third party to
proceed against an unregistered firm and its
partners.
3. Claim to set off and other proceedings to enforce
any right arising from a contract.
BUT Non Registration does NOT effect:

1. Right of third party to sue firm or any partner
2. Right of partner to sue for dissolution
3. Receiver to realise property of an insolvent partner
4. Firm or its partners having no place of business in
Pakistan
PUBLIC NOTICE
By intimation to Registrar of Firms

By publication in official Gazette
In at least one vernacular newspaper circulating in
the district.
LAW GOVERNING CONTRACTS
Keeping promises is important to a stable society.
Contract law deals with, among other things, the
formation and keeping of promises. Like other types
of law, contract law reflects social values, interests,
and expectations at a given point in time e.g. what
kind of promises should be legally binding, what
excuses are accepted for breaking promises, legally
void or invalid. Resolving
LAW GOVERNING CONTRACTS-Contd.
such questions is the essence of contract law. In

business law and the legal environment of business,
questions and disputes concerning contracts arise
daily.
The law which governs contracts is THE CONTRACT
ACT of 1872.
Promulgated on 25th. April,1872
Technically Act IX
Chapters 10
Sections 237
CONTRACT ACT,1872
CHAPTER I
Of the Communication Acceptance and Revocation of
Proposals.
CHAPTER II
Of Contracts, Voidable Contracts and Void Agreements
CHAPTER III
Of Contingent Contracts.
CONTRACT ACT, 1872
CHAPTER IV
Of the Performance of Contracts
CHAPTER V
Of Certain Relations Resembling Those Created By
Contract.
CHAPTER VI
Of The Consequences of Breach of Conract
CHAPTER VII
Repealed
CONTRACT ACT, 1872
CHAPTER VIII
Of Indemnity and Guarantee
CHAPTER IX
Of Bailment
CHAPTER X
Agency.
The first 6 chapters lay down the general principles on which all
contracts are based, while the rest deal with the important classes
of commercial contracts viz. indemnity and guarantee, bailment,
agency
,
CONTRACT ACT
Extends to whole of Pakistan

Main source of law regulating contracts in Pakistan
law
Determines the circumstances in which promises
made by the parties to a contract shall be legally
binding on them.
Contract creates right and duties upon contracting
parties
The Act deals with the enforcement of these rights
and duties upon the parties.
FUNCTION OF CONTRACTS
No aspect of life is entirely free of contractual

relationships
Contract law is designed to provide stability for both
buyers and sellers
Followed in business agreements to avoid potential
problems
Necessary to ensure compliance
WHAT ARE CONTRACTS
An agreement or mutual promise upon lawful

consideration or cause which binds the parties to a
performance; a bargain; a compact.
PROMISE:
An undertaking by one man with another for the
performance or the non-performance of some
particular thing. A verbal covenant
PROPOSAL:
When one person signifies to another his
WHAT ARE CONTRACTS—Contd.
willingness to do or to abstain from doing anything

with a view to obtaining the assent of that other to
such act or abstinence, he is said to make a proposal.
When the person to whom the proposal is made
signifies his assent thereto, the proposal is said to be
accepted. A proposal when accepted becomes a
promise. The person making the proposal is called
the promisor. The person accepting the proposal is
called the promisee.
WHAT ARE CONTRACTS
The first step towards a contract is for the parties to

get into communication with each other. This is done
by one of them making a proposal. An offer to do or
not do something, and that offer must be made for
the purpose of being agreed to
The next step is that the person, with a view to whose
assent the proposal is made, should express his
concurrence in the act or abstinence. The proposal
now becomes a promise.
CONTRACT--DEFINITION
A contract is an agreement that can be enforced in

court. It is formed by two or more parties who agree
to perform or to refrain from performing some act
now or in the future,
Is an agreement enforceable at law. It is bilateral
document meant to create legal relationship
INTERPRETATION CLAUSE—DEFINITIONS
INTERPRETATION OF CLAUSE is a section of a

statute which defines the meaning of certain words
occurring in other sections.
Aims to introduce some of the words and expressions
as are used in Contracts Act with their peculiar
meanings and connotations. Words used to be
understood in specific sense
In this Act the following words and expressions are
used in the following senses, unless, a contrary
intention appears from the context:
INTERPRETTION CLAUSE
PROPOSAL:
Is declaration by the proposer of his intention to be
bound by an obligation if the offeree fulfills or
undertakes to fulfill certain conditions
A proposal is made when one person signifies to
another his willingness to do or abstain from doing
anything, with view to obtaining the assent of that
other to such act or abstinence
The starting point for a contract
INTERPRETATION CLAUSE
PROMISE:
The technical use is narrower than the popular use.
The proposal when accepted becomes a promise. There
must only be a proposal but there must be an
acceptance of the proposal by the other side
Every promise is an accepted proposal
PROMISOR:
Person making the proposal
PROMISEE:
Person accepting the proposal
The promisor and the promisee must be two different
persons
The two must exist to constitute a contract
CONSIDERATION:
Act, done or promised to be done, at the desire of the
promisor.
At the desire of the promisor
The promisee or any other person
Must have done or abstained from doing, or
Must do or abstain from doing or
Must promise to do or abstain from doing something
AGREEMENT:
Every promise and every set of promises, forming
consideration for each other.
An accepted proposal. Result of a proposal from one
side and its acceptance by the other.
Regarded as a contract when it is enforceable by law.
An agreement that the law will enforce is a contract.
VOID AGREEMENT:
Not enforceable at law
Lawful having a lawful consideration. Entered into
with a lawful object
Every contract is an agreement but every agreement
is not a contract.
Agreement enforceable at law when it is not against
public policy, immoral, without consideration,
having not been hatched through fraud or deceit.
CONTRACT:
An agreement
Agreement enforceable by law
 Succession of definitions of the elements:
1. Proposal
2. Acceptance
3. Promise
4. Promisor
5. Promisee
6. Consideration
7.Agreement
A bilateral document meant to create legal
relationship. It is conceived by valid acceptance of a
valid offer at the desire of the promisor.
VOIDABLE CONTRACT:
Enforceable at the option of one party to the contract
but the party can exercise this option once.
One of the parties may affirm or reject at its option
Different from void contract which is abinitio void.
Has no legal value. Cannot be enforced at law.
Voidable contract enforceable at law at the option of
the parties.
VOID CONTRACT:
Difference between void agreement and void
contract
Ceases to be enforceable by law e.g. impossible
unlawful.
PROPOSALS--COMMUNICATION, ACCEPTANCE AND
REVOCATION
Before a proposal is accepted there is:

COMMUNIUCATION:
Communicate: Imparting of news or information on one side
and reception and understanding on the other
Rule when communication of proposal is considered
complete.
Not a mere mental assent to the terms of an offer.
Some act done with the intention of communicating the
resolution to the other party
Mere intention not communicated by words or conduct
cannot give rise to a contract
COMMUNICATION
Communication of a proposal is complete when it comes

to the knowledge of the person to whom it is made.
Communication of an acceptance is complete, as against
the proposer, when it is put in course of transmission to
him.
Acceptance
Agreeing to a previous act or promise to do by another.
The acquiescence to an offer of a party makes the
agreement enforceable in law. Signifying one’s assent to
the proposal made by another.
REVOCATION.
REVOCATION:
The calling back of a thing done. The making void of a
deed that was in force, the cancelling of an authority
once given.
The communication of a revocation is complete, as
against the person who makes it, when it is put it is
put into course of transmission to the person who
made it
REVOCATION
A proposal may be revoked at any time before the

communication of its acceptance is complete as
against the proposer but not afterwards.
An acceptance may be revoked at any time before the
communication of the acceptance is complete against
the acceptor but not afterwards
REVOCATION
A proposal can be revoked, obviously before it

becomes a contract, by:
1. Communication of notice of revocation
2. Lapse of stipulated time in the proposal
3. If the proposal is conditional or qualified by the
failure of the acceptor to fulfill the condition
precedent
4. By the death or insanity of the proposer, if the fact
comes to the knowledge of the acceptor before
acceptance
CONTRACTS—VALID?
A valid contract has the elements necessary for

contract formation;
An agreement (proposal and acceptance).
Supported by legally sufficient consideration
For legal purpose
Made by parties who have the legal capacity to enter
into the contract i.e. contractual capacity:
CONTRACTS---VALID?
1. Age of majority: when supplies made to minor

binding on him and his estate responsible for
payment
2. Sound mind: at the time making contract is capable
of understanding it, and of forming a rational
judgment as to its effect upon his interest
3. No other disqualification like foreign enemy
4. Free Consent i.e. when not caused by:
CONTRACTS---VALID?
Coercion. It becomes voidable at the option

of the person whose consent was obtained by coercion.
Undue influence. Domination of a weak mind by a
strong mind.
Fraud: False representation of fact made with a
knowledge of it
Misrepresentation. causing a party to make a
mistake.
CONTRACT—PERFORMANCE.
Deals with time, mode, and order of performance as also who is

bound to perform and who can demand performance
Parties to contract must perform or offer to perform their
respective performances unless dispensed by law.
In case of death binding on legal heirs unless contrary to it from
the contract.
TIME AND PLACE OF PERFORMANCE:
When promisor to perform without demand from the promisee
and no time fixed then promisor must perform within
reasonable time ( reference to nature of character of goods
dealt, surrounding circumstances, facts of case)
CONTRACT---PERFORMANCE
To be performed when promisee applies then it his

(promisee) responsibility to apply---proper place and
within usual business hours
If no application from promisee then duty of promisor
to apply to promisee
When parties agree on the time of performance of any
obligation under the contract and is made a
condition of the contract then time is the essence of
the contract. Breach entitles the party to repudiate
the contract
CONTRACT--PERFORMANCE
Avoiding the contract. Circumstances:

Parties agree to substitute a new contract, rescind or
alter original.
Every promisee may dispense with or remit wholly
or in part the performance of the promise.
Contract is ab initio void
CONTRACT--ASSIGNMENT
ASSIGN is to transfer, make over or set over to

another. ASSIGNMENT is the act of transferring to
another all or part of one’s property, interest or
rights-----
Assignment of contract: transfer of rights or liabilities
under a contract. Maybe:
1. Operation by law: in cases of bankruptcy or
purchase or loss of interest of law
2. Assignment by act of parties: cannot be
CONTRACT--ASSIGNMENT
assigned (liability passed on) without the consent of

other party. Where personal considerations are
involved contracts cannot be assigned. Benefit can be
assigned over to other party provided the benefit
does not entail any liability.
CONTRACT—TERMINATION &DISCHARGE
The contractual ties may be loosened and the parties

wholly freed from the rights and liabilities under the
contract by:
1. By Agreement. Contract discharged by the same
process which created it by mutual agreement:
 Waiver: Parties agree to demand performance.
Waive rights and by waiver other party discharged.
CONTRACT---TERMINATION&DISCHARGE.
Novation or Substituted Agreement: Mutual desire

of the parties to substitute a new contract in place of
old. Old contract need not be performed.
2. By Performance: Duties undertaken by either party
fulfilled.
3. By Breach: A contract may be broken. Will discharge
either party from performance. It maybe:
CONTRACT—TERMINATION & DISCHARGE.
By Renunciation: before performance is due

By impossibility created by other party before
performance is due.
Impossibility e.g. change in law
Frustration e.g. One of the parties contracted to
marriage goes mad.
4. By operation of Law:
Merger
Bankruptcy.
CONTRACT---BREACH
In case of breach of contract three remedies are

available to the other party:
1. Damages: The amount is to the extent of damages.
For loss which is direct result of breach. Cannot
claim for indirect loss
2. Specific Performance of the Contracts: Actual
carrying out of contract by a party. Court orders
one party, at the suit of the other, to carry out the
agreement. Usually not granted where damages
sufficient compensation to the party.
CONTRACT---BREACH
3. Injunction. An order or judgment of a court

restraining some person or persons from doing
certain things which are detrimental to the
interests of another or others. It is considered to be
a negative remedy
CONTRACTS—SPECIAL TYPES.
CONTINGENT CONTRACT:
A contract to do or not do something unless such event
takes place e.g. life insurance where contract is
complete only when the insurer passes away.
The uncertainty and futurity of the event to which
the contract is related. Liability of performance is not
absolute but depends upon the happening or not
happening of certain event
CONTRACTS---SPECIAL TYPES
The event being collateral to the event.. Contingency

should relate to a matter collateral to the main
purpose of the agreement
The contingency should not depend on the mere will
and pleasure of a party, but must depend on the act
of a party.
CONTRACTS—SPECIAL TYPES
INDEMNITY:
An undertaking to make good monetary or other loss
or damage
CONTRACT OF INDEMNITY:
By which one party promises to save the other from
loss caused to him by the conduct of the promisor
himself, or by the conduct of any other person e.g. A
contracts to indemnify B against the consequences
of any proceeding which C may take against B in
respect of a certain amount.
INDEMNITY
The person (A) who gives the indemnity is called the

indemnifier and the person (B) for whose protection
it is given called the indemnity-holder or
indemnified.
Scope of indemnity is restricted to those cases where
there is a promise to indemnify against loss, caused
by the (a) promisor himself or (b) by any other
person. Excludes loss from accidents like fire etc.
Promise of indemnity may be expressed or implied.
INDEMNITY
INDEMNITY HOLDER:
The person to whom the indemnity is given i.e. the
promisee acting within the scope of his authority..
His rights:
Entitled to claim all damages which he may have
been compelled to pay.
Recover all cost reasonably covered in resisting,
reducing or ascertaining the claim
Can compromise a claim on best term he can and
then bring an action on the contract of indemnity
GUARANTEE
Guarantee is a promise to be answerable for the debt,

default or miscarriage of another.
Contract of Guarantee: to perform the promise, or
discharge the liability of a third person in case of his
default. When a third person promises to pay debt owed
by another in the event the debtor does not pay a
guarantee relationship is created.
Surety: Person who gives the guarantee.
Principal Debtor: Person in respect of whose default the
guarantee is given.
Creditor: Person to whom the guarantee is given.
GUARANTEE
A takes a loan from B when C guaranteed repayment

of the loan. A is the principal debtor, B the creditor
and C the surety.
The function of a contract of guarantee is to enable a
person to get a loan, or goods on credit or an
employment
Mutual assent is an essential element of a contract of
guarantee. It is not a unilateral contract. There must
be an offer and acceptance.
GUARANTEE
ESSENTIALS:
It is a contract
To perform the promise or
To discharge the liability
Of a third person
In case of his default
The contract may either be written or oral.
GUARANTEE
Differences between Contracts of Guarantee and

Indemnity:
1. In case of Guarantee there are 3 parties. In case
of Indemnity 2 parties
2. In case of Guarantee there is a Principal debtor.
In Indemnity an original and direct engagement;
independent of the existence of the third party
3. Guarantee exists for the security of the creditor.
Indemnity is for reimbursement of loss
BAILMENT
Bailment from bailler (French) meaning to deliver.
Signifying a contract resulting from delivery.
Bailment implies a sort of relationship in which the
personal property of one person temporarily goes
into the possession of another. The ownership of
the articles or goods is in one person and the
possession in another e.g. leaving a car for repair,
cloth to a tailor, parcel to TCS, goods in a cold
store.
BAILMENT—Contd.
The delivery of goods by one person the bailor to

another the bailee for some purpose, upon a
contract that they shall, when purpose is
accomplished, be returned or otherwise disposed of
according to the direction of the person delivering it.
Formed by the delivery of personal property , without
transfer of title by bailor to a bailee usually under an
agreement. Obligations and duties arise from the
bailment relationship.
BAILMENT—Contd.
CHARACTERISTICS:
1. Delivery of goods. Delivery of possession is
essential. Not transfer of ownership; that would be
sale or exchange
2. Delivery of possession is temporary but it is for
some purpose.Bailor reserves right to claim
redelivery of goods deposited.
3. Delivered goods to be returned according to
directions of bailor when purpose accomplished.
4. Only movable properties can be bailed.
BAILMENT—Contd.
RIGHTS AND DUTIES OF BAILEE and BAILOR.

DUTIES of BAILEE:
Take care of the goods entrusted to him –reasonable.
Not to make unauthorized use of goods entrusted to
him. Becomes responsible for any loss.
Not to mix goods with his own goods
Not to set an adverse title to the goods
Return the goods after purpose or period of bailment
is over.
BAILMENT—Contd.
DUTIES of BAILOR:
To disclose defects of goods bailed
To bear extraordinary expenses
Compensate or indemnify for reasons not entitled to
make bailment
AGAINST THIRD PARTIES:
If use or possession wrongfully deprived by third party
bailee can claim damages. Option also with bailor.
BAILMENT—Contd.
TERMINATION:
Bailee wrongfully uses or disposes goods.
Period or purpose of bailment over
 Gratuitous bailment terminated any time by bailor
On death of bailor or bailee gratuious bailment.
AGENCY.
Since it is not possible for every person to do everything

by self, he allows the person to be represented in the
performance of person’s legal acts by another and gives
acts done by such representative the same effect as they
would have done it by self.
One of the most common, important and pervasive legal
relationship is that of the agency; relationship between
(agent) who agrees to represent or act for the other
(principal). The principal has the right to control the
agent’s conduct in matters entrusted to the agent, and
the agent must exercise its powers for the benefit of
AGENCY—Contd.
the principal only.

The principal, by using agents, can conduct multiple
business operations simultaneously in various
locations e.g. corporate officer.
AGENCY:
A legal relationship between a person and another
called the principal for whom he acts. There must be
an authority from the principal, express or implied.
AGENCY—Contd.
Is founded upon a contract, either express or implied,

by which one of the parties confides to the other the
management of some business to be transacted in his
name and on his account and by the other assumes
to do business and to render an account of it.
Agent a person employed to do any act for another or
so represent the other in dealings with the third
person.
Principal the person for whom such act is done or who
is so represented.
AGENCY—Contd.
In every transaction of agency three persons, agent,

principal and third party to whom such
representation is made, are involved.
Sub Agent a person employed and acting under the
control of the original agent. He is not responsible
for his acts to the principal. He is only responsible to
the agent.
DUTIES OF PRINCIPAL TO AGENT:
AGENCY—Contd.
1. Indemnify him against all lawful acts done in exercise of

conferred authority
2. Indemnify for acts done in good faith.
3. Compensate for injury caused by principal’s neglect
RIGHTS OF AGENTS:
4. Right of retainer out of sums received on principal’s account
5. Entitled to commission (subject to contract)
6. Entitled to retain property, documents etc. until commission
due received
7. Indemnified by principal for lawful acts
8. Indemnified by principal for acts done in good faith.
AGENCY—Contd.
RIGHTS OF PRINCIPAL:
1. Agent to carry out business according to principal’s
directions as a prudent man.
2. Entitled to examine accounts.
3. Agent to obtain instructions from principal
4. Can repudiate transaction if agent carries out
business in his own account.
5. Agent cannot delegate authority without consent.
AGENCY—Contd.
CREATION :
1. By Direct Appointment when agents authority is
expressly given
2. By Implication when agency is inferred from dealings
between two persons.
3. By Necessity when an emergency acts without authority
4. By Estoppel (a plea in bar, grounded on one’s own act).
Principal induces third person that the acts done by his
agent are by his authority.
5. By Ratification when a previous unauthorised act is
approved and made valid.
AGENCY—Contd.
TERMINATION:
BY ACT OF PARTIES:
Lapse of Time: Period for agency relationship expires.
Purpose Achieved
Occurrence of Specific Event
Mutual Agreement
BY OPERATION OF LAW:
Death or mental incompetence. Automatic and
immediate. Knowledge of death not required.
SALE OF GOODS ACT,1930
Initially the Sale of Goods Act , 1930 was part of the

Contract Act 1872 (Chapter VII Sections 76 to
123).This Chapter VII was repealed and a new law
Sale of Goods Act 1930 promulgated. Pakistan
adopted the in August 1947.
The Sale of Goods Act has;
Chapters 7
Sections 66
SALE OF GOODS ACT
Chapter I :
Preliminary (Sections 1-3)
Chapter II
Formation of the Contract (Sections 4-17)
Chapter III
Effects of the Contract (Sections 18-30)
Chapter IV
Performance of the Contract (Sections 31-44)
Chapter V
Rights of Unpaid Seller Against the Goods (Sections 45to 55)
SALE OF GOODS ACT
Chapter VI:
Suits for breach of the Contract (Sections 55-61)
Chapter VII:
Miscellaneous (Sections 62-66)
A contract of sales of goods is a contract in accordance
to which the seller either transfers or agrees to
transfer the property in goods to the buyer for a
price. The payment of price is very important. Maybe
absolute or conditional. Maybe between one part
owner and other
SALE OF GOODS ACT
‘Sale of Goods’ consists of a number of essential

ingredients and if one of them is missing there is no
sale. Briefly these are:
Existence of goods, which form the subject matter of
the sale.
The contract (bargain), when executed, will result in
the passing of the property in the goods for a price
The payment or promise of a price
The passing of the title.
SALE OF GOODS ACT—Contd.
The expression ‘Sale of Goods’ is a composite

expression consisting of various elements
Sale is said to be the passing of title from the seller to
the buyer. Title is the formal right of ownership of
property. The price may be payable in money or in
other goods, services.
Good, the item of property must be tangible, and it
must be moveable. Tangible property has physical
existence.
Goods mean every kind of moveable property other

than actionable claims and money and includes stock
and shares, growing crops etc. Actionable claims and
money cannot be bought and sold. Money is
recognised currency in circulation but not foreign.
Actionable claims is a thing which a person cannot
make use or enjoy e.g. a debt; which can only be
recovered through a suit.
Goods: Kinds.
1 Existing: either owned or possessed by the seller at
the time of contract (e.g. agent). Subject goods must
be in actual or possible existence
Specific: identified and agreed upon at the time of
contract. Actually identified,
Ascertained: Wider import than specific. Become
ascertained subsequent to the contract
Unascertained: Not specifically defined but defined
only by description.
2. FUTURE: Seller does not own or possess at time of

contract but he will manufacture, acquire, or
produce after making the contract. Actually an
agreement to sell . Sale only of goods where
ownership.
3. CONTINGENT: Sale dependent upon a contingency
which may or may not happen. This may be
absolute or conditional.
SALE:
When under a contract the goods is transferred from
the seller to the buyer.
VALID SALE: ESSENTIALS
Parties competent to contract
Mutual assent
Transfer of property
A price may be paid or promised.
SALE OF GOODS ACT---Contd.
SALE : AGREEMENT and CONTRACT.

AGREEMENT: Transfer of property to take place at a
future time or subject to fulfillment of some
conditions. It becomes a sale when time elapses or
conditions fulfilled.
DIFFERENCES. DISTINGUISHED
1. Executed, Executory. Sale is an executed contract
i.e. sale plus conveyance
2. General and Particular property. In sale transfer of
property with rights. In agreement a remedy only
3. Damages: In agreement right of damages only while

in sale when ownership passed seller can sue.
4. Right to resell: Seller at liberty to sell in agreement
5. Risk of loss: In agreement of seller and in sale of
buyer.
6. Remedy: In agreement buyer only personal remedy
i.e. damages. In sale buyer has personal remedy and
to the goods which seller has.
7.Insolvency: Seller becomes insolvent buyer can

claim rate able dividend. If permanently insolvent
entitled to recover goods from official receiver.
IN SALE OWNERSHIP OF GOODS HAS PASSED TO

THE BUYER. IN AGREEMENT OWNERSHIP HAS
NOT PASSED TO THE BUYER.
PRICE:
No sale can take place without a price.
If no valuable consideration for voluntary surrender
of goods then it is a Gift.
Means money and nothing else.
Money actually paid or promised to be paid
Cash or credit sale
If consideration other money then no sale.
FIXING PRICE: Either be certain and definite or

determinable by some method of calculation or
prescribed criterion.
MODES:
Expressly stated in the contract. Parties free to fix
any price.
Manner provided in the contract
Determined in the course of dealings between the
parties
When nothing then when contract executed then

‘reasonable price’
To be fixed by the valuation of third party provided
the third party accepts.
Payment, subject to contract, in currency of the
country.
EARNEST MONEY. Part payment in advance for due
performance of contract. If contract honoured then
adjusted against price otherwise forfeited by seller.
CONDITIONS AND WARRANTIES:

Various statements, commitments and performance make up a
contract. Some are vital to the contract and others subsidiary.
If the parties to a contract regard the term as essential it is a
condition and if not then it is a warranty.
CONDITION:
A qualification, provision, or clause in a contract, the
occurrence of which creates, suspends, or terminates the
obligations of the contracting parties.
It is essential to the main purpose of the contract. Breach of
which gives right to treat the contract as repudiated. Has
option to treat condition as warranty and claim damages.
WARRANTY:
A stipulation collateral to the main purpose of the
contract, the breach of it gives rise to claim for
damages but not to reject goods and repudiate the
contract.
Conditions and Warranties are either expressed or
implied.
IMPLIED CONDITIONS:
In case of sale seller has a right to sell goods. When
agreement to sell right when the property is to pass
When sale of goods by description then the goods

should correspond with the description and of
merchantable quality
When description accompanied by sample then the
goods should correspond accordingly.
When particular purpose expressed by buyer then
goods should be fit for such purpose
When sold by sample then bulk should correspond
with sample
IMPLIED WARRANTIES:
Buyer has right of possession and free
from any encumbrance.
Quality for particular fitness annexed.
CAVEAT EMPTOR
Buyer—Beware. Sale of goods open to inspection. The
seller need not point out any defect in them, but if he
is asked about any defect he must truthfully give out.
Based on the general rule
that ‘there is no implied condition or warranty as to

the quality or fitness for any particular purpose of
goods supplied under a contract of sale'. The buyer
relies on his own skill and judgment when he makes
a purchase. It is for him to satisfy about the
purchase; exceptions:
When particular purpose intimated by the buyer to
the seller then seller to supply accordingly.
When bought by description goods should be of
merchantable quality.
TITLE and OWNERSHIP---TRANSFER

Between seller and buyer
If ownership passed on to buyer then loss is buyer’s
risk even if goods in seller’s possession.
Creditor of seller of goods has no claim once the title
has passed on to the buyer.
Buyer cannot acquire a better title to the goods than
the seller
If stolen goods bought buyer acquires no title

Seller should be owner of goods or selling under
authority of owner.
AUCTION SALES:
Each lot is a separate contract.
Sale complete with ‘fall of hammer’
Seller cannot bid
Pretended biddings render sales voidable at the
option of buyer
AUCTION—IMPLIED WARRANTIES:
Authority to sell.
No defects in knowledge
Undertakes to give possession against price paid
Possession will not be disturbed.
NEGOTIABLE INSTRUMENTS ACT,1881
The vast number of commercial transactions that take

place daily in the modern business world would be
inconceivable without negotiable instruments.
INSTRUMENT:
A formal legal writing. A written document of formal
legal kind.
NEGOTIABLE INSTRUMENT:
A signed writing that contains an unconditional
promise or order to pay an exact sum of money on
demand or at an exact future time to specific
person or order, or to bearer e.g. a cheque.

A negotiable instrument can function in two ways---as
a substitute for money (cheque) or as an extension of
credit (promissory note). For a negotiable
instrument to operate practically as either a
substitute for money or a credit device, or both, it is
essential that the instrument be easily transferable
without danger of being uncollectable. This is an
essential function of negotiable instruments.
The law relating to negotiable instrument in Pakistan

is contained in the Negotiable Instruments Act, 1881.
The law regulates the issue and negotiations of notes,
bills and cheques..
The Act was promulgated on 19th. December
1881(XXVI of 1881) and was adopted by Pakistan on
August 14, 1947. It has 17 Chapters and 139 Sections.
CHAPTER I --PRELIMINARY
Sections 1-3
CHAPTER II– OF NOTES BILLS AND CHEQUES
Sections 4-25
CHAPTER III—PARTIES TO NOTES,BILLS AND
CHEQUES
Sections 26-45.
CHAPTER IV—OF NEGOTIATION
Sections 46-60
CHAPTER V—OF PRESENTMENT

Sections 61-77.
CHAPTER VI—OF PAYMENT AND INTEREST
Sections 62-81.
CHAPTER VII—OF DISCHARGE FROM LIABILITY
ON NOTES, BILLS AND CHEQUES
Sections 82-90
CHAPTER VIII—OF NOTICE AND DISHONOUR
Sections 91-98
CHAPTER IX—OF NOTING AND PROTEST

Sections 99-104
CHAPTER X—OF REASONABLE TIME
Sections 105-107
CHAPTER XI—OF ACCEPTANCE AND PAYMENT
FOR HONOUR AND REFERENCE IN CASE OF
NEED.
Sections 108-116
CHAPTER XII-- OF COMPENSATION

Section 117
CHAPTER XIII– SPECIAL RULES OF EVIDENCE
Sections 118-122.
CHAPTER XIV—SPECIAL PROVISIONS RELATING
TO CHEQUES
Sections 122-A-131-C
CHAPTER XV– SPECIAL PROVISIONS RELATING
TO BILLS OF EXCHANGE
Sections 131-D -133.
CHAPTER XVI—OF INTERNATIONAL LAW

Sections 134-137
CHAPTER XVII—NOTARIES PUBLIC
Sections 138-139.
NEGOTIABLE INSTRUMENTS ACT, 1881
ESSENTIAL FEATURES:
An instrument in writing
Transferable by delivery with or without
endorsement
Confers upon the transferee a title unaffected by
equities
Gives the holder a right to sue in his own name
Sue without giving notice of assignment to any
previous party liable in respect of it.
It is thus a property which may be acquired by any

person who takes it bonafide and for value, not
withstanding any defect in the title of the person
from whom he took it of which he (transferee) was
unaware. The aspect of negotiability differentiates a
negotiable instrument from ordinary goods.
MEANS;
1. Promissory Note
2. Cheque or Bill of Exchange.
PROMISSORY NOTES.
The law defines it as ‘ an instrument in writing (not
being a bank or currency note) containing an
unconditional undertaking, signed by the maker, to
pay a certain sum of money, only to or to the order of
a certain person, or to the bearer of the instrument.’
A written promise made by one person (the maker of
the promise) to pay to another (the payee; the one to
whom the promise is made) e.g.:
‘I promise to S or order Rs. 5,000’

‘Mr. S. I, owe you Rs. 5,000’
The first is a promissory note while the latter is not.
ESSENTIALS:
1. Must be in writing. Oral excluded. ‘Writing’
includes printing, engraving, typewriting etc.
2. Must contain promise to pay. An express promise
to pay and not an acknowledgement of debt.
3.Promise to pay must be unconditional. Not

dependant on contingency.
4.Must be signed by the maker. Without it incomplete.
It authenticates the document.
5.Maker must be a certain person; entering the
contract and undertaking to pay.
6.Sum payable must be certain. Definite and incapable
of variation.
7. Sum payable in money only. Anything in addition

then not a promissory note.
8.Sum payable on demand or at a fixed determinable
future and the payee must be certain. Maker cannot
be the payee.
BILL OF EXCHANGE
The law defines it as an ‘instrument in writing
containing an unconditional order signed by the
maker, directing a certain person to pay on demand
or at a fixed determinable future time a certain sum
of money only to, or to the order of a certain person
or to the bearer of this instrument’
It is a written order or request by one person to
another for the payment of money at a specified
NEGOTIABLE INSTRUMENTS ACT, 1881.
time absolutely and at all events.

E.g.
Rs. 1,00,000 LSE
Burki Road, Lahore
28th. June, 2010
Thirty days after date pay to ABC or Order, the sum
of one lakh rupees for value received.
XYZ
ESSENTIALS:
1. Written. In any language.
2. Contain an order to pay. Essence of the bill
3. Unconditional. Not dependent on a contingency
4. Signed by the drawer. Otherwise invalid
5. Sum payable on demand or at a fixed determinable
future.
NEGOTIABLE INDTRUMENTS ACT,1881
6. Drawer: person who makes the bill.

Drawee: person who is ordered to pay the bill
Payee: person to whom or to whose order the
payment is to be made.
---must be certain and different parties.
7. Sum payable must be certain and definite.
8. Order to pay money and money only.
CHEQUE:
The law defines it as ‘a bill of exchange drawn on a
specified banker and non expressed to be payable
otherwise on demand’
Is a bill of exchange drawn on a specific banker and
not expressed to be payable than ‘on demand’. A
cheque must be signed by a banker on he customer’s
behalf and credited to his account
Requisites of a cheque are same as of Bill of Exchange

but there are certain differences:
1. Cheque is always drawn on a specified banker. B.E.
drawn on any person including banker.
2. Cheque immediately payable on demand. B.E.
entitled to some daysace
3. In case of cheque no acceptance required by drawee
before payment. B.E. must be accepted
4. Drawer of cheque is discharged by delay of the holder
in presenting it for payment. B.E. be duly presented
5. In case cheque dishonoured no notice requires.

Necessary for B.E.
6. Cheque may be crossed but B.E. not.
7. No grace period for cheques but 3 days for B.E.
PROMISSORY NOTES and BILLS of EXCHANGE:
1. In Note only two parties the maker (debtor) and
the payee (creditor). In B.E. three—drawer, drawee
and payee.
2.Note cannot be made payable to the maker himself.

In B.E. the drawer and payee or drawee and payee
may be the same.
3. Note contains an unconditional promise by the
maker to pay to the payee/order.. In a note
unconditional order to pay according to drawer’s
directions.
4. Note is presented for payment without prior notice
by maker. Bill be accepted by the drawee before it
can be accepted for payment.
5. Liability of maker of NOTE is primary and absolute.

Liability of drawer in BILL is secondary and
conditional.
6. In case of dishonour of Bill due notice is given by
holder to the drawer. In case of NOTE no notice is
given.
SPECIAL RULES OF EVIDENCE:

In case of Negotiable Instruments following is
presumed under the law unless it is proved to the
contrary.
Consideration: Every negotiable instrument was
made or drawn for consideration. When accepted,
indorsed, negotiated or transferred was accepted---
was for consideration.
Date: Bearing a date was presumed to have been
made or drawn on such date.
Time of acceptance: Was accepted within a

reasonable time after its date, and before its
maturity.
Time of transfer: It was made before its maturity.
Order of indorsement: Endoresements appearing
were made in the order in which they appear
Stamp: Lost negotiable instrument was duly
stamped.
Holder in due course: Holder of the instrument is
Is a holder in due course; (theft, fraud etc.)

Protest: When dishonoured presumed to be so
unless proved to the contrary.

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Business Law

Rules and Regulations

One view is that it is not capable of definition

A universal and uniform definition is difficult. The

There have been and will continue to be different

Generally and the most commonly accepted

LEGISLATION: The making of law. The act of

Difference between Law and Ordinance

Obvious! Course Requirement

Object of law is to maintain law and order in the

1. IMPERATIVE LAW. Imposed upon on men by some authority. Emphasis

Uniformity and certainty to the administration of justice.

Law is of interest to all persons, not just to lawyers.

Purpose in starting business is to be successful. Every

Successful business is a tight hold on expenditures;

ENTREPRENEUR: One who initiates and assumes the

Legal form under which operating

A look at the hierarchy and system of courts in

High Courts (one in each Province and in Capital)

SPECIAL TRIBUNALS AND BOARDS:

SPECIAL TRIBUNALS AND BOARDS:

Labour Relations Court.

SUPREME COURT OF PAKISTAN

FEDERAL SHARIAT COURT

Consists of 8 Muslim judges including the Chief

DISTRICT AND SESSIONS COURTS:

CIVIL JUDGE/JUDICIAL MAGISTRATE COURTS:

The judges of Tribunals (except Consumer and Special

Now a Judicial Commission (C.J., 2 senior judges of

Lawyers must have at least 10 years experience as an

This type of organization is created by law

Why? Because a huge proportion of world’s wealth is

For running and for managing the interests of the

company’s debts out of their own private funds; they

COMPANIES ORDINANCE. Legal regime for establishment and

1. Companies Act 1913 was adopted in Pakistan in Pakistan after 1947

Two types of limited companies:

A Public Limited (Listed and Unlisted)

OBJECTIVES OF COMPANIES ORDINANCE: The

It encompasses all legal rules and regulations for

Five core characteristics:

 Granted a charter/permission (incorporated) by the

If the company fails shareholders normally only

May be registered under the Law as:

11. Restriction on CEO

ADVANTAGES OF PRIVATE COMPANY

Usually it takes a lot of funding and tons of efforts to

a recognisable status in the formal business sector.

For formation of companies in Pakistan

1.PROMOTION: Preliminary steps for registration

2.REGISTRATION: Preparation and submission of

ahead with raising capital to commence business and

1. File an application to the Registrar of Companies for availability of

A STATEMENT OF THE OBJECTS OF THE COMPANY, ITS

Originally framed when the Company incorporated.

RULES AND REGULATIONS PRESCRIBED FOR THE

A document which invites persons to take shares in a company

LIABILITY OF PERSON ISSUING PROSPECTUS IF IT IS NOT

The share capital of a Company goes under different

4. A binding agreement between the company and

SHARE OF A COMPANY IN THE HANDS OF A

Prospectus: Invitation to the public to make offers to the

Transfer: The making over to another the document(shares in