C OMME R C IA L

LAW
Dr Faiza Ismail
 THE COMPANY LAW

 Corporate Criminal Liability

 Classification of Companies
 Formation of Registered Companies
 The Constitution of A Company
 Off-The Shelf Companies
 CORPORATE CRIMINAL LIABILITY

 Corporations veil protects individuals running the corporations.

 Separate legal status of corporations become a veil to hide individuals
wrongdoings. After all, corporate actions are performed by individuals who
run the organizations.
 Punishment to corporations is punishment to innocent people.
 Individual should be made liable instead of corporations. The corporate veil
should not protect the actual perpetrators of crimes
 CORPORATE CRIMINAL LIABILITY
 Separate legal status ensures separate criminal liability.
 Being responsible agents ‘corporations are legitimate subjects of criminal charges,
investigation and prosecution’.
 Systemic failures are attributed to an organization instead of individuals.
 Corporate intention is collective and less prone to personal biases. Corporations’ intention
can be constituted looking at
 Organizational flow chart and
 Corporate policies

 Nonetheless collective liability does not necessarily release individual liability such as in
case of Enron individuals were charged with criminal liability.
 Collective liability does co-exist with individual liability. Corporate veil does not
immunize individuals from criminal liability.
 Individual liability instead of collective liability will leave criminal justice system with
the weaknesses which international criminal prosecution suffers.
 CLASSIFICATION OF COMPANIES

 What is difference between private and public company?

 What is the difference between limited liability and unlimited liability companies?
 How can a private company offer its stock to public?
 What is minimum share capital requirement for public company under the Company Act 2017?
 What are the requirements regarding number of directors for public and private companies in Pakistan?
DIFFERENCE BETWEEN PUBLIC AND PRIVATE COMPANY
 EXAMPLES
 Public companies
 Apple Inc
 JP Morgan Chase & Co
 Microsoft
 ICI Pakistan Ltd

 Private limited companies

 Bahria town private (ltd)
 Lucky Cement
 THE COMPANIES ACT 2017

Article 2: Definitions
(19) ―company limited by guarantee means a company having the liability
of its members limited by the memorandum to such amount as the members
may respectively thereby undertake to contribute to the assets of the company
in the event of its being wound up;
(20) ―company limited by shares means a company; having the liability of
its members limited by the memorandum to the extent of amount, if any,
remaining unpaid on the shares respectively held by them;
 THE COMPANIES ACT 2017
14. MODE OF FORMING A COMPANY.—
(1) Any-
 (a) three or more persons associated for any lawful purpose may, by subscribing their names to a
memorandum of association and complying with the requirements of this Act in respect of
registration, form a public company; or
 (b) two or more persons so associated may in the like manner form a private company; or
 (c) one person may form a single member company by complying with the requirements in respect
of registration of a private company and such other requirement as may be specified.
(2) A company formed under this section may be a company with or without limited liability, that is to
say-
 (a) a company limited by shares; or
 (b) a company limited by guarantee; or
 (c) an unlimited company.
 THE COMPANIES ACT 2017
16. REGISTRATION OF MEMORANDUM AND ARTICLES.—

(1) There shall be filed with the registrar an application on the specified form containing
the following information and documents for incorporation of a company, namely:—
 (a) a declaration on the specified form, by an authorized intermediary or by a person
named in the articles as a director, of compliance with all or any of the requirements of
this Act and the rules and regulations made thereunder in respect of registration and
matters precedent or incidental thereto;
 (b) memorandum of association of the proposed company signed by all subscribers,
duly witnessed and dated;
 (c) there may, in the case of a company limited by shares and there shall, in the case of
a company limited by guarantee or an unlimited company, be the articles of association
signed by the subscribers duly witnessed and dated;
 (d) an address for correspondence till its registered office is established and notified.
 UNLIMITED COMPANIES
 Unlimited liabilities for members in the event of insolvency
 Extent of liability
 Liable in proportion to the shares held- companies with share capital
 Liable equally- companies with no share capital
 Liability towards other members of company- If one member is unable
to pay his share of liability, other members will assume the liability.
 Unlimited companies must not contain words like ‘limited’ or ‘ltd’.
COMPANIES LIMITED BY SHARES
 Limited liability to the par/nominal value of the shares held.
 Subscribers of the company are members of the company.
 The decision on issuance of new shares is taken through resolution.
 Newly allotted shares are first offered to existing members- sec 561.
 Share premium= Market price - par/ nominal value.
 Members’ liability is limited to par value on the event of liquidation.
 EXAMPLE

Ace ltd= share capital 100 shares of £ 1 each.

X purchased 50 shares for £1 each (on first issue).
Y purchased 50 shares with premium £ 6 each (par value
£1 and premium £5)- at later stage.
X and Y paid 20p per share.
Liability= x→ 80p per share and y→ 5.80 per share.
Liability on Liquidation= 80 p per share each.
 COMPANIES LIMITED BY GUARANTEE

Mostly educational or charitable companies are limited by

guarantee.
Members limit their liabilities to pay the company’s debt to
certain amount in the event of liquidation- by guarantee.
The amount guaranteed is included in registration
application and articles of association.
 PUBLIC LIMITED COMPANY
 Advantages
 Raising capital is convenient
 Risk is spread
 Potential of expansion of business- PLCs can pursue new projects, buy more
products, pay off debt and fund research and development (R&D)
 Trading in stock exchange
 Disadvantages
 Regulatory procedures
 Holding AGM
 Transparency- audits
 Higher initial capital requirement i.e. £ 50,000
 PUBLIC LIMITED COMPANY
 Minimum allotted Share capital 50,000 and paid up capital 12,500 (25% of the
allotted capital)
 A statement confirming allotment of at least 50,000 worth shares must be sent to
Registrar before the registrar issues the certificate of commencement of business
(sec 761)- failure to which will result in winding up of the company
 Contravention of sec 761 is an offence which will make the company and the
officers involved liable for fine and conviction- 767 (1)
 Commencing business activities in contravention with sec 761 will result in
directors becoming jointly and severally liable for the damage or loss caused by the
contravention- sec 767 (3)
 COMPANY SECRETARY
 Qualification
 An accountant or
 A lawyer or
 Have been a company secretary for three years in last five years
 Secretary can hold office as a director as well
 RESOLUTION AND ANNUAL GENERAL
MEETINGS

 At least one AGM a year and

 No resolution except at the company meeting
PRIVATE LIMITED COMPANIES

 A private company is a firm held under private ownership.

 Private companies may issue stock and have shareholders, but their
shares do not trade on public exchanges and are not issued through an
initial public offering (IPO).
 In general, the shares of these businesses are less liquid, and their
valuations are more difficult to determine.
 Limited liability companies (LLCs) often have multiple owners who
share ownership and liability. This ownership structure merges some
of the benefits of partnerships and corporations. 
PRIVATE LIMITED COMPANY
 There is no limit on the minimum amount of capital.
 Either shares must be offered first to the existing members or persons
approved by the directors.
 Offering shares to public might result in an action leading to
prohibition order- Secretary of State or a member of the company
 If a sale has been made to public, the court can order the company
 To re-register as a public company or
 Make a remedial order or
 Wind the company
 CREATION OF COMPANY
 Under the Companies Act 2006
 By statute- registered companies created by virtue of statutes e.g.
gas/electricity.
 By Royal charter- The BBC, Oxford and Cambridge
 Corporations sole- certain types of offices or Positions-Bishop or
public servant
 Single member company- one member company
 Small companies- sec 382
 European public limited company-liability company
 OLD-STYLE REGISTRATION
REQUIREMENTS

Under the old-style registration the documents which had to be sent to the
Registrar were:
(1)  The company’s memorandum of association.
(2)  The company’s articles of association.
(3)  A statement giving the names of the company’s first directors and of the
company secretary.
(4)  A statement that all the statutory requirements of registration had been
complied with.
 MEMORANDUM OF
ASSOCIATION

 The company name (clauses 1)

 The Registered office (clauses 2)
 The object (clauses 3)
 Share capital (clauses 4) and
 Additional clauses
 REGISTRATION- NEW STYLE

 Registration documents- sec 9

 The Registration Application and
 The Memorandum of Association
 Registration fee- £ 20
THE REGISTRATION APPLICATION

 Under sec 9, the Application of registration must include

 Proposed name of the company
 Situation of the registered office
 Unlimited or limited liability of the member and if it is limited
 Limited by shares or
 By guarantee
 Public or private company
 THE MEMORANDUM OF ASSOCIATION-
NEW REQUIREMENT
 There has to be one or more subscriber to the MoA.
 Subscriber must purchase at least one share and agree to become a member
of the company.
 Subscriber must aim to form a company.
 Mention the purpose of the company- must be a lawful purpose.
 MoA cannot be altered at later stages- historical snapshot of the company.
 It was held that the registrar did not have to register a company set up to
engage in prostitution- unlawful purpose- R v Registrar Companies-
Exparte ttorney general [1991]
 THE REGISTRATION APPLICATION-
ADDITIONAL REQUIREMENTS

 Application of registration
 Share capital and initial shareholdings
 Statement of guarantee
 Statement of the company’s proposed officers
 Statement of compliance
CONSTITUTION OF THE COMPANY

 Certificate of Incorporation
 Articles of Association
 Resolution
 CERTIFICATE OF INCORPORATION

 Under sec 15(2), the certificate must include

 The name and registered number of the company
 The date of incorporation
 Limited or unlimited nature of company liabilities
 Whether it is private or public company
 Situation of the company’s registered office
 ARTICLES OF ASSOCIATION
 Articles of association are internal rules to run the company.
 Sec 18 makes Articles of association binding on company and its members.
 Sec 20(1) provides model articles applicable to companies in the absence of AoA.
 Alteration to increase liability of a member is possible through the member’s
consent.
 Generally, AoA contains provisions on
 the company name,
 the company's purpose,
 the  share capital,
 the company's organizational structure, and
 provisions regarding shareholder meetings.
AMENDMENT TO ARTICLES OF ASSOCIATION

 AoA can be amended by a special resolution- sec 21 (1)

 What is entrenched articles?
 Amendment to ‘entrenched articles’ is possible through meeting a condition or
procedure such as 90% votes or unanimous votes- sec 22(1). Procedure or condition
has to be stricter than special resolution.
 Removal or inclusion of entrenched articles is possible through unanimous vote or
court’s orders.
 Amendment to entrenched article has to be notified to registrar within 15 days-
failure to compliance will lead to
 Registrar requiring the compliance within 28 days
 Fine £200 and or
 prosecution
GREENHALGH V ARDERNE CINEMAS
LTD [1951]
 Claimant, a minority shareholder- Mr Greenhalgh held 2 shilling share
 Defendant, majority shareholder- Mr Mallard held 10 shilling shares
 Mr Mallard planned to sell all his shares to a third party
 AOA provision 10(a)
 Shares should not be transferred to non-members if a member was willing to buy the shares at a
fair value
 An EGM was called to alter the AOA so that shares could be offered to outsiders without first being
offered to existing member
 A special resolution was passed and then an ordinary resolution was passed to this effect.
 The claimant challenged the special resolution as invalid because the interests of the minority
shareholders had been sacrificed to the interest of the majority
 Mr Greenhalgh wished to prevent control of the company going away, and argued that the article
change was invalid, a fraud on him and the other minority shareholders, and asked for compensation.
 The court held the special resolution had been validly passed
 COMPANY NAME
EWING V BUTTERCUP MARGARINE CO LTD [1917]

 The claimant, Buttercup diary company- wholesaler, sold margarine, tea

and similar products, operated in Scotland and North England.
 The defendant: Buttercup Margarine Company limited- retailer
manufacturer and seller of margarine, South of England.
 The court held that the claimant’s action was successful
 The defendant’s company was prohibited from continuing to trade under
its registered name
 RESOLUTIONS
 There are now just two types of resolution, ordinary resolutions
(passed by a simple majority) and special resolutions (passed by a
75% majority). 
 OFF-THE SHELF COMPANY

 Some businesses form companies in large numbers, in the hope that

customers will wish to buy the companies. Those who form such
companies register themselves as the company’s first director and
company secretary and take one share.
 Then, when a customer wishes to buy an off- the-shelf company, the share
is transferred to whoever the customer nominates, and the original director
and secretary resign and, having first procured the appointment of a new
director and sec- retary, notify Companies House that they have resigned.
PRE-INCORPORATION CONTRACTS

 Personal liability for persons making pre-incorporation contracts

 Can be enforced on the company’s behalf depending on the language
of contract- sec 51 (1)
 The person can enforce the contract against third party on behalf of
the company- Braymist ltd v Wise Finance Co Ltd [2002]
 The Contract [rights of third parties] Act 1999 makes both the
company as well as the person making contract liable for pre
incorporation contracts.
 KELNER V BAXTER [1866]
 Promoters of the company ordered wine on the company’s behalf before the
company was formed.
 The company was formed. It ratified the contract and the wine was
consumed.
 Wording of the contract with supplier suggested the promoters were
personally liable to pay for the wine.
 The ratification was invalid.
 If the promoters had carefully drafted the contract, the company would have
been made liable and the suppliers of the wine would never had been paid.
 KELNER V BAXTER [1866]

 This situation is covered under s 51(1)

 A contract that purports to be made by or on behalf of a company at
a time when the company has not been formed has effect, subject to
any agreement to the contrary, as one made with the person
purporting to act for the company or as agent for it, and he is
personally liable on the contract accordingly.