_Lecture 2 & 3 Fall 15.pptx

Business & Labour Law

Recommended Text BoxBusiness Law by Khalid Mehmood Cheema

Course Assessment:Quizzes: Minimum 5 quizzes 10 MarksMid Term 25 MarksFinal 40 MarksProject 20 MarksPresentation 05 Marks

Syed Salman [email protected]

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MBA (Marketing & Finance) (Silver Medal) IBA KarachiMEM (Quality Management) (Silver Medal) NED UET Karachi

MBA (MIS) (Silver Medal) IBA KarachiMAS (HRM) UoK Karachi

MA (Economics) UoK KarachiPGD (CIS) (Gold Medal) UoK Karachi

B E (Aerospace) NED UET KarachiLLB UoK Karachi

Teaching Experience : 26 Years

Law : An Introduction

Sources of Law

Material Sources

Legal Sources

Legislation Precedent Customs Agreement

Historical Sources

Common Law Equity

Formal Sources


Legal Sources of Law

• There are four kinds; Customs, Agreement, Legislation & Precedent.

Customs

• They are important sources of law and are based on customary law. As the society developed, this source diminishes its tendency as source of law.


Customs

• Customary law is the written and unwritten rules which have developed from the customs and traditions of communities. For customs and traditions to become law, they must be:• Known to the community,• Followed by the community, and• Enforceable (able to be carried out)


Customs• In Pakistan, this law has been replaced

by the Shariat Law. However, in areas other than Shariat Law, it is still an important source of law.

Agreements• Parties in their agreement stipulate

terms for themselves which serve as law for the contracting parties.


Agreements• This has the force of special law which

is applied in derogation of, or in addition to, the general law of land.

Legislation• Parliamentary sovereignty gives rise to

a number of consequences.• Parliament can make law as it sees fit.• It may repeal statutes.


Legislation• It may overrule case laws developed in

the courts.• It may make new laws on subjects

which have never been regulated by law before.

Process of Legislation• A bill may originate from either of the

house i.e. National Assembly and Senate.• The bill after passing from the

originator house shall move to other house.


Process of Legislation• If the bill is passed by the other house

without amendment, then it will go to President after whose signature. It would become law.• If the bill is passed with amendment

or rejected or not passed within 90 days then it is to be considered in joint sitting of houses where majority vote would decide its fate.


Process of Legislation• The President shall within 30 days

either assent to the bill or return it to Parliament for re-consideration on the objected points.• In case, the bill is returned and both

the houses again passes it with majority votes then President shall not withhold his assent and the act becomes law as Act of Parliament.


Process of Legislation• If the National Assembly is not in

session and some matter warrants immediate action, then President may issue Ordinance (valid for 4 months) which will have the same force as Act of Parliament. • To become a permanent law, the

ordinance has to be presented before Parliament for confirmation within its life.


Case Law and The Precedent• Consistency is an important feature of

good decision making process.• A court’s decision is expected to be

consistent with previous decisions and to provide an opinion which the parties, and others, can use to direct their future relationships. This is the basis of the system of judicial precedent.


Case Law and The Precedent• Once a matter of principle has been

decided (by one of the higher courts), it becomes a precedent.• In any later case to which that principle

is relevant the same principle should be applied.• This doctrine is expressed as “maxim

stare devises” which means “to stand by a decision”.


Case Law and The Precedent

• To accomplish judicial precedent in a coherent manner following 4 things must be considered before applying to a case:-

• It must be a proposition of law.


Case Law and The Precedent• Decision shall be based on

“proposition of law” and not on a “question of fact”. An issue is a “question of fact”, if it depends on credibility of direct evidence or on deductions drawn from circumstantial evidence. For example a judge may, from the direct facts of weather conditions and length of skidmarks, infer that a driver has been negligent. This finding of fact is not binding.


Case Law and The Precedent• It must form part of the “ratio

decidendi” (reason for deciding) of the case. • Ratio decidendi of a case is

“any rule of law expressly or impliedly treated by the judge as a necessary step in reaching his conclusion, having regard to the line of reasoning adopted by him”.


Case Law and The Precedent• The material facts of each case

must be the same.• The preceding court must have

had a superior (or in some cases, equal) status to the later court, such that its decisions are binding on to the later court.


Case Law and The Precedent• The preceding court must have

had a superior (or in some cases, equal) status to the later court, such that its decisions are binding on to the later court.

• If a superior court takes an appeal to the decision of a lower court and reverses its decision, then the previous decision of the lower court cannot form a precedent for its subordinate courts.


Avoidance of a Binding Precedent• Even if a precedent appears to be binding, there are a number of grounds on which a court may decline to follow it:-• It may be able to distinguish the facts.• It may declare that “ratio decidendi” obscure, particularly when a court of Appeal decision by three or five judges gives as many ratios.


Avoidance of a Binding Precedent• It may declare the previous decision made “per incuriam” “without taking account of some essential point of law, such as an important precedent”.• The earlier decision may have been subsequently overruled by another court of the same stature.

Companies Law

Introduction• Companies law was enacted in 1984. It

relates to companies and certain other associations.• It extends to whole Pakistan.• High courts have jurisdiction to resolve

all issues pertaining to companies in the place at which the registered office of the company is situated.• Supreme court has the appellate

jurisdiction.

Companies Law

Types of Companies on the Basis of Liability1. Company limited by Shares

The company which keeps the liability of its members limited up to the nominal value of shares purchased by them.2. Company limited by Guarantee

The company with limited liability of its members to the amount each of them has undertaken to pay in the

event of winding up of the company.

Companies Law

Types of Companies on the Basis of Liability2. Company limited by Guarantee

The company is further sub-divided into two kinds.

(a) Companies limited by guarantee, having a share capital. Liability of its members is limited to

the extent of the unpaid amount of shares held by them plus the amount guaranteed by them. Mostly such companies are in the business of non-profit making nature.

Companies Law

Types of Companies on the Basis of Liability2. Company limited by Guarantee

(b) Companies limited by guarantee, not having share capital. Liability of its members is limited to the extent of the amount guaranteed by them. KSE (Guarantee) Limited, LSE (Guarantee) Limited and ISE (Guarantee) Limited are examples of such companies.

Companies Law

Types of Companies on the Basis of Liability3. Unlimited Company Liability of members is unlimited. It

means the property of the shareholders in company as well as their personal property can be used to pay off the debts of the company. Such companies are rare these days.

Companies Law

Types of Companies on the Basis of Liability4. Association Not for Profit

Under Sec-42, these “association not for profit” can be registered as a company with limited liability. However, such an association does not add the words limited or (private) limited or (guarantee) limited to their names.

Companies Law


These associations are registered by authority after being satisfied about the following conditions:-

(a) Association is being formed to promote commerce, art, science, religion, sports, or any other useful object.

(b) It will not pay dividends to its members.

Companies Law


(c) Association will apply its profits, to promote its objects.

(d) Permission would be granted subject to certain conditions which would be binding on association and

would be included in its documents.

Companies Law

Types of Companies on the Number of Members1. Private Company

(a) It can be formed by at least two persons.

(b) The number of members must not exceed fifty.

(c) Through its Article of Association, it restrict the transfer of its shares.

(d) It cannot invite the public to purchase its shares and debentures.

Companies Law


(e) It must have at least two directors.

(f) A private company has to form its own Articles of Association.

(g) A private company is not required to send copies of profit & loss account and balance sheet to the authority, stock exchange and the registrar.

Companies Law


(h) It must use the word (private) limited or unlimited (as may be

applicable) at the end of its name.(j) To form a private company, only two signatories to the

memorandum of association are required.

Companies Law

Types of Companies on the Number of Members2. Public Company

(a) It can be formed by at least seven persons.

(b) Maximum number of members does not have any limit.

(c) Its shares are freely transferable.

(d) It can invite the public to purchase its shares and debentures.

Companies Law

Types of Companies on the Number of Members2. Public Company

(e) It must have at least seven directors.(f) A public company may decide not to form its own Articles of

Association but to adopt Table “A” .(g) A public company is required to send copies of profit & loss

account and balance sheet to the authority, stock exchange and the registrar.

Companies Law

Types of Companies on the Number of Members2. Pubic Company

(h) It must use the word (public) limited or unlimited (as may be

applicable) at the end of its name.(f) To form a public company, seven signatories to the

memorandum of association are required.

Companies Law

Types of Companies on the Basis of Other Classifications

1. Holding CompanyA company is said to be holding

company of the other when it holds more than 50% of the share capital of the other company or it has got control over the constitution of the board of directors of the other company.

Companies Law


2. Subsidiary CompanyA company is said to be subsidiary

company of the other when that other company holds more than 50% of its share capital or controls the composition of its board of directors.

Companies Law


3. Associated CompanyWhen a company is not subsidiary

company of the other but works in close contact with some other company, it is called associated company or associated undertaking.

Companies Law


4. Foreign CompanyA company which is incorporated

outside Pakistan and carries on business in Pakistan through its branches is called a foreign company.

Companies Law

Important Documents

1. Memorandum of Association

2. Article of Association

3. Certificate of Incorporation

4. Prospectus

Companies Law

Memorandum of Association It is the most important document as it forms the charter of the company. It is the statutory deed of the company. It contains the fundamental conditions upon which alone the company is granted incorporation. It is a document which explains the powers and objects of the company. Its one of the main purpose is to provide information to outsiders about the permitted range of activities of the company.

Companies Law

Memorandum of Association It determines the relationship between the company and other persons outside the company. If a company violates the Memorandum of Association, it is absolutely void. It cannot be ratified even by the unanimous consent of all the shareholders. Alterations to MOA is a difficult job. To alter it, passing of special resolution and permission of authority is must.

Companies Law

Contents of Memorandum of Association Name of company

Words like limited, (private) limited, (guarantee) limited etc. shall be placed as last word of the

name of company, as the case may be. Place of its registered office The province or part of Pakistan where the registered office is situated. Objects of the company

The objectives of the company and the territories to which they extend.

Companies Law

Contents of Memorandum of Association Limitation of liability clause

Whether the liability of the members is limited by shares, and / or guarantee (and up to what extent each member is responsible) OR whether the liability is unlimited and property of the members in company as well as their personal property can be used to pay off the debts of the company.

Capital clauseIn case a company is limited by shares only

The amount of share capital with which the company proposes to be registered.

Companies Law

Contents of Memorandum of Association Capital clause

In case a company is limited by shares only The division thereof into shares of a fixed

amount.In case a company is limited by guarantee only

Details of the amount each member contributes to the assets of the company in the event of its being wound up while he is a member to pay of debts / liabilities of the company, costs / charges / expenses of winding up and adjustments of rights of the contributories.

Companies Law


In case a guarantee company with a share capital The amount of share capital with which

company proposes to be registered. The divisions thereof into shares of a fixed

amount. Details of the amount each member

contributes to the assets of the company in the event of its being wound up while he is a member to pay of debts / liabilities of the company, costs / charges / expenses of winding up and adjustments of rights of the contributories.

Companies Law


In case of an unlimited company The amount of share capital with which

company proposes to be registered. The divisions thereof into shares of a fixed

amount. Association Clause and Subscription

Subscribers to MOA (2 in case of private company and 7 in case of public company) declare through association clause that they desire to form a company in pursuance of the MOA.

Companies Law

Contents of Memorandum of Association Association Clause and Subscription

Subscribers agree to take the number of shares set opposite their respective names.

Such subscriptions contains:-a. The names of subscribersb. Address of the subscribersc. Description of the subscribersd. Nos of shares each has

subscribed

Companies Law

Articles of Association It is the second most important document to be filed with registrar of companies. It is a document which explains the rules and regulations of the company for the purpose of its internal management. It determines the relationship between the company and its members and as among the members themselves.

Companies Law

Article of Association If a company does anything beyond the scope of AOA (but within MOA), it is not void and can be easily ratified subsequently by a special resolution. Alterations to AOA is possible and can be done by passing a special resolution and intimation to registrar of companies. Formation of own AOA is not mandatory for public limited companies. They can adopt the Table “A” in first schedule of company law and need not file it separately with registrar.

Companies Law

Contents of Article of AssociationThe AOA contains regulations relating to

following matters:- To what extent Table “A” has been excluded. Division of the share capital of the company and

rules regarding allotment, issue, transfer and forfeiture of shares.

Procedure of holding and conducting of various meetings.

Voting rights of the members and rules regarding methods of voting.

Matters relating to appointment, powers, duties, qualification and remuneration of Directors.

Companies Law

Contents of Article of Association Methods to increase, reduce or alter the capital. Terms of appointment, remuneration, delegation

of authority, etc of secretary, manager, if any. Rules relating to issue of share capital. Declaration of dividend and rules regarding its

payment. Rules relating to accounts, audit, charging of

depreciation and creation of reserves, etc. Methods of securing loans. Rules regarding common seal of the company. Procedure of winding up the company.

Companies Law

Contents of Article of Association Matters relating to appointment, powers, duties,

qualification, removal, remuneration etc. of Chief Executive.

Matters relating to appointment of managing agent, term of office, powers, duties and

remuneration where permitted.

Companies Law

Persons not Eligible to Become Director Minor Person with unsound mind Person who has applied for adjudication as an

insolvent. Person who is an undischarged insolvent. Person who has been convicted by a court of law

for any offence. Person who has been prevented from holding

such office under any provision of the company law.

Person who is not a member.

Companies Law

Prospectus After obtaining certificate of incorporation, a public company may invite general public to subscribe to the capital of the company and for this purpose a prospectus is issued. Prospectus is any such advertisement, notice or information by which the general public is invited for the purchase of the shares or debentures of a company on the terms and conditions contained in it. Only public companies can issue prospectus.

Companies Law

Prospectus The invitation to purchase the share or the debentures of a company is the main characteristic of a prospectus. Its main objectives are as follows:-

a) To inform the public that a company has been established.

b) To convince the public that the company provides the best opportunity for investment because it has the honest and efficient directors.

Companies Law

Prospectusc) To present a true and certified record,

through which the shares and debentures have been placed before the public for sale.

d) To declare that the responsibility of the matters provided in the prospectus lies on the directors of the company.

Companies Law

Contents of ProspectusThe following matters must be stated in

Prospectus:- The main object of the company. Names, addresses and occupations of the directors who have signed MOA and also the nos of shares purchased by them. The details of the interest of the shareholder in

property and profit of the company. The names, description, addresses and occupations of the directors, managers and managing agents and the amount of remuneration available to them.

Companies Law

Contents of Prospectus Number of minimum qualification of shareholder

to become a director. The amount payable on the application and allotment of shares. Names and addresses of those sellers whoi sold

any property to the company. The amount paid or payable in cash, shares or debentures.

The limit of minimum subscription on which the shares can be allotted.

Companies Law

Contents of Article of Association Methods to increase, reduce or alter the capital. Terms of appointment, remuneration, delegation

of authority, etc of secretary, manager, if any. Rules relating to issue of share capital. Declaration of dividend and rules regarding its

payment. Rules relating to accounts, audit, charging of

depreciation and creation of reserves, etc. Methods of securing loans. Rules regarding common seal of the company. Procedure of winding up the company.

Companies Law

Contents of Article of Association Matters relating to appointment, powers, duties,

qualification, removal, remuneration etc. of Chief Executive.

Matters relating to appointment of managing agent, term of office, powers, duties and

remuneration where permitted.

Companies Law

http://www.secp.gov.pk/Guides/IncorporationBrochure_31-12-2012.pdf