Revised Company Ordinance 1984

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Corporate Law

The Companies Ordinance 1984

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Types of business organization

Sole Trader

Partnership

Company

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WHAT IS A COMPANY ?

DEFINITION:

A Company is an association of persons

united for a common purpose.A

ccording tothe Companies Ordinance, 1984, Company

means a company formed and registered

under the Companies Ordinance.

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Kinds of Companies

Companies formed under the Companies

Ordinance, 1984 are of three kinds, namely:

(a) Companies limited by Shares(b) Companies limited by Guarantee

(c) Unlimited Companies

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Company limited by Shares

A Company in which the liability of the

members is limited to the nominal value of

the shares (s.16).

When the liability of the Company is limited

by shares it means that no member can be

called upon to pay more than the nominal

amount of his shares

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Company limited by Guarantee

A company in which the liability of the

members is limited to the amount which each

has undertaken, by the Memorandum of

Association, to contribute to the assets of the

company in the event of a winding-up (s.17)

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Statutory Companies

The Companies which are incorporated by a special act of legislature or

under an ordinance are named as statutory companies. For Instance,

State Bank of Pakistan, National Bank of Pakistan, PICIC (Pakistan

Industrial & Credit Investment Corporation), Pakistan Steel etc.

The companies under the special act of legislative have been mostly

invested with special powers.

They also enjoy special rights and privileges which are not available to

companies incorporated under the companies ordinance 1984.

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Company Limited by shares

It is the company which keeps the liability of its members limited up to

the value of the shares purchased by them. It is essential for such

companies to use the word Limited at the end their names.

Functional Division of Companies

Private Companies

Public Companies

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Company Limited by shares

Private Companies

A private company is an association of minimum two andmaximum fifty share holders. It restricts the rights of its membersto transfer their shares in the company. It also prohibits any

invitation to the public to subscribe to its share or debentures.Public Companies

A public company must have at least seven share holders, but thereis no limit to the maximum number. Public company issues aprospectus for inviting people to purchase its shares. The shares ofa public company are freely sold and purchased in the stock market.

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Company Limited by guarantee

It is the company in which the liability of its

members is limited up to the amounts

guaranteed by each member at the time of

winding up the company.

This type of company is formed mostly for

taking non business operations such as clubs

and charitable institutions, the examples are

stock exchanges, arts councils, ICAP or ICMA

etc.

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An Unlimited Company

An Unlimited company is registered without

any limit on the liability of their members

Every member of the company is liable to thefull extent of his personal asset for all the

debt of a company while he was a member.

The unlimited company, due to great risk do

not exist in Pakistan.

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Association Not for Profit.

It is registered under section 42 of the companies ordinance

without the addition of the word Limited to its name, it is

registered with limited liability.

The association enjoys all the privileges and obligations of alimited company.

It is formed for promoting commerce, arts, science, religion,

charity or any other object.

The Federal Government grants license to the association

that is capable of being formed as a company.

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CLASSIFICATION ON THE BASIS OF OWNERSHIP

Holding Company

Subsidiary Company

Holding Company

A company is said to be the holding company of the other, if it owns or holds

more than 50% of the share capital of the other company, or it has control ofmore than 50% of its directors.

Subsidiary Company

A company is said to be the subsidiary of the other company when one ofthe following conditions are fulfilled.

(I) Formation of Board of Directors is controlled by another company.

(II) The other company controls more than half of the voting rights of thiscompany.

(III) The other company owns more than 50% share capital of this company.

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STEPS REQUIRED INREGISTRATIONOF A COMPANY

Getting Promoters Together: Those who formthe company are known as promoters whomust get together to work out the skeleton of

the company. Appointment ofAdvisor: Promoters appoint

legal advisors who under the guidance andinstructions of promoters, preparememorandum and articles of association,prospectus, and deal with the office of theregistrar of the company.

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STEPS REQUIRED INREGISTRATION OF ACOMPANY

Preparation of company documents: The

companies ordnance requires preparation of

following documents before the company

applies for registration

1. Memorandum ofAssociation

2. Article of association

3. Prospectus

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Submitting application with the registrar:An application forregistration is submitted along with the registration fee through theregistrar of the company with attachment of following documents

1. Memorandum ofAssociation

2. Articles of association3. Prospectus

4. List of names and addresses of directors

5. Signed statement of directors or the secretary that all the requiredlegal formalities have been completed.

6. Address of the registered office of the company.

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Declaration of qualifying shares: All the directors, have to submit adeclaration certificate that they have taken up qualifying shares andhave paid up the money

Issuance of Registration Certificate: On the issuance of registrationcertificate by registrar, private company can start its business

immediately, while public company cannot until it gets anothercertificate known as Commencement Certificate.

Publication of Prospectus: On the receipt of the registrationcertificate the company issues prospectus which is an invitation tothe public to buy shares of the company.

Commencement Certificate: After raising capital through prospectus,

the company applies for the commencement certificate. Afterobtaining this certificate the public can start its actual operation

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BASIC LEGAL DOCUMENTATION

Memorandum ofAssociation Articles ofAssociation

Prospectus

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Memorandum ofAssociation

It is a document issued by a company for the guidance

of general public

it is known as the charter of the company which

explains to the public name, address, capital, objectivesand liability of the company.

It defines its limitation and powers and guides

shareholders and creditors of the company.

It is divided in to five clauses

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Memorandum ofAssociation

CLAUSES OF MEMORANDUM

Name Clause

A company may adopt any name but it should not resemble the name of any other companyand should not contain the words like king, queen, govt. bodies, UNO etc. The name shouldnot be objectionable in the opinion of the government. The word limited must follow thename of the company in case of Public company, while (private) limited must follow withthe name of company in case of Private company

Domicile (Situation) ClauseEvery company must have a registered office, a memorandum must mention the name of theprovince and exact address where the company has its registered office

Objective Clause

A company must specifically, expressly and clearly mention its objectives for which it has beenformed.

Capital Clause

This clause mention the authorize capital of the company, the companys subscribed, called up,

and paid up capital should not exceed it.Liability Clause

This clause shows that the liability of the share holders of the company is limited to theamount invested by them.

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Articles ofAssociation

It is a document explaining rules and regulations

regarding the internal affairs of the company, according

to companys ordinance 1984, every company

registered by shares must prepare and file articles ofassociation with the registrar of the companies.

If a company does not prepare and file its own articles

then Table A of the companys ordinance would apply

for a private company articles of association are notbinding.

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Articles ofAssociation

CONTENTS OF ARTICLES

Amount of share capital issued, transmission of share

Rights of share holder regarding voting, dividend, return of capital

Rules regarding issue of shares and debentures

Procedures as well as regulations in respect of making calls on shares

Manner of transfer of shares Rules regarding appointment of directors, managing directors, agents, secretaries,treasures

Number, qualification, remuneration, powers and liabilities of directors

Declaration of dividends

Convening and conduct of meetings with reference to notice, forum, polls, proxy,resolutions etc

Rules regarding the forfeiture and surrender of shares

Matters relating account and audit

Rules regarding winding up of a company

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Prospectus

It is an invitation, advertisement or circular asking people to investand subscribe in the share capital or debenture of the company.

For a private company prospectus is not required, even for a publiccompany it is not compulsory.

If a public company does not want to issue prospectus, it must, thenfile a statement in lieu of prospectus with the registrar.

The prospectus must be signed by at least two directors.

In prospectus the detail description regarding the establishment ofthe company, its characteristics and its estimated future is given.

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MANAGEMENT OF THE COMPANY

Shareholders

Directors

Chief Executive

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Chief

Executive

Directors

Shareholders


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COMPANY MEETINGS

A public company is required to call ameeting with shareholders with certain

agenda to be discussed there and to get their

vote on important affairs.

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Statutory Meeting

It is the first meeting of the members of a

public limited company. Statutory meetingmust be held at least after three month and

before six months since the registration of

the company.

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Statutory Meeting

Notice of the meeting: a notice of the statutory meeting to theshareholders must be issued at least 21 days before the meeting.

Issue of Report: statutory report must also be issued at last 21 daysbefore the meeting is held, and it must be signed by at least threedirectors, one being the chief executive.

Nature of proceedings of the Meeting: in the meeting followingproceedings take place:

a. name, address, nationality, profession of all members(shareholders).

b. the member present at the meeting have the right to discuss any

matter relating to the formation of the company or arising out of thestatutory report.

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Annual General Meeting

Every public company must hold a generalmeeting of its members within eighteen

months from the date of formation and

within fifteen months every year after first

meeting.

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Annual General Meeting

Notice of the meeting: a notice of the annual general

meeting to the shareholders must be issued at least 21

days before the meeting.

Nature of proceedings of the Meeting: in the meetingfollowing proceedings take place:

a. consideration and adoption of the audited annual

accounts.

b. declaration of the dividends.

c. the election and appointment of the directors.

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Extra-Ordinary General Meeting

All general meetings of a company other than annual generalmeeting and statutory meeting are known as extra-ordinary generalmeeting.

It is conducted when an annual general meeting is not due under thelaw but pressing affairs have come up to be discussed with theshareholders.

The meeting can be called:

a. by directors to consider any matter which they think it necessary.

b. by directors on the requisition of the shareholders representingnot less than one-tenth of the voting power.

c. by the requisiteness if the directors do not proceed within 21days of calling the meeting.

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What are shares and debentures?

A debenture is an unsecured loan you offer to

a company. The company does not give anycollateral for the debenture, but pays a higher

rate of interest to its creditors. In case of

bankruptcy or financial difficulties, the

debenture holders are paid later thanbondholders.

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Debentures are different from stocks and

bonds, although all three are types of

investment. Below are descriptions of the

different types of investment options for small

investors and entrepreneurs.

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Debentures and Shares

When you buy shares, you become one of the

owners of the company. Your fortunes rise and

fall with that of the company. If the stocks of

the company soar in value, your investment

pays off high dividends, but if the shares

decrease in value, the investments are lowpaying. The higher the risk you take, the

higher the rewards you get.

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Debentures are more secure than shares, in

the sense that you are guaranteed payments

with high interest rates. The company pays

you interest on the money you lend it until the

maturity period, after which, whatever you

invested in the company is paid back to you.

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The interest is the profit you make from

debentures.While shares are for those who

like to take risks for the sake of high returns,

debentures are for people who want a safe

and secure income.

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What is redemption ofshares and

debentures?Redemption of Shares The process whereby a

company can redeem shares through

repayment of the nominal value to the

shareholder.

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Discount on issue ofshares and debentures?

Issue of shares at discount: A company may

issue shares at a discount i.e. at a value below

its par value.

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Difference between shares and debentures?

Shares forms ownership of the company ,

where as Debentures are the debt for any

company. Shares investments returns in form

of share in profit (dividend on shares) whereas

Debentures returns with...

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What are the differences between share and

debenture?

SHARES- 1.share holder is the real owner of

the company. Share holders have no fixed

dividend rate. Share holders have no maturity

period. Shares are not redeemed. Shares aremore volatile.

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Difference between debenture and preference

shares?

DEBENTURES ARE THE LOAN OF THE

COMPANYWHEREAS PREFRENCE SHARES ARE

THE PART OF SHARE CAPITAL

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Documents

Revised Company Ordinance 1984