Corporate law

Corporate law/joint stock company law:

Def: the set of rules and regulations/sections and subsections regarding the
creation of the joint stock company. The arrangement of annual General
meetings, The issuance of new shares as well as additional shares rights and
powers of the board of directors as well as the members of the company and
the winding up of a company under the company ordinance 1984 of
Pakistan.

History of company law in Pakistan

1 The concept of company was developed in the 2nd half of 19th century
(1850 onwards).
2 Different laws were developed during this era
3 The first act was passed in the British India in 1850 for the
registration of joint stock co’s
4 Another act for the registration of joint stock co\s in the UK in 1884
5 A complete and basic act of 1913 was developed.
6 A company law commission was appointed by the Pakistani govt in
1959
7 The submitted their report to the govt in 1960.
8 Its contents was made publically available in 1972
9 The title of the report was the company law commission of Pakistan
10 At least in 1984 Pakistan has developed its own complete law for their
co’s in the form of “company ordinance 1984”

Constituents of the company ordinance 1984

It consist of 514 sections and 8 schedules
The 514 sections have been divided into 16 parts and are as follows.
1) Preliminary
2) Jurisdiction of the court
3) Corporate law authority
4) In corporation of the company and their matters
5) Prospectus. Allotments. Issue and transfer of shares and debentures
6) Share capital
7) Registration of mortgages etc
8) Management and administration
9) Arbitration. arrangements and constitutions
10) Prevention of mismanagement
 11) Winding up
12) Application of ordinance of co’s formed and registered under
any previous act.
13) Winding up of unregistered co’s
14) Companies established outside Pakistan
15) Registration offices and fees etc
16) General

Eight schedules:
1. regulation of a Co’s ltd by shares
 memorandum of association
 article of association
2. Matters to be specified by prospectus. rules and regulations
3. Form and context of annual return report.
4. balance sheet and profit and lost account of listed co’s
5. balance sheet and profit and lost account of non-listed companies
6. Fees to be paid to the registrar. Authority. And federal Govt
7. The detail of enactment (to give a practical shape)
8. Amendments

PROCEDURE FOR FORMING A COMPANY

1 Promotion stage:
The idea of forming a company must be conceived by a person who is called
promoter
He is expert in forming a company work
He is to prepare necessary documents in order to get incorporation certificate
from the registrar of joint stock co’s
There are two types of promoters
1 Professional promoter
When starting a company so they contact with professional promotee
because they are experts in company creation and charges
fees/commission
2 General promoter
Minimum 7 members combine and want to start a business and submit
there application to the registrar called general promoter
Promoters’ duties or promoters characteristics:
a. Idea for business
b. Investigation (raw material. Demand )
c. Selection of first directors (90% of promoters are BOD’s)
d. Selection of legal advisor (lawyer) auditors and banks like
investment bank
Three main function of investment bank is

1. Underwriting facility
The facilities extended by the investment bankers to the issue of
securities, assuring them that they will get an expected amount to be
paid by the purchaser of the securities.
Two types of underwriting facilities we have. i.e.
a. Best offer
Here the underwriting firms take the commission they try their
level best to flowed the company shares and also advertise
Here Risk is beared by company
b. Firm commitment.
Here the underwriter makes full payments and purchase all the
shares…Risk is totally beared by underwriting i.e. investment
bank

2. Investment advices
It simply means to provide advices to banks, govt etc and also to
the small businesses.

3. Mergers and acquisition

The process in which one of the combining companies looses its
separate identity and the assets and liabilities of the loosing company
become a part of the surviving company- mergers

Acquisition: can’t loose its separate legal identity and take the liabilities and
assets of the company in their sharing amount.

1 Promote all the necessary documents (prospectus,

memorandum)
2 Submition of the documents
 3 To meet all the preliminary expenses
4 To collect the share capital

• Incorporation stage
To get the certificate of incorporation from the registrar of joint stock
company. The promoters must submit the following necessary documents to
the registrar.
1. memorandum of association
2. articles of association
3. notice of the address of the head office
4. list of directors
5. consents in writing of directors
6. directors contract to purchase qualification shares(directors have to
purchase)
7. statutory declaration of legal documents of incorporation

* Here are two more steps involve in case of public ltd company i.e.

• Raising of share Capital (public)

After the incorporation of a public company, the director will file a copy of
prospectus with the registrar, to offer investors, that they shall submit their
application along with the application money with the company bankers.

• Certificate of commencement of business (public)

This certificate will be issued by registrar, if the following documents are
submitted to him.
I. Declaration by the company that the minimum subscription as per
prospectus has been received in cash
II. Declaration by the company that all the directors have taken up their
qualification shares and paid for them.
III.Declaration by the company that all legal requirements to the
commencement of business have been fulfilled.

Private company Public company

Members 2-10 7- ∞
Cannot issue share to public Raising of share capital
Cannot trade in stock exchange Easily trade in stock exchange
Basic legal documents
a) Memorandum of association (company’s charter)
It is the basic document on which the whole superstructure of the
company is based. It is also called the constituents of the co. it is primary
document it the company formation. It is for the external management of
the company.

Contents of memorandum of association.

1 In case of public ltd co the names of the co with the word “limited”
as the last word of the name while the private ltd with the name of
the “private ltd co” as the last word of the name.
2 The province where the registered office of the co is to be situated.
3 The objects of the co and their extensions
4 The liabilities of the members is limited
5 The amount of the shares capital and the no of shares with which
the company is to be registered.

Form of memorandum of association

1 It must be printed
2 Must be divided into paragraphs and consecutively numbered
3 Signed by each subscriber (who must give his full address and
occupation) in the presence of atleast one witness who must
attest the signature.

Memorandum of association consist of 6 clauses

1. name clause
2. situation clause
3. object clause (objectives of company)
4. liability clause (limited up to their investment)
5. capital clause
6. subscription clause (integral part of capital clause)

Let us know brief abt types of capital.

Authorized capital: nominal or registered capital with which company is
registered with registrar.
Issued capital: amount of shares actually issued.
Subscribed capital: actually apply by public for shares.
Paid up capital: shares actually purchased (in accounting it is called as
Realization of cash)
Procedure for alteration of objects
The following procedure must be followed otherwise alteration
become void.
1 A special resolution is passed by giving a notice to all
persons who are interested in alteration.
2 An application is filled with the SECP for confirmation of
change.
3 The SECP must check the objections of creditors and be
satisfied that their consent is obtained.
4 After that the SECP will confirm the change if it deems fit.
5 With in 90 days from the date of order of SECP , a certified
copy of the order of the court along with the printed copy of
memorandum must be submitted with the registrar of
SECP
6 Registrar will then issue a certificate of registration, which
will be a proof of alteration in objects.

Doctrine of ultra-vires: An act performed but not authorized by the object

clause of memorandum of association or by statute is called ultra-vires
(unlawful activities)
1 Ultra-vires the memorandum: the act which ultra-vires the
memorandum, the memorandum become void.
2 Ultra-vires the articles: the act which ultra-vires the articles , the
article become void
3 Ultra-vires directors: the act which is beyond the capacity of board of
directors, such acts may be breach of articles so the Co in annual
general meeting may ratify such an unauthorized act of directors by
passing an ordinary resolution.

Procedure for change of name.

A company at many times during the course of its business may change
its name by fulfilling the following conditions.
1 A special resolution is passed
2 Approval of registrar is obtained in witting with respect to change in
name.
3 The registrar enters the new name in register and shall issue a
certificate of incorporation in the changed name.
4 Where the co has unintentionally registered a name similar to that of
an existing name, it can be changed only with the sanction of the
registrar.

b) Article of association.
It is also known as supplementary or secondary document of the co. It
is used for the internal matters/management of the company. Articles of
association must be signed by each subscriber.

Contents of articles of association

3 Amount of share capital issued and transmission of shares
4 Rights of shareholders regarding voting, dividend and return of capital
5 Rules regarding issue of shares and debentures.
6 Procedures as well as regulations on “making calls” on shares
7 Manners of transfers of shares
8 Rules regarding appointment of directors, managing agent, secretary
and treasurers etc
9 Number , qualification, power and liabilities of directors
10 Convening and conduct of meetings with respect to quorum , poll,
proxy , resolution etc
11 Rules regarding the forfeiture of shares
12 Rules regarding the winding up of shares
13 Matters relating the winding up of the Co.
14 Declaration of dividend.(responsibility of Board of directors )

Difference b/w Transfer of shares and transmission of shares

Transfer of share: when the person is mentally sound and sale out his
shares (dispose off).

Transmission of shares: it is the process of transfer of shares to legal

successor (next to kin) or representative of the deceased person
(shareholder) by the operation of law in case of death, insolvency or
lunacy (unsound mind).

Note: forfeiter- to possessed someone else assets.

Quorum- number of person for conducting meeting, its 1/3 of
directors.
Memorandum of association Article of association

•1 Memorandum is a fundamental •7 Article is a supplementary document.

document.

•2 The memorandum lay down the objects •8 Article lay down the manner in which the
of the company. object is to be fulfilled.

•3 Memorandum indicates the scope of •9 Article indicates how the business is to be

affairs of company. carried out.

•4 Memorandum is the dominant
instrument.
•5 If memorandum is silent on a point.
•6 If memorandum is clear on a point.
•10 If any part of article conflict with it,
such part of article is to be deemed as
void.
•11 Article explains that point.
•12 Then there is no need that the article
supplements that memorandum.

Procedure for alteration of article of association

The following procedure must be followed while altering the articles.
A. Instruct the company’s legal advisor to draft the alterations together
with a notice to the members of Extra Ordinary General Meeting
(EOGM).
B. When the company is listed on the stock exchange the draft of
alteration must be sent to the stock exchange for approval.
C. After the approval of stock exchange, call a members of directors for
the approval of alterations and the fix a date for (EOGM)
D. Notice of alteration must be sent together with alteration of articles
atleast 21days before the meetings to the members.
E. With in 15days of EOGM, file with the registrar a copy of special
resolution passed in the meeting.
F. Send a copy of special resolution together with amended copy of
articles of association for approval to stock exchange.
G. Amend all unissued copies of the company’s article.

Note. EOGM- a meeting of shareholders in case of sudden change or

emergency.
Draft-a legal written document must be prepared by company’s legal adviser
(lawyer)

c) Prospectus (public ltd company only)

Prospectus is a document that includes notice or advertisement inviting
public for subscription or purchasing and shares or debentures of a company
or inviting deposits from the public.

Contents of prospectus
I.The contents of memorandum with the name, address, occupation and
description of the person who’s names (their in memorandum) , the
nature and the extent of interests of the shareholders in the profit and
property of the Company.
II. Description of business to be undertaken
III. Description regarding remuneration of the directors or chief
executive officer
IV. The names, address, occupation and description of the
important office bearers of the company.
V. Where shares are offered to the public for subscription,
information regarding minimum subscription, preliminary expenses
payable and underwriting commission payable etc.
VI. The date and time of opening and closing subscription list
VII. The names of the underwriters and directors opinion about them
that their resources are sufficient to fulfill their obligation
VIII. The names, addresses, description and occupation of the
company vendors and the amount paid or payable to them.
IX. The estimated amount of preliminary expenses paid or payable
by the company
X. Any amount paid to the promoters in previous two years.
XI. The names and addresses of auditors and legal advisors.
XII. The right of voting of meeting and dividend attached to shares.
XIII. The length of time during which the business of the company
has been carried on.
XIV. A reasonable time and place for the inspection of balance sheet
and income statement.
XV. A summery in column from the earnings of the company for
each 3 financial years.
XVI. Pending legal proceedings to which the Company is a party.
Liabilities arising from mis-statement in a prospectus
 1. civil liability
he who is the director at the time of issue of prospectus, he who
has authorized the issue of prospectus, he who is the promoters of
the company , shall be liable to pay compensation to all those
person who has subscribed to the shares and suffered from mis-
statement.

2. criminal liability
Where a prospectus includes any untrue statement, every person
who signed or authorized the issue of prospectus shall be
punishable with imprisonment which may extend to 2years or with
a fine which may extend to RS 10000 or with both.

Statement in lieu (instead of) prospectus.

A company having a share-capital which does not issue a
prospectus, so that has been delivered to the registrar for
registration a statement in lieu of prospectus signed by every
person who ‘s name their in as a director atleast 3days before the
first allotment.

Jurisdiction of the company courts

It is provided that court having jurisdictions under the company ordinance
1984, shall be the high court, having jurisdiction at a place at which the
registered office of the company is situated , the central govt may empower
any district court to exercise all or any of the jurisdictions.

Company Benches
There shall be benches in each high court , one or more benches , each to be
known as company bench , to be constituted by the chief justice of high court,
to exercise the jurisdictions under the company ordinance 1984.

Procedure of the company court

i. All matters coming before court under the company ordinance shall be
disposed off (solved) and the judgment pronounced as soon as possible
but not later then 90days form the date of the presentation of the petition
to the court except in extra ordinary circumstances, the court shall hear
the case from day to day.
ii. The hearing of the matters shall not be adjourned except for sufficient
cause or for more then 14days at one time or for 30days at all.
Corporate Law Authority (secp)
It is constituted under section 11 of the company ordinance 1984. The federal
Govt is empowered to constitute the CLA. The authority must consist such
number of members not being less then 3 to be appointed by the Govt, one of
the member is to be appointed as chairman of the authority by the federal
Govt.

Power and functions of Authority (company law authority)

1 Issues orders and instructions to all persons and officers in the execution of
ordinance.
2 Confirm alteration to memorandum
3 Extend time for filing documents with the registrar.
4 Grant license and allowing an association to enjoy all the rights of a limited
company with out using the word “limited”
5 Allow a public company to convert it self into a private Company.
6 For special reasons allow a prospectus to be issued more then 30days before
the subscription list is due to open.
7 Specify the form of application for r subscription to shares or debentures.
8 Permit a company to with hold or delay payment of dividend in certain
cases.
9 Allow extending of time for holding annual general meeting and filing a
document by the listed company up to 90days.

Share certificate
It is a document issued under the common seal of the company and
contains
1 Name and address of the holders
2 Name of shares held by them
3 Their distinctive numbers
4 Paid of amount.

Register of members
It contains:
a) The name, father/husband’s name, address, nationality and occupation
b) Statement of shares held by each member, their distinctive numbers,
paid up amount.
c) The date at which any person was entered as a member of the CO.
d) The date at which any person was ceased to be a member and reasons
of ceasing.
Rights of members.
1. Inspect register of members and debenture holders.
2. In case of public ltd company, they will receive a statutory report.
3. have copies of memorandum and articles on payment of fee
4. receive share certificate with in prescribed time
5. transfers of shares
6. Receive minutes of the proceedings of general meeting.
7. Remove directors.
8. Receive copies of annual accounts.
9. Appoint auditors at general meeting.
10.Inspect auditors report at general meeting.
11.Resolve by special resolution that the company ay be wound up by the
court.
12.Resolve by special resolution that the company may be wound up
voluntarily.
13.Appoint and fix remuneration of liquidators.
14.attend meetings and vote at meeting
15.Approved dividend as recommended by the directors.
16.Have a share in the capital of a company.

Liabilities of share holders.

Where a company is limited by shares, the liability of shareholders is
limited to amount, if any unpaid on shares held by him. This liability is
continuous as long as anything remains unpaid on shares.

Commission on issue of shares.

It shall be lawful for a company to pay commission to any person in
consideration of his subscribing either absolutely or unconditionally for
any shares in the company if:
1. The payment of the commission is authorized by article of
association.
2. The commission paid should not exceed the rate fixed by the
authority.
3. The amount and rate must be disclosed in prospectus, if issued by
the Co.
4. Where a prospectus is not issued, the amount and rate must be
disclosed in a statement in lien of a prospectus.
5. The number of shares for which the persons have agreed to
subscribe absolutely for a commission is disclosed in a specified
manner.
Premium on issue of shares
Where a company issues shares on premium, the values of premiums
 shall be transferred to an account called “the share premium
account”. This account may be applied by the company as under.
1 In writing-off the preliminary expenses of a Co.
2 In writing-off the expenses of commission and discount on
issue of shares and debentures.
3 To pay premium on redeemable preference shares or
debentures.
4 In paying up un-issued shares of the company as fully bonus
shares.

Issue of shares at a discount

It shall be lawful for a company to issue shares at discount if:
1 It must be authorized by a resolution passed at general
meeting and sanctioned by the authority.
2 The resolution must specify the maximum rate of discount
not exceed than 10% or higher rate fixed by the authority.
3 Not less then any year must at the date of issue have elapsed
since that date on which the company was entitled to
commence its business.
4 The shares are to be issued at a discount must be issued with
in 60days after the date on which the issue is sanctioned by
the authority.

Capital structure
The combination of debt and equity financing in the capital of a
company is called capital structure.
While a particular amount of money with which the business is
started is share capital.

Kinds of preference share

1. simple preference share
They are usually entitled to receive fixed dividend before any
dividend is pairs on the ordinary shares. If there are no profits in the year
then there is no dividend for the simple preference shares
2. cumulative preference share
if in any year the profits are not enough, their right to dividend does
not lapse, but carried so that when the company makes the profits in the
subsequent year it must first pay off the arrears of dividend before paying
dividend to other kind of shareholders.
 3. cumulative participating preference share
these share holders is not only entitled to receive arrears of dividend
but are entitled to share with the ordinary shareholders , the balance of
profit in some proportions after the right of ordinary share holders have
been met.
4. redeemable preference shares
normally shares of company are not redeemable they can be redeemed
only when the company goes into liquidation however, the law in section
85 of the ordinance 1984 has provided for the redemption of redeemable
preference shares during the lifetime of the company.
5. deferred/mgt share/founder shares
These shares are normally issued to the company promoters or
founders of the company or the underwriter of the share capital, these
shares receive no dividend until the dividend on all other classes of
shares has paid in full.

Company directors
Directors includes any person occupying a position of a director, the position of
a director by whatever name called every private company must not less then
two directors and every public company not less then 7 directors .
Directors having power to issue shares.
First directors are appointed by promoters
A company can’t make loan to its directors.

Directors as an agent
The director may make contracts as agent of the company if the contract made
by a director ultra-vires his power made with a member is only voidable but if
made with an outsider who had no notice of the wants of his power, it is binding
on the company.
Director as trusty
Directors are trustee regarding the power conferred on them by the articles
and the capital under their control. They are not persons in the employment of the
company. They are trustee for the company and not for the individual share
holders they are not trustee for third party who have made contract with the
company they are also trustee for the company in respect of their power of
approving transfer of shares, issuing and allotment of shares as well as making
calls and forfeiting of shares.
 Eligibility of a person to become a director
A person is appointed as a director if he:
• is a major share holder
• is of sound minded
• is a member of a company
• has not been convicted by court of law
• is a solvent person
• is a natural person

Power of directors
To make calls on share holders in respect of money unpaid on their shares.
To issue shares.
To issue debentures.
To borrow money otherwise then on debentures.
To invest the funds of the company.
To make loans.
7. To approve annual, semiannual, or periodical accounts as are required to be
circulated to the members.
8. To incur capital expenditure exceeding Rupees 2 lac on any single item or
dispose off a fixed asset of value exceeding rupees 1 lac.

* will friends there is much more on this subject but I wrote upto here coz I m
having my exam and I do not have more time to write any more. I will try to write
after my exam inshallah. Hope this little piece of mine will help u all a lot, I dedicate
it to my kindest and hardworking teacher Sir Muhammad Arif.

Written by Amir Sajjad Khan

BBA (hons) 6th semester
Dedicated to Sir Muhammad Arif
Title Company law of Pakistan
Institute of business and management sciences (ibms)
Agriculture University Peshawar.
Dated:20/11/09
Email address: amirsajjadkhan_ibms@yahoo.com
Mobile no# 03429095079
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