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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 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
2. 6. Authority. 3.11) Winding up 12) Application of ordinance of co’s formed and registered under any previous act. rules and regulations Form and context of annual return report. 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 . balance sheet and profit and lost account of listed co’s balance sheet and profit and lost account of non-listed companies Fees to be paid to the registrar. And federal Govt The detail of enactment (to give a practical shape) Amendments 1. 5. 4. 7. 8. 13) Winding up of unregistered co’s 14) Companies established outside Pakistan 15) Registration offices and fees etc 16) General Eight schedules: regulation of a Co’s ltd by shares memorandum of association article of association Matters to be specified by prospectus.
mergers Acquisition: can’t loose its separate legal identity and take the liabilities and assets of the company in their sharing amount. assuring them that they will get an expected amount to be paid by the purchaser of the securities. govt etc and also to the small businesses. memorandum) 2 Submition of the documents . Underwriting facility The facilities extended by the investment bankers to the issue of securities. i.Promoters’ duties or promoters characteristics: a. Idea for business b. Two types of underwriting facilities we have. 1 Promote all the necessary documents (prospectus. Here the underwriter makes full payments and purchase all the shares…Risk is totally beared by underwriting i. Selection of legal advisor (lawyer) auditors and banks like investment bank Three main function of investment bank is 1. 3. Firm commitment. 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. a.e. 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. investment bank 2. Selection of first directors (90% of promoters are BOD’s) d. Investment advices It simply means to provide advices to banks. Investigation (raw material.e. Demand ) c.
Declaration by the company that the minimum subscription as per prospectus has been received in cash II. • Certificate of commencement of business (public) This certificate will be issued by registrar. articles of association 3. to offer investors. memorandum of association 2. if the following documents are submitted to him.Declaration by the company that all legal requirements to the commencement of business have been fulfilled. notice of the address of the head office 4.3 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.∞ Raising of share capital Easily trade in stock exchange . Declaration by the company that all the directors have taken up their qualification shares and paid for them. directors contract to purchase qualification shares(directors have to purchase) 7. The promoters must submit the following necessary documents to the registrar. the director will file a copy of prospectus with the registrar. Private company Members 2-10 Cannot issue share to public Cannot trade in stock exchange Public company 7.e. statutory declaration of legal documents of incorporation * Here are two more steps involve in case of public ltd company i. list of directors 5. I. 1. consents in writing of directors 6. that they shall submit their application along with the application money with the company bankers. III. • Raising of share Capital (public) After the incorporation of a public company.
Authorized capital: nominal or registered capital with which company is registered with registrar. Issued capital: amount of shares actually issued. capital clause 6. . Memorandum of association consist of 6 clauses 1. It is also called the constituents of the co. liability clause (limited up to their investment) 5. 2 The province where the registered office of the co is to be situated.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 for the external management of the company. 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. it is primary document it the company formation. Contents of memorandum of association. object clause (objectives of company) 4. 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. name clause 2. 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. situation clause 3. subscription clause (integral part of capital clause) Let us know brief abt types of capital.
4 After that the SECP will confirm the change if it deems fit. 3 The registrar enters the new name in register and shall issue a certificate of incorporation in the changed name. 1 A special resolution is passed by giving a notice to all persons who are interested in alteration. which will be a proof of alteration in objects. 2 An application is filled with the SECP for confirmation of change. 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. 1 A special resolution is passed 2 Approval of registrar is obtained in witting with respect to change in name. 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.Subscribed capital: actually apply by public for shares. . 2 Ultra-vires the articles: the act which ultra-vires the articles . the memorandum become void. 5 With in 90 days from the date of order of SECP . 3 The SECP must check the objections of creditors and be satisfied that their consent is obtained. 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. A company at many times during the course of its business may change its name by fulfilling the following conditions. Procedure for change of name. 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.
insolvency or lunacy (unsound mind). It is also known as supplementary or secondary document of the co. its 1/3 of directors. . Articles of association must be signed by each subscriber. It is used for the internal matters/management of the company. Contents of articles of association 3 Amount of share capital issued and transmission of shares 4 Rights of shareholders regarding voting. Quorum.to possessed someone else assets. 6 Procedures as well as regulations on “making calls” on shares 7 Manners of transfers of shares 8 Rules regarding appointment of directors. secretary and treasurers etc 9 Number . it can be changed only with the sanction of the registrar. qualification.4 Where the co has unintentionally registered a name similar to that of an existing name.number of person for conducting meeting. 14 Declaration of dividend. poll. power and liabilities of directors 10 Convening and conduct of meetings with respect to quorum . Note: forfeiter. proxy . dividend and return of capital 5 Rules regarding issue of shares and debentures. b) Article of association.(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). managing agent. 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. 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.
E. Notice of alteration must be sent together with alteration of articles atleast 21days before the meetings to the members. •10 If any part of article conflict with it. such part of article is to be deemed as void. •11 Article explains that point. After the approval of stock exchange. file with the registrar a copy of special resolution passed in the meeting. EOGM. B. Article of association •7 Article is a supplementary document. C. Send a copy of special resolution together with amended copy of articles of association for approval to stock exchange. Instruct the company’s legal advisor to draft the alterations together with a notice to the members of Extra Ordinary General Meeting (EOGM). •6 If memorandum is clear on a point.Memorandum of association •1 Memorandum is a fundamental document. F. •2 The memorandum lay down the objects of the company. call a members of directors for the approval of alterations and the fix a date for (EOGM) D.a meeting of shareholders in case of sudden change or . G. •3 Memorandum indicates the scope of affairs of company. Amend all unissued copies of the company’s article. A. When the company is listed on the stock exchange the draft of alteration must be sent to the stock exchange for approval. Procedure for alteration of article of association The following procedure must be followed while altering the articles. •5 If memorandum is silent on a point. Note. With in 15days of EOGM. •9 Article indicates how the business is to be carried out. •8 Article lay down the manner in which the object is to be fulfilled. •4 Memorandum is the dominant instrument. •12 Then there is no need that the article supplements that memorandum.
The length of time during which the business of the company has been carried on. IX. Where shares are offered to the public for subscription. XIV. V. The date and time of opening and closing subscription list VII. XIII. The names and addresses of auditors and legal advisors. description and occupation of the company vendors and the amount paid or payable to them.emergency. The right of voting of meeting and dividend attached to shares. Description of business to be undertaken III. VI. Description regarding remuneration of the directors or chief executive officer IV. The estimated amount of preliminary expenses paid or payable by the company X. II. XI. information regarding minimum subscription. The names of the underwriters and directors opinion about them that their resources are sufficient to fulfill their obligation VIII. Any amount paid to the promoters in previous two years.The contents of memorandum with the name. The names. occupation and description of the important office bearers of the company. XVI. Liabilities arising from mis-statement in a prospectus . the nature and the extent of interests of the shareholders in the profit and property of the Company. The names. XV. XII. 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. address. address. A reasonable time and place for the inspection of balance sheet and income statement. preliminary expenses payable and underwriting commission payable etc. addresses. A summery in column from the earnings of the company for each 3 financial years. occupation and description of the person who’s names (their in memorandum) . Pending legal proceedings to which the Company is a party. Contents of prospectus I.
A company having a share-capital which does not issue a prospectus. shall be the high court. 2. 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. shall be liable to pay compensation to all those person who has subscribed to the shares and suffered from misstatement. 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. Procedure of the company court i. Corporate Law Authority (secp) .1. he who has authorized the issue of prospectus. 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 . Jurisdiction of the company courts It is provided that court having jurisdictions under the company ordinance 1984. to be constituted by the chief justice of high court. he who is the promoters of the company . civil liability he who is the director at the time of issue of prospectus. one or more benches . 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. each to be known as company bench . to exercise the jurisdictions under the company ordinance 1984. having jurisdiction at a place at which the registered office of the company is situated . the court shall hear the case from day to day. ii. 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. criminal liability Where a prospectus includes any untrue statement.
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. Power and functions of Authority (company law authority) 1 Issues orders and instructions to all persons and officers in the execution of ordinance. c) The date at which any person was entered as a member of the CO. 6 For special reasons allow a prospectus to be issued more then 30days before the subscription list is due to open. Inspect register of members and debenture holders. father/husband’s name. The authority must consist such number of members not being less then 3 to be appointed by the Govt. address. 7 Specify the form of application for r subscription to shares or debentures. The federal Govt is empowered to constitute the CLA.It is constituted under section 11 of the company ordinance 1984. d) The date at which any person was ceased to be a member and reasons of ceasing. 8 Permit a company to with hold or delay payment of dividend in certain cases. their distinctive numbers. Register of members It contains: a) The name. 1. paid up amount. nationality and occupation b) Statement of shares held by each member. . 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. 2 Confirm alteration to memorandum 3 Extend time for filing documents with the registrar. Rights of members. one of the member is to be appointed as chairman of the authority by the federal Govt. 9 Allow extending of time for holding annual general meeting and filing a document by the listed company up to 90days.
2. transfers of shares 6. The commission paid should not exceed the rate fixed by the authority. Premium on issue of shares Where a company issues shares on premium. Where a company is limited by shares. 3.Approved dividend as recommended by the directors. Receive copies of annual accounts. if any unpaid on shares held by him. 14. Appoint auditors at general meeting. the amount and rate must be disclosed in a statement in lien of a prospectus. the values of premiums . if issued by the Co. Remove directors.Resolve by special resolution that the company ay be wound up by the court. 10. The number of shares for which the persons have agreed to subscribe absolutely for a commission is disclosed in a specified manner. In case of public ltd company. 16. they will receive a statutory report.Appoint and fix remuneration of liquidators.attend meetings and vote at meeting 15. Commission on issue of shares. 13. 9. The amount and rate must be disclosed in prospectus.Resolve by special resolution that the company may be wound up voluntarily. The payment of the commission is authorized by article of association. Liabilities of share holders. 4. Where a prospectus is not issued. 8. the liability of shareholders is limited to amount. Receive minutes of the proceedings of general meeting.2. 7. This liability is continuous as long as anything remains unpaid on shares. 5.Inspect auditors report at general meeting. receive share certificate with in prescribed time 5. 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. have copies of memorandum and articles on payment of fee 4. 12. 3. 11.Have a share in the capital of a company.
Capital structure The combination of debt and equity financing in the capital of a company is called capital structure.shall be transferred to an account called “the share premium account”. This account may be applied by the company as under. . 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. If there are no profits in the year then there is no dividend for the simple preference shares 2. 2 In writing-off the expenses of commission and discount on issue of shares and debentures. 1 In writing-off the preliminary expenses of a Co. 4 In paying up un-issued shares of the company as fully bonus shares. Kinds of preference share 1. 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. 3 To pay premium on redeemable preference shares or debentures. 2 The resolution must specify the maximum rate of discount not exceed than 10% or higher rate fixed by the authority. simple preference share They are usually entitled to receive fixed dividend before any dividend is pairs on the ordinary shares. 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. While a particular amount of money with which the business is started is share capital. cumulative preference share if in any year the profits are not enough. their right to dividend does not lapse. 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.
these shares receive no dividend until the dividend on all other classes of shares has paid in full. Director as trusty Directors are trustee regarding the power conferred on them by the articles and the capital under their control. First directors are appointed by promoters A company can’t make loan to its directors. 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 . They are not persons in the employment of the company. the law in section 85 of the ordinance 1984 has provided for the redemption of redeemable preference shares during the lifetime of the company. 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. redeemable preference shares normally shares of company are not redeemable they can be redeemed only when the company goes into liquidation however. 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 .3. 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. 4. 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. Directors having power to issue shares. it is binding on the company. issuing and allotment of shares as well as making calls and forfeiting of shares. the balance of profit in some proportions after the right of ordinary share holders have been met. 5.
semiannual. To issue debentures.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 make loans. To incur capital expenditure exceeding Rupees 2 lac on any single item or dispose off a fixed asset of value exceeding rupees 1 lac.com Mobile no# 03429095079 The end . I dedicate it to my kindest and hardworking teacher Sir Muhammad Arif. Dated:20/11/09 Email address: amirsajjadkhan_ibms@yahoo. To approve annual. To invest the funds of the company. 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. or periodical accounts as are required to be circulated to the members. 8. 7. Hope this little piece of mine will help u all a lot. To borrow money otherwise then on debentures. * 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.
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