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Question No 14:

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Differentiate between
i. Sole tradership, Partnership & Joint Stock
Company.

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ii. Public & Private Limited Company.
iii. Article Of Association & Memorandum Of
Association. nli
iv. Shareholder & Debentureholder.
Answer:
i. Differentiation Between Sole Tradership, Partnership
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& Joint Stock Company:

1. Definition:
SOLE TRADERSHIP:
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Sole proprietorship means the business in which one person is


the owner who solely responsible for all the losses and enjoys
all the profit.
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PARTNERSHIP:
Partnership is the relationship between persons who have
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agreed to share profit of business, carried on by all or any of


them acting for all
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JOINT STOCK COMPANY OR (Public Limited Company):


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Joint Stock Company is a voluntary association of individuals
for profit, having a capital divided into transferable shares,

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the ownership of which is the condition of membership

Other Points of Difference:

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The other points of difference between Sole tradership,
Partnership and Public Limited Company (JSC)are
mentioned below.
POINTS SOLE PARTNER PUBLIC

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SHIP LIMITED
PROPRIETO
RSHIP COMPANY
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(JSC)
2.Formation There are no There is a There is a long
complicated simple and
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formalities for process for complicated


the the process for the
formation of formation formation of
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sole- of the public limited


tradership. partnership co.
. No
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legal
documents
are
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required.
3.Legislation There is no Activities of The activities of
or Act legal Act of partnership the PLCo. Are
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sole- controlled controlled by


tradership. by the Companies
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Partnership Ordinance
ACT 1932. 1984.

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4.Number of There must be There must There must be
Members only one be minimum (7)
owner in sole minimum members and

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tradership. (2) there is no
members restriction on
and not maximum.

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more than
(20).
5.Capital The capital is Its capital is Its authorized
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increased or described capital is
decreased in the mentioned
according agreement. in the MOA. It
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to the It may be is very


circumstances changed by complicated
or mutual process to
according consent of change the
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to the owner the amount of


wish. partners. capital.
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6. Registration The Registratio Registration of


registration of n is PLCo.
sole optional is
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tradership is according compulsory


not required to and there is
by the law. Partnership special
Act 1932. Ordinance
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1984 for its


registration.
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7.Management All business All the All the
affairs are partners shareholders

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managed by can take cant take
the part in the part in the
owner manageme management.
himself. nt of the So,

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business. management
depends
upon

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directors of the
company.
8.Liabilities The liability of The The Liability of
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the owner is Liability of shareholder
unlimited. The the partner is limited to
personal is the value of
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property of the unlimited. shares they


owner The held.
can be personal
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sold to pay property


debts. of the
partner is
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liable to
pay debt.
9.Title There is no There is no It is necessary
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need to use need to use to use the


any specific any specific
word with its specific word Public
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name. word with Limited with


its name. its name.
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10.Legal There is no There is no The Public
Documents need of need of limited

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preparation preparation company
any other any cant start any
legal other legal work whether
documents. documents the

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except certificate of
registration, commencemen
which is t of business is

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also on not received.
your option.
11.Working The life of The life of Public Ltd
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Life sole partnership enjoys long life.
tradership is short. The death
is too Because of shareholder
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short. on death of cant affect


Because on a partner is the life of the
death of an a cause business.
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owner it can of the end


cause of of
the end of business.
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business.
12.Submission There is no There is no There is
of Reports need to need to compulsory to
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prepare and prepare submit


submit any and report to the
report. submit any registrar.
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report to
the
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registrar.
13.Changes The owner The The changes in

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can change partners MOA and
anything can make AOA can
according to any be made to

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his mind. change limited extent
in the as provided by
agreement the law.

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as and
when
they feel.
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14.Audit The audit of The audit The audit is
books of of books of very
accounts is accounts compulsory.
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not is not For this


compulsory compulsory purpose, legal
by law. by law. It methods are
is used by
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optional the Chartered


and use Accountants
simple under the
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method. requirement
of Company
Ordinance
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1984.
15.Tax The rates of Each Double tax is
taxes are partner paid by the
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very low pays company. Tax


because of individual is paid in whole
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the single and profit of the
income of the single tax company and

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owner. on his on the
income. shareholder.
16.Profit Sole Profit & Some amount

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Distribution tradership is loss is is distributed
an only in distributed among
which among the

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businessman the shareholders
enjoys partners according to
100% profit according the number
and also to of share they
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have to partnership held, and
bear all the deed. other
loss. amount is kept
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in reserve.
17.Books of The owner The The books of
Accounts can keep and partners accounts to be
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maintain the can keep kept under the


books of and law are
accounts. It is maintain compulsory.
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not the books


compulsory. of
accounts. It
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is not
compulsory
by Act
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1932.
18.Prospectus There is no There is no In Public Ltd
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need and need and Co. it is
requirement to requiremen necessary to

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issue t to issue
prospectus. issue prospectus to
prospectus general public.
of firm.

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19.Promoters The owner Minimum 2 There must be
himself is the and at least 7

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promoter of maximum promoters.
the business. 20 partners
are
promoters.
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20.Size of It is suitable It is It is suitable for
Business for small suitable for large size
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scale of small and business.


business. medium
size of
business.
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21.Meeting There is no There is no Statutory and


need to call need to call Annual
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any meeting any General


because of meeting of meeting are
single owner. partners of compulsory by
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the law.

partnership
.
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22.Transfer of Sole NO partner Shares of


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Shares tradership can can Public Ltd Co.
sell or transfer transfer or are easily

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his sale his transferable to
business share any person.
without any without the
restriction. consent of

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all
other
partners.

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23.Dissolution The Dissolution Dissolution of
dissolution of of Public Ltd Co.
sole partnership is a very
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tradership is very complicated
does not easy. process.
require any There are
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legal formality no rules


or and
restriction. regulations
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for this
purpose.
24.Withdrawal The sole Any partner The members
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of capital tradership can can of the company


get his withdraw can receive
capital only at his share of their money
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the time capital by back by


of liquidation transferring selling the
of the the rights to shares in
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business. another stock


person by exchange.
the consent
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of other
partners.

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25. Sole Partnership The formation
Expenses tradership bears less expenses are

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of Formation bears less formation much more
formation expenses than the
expenses as as formation of a

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compared to compared partnership or
other forms of to a JSC. sole tradership.
business. nli
26.Payments The sole All the The share
of Debt tradership is partners holder is
liable to are liable to not
pay the debts pay the responsible to
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of the obligations pay the debts


business. of the of the
business. company.
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27.Listed in Sole Partnership Only Public


Stock tradership also cannot limited
Exchange cannot be be listed in company
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listed in stock stock can be


exchange. exchange. listed in stock
exchange.
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Conclusion:
Sole proprietorship business plays an important role in under
developing countries like Pakistan. It is helpful in equalizing
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the unequal distribution of wealth and unemployment, and it


can be considered the best form of business due to full
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control. It is considered the best for small scale
business. Partnership business plays an important role in

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under developing countries like Pakistan. The partners are of
equal status, ability and resources. In JSC, it means if
management of company is good then it is considered as best

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suited. The formation of a company is need of the day. JSC are
fit for large scale business due to country grows.

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ii). Differentiation between Public & Private Limited Company:
1. DEFINITION:

Public Limited Company:


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Joint Stock Company is a voluntary association of individuals
for profit, having a capital divided into transferable shares,
the ownership of which is the condition of membership.
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Private Limited Company:


Joint Stock Company is a voluntary association of individuals
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for profit, having a capital divided into non transferable


shares, the ownership of which is the condition of
membership.
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The other points of difference between Partnership, Public


Limited Company (JSC) and Private Limited Company are
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mentioned below.
Other Points of DIFFERENCES:
POINTS PUBLIC LIMITED PRIVATE LIMITED
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COMPANY COMPANY
2.Formation There is a long and There is a complicated
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complicated process process but easy as
for the formation compared to Public

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of public limited co. Limited Company.
3.Legislation The activities of the It is govern by
PLCo. are controlled Companies Ordinance

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by 1984.
Companies
Ordinance 1984.

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4.Number of There must be Minimum number of
Members minimum (7) members is (2) and
members and maximum limit is
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there is no (50).
restriction on
maximum.
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5.Capital Its capital is so Private limited Co.s


large. capital is less than
Public limited Co.
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6. Sale Of Public limited Private Company


Shares company can sale cannot sale its shares
its shares to to general public.
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general public.
7.Management All the shareholders The management of
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cant take part in the Private limited


management. So, company depends
management upon owners of the
depends upon company.
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directors of the
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company.
8.Liabilities The Liability of The Liability of

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shareholder is shareholder is limited
limited to the value upto the value of
of shares they held. shares, which they held

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with them.
9.Title It is necessary to It is has to use the
use the specific specific word Private

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word Public Limited with its
Limited with its name.
name.
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10.Legal The Public limited The Private Ltd Co.
Documents company cant start required only
any work whether incorporation certificate
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the certificate of and there is no need of


commencement of commencement of
business is not business.
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received.
11.Working Life Public Ltd enjoys Private Ltd also enjoys
long life. The death long life but less than
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of shareholder Public Ltd Co.


cant affect the life
of the business.
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12.Submission There is compulsory There is no strict rule


of Reports to submit report to for the submission of
the registrar. reports to the
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registrar.
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13.Changes The changes in The changes in MOA
MOA and AOA can and AOA are

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be made to very complicated
limited extent as procedure.
provided by the law.

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14.Audit The audit is very Audit of books of
compulsory. For accounts may or may
this purpose, not be compulsory. It is

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legal methods are optional case.
used by the
Chartered
Accountants under
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the requirement
of Ordinance 1984.
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15.Tax Rebate The Govt. gives The Govt. does not


rebate for investing gives rebate for
in public Ltd Co. investing in Private
Ltd Co.
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16.Profit Some amount is All profit is distributed


Distribution distributed among according to the value
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the shareholders of shares, and no


according to the reserve is made by a
number of share private limited
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they held, and other company.


amount is kept in
reserve.
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17.Books of The books of It is compulsory to keep


Accounts accounts are to be the books of
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kept under the law accounts under
are compulsory. Companies Ordinance

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1984 but to a little bit.
18.Prospectus In Public Ltd Co. it is There is no need and
necessary to issue requirement to issue

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prospectus to prospectus.
general public.
19.Promoters There must be at There must be at least

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least 7 promoters. 2 promoters.
20. Directors There must be at
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least 7 directors. 2 directors.
21.Size of It is suitable for It is suitable for medium
Business large size business. business.
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22.Meeting Statutory and There is no need to call


Annual General statutory meeting.
meeting are
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compulsory by law.
23.Transfer Shares of Public Ltd The shares of Private
of Shares Co. are easily Ltd Co. are not
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transferable to any transferable to any


person. persons.
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24. Dissolution Dissolution of Public The Dissolution of


Ltd Co. is a very Private Ltd Co. is a
complicated complicated procedure
process. but less difficult as
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compare to Public Ltd.


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Co.
25. Allotment There is restriction There is no restriction

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of Shares for minimum for minimum
subscription. subscription.

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26. Written The directors The directors written
Consent of written consent is consent is not required.

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Directors required.
27. Listed Public Ltd Co can Private Ltd Co cannot
With Stock be listed with be listed with stock
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Exchange stock exchange.
exchange.
28. Quorum In directors meeting In directors meeting
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minimum number of minimum number of


directors is four or members is 2.
1/3rd whichever is
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greater.
29. Publication Public Ltd Co must There is no restriction
publish its annual for Private Ltd Co is
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performance report. to publish its


annual performance
report.
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30. Loans A public Ltd Co A private Ltd Co can


cannot get loan after get loan after its
its incorporation but incorporation.
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can after its


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commencement.

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31. Secrecy Public Ltd Co has Private Ltd Co has
less secrecy. more secrecy.
32. Powers of The powers of The powers of directors

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Directors directors are not so are so wide.
wide but depending
upon article of

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association.
33. Legal Public Ltd Co has to Private Ltd Co has to
Restrictions face strict legal face more but less strict
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restrictions. legal restrictions.
34. Area of Area of ownership in Area of ownership in a
Ownership a Public Ltd Co Private Ltd Co is
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is wide. It is restricted to one


not restricted to one family.
family.
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35.Memorandum There must be at There must be at least


Signatures least 7 signatures to 2 signatures to form
form memorandum. memorandum.
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CONCLUSION:
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It is concluded that Public Ltd. Joint Stock Company is better


than Private Ltd Joint Stock Company due to Large Capital,
free Issuance & Transference of Shares & debentures, Listed
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with Stock Exchange, Less Chances of frauds, large numbers of


Directors to operate the company, Govt. Incentives, etc
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iii). Differentiation Between Article Of Association &
Memorandum Of Association.
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1. Definition:
Memorandum Of Association (MOA):
The MOA is the most important document of the company. It
defines the relationship between the company and the public.
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It depicts the character of a JSC as it includes all the objects of


formation of JSC.
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Article Of Association (AOA):


The AOA are the rules of the company. These rules are used
to manage the Internal affairs of the company and to achieve
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the objects stated in MOA. A set of 85 articles are given in


Table A of Companies Ordinance 1984.
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Other DIFFERENCES BETWEEN MOA & AOA:


POINTS Memorandum Of Article Of Association
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Association (MOA) (AOA)
2.Usage MOA is an official The AOA are the

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document setting out regulations by laws
the details of the which govern the
company existence. internal origination and

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conduct of a company.
3.Scope MOA states the work AOA contains the set
a company can do. of rules and
regulations to

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complete the objects
stated in MOA.
4.Status A MOA is subordinate An AOA is subordinate
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to Companies to Companies
Ordinance 1984. Ordinance 1984 and
MOA.
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5.Approval If a company violates If a company violates


the MOA it cannot the MOA it cannot
be approved by the be approved by
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shareholders. the shareholders.


6.Filing It is necessary to file It is not necessary to
the MOA with file the AOA with
registrar. registrar as per
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Table A of Companies
Ordinance 1984.
7.Preparation It is prepared under It is prepared under
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the provision of the provision of


Companies Companies Ordinance
Ordinance 1984. 1984 and MOA.
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8.Main Object Main object is to give Main object is to


information to the control and regulate
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outsiders about the the Internal
company. affairs of the company.

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9.Importance It has a primary It has a secondary
importance in the importance in the
formation of the formation of the

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company. company.
10.Nature It is a constitution of It contains the rules,
the company. which govern the
administration of the

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company.
11.Objects MOA only lays down AOA contains the
the objects of the procedure for
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company. achieving the
objects of the
company.
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12.Alteration It is not alterable but The provision can be


can be altered only changed by special
be special resolution easily.
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resolution of the
court.
13.Relation- ship It is the relationship It is the relationship
between the company between the members
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and the outside and the management.


public.
14.Registration Purpose It is necessary for the It is not necessary for
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registration of the registration of


the company. the company.
15.Legal Effect A company cannot go A company can go
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beyond the scope of beyond the scope of


MOA. Otherwise AOA. The activities
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consider illegal and cannot become illegal.
cannot rectified.

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16.Clauses The MOA has usually The AOA has many
six clauses. clauses. It is not
According to limited to six clauses.

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Companies Table (A) has (85)
Ordinance 1984. clauses for
operating the
company.

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CONCLUSION:
In short, AOA is used only by the management of company
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because it the secrets container and secrets should not be
unfold. MOA is used by management as well as outsider to
information related to company.
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iv). Differentiation Between Shareholder & Debentureholder:


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1. Definition:
Shareholder:
The total capital of the company is divided into small parts /
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units, each small part is called share. The person who


purchased the shares of the company is called shareholder.

Debentureholder:
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The certificate issued to as a receipt by borrower to lender for


the settlement of the debts in future as by borrower (JSC) is
called debenture and the holder of debenture is called
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Debentureholder.
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Other DIFFERENCES BETWEEN Shareholder &
Debentureholders:

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Points Shareholder Debentureholder
2.Nature The amount paid by the The amount given by the

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shareholder is kind of an debentureholder is kind
equity instrument. of an equity instrument.
3.Liquidity These are considered as These are considered less
liquid instrument. liquid instrument as

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compared to Shareholders.
4.Return These get return in the These get return in the form
form of dividend. of Interest.
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5.Risk Shareholders share the Debentureholders do not
Sharing risk of the company. share the risk of the
company because they get
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fix interest.
6.Time Period The life of shareholders is Debentureholders are
short as they can be considered to be long term
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sold and bought any time instruments. Usually there


in stock exchange. are issued for the period of
3, 5 & 7 years.
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7.Position Shareholders are the Debentureholders are the


owners of the company. creditors of the
company.
8.Share in Shareholders have the Debentureholders have no
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Profit & Loss right to share the profit concern with the profit
& loss of the company. & loss of the company.
9.Withdrawn These can withdraw These cannot withdraw
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of Capital capital by selling shares capital before the maturity


in the stock date.
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exchange.
10.Legality or These are legal as There is as such no

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Justification expressed in terms of concept of interest in Islam
Islam. because the debentures
contain the element of

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interest.
11.Prefrence Shareholders have the Debentureholders have the
secondary right to primary right to claim for
share the value of debts at the time of

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assets at the time of liquidation.
liquidation.
12.Security Shareholders are Debentureholders are
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considered to be Insecure. considered to be secured.
13.Liability Shareholders may be Debentureholders are not
considered as considered as
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responsible for the responsible for the


companys liability. companys liability.
14.Rights & The rights and powers of The rights and powers of
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Powers shareholders are debentureholders are


written in AOA. written on the certificate
issued to them.
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15.Bonus Sometimes shareholders No bonus is paid to the


receive bonus in debentureholders.
addition to their dividend.
16.Convertab- The shares of The debentures of
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ility shareholders can be debentureholders may be


converted into the stock. converted into shares.
17.Listings The shareholders shares The debentureholders
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are listed in stock debentures are not


Exchange. listed in stock
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Exchange.
18.Participation Shareholders can Debentureholders cannot

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participate in the participate in the
management of the management of the
company. company.

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19.Nature of The amount contributed The amount contributed by
Amount by the shareholders is the debentureholders
called companys capital. is called loan to the
company.

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20.Existance Shareholders can exist Debentureholders can exist
both in private & public only in public Ltd
Ltd company. company.
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Conclusion:
In the end we can say that the shareholders are the owners of
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the company for the value of shares purchased by them and


they receive dividend whereas debentureholders are creditors
of the company for the value of debentures acquired by them
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and they receive a fixed rate of interest. But both provide


funds to the JSC.
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