ASSIGNMENT ON CORPORATIONS

Question 01:

Public Limited Company Formation

A Public Limited Company is a Company limited by shares in which there is no
restriction on the maximum number of shareholders, acceptance of public
deposits and transfer of shares. The liability of each shareholder is limited to the
degree of the unpaid amount of the shares the premium thereon and face value
in respect of the shares held by him. However, the liability of a Manager/
Director of such a Company can be unlimited at times.
These are the following steps to form a public limited company:

1. A minimum of seven members are required to form a public limited

company.
2. It should have minimum paid-up capital of Rs 5 lacs
3. There is no self-possession on maximum number of members.
4. The shares allotted to the members are generously transferable.
5. These companies can raise funds from general public through open
invitations by selling its shares and accepting fixed deposits.
6. These companies are required to write either public limited' or private
limited' after their names

Private limited company formation

lease note generally a private limited company has 2 directors whereas public
limited companies have a minimum of 3 directors. However after Single Member
Companies Rules 2003, you can now setup a single member private limited
company (known as SMC) with one director only. For a SMC it is mandatory to
have a nominee to look after affairs of the company in case of single member's
death or incapacity.

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In order to register a private limited company all you need to do is provide us
the following information/documents:

 Proposed name of your company (Give three names in order of priority).

 Nature and scope of business.
 Full name and color CNIC copies of directors & shareholders (members or initial
subscribers).
 Paid-up capital by each member (in Rupees) - actual investment money to be
put into company account by each shareholder.
 Authorized share capital (in Rupees) - think of it as a license for the amount
above. The paid-up capital above cannot be more than this license / authorized
capital amount.
 Office address.
 Residential addresses of all directors and shareholders (members).
 Valid Cell Phone Number of Members.
 Valid Email Address of Members.
 Whether you want to get the company incorporated through normal method
(5 - 7 working days) or Fast Track (3-5 working days).

Question 02:
Different types of shares.

Ordinary shares
Most companies only have one kind of shares, called ordinary shares. Ordinary
shares represent the company’s basic voting rights and reflect the equity
ownership of a company. Ordinary shares typically carry one vote per share and
each share gives equal right to dividends. These shares also give right to the
distribution of the company’s assets in the event of winding-up or sale.The rights
attached to ordinary shares are generally defined in the Articles of association of
the company and/or in the shareholders agreement.
Deferred shares
Deferred shares carry fewer rights than ordinary shares and can include:
shares in which dividends are only paid after all other classes of shares have been

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paid. shares in which dividends are only paid after a certain date or eventshares
that are not tradable until a certain date - such shares are usually issued to
employees in order to give them a long term interest in the company and to
increase their loyalty, orshares which, in the event of insolvency, do not give their
holders any rights until all other shareholders are paid.
Non-voting shares
Non-voting shares do not give the holder any voting rights in the company. This
means that the holder is entitled to a portion of the company’s capital, but is not
able to take part in its general meetings.
Non-voting shares are mostly issued to employees or to family members of the
main shareholders. This class of shares allows the main shareholders to retain
control of the company whilst multiplying the number of shareholders.
Redeemable shares
Redeemable shares are shares that can be bought back by the company at some
point in the future. The redemption date can either be fixed in advance (eg 3
years from the date the share is issued) or decided at the company's discretion.
The redemption price is usually the same as the issue price, but not
necessarily.Shares given to employees are often redeemable, so that the
company can get its shares
back if the employee leaves. However, the ability to redeem shares is limited and
is subject to specific statutory requirements. For instance, the company may only
redeem the shares out of accumulated profits or the proceeds of a new issue of
shares.
Preference shares
Preference shares give their holder a preferential right to a fixed amount of
dividend, meaning that they will receive dividends ahead of ordinary
shareholders. Preferred shareholders also have a higher priority claim to the
company’s assets in case of insolvency.Because this class of shares carries many
benefits and guarantees, it is mostly issued to investors, for example to venture
capitalists, who invest in startups. However, preferred shareholders do not have
the same ownership rights in the company as ordinary shareholders; they are

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often non-voting and sometimes redeemable. Redeemable preference shares are
a common way of financing a business. They allow a company to repurchase its
shares in the future (eg if interest rates fall and the company wants to issue new
shares with a lower dividend rate), while giving investors the possibility to get
their money back at a pre-agreed price.
Management shares
Management shares give their holders extra voting rights at the company’s
general meetings (eg two votes for one share). Such shares are often used to
enable company directors to retain control of the company in the event of shares
being issued to outside investors.
Alphabet shares
Alphabet shares are a subclass of ordinary shares, which allow a company to vary
the the rights attached to shareholders. Although each class of shares can be
given a descriptive name, eg non-voting shares, preference shares or redeemable
shares, it’s common to just label share classes with alphabet letters (A, B, C, D,
etc. depending on the number of subgroups a company wishes to create), each
class conferring different voting rights, rights to dividends and rights to
capital.Alphabet shares therefore enable companies to enhance or restrict certain
shareholders’ rights. For example, ''A shares'' can have a greater rate of dividend
than ''B shares'', so that for the same number of shares, owners of A shares
receive more than owners of B shares.

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 Question 06:

Solution:

1. 120,000 shares ($12,000,000 total par value, divided by $100 par value per share)
2. $720,000 (120,000 shares outstanding x $6 per share)
3. 2,800,000 shares ($14,000,000 total par value, divided by $5 par value per share)
4.
Par value of common shares issued ……………………………………. $14,000,000
Additional paid-in capital on common shares ……………………… 30,800,000
Total issue price of common shares ……………………………………. $44,800,000
Number of common shares issued ………………………………………. 2,800,000
Average issue price per share ($44,800,000 ÷ 2,800,000 shares) $ 16

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