Business Law

Submitted to: Brig. (R) Muhammad Saleem

Submitted by: Hashim Khan
Roll no: L-21203
Class: MBA-4 (Morning)

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 Formation of company
Formation of Company: Under the provisions of the Companies Ordinance, 1984 a company is a
corporate body with separate legal entity and a perpetual succession and a company may be
formed by persons associating for any lawful purpose by subscribing their names to the
Memorandum of Association and complying with other requirements for registration of a
company under the provisions of the Ordinance.

Company
A legal entity, allowed by legislation, which permits a group of people, as shareholders, to apply
to the government for an independent organization to be created, which can then focus on
pursuing set objectives, and empowered with legal rights which are usually only reserved for
individuals, such as to sue and be sued, own property, hire employees or loan and borrow money.
The Companies Ordinance, 1984 provides three different types of companies:
1: A company limited by shares
2: A company limited by guarantee
3: An unlimited liability company
Companies remain the most favored form of business organizations in Pakistan especially for
medium and large-scale business enterprises. Legal regime for establishment and regulation
companies in Pakistan is given in the Companies Ordinance, 1984. Whereas the function of
administration of these companies is vested in the Securities and Exchange Commission of
Pakistan and the Registrar of Companies appointed by the Securities and Exchange Commission
of Pakistan for a Province of Pakistan where such company is to be registered.
Company formation is the process of registering a business as a
limited company at Companies House. As a result, the business becomes a distinct legal entity.
The process is also referred to as 'company incorporation' and 'company registration'

Steps in The Formation Of A Company

 Preparation of memorandum of association

 Preparation of article association
 Execution of pre - incorporation contracts, if any Registration of
 Issue of a prospectus or a statement in lieu of prospectus

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These steps are as follows

Memorandum of association
A Memorandum of Association (MoA) represents the charter of the company. It is a legal
document prepared during the formation and registration process of a company to define its
relationship with shareholders and it specifies the objectives for which the company has been
formed. The company can undertake only those activities that are mentioned in the
Memorandum of Association. As such, the MoA lays down the boundary beyond which the
actions of the company cannot go.

Form of Memorandum of Associations

Memorandum should be in one of the forms as given in Table B, C, D and E of First Schedule of
the Companies Act 2017. Section-41.

According to section 31 of the Act, the memorandum must be printed, divided into paragraphs,
numbered consecutively and signed by each subscriber and dated.

Requirements of MOA

Section 16, every company must have its own memorandum before it can be registered.

Section 18, requires the Memorandum of every company to be printed & divided into numbered
paragraph & date must contain the following clauses:

1. The name of company

2 The objects of the company

3 The amount of the share capital & the manner in which the share capital is decided inti shares
of fixed amount unless the company limited by guarantee.

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Content of MOA

In case of company limited by share the memorandum shall state

 Name of the company , (Ltd) , (Private Ltd) , (SMC - Private).

 Province or Part of Pakistan in which the registered office of the company is situated.
 Principal Line of business.
 No subscriber of memorandum shall take less than 1 share.
 Each subscriber shall write opposite his name the number of shares he agrees to take.

In the case of the company limited by guarantee the memorandum shall state

 Name of the company with parentheses and words “ (guarantee) limited “ as the last
words of its name
 Province or part of Pakistan in which the registered office of the company is situated
 Principal Line of Business
 An undertaking as may be specified
 That the liability of the members is limited and.
 Each member undertakes to contribute to the assets of the company in the event of its
 being wound up while he is a member or with in 1 year afterwards, for the payment of the
 debts and liabilities of the company contracted before he seizes to be a member.
 If the company has a share capital the amount if share capital and division thereof into
shares of a fixed amount

In the case of unlimited company, the memorandum shall state

 The name of the company with word “Unlimited” as last word of its name
 Province or part of Pakistan in which the registered office of the company is situated
 Principal Line of Business
 An undertaking as may be specified
 That the liability of members is limited

 If the company has a share capital, the amount of share capital with which company
purposes to be registered

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 MOA contains 6 clauses which are as follows:

1) Name clause
2) Registered Office Clause
3) Object Clause.
4) Association Clause
5) Capital Clause
6) Liability Clause

The Name Clause

 A company (being a separate legal entity) must have a name.

 The name of a company should be unique and should not resemble the name of any other
company.
 It should not contain words like king, queen, emperor or names of any government
bodies.
 A public company is required to have the suffix ‘Limited’ at the end of its name.
 Private companies are required to have the suffix ‘Private Limited’ at the end of their
names.
 The name of the company must be painted outside every place where business of the
company is to be carried out.
Registered Office Clause
 Every company must have a registered office.
 The location of the office can be intimated to the registrar within 30 days of
incorporation.
 With intimation to the registrar, a company can change its place in the same town.
 However, for changing the place of the office in a different town in the same state, a
special resolution must be passed.
 To change the location of the office from one state to another, various reforms are
needed to be performed on the memorandum.

Object Clause

 It determines the rights, powers and sphere of the activities of a company.

 It should be defined carefully as it is difficult for the clauses to be altered later on.
 The company cannot incorporate any activity, which is not present in the object
clause.
 The subscribers to the memorandum choose the object clause.

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  Shareholders are protected by the object clause as it ensures that the funds raised
for the undertaking will not be used by any other undertaking.
Liability Clause

 It states that the liabilities of the shareholders are limited to the value of the shares owned
by them.
 The shareholders are liable to pay the unpaid balance of their shares.
 The liabilities of the members may be limited by guarantee.
 It also contains the amount that every member of the company undertakes to contribute to
the assets of the company in the event of winding up.
Capital Clause

 It states the total capital of the proposed company.

 The total number of shares of each category should be present in the capital clause.
 The exact nature of any special rights and privileges enjoyed by any shareholders must be
mentioned in the capital clause.
Association clause

 The names and signatures to the memorandum of association is contained in this clause.
 At least 7 persons should sign the memorandum in case of public companies.
 At least 2 persons should sign the memorandum in case of a private company.

Article of association
Articles of association form a document that specifies the regulations for a company's
operations and defines the company's purpose. The document lays out how tasks are to be
accomplished within the organization, including the process for appointing directors and the
handling of financial records.

Content of article of association

The articles generally deal with the following

1. Classes of shares, their values and the rights attached to each of them.

2. Calls on shares, transfer of shares, forfeiture, conversion of shares and alteration of capital.

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3. Directors, their appointment, powers, duties etc.

4. Meetings and minutes, notices etc.

5. Accounts and Audit

6. Appointment of and remunerations to Auditors.

7. Voting, poll, proxy etc.

8. Dividends and Reserves

9. Procedure for winding up.

10. Borrowing powers of Board of Directors and managers etc.

11. Minimum subscription.

12. Rules regarding use and custody of common seal.

13. Rules and regulations regarding conversion of fully paid shares into stock.

14. Lien on shares

Statement in lieu of Prospectus

The statement in lieu of prospectus is a document issued by the company when it does not offer
its securities for public subscription. The Statement in Lieu of Prospectus is a document filed
with the Registrar of the Companies (ROC) when the company has not issued prospectus to the
public for inviting them to subscribe for shares. Its objective is to be filed with the registrar if the
company does not issue prospectus.

It is mandatory for the Public Limited Company to distribute the Prospectus but it is not
compulsory in all aspects. It is also possible to adopt an alternative to the prospectus. It is not
necessary to distribute prospectus for the company if the directors are able to raise the required
funds by selling the shares and debentures to their friends and relatives. If the company used the
alternative of the prospectus, it will be necessary to submit that copy to the registrar. It is called
substitute prospectus or substitute circular. This substitute holds all the items that are being
required in the original prospectus and it needs to be signed or attested by the directors.

 A statement in lieu of prospectus contains the following information

 Name of company

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  Account of capital

 Explanation of the business

 Names, addresses, and occupations of directors

 Probable preliminary expenses

 Names of vendors and information of property

 Substance contracts

 Director’s interests

 Least subscription

Difference between MOA and AOA

BASIS FOR
MEMORANDUM OF
COMPARISO ARTICLES OF ASSOCIATION
ASSOCIATION
N

Memorandum of Association
(MOA) is a document that
Definition contains all the fundamental data
which are required for the
company incorporation.
Articles of Association (AOA) is a
document containing all the rules and
regulations that govern the company

MOA must be registered at the The articles may or may not be

Registration
time of incorporation. registered.

The articles demonstrate obligations,

The Memorandum is the charter,
rights, and powers of individuals, who
which characterizes and limits
Scope are endowed with the responsibility of
powers and constraints of the
running the organization and
organization.
administration.

Status Supreme document. It is subordinate to the memorandum.

Power The memorandum cannot give The articles are constrained by the act,

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 the company power to do but they are also subsidiary to the
anything opposed to the memorandum and cannot exceed the
provision of the companies act. powers contained therein.

A memorandum must contain six The articles can be drafted according to

Contents
clauses. the decision of the Company.

The memorandum contains the The articles provide the regulations by

Objectives objectives and powers of the which those objectives and powers are
company. to be conveyed into impact.

The memorandum is the

Any provision, as opposed to a
Validity dominant instrument and controls
memorandum of association, is invalid.
articles.