7 “ NATURE OF COMPANY anies Act, 2017 aA anies in Pakistan is contained in the Go, mpanies The law relating to comp: 1 ct, 2017. It applies to the whole of Pakistan. It is a federal law. it has Si aligns and 8 schedules. “ie of FaMrder to regulate the affairs of companies, ‘the Governm established the Securities and ‘Exchange Commission of Pakistan (eee), eetGp performs all the powers and functions specified in the Companies Act. Meaning and Definition i A company is a voluntary association formed by persons who join together to run a business vand share the profit. The.ownership of a company is Gaisible into shares, which as freely transferable’ and the liability of shareholders is limited. Some definitions are as follows: i Sec. 2(1)(17) of Companies Act: “Com| and registered under this Act or the company law.” “An association of many persons, who contribute Lord Justice Lindley: “ n money or, money's worth to a:common stock and employs it in some trade or business and who share the profit and loss, arising there from.” . Lord Haney: “A company is an incorporated association which is an - artificial person created for by law, having a separate entity, with a perpetual succession and a common seal.” : Heelis: “A joint stock comps purpose of carrying on some trade, but sometimes, with unlimited liability.” © comp: jpany means a company formed ciation of, individuals for the any is an. asso taking usually with limited business or unde! Characteristics The charactetistics of company are as follows: 4, Voluntary Association ©.” \ “A company is a voluntary association of people who enter into an agreement to run a business. A company is created under the law. The regitalon of companies is compulsory in Pakistan. The.company is registered under the Companies Act, 2017. Without registration, the company has no legal existence. 2. Number of Members ‘A company having one member: ig called a single member company. A 49 Scanned with CamScannerNature of 50 at WO ‘sharehol eat Teast We ns. private company must NAVE ynree POTS viyate COMPANY hag g | NAO ATS company, there must be : ctor. A private ectors. A get | the com 3. Number of Director ny nas one SCX east three steq | Manage A single, member oo any has | 41.80 least two directors. A non-lis ors. . | company has at least seven dite rate legal entity from iy | dooum . a sepa but cannot sys | certi 4, Artificial Person oy person. thas @ $°P “company sug | certifie Accompany is an arte! Pein debts ine panidual debts off. | inane Brine company iS NO tn third pares inits own name, | 42. D ter into contra : | comy ‘owners. The creditors the members. Similarly, members. A company can en! It can sue and be sued in its own name. ir i |< jimited. They: are. Mot liable | CON" 5. Limited Liability js limited. Ot liable ante company. the liability of shareholder by shares. the liability of paid for debts of the company. In a company ar ehares held by them. It means shareholders is limited up to the nominal oe He oteof shares. Ady a shareholder is only liable to pay the unpal 6. Perpetual Succession ' .d by death, insani A. ‘A company has a permanent life. Its life.is Oe eeeeat by change y or insohoncy’ of any-member. Its continuity is not APPT T h O | tare membership of the company. A-company continues to ae i lec bor period until it is dissolved according to the Companies Act. vat 2. 7. Transfer of Shares In a public company, can transfer his shares without con: listed, its shares can be bought and sold at the share exchang the shares are freely transferable. A Shareholder sent of other shareholders. If a company is | to ye. However, there | sh are some restrictions on transfer of shares in case of a private company. “A co 8. Common Seal 7 3, Every company has a common seal. A company is an artificial.person so it cannot put signatures on its documents. The common seal affixed on any | © document is regarded as the signature of the company. A common seal has the | © Cc name of the company engraved on it. The director common seal on all documents on behalf of the ea a company vee 9. Separate Property A company can buy and sell property in i ‘ C J ty in its oy company is used for benefit of the company and not for personal Creek a i shareholders. The creditors of the company is a of the company but not against the property of ts ‘v0 Se against the propetty lers. - 40. Separate Management In a company, the ownership is separate from its management. The Scanned with CamScanner>= f Company” com nature 2 mers of the pany. The com iders are OW! 2 i gharehol sentatives of the shareholders. The pert Of dn aged by ire ia rd of directors. If shareholders are nee ah mana a0 ba wea 6 2 ref who 3 pany is called boa! ‘ the compan rthey can replace the directors. Rot satisfied with the ions strict Regulati 3 14. strict Smpany has t0 follow rulés and ‘regulations. It submi ere na public company, the accounts must be neue erent ited by a cuments to the ountant. A’ publi si 5 iblic company is: also Fequired to publish ified chat tant. A’ oe Statements for the public. 7 issolution a ; 42, Disso! 4 functioning’ of a corhpany is regulated ty the The formation an g ‘a company is wound up under the provisions of the Companies Act. On dissolution, the assets of the company are sold, debts are ff and remaining balance Is distributed. among the shareholders. The dissolution of @ company ends it legal existence. advantages of Company The advantages or merits-of 4. Large Capital ‘A company can raise large am Jarge amount ‘of loans from banks. It-can raise cal bonds to the public. The capital of the. company is value which can also be bought by small investors. 2, Limited Liability The liability of members of a company is limited. The shareholder is liable to pay up to the nominal value of shares held by him. The personal assets of shareholders are not liable. It makes company more attractive for investors as compared to other forms of business organizations where liability is unlimited. a company are as follows: ount of capital. A company: can borrow pital by issuing shares and divided into. shares of small 3. Transfer of Shares Ses? : The shares of companies are easily transferable. A shareholder of public company can sell his shares to anyone without taking permission from the company. A stock exchange helps in purchase and sale of shares of listed companies. 4. Permanent Life . The company has a separate legal enti Tl i i f 0 ¢ gal entity and enjoys, permanent life. Itis pulled dissolved according to law. The insanity, death or insolvency of any Seine ae 4 the life. of a company. Any change jin the chief company, rectors or shareholders does not affect the life of a 5. ane Management he comy i pany can employ experienced and skilled professidnals due to its Scanned with CamScannerF Nature of Company which a company 52 aa jarge resources. The qualified mangers, or Toe ofits management can afford. Thus, the company can 6. Scope for Expansion — "fhe expansion of business reayiros company can expand ita business due (® 5S farge resources. There is no maxim limit on can raise capital by issuing shares in the marke® Seale ization and | 7 Benes af g® S55, pana of ge Salon | production can be obtained. It can adopt mere efficient ey Be ere coat can purchase raw materials in large amount at a M production is reduced and profit is increased. 8, Democratic Organization a "4 company. is a democratic organizatio directors through voting. The ordinary matters of a com Simple majority of shareholders. The important matters of a compan by special majority of shareholders. 9. Employment Opportunities 7 ‘A company provides employment opportunities people. It hires managers, executives and. workers. opportunities for other businesses. 4). Investment Opportunities A company provides investment opportunities to individuals, firms, banks and financial institutions by issuing’shares and bonds. A company issues shares of small value so people having low income can also invest. sources. The ital and human res fabilty of efficient management and My por of shares, 50.2 company | | | n. The shareholders elect the pany are decided by y are decided to large number of It creates business 41. Government Revenue The companies are important source of revenue for the government. A | company pays different taxes. It pays corporate tax, sales tax, excise duty and | ‘other taxes. The shareholders pay income tax on their dividend income. 12, Public Confidence ! A company enjoys confidence of the public because it is regulated by the jovernment. It is i it fi i etai aaa i ae to submit financial returns, company resolutions and inspection ie Ga aera The documents are available for public office. Li li ; i statements for its shareholders nk 5 ea regularly publish financial 13. Social Responsibility The companies ad have positive i lopt corporate social responsibili i contribute eee the eeaeumers, employees and ne an ees Scholarships, . cor ; erment of society ‘through donati ; mmunity “sérice, chariy” hospitals,” envionment” frend . o nd Scanned with CamScanneri ste of CONEETE research and evelopment el practices: me avantages OF company | pisadven disadvantages OF ‘demerits of a Company are as follows: Thi {Formation . * ote formation of company can be a difficult process which dis nation ring companies. It requies a number of Tomas iformigmorandum of association, articles of eae {ke msared and approval from SECP is needed, on end 583 are financial statements regularly. Seer and regieter of pea cormmecompany has 10 S606 A uments to the stock: exchange.. a pusiness matters are discussed in the meetings of directors and shareholders. " Therefore, the company ‘cannot maintain secrecy. on Making. | cision making in a company is 1 meetings of directors. ‘Some mi has to issue nol shareholders: The company ue jot avail business opportunities di company may Nn ~ 4. Government Regulations ne The government has made rules and reg! of shareholders and creditors. A company, has resources in fulfilling these rules arid regulations. As a resul company is negatively affected. 5. Clash of Interest The company may separation of management of the company taken by management may. cause harm to the st be clash of interest between the majority and minority shai 6. Double Taxation: The income generated by a ot quick. The business matters are atters are discussed in meetings of tices to call such meetings. A ue to delay in decision making. Deci Det discussed in ulations to protect the ‘interests to. spend a lot of time and It, the performance of fail to protect the interests of the shareholders due to from its ownership. The decisions hareholder’s interest. There may” reholders. twice. The company pays company is taxed hareholders, ny gives dividend to the s! corporate tax on its income. When compat the shareholders pay income tax.on that dividend. The rate ‘of tax is higher for companies. 7. Accumulation of Wealth : ‘A company is a large-scale business. It “earns huge profits. A company Jated in the wealth gets accumu! can, take control of other businesses. Thus, trol over large amoul hands of a few people. A few co! ies g : mpanies and resources of the natibn. + et on int of wealth J Scanned with CamScannerre 54 . Monopoly ‘A company has access control the market. Sometimes. monopoly. New businesses face dif result, the small businesses. cannot comp’ 9. Influence Government The companies influ They may also influence prices of goods in the mat to large the companies ficulty in ate with the large comP: rence trade and ec! the foreign policy rket and create pol Nature of Company allows it to sources. Its large size resourrorm combinations to OSes. a entering the same industry. Asa anies. s of the government. can determine jovernment. nomic policie: of the country. They \itical problems for the AND PARTNERSHIP DIFFERENCE BETWEEN COMPANY P ‘The following are differences between the WO" ‘COMPANY PARTNERSHIP 4. Fi tic formed by yy an agreement between It is formed by following a procedure under the law. 2, Legal Existence It has separate legal existence from its shareholders. 3. Membership ‘An institution can become.a member by purchasing its shares. 4.. Liability of Members The liability of members of is limi 5, Mutual Relationship — The members of company are not its agents. 6. Management All members cannot manage the company. It is managed by a board of directors. 7. Regulation It is regulated by the Compani 2017. panies Act, 8. Registration: The registration is compulsot formation of a company. cae 9. Mi jum Members A single member company has 4 ited. Itis formed b} the persons. It has no separate legal existence from its partners. Only individuals can become its members. The liability of partners is unlimited. The’ partners in partnership are its agents. All partners ‘can take. part in. the management of business. Itis re i He gulated by the Partnership Act, The registration is n q jot compulsory for the formation of a partnership, ° !t must have at least 2 partners. member. A private company must Scanned with CamScannera ——— oe Nature of Company _ have at least 2 members. A public company must have at least 3 members. ; 10. eum mart ee 50 in Maximum number Of partners js 20 in ‘of members is Maximum number is 501 and unlimited in. private company public company. a partnership. sfer his share to 41. Transfer of Ownership i annot tran A shareholder can transfer his shares A partner n to any person without consent of other any, other person without consent of shareholders ‘other partners. 412. Life : Its life is not affected by death, | Its life terminates on the ab fof its | insanity, insolvency OF expulsion ol insanity, insolvency or expulsior members. 13. Audit it is essential for public company to get its accounts audited by. certified chartered accountant. 14, Dissolution It can be dissolved under the law only. 15. Suitabi 4 It is suitable for large scale business. 46. Distribution of Profits The distribution of profit is not compulsory. Members get a share in profit when dividend is declared. 17.Property Property of the company is not the property of the members. 418.Remedy of Creditors The creditors of the company can sue the company but not its members. 19.Taxation Income of company and shareholders is taxed separately. It results in double any of its partner. Itis not essential for partnership to get its accounts audited by certified chartered accountant. It can be dissolved any time with consent of partners. It is not’ suitable for large-scale business. Profit’ is ‘distributed among partners according to the partnership deed. Property of the firm is joint property of all the partners. The creditors of the firm can sue the partners jointly or separately. Income of partnership and partners is not taxed separately. Scanned with CamScannerNature of Company 56 taxation. 20. Directors A company has directors. 21. Financial Statements Apartnership has no director. Financial statements are not required Financial statements are required to s be published. to be published. ‘Standard Scale of Penalty , ty for offences under the There ‘shall be a standard scale of penalty n opportunity Companies Act, 2017. The penall ‘shall be imposed after giving al : Pe st nsists of: [Sec. 479] to the person of being heard. The standard scale co hich Level | Limit of Penalty Per day penalty during w! : default continues 7. | Upto Rs.25,000 Upto Rs.500 . 8 2. | Upto Rs.500,000 Upto Rs,1,000 . 3. | Upto Rs.100 million | Upto Rs.500,000 QUESTIONS Define a company and discuss its characteristics, Explain the advantages of a company. : Explain the disadvantages of a company. Differentiate between company and partnership, PYeN> Scanned with CamScanner