1. Shareholders’ Rights1
 1.1 Types of Company
Broadly speaking, the Companies Act, 2017 contemplates the following types
of companies that can be formed in Pakistan:

 Private Limited Company which by its articles restricts the rights to

transfer shares and limits the number of shareholders to fifty.

 Public Limited Company which can be listed or unlisted.

 Unlimited Liability Company which is a company that does not have

any limit on the liability of its members; and

 Single Member Company.

Public companies and private companies can either be limited by shares or by

guarantees. In the context of Pakistan, companies limited by shares are more
common than those limited by guarantee.
In case the shareholder of a company is to be a foreign national, an
undertaking needs to be provided to the Securities and Exchange
Commission of Pakistan ('SECP') and the same shall be subject to security
clearance from the Ministry of Interior.
 1.2 Type or Class of Shares
The main types of shares issued by companies are:

 ordinary shares representing share capital in the company. Ordinary

shareholders are entitled to share in the earnings of the company,
voting rights and participation in any distribution of assets on
winding up of the company after all statutory and other pay-outs
have been made; and

 preference shares which are defined to have certain preferred

privileges and rights in relation to inter alia voting, share in profits,
and liquidation proceeds over ordinary shares. 

Pursuant to the Companies Act, 2017 a company can also issue ordinary
shares with different class of rights (for example, different voting rights or
1
By Haidermota
rights to attend general meetings), and the rights and privileges attached to
these can be decided by the company in its memorandum and articles of
association.
 1.3 Primary Sources of Law and Regulation
The primary sources of laws and regulations relevant to shareholders rights
are the Companies Act, 2017, read with the rules and regulations issued
thereunder, the Contract Act, 1872, the articles of association of a company
and common law. For specialised or regulated companies, the laws and
regulations pertaining to rights of the shareholders can differ according to the
nature of the company such as, in the context of banking companies the
relevant legislations would, in addition to the above, also include the Banking
Companies Ordinance, 1962, read with the rules and regulations issued
thereunder.
In relation to listed companies, the provisions of the Securities Act, 2015, and
the regulations of the Pakistan Stock Exchange Limited may also be relevant.
 1.4 Main Shareholders’ Rights
Generally speaking, the main rights of shareholders include the right to
dividends, right to attend and vote in meetings of shareholders, right to elect
and remove directors, right to review/receive the financial statements of the
company and right to participate in any distribution of assets on windup up of
the company.
Shareholders’ rights may be varied (ie, abrogated, revoked or enhanced) by
virtue of shareholder agreements and/or an alteration to the articles of
association of the company with the approval of at least a three quarter
majority of the shareholders or of the class of shareholders affected by such
alteration. Where the rights are varied through shareholders' agreements, the
company may not be bound by such variations unless the same are, to the
extent permitted under the laws, reflected in the articles of association of the
company.   
In terms of public disclosure, the altered articles of association must be filed
by the company with the registrar within thirty days from the passing of the
resolution. However, any variation through shareholders' agreements are not
required to be publicly disclosed.
 1.5 Shareholders’ Agreements / Joint Venture Agreements
Agreements entered into between the shareholders that govern inter alia the
relationship and rights between the shareholders are extremely common for
private and public unlisted companies in Pakistan. However, shareholders'
agreements are not common in the context of listed companies.
Shareholders' agreements are enforceable against the company subject to
applicable laws. In particular, any provision contained in the shareholders'
agreement, to the extent to which it is in contravention to the provisions of the
Companies Act, 2017, shall be void. Moreover, shareholders' agreements will
also be unenforceable against the company where they conflict with
fundamental principles of company law. This was illustrated in a recent judicial
pronouncement where the shareholders' agreement displayed a lack of
awareness to the principle of the company being a legal entity in its own right
separate and distinct from its shareholders.
Be that as it may, given their persuasive value in Pakistani Courts, reliance
may be placed on English judicial pronouncements, which provide that even
though shareholders' agreements may not be enforceable against the
company, the same may be enforceable amongst shareholders as a personal
agreement.
Furthermore, in order to bind the company in respect of the provisions of the
shareholders' agreement, the shareholders may amend the articles of
association of a company to reflect the provisions of the shareholders
agreement. The Articles of Association govern the internal affairs of a
company, and act as a contract between each of the company’s shareholders,
and between the shareholders and the company itself. The Articles of
Association shall, when registered, bind the company and its shareholders to
observe and be bound by the articles contained therein to the extent that such
articles are not in contravention of the Companies Act, 2017, and applicable
laws.
 1.6 Rights Dependent Upon Percentage of Shares
Certain rights are only exercisable by shareholders holding a certain
percentage of shares in a company. Such rights and their requisite
percentages include but are not limited to:

 winding up of the Company (At least 75% majority of the

shareholders present and entitled to vote);

 alteration of Articles of Association (At least 75% majority of the

shareholders present and entitled to vote);
  change of name of the company (At least 75% majority of the
shareholders present and entitled to vote);

 increase the authorised share capital of the company (At least 75%
majority of the shareholders present and entitled to vote);

 apply to the SECP to investigate into the affairs of the Company (At
least 10% of the total voting power);

 requisition of a general meeting of the company (At least 10% of the

total voting power);

 approach the SECP in case of oppression and mismanagement (At

least 10% of the total voting power); and

 apply to the Court to declare election of directors' invalid (At least

10% of the total voting power).

 1.7 Access to Documents and Information

Shareholders have the right to access inter alia the following
documents/information:

 Statutory Registers maintained by the company (such as the

register of directors or officers, debenture holdering shareholders
etc);

 audited financial statements of the company along with an auditor’s

report directors’ report; and

 books containing the minutes of proceedings of general meetings.

 1.8 Shareholder Approval

Under the Companies Act, 2017, certain issues can only be carried out with
the approval of the shareholders (eg, such as the alteration of the articles of
association of a company, voluntary winding up of a company, declaration of
dividends etc). In this regard, the Companies Act, 2017 prescribes two forms
of approval of the shareholders:

 Ordinary Resolution which means resolutions passed by simple

majority of the shareholders entitled to vote and present at a general
meeting; and
  Special Resolution which means a resolution passed by at least
three quarter majority of members entitled to vote and present at a
general meeting.

Below is a brief non-exhaustive list of matters which require an ordinary or

special resolution to be passed by the shareholders.
Matters requiring an Ordinary Resolution include:

 declaration of dividends;

 selling or otherwise disposing of a subsidiary of the company; and

 appointment of auditors.

Matters requiring a Special Resolution include:

 alteration of Articles or Memorandum of Association;

 issuance of shares at a discount;

 change the name of the company;

 voluntarily winding up of the company;

 reduction of share capital of the company; and

 making the liability of the directors unlimited.

Such approvals can be given by the shareholders in general meetings (in

person or through video-link) or in the case of a private or public unlisted
company only, by written resolution, passed by circulation.
 1.9 Calling Shareholders’ Meetings
Shareholders holding at least 10% of the total voting power of the company
can requisition the directors to call a general meeting. If the directors do not
proceed within 21 days from the date the requisition is deposited, the
shareholders may themselves call the meeting and this meeting must be
called within 90 days of the date of deposit of the requisition.
Furthermore, in the event there is a default made in holding the annual
general meeting or general meeting in accordance with the provisions of the
Companies Act, 2017, the shareholders may apply to the SECP, who may call
or direct the calling of such meeting of the company.
Notice of a general meeting must be sent to the shareholders at their
registered address at least 21 days before the date of the meeting. However,
for companies other than a listed company, if all the members entitled to
attend and vote at such a meeting agree, the general meeting can be held at
a shorter notice and a resolution may be proposed and passed as a special
resolution at such meeting. 
The notice of the general meeting, sent to every shareholder, shall state the
place, date and time of the meeting along with a statement of the business to
be transacted at the meeting. Where any special business is to be transacted
at a general meeting (ie, business other than consideration of financial
statements, declaration of dividend, election and appointment of directors,
appointment of auditors and fixation of their remuneration), a statement shall
be annexed to the notice of the general meeting stating the material facts
concerning the special business, including the nature and extent of the
interest, if any, of every director.
In the event any item of business requires for a particular document to be
approved in the general meeting, the time and the place where the document
may be inspected shall also be specified in the statement. In respect of
specific matters (for example, investment in related parties), additional
requirements may be prescribed by law.
 1.10 Voting Requirements and Proposal of Resolutions
Voting
At the first instance, voting on a resolution at a general meeting shall, unless a
poll is demanded, be decided by a show of hands. In the case of a vote by
show of hands, every member present has one vote.
However, before or even on the declaration of the result of the vote on a
resolution by show of hands, a poll may be ordered to be taken by the
chairman of the meeting of his own motion and shall be ordered to be taken
by the Chairman if demanded by Shareholders who are present and holding
at least 10% of the voting power. Unlike in a vote by show of hands, in the
case of a poll, every shareholder has votes proportionate to the paid-up value
of shares carrying voting rights held by him.
Where a poll is demanded in respect of any resolution, a secret ballot may be
ordered by the chairman of the meeting of his own motion and shall be
ordered to be taken by the chairman of the meeting if demanded by
shareholders who are present and holding at least 10% of the voting power.
Moreover, no shareholder holding shares or other securities carrying voting
rights shall be debarred from casting their vote, nor shall anything contained in
the Articles of Association have the effect of debarring.
In addition to the above, the Companies Act, 2017, allows shareholders to
appoint a proxy to exercise all or any of their rights to attend, speak and vote
at a meeting, subject to the qualifications stated therein.
Quorum
The Quorum of a general meeting shall, unless the articles of association of
the company provide for a larger number, be:

 in the case of a public listed company, not less than ten members
present personally, or through video link who represent not less than
25% of the total voting power, either or their own account or as
proxies;

 in the case of any other company having share capital, two

members present personally, or through video-link who represent
not less than 25% of the total voting power, either of their own
account or as proxies; and

 in the case of a company not having share capital, as provided in

the articles of association.

Furthermore, in the event a quorum is not present within half an hour of the
designated time for the meeting then, in the case of a meeting requisitioned
by the shareholders, the meeting shall be dissolved and in any other case the
meeting shall be adjourned to the same day, time and place the following
week. In the event a quorum is not present within half an hour of the
designated time of the adjourned meeting, the quorum shall be formed by the
members present provided the members present are not less than two.
Resolution
Shareholders holding at least 10% of the voting power may propose a
resolution to be considered at a general meeting and this resolution shall be
forwarded so as to reach the company in the case of a meeting requisitioned
by the shareholders of the company, together with the requisition for the
meeting and, in any other case, at least ten days before the meeting and such
resolution shall be circulated to all the shareholders.
 1.11 Shareholder Participation in Company Management
Shareholders or their nominees may sit on the board of directors of the
company provided that they do not fall within the excluded categories
specified in the Companies Act, 2017 (such as being an undischarged
insolvent or of unsound mind). 
The rights of shareholders or their nominees to sit on the board of directors
are dependent on their shareholding (save as otherwise agreed in
shareholder agreements) as the election of directors under the Companies
Act, 2017, is held on a cumulative voting basis.
A shareholder shall also have the right to require the company to hold a fresh
election of directors, after the acquisition of the requisite shareholding to get
the shareholder elected as a director on the board of the company.
It may also be noted that, in the case of public listed companies, the board of
directors must comprise of independent directors who shall not be less than
two directors or one third of the total number of directors, whichever is higher.
In respect of participating in the management of the company, shareholders
do not have an automatic right in respect of the same as the management of
the company is determined by its board of directors (such as the appointment
of the chief executive officer other than the first chief executive officer).
It may also be noted that, without prejudice to their rights under the
Companies Act, 2017, a shareholder must not exert influence or approach
management directly for actions that may lead to creating hurdles in the
smooth functioning of the management.
 1.12 Shareholders’ Rights to Appoint / Remove / Challenge Directors
Appointment/Removal of Directors
Shareholders have a right to elect the directors of a company. The first
directors of a company are determined by the subscribers to the
memorandum of association of the company and such directors shall hold
office until the first annual general meeting of the company. Subsequent
directors are elected in the annual general meeting by the shareholders for a
period of three years, unless earlier disqualified or ceases to hold office.
Moreover, a shareholder may, after the election of directors, upon the
acquisition of the requisite shareholding to get himself elected as a director of
the company, require the company to hold a fresh election of directors. 
Insofar as removal of directors is concerned, a company may remove a
director by passing an ordinary resolution (ie, a resolution obtained passed by
simple majority shareholders) in a general meeting provided that the votes
cast against such a resolution do not equal to or exceed the thresholds
specified in the Companies Act. For practical purposes, given that it is not
easy to execute the removal of a director provisions due to the
aforementioned thresholds, it is typically preferred by companies to aim for the
resignation of directors instead. Any casual vacancy created on the board of a
company shall be filled up by the board of directors of the company and the
person appointed shall hold the office of director for the remainder of the term
of the director who has been replaced. 
Challenge decision of the Board of Directors
Shareholders can challenge the decisions and/or actions of the board of
directors of the company through the following mechanisms:

 shareholders holding at least 10% of the total voting power in the

company have the right to requisition its board of directors call a
general meeting of the company. If the directors do not proceed
within 21 days from the date the requisition is made, the
shareholders may themselves call the meeting and such meeting
must be called within 90 days of the date of the requisition.
Shareholders also have a right to propose a resolution to be
considered at such requisitioned meeting;

 shareholders holding at least 10% of the total voting power of a

company, may apply to the SECP to investigate into the affairs of a
company and if required, furnish evidence to show good reason for
the same. The SECP may in pursuance of this application appoint
one or more competent persons to carry out the investigation and
make a report. On the basis of this report the SECP can apply to the
court, which has the power to take several actions including
removing from office any director or chief executive officer, ordering
changes in the management or accounting policies of the company,
and modifying or annulling any existing contract of the company
which is to the detriment of the company or its members;

 shareholders holding at least 10% of the issued share capital of a

company may lodge a complaint with the SECP or registrar that the
affairs of the company are being or are likely to be conducted in:
 1. an unlawful or fraudulent manner;

2. in a manner not provided for in its memorandum;

 in a manner oppressive to the member(s) or creditor(s); and

 are unfairly prejudicial to the public interest, member(s) or

creditor(s).

The SECP or registrar may, on the receipt of such complaint, file an

application to the Court by petition for an order and the Court may, if it is of
the opinion that it would be just and equitable to do so, make an order for,
inter alia, change in management of the company or termination, setting aside
or modification of any agreement between the company and any director.
It may be noted, in lodging such complaint, that the courts have not defined
the term oppression and it is determined on the particular facts of each case.
Oppression has been described as distinct from mere mismanagement and a
breach of law or statutory provision need not constitute oppression. It must
involve a lack of fair dealing in the affairs of the company to the prejudice of
some members or to the public interest and the exercise of authority in a
manner that is burdensome, harsh or wrongful. Moreover, mere illegal or
irregular acts unless they are oppressive or prejudicial to the interest of the
company or to the public interest will not support petition for winding up.
Any shareholder may also bring a derivative suit on behalf of the company.
For information regarding derivative actions available to shareholders, see 3.6
Derivative Actions.
 1.13 Shareholders’ Right to Appoint / Remove Auditors
The first auditors of the company are appointed by the directors within 90
days of the date of incorporation of the company. This appointment is until the
conclusion of the first annual general meeting of the company. Subsequent
auditors of the company are appointed at the annual general meeting by the
shareholders on the recommendation of the board. However, shareholders
having at least 10% shareholding in the company are entitled to propose an
auditor for appointment by giving notice to the company, at least seven days
before the date of the annual general meeting in which the auditor is to be
appointed. Each term of the auditors is until the subsequent annual general
meeting.
The shareholders also have the right to remove the company’s auditors
through a special resolution (ie, a resolution obtained by special majority). Any
casual vacancy created pursuant to the removal of an auditor shall be filled by
the board of directors within 30 days of such removal until the next annual
general meeting.
 1.14 Disclosure of Shareholders’ Interests in the Company
Under the Securities Act, 2015, in the context of public listed companies, any
person who becomes a substantial shareholder (as defined therein) is
required to give notice of his shareholding to the company and report any
subsequent changes. Moreover, substantial shareholders are required to file
returns of their shareholding with the SECP and inform the SECP of any gain
by the purchase and sale or sale and purchase of any such security.
Moreover, where substantial shareholders of a public listed company or their
spouses sell, buy or take any beneficial position in shares of such listed
company, the substantial shareholder of the company shall immediately notify
the Company Secretary such information prescribed under the Pakistan Stock
Exchange Regulations and the Company Secretary shall, upon receipt of the
same, immediately notify the Pakistan Stock Exchange.
Furthermore, in the context of takeover laws in the Securities Act, 2015 when
an acquirer (as defined therein) acquires voting shares whereby his aggregate
shareholding exceeds 10% voting shares in a public listed company, he is
required to disclose within two working days of acquiring the voting shares, his
aggregate shareholding in the said company to the stock exchange on which
the shares of the company are listed. 
Lastly, every substantial shareholder or officer of a company incorporated
under company laws in Pakistan who is a citizen of Pakistan (including dual
citizenship holders), having a shareholding in a foreign company or body
corporate shall report to the company their shareholding within 30 days of
holding such position or interest and the company must submit this
information to the registrar along with its annual return. Moreover, companies
are required to maintain an ultimate beneficial ownership register which
obtains and maintains information, in the case of a legal person being a
shareholder of the company, of the natural persons who ultimate own or
control such legal person through direct or indirect ownership of not less than
10% shares, voting rights, ownership or controlling interest in that company.
 1.15 Shareholders’ Rights to Grant Security over / Dispose of Shares
Security Interests over Shares
Shareholders are entitled to grant security interests over their shares.
However there exist certain restrictions in the case of regulated entities. By
way of example, in the context of non-banking finance companies, the
company’s promoters or majority shareholders and directors may be required
to deposit their shares with the Central Depository Company of Pakistan in an
account marked as blocked and such shares shall not be sold or transferred
without the prior approval of the SECP and shall be kept unencumbered i.e.
that is to say security interests cannot be granted over these shares.
Disposal of Shares
Restrictions on shareholders rights to exit a company or dispose of their
shares vary depending on the nature of the company. Private limited
companies, under the Companies Act, 2017, restrict the right of shareholders
to transfer their shares in the company through its articles of association.
Moreover, the Companies Act, 2017 provides a statutory right of first refusal in
the context of private limited companies which can, arguably, be applied with
modifications through its articles of association. Typical clauses, restricting the
transferability of shares in a private limited company, that may be found in its
articles of association include but are not limited to:
(a)       Right of first refusal;
(b)       Drag Along Right;
(c)       Tag Along Right;
(d)       Call Option
(e)       Put Option
(f)       Change of Control;
(g)       Lock-In provisions; and
(h)       Right of First Offer.
Public limited companies, conversely, cannot place any transfer restrictions in
their articles of association and the shares of the same are freely
transferrable. Whilst the shareholders of a public limited company may enter
into transfer restrictions in a shareholders agreement, such these transfer
restrictions cannot bind the company through reflection in the articles of
association insofar as any provision in the articles restricting transfer would
run afoul of the provisions of the Companies Act, 2017. Whilst not being
enforceable against the company, transfer restrictions agreed in a
shareholders agreement of a public limited company may be enforceable
amongst the shareholders as a personal agreement / contract.
Moreover, disposal of shares may also be subject to other regulatory consents
such as that of the Competition Commission of Pakistan and restrictions such
as foreign exchange restriction, in the case of foreign shareholders, may also
become applicable.
Lastly, in the context of public listed companies, disposal of shares of the
same shall also be subject to securities law relating to insider dealing and
market abuse.
 1.16 Shareholders’ Rights in the Event of Liquidation / Insolvency
Shareholder Rights under Insolvency
Insolvency of companies is governed by the provisions of the Companies Act,
2017 read with Provincial Insolvency Act, 1920/Insolvency (Karachi Division)
Act, 1909 (together the 'Insolvency Laws'). In the context of regulated or
specialised companies, further laws will become applicable such as in the
context of a banking company, the provisions of the Banking Companies
Ordinance, 1962, shall also apply.
Under the Insolvency Laws, the property of the company is to be applied in
satisfaction of its liabilities pari passu subject to the provisions relating to
preferential payments (such as all revenues, taxes, cesses and rates due to
the Federal or Provincial Government and all wages or salary of any
employee in respect of services rendered to the company). Unless the articles
of the company provide otherwise, the remainder is to be distributed among
the members according to their rights and interests in the company.
Voluntary Winding Up
A company may be wound up voluntarily by its shareholders:

 If the shareholders in a general meeting pass a resolution requiring

the company to be wound up voluntarily to comply with the articles
of association of the company if the same provide for a fixed
duration for the company’s existence or an event on the occurrence
of which the company is/or can be dissolved;

 If the shareholders pass a special resolution (ie, a resolution passed

by special majority) in favour of voluntary winding up.

For the purpose of winding up the company’s affairs and distributing its
assets, one or more liquidator(s) is/are appointed by the company in a general
meeting and the written consent of the liquidator(s) has to be obtained in
advance for such purpose. On the appointment of a liquidator all the powers
of the board shall cease, except for the purpose of giving notice of resolution
to wind up the company, appointment of liquidator and filing of consent of the
liquidator.
 2. Shareholder Activism
 2.1 Legal and Regulatory Provisions
In Pakistan, the primary source of law that deals with shareholders activism is
the Companies Act, 2017. With regards to public listed companies, the
Securities Act, 2015 and the Listed Companies (Code of Corporate
Governance), 2017 are also of relevance. The following is a non-exhaustive
list of provisions that govern shareholder activism.
Right to Approve
Under the Companies Act, 2017, certain issues can only be carried out with
the approval of the shareholders (for eg, the alteration of the articles of
association of a company, voluntary winding up of a company, declaration of
dividends etc). In this regard, the Companies Act, 2017 prescribes two forms
of approval of the shareholders:

 Ordinary Resolution which means resolutions passed by simple

majority of the shareholders entitled to vote and present at a general
meeting; and

 Special Resolution which means a resolution passed by at least

three quarters majority of members entitled to vote and present at a
general meeting.

Right to Requisition a Meeting

Shareholders holding at least 10% of the total voting power of the company
have the right to requisition its board of directors call a general meeting of the
company. If the directors do not proceed within 21 days from the date the
requisition is made, the shareholders may themselves call the meeting and
such meeting must be called within 90 days of the date of the requisition.
Right to propose Resolution
Shareholders holding at least 10% of the voting power may propose a
resolution to be considered at a general meeting and such resolution shall be
forwarded so as to reach the company in the case of a meeting requisitioned
by the shareholders of the company, together with the requisition for the
meeting; and, in any other case, at least ten days before the meeting and
such resolution shall be circulated to all the shareholders.
Right to appoint/remove directors
Shareholders have a right to elect the directors of a company. The first
directors of a company are determined by the subscribers to the
memorandum of association of the company and such directors shall hold
office until the first annual general meeting of the company. Subsequent
directors are elected in the Annual General Meeting by the shareholders for a
period of three years, unless earlier disqualified or ceases to hold office.
Shareholders may also remove a director by passing an ordinary resolution
provided that the votes cast against such a resolution do not equal to or
exceed the thresholds specified in the Companies Act, 2017.
Right to appoint Auditor
Shareholders owning at least 10% shareholding in the company are entitled to
propose an auditor for appointment by giving notice to the company, at least
seven days before the date of the annual general meeting in which the auditor
is to be appointed.
Right to lodge complaint with SECP
In cases where shareholders have been wronged and are seeking a remedy,
shareholders holding at least 10% of the issued share capital of the company
may lodge a complaint with the SECP to file a complaint with the Court that
the affairs of the company are being conducted in:

 an unlawful or fraudulent manner;

 in a manner not provided for in its memorandum;

 in a manner oppressive to the member(s); or

 are unlawful prejudicial to the public interest, member(s) or

creditor(s).

 2.2 Level of Shareholder Activism

Shareholder Activism is used as a mechanism to drive better governance and
business efficacy in an organisation by influencing the management to bring
about desired changes in the organisation. In Pakistan, historically speaking,
ownership of large corporations has been concentrated in the hands of
wealthy families and as such its corporate culture has been under developed.
However, the advent of recent laws and regulations such as the Securities
Act, 2015, and the Listed Companies (Code of Corporate Governance)
Regulations, 2017, accompanied by the emergence of certain corporate
scandals, has led to a significant increase in corporate governance and
shareholders awareness vis-à-vis their rights in the company.
As an example of the improved governance introduced by recent laws, the
Listed Companies (Code of Corporate Governance) Regulations, 2017, state
that the number of independent directors on the board of a public listed
company shall not be less than two directors or one third of the total members
of the board, whichever is higher. This increased awareness has not,
however, translated into remedies for the shareholders, which is in large part
attributable to the lethargic court system of Pakistan. 
Moreover, despite the recent developments in the law, Pakistan still lags
behind its neighbouring countries in terms of measures to increase corporate
governance through shareholder activism such as the introduction of proxy
advisory firms to advise shareholders on the exercise of their rights or the
creation of a council of institutional investors to educate investors on
international corporate governance principles and standards. 
An example of the difficulty in enforcing shareholders rights can be seen in a
recent acquisition transaction in which the minority shareholders requisitioned
a general meeting and the resolutions were aimed at causing an audit of the
affairs of the company. However, to our knowledge, to date the courts have
granted an ad interim injunction against the requisition of this meeting.
 2.3 Shareholder Activist Strategies
Strategies used by activist shareholders include but are not limited to the
following:

 increasing their voting rights in the company by virtue of purchasing

further shares. The increased number of voting shares allows for the
shareholders to influence the decision-making of the management in
addition to increased participation in the affairs of the company;

 applying to the SECP to investigate the affairs of the company;

 requisitioning a general meeting of the company;

 press campaigns; and

  removal of directors (whilst there are a few examples of the removal
of directors being used as a strategy by activist shareholders this
has predominantly been in a banking context under banking laws in
Pakistan).

The above strategies used by shareholders are for a variety of purposes.

Above all else, the aim for shareholders is to increase shareholder value so as
to maximise the return on their investment. Moreover, shareholders may also
adopt the above strategies to curb any opportunistic behaviour on the part of
the directors of the company or to prevent them from acting in a way that is
detrimental to the interests of the company.
 2.4 Targeted Industries / Sectors / Sizes of Companies
Given that the concept of shareholder activism is in its infancy in Pakistan, we
are not currently aware of any particular industries or sectors targeted by
activist behaviour.
Moreover, given that the vast majority of companies are family owned, there
appears to be no meaningful nexus between shareholder activism and market
capitalisation in Pakistan.
 2.5 Most Active Shareholder Groups
As stated in 2.5 Targeted Industries/Sectors/Sizes of Companies, given
that the concept of shareholder activism is in its infancy in Pakistan, we are
not currently aware of any trends developing in terms of any particular group
or type of shareholder being more active than others.
 2.6 Proportion of Activist Demands Met in Full / Part
We are not aware of any public activist demands being met in the last year.
 2.7 Company Response to Activist Shareholders
Strategies employed by companies in responding to shareholder activism may
include the following:

 improving communication with shareholders with regards to inviting

their comments on matters concerning the company, allowing them
forums to voice their concerns, keeping them regularly updated on
the performance of the company;

 providing assurances to activist shareholders that their concerns will

be considered and to the extent possible, addressed by the
company; and.
  procuring an interim order from the court for the prevention of
shareholders exercising their legal remedies available under
applicable laws. 

 3. Remedies Available to Shareholders

 3.1 Separate Legal Personality of a Company
The concept of a separate legal personality of a company as distinct from its
shareholders is the cornerstone of company law. Under Pakistani law,
shareholders of an incorporated entity are not liable for the debts and
obligations of such incorporated entities. However, it may be noted that in the
event the number of shareholders of a company falls below two in the case of
a private limited company or three in the case of a public limited company,
and the reduced number carries on for 180 days, every member who is aware
of the company carrying on business with a reduced number shall be
severally liable for payment of whole debts of the company contracted during
such time.
Moreover, in certain limited circumstances, the courts may pierce the veil of
incorporation and extend the liability of a company to its shareholders.
Examples of these instances include:

 if there is a relationship of an agency between a company and its

subsidiaries;

 if there is a group of associated companies, it may, in certain cases

treat the group as one entity;

 if the company is used to perpetuate fraud;

 to prevent the deliberate evasion of a contractual obligation; and

 if there is evasion of tax or employment of over-liberal schemes for

evading tax.

 3.2 Legal Remedies Against the Company

The following remedies are available to shareholders including minority
shareholders against the company:

 shareholders holding at least 10% of the total voting power in the

company have the right to file a petition with the Court to declare the
 proceedings of a general meeting of the company as invalid and
direct the holding of a fresh meeting provided that the petition must
be made within 30 days of the impugned meeting;

 shareholders holding at least 10% of the total voting power of a

company, may apply to the SECP to investigate into the affairs of a
company and if required, furnish evidence to show good reason for
the same. The SECP has, for this purpose, introduced an online
complaint desk for minority shareholders. The SECP may in
pursuance of this application appoint one or more competent
persons to carry out the investigation and make a report. On the
basis of this report, the SECP can apply to the Court, which has the
power to take several actions including removing from office any
director or chief executive officer, ordering changes in the
management or accounting policies of the company, and modifying
or annulling any existing contract of the company which is to the
detriment of the company or its members;

 shareholders holding at least 10% of the issued share capital of a

company may lodge a complaint with the SECP or registrar that the
affairs of the company are being or are likely to be conducted in:

1. an unlawful or fraudulent manner;

2. in a manner not provided for in its memorandum;

 in a manner oppressive to the member(s) or creditor(s); and/or

 are unfairly prejudicial to the public interest, member(s) or

creditor(s).

The SECP or registrar may on the receipt of such complaint, file an

application to the Court by petition for an order and the Court may, if it is of
the opinion that it would be just and equitable to do so, make an order for,
inter alia, purchase of the shares of any shareholders of the company by other
shareholders of the company or by the company, change in management of
the company or termination, setting aside or modification of any agreement
between the company and any director.
It may be noted, in lodging such complaint, that the courts have not defined
the term oppression and it is determined on the particular facts of each case.
Oppression has been described as distinct from mere mismanagement and a
breach of law or statutory provision need not constitute oppression. It must
involve a lack of fair dealing in the affairs of the company to the prejudice of
some members or to the public interest and the exercise of authority in a
manner that is burdensome, harsh or wrongful. Moreover, mere illegal or
irregular acts, unless they are oppressive or prejudicial to the interest of the
company or to the public interest, will not support petition for winding up.
 3.3 Legal Remedies Against the Company’s Directors
In addition to any penalty imposed by the SECP, the directors may also be
liable to the shareholders who may take action against the directors for breach
of their duties. The Companies Act, 2017, voids any limitation of liability of the
directors or officers of the company in respect of any negligence, default,
breach of duty or breach of trust of which they may be guilty in relation to the
company.
However, independent and non-executive directors have been protected to
the extent that they shall only be liable in respect of such acts of omission (by
a listed company or public sector company), which had occurred with their
knowledge (through board processes) and with their consent or connivance or
where he had not acted diligently.
Moreover, in certain limited scenarios, the liability of the directors in a limited
company may, if provided for in the memorandum of association of the
company, be unlimited.
The shareholders may also exercise their right and remove a director by
passing an ordinary resolution (ie, a resolution obtained passed by simple
majority shareholders) in a general meeting provided that the votes cast
against such a resolution do not equal to or exceed the thresholds specified in
the Companies Act. For practical purposes, given that it is not easy to execute
the removal of a director provisions due to the aforementioned thresholds, it is
typically preferred by companies to aim for the resignation of directors instead.
In addition to the above, the shareholders may also, by virtue of a special
resolution at a general meeting, remove a chief executive officer of the
company before the expiration of his term.
Remedies available to minority shareholders are detailed in 3.2 Legal
Remedies Against the Company. In addition to this, shareholders holding at
least 10% of the total voting power in the company may apply to the court,
within 30 days of an election of directors, to declare the election of all directors
or any one or more of them invalid.
For information on derivative actions, see 3.6 Derivative Actions.
 3.4 Legal Remedies Against Other Shareholders
In addition to the remedies listed in 3.2 Legal Remedies Against the
Company any shareholder may also bring a derivative suit on behalf of the
company against other shareholders. For information on derivative actions,
see 3.6 Derivative Actions.
In addition to the above, shareholders (including minority shareholders)
forming part of the shareholders' agreement shall have a remedy against the
other shareholders part of the shareholders agreement. A violation of a
shareholders' agreement would entitle the innocent shareholders to damages
for any losses suffered by them as a result of the breach of contract. As stated
above, given that the articles of association also bind the shareholders
together, a shareholder may also bring a claim for breach of articles against
another shareholder.
While we are not aware of any Pakistani law or precedent which places
fiduciary duties on controlling shareholders, we are cognizant that precedents
to this effect exist in other jurisdictions including the United Kingdom. It is
therefore conceivable that Pakistani courts may in reliance of such precedents
(which may carry persuasive value in Pakistan) create in future fiduciary
obligations for controlling shareholders.
 3.5 Legal Remedies Against Auditors
Other than the power of the SECP to impose penalties as prescribed under
the Companies Act, 2017, the most likely remedy against the company’s
auditors is the removal of the auditors by the shareholders. Removal of
auditors requires a special resolution to be passed at a general meeting and
hence is not a remedy available to the minority shareholders of the company.
Having said that, the shareholders may also, in rare circumstances, bring a
claim under derivative action against the auditors.
 3.6 Derivative Actions
Any shareholder may also bring a derivative suit on behalf of the company.
Whilst the concept of derivative action has not been codified in Pakistan –
reliance is placed on common law derivative actions. Although such actions
are rare in Pakistan, the courts have recognised the shareholders right to
bring a derivative action under the following circumstances:

 a company is in the control of majority shareholders who are

abusing their position;
  the abuse must be to defraud the company;

 the company must be unable to bring action because of the control

of the majority; and

 the company is, and indeed must be, impleaded in such

proceedings

 3.7 Strategic Factors in Shareholder Litigation

Litigation in Pakistan is a protracted and costly affair. Litigation is commonly
reserved as a last resort and a majority of disputes are settled outside court.
Factors that influence the decision of shareholders to litigate include:

 choice of governing law and dispute resolution mechanism in the

shareholders agreements;

 seriousness of breach and type of remedy;

 willingness of other party to negotiate; and

 financial resources of the shareholder.