WU) Scanned with CamScecat he ee , enters INTRODUCTION Meaning And Scope Of Company Law Company law is the law relating. to. companies formed and |“ yegistered under any Act/Ordinance relating to the regulation of the working and conduct of companies. Con.pany law. is the pee”, ‘of statutes : case law relating to companies. * . Company law deals, with various aspects, relating” to the affairs of“ companies. It spells out the rules regulating the constitution and incorporation of companies, it makes rules regarding the issue of prospe- ctus, it lays down the conditions under which shares can be allotted, it makes rules regarding the distribution of share capital, the rights attached to. various. classes of shares, the transfer of shares, the alterat- ion of share capital, the reorganization of share capital; it makes provisi- ons ‘regarding the rights, duties and liabilities of promoters, directors, manag:rs, managing agents, secretaries, chief executive, and other officers of the. company and provisions regarding. the. rights, duties and: Habilities of members, auditors, liquidators, creditors and othe persons dealing with the company; it makes rules regaiding the preparst- jon of memorandum, and articles, rvies regardi.z. the nature and extent of powers which registered «.c.njenies ate to..possess and the..manner in-which they can carry on business, rules regarding the’ holding of members and directors meetings, it provides the manner in which a public company may be converted into a private.company and vice verea, it gives power to company to refer matters to:arbitration and’ enter into compromises, it makes provision for the winding up and amalgamation _of companies, it provides for the punishment of offences: relating to companies. 2 Law Governing Companies 1 : The existing law governing the company. form of organization is found in the Companies Ordinance, 1984. The Ordinance extends to the whole of Pakistan. The section: 1. of the Ordinance had come into’ force from 8th October, 1984 but the .remaining provisions came into force on such dates as’ the Federal Government by notification in the official gazette , appointed, and different dates, had been so appoin- ted for different provisions. . Companies Ordinance-Preamble And Section 4 and 5 OBJECT: The Companies Ordinance, 1984 has been promulgated to consolidate and amend the law relating to companies and certain associ- ations for the purpose of healthy growth of the corporate enterprise, protections: of investors. and creditors, promotion of investment and development of economy and matters arising, out of or connected therewith Scanned with CamSce82 Ch. 3- Introduction Ordinance Not To Apply-Section 4. The Companies Ordinance, 1984 does not apply to: (a) a trading corporation owned or controlled by a. Province and. carrying on business only within that Province,or (b) a co-operative society, or | (ec) a-university. Application To Non-Trading Companies-Seotion 5.The Provincial Government shall,in relation to companies which are not trading corporati- ons'and the objects of which are’ confined to a single Province, have the same powers as are conferred by the. Companies Ordinance on the Federal Government or the Authority. Limited Liability’ Company, Meaning Of : A sompany may be defined as a ‘Voluntary association for profit with capital divisible into transferable shares with limited liability, having a corporate body and common seal". The company is an artificial person created by law and endowed with certain powers. It exists in the eyes or contemplation of law as though it were a natural person, separate and distinct from the persons who are its members. It is an artificial legal person. The company has a right to use and can be used, can own property and have banking account in its _own_name, own money, be creditor and can contract in 2. It is created for a particular purpose and is managed throu; called directors, The company has independent life in the-sense that it continues xto exist without regard to the death of the individuals “involved in its corporate affairs or the transfer by them of their interests in the company; even the death of all the members does not end the comp- any. This means that the: life of the company is independent of, the ’ life of its members, giving immorality to the company, and goes on until dissolved. s To sum up, the principal characteristics of a company are: V1, Distinct Personality: Company has a separate and distinct 2 personality from its members which constitute it. 9... artificial Person: Upon incorporation it becomes an artificial legal person, enjoying similar rights end owing similar obligations as a natural person. 3. Separate Ownership. Company, as a corporate person, is entitled to own and hold property as distinct from its members. 4. Parpetual Succession. As a jurjstic person distinct from its members it has perpetual sticession. Scanned with CamSceBody Corporate 83 5. Shares Transferable. Shares in the capital of the company are generally freely transferable. 6. Limited Liability. Liability of its sharehglders is limited & the extent of unpaid value of the shares held by them, ’ 1, No Citizenship. Company, though. a person having nation- nality and a domicile is not. a citizen. It cannot exercise + the right of franchise, nor it canbe punished, in. its own person, by imprisonment, criminal offences,although n_be fined for the contravention of the Ordinance. ‘ 8. No Fundamental Rights,, As a.¢ompeny. is not a citizen . ‘and can act only ‘through: nftural: person, it has no fundamental rights under the constitution. : oe Body Corporate-Section 2(4) . A body. corporate or corporation. is to EPhilctinguishes from a company formed under the Companies Ordinance, every company formed under the Ordinance is a company within the meaning of Pakistan laws jt is also a body corporate or corporation. On the other hand the expres- sion body corporate or corporation is an expression used more appropria~ tely to foreign corporations. A British or American corporation is not a company within the meaning of the Companies Ordinance, 1984. It is only when an association is incorporated, under Pakistan Companies Ordinance, then it is called a Company. But the, expression "Body Corpo- rate" or. "Corporation" includes foreign corporations and companies incorporated in Pakistan. 1 Section 2(4) of the Companies Ordinance, 1984 does not define a body corporate; but mentions what a body corporate; or corporation, includes. A body corporate or corporation includes a company incorpora- ‘ted outside Pakistan, but does not include thé following: : ‘G) a corporation sole, or (ii) a Cooperative society, or | “(ii) any other body corporate which is not a company within 3 the meaning of the Companies Ordinance, which the Federal Government may, by notification, specify in this behalf ive. is not regarded as a. body corporate or corporation. . Large Associations. And Partnership Prohibited-Section 14 Section 14(1) provides that association partnership or company consisting. of more than 20 persons cannot be formed to carry on any business for gain, unless it is registered as a company, under the Compa- nies Ordinance, 1984, It should. be noticed that the aforesaid condition imposed by ‘section 14 governs the first, formation of an‘ association, Scanned with CamSce“84° ch. %- Introduction partnership or company, and also rules its continuance. An association formed for trading may be perfectly legal at its formation, but if the number of persons increases later on and exceeds the maximum allowable under section 14, the association becomes illegal one. Illegal Association. An association or partnership contravening the above requirements }3 an illegal association, in the sense ‘that as a Body, it has no: legal existence, and cannot be wound up under the Companies ‘Ordinance, not even as.an unregistered: company (1) The law does not recognise an’ association within the terms ofisection 14 and which is not registered (2). : . Effect Of Ilegal Association. If an association becomes an. illegal body, none of ‘the: provisions of the Partnership Act apply to such an association for it is not valid Partnership, and it does not get any benefit’ or Brotection afforded by the: Companies Ordinance, in as much as it is not registered as a company under the Ordinance. The consequences of an illegal association are as follows: “1. On mber cannot sue another member in respect of any matter connected with the association(3) 2, Any member or outsider cannot maintain a suit against the association for it cannot contract any debt (4) 3. Cannot enter into any contract (5) 4. One member’ cannot sue for partition of existing assets or for any’ other relief (6) 5. Such an associatioii cannot be wound up under the Compan- | jes Ordinance: atthe instance either of the association,’ or éreditor or member (7) An‘ ‘action’ by an legal association whether against a member or outsider, will. fail as soon as the illegality, is disclosed (8). i 7. Such association has no legal recognition as a jural unit. Every member is personally liable for all liabilities incured in the business. . . 7 Every member is punishable with fine upto Rs. 5,000, Section 14. Categories Of Companies Formed Under Companies Ordinance ovides: for the registration of Section .15(2) provides that 2 be a company with or without ‘Section 15 The Companies Ordinance pr four distinct categories of companies: company formed under Section 15(1) may limited liability, that is to say?’ Scanned with CamSceCompany Limited by Skares e Me (a) company limited by shares (b) company limited by guarantee (c) unlimited company (d) association not fdr profit “A Company Limited By Shares-Section’ 15(2). The principal form of registration is that of a- company limited by shares, whereby each person becoming a member of the company acquires..one or more of the’ shares into which its capitalis divided, his liability being limited to the amount remaining unpaid on the shares held by him. Companies limited by shares may be further sub-divided into private and public companies. . 3 € A company littited by shares is an organizat of seven or more persons, @xcept.in the case of a private company the minimum’ @@mber is.two) for the promotion of some lawful object, and@ possessing common capital contributed by each member. The main féature of such company ‘is that the: liability of its: members is limited to the nominal value of shares held by each member, In the words of Lord Justice Lindly: a company is an sassociation. of many persons who contribute nfioney or money's worth to a common stock and employ it in some trade ér business and who share the profit or loss arising therefrom. The common stock, so contributed, is denoted in money and is the capital of the company. 'The person who contribute ‘it, or to whom it belongs, are members. The proportion of capital to which each member is entitled is his share. Shares are always transferable, although the right to transfer them is more or less restricted. ~ . 1 company. Limited’ By Guarantee-Section ‘15(2)(b). These are companies in which the, liability of its members is limited by the mempran- dum of association to such amount’ as the’ members’ may respectively thereby undertake to, contribute :to the assets of the company in the event of its being wound’ up. In other words: a company limited by guarantee is. an organization each member. of which undertakes that in the event of liquidation he will contribute an amount not exceeding a ‘certain fixed sum towards settling the debts and meeting the cost of. winding up provided the organization is wound up’ when he. was member or within. one year from the cessation of his membership. A company limited by guarantee must use the words “Guarantee Limited" as the last word of its name, Such companies are either those having @ share capital. or those not having a share capital. In the former case, each member is also liable for aay amoant remaining unpaid on his shares “unlimited Company-Section’ 15(2).. These are companies which do not have any limit on the lability of their members. This is fittle more than an ordinary partnership. Every member: is liable to the full extent of his personal assets forall the debts of: the company contracted while he was a member, Thus a member's liability is the same as in a partnership, and for ‘this ‘reason, unlimited: companies do not exist. The principal advantage of this type of ‘company is registration and Scanned with CamSce86 Ch. 3~ Introduction control under the Ordinance and perpetual succession. However a member of an unlimited company is free from liability at the end of a year from his ceasing to be a member. Association Not For Profit-Section 42, An association not for profit may, under section 42, be registered with limited liability but without the addition of the: word ‘Limited’, or (Private) Limited! or (Guarantee) ‘Limited’ to their name, provided a licence is obtained from the Authority, The conditions necessary for droping the word ‘"Limited' are as under: . ‘(a) The'promoters: should prove certain specified facts, to the satisfaction of the Federal Government. (b) The. association should be capable of being formed as a limited company. : (c). The association is formed for promoting commerce,. art, science, religion, charity, or any other useful cbject. (d) A licence fs granted by the Federal Government. (e) This company should obtain prior approval of the Federal Government for altering its objects clause. (£)° The company should insert ‘in the memorandum and/or articles the conditions and regulations imposed in the licence if so directed. (g) The memorandum. should contain a statement. to the effect that the income and property of the company shall be applied solely towards the promotion of its object and no portion. thereof shall be paid or transferred directly or indirectly, by way of dividends, bonus, etc to the members of the company. The association shall, on registration, enjoy all the privileges of limited company, and is subject to all their obligations except those of using the word ‘limited’ as part of its name, publishing its name -and sending lists of members to the registrar. The licence granted by the Federal Government may be revoked and upon revocation the registrar shall enter the word ‘limited’ at the end of the name of the ‘association’ upon the register, and the association shall cease to enjoy the exemptions and privileges granted by the said licence. Subsidiary And Holding Company-Seétion 3 t ~y Holding Company, A holding company means a company which directly or indirectly controls or beneficially owns or hold more than 50% of voting securities of another company, or has power to elect Scanned with CamSceAdvantages of Holding Company 87 and appoint more than 50% of directors of another company, Thus a holding company may be taken as a company which holds, either directly or through a nominee, or nominees, the whole of, or a controlling inter est in, the share capital of one or more companies, ; Under section 3(2), a company shall be deemed to be another's holding company if, but only if, that other is its subsidiary. oo St A holding. company is one whicn: (a) owns. or holds more than 50% of voting securities of another company, or (b) appoints or elects more’ than 50% of directors of another company. . Advantages Of Holding Company. The formation of a holding company offers. many advantages, some of the more important are ‘as follows: 1. the control of financial operations from the source. 2, economies in production, marketing. and merchandising; one large selling organization may be preferable to several smaller ones. : 3. the pooling of technical knowledge and: experience. 4, purchases may be more favourably. negotiated i,e. increa- sed purchasing power enables better terms to be arranged or a‘ controlling interest may be acquired in companies producing raw material. 5. production may be better controlled, thus preventing a glut on the market. 6. in many cases the- creation of a holding company is preferable to an“ actual amalgamation of a number of companies. . 7, elimination of unprofitable competition. 8. cost may be lower by reasons of: the combination of many overhead charges, and savings in transport. and general expenses, 9. possibility of grater efficiency in management. 10. thé resources of the combined companies may be transfer- red from one company or place to ahother to meet seaso- nal or exceptional demands. Scanned with CamSce88 Ch, 3- Introduction nf : * Subsidiary Company. A company (or body corporate) shall be a subsidiary of another company if: (a) more than 50% of voting securities are, directly or indirectly controlled, owned or held by another (i.e. holding) company (b). more than 50% of its directors are to be appointed or elected: by another (i.e. holding) company (c) the subsidiary is a subsidiary of any company which is that other company's subsidiary. For Exemple: Company B is a subsidiary of Company A, and Company C is a subsidiary of Company B, So Company C is a subsidiary of Company A also, If Company D. is a subsidiary of Company C, then company D will be regarded as subsidiary of Company B also, and conse~ quently of Company A also. Private Company-Section 2(28) Meaning. A company registered under the Companies Ordinance may be a private company. According to Section 2(28) a private company means a company which by its articles: 2 4a) restricts the right to transfer its shares, if any (b) limits the number of its members to fifty (not including persons who are in the employment of the comipany)and (c) prohibits any, invitation to the public to. subécribe for the shares, if and, or debentures of the company- Section 2(28).' Remember that where two or fiore persons hold jointly one or more shares in a company. they shall be counted as a single member. The secretary of a company can be regarded’ as otte in its employment (9). Under section 16(a)(i) the memorandum of association of a private company shall state the words "(Private) Limited" as the last words of the name of the company. Privileges. A private company shjoys the following privileges: 1. Only two signatories to the memorandum are sufficient to form a private company. 4, Can commence allotment of shares before minimum subscri- ption is subscribed or paid 3. _. Not required to issue a prospectus or file a statement in Heu of prospectus. Scanned with CamScePublie Company 89 \ 4, Need not offer further shares, in the first instance, to existing members < ™ Can commence business immediately after incorporation ‘Not required to hold statutory meeting AK May allow disproportionate voting right a\ Can have only 2 directors \ * Director can vote on a contract in which he is interested. Loss Of Privilege.A private company ‘will eee its pritieres and exemptions and will be treated as a . to comply with the essential pequirements of a erin. company ined in’ section 2(28), viz, Clestriction on transfer of shares: of its members to fifty, teygppna prohibition of invitation to public, to buy its shares or debentures Public Company-Section 2(30) Public company means a company which is not a private comp- any, section 2(30). A company whose articles do not. contain all the restrictions specified in section 2(28) is a public company, section 2(28). A public company must have at least seven members, sections 15(1). Again a public company must have hot less than seven directors appointed and elected in the manner provided in the Ordinance-Section 174, , In other words a public company is one which by its articles: y (a). does not ‘restrict the right to transfer its share (>) does not limit the number’ of its members to fifty (c) . does not prohibit any invitation to the public to subscribe for the shares or’ debentures of the company. Listed Company-Section 2(1)(20) A Stack oy Section 2(1)(20) has defined a listed company /as "a company ‘ or a body corporate or other body whose securities are listed". The word listed in relation to securities means securities which have been allowed to be traded on a stock exchange. The vai legal provisions of the Companies Ordinance relating to listed companies are summarised hereunder: 1. . Section 45. Listed company shall prepare half-yearly accounts and transmit the same to the members whether audited or not. Scanned with CamSceoe Ch 3-Introduetion 2. Section 245: Listed company shdll file prescribed number of copies of its half-yearly accounts (whether audited or not) with the rei§trar and the Authority. 3. . Section 245: Listed company shall transmit its half~ yearly accounts to the stock exchange within two months of the close of its half-year, Mode Of Forming A Company-Section 15 Public Compary.. Any seven or more persons associated. for lawful purpose -may} by subscribing their. names to a memorandum of association and, complying with the requirements of the Companies Ordina- aoe ie respect of registration, form a public limited company, section r Consequences Of Fewer Members: If at any time, after incorpo- ration, the number of members of a public company. is reduced below seven, and the company carries on business for more than 6 months while the number is so reduced, every person who is a member of the company during the time that it so carries on business after those six months and is cognisant of the fact that it is carrying on business with fewer than seven members, shall be severally Hable for thé payment of the whole debt of the company contracted during that time and may be sued therefor without joinder in the suit of anyother member, section Private Company. Any two or more persons associated for a lawful purpose may, by subscribing their names to memorandum and complying with the requirements of the Companies Ordinance in respect of registration, form a private company-section 15(1). Consequences Of Fewer Members: If at any time the number of members of a company is reduced, in the case of @ private company, below two and the company carries on business for more than six. months while the number is so reduced, every person who is a member. of the company during the time that it so carries on business: after those six months and is cognisant of the fact that it is carrying on business with fewer than ‘two members shall be severally Hable for the payment of the whole debt of the company contracted during that time and may be sued therefor without joinder in the suit of any other member, section 47. Management Of Companies ‘ A company, although a legal person, is ‘an artificial person and must act by human agents, the directors. In the case of a private company the shareholders and the directors are invariably the same persons. This is not so in the case of a public company where the directors may be few in number and may have few shares. . The directors powers are contained in section 196 and in Scanned with CamSceCompany's Securities . a Articles 44 to 48 of Table A which are stated below: 1, Section 196. The business of a company shall be managed ° by the directors, who may pay all expenses incurred in promoting and registering the company and may exerc- ise all such powers of the company as are not by the Companies Ordinance, or by the articles, or by a special resolution, required to, be exercised by the company in general meeting. 2. Article 44. The business of the company. shall be managed by the, directors, who may. pay all expenses incurred in promoting and registering the company and may .exercise all. such powers of the company as are not required to be exercised by the company in general meeting, or such regulations as may be prescribed by ‘the company. in general meeting. But no regulation -made by the company in general meeting shail invalidate any prior act of the directors which would have been valid if that regulation had not been made. . Company's Securities A limited company may raise money in two ways, namely (i) by issuing, shares and (ii) by borrowing by debentures. Share. |A sh apital.of a company section 2(35). f a shareholder in the company, measured by a sum of money for the purpose of liability in the first place and of interest in the second, but also consisting of a series of mutual covenants entered into’ by all the shareholders inter se (10). A share is a right to a specified amount, of the shares capital of 2 company carrying with it ceftain rights and liabilities while the company is a going concern and in its winding up. The shares and other interest of any member in a company are personal estate transfer- able in a manner provided by the articles and are not of the nature of a real estate (10a). A share in a company cannot properly be linked to a sum of money settled upon and ‘subject to executory: limitations to arise in the future; it is rather. to be regarded as the interest of the sharcholder in the company, measured for the purposes of liability and dividend, by a sum‘of money. A share has a nominal value, which is the total amount the holder is liable to contribute to the capital of the company, and it confors upon the holder the right to Participate in the company's profits and its assets in winding up. Under Section 19 no company can issue. partly paid shares conversely, only fully paid shares can be issued.Where a company had partly paid shares on the commencement of the Companies Ordinance it: os 4a) could not issue any further share capital until all the shares previously issued became fully paid up, and Scanned with CamSceoz Ch, 3- Introduction (b) dividend was to be paid ofily in proportion to the amount paid up on each share , section 91 Proviso. Debentures. Debentures are bonds given under the seal idence the fact that the company is Hable to pay interest, and generally charge_the payment ot “tthe company. A debenture means & document whic! é¢ “creates a debt or, acknowledges it, and. any, document Nnich fulfills either of these conditions is a debenture (11). Debentures wre bonds or deeds which evidence the loan, and, if they purport to give a charge, créate the security for its repayment. Debentures usually give the debentureholders.a mortgage or charge on the company's property to secure the loan, in which case, if the company should fail fo repay the loan, the debentureholdérs will have the usual remedies of a-mortgagee against the property mortgaged. Whether a company has power to issue debenture for a loan depends upon the fact whether it has power to borrow money, and whether it has power to create a charge by the debentures oF by a trust -deed, and what assets it may charge, depends upon the powers of the company to secure the repayment of borrowed money by mortgaging * all or some parts of its assets. Under: section 2(12) debentures includes debenture. stock, bonds, participation term certificates and any other securities, other than a share, of a company, whether constituting a charge on the assets of the company or not. Security-Section 2(1)(34) According to section 2 security means any: (a) shares (b) scrip (c) debenture (a), participation term certificate (e) modarba certificate (£) musharika certificate (g) térm finance certificate (h) bond . (3) pre-organization certificate, oF (j) such other instrument as the Federal Government may specify. Company And Partnership Distinguished ‘The following are the points of distinction between a’ limited Scanned with CamSceCompany And Partnership Distinguished 3 liability company and a partnership firm: il. Legal Entity: A compariy is a legal entity in itself distinct ° from the members who hold shares in it. It is governed : by the Companies Ordinance. Its powers are fixed by = ¥ the ‘memorandum, and there. is no limit to the number : of its members except in a private company. The partners in a firm are individuals, acting together in partnership according to their agreement, or in the absence of. an agreementZaccording to the provisions of the Partnership Act, Afirm is not a separate entity: it is the same as its partdérs: The siembers of a partner— ship may not exceed twenty in number, 2.) Liability: The Hability of 2 shareholder. ‘is limited to — +" the nominal amount of the shares held by him. The liability. of a partner. is co-extensive with the whole of his property. Every parther in a firm is jointly and severally Hable for all the debts of the. firm incurred while he is a partner. 3. Power To Bind: A shareholder has -nor power to bind the company or to ad the other shareholders, not he-has any right to take part in the management of fhe “company or to inspect: its books except as may be allowed by the articles. A_partner_can_bind the firm, and his-co-partners so Tong ashe acts within the ordinary scope of the business All” partners cat take part” in the management of the business of the firia and all have access to its books. 4) ~~ ‘Transfer Shares: holder can transfer his shares as he likes subject to the articles, which in: the case of a private company, must restrict transfers. A partner cannot, except by agreement with his co- partners, substitute another partner for himself. .5.| Company Bound By Memorandum And Articles: A company is bound by its memorandum and” articles of aBéociation, and these documents can be altered only to a limited extent as provided by law. ‘The partners can make any agreement they like, and ‘Vary the terms of the ‘partnership. 2s and when they Please. ‘ “ 6)' Accounts And Audit: A company must keep proper books of accounts and 1” accounts Tiust Be ——. Scanned with CamSce94 Ch 3- Introduction audited. 9 statutory provisions requiring a partnership 73 A__sompany's existence can be brought end only by being dissolved by an order of the gourt or by being wound up ina [egal manner, or by ite name being struck off by the registrar. A partnership can be brought to an end by agrrement at any time. = By Perpetual Succession: A company, having legal existence goes on irrespective. of the. death or ement of member. et But the death or ‘retirement| of a partner dissolves the partnership in the absence of a ‘contract to the contrary. ~ : 9.. Contracts: A_ shareholder of a company can contract with the company. A partner cannot contract with his firm. Limited Liability Concept The concept of limited lability is now accepted as a common place but in fact is a unique conception. The privilege of trading upon a basis of limited Lability for debts incurred is, accordingly, only gran- ted when certain conditions such as the public registration of certain documents relating to the company, the keeping and audit of accounts, etc. have been complied with. The Companies Ordinance consists mainly of the detailed rules setting out these conditions. Doctrine Of Lifting Viel Of Incorporation The Doctrine of Corporate Personality means that ‘However large the proportion’ of. tHe ‘shares and debentures. owned by one man, even if the other shares are held in trust for him, the company's acts are not his acts: nor are its Mabilities his Habilities; nor is otherwise if he has sole control of its affairs as its governing director(12). The Doctrine of Lifting the viel of Corporate Personality is a deviation from the ‘Principle of Corporate Personality'. Under this doctrine the seprate legal personality of a company is ignored or set aside. In certain situations when the viel is lifted and one looks behing the viel, - the corporate personality of the company dwindles down, or fades away, when torched from a different angle. In certain except- ional cases, courts have lifted the viel of corporate personality, and have looked upon: the corporation and/or its members from a different Scanned with CamSceDoctrine of Lifting Viel of Incorporation 95 point of view. The courts have lifted the viel where it was intended to use the corporate form for the purpose of fraud (13), or as a device to evade a contractual or other legal obligation. For certain purposes, the courts, while respecting the separate legal personality of a company, have treated the conduct or characteristics of its directors, managers or members as attributable to the company itself. ‘ Tn the following, situations’ the principle of separate legal entity is disregarded: : (a) Where companies are in the.-rélationship. of holding and * subsidiary or sub-subsidiary companies. (b) Where the number of members of ‘a company falls below the prescribed minimum. (c) Under the law relating to control of exchange. (d) Under the law relating to: trading’ with: enemy. The‘ following are the few cases where the. viel of corporate personality was lifted: 1. The respondent contracted with the appellant company not to solicit its customers after leaving their employment On ceasing employment A formed a company to carry on competing business and this. company started to solicit the customers.of A's employer. The court granted injunction to enforce the covenant not ‘to solicit against both A and the company he had formed as a cloak for his activities(14). * 2. The defendant entered into a contract-to sell-his house. He sought to escape his obligation to complete by convey- ing the property to a company in which he and a nominee of his, controlled all the shares and were the directors. The court granting a decree of. specific performance, described the company as 'the. creature of the first defendant, a device and a sham, a mask which he holds before his face in any attempt to avoid recognition by the eye of equity(15). Scanned with CamSce