Business & Corporate Law: Corporation

BUSINESS &
CORPORATE LAW
CORPORATION
Company
• What is a Corporation or Company?
• Company:
• Any company formed and registered under this Act or the company law
(Companies Act 2017, subsection 2(17))
• Corporation or Body Corporate:

• Any company incorporated under Companies Act 2017 or
• A company incorporated outside Pakistan
(Companies Act 2017, subsection 2(9))
Business & Corporate Law: Corporation 2

Formation of Companies
• When does a group of people who are looking to form an association
(company or partnership) to carry on a business to earn profits must
register that association as a company?
• If the number of people or members are more than 20, then that
association has to register as a company (Companies Act 2017, Section 9)

Features of a Company
• Shareholders are its owners
• Managed by its directors, who are essentially agents of owners
• Its capital is represented by its shares
• Shares are also freely transferable (for a publicly listed company)
• Must have a written constitution / Memorandum of Association
• A legal person separate from its owners, with legal rights & obligations
• Any legal person (natural and artificial) can own shares of a company
• It has a perpetual existence & does not dissolve / “die off” with the
death or incapacitation of any shareholder, officer, manager, or director.
Features of a Company
• # of members are limited to 50 for a private company & unlimited for a
publicly listed company (Companies Act 2017, subsection 2(49))
• Liability is limited by shares & shareholders are not personally liable for
the debts / liabilities of the company
• Must keep proper books of accounts
• Books of accounts must be audited on an annual basis
• Although companies have a perpetual life, they can be dissolved only by
an order of the court in a legal manner

Types of Companies
• Private Company:
• Single Member Company:
• Consists of a single member who is also the director of the company
• Governed by special rules from SECP (Securities & Exchange Commission of Pakistan)
• Words “SMC – Pvt” Limited are added to the name of the company
• Private Company (other than SMC):

• Can have members from 2 – 50 (excluding employees)
• Do not have rights to transfer the shares by its members
• Cannot issue shares or any other security (e.g. debenture stock, bonds, term finance
certificate) to general public

Types of Companies
• Public Company:
• Public Listed Company:
• Shares or other securities are listed on an exchange
• Securities are traded as per regulations of that stock exchange
• Public Unlisted Company:

• Shares or other securities are not traded on an exchange
• Have the rights to sell shares to the general public whenever its management & owners
think it best

Types of Companies
• Holding Company:
• Company holding, directly or indirectly, more than 50% voting shares of any other
company
• Company having power to elect & appoint more than 50% of the directors of
another company
• Subsidiary Company:
• Company whose 50% of its voting shares are owned by another company (its Parent
or Holding company)
• Company whose 50% of directors are being appointed by some other company (its
Parent or Holding company)
• Cannot hold shares in its holding company (violation of this point will cost the
company up to Rs. 500,000Business
& a daily penalty
& Corporate of Rs. 1,000)
Law: Corporation 8
Types of Companies
• Company limited by Guarantee:
• Its members guarantee to cover the company’s liability by contributing to the
assets of the company, if it is ever wound up
• Liability of the members = guarantee to cover company’s liability
• Company limited by Shares:

• Liability of the members (or shareholders) are limited to any unpaid amounts on
the shares

Types of Resolutions
• Ordinary Resolution:
• A resolution passed by a simple majority (i.e. more than 50% of shareholders) by
voting, either in person or through proxy, at a general meeting
• Special Resolution:
• A resolution passed by 75% of shareholders by voting, either in person or
through proxy, at a general meeting
• Notice of that general meeting, where a special resolution will be put to vote,
must be given to shareholders, at least 21 days prior

Proxy Voting
• A person appointed to vote & speak on behalf of a member in a general
meeting of the company
• Entitled to, on behalf of the original shareholder, all the acts which the
original shareholder is entitled to do himself / herself in the meeting
• Document to appoint proxy must be in writing & signed by the appointer or
his authorized agent
• Shareholder cannot appoint more than one proxy to attend any one
meeting
• Must be recorded / lodged with the company 48 hours before the time of
the meeting being held (non-working day is excluded from this count)
Sizes of Companies
• Companies are classified in Third Schedule (Section 224) of Companies Act,
2017
• Large-Sized Company:
• Non-listed company with:
• Paid-up capital of Rs. 200 Million or more, OR
• Net Revenue of Rs. 1 Billion or more, OR
• Average ## of employees in a financial year more than 750
• Foreign company with turnover of Rs. 1 Billion or more
• Limited Company with charitable & NFP purposes OR Company limited by
guarantee having annual gross revenue (i.e. grants / income / subsidies / donations)
of Rs. 200 Million and above

Sizes of Companies
• Medium-Sized Company:
• Non-listed company & Private company with:
• Rs. 10 Million < Paid-up Capital < Rs. 200 Million, OR
• Rs. 100 Million < Net Revenue < Rs. 1 Billion, OR
• 250 < Average ## of employees in a financial year < 750
• Foreign company with turnover of less than Rs. 1 Billion
• Limited Company with charitable & NFP purposes OR Company limited by guarantee having
annual gross revenue (i.e. grants / income / subsidies / donations) of less than Rs. 200 Million
• Small-Sized Company:
• Private company having:
• Paid-up Capital of less than Rs. 10 Million,
• Net Revenue of less than Rs. 100 Million,
• Average ## of employees in a financial year
Business of less than
& Corporate 250
Law: Corporation 13
Process of Incorporation
• Following steps are involved in formation of the company:
• Getting availability of suitable name from the registrar of companies
• Preparing Memorandum of Association
• Preparing Articles of Association
• Filing the Memorandum of Association & Articles of Association, & all other
relevant documents with the registrar of companies
• Obtaining the certificate of incorporation of company from the registrar
• Filing documents necessary for obtaining certificate of commencement of
business (if required)

Process of Incorporation
• Certificate of Incorporation includes:
• Name & Registration Number of
company,
• Date of its incorporation
• Company’s status as a private or public
company
• Company’s status as a limited or
unlimited company
• If limited, then limited by shares or
limited by guarantee

Memorandum of Association (MOA)
• Constitution of the company
• Defines in brief:
• Name of the company,
• Purpose of the company,
• Location of the company,
• Liabilities of the members of the company,
• Amount of share capital with which the company will be registered (also known as
initial subscription of shares), &
• Persons who will be the initial members of the company (the signatories to the
MOA)
• Sample of MOA in Table B of First Schedule of Companies Act, 2017
• Name of Company:
• Names applied for will be reserved for 60 days
• If the name applied is refused, then an appeal can be lodged within 30 days of the
order with SECP
• SECP has the power to notify words and expressions which cannot become part of a
company’s name
• No company will be registered by a name which contains such words or expressions as:
• Identical with / resemble / similar to the name of a company, or
• Inappropriate, or
• Undesirable, or
• Deceptive, or
• Designed to exploit or offend people’s religious feelings (which can easily be hurt), or
• Any other grounds as SECP specifies.
• Companies, which are subject to license from SECP, shall require prior approval of the
proposed name
• Initial Subscription of Shares:
• Share subscription money is payable by the subscribers to the company within 30 days of
incorporation and must be reported to the Registrar within 45 days of incorporation, with
a certificate by a practicing CA or CMA verifying receipt of the money
• Purpose of Company OR Principal Line of Business:

• Companies can operate in any lawful business
• “Principal Line Of Business” (PLOB):
• The business in which substantial assets of the company are held or from where substantial revenue is
earned by the company, whichever is higher
• Companies are required to report change in PLOB to the Registrar and submit the amended
Memorandum of Association within 30 days thereof
• The name of the company must reflect its PLOB, and if it is not in conformance, the company may be
asked by the Registrar to change its name
Memorandum of Association (MOA) -
Alteration
• MOA can be altered, only through a Special Resolution, for:
• Change the place of its registered office from one province to another province or
Islamabad Capital Territory, OR
• Change its Principal Line Of Business, OR
• Adopt or Change any business activity which requires licensing, registration, or
permission under any law
• Certified copy of the order confirming the alteration must be given to the
Registrar within 7 days from the date of the order
• Altered MOA must be filed with the Registrar within 30 days from the date
of the order
• Registrar will register the altered MOA & issue a certificate confirming that process
Articles of Association
• Bylaws of the company … essentially, day-to-day guidelines for the company,
such as:
• How shares are to be issued & transferred
• Requirements for meetings of the BoD & Shareholders
• Voting procedures at meetings of the BoD & Shareholders
• Regulations covering borrowing, powers of directors & other officers
• Requirements dealing with dividends
• Regulations concerning company records
• How notice of meetings will be given to shareholders
• Must be available to its member / shareholder within 14 days of the request

• Nowadays, it is usually available on the company’s website
Articles of Association - Alteration
• Similar to the process of changing MOA, AOA can also be altered
through a Special Resolution
• A copy of the altered / changed AOA must be filed with the Registrar
within 30 days from the date of passing of the resolution

Commencement of Business
• Private company, without any shares, can start its business as soon as it
is incorporated
• All other companies first must get a Certificate of Commencement of

business from the registrar. Following must be done BEFORE the
certificate can be issued:
• Minimum amount of money must be available through the allotment of shares
• Directors must have paid in full for the shares of the company
• If a prospectus has been issued & subsequently, the shares did not get listed on
the PSX (Pakistan Stock Exchange), then all the money has to be repaid &
statement in lieu of prospectus need to be filed
• Sample of Statement in lieu of Prospectus is in 2nd Schedule of Companies Act, 2017
Prospectus
• Document issued for general public
• Invites offers for sales of company’s securities
• Provides the general public with all the information required by it
before making any investment decisions

Prospectus - Contents
• MOA of the company with complete details of signatories to the MOA
• Description of business to be undertaken along with reasonable future
prospects of the business
• Number & value of shares with existing members
• Amount payable on each share & on each application
• Details of auditors & legal advisors of the company
• Purpose for which the proceeds of the issue of shares will be used

Prospectus - Contents
• Personal details of proposed or existing Chief Executives, directors,
secretary and any other company in which they hold office
• Date and time of opening and closing of subscription list
• Pending legal proceedings, other than routine business matters
• Preliminary expenses (not applicable if prospectus is issued after 2 years
of commencement of business)
• Voting rights on the shares of the company & any restrictions on them
as per articles of association of the company

Prospectus - Timing
• Can be issued by the company at any point in time of its life
• Can be issued before a company starts conducting its business (&
hence, issue shares before the commencement of business)
• Can also be issued after a company has started conducting its business
• In this case, a Statement in lieu of the Prospectus has to be filed with the registrar before
obtaining a Certificate to commence the business
• After shares are issued & allotted, the purpose & existence of a
prospectus ends

Share Capital
• Represents capital introduced into the company by the company’s
shareholders / members
• Company can have 1 class of share capital or several different classes

• Each separate class of shares can have only 1 type of shares in it
• All shares in a particular class of shares must have the same fixed amount
(“nominal value” of the shares)
• All shares in a particular class of shares have equal rights & obligations

Share Capital - Characteristics
• A form of property, carrying rights & obligations
• Transferable from one person to another
• Shares can be transferred as per the terms of association
• Owners of shares (shareholders) must comply with the company’s MOA
& Articles of Association
• Must be paid for in full when it is allotted to the shareholder

Share Capital - Authorized
• Maximum amount of shares in each class of shares that the company
may issue
• As per required by the Act, every company limited by shares must have
an authorized share capital
• Amount of authorized share capital must be specified in the company’s
MOA
• Authorized share capital can be increased, but only with the approval of
75% of the shareholders
• Any violation of this will cost the company up to Rs. 25,000 & a daily penalty of
Rs. 500

Share Capital – Issued & Paid Up
• Also known as “Allotted Share Capital”
• Nominal value of the shares, in each class of the shares, that have been issued to
shareholders
• Issued Share Capital ≤ Authorized Share Capital
• Shareholders must pay in full for all of the shares being issued to them
• When issued shares are fully paid up, shareholders are not personally liable for any
debts of the company & will only lose their share capital contribution
• As per section 71:
• Company must:
• Issue certificates of shares within 30 days after the allotment
• Deliver those certificates to the person (i.e. shareholder) at its registered address
• Violation of not issuing & delivering certificates will cost the company a max. penalty of Rs.
25,000 & a daily penalty of Rs.Business
500 & Corporate Law: Corporation 30
Share Capital – Share Allotment (section 68)
• If a company receives money by potential shareholders to purchase shares,
& then the company does NOT allot / give them shares, then the company
must refund / return that money to those potential shareholders
• This money for unallotted shares must be returned within 15 days of the
decision for not allotting shares
• If the money is not returned within 15 days, then the directors of the
company will be liable to repay that money, with surcharge, at the rate of
2% for every month, and a max. penalty of Rs. 100 Million & a daily penalty
of Rs. 500,000, until that money is repaid
Share Capital – Share Allotment
(under a Prospectus) – Section 69
• As slide 22 stated, if a prospectus has been issued & subsequently, the shares did not
get listed on the PSX (Pakistan Stock Exchange), then all the money has to be repaid
• This money must be repaid within either:
• 7 days after the first issue of the prospectus or
• 21 days after the closing of subscription lists
• If the money is not returned within 8 days of both conditions above, then the
directors of the company will be liable to repay that money, with surcharge, at the
rate of 2% for every month, and a max. penalty of Rs. 100 Million & a daily penalty of
Rs. 500,000, until that money is repaid
• All money received for shares during this whole process must be deposited & kept in
a separate bank account, just so the company does not default if the company needs
to pay back that money
Kinds & Classes of Shares
• 2 most common types of shares:
• Ordinary Shares
• Preferred Shares

Kinds & Classes of Shares – Ordinary Shares
• Also known as ‘equity shares’ or ‘common stock’
• Ordinary shareholders are actual owners of the company
• Only receive the dividend as distributable profits after preferred
dividends have been paid out
• Unlimited amount of dividends can be paid to common shareholders
• Entitled to vote at general meetings of the company

Kinds & Classes of Shares – Preferred Shares
• Not the owners of the company
• Receive a dividend before any common shareholders are paid
• Dividends are limited by a fixed amount
• These shares can be cumulative or non-cumulative ….. ???
• Usually do not carry any voting rights (unless a special class of preferred
shares are made with voting rights)
• When a company is being wound up, preferred shareholders receive
dividends & repayment of capital before any ordinary shareholders are
paid

Borrowing Money - Debentures
• Securities issued to borrow money, which include:
• Debenture stock,
• Bonds
• Term finance certificate, &
• Any other security creating a charge on the assets of the company
• Often carry certain fixed interest rates
• Can be secured or unsecured
• Secured against any collateral the company may have provided as a security
• Holder of debentures cannot vote in the company’s general meetings,
except holder of convertible debentures into ordinary shares
Borrowing Money – Debentures v Shares
Debenture Share
Long-term loan Capital
Represent debt Represent ownership
Its holder is creditor Its holder is shareholder
Interest on it is a debt & paid out of capital Dividend cannot be paid out of capital
Interest on it is an expense Dividend is an appropriation of profit
No voting rights for its holder Voting rights for its holder
Interest on it must always be paid, regardless of Dividends on ordinary shares do not have any
any profit earned or not fixed dividend rate
Do not need to be issued by companies Must be issued by companies

Borrowing Money – Banks & Other Sources
• Commercial banks, investment banks, NBFCs (Non-Banking Finance
Companies) can also provide business loans
• Usually secured against the assets of the company
• Sponsors or controller shareholders of the company can also provide

business loans
• Usually unsecured

Meetings
• Companies hold lots of meetings in their lifetimes:
General Meetings
Board of Directors
Meetings
Statutory Annual General Extraordinary

Meeting Meeting General Meeting

Meetings - General
• Meeting of the shareholders of the company to attend & vote at such
meetings
• Shareholders in general meetings may:

• Remove directors from office
• Restrict the powers of the directors by altering Articles of Association of the
company
• Approve or disapprove dividends

Meetings - General
• 3 types of General Meetings:
• Statutory Meeting:
• Must be held at the beginning phase of a public company (Companies Act 2017, Sec. 131)
• Must be held within:
• 180 days from the date of entitlement to start / commence the business, OR
• 9 months from the date of incorporation, whichever time period ends first
• Will not be held if the first annual AGM is held earlier
• Notice of the meeting will be sent to the members / shareholders at least 21 days before the
meeting with a copy of statutory report
• If a private company converts into a public company within 1 year of its incorporation, then
statutory meeting must be held within 180 days of such conversion
• Not holding this meeting at all or not within the required time or not producing the report will
cost:
• A listed company; a max. penalty of Rs. 500,000 & a daily penalty of Rs. 1,000, &
• Any other company; a max. penalty
Business &of
Corporate Law: Corporation
Rs. 25,000 & a daily penalty of Rs. 500. 41
Meetings - General
• Statutory Meeting:
• Meeting will consider & approve report called “Statutory Report”
• Total number of shares allotted in cash & for some other consideration (that other consideration also
must be stated)
• Total cash received against shares allotted
• Details of all receipts & disbursements of the company up to the date 15 days before the meeting
• Names, addresses, & occupations of directors, chief executive, secretary, auditors, legal advisor, & any
change since incorporation
• Any and all contracts which need to be modified, & the modification need to be approved in the meeting
• Brief statement of the company’s affairs since incorporation
• Business plan including any change or proposed change affecting the shareholders’ interest and business
prospects of the company

Meetings - General
• Extraordinary General Meeting (EOGM) … (Companies Act 2017, Sec 133):
• All general meetings of a company other than Statutory meeting & Annual General meeting
• Directors or Shareholders holding more than 10% of total voting power are entitled to call this
meeting
• Usually is called to vote on matters of alterations in MOA or Articles of Association; the matters
which cannot wait, for approvals, for a year or few months until AGM
• This meeting must be called within 90 days after the request of calling this meeting has been made
• Non-compliance of any requirements in this section will cost:
• Any other company; a max. penalty of Rs. 25,000 & a daily penalty of Rs. 500.

Meetings - General
• Annual General Meeting (AGM) … (Companies Act 2017, Sec 132):
• Must be held at least every year; must be held within 16 months from the date of
company’s incorporation & then every year thereafter
• Subsequent AGMs must be held within 120 days from closure of financial year
• If for some special reason, & on the request of the directors, & if the SECP allows it, then
this deadline can be increased to 30 more days
• Notice of this meeting must be sent to every shareholder & everyone else who is supposed
to receive the notice (e.g. auditors) at least 21 days before the date of the meeting
• Shareholders are entitled to vote on certain matters:
• Election or re-election of directors
• Approval of a final dividend
• Appointment of auditors
• Shareholders assess & discuss the company’s performance & financial situations
Meetings - General
• Annual General Meeting (AGM) … (Companies Act 2017, Sec 132):
• Called on the order of directors & not of the shareholders
• Must be held in the city where the registered office of the company is situated (listed
companies can hold their AGM in the city nearest to one hosting their registered office)
• If the company has shareholders who hold 10% or more shares in the company cannot personally
attend the meeting, then on their demand, the company must provide them with the facility of a
video-link, to help them participate in the AGM
• Any other company; a max. penalty of Rs. 25,000 & a daily penalty of Rs. 500.

Meetings - General
• A General Meeting can be declared invalid by a Court:
• If enough shareholders, who own a minimum of 10% of the company or voting
power, file a petition with the Court in this regard
• Reason for petition is that the proceedings of a general meeting be declared
invalid because of:
• A material defect or
• Omission in the notice or
• Irregularity in the proceedings of the meeting, preventing members / shareholders from
using their rights.
• Petition will also the Court to direct holding of a fresh general meeting
• Petition to the Court must be made within 30 days of the disputed
meeting
Meetings – Quorum (Shareholders)
• Number of shareholders must be present at the meeting
• Minimum number of shareholders is set by Companies Act 2017, Sec 135

• In case of a publicly listed company: 10 members representing at least 25% of the
voting power, either on their own account or as proxies
• In case of any other company: 2 members representing at least 25% of the voting
power, either on their own account or as proxies
• In case of single member company: single member present in person or proxy

• A listed company; a max. penalty of Rs. 500,000 & a daily penalty of Rs. 1,000,
• Any other company; a max. penalty
Business ofLaw:
& Corporate Rs.Corporation
25,000 & a daily penalty of Rs. 50047
Meetings – Quorum (Directors)
• Number of directors must be present at the meeting
• Minimum number of directors is set by Companies Act 2017, Sec 176

• For a listed company, one-third of directors or 4 directors, whichever is greater
• For a company other than listed company, quorum is according to the AOA
• Board of Directors must meet at least once in each quarter of a year
• Non-compliance of any requirements in this section will cost the Chairman &
the directors of:
• A listed company; a max. penalty of Rs. 500,000 & a daily penalty of Rs. 1,000,
• Any other company; a max.Business
penalty& Corporate Law: Corporation
of Rs. 25,000 & a daily penalty of Rs. 500 48
Meetings – Minutes & Records (Companies Act 2017, Section 151)
• Minutes of the general meetings are required to be maintained & should be
kept at the registered office of the company
• Minutes of the general meetings must be maintained in physical form for at
least 20 years & for good (i.e. permanently) in electronic form
• Minutes should be signed by the chairman of the meeting
• Minutes book of general meeting can be reviewed by shareholders without
any charge during business hours
• A shareholder can apply after 7 days of the general meeting for the certified
copy of minutes and the company must provide him/her with the minutes
within 7 days of the application for a nominal charge
• Non-compliance with the requirement of this section will cost the company a
max. penalty of Rs. 25,000Business
& a daily penalty of Rs. 500
& Corporate Law: Corporation 49
Meetings – Minutes & Records (Companies Act 2017, Section 178)
• Minutes of the meetings of the directors are required to be maintained &
should be kept at the registered office of the company
• Minutes of the board meetings must be maintained in physical form for
at least 10 years & for good (i.e. permanently) in electronic form
• Minutes should be signed by the chairman of the meeting
• Copy of minutes of Board of Directors (BoD) should be available to every
director within 14 days of the meeting
• Non-compliance with the requirement of this section will cost the
company a max. penalty of Rs. 25,000 & a daily penalty of Rs. 500

Owners - Shareholders
• Rights of Shareholders:
• Right to see financial reports & other company records:
• Documents of incorporation
• Lists of officers, directors, & debenture holders
• Minutes of directors’ & shareholders’ meetings
• Audited financial statements (not actual accounting records)
• Right to vote in shareholders’ meetings
• Right to transfer shares
• No personal liabilities for the debts of the company

• No rights to dividends (esp. for ordinary shareholders)
• No rights to force directors to declare dividends
Management - Directors
• Provide leadership & direction to the company
• Powers to the directors are driven from the Companies Act 2017 &
company’s Articles of Association
• Carries only 1 vote in the Board of Directors meeting
• Vote in board meetings on every decision taken by the directors
• Agent of the company whom shareholders (owners) have given the right
to make financial decisions on owners’ behalf (fiduciary duty)
• Expected to make decisions in the best interest of the company & its
stakeholders

• Only natural persons can be directors of the company; companies cannot
be directors of other companies
• Other companies & governments (federal & provincial) can nominate any
natural person to represent them as a director on the board of directors of
the company, provided they hold shares in that company
• Will be considered for the calculation of minimum number of directors required for
any company
• All directors are responsible for all areas of the company; governance
committee, compensation committee, audit committee, HR committee etc.
• A director can have a max of 7 directorships at any one time (excludes
directorships in a listed subsidiary)
• A director of a company:
• Must act in accordance with the Articles of Association of the company
• Must act in good faith to promote the purpose of the company for the benefit of its shareholders
as a whole
• Must act in the best interests of all of the company’s stakeholders (shareholders, employees,
community, & the environment)
• Must discharge its duties with due and reasonable care, skill and diligence
• Must exercise independent judgement
• Must not involve in a situation in which he / she may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company
• Must not achieve or attempt to achieve any undue gain or advantage either to itself or its
relatives, partners, or associates, & if found guilty of making any undue gain, he / she must pay
back that amount of gain to the company
• Cannot assign its office to anyone else & if such assignment is made, it will be considered a void
agreement Business & Corporate Law: Corporation 54
• There are minimum number of directors for each type of company:
• Single Member Company: at least 1 director
• Other Private Company: at least 2 director Companies Act 2017
• Publicly Unlisted Company: at least 3 directors Section 154
• Publicly Listed Company: at least 7 directors
• Companies must obtain written consents from potential / intending directors prior to their
election / appointment (Companies Act 2017, Sec 167)
• Companies must file this written consent with the registrar within 15 days of receiving this consent
• Appointment of first directors takes place through its Memorandum of Association; persons
whose names are entered in the MOA become directors of the company (Companies Act 2017, Sec
157)
• They retire at the date of first AGM
• Shareholders elect & appoint subsequent directors
• Eligibility to become a director can be set by the company through requiring such
specific conditions as holding a minimum number of shares or specific academic or
experience qualifications
• Companies Act 2017, Sec 153 states who cannot become a director:
• Minor
• Person of unsound mind
• Disqualified persons (convicts & insolvents)
• Lacking fiduciary behaviour at any time during the preceding 5 years
• Has been convicted by a court of law for an offence involving immorality
• Has been debarred from holding such office under any provision of this Act
• Does not have a NTN as per the provisions of Income Tax Ordinance, 2001
• Has been declared by a court as a defaulter in repayment of loan to a financial institution
• Is involved in the business of investment brokerage, or is a spouse of such person or is a director
or officer of a corporate brokerage
Businesshouse
• Procedure of election of directors … (Companies Act 2017, Sec 159):
• Existing directors of a company will fix the number of directors to be elected in the
general meeting 35 days before holding such meeting
• Company will send out a notice of the general meeting to its shareholders, & in that
notice, the company must tell them:
• Number of directors fixed, &
• Names of the Retiring Directors
• Any shareholder who wants to be elected as a director in the meeting, where that
election of directors will take place, must give its name to the company 14 days
before the meeting
• Company, then, must tell all of its shareholders, the names of the people who want
to be elected as directors 7 days before the date of the meeting
• Vacation of office:
• Casual Vacancy (Companies Act 2017, Sec 155):
• Directors are appointed for a 3-year term
• If a director resigns early & the vacancy must be filled, then it must be filled within 90 days
• If a director resigns early, the vacancy can remain unfulfilled, as long as the total number of directors
are more than the minimum number
• Removal from Office (Companies Act 2017, Sec 163):

• Only shareholders can remove a director from office by passing a resolution in the meeting
• Vacation by becoming ineligible to be director:

• Office must be vacated if director becomes ineligible to hold office
• Director absents itself from 3 consecutive meetings of the board or from all meetings held in a
consecutive period of 3 months,
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Law: of absences
Corporation 58
• SECP can also disqualify a person, from becoming a director, for 5 years (Sec 172):
• Conviction of an offence related to promotion, formation, management or liquidation of a
company,
• Constantly defaulting or going against any provision of this Act which requires any return,
account, or other document to be filed with, delivered or sent, to the SECP or the registrar,
• A person has been a director of a company which went bankrupt at any time while it was a
director
• Purpose of making a company, in which that person is / has been a director, is / was illegal
• The person who became the company’s director has been guilty of fraud, malfeasance,
breach of trust or other misconduct towards the company or towards any of its shareholders
• The affairs of the company of which it is a director have been conducted in a manner which
has deprived the shareholders of a reasonable return

• SECP can also disqualify a person, from becoming a director, for 5 years:
• The person has been convicted of financial irregularities or malpractices in a company
• The person is convicted of insider trading or market manipulation practices
• The person has been declared a defaulter by PSX
• The person has entered into a plea bargain arrangement with NAB
• The person has been convicted of allotment of shares of a company for inadequate
consideration
• The company of which that person is a director has acted against the interests of the
sovereignty and integrity of Pakistan, the security of the State, friendly relations with foreign
States
• The company of which that person is a director refuses to act according to the:
• Requirements of the MOA or
• Requirement of the Articles of Association or
• Companies Act 2017 or
• Fail to follow the directions of the SECP
Management – Directors
(Powers of the Board of Directors) (section 183)
• BoD can exercise the following powers on behalf of the company, & must do through a
resolution passed at their meeting:
• Issue shares,
• Issue debentures or any instrument in the nature of redeemable capital,
• Borrow money other than on debentures,
• Invest the funds of the company,
• Make loans,
• Authorize a director to enter into any contract with the company for making sale, purchase or supply of
goods or rendering services with the company,
• Approve financial statements,
• Approve bonus to employees,
• Incur capital expenditure on any single item or dispose of a fixed asset in accordance of any limit which
may have been specified,
• Declare interim dividends,
• Take over a company or acquire a controlling or substantial stake in another company, &
• Any other matter which may be specified.
Management – Directors
(Powers of the Board of Directors) (section 183)
• BoD CANNOT exercise the following powers on behalf of the company
(without the authorization of shareholders):
• Sell, lease, or dispose of any investment of the company which is more than 20% of
its net worth (based on preceding year’s audited financial statements)
• Sell, lease, or dispose of any assets of the company which is 25% or more of its value
of the assets (based on preceding year’s audited financial statements)
• Sell or dispose of the subsidiary of the company,
• Remit, give any relief, or give extension of time for the repayment of any debt
outstanding against any person, who is:
• A director of the company,
• Spouse of the director of the company, or
• Minor children of the director of the company.
Management – Chief Executive Officer
• Has whole or substantially the whole powers of the management of the affairs of
the company
• Empowered by directors to do various acts on behalf of the company
• Cannot exceed his / her authority which has been granted by BoD
• CEO is always a part of the BoD, but also reports to the BoD
• CEO & Chairman of the BOD cannot be the same person
• First CEO (section 186):
• Appointed by the directors (subscribers of the MOA)
• Its particulars (name, address etc.) are submitted to the registrar with the documents for the
incorporation of the company
• Hold office of the CEO up to the first AGM
• Can be rehired / reappointedBusiness & Corporate Law: Corporation 63
Management – Chief Executive Officer
• Subsequent CEO (section 187):
• Can be appointed for a maximum period of 3 years
• Retiring CEOs can be re-hired
• Must be hired within 14 days after the election of directors (slide 56) or the previous CEO leaves
before its term is over
• Its particulars (name, address etc.) are submitted to the registrar within 15 days after the date of
appointment of that person as the CEO
• CEO can be removed by passing a:
• Special resolution in general meeting of the company or
• Resolution in the BoD supported by at least 75% of the directors
• In case of a public company, CEO, its spouse, or minor children are prohibited to engage in
a business which competes with the business of the company in which that person is a
CEO or with the business of any of its subsidiary company
• Ineligibility to become a CEO: Business
same&ineligibility rules apply as for directors
Corporate Law: Corporation 64
Investments
• Companies can invest in shares and / or debentures of other companies
• Companies can also work with other companies to invest / form a third
company, a joint venture
• Management must put any major investment decision to a special
resolution, to be passed by shareholders, in a general meeting (annual or
extraordinary)
• Special resolution indicates the nature, period, & amount of investment, & any
terms & conditions attached to the investment (Companies Act 2017, Sec 199)
• All investments of the company must be made & held in the name of the
company itself & not in the name of any other person (Companies Act 2017, Sec 200)
Investments
• Company can give loans to its associated company only if the agreement is in writing, & it includes terms and
conditions, specifying:
• Nature, purpose, period of the loan,
• Rate of return,
• Fees or commissions,
• Repayment schedule for principal and return,
• Penalty clause in case of default or late repayments, &
• Security, if any, for the loan.
• Rate on such investment cannot be less than the borrowing cost of the investing company or the rate specified by
SECP, whichever is higher
• Directors of the investing company must also certify that the investment is made after due diligence & financial health
of the borrowing company & that the borrowing company has the ability to repay the loan as per the agreement
• Every company must maintain and keep at its registered office a register of investments in associated companies, with
all the important particulars of those investments
• Non-compliance with the section 199 will cost the directors:
• A penalty of Rs. 100 Million & a daily penalty of Rs. 500,000
• Jointly and severally, any loss suffered by the company because of that investment not being made according to this section.
Related Party Transactions … (Companies Act 2017, Sec 208)
• Companies can enter into contracts with related parties as per policies approved by the board
• Related Party includes:
• A director or its relative (spouse, siblings, parents, children),
• A key managerial personnel or its relative (spouse, siblings, parents, children),
• A firm, in which a director, manager, or its relative is a partner,
• A private company in which a director or manager is a member or director,
• A public company in which a director or manager is a director or holds with its relatives, any shares of its
paid-up share capital,
• Any body corporate whose CEO or manager acts according to the advice, directions or instructions of a
director or manager,
• A director or manager who acts according to the advice, directions or instructions of any person
• Any company which is a holding, subsidiary or an associated company of such company, or
• Any contracts wherein majority of directors are interested must be approved by a special
resolution of all members
Related Party Transactions
• Board may annul any contract or arrangement entered into by a director or employee with a
related party, without consent of board or shareholders
• In that case, the interested or concerned director will have to indemnify the company for any loss it incurs
• Details of all contracts or arrangements entered into with related parties are required to be
disclosed in the board’s report to the shareholders with the justification for entering into such
contracts or arrangements
• All companies must carry out asset purchase or sale transactions with its directors against cash
consideration only
• Where any contract or arrangement is entered into by a director, without obtaining the consent
of the board or shareholders, and if it is not ratified by the board or by the shareholders at a
meeting within 90 days from the date on which such contract or arrangement was entered into,
such contract or arrangement will be voidable at the option of the board and if the contract or
arrangement is with a related party to any director, or is authorised by any other director, the
directors concerned will indemnify the company against any loss incurred by it
Dividends
• Payments to shareholders by a company out of its distributable profits only
• Company’s Articles of Association contains the details in regards to how
dividends are supposed to be declared, voted on, & paid
• After a dividend has been declared, it cannot be withheld or deferred
• Usually, there is only 1 annual dividend (final dividend) but companies can
pay interim dividends, too (semi-annual or quarterly)
• Final dividend:
• Proposed by directors
• Approved, reduced, or rejected by shareholders (cannot be increased)
• Interim dividend:
• Proposed by directors
• Paid on a quarterly basis or semi-annual
Business & Corporatebasis
Law: Corporation 69
Dividends
• Payments of dividends:
• Dividends in kind can be distributed only in the form of shares of a listed company
• Listed company must pay its cash dividend through electronic mode, directly into bank account of the
shareholder (section 242)
• A company can withhold dividends of members who have failed to provide complete information to
the company
• Unclaimed Dividends & Shares:

• Dividend and share certificates, unpaid and unclaimed for 3 years, will be claimed by the Federal
Government, after the company giving a 90 days’ notice to the shareholders
• Owners of these shares or dividends have a max of 10 years, from the date of issuance of these shares
or dividends, to reclaim these shares & dividends by filing a claim with the Federal Government
• Companies must file with SECP a return within 30 days of the close of the financial year disclosing
unclaimed shares and dividends, as appearing in their books
Books of Accounts
• A company must maintain proper books of accounts
• These books of accounts must fairly present the state of the affairs of the company & a
fair record of all its transactions
• From these books of accounts, financial statements are made:
• Statement of Financial Position (Balance Sheet)
• Statement of Comprehensive Income
• Statement of Profit & Loss (Income Statement)
• Statement of Changes in Equity
• Cash Flow Statement
• All other special books & records as required by the SECP from companies in certain
industries, i.e. manufacturing or mining etc.
• Listed companies must file their audited financial statements with the Registrar within
30 days of AGM Business & Corporate Law: Corporation 71
Books of Accounts
• Books of account of every company for the past 10 financial years must be
kept in good order
• A company, which has been in existence for less than 10 years, must keep all
the vouchers relevant to any entry in such books of accounts in good order
• If a company fails to properly keep its books of accounts, every director,
including its CEO & CFO, of the company who caused such non-compliance,
will:
• In case of a listed company, be imprisoned for 2 years and penalized with fine which
will be more than Rs. 500,000 but less than Rs. 5,000,000, and with a daily fine of Rs.
10,000 for everyday the non-compliance continues on; and
• In case of any other company, be imprisoned for 1 year and penalized with fine which
will be Rs. 100,000 Business & Corporate Law: Corporation 72
Books of Accounts
• Listed companies must prepare the quarterly financial statements within: (Sec 237)
• 30 days after the close of first quarter,
• 60 days after the close of second quarter (half-year), &
• 30 days after the close of third quarter.
• Second quarter financial statements must be subjected to a limited scope review by
the statutory auditors of the company
• Quarterly financial statements must be posted on the company’s website for its
shareholders
• Quarterly financial statements must also be sent electronically to the SECP, Registrar,
& PSX within the time period specified above
• In case of non-compliance with this section, every director, including its CEO & CFO,
of the company who caused such non-compliance, will be penalized a max. penalty of
Rs. 500,000 & a daily penaltyBusiness
of Rs. 1,000
Books of Accounts – Annual Report
• On an annual basis, the directors of the company must present its audited financial
statements, in an AGM, within 120 days of the close of the financial year of the
company
• These are usually known as “Annual Report” of the company
• Directors authenticate & approve these financial reports & any other information available in
company’s annual report
• Must be signed by CEO, CFO, & a director of the company (in case of a listed company)
• Listed companies must send a chairman’s report, which includes the Chairman of the Board’s
review of the overall performance of the board, and a directors’ report, with audited financial
statements, to every shareholder, either by post or electronically, 21 days before the date of the
meeting
• Listed companies must also send 3 copies of the same set of documents listed above by post & 1
copy electronically, to the SECP, registrar, & PSX, & also post them on the company’s website
• Shareholders can review the annual report & discuss the information therein, in the AGM, with
the company’s management Business & Corporate Law: Corporation 74
Books of Accounts – Directors’ Report
• Must be prepared by BoD for each financial year of the company for a listed
company
• Not required to be made by a private company as long as:
• It is not a subsidiary of a publicly listed company, &
• It does not have paid-up capital of more than Rs. 3,000,000
• A private company may have to prepare a Statement of Compliance
• Directors’ report OR Statement of Compliance must be approved by the BoD &
signed by the CEO & a director of the company
• A Director’s Report is in the Annual Report, containing (section 227):
• Statements regarding the state of the affairs of the company
• Any details about dividends to be paid
• Any details about amounts Business
being&transferred to reserve account
Corporate Law: Corporation 75
• Names of the people who were directors of the company,
• Any specific changes & commitments affecting the financial position of the company,
specially, if it is happening between financial year end date & the date of the report
• Principal activities and the development and performance of the company‘s business
during the financial year,
• A description of the principal risks and uncertainties facing the company,
• Any changes that have occurred during the financial year in regards to the nature of the
business of the company or of its subsidiaries, or any other company in which the
company has interest,
• Comments on adequacy of internal financial controls,
• Discussion on reservations, observations, qualifications pointed out by auditors,
• Earnings per share,
• Any reasons for incurring losses
Business & Corporate Law: Corporation
& reasonable expectations of earning a profit, 76
• Any defaults in repayments of loans or any interest on those loans,
• Pattern of holding of shares in the prescribed form, if it’s a subsidiary company,
• Name & country of origin of holding company, if such company is a foreign company,
• Any other information.
• If a company does not issue a Directors’ Report or Statement of
Compliance, then every director, including its CEO, of the company, will:
• In case of a listed company, be imprisoned for 2 years and penalized with fine which
will be more than Rs. 500,000, and with a daily fine of Rs. 10,000 for everyday the
non-compliance continues on; and
• In case of any other company, be imprisoned for 1 year and penalized with fine
which will be Rs. 100,000
Books of Accounts – Audit
• Auditor is mandatory for companies under the Companies Act 2017
• Auditor is required to audit the financial statements of the companies
• Most of the companies (specially, publicly listed companies) are required to
appoint the practicing chartered accountants as their auditors
• First auditors must be appointed by directors within 90 days of the date of

incorporation of the company (Companies Act 2017, Sec 246)
• If directors fail to appoint auditors, then shareholders must appoint the auditors
• If directors & shareholders fail to appoint auditors, or even if the appointed auditors
are unwilling to act as company’s auditors, then the SECP will appoint the auditors
• Subsequent auditors must be appointed at the retirement of first auditors
• Recommended by the BoD after obtaining consent of the proposed auditors
• Appointed by the shareholders in the AGM
• Notice of their selection & appointment must be given to shareholders with the
notice of the general meeting
• First auditors can be re-hired as subsequent auditors
• Any shareholders holding 10% or more of the company can also propose an
auditor (after getting consent from the auditor)
• Notice of this proposal must be given by the shareholder to the company 7 days
before the date of the AGM
• Company, then, will send a notice of this to the retiring auditor & also post it on its
website
• Remuneration of auditors is always fixed by the body who hires them:
• First auditors  Directors,
• Subsequent auditors  Shareholders,
• Auditors appointed by SECP  SECP.
• Company must tell the registrar of the appointment of the auditor within 14 days
after such appointment
• Company must also send the written consent of the auditor to the registrar
• Auditors appointed by BoD or shareholders in an AGM can be removed through a
special resolution
• Any casual vacancy by the auditor must be filled by the BoD within 30 days
• Regardless of who hires auditors or when they are hired, auditors will always
retire at the conclusion of next
BusinessAGM
• Qualifications of Auditors (Companies Act 2017, subsection 247(1)):
• A Chartered Accountant for:
• Public company
• Public company’s subsidiaries
• Private company having a paid up capital ≥ Rs. 3 million
• Must have a valid certificate of practice from ICAP
• Must be a natural person or the firm of natural persons (cannot be another body
corporate) who has the valid certificate of practice from ICAP
• A CMA (Cost & Management Accountant) can also be an auditor for those
companies which do not come under any of the above-listed types
• If a partnership firm being appointed as auditors of a company, then only those
partners who meet the qualification criteria will be authorized to act & sign on
behalf of the firm [(Companies Act 2017, subsection 247(2)]
• Disqualifications of Auditors (Companies Act 2017, subsection 247(3)):
• A person who has been a director, officer, or employee of the company in the past 3
years
• A person who is a partner of a director, officer, or employee of the company
• A person who is an employee of a director, or officer, or employee of the company
• The spouse of a director
• A person who is a guarantor to a principal debtor indebted to the company & it’s not
in the usual course of business of such entities
• A person or a firm who, whether directly or indirectly, has business relationship with
the company other than in the ordinary course of business of such entities
• A person who is ineligible to act as auditor under the code of ethics of ICAP or ICMAP
• A person who has been convicted by a court of an offence involving fraud in the past
10 years Business & Corporate Law: Corporation 82
• Disqualifications of Auditors (Companies Act 2017, subsection 247(3)):
• A person, or his spouse, or minor children who hold any shares of an audit client or
any of its associated companies
• All partners of a firm who hold any shares of an audit client or any of its associated
companies
• If a proposed auditor holds shares in a company, & if he / she is hired as the auditor of that
company, then:
• That fact of holding shares must be disclosed on his / her appointment as auditor &
• That person must sell those shares within 90 days of such appointment
• A person who is indebted to the company [Companies Act 2017, subsection 247(4)]:
• A person is considered indebted if the company is a utility provider & the unpaid bills are for more
than 90 days
• A person is considered indebted if the company is a credit card issuer & the outstanding credit
card amount is more than Rs. 1 million.
• Disqualifications of Auditors (Companies Act 2017, section 247):
• A person cannot be an auditor of a company if he / she is disqualified to be an auditor
of that company’s holding company or subsidiary company
• If an auditor becomes disqualified to be an auditor of a company after its
appointment, then that auditor will be considered as vacating its office (“casual
vacancy”) from the date of that disqualification
• If a person becomes an auditor of a company or keeps being an auditor of a company,
even after its disqualification, then that person will be penalized for a max. penalty of
Rs. 500,000 & a daily penalty of Rs. 1,000 until such act continues on
• Appointment as auditor of a company of an unqualified / disqualified person will be
void
• If such an appointment is made by a company, then SECP can & will appoint a qualified person in
place of that disqualified / unqualified auditor
• Auditors have a right to access the records & information: (section 248)
• Auditors have a right to access at all times to the books, papers, accounts & vouchers
of the company
• Auditors have a right to ask questions & receive information from directors, officers,
or any employees of the company about the performance & finances of the
company
• Auditors have a right to attend any general meeting of the company
• Auditors have a right to be heard at any general meeting of the company which he /
she attends on any part of the business which concerns him / her as an auditor
• The auditor or a person authorized by him / her in writing must be present in the
general meeting in which the financial statements & the auditor’s report are being
presented
Books of Accounts - Audit
• Auditor have a duty: (Companies Act 2017, section 249)
• To conduct the audit and prepare the auditor’s report as per the requirements of
International Standards on Auditing (ISAs) as adopted by ICAP
• To examine the accounting records of the company to be able to form an opinion as to:
• Whether adequate accounting records have been kept by the company &
• Whether the company’s financial statements are in agreement with the accounting records.
Audit & Assurance: Auditor 86

• Auditor have a duty: (Companies Act 2017, section 249)
• To report on every Statement of Financial Position (Balance Sheet), Statement of Profit or Loss &
Comprehensive Income (Income Statement), & any other Financial Statements & Notes to the
Financial Statements, put before the company in general meeting, & that report will state,
whether or not …:
• auditors have obtained all the information and explanations, which were necessary for the purposes of the audit;
• in auditors’ opinion proper books of accounts as required by Companies Act 2017 have been kept by the
company;
• in auditors’ opinion the balance sheet and income statement have been prepared in conformity with Companies
Act and are in agreement with the books of accounts;
• in auditors’ opinion, the concerned accounts give the information required by the Act in the manner as required
and give a true and fair view;
• in auditors’ opinion, investments made, expenditures incurred & guarantees extended during the year, were for
the purposes of company’s business;
• in auditors’ opinion, zakat deductible at source under the Zakat and Usher Ordinance, 1980 (XVIII of 1980), was
deducted by the company and deposited in the Central Zakat Fund
• Auditor’s Report must: (Companies Act 2017, section 251)
• State the name of the auditor (engagement partner),
• Be signed,
• If the auditor is an individual, then the report must be signed by him / her,
• If the auditor is a firm, then the report must be signed by the partnership firm with the name of the engagement partner
• Be dated, &
• Indicate the place at which it is signed.
• Non-compliance by a company of sections 246, 247, 248, & 250 will cost the company a max.
penalty of Rs. 100 Million & a daily penalty of Rs. 500,000
• Non-compliance by auditors of sections 131 (statutory report, slides 41 & 42), 249, & 251 will
cost the auditors a max. penalty of Rs. 500,000 & a daily penalty of Rs. 1,000
• If the auditors issued the report to benefit themselves or make someone else lose a material
consideration, then they will, in addition to the daily penalty mentioned above, be imprisoned for 2
years & penalized a max. penalty of Rs. 1 Million

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BUSINESS &

• Corporation or Body Corporate:

Business & Corporate Law: Corporation 2

Business & Corporate Law: Corporation 3

Business & Corporate Law: Corporation 5

• Private Company (other than SMC):

Business & Corporate Law: Corporation 6

• Public Unlisted Company:

Business & Corporate Law: Corporation 7

• Company limited by Shares:

Business & Corporate Law: Corporation 9

Business & Corporate Law: Corporation 10

Business & Corporate Law: Corporation 12

Business & Corporate Law: Corporation 14

Business & Corporate Law: Corporation 15

• Purpose of Company OR Principal Line of Business:

• Must be available to its member / shareholder within 14 days of the request

Business & Corporate Law: Corporation 21

• All other companies first must get a Certificate of Commencement of

Business & Corporate Law: Corporation 23

Business & Corporate Law: Corporation 24

Business & Corporate Law: Corporation 25

Business & Corporate Law: Corporation 26

• Company can have 1 class of share capital or several different classes

Business & Corporate Law: Corporation 27

Business & Corporate Law: Corporation 28

Business & Corporate Law: Corporation 29

Business & Corporate Law: Corporation 33

Business & Corporate Law: Corporation 34

Business & Corporate Law: Corporation 35

Business & Corporate Law: Corporation 37

• Sponsors or controller shareholders of the company can also provide

Business & Corporate Law: Corporation 38

Statutory Annual General Extraordinary

Business & Corporate Law: Corporation 39

• Shareholders in general meetings may:

Business & Corporate Law: Corporation 40

Business & Corporate Law: Corporation 42

Business & Corporate Law: Corporation 43

Business & Corporate Law: Corporation 45

• Minimum number of shareholders is set by Companies Act 2017, Sec 135

• Non-compliance of any requirements in this section will cost:

• Minimum number of directors is set by Companies Act 2017, Sec 176

• Board of Directors must meet at least once in each quarter of a year

Business & Corporate Law: Corporation 50

• No personal liabilities for the debts of the company

Business & Corporate Law: Corporation 52

• Removal from Office (Companies Act 2017, Sec 163):

• Vacation by becoming ineligible to be director:

Business & Corporate Law: Corporation 59

• Unclaimed Dividends & Shares:

• First auditors must be appointed by directors within 90 days of the date of

Audit & Assurance: Auditor 86

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