Companies Act, 2017

Types of Companies and

Incorporation of a Company

Asad Ali (Lecturer)

BAHRIA UNIVERSITY
Management Studies Department, BUKC
 History of Companies Law in Pakistan

► Since inception of Pakistan; Companies Act, 1913 was

implemented

► Based of development locally and internationally the regulator

introduced Companies Ordinance, 1984 by repealing
Companies Act, 1913.

► After 33 years the Regulator introduced Companies Act, 2017

which repealed Companies Ordinance, 1984

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The Purpose of Companies Act, 2017

► Companies Act, 2017 regulates how corporations,

investors, shareholders, directors, employees,
creditors, and other stakeholders interact with each
other
► It deals the companies that are or
with incorporated registered under the
Companies Act

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The Purpose of Companies Act, 2017

► The most crucial aspect of corporate law relates to

raising capital for the business to operate i.e. through
equity financing and debt financing.

► The Companies Act, 2017 is the longest and

exhaustive piece of legislation ever in the
parliamentary history of Pakistan comprising of
515 sections and eight schedules, and took almost 12
years in the making.
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Sole Proprietor Business

► Federal Board of Revenue (NTN)

Partnership Business

► Firm Registrar

Private Limited Company / Single Member Company

► Security Exchange Commission of Pakistan

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Kinds and Type of Companies
(i) Public Limited Companies

(ii) Private Limited Companies

iii) Single Member Companies

(i) Company Limited by Shares

(ii) Company Limited by Guarantee

(iii) Unlimited Liability

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Characteristics of a Company
► Separate Legal Entity

► Limited Liability

► Perpetual Existence

► Common seal

► Transferability of shares

► Capacity to sue and be sued

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 Formation of a Company

Private Limited
Company

SMC
Private Limited Private Limited
Company Company

Difference Between Ordinance & Act

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Characteristics of Public Limited Companies
► Minimum three persons are required to form a
public limited company.

► No restriction on maximum number of members

► No restriction on the transferability of shares.

►It may issue a prospectus to invite general public to

subscribe to its shares, debentures or deposits
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 Characteristics of Public Limited Companies

► A public company can commence business only

when it receives the certificate to commence
business from the Registrar of Companies.

► A public company must hold a statutory meeting

and file statutory report.

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Characteristics of Private Limited Companies
► Minimum two persons are required to form
a private limited company

► Maximum number of members is restricted

upto 50

► The right to transfer shares is restricted as

per Articles of Association of a company.

► Invitation to public to subscribe capital

is prohibited

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Characteristics of Private Limited Companies

► A private company may commence business

immediately after receiving the certificate of
incorporation.

► A private company need not hold a statutory meeting

or file statutory report.

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Characteristics of Single Member Companies
► Single person is required to form a Single
Member private limited company

► The right to transfer shares is restricted as

per Articles of Association of a company.

► Invitation to public to subscribe capital

is prohibited

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Characteristics of Private Limited Companies

► A SMC may commence business immediately after

receiving the certificate of incorporation.

► A SMC need not hold a statutory meeting or file

statutory report.

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 According to the Companies Act, 2017
The process of company formation is divided into 4 stages

A Private Company needs only to go through the first two stages

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 Incorporation of Companies with the SECP

► Obtaining of name clearance letter from the Office

of the Registrar of Companies, Company
Registration Office, of the proposed company
(Form I)

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 Registration or Incorporation of Companies with the
SECP
• Presentation of documents
► Memorandum of Association
► Article of Association
► Addresses of all Directors or Subscribers
► Statement of Company’s Nominal Capital
► Declaration of compliance
► List of Directors
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Incorporation of Companies with the SECP

 Memorandum of Association (Sec 16) (Form II)

(i) Name of the Company

(ii) Domicile clause

(iii) Principal line of Business

(iv) Statement of Liability

(v) Authorized Capital

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Incorporation of Companies with the SECP

 Articles of Association

(i) Holding of meetings

(ii) Appointment of Directors

(iii) Declaration of dividends

(iv) Appointment of Company Secretary

(v) Preparation of Financial Statements

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 Incorporation of Companies with the SECP

Online Process:
Company Name, Reservation of Name, and Online Application

 Private Limited Company

 1.Promotion, 2.Registration, 3.Certificate, 4. Commencement of Business,
5. Certificate of Incorporation

 Public Limited Company

 1.Promotion, 2.Registration, 3.Certificate, 4. Capital Subscription
(Prospectus), 5. Commencement of Business
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 Incorporation of Companies with the SECP
Consequences of Incorporation
• Separate Legal Entity (Can Sue or Can be Sued)
• Company is liable for its own debt (Limited to shares)
• Company can sale / purchase/ own property
• Contractual Capacity
• Borrowing
• Crime

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 CASE STUDY
Salomon v Salomon

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 Salomon v Salomon
► Salomon v A Salomon and Co Ltd [1896] is a
landmark case concerning, inter alia, the doctrine of
the company’s separate legal personality and
debenture.

► Company law – Landmark case – Debenture –

Director –  Separate legal personality – Limited
liability – Salomon principle – House of Lords

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Facts:
 In the case of Salomon v A Salomon and Co Ltd [1896, the appellant, Mr Salomon, was a boot
manufacturer.
 The respondent company, formed to purchase and take over Mr Salomon’s business, had seven
subscribers (the requisite statutory minimum in those days).
 The purchase price decided to be £39,000. Although, the company’s real price was about
£10,000.
 The company paid for the business partly by issuing Mr Salomon with 20,000 £1 shares and also
issuing him £10,000 in debentures (a document issued by a company to evidence a loan).
 Following a depression in the boot trade, the new company encountered trading difficulties.
 The appellant attempted to keep the company going by lending it money raised by way of a
mortgage. However, it did not work and the company went into liquidation. As a result, there was
only £1,055 to satisfy the unsecured debts of £7,773 plus Mr Salomon’s debenture. The latter
claimed £1,055 as a debenture.
 The company liquidator suggested that instead of taking money from the company, make Mr
Salomon personally liable and recover the debt from his personal assets. Therefore, the liquidator
wanted to ignore the fact that Mr Salomon did not act as a sole trader anymore, but he operated
with limited liability.

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Issues:
► Whether the appellant was entitled to his debenture?

► Whether the company possessed a separate legal

personality?

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 Held:
• The court at first instance and the Court of Appeal found in favor of the
liquidator.
• They refused to recognized the existence of A Salomon & Co Ltd as a
separate legal person. They saw the company as nothing more than Mr.
Salomon’s nominee, agent or trustee.
• However, on appeal, the House of Lords unanimously reversed the findings
of the lower courts. In particular,
• The House of Lords s unanimously reversed the findings of the lower courts.
• It held that that the company was properly incorporated under the 1862 Act.
Once an association has been incorporated, the company is an independent
entity, separate from those who had set it up.
• Therefore, the company possessed a separate personality from its
shareholders and directors. It was a mistake to consider the company as the
agent Mr. Salomon. In fact, Mr. Salomon was the company’s agent.
• The House of Lords concluded that as a secure debenture holder Mr.
Salmon’s had a priority claim to those credits who owned the unsecured
debenture.
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 Case Summary
The decision in the Salomon case was of vital importance at the
time. Shortly after the industrial revolution, commerce and
capitalism were on the increase and this decision encouraged
individuals to provide money for businesses, without the threat of
liability if the company became insolvent. This increased the
United Kingdom’s economic prosperity as more people were
willing to take risks with their money within the safety buffer of
limited liability.

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 Any Questions?

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 THANK YOU

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