Company

Nature of the Company

• Companies Act 2017
– Federal law with 515 sections
– Securities Exchange Commission of Pakistan
(SECP) as regulator
• Previously Companies Ordinance 1984
 Nature of the Company
• A company is a voluntary association of
persons for profit with capital divisible into
transferable shares, with limited liability
having corporate body and common seal.

• According to Companies Act 2017 – a

company means a company formed and
registered under this act or the company law
 Characteristics of Company
• Voluntary association
• Number of members
– At least 2 for private company
– At least 3 for listed company
• Number of directors
– Private company shall have at least 2 directors
– Listed company shall have minimum 7 directors
• Artificial person
 Characteristics of Company
• Limited Liability
• Perpetual succession
• Transfer of ownership/ shares
• Common seal
• Separate property
• Separate owners and management
• Strict regulations
• Dissolution
• Disclosure of company affairs
 Advantages of Company
• Large capital • Democratic organization
• Limited liability • Employment
• Transfer of ownership/ opportunities
shares • Investment opportunities
• Permanent life • Source of taxes
• Efficient management • Public confidence
• Scope for expansion
 Disadvantages of Company
• Difficult formation • Double taxation
• Lack of secrecy • Accumulation of wealth
• Slow decision making • Chances of monopoly
• More government • Influence governments
regulations
• Conflict of interest
Private Company
 Private Company
• Private company means a company which:
– Restricts the right to transfer its share
– Limits the number of member to 50 ( and not
including persons who are employees of the
company)
– Prohibits any invitation to the public for any form
of shares
 Characteristics of Company
• Some restrictions on the transfer of shares
• Can be formed by at least 2 persons and
maximum shall be 50
• Cannot offer shares, debentures to public
• Raises capital by individual offerings to
relatives, friends, directors, promoters or
existing members
• Must add ‘Private Limited’ at the end of its
name
 Transfer of Shares
• Member shall inform the board about his/ her
intentions to sell shares
• The board shall offer those shares to existing members
for sale to existing members within 10 days.
• The offer shall specify the number of shares, price and
time for acceptance
• If offer is not taken, the board may offer to other
members
• If members refuse to accept offer, the shares may be
sold to any other person by the member selling shares
 Privileges of Private Company
• No of members (2 to 50)
• No of directors (minimum 2)
• Statutory meeting – not a requirement
• Prospectus – not a requirement
• Filing of annual returns – not a requirement if
paid-up capital is not more than 1 million
• Interested director can vote in board meetings
• Qualified auditor – not required if paid-up capital
is less than 3 million
 Privileges of Private Company
• Audit of financial statements – not required if
paid-up capital up to 1 million
• Director’s report – not required if paid-up
capital is less than 3 million
• Consolidated financial statements – not
required to publish if capital not exceeding 1
million
 Private and Public Company: Differences
Private Company Public Company
• Minimum Members
– Minimum 2 – At least 3
• Maximum Members – Unlimited members
– Up to 50
• Sale of Shares – Can invite general public of
– Cannot invite general public for purchase of shares
purchase of shares
• Commencement of Business – After fulfilling conditions relating
minimum subscription and
– After certification of incorporation
qualification shares

• Statutory Meeting – Required to hold meeting and

– Not a requirement submit report
 Private and Public Company: Differences
Private Company Public Company
• Issue of Prospectus
– Cannot issue
– Cannot issue
• Transfer of Shares – No restriction of transfer of shares
– Some restrictions
• No of Directors – Minimum 7 directors
– At least 2
• Filing of Returns – Filling annual returns is a
– Not required if capital less than compulsory requirement
1 million
• Word ‘Limited’ – ‘Limited’
– ‘Private Limited’
 Private and Public Company: Differences
Private Company Public Company
• Qualification Shares
– Directors are required to purchase
– Directors are not required to
qualification shares
purchase qualification shares
• Interested Directors – Cannot vote in board meetings
– Directors interested in any
contract can vote in board
– Minimum 7 directors
meeting
• Audit
– Not a requirement having – Audit is a compulsory
capital less than 3 million requirement
Formation of Company
 Formation of Company
• Formation of company consists of:
– Promotion
– Incorporation
– Commencement of business
 Prompter
• Promoter means a person who:
• is names as subscriber in memorandum
• has been named as promoter in prospectus
• has control over company affairs as
shareholder or director
• on whose advice, the board of directors acts
 Functions of a Promoter
• Business idea (which is profitable)
• Preliminary contracts (on behalf of company yet
to be formed)
• Determines name and place for the company
• Selects first directors and members
• Arrangements to prepare memorandum, articles
and prospectus
• Appoints brokers, legal advisors and auditors
• Assembles resources for starting business
• Applies for the registration of the company
 Rights and Duties of Promoter
Rights Duties
• Preliminary expenses • No secret profits from
• Claim remuneration for preliminary contracts
services • Disclosure of facts
 Incorporation of Company
• Manual Method
• Online Method
Manual Method of Company Registration
• Prior Approval
Banking company Ministry of Finance
State Bank of Pakistan
Non-banking finance company SECP

Security service providing Ministry of Interior

company
Corporate brokerage house Stock Exchange

Money exchange company State Bank of Pakistan

Association not for profit License from SECP

(NGO)
Trading organization License from Ministry of
Commerce
Manual Method of Company Registration

• Approval of company name

• Submission of Documents
– ID Card/ passport
– Memorandum of association
– Articles of association
– Declaration of compliance
– Registered office
– List and Particulars of first directors
– Written consent from directors
– Registration fee
Manual Method of Company Registration

• Certificate of incorporation
– Name and registration no of the company
– Date of incorporation
– Whether it is private or public company
– Whether it is limited or unlimited company
 Online Registration of Company
• User registration on SECP website
• Company name reservation
• Information to be provided as in manual
method
 Commencement of Business
• Minimum subscription
• Qualification shares by the directors
• Declaration of fulfilling all requirements
• Statement in Lieu of prospectus

• Certificate of commencement of business

Memorandum and Articles
 Memorandum of Associations
• Memorandum of association acts as Charter
of the company defines the scope and
limitations on powers of the company
established under the Act.

• Articles of association contains the rules and

regulations for the internal management of a
company
 Memorandum of Associations
• It contains:
– The conditions on which a company is
incorporated
– Provides the information regarding the share
capital and liabilities of the company
– Public document accessible to anyone
– Provides basis on which company can enter into
contracts with third parties
– Signed by the people who form a company
 Contents of Memorandum
• Complete Name of the company
• Registration office
• Objectives of the company
• Liability of the members of the company
• Details of Capital
– Authorized capital
– Number and value of shares
• Subscription of the company
 Articles of Association
• Amount of share capital (if public company)
• Voting and other rights of different kinds of shares
• Rules of division and allotment of share capital
• Rules of various company meetings
• Method of voting and proxy
• Definitions of important words and phrases used
• Adoption of preliminary contracts (if any)
• Rules for shares (issuance, transfer, redemption etc)
 Articles of Association
• Method of increasing, decreasing or altering
capital
• Rules of declaration of dividend and method of
payment
• Rules relating accounts, audit, depreciations and
reserves
• Methods of securing loans
• Procedure of winding-up the company
• Rules relating appointments, rights, duties,
liabilities, qualification, removal and
remuneration of board members
 Articles of Association
• Rules for payment of commission/ brokerage
• Rules of arbitration for settlement of accounts
 Prospectus
• Any advertising, notice or information and
terms and conditions by which the general
public is invited to purchase the shares or
debentures of a company
• Permission from SECP is necessary before
offering
• Validity is 60 days
Shares and Debentures
 Share Capital
• Capital means amount of money with which a
business is started.
• In case of company, share capital is amount of
money raised by the company by issuing
shares
 Kinds of Share Capital
• Authorized capital – maximum amount of
share capital a company is authorized to issue.
Also called registered or nominal capital
• Issued capital – amount of share capital
issued to public
• Subscribed capital – part of issued capital for
which a company received public applications
• Paid-up capital – part of subscribed capital
company received in form of cash
 Shares
• Capital of a company is divided into several
small units which is called a share
• According to Companies Act – ‘Share means
share in the share capital of a company’
 Kinds of Shares
• Ordinary shares
• Preferred shares
• Convertible shares
• Deferred shares – generally issued to the
promoters for their services in company
formation
 Issuing Shares
• Shares at Par
• Shares at Premium
• Shares at Discount
• Bonus Shares
• Right Shares – offer shares to existing
shareholders in proportion of their existing
share holdings
 Debentures
• Debentures are issued by the company to
secure loan
• Written document of acceptance issued by the
company to secure loan and including the
details relating interest, surety and terms and
conditions of returning the loan
 Debentures
• According to Companies Act – ‘debenture
includes debenture stock, bonds, term finance
certificates or any other instrument of a
company evidencing a debt, whether
constituting a mortgage or charge on the
assets of the company or not’
 Types of Debentures
• Unsecured debentures
• Secured debentures
• Bearer debenture
• Registered debentures
• Redeemable debentures
• Convertible debentures
Limited Liability Partnership
 Limited Liability Partnership (LLP)
• Limited Liability Partnership Act, 2017
• Limited liability partnership combines the
characteristics of partnership and company.
• It has separate legal entity apart from its
partners
• Liability is limited
 Characteristics of LLP
• Separate legal entity
• Perpetual life
• LLP shall appear in the name of firm
• Atleast 2 partners
• Atlest one designated partner who shall be
resident of Pakistan
• Transferable interest/ share
 Characteristics of LLP
• A partnership firm or private limited company
can be converted into LLP
• Limited liability