Chapter 1

Question 1

Law and Governance of a Company

Answer 1

Companies are created and governed by the Companies Act, 2017. Key documents: Memorandum of Association (MOA) and Articles of Association (AOA).

Question 2

Memorandum of Association (MOA)

Answer 2

Constitutional document focusing on external stakeholders. Defines the company’s objectives, powers, and scope of activities.

Question 3

Articles of Association (AOA)

Answer 3

Bye-laws focusing on internal procedures of the company. Regulates the management of the company and the rights of shareholders.

Question 4

Definition of Company

Answer 4

A company formed and registered under this Act or company law, including the repealed Companies Act and Companies Ordinance.

Question 5

Body Corporate or Corporation

Answer 5

Includes: A company incorporated under this Act or company law, a company incorporated outside Pakistan, or a body corporate declared in statute. Excludes: Co-operative societies and entities specified by the Federal Government.

Question 6

Foreign Company

Answer 6

A company incorporated outside Pakistan that has a place of business or liaison office in Pakistan or conducts business activities in Pakistan.

Question 7

Companies Limited by Shares

Answer 7

Liability of members is limited to the amount unpaid on their shares.

Question 8

Companies Limited by Guarantee

Answer 8

Liability is limited to the amount members guarantee to contribute if the company goes into liquidation. May or may not have share capital.

Question 9

Unlimited Companies

Answer 9

Liability of members is not limited, but otherwise has the advantages of a normal company.

Question 10

Public Company

Answer 10

A company that is not a private company. Includes listed and unlisted companies.

Question 11

Listed Company

Answer 11

A public company whose securities are listed on and traded on a stock exchange.

Question 12

Unlisted Company

Answer 12

A public company whose securities are not listed on a stock exchange.

Question 13

Private Company

Answer 13

Includes single-member companies and other private companies with up to 50 members and restrictions on share transfers and public invitations.

Question 14

Single Member Company (SMC)

Answer 14

A private company with a single member who is also the director. ‘SMC-PVT Limited’ is added to the name.

Question 15

Other Private Company

Answer 15

A private company with at least two members but no more than 50. Restrictions on share transfers and public invitations apply.

Question 16

Public Sector Company

Answer 16

A company controlled or owned directly or indirectly by the Government or its agencies, with at least 51% of voting securities held by the Government or its agencies.

Question 17

Holding Company

Answer 17

A company that has control over another company (subsidiary).

Question 18

Subsidiary Company

Answer 18

A company controlled by a holding company through board composition or voting securities. Includes subsidiaries of subsidiaries.

Question 19

Wholly Owned Subsidiary

Answer 19

A company where all shares are owned by another company or statutory body.

Question 20

SECP (Securities & Exchange Commission of Pakistan)

Answer 20

Operational since 1st January 1999. Regulates companies, insurance companies, banking companies, modarbas, and non-banking finance companies. Replaced the Corporate Law Authority.

Question 21

Registrar

Answer 21

An officer designated by SECP responsible for registering companies, receiving documents, keeping records, and inspecting books and records.

Question 22

Officials

Answer 22

Includes directors, chief executives, CFOs, company secretaries, and other authorized officers of a company.

Question 23

Board of Directors

Answer 23

The board of directors of a company.

Question 24

Members

Answer 24

Subscribers to the MOA become members upon registration. Includes anyone holding shares or agreeing to become a member.

Question 25

Ordinary Resolution

Answer 25

A resolution passed by a simple majority of members entitled to vote and present in person, by proxy, or through postal ballot.

Question 26

Special Resolution

Answer 26

A resolution passed by at least 3/4ths of members entitled to vote, with at least 21 days’ notice specifying the intention to propose it as a special resolution.

Question 27

Voting Rights

Answer 27

Members have the right to vote on company matters in person, by proxy, through video-link, or postal ballot.

Question 28

Association Not for Profit

Answer 28

Must fulfill conditions set by SECP to obtain a license. Cannot distribute dividends to members and must promote lawful objectives.

Question 29

Conditions for Revocation of License

Answer 29

Includes failure to comply with license terms, conducting affairs prejudicial to public interest, or engaging in unlawful activities.

Question 30

Effect of Revocation of License

Answer 30

The company must cease activities (except for winding up), transfer net assets, and cannot solicit donations. The license may be revoked after providing an opportunity to be heard.

Question 31

Obligation to Register as a Company

Answer 31

Associations, partnerships, or entities of more than 20 persons must register as a company under the Companies Act, 2017. Penalty for non-compliance: Level 1 and personal liability for all incurred liabilities.

Question 32

Exceptions to Registration

Answer 32

Includes societies, joint family businesses, partnerships of joint families, and certain professional partnerships where limited liability is not permitted.

Question 33

Mode of Forming a Company

Answer 33

For public companies: 3 or more persons; for private companies: 2 or more; for single member companies: 1 person. Special provisions for SMCs regarding succession and management.

Question 34

Steps of Incorporation

Answer 34

1. Obtain name availability from the registrar. 2. Prepare MOA and AOA with supporting documents. 3. File documents with the registrar. 4. Obtain the certificate of incorporation.

Question 35

Registration of MOA & AOA

Answer 35

A declaration of compliance must be filed. Registrar will register only if satisfied with lawful purposes and compliance with the Act.

Question 36

Certificate of Incorporation

Answer 36

Issued by the registrar. States the company’s name, registration number, date of incorporation, type of company (private/public, limited/unlimited).

Question 37

Effect of Registration

Answer 37

Subscribers to MOA and subsequent members become a body corporate with perpetual succession, capable of exercising company functions and holding shares.

Question 38

Liability for Carrying on Business with Fewer Members

Answer 38

If a company’s members fall below the minimum number and it continues business for more than 180 days, members may be personally liable for company debts contracted during this period.