Chapter 1 Company Introduction, Types and Registration Flashcards
What is included in Company Law?
[Chapter 1]
Company law includes:
- repealed Companies Act 1913,
- repealed Companies Ordinance 1984 and 2016, and
- Companies Act 2017.
List down salient features of a company as compared to other businesses.
[Chapter 1]
- Separate Legal Status:
- Share and Share Capital
- Separation of ownership from management
- Limited Liability of Members/Shareholders:
- Legal Obligation
- Liability to pay tax
- Perpetual succession
What is meant by Separate Legal Status?
[Chapter 1]
A company is considered by law as an artificial person having separate legal status from its owners. This concept is called “Separate Legal Status of company” or “Doctrine of Corporate Personality”.
What are consequences of separate legal status of a company?
[Chapter 1]
Company can:
- contract in its own name.
- own its assets..
- be liable for its debts.
What are different characteristics of shares of a company?
[Chapter 1]
- Shares are a form of property.
- Shares have rights and liabilities.
- Shares are transferable.
What are some rights attached to shares of a company?
[Chapter 1]
- voting rights.
- rights to receive notice and attend general meetings.
- rights to receive dividend, right shares, bonus shares.
- rights for redemption or conversion of shares.
Define “Voting right”?
[Chapter 1]
“Voting Right” means right of a member to vote on a matter in general meeting, either present in person or through video-link or by proxy or by means of postal ballot.
Explain concept of “Limited Liability of Members/ Shareholders.
[Chapter 1]
It means liability of members (to pay debts of a company) is limited upto a certain amount:
- upto unpaid amount on face value of shares (in case of company Limited by Shares), or
- upto the amount each members guarantees to contribute to the assets of company at time of winding up (in case of company Limited by Guarantee).
Which types of laws/regulations govern a company?
[Chapter 1]
- Companies Act, 2017.
- Memorandum of Association.
- Articles of Association
Define “Body Corporate” or “Body Corporation”.
[Chapter 1]
Body corporate or corporation includes:
(a) A company incorporated under Company Law.
(b) A company incorporated outside Pakistan registered in foreign countries.
(c) A body corporate declared as body corporate under relevant statute (e.g. State Bank of Pakistan).
However, following are NOT considered Body Corporate:
- a co-operative society registered under any law relating to co-operative societies, or
- any statutory body which Federal Government specifies by notification.
Define “Foreign Company”?
[Chapter 1]
Foreign company means a company incorporated outside Pakistan, which:
- conducts any business activity in Pakistan, or
- has a place of business or liaison office in Pakistan (whether itself or through agent, whether physically or electronically).
In how many types, a company can be classified?
[Chapter 1]
Types on the basis of Status:
- Private Company (Single Member Company, and Other than SMC)
- Public Company (Listed Company, and Unlisted Company)
Types on the basis of Liability:
- Limited by Shares
- Limited by Guarantee
- Unlimited Company
Other companies:
- Holding Company and Subsidiary Company
- Association not for profit
Define “Private Company”?
[Chapter 1]
Private Company means a company which, by its articles:
- Limits maximum number of its members to be 50 excluding employees (joint-holders are considered as 1 member).
- Restricts right to transfer its shares, and
- Prohibits invitation to general public to subscribe for shares (or debentures or other redeemable capital) of the company.
What rules are applicable on a Single Member Company?
[Chapter 1]
Registered with only one member, who is also the director.
In case of death of member, a nominated person:
- Manages the affairs of company as trustee, and
- Transfers the shares to legal heirs.
- If more than one legal heirs, such company ceases to be an SMC.
Define “Public Company”?
[Chapter 1]
Public Company means a company which is NOT a private company.
Now, reproduce definition of a private company here.
What is meant by a “Company Limited by Shares”?
[Chapter 1]
This is a company in which liability of members is limited by the memorandum upto unpaid amount (if any) on face value of share they acquired.
What is meant by a “Company Limited by Guarantee”?
[Chapter 1]
This is a company in which liability of members is limited by the memorandum to such amount as members agree to contribute to the assets of company at time of winding up.
If a person ceases to be a member, he is also liable to contribute within one year afterwards, for the debts contracted before he ceased to be a member.
Define a “Public Sector Company”?
[Chapter 1]
Public sector company means a company:
- Whose more than one-half voting securities are held by Govt. or any agency of Govt, or
- Govt or any of its agency has power to appoint majority of its directors.
It also includes a public sector association not for profit, licensed by Commission. However, nomination of directors by Commission on board of securities exchange or any other entity shall not make it a public sector company.
Define a “Holding Company”?
[Chapter 1]
A company will be a holding company of other company if:
- it controls more than one-half voting securities of other company, either by itself or together with one or more of its subsidiary companies; or
- it controls composition of board of other company. Composition of board is controlled when a company can appoint or remove all or majority of directors of other company.
Define a “Subsidiary Company”?
[Chapter 1]
A company will be a subsidiary company of other company if:
- Other company controls more than one-half of its voting securities, either by itself or together with one or more of its subsidiary companies; or
- Other company controls its composition of board. Composition of board is controlled when a company can appoint or remove all or majority of directors of other company.
What are minimum number of members of a company?
[Chapter 1]
Mode/Type of Company
Minimum Number of Members
Single Member Company
1
Private Company (other than SMC)
2
Public unlisted company
3
Public listed company
7
What are consequences if number of members reduce minimum required by law?
[Chapter 1]
If a company carries on a business with less than minimum number for more than 180 days, every member who knows this fact, shall be personally liable for debts of the company contracted after 180 days.
What are some powers and duties of Registrar?
[Chapter 1]
- To register memorandum/articles, and issue certificate of incorporation of a company.
- To approve name of a company, and rectification of name.
- To approve alteration of memorandum and articles of association.
- To issue certificate of commencement of business.
- To receive various notices or documents etc. (e.g. financial statements, special resolution, prospectus, statutory report, appointment of directors/chief executive/auditor)
- To extend time to hold AGM for companies other than listed.
- To keep the record of mortgages and charges.
- To call the officers of the company (including directors) for the information and explanation.
- To inspect books and records of company, and seize them (after obtaining permission from SECP) if he believes that seizure is necessary to reach out certain facts.
How SECP and its offices are organized?
[Chapter 1]
- Head office of SECP is in Islamabad and
- It has 8 regional offices (called Company Registration Offices) i.e.
- 1 in Islamabad,
- 4 in each provincial capitals, and
- 1 each in Multan, Faisalabad and Sukkur.
What are Functions of SECP?
[Chapter 1]
To regulate:
- All the companies.
- Banking companies, and Non-banking finance companies.
- Insurance Companies and Modaraba Companies
What are Powers and Duties of Commission?
[Chapter 1]
Commission has powers:
- To register “Associations not for profit”.
- To allow certain words to be included in name of a company.
- To confirm change in “Registered Office” Clause of memorandum.
- To approve Prospectus for issue.
- To extend time to hold AGM for listed companies.
- To approve loan to directors of a listed company.
- To call general meetings if company makes default to hold them.
- To listen appeals against decisions of Registrar.
Which specific powers have been given to Court by Companies Act?
[Chapter 1]
Court has powers to declare following as void (i.e. invalid)
- Election of directors.
- General meeting or its proceedings.
- Resolution to vary shareholders’ rights.
Define the term “Member”?
[Chapter 1]
Member includes:
- Subscribers to the memorandum of association, who become members of the company on its registration.
- A person who becomes shareholder of any class or kind of shares in the company, and whose name is entered in the register of members (for company having share capital).
- A person who agrees to become a member of the company, and whose name is entered in the register of members (for company NOT having share capital).
What is “Ordinary Resolution”?
[Chapter 1]
Ordinary resolution means a resolution which is:
- passed at a general meeting
- by a simple majority of members who are entitled to vote and
- are present in person or by proxy, or through postal ballot at general meeting.
What is “Special Resolution”?
[Chapter 1]
Special resolution means a resolution which is:
- passed at general meeting (for which notice has been given atleast 21 days before meeting specifying proposed resolution)
- by atleast 3/4th majority of members who are entitled to vote and
- are present in person or by proxy, or through postal ballot at general meeting.
Exception: A special resolution may be passed by giving notice for less than 21 days, if all the members entitled to attend and vote at any such meeting so agree.
What are the conditions for grant of license as “Associations Not for Profit”?
[Chapter 1]
- It is to be formed as a public limited company for useful social objects e.g. promoting science, arts, commerce, education, religion, sports, health, social welfare, charity or any other useful object.
- It prohibits payment of dividend to its members.
- It applies its profit and other income in promoting its objects.
- Its objects and activities are not against the laws, and national interests of Pakistan.
- Its Memorandum and articles shall be in accordance with specified form and approved by Commission.
* Commission may also impose additional conditions, and such conditions shall be inserted in memorandum and/or articles of company.*
What privileges are given to an association not for profit?
[Chapter 1]
On registration, such association shall enjoy all the privileges and liabilities of a limited company. However, it does not have to add words “Limited” or “(Guarantee) Limited” in its name.
Under which circumstances, Commission can revoke the license of “Association not for profit”?
[Chapter 1]
- If management has failed to comply with terms and conditions subject to which a license is granted, or
- If affairs of the company are against public interest, or
- If company has failed to file with Registrar its financial statements or annual return for 2 consecutive years, or
- If company has acted against the laws, and national interests of Pakistan, or
- Number of members is reduced below 3, or
- If:
- company has conducted unlawful or fraudulent activities, or
- its management fails to maintain proper accounts, or commits fraud, or
- Its management is involved in terrorist financing or money laundering, or
- Management refuses to act according to requirements of Memorandum or Articles or Companies Act, or Directions of Registrar and Commission, or
- Company is not carrying on its business or is not in operation for one year, or
- If it is just and equitable to revoke license.
However, before revocation, Commission shall:
- give written notice to company of its intention to do so, and
- provide an opportunity of being heard.
What are the requirements to be fulfilled by “Association Not For Profit” if its license is revoked?
[Chapter 1]
- stop all operations except recovery.
- Company shall not ask or receive donation.
- Within 90 days, all the assets shall be transferred to another similar company (after payment of liabilities). However, company can retain reasonable expenses for winding up.
Afterwards, company shall file a report to Registrar within 15 days which shall include specified information and documents.
What are consequences if license of “Association Not For Profit” is revoked and it does not fulfill requirements of Companies Act?
[Chapter 1]
If company fails to meet any of the above requirements within the specified or extended period (if allowed), Commission may:
- appoint an Administrator to manage affairs of the company, and
- initiate necessary proceedings for winding up of the company.
What restrictions are placed on members/officers of an “Association Not For Profit” if its license is revoked?
[Chapter 1]
They (or their family members) shall not hold any office in the transferee company for 5 years from date of transfer of assets.
Which organizations are required to be registered as a Company?
[Chapter 1]
Every partnership or AOP with more than 20 persons and formed for gain.
Which organizations are not required to be registered as a company:
[Chapter 1]
- A partnership of lawyers, accountants.
- A society, body or AOP incorporated under any law in Pakistan.
- Joint family carrying on joint family business.
- Partnership of two or more joint families.
What is the Penalty if a partnership exceeding 20 persons is not registered as a company?
[Chapter 1]
In case of non-compliance:
- a penalty of level 1 will be imposed, and
- person shall be personally liable for liabilities of the business.
What is the process to reserve the name of a company?
[Chapter 1]
- Promoters make application to Registrar.
- Name is reserved upto 60 days.
- Reservation will be cancelled if incorrect information is filed.
- If registrar refuses, appeal is filed to Commission.
Which documents are required to be filed with Registrar to register a company?
[Chapter 1]
- Memorandum of Association signed by subscribers, witnessed and dated.
- Articles of Association signed by subscribers, witnessed and dated (optional for company limited by shares)
- Declaration of compliance.
- Address for correspondence.
Which matters are considered by Registrar before registering a company?
[Chapter 1]
Register shall issue “Certificate of Incorporation” if:
- all requirements of Companies Act 2017 have been met, and
- documents are valid,
Which information is included in Certificate of incorporation?
[Chapter 1]
- name of company,
- registration number,
- date of incorporation,
- status (public or private) and
- liability of company (limited by share, limited by guarantee or unlimited).
On which grounds, Registrar may refuse to register a company?
[Chapter 1]
if:
- any document is defective, or
- does not comply with requirements of law.
What options are available to subscribers if Registrar refuses to register a company?
[Chapter 1]
- Subscribers may remove deficiency, and may file revised documents, or
- Subscribers may file an appeal to Commission in writing within 30 days of refusal.
Decision of Commission shall be final.
What are the effect of incorporation of a company (or effects of registration of memorandum/articles)?
[Chapter 1]
- A body corporate has been formed.
- The body has separate legal status, perpetual succession and its own common seal.
- Company shall have same Status and Registered office as mentioned in the application for registration.
- Subscribers become members.
- Persons named as proposed director in articles, are deemed as director.
What is the status of contracts by promoters before incorporation of a company?
[Chapter 1]
A company cannot be held liable for pre-incorporation contracts, because company did not exist at time of contract. Promoters are personally liable for those contracts.
