Chapter 1 Company Introduction, Types and Registration

Question 1

What is included in Company Law?

[Chapter 1]

Answer 1

Company law includes:

1. repealed Companies Act 1913,
2. repealed Companies Ordinance 1984 and 2016, and
3. Companies Act 2017.

Question 2

List down salient features of a company as compared to other businesses.

[Chapter 1]

Answer 2

1. Separate Legal Status:
2. Share and Share Capital
3. Separation of ownership from management
4. Limited Liability of Members/Shareholders:
5. Legal Obligation
6. Liability to pay tax
7. Perpetual succession

Question 3

What is meant by Separate Legal Status?

[Chapter 1]

Answer 3

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”.

Question 4

What are consequences of separate legal status of a company?

[Chapter 1]

Answer 4

Company can:

1. contract in its own name.
2. own its assets..
3. be liable for its debts.

Question 5

What are different characteristics of shares of a company?

[Chapter 1]

Answer 5

1. Shares are a form of property.
2. Shares have rights and liabilities.
3. Shares are transferable.

Question 6

What are some rights attached to shares of a company?

[Chapter 1]

Answer 6

1. voting rights.
2. rights to receive notice and attend general meetings.
3. rights to receive dividend, right shares, bonus shares.
4. rights for redemption or conversion of shares.

Question 7

Define “Voting right”?

[Chapter 1]

Answer 7

“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.

Question 8

Explain concept of “Limited Liability of Members/ Shareholders.

[Chapter 1]

Answer 8

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).

Question 9

Which types of laws/regulations govern a company?

[Chapter 1]

Answer 9

1. Companies Act, 2017.
2. Memorandum of Association.
3. Articles of Association

Question 10

Define “Body Corporate” or “Body Corporation”.

[Chapter 1]

Answer 10

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.

Question 11

Define “Foreign Company”?

[Chapter 1]

Answer 11

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).

Question 12

In how many types, a company can be classified?

[Chapter 1]

Answer 12

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

Question 13

Define “Private Company”?

[Chapter 1]

Answer 13

Private Company means a company which, by its articles:

1. Limits maximum number of its members to be 50 excluding employees (joint-holders are considered as 1 member).
2. Restricts right to transfer its shares, and
3. Prohibits invitation to general public to subscribe for shares (or debentures or other redeemable capital) of the company.

Question 14

What rules are applicable on a Single Member Company?

[Chapter 1]

Answer 14

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.

Question 15

Define “Public Company”?

[Chapter 1]

Answer 15

Public Company means a company which is NOT a private company.

Now, reproduce definition of a private company here.

Question 16

What is meant by a “Company Limited by Shares”?

[Chapter 1]

Answer 16

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.

Question 17

What is meant by a “Company Limited by Guarantee”?

[Chapter 1]

Answer 17

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.

Question 18

Define a “Public Sector Company”?

[Chapter 1]

Answer 18

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.

Question 19

Define a “Holding Company”?

[Chapter 1]

Answer 19

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.

Question 20

Define a “Subsidiary Company”?

[Chapter 1]

Answer 20

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.

Question 21

What are minimum number of members of a company?

[Chapter 1]

Answer 21

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

Question 22

What are consequences if number of members reduce minimum required by law?

[Chapter 1]

Answer 22

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.

Question 23

What are some powers and duties of Registrar?

[Chapter 1]

Answer 23

• 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.

Question 24

How SECP and its offices are organized?

[Chapter 1]

Answer 24

• 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.

Question 25

**What are Functions of SECP?** [Chapter 1]

Answer 25

To regulate: * All the companies. * Banking companies, and Non-banking finance companies. * Insurance Companies and Modaraba Companies

Question 26

**What are Powers and Duties of Commission?** [Chapter 1]

Answer 26

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.

Question 27

**Which specific powers have been given to Court by Companies Act?** [Chapter 1]

Answer 27

Court has powers to declare following as **void** (i.e. invalid) * Election of directors. * General meeting **or** its proceedings. * Resolution to vary shareholders’ rights.

Question 28

# Define the term “Member”? [Chapter 1]

Answer 28

Member includes: 1. **Subscribers** to the memorandum of association, who become members of the company on its registration. 2. 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). 3. 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).

Question 29

**What is “Ordinary Resolution”?** [Chapter 1]

Answer 29

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.

Question 30

**What is “Special Resolution”?** [Chapter 1]

Answer 30

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 **3/4^th** 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.

Question 31

**What are the conditions** **for grant of license as “Associations Not for Profit”****?** [Chapter 1]

Answer 31

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. 2. It prohibits payment of dividend to its members. 3. It applies its profit and other income in promoting its objects. 4. Its objects and activities are not against the laws, and national interests of Pakistan. 5. 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.*

Question 32

**What privileges are given to an association not for profit?** [Chapter 1]

Answer 32

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.

Question 33

**Under which circumstances, Commission can revoke the license of** **“Association not for profit”?** [Chapter 1]

Answer 33

1. If management has **failed to comply** with **terms and conditions** subject to which a license is granted, or 2. If affairs of the company are **against public interest**, or 3. If company has **failed to file** with **Registrar** its **financial statements or annual return** for **2 consecutive years**, or 4. If company has acted **against the laws**, and national interests of Pakistan, or 5. Number of **members** is **reduced** **below 3**, or 6. If: 1. company has conducted **unlawful or fraudulent activities**, or 2. its management **fails to maintain proper accounts**, or **commits fraud**, or 3. Its management is involved in **terrorist financing** or **money laundering**, or 4. Management **refuses to act** according to requirements of **Memorandum** or **Articles** or **Companies Act**, or **Directions** of **Registrar** and **Commission**, or 5. Company is not carrying on its business or is not in operation for one year, or 7. If it is **just and equitable** to revoke license. *However, before revocation, **Commission** shall:* 1. *give written **notice** to company of its intention to do so, and* 2. *provide an opportunity of being **heard**.*

Question 34

**What are the requirements to be fulfilled by “Association Not For Profit” if its license is revoked?** [Chapter 1]

Answer 34

1. **stop all** **operations except recovery**. 2. Company shall **not** ask or receive **donation**. 3. 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**. ## Footnote ***Afterwards,** company shall file a report to Registrar within **15 days** which shall include specified information and documents.*

Question 35

**What are consequences if license of “Association Not For Profit” is revoked and it does not fulfill requirements of Companies Act?** [Chapter 1]

Answer 35

**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.

Question 36

**What restrictions are placed on members/officers of an “Association Not For Profit” if its license is revoked?** [Chapter 1]

Answer 36

They (or their family members) shall **not hold any office** in the transferee company for **5 years** from date of transfer of assets.

Question 37

**Which organizations are required to be registered as a Company?** [Chapter 1]

Answer 37

Every partnership or AOP with **more than 20 persons** and formed for gain.

Question 38

**Which organizations are not required to be registered as a company:** [Chapter 1]

Answer 38

1. A **partnership of lawyers, accountants**. 2. A society, body or AOP **incorporated under any law in Pakistan**. 3. **Joint family** carrying on joint family business. 4. **Partnership of** two or more **joint families**.

Question 39

**What is the Penalty if a partnership exceeding 20 persons is not registered as a company?** [Chapter 1]

Answer 39

In case of **non-compliance**: * a penalty of level 1 will be imposed, and * person shall be personally liable for liabilities of the business.

Question 40

**What is the process to reserve the name of a company?** [Chapter 1]

Answer 40

* **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.

Question 41

**Which documents are required to be filed with Registrar to register a company?** [Chapter 1]

Answer 41

* **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.

Question 42

**Which matters are considered by Registrar before registering a company?** [Chapter 1]

Answer 42

Register shall issue **“Certificate of Incorporation”** if: * all requirements of Companies Act 2017 have been met, and * documents are valid,

Question 43

**Which information is included in** **Certificate of incorporation?** [Chapter 1]

Answer 43

* name of company, * registration number, * date of incorporation, * status (public or private) and * liability of company (limited by share, limited by guarantee or unlimited).

Question 44

**On which grounds, Registrar may refuse to register a company?** [Chapter 1]

Answer 44

if: * any document is defective, or * does not comply with requirements of law.

Question 45

**What options are available to subscribers if Registrar refuses to register a company?** [Chapter 1]

Answer 45

1. Subscribers may **remove deficiency,** and may file revised documents, or 2. Subscribers may **file** an **appeal to Commission** in writing within **30 days** of refusal. Decision of Commission shall be **final**.

Question 46

**What are the effect of incorporation of a company (or effects of registration of memorandum/articles)?** [Chapter 1]

Answer 46

1. A **body corporate** has been **formed**. 2. The body has **separate legal status**, **perpetual succession** and its own **common seal**. 3. Company shall have same **Status** and **Registered office** as **mentioned in** **the application** for registration. 4. **Subscribers become members**. 5. Persons named as **proposed director** in articles, are deemed **as director**.

Question 47

**What is the status of contracts by promoters before incorporation of a company?** [Chapter 1]

Answer 47

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.