Chapter 1 Introduction, Types and Registration

Question 1

What is the company?

Answer 1

company means an organization that is registered under Company Law.

Question 2

What is Company Law?

Answer 2

Company Law includes
1) repealed Companies Act1913,
2) repealed Companies Ordinance 1984 and 2016, and
3) Companies Act 2017.

Question 3

What are the features of a company?

Answer 3

A Company is an Artificial Legal Person:
1) company is considered by law as an artificial person having separate legal status.
2) this concept is called the Doctrine of Corporate Personality.

Question 4

What are the consequences of Separate Legal Status?

Answer 4

1) Company can contract with its own name.
2) Company owns its assets and is fully liable to pay its debts.
3) The liability of members is limited.
4) Separation of ownership from management.
5) Transfer of ownership and perpetual succession,

Question 5

Separation of management from company:
A person who manages a business called______ is usually different from persons who own a business called_______?

Answer 5

Directors, Members or Shareholders.

Question 6

The owner can be a ______ or ________. However only a ___________ can manage the business.

Answer 6

Natural Person or Artificial Person
Natural Person

Question 7

A Company has Shares and Shares Capital
Total investment in the company called ___________ is divided into various smaller parts called _________.

Answer 7

Share Capital
Shares

Question 8

Each Share has a________.

Answer 8

Face Value or Nominal Value.

Question 9

Characteristics of Share

Answer 9

1) Shares have some rights(right to receive dividends, right to attend meetings, voting rights)
2) Shares are transferable. A shareholder can transfer some or all of his shares to another person.

Question 10

Limited Liability concept applies to whom?

Answer 10

It applies to Shareholders and not to a company. A company is fully liable for all debts.

Question 11

Liability of members is:

Answer 11

1) Limited upto unpaid amount on face value ( In case of company Limited by Shares) or
2) Limited up to the amount each member guarantees to contribute at the time of winding up of the company ( in case of company Limited by Guarantee).

Question 12

What are the Legal Obligations of a company?

Answer 12

1) If the company breaks the law or agreement it is liable.
2) Directors and other officers are not liable unless they exceed their power.

Question 13

Liability to pay Tax?

Answer 13

The company is liable to pay tax on income or profits.

Question 14

What is meant by Perpetual Succession?

Answer 14

1) means a company is an artificial/ legal person who does not die. It continues even if its owners change or die.
2) Company is created and winded up by the process of law.

Question 15

By which laws a company is governed?

Answer 15

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

Question 16

A body corporate includes:

Answer 16

1) Incorporated in Pakistan under Company Law.
2) Incorporated outside Pakistan and registered in foreign countries
3) A body corporate declared as a body corporate under relevant statute ( e.g. State Bank of Pakistan).

Question 17

Which are not Body Corporate?

Answer 17

1) A cooperative society registered under any law
2) A statutory body in which Federal Govt. specifies by notification

Question 18

What is a Foreign Company?

Answer 18

This means a company incorporated outside Pakistan which
1) conduct any business in Pakistan
2) has a place of business or liaison office in Pakistan

Question 19

What are the types of a company on the basis of status?

Answer 19

1) Private Company ( SMC and Other than SMC)
2) Public Company ( Listed and Unlisted Company)

Question 20

What are the types of a company on the basis of Liability?

Answer 20

1) Limited by Shares
2 Limited by Guarantee
3) Unlimited company

Question 21

What are other companies?

Answer 21

1) Holding and Subsidiary Company
2) Association not for Profit

Question 22

What is a Private Company by its Articles?

Answer 22

1) Limits the maximum number of its members to be 50
2) Restricts right to transfer its shares
3) Prohibits invitation to the general public to subscribe for shares

Question 23

A Private Company can be:

Answer 23

1) SMC ( Only 1 member)
2) Other than SMC (at least 2 members)

Question 24

Single Member Company

Answer 24

Which is registered with only 1 member who is also the director.
In case of the death of a member, a nominated person:
1) Manages the affairs of the company as a trustee,
2) Transfers the shares to legal heirs as per law
3) If shares are transferred to more than one legal heir, such a company shall cease to be an SMC and shall convert itself into a private company.

Question 25

What is a Public Company?

Answer 25

means a company that is not a private company. A Public Company has to add the word “ Limited “ at the end of its name.

Question 26

A Public Company can be:

Answer 26

1) Listed Company
2) Unlisted Company

Question 27

What is a Listed Company?

Answer 27

Public Company whose securities are listed, and are traded on the stock exchange.

Question 28

What is an Unlisted Company?

Answer 28

Public Company whose securities are NOT listed or traded on the stock exchange.

Question 29

What is meant by Company Limited by Shares?

Answer 29

A Company in which the liability of members is limited by the memorandum up to an unpaid amount on the face value of shares they acquired.
For example
1) if shares are partly paid, members are liable to pay the unpaid amount to the company.
2) if shares are fully paid, members are not liable to pay any amount.

Question 30

What is meant by a company limited by guarantee?

Answer 30

1) A company in which liability of member is limited by memorandum to such amount as members agree to contribute to the assets of the company at the time of winding up.
2) If a person seizes to be a member, he is also liable to contribute within one year afterwards, for the debt’s contracted before he ceased to be a member.
3) Such companies may have or may not have share capital. If such company has share capital, liability of its members shall also include the amount unpaid on share.
4) Accompany limited by guarantee has to include word “(Guarantee) Limited” in its name.
5) Examples include charities, trade associations, sports club.

Question 31

What is an unlimited company?

Answer 31

1) Liability of members in such types of companies is unlimited.
2) Such companies are rare in practice and are used by partnership-style businesses.

Question 32

What is meant by public sector companies?

Answer 32

1) Whose more than one-half of voting securities are held by the government, or any agency of government, or
2) Government, or any of its agencies, has the power to appoint the majority of its directors

Question 33

What is meant by a wholly owned subsidiary?

Answer 33

If a company owns 100% shares of another company, that other companies called wholly owned subsidiary.

Question 34

What is meant by securities?

Answer 34

Security means instruments used to raise capital. It includes Shares (i.e. voting securities/equity). And debentures (i.e. non-voting security/debt.

Question 35

What is a holding company?

Answer 35

A company will be a holding company of another company if:
1) It controls more than one-half of the voting securities of the other company, either by itself or together with one or more of its subsidiary companies; or
2) It controls the composition of the board of the other company. The composition of the board is controlled when a company can appoint or remove all or the majority of directors of the other company.

Question 36

What is the subsidiary company?

Answer 36

A company will be a subsidiary company of the other if:
1) 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
2) Other company controls the composition of the board. The composition of the board is controlled when a company can appoint or remove all or the majority of directors of the other company.

Question 37

What are the Minimum and Maximum numbers of Members
1) SMC
2) Private Company (Other than SMC)
3) Public Unlisted Company
4) Public Listed Company

Answer 37

Minimum Maximum
1) 1 1
2) 2 50
3) 3 No Limit
4) 7 No Limit

Question 38

What is the penalty if the company operates with not required number of members?

Answer 38

If a company carries on a business with less than a 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 39

Who is the registrar?

Answer 39

Registrar means a registrar, an additional registrar, an additional joint registrar, a joint registrar, a deputy registrar, an assistant registrar, or such other officer as may be designated by SECP, performing duties and functions under this Act.

Question 40

What are the powers and duties of the registrar?

Answer 40

1) Register Memorandum/articles, and issue certificates of incorporation of the company
2) Approve the name of a company and rectification of the name
3) Approve alteration of memorandum and articles
4) Issue certificate of commencement of business
5) Receive various notices or documents
6) Extend time to hold AGM for unlisted companies
7) Keep a record of what mortgages and charges.
8) Call the officers of the company for information and explanation.
9) inspect books and records of the company and seize them if he believes that seizure is necessary to reach out certain facts.

Question 41

SECP stands for what?

Answer 41

Securities and Exchange Commission of Pakistan

Question 42

Organization and offices of SECP

Answer 42

The Head Office of SECP is in Islamabad and
It has 8 regional offices, (Called company registration offices)
1 in Islamabad
4 in each provincial capital, and
1 each in Multan Faisalabad and Sukkur.

Question 43

What are the functions of SECP?

Answer 43

SECP has functions to regulate
1) All the companies
2) Banking companies, and non-banking finance companies
3) Insurance companies and Modaraba companies.

Question 44

What are the powers and duties of the commission?

Answer 44

1) To register an association, not-for-profit
2) To allow certain words to be included in the name of the company.
3) To confirm changes in the registered office clause of the memorandum,
4) To approve the prospectus for the issue.
5) To extend the time to hold AGM for listed companies.
6) To approve the loan to directors of a listed company.
7) To call a general meeting if the company makes a default to hold them.
8) To listen to appeals against decisions of the registrar.

Question 45

What are the powers of the court?

Answer 45

Court has the power to declare the following as void it means invalid
1) Election of directors.
2) General meetings or its proceedings.
3) Resolution to vary shareholders’ rights.
Court also has powers to wind up a company.

Question 46

Which persons are included as members?

Answer 46

Members include
1) Subscriber to the memorandum.
2) A person who becomes a shareholder of any class or kind of shares in the company.
3) A person who agrees to become a member of the company and whose name is entered in the Register of Members.

Question 47

What is meant by the board?

Answer 47

It means the board of directors of the company.

Question 48

Which officers are included in the board of directors?

Answer 48

It includes any director, chief executive, chief financial officer, company secretary, share register, or other authorized officer of the company.

Question 49

What is resolution?

Answer 49

A resolution is a decision reached by the majority of the members.

Question 50

What are the types of resolutions?

Answer 50

There are two types of resolution
1) Ordinary resolution
2) Special resolution.

Question 51

What is meant by ordinary resolution?

Answer 51

Ordinary resolution means a resolution that is
1) Passed at the general meeting.
2) By a simple majority of members who
are present in person, or by proxy, or through postal ballot at the general meeting.

Question 52

What is meant by special resolution?

Answer 52

Special resolution means a resolution that is
1) Passed at the general meeting for which notice has been given at least 21 days before the meeting specifying the purposed resolution.
2) By at least 3/4th majority of members who are entitled to vote. and
3) Are present in person by proxy, or through postal ballot at the general meeting.

Question 53

What are the criteria for granting of license as an association, not for profit?

Answer 53

1) It is to be formed as a public limited company for useful social objects.
2) Prohibits payment of dividends to its member.
3) Applies its profits and other income in promoting its objects.
4) Its objects and activities are not against the law and national interest of Pakistan.
4) Its memorandum and articles shall be in accordance with the specified form and approved by the Commission.
The commission may also impose additional conditions, and such conditions shall be inserted in the memorandum and/or articles of the company.

Question 54

What is the privileges and obligation of an association not for profit?

Answer 54

Or registration, such association shall enjoy all the privileges and obligations of a limited company. However, it does not have to add the word limited or grantee limited in its name.

Question 55

On what grounds commission can revoke the license of an organization not-for-profit?

Answer 55

1) If management has failed to comply with the terms and conditions subject to which a license is granted, or
2) If the affairs of the company are against the public interest, or
3) If the company has failed to file with the registrar, its financial statements are annual returns for 2 consecutive years,
4) If the company has acted against the law, and national interest of Pakistan,
5) Number of members is reduced below 3, or
If:
a) Company has conducted unlawful or fraudulent activities, or
b) Its management fails to maintain proper accounts or commits fraud, or
c) Its management is involved in terrorist financing or money laundering, or
d) management refuses to act according to requirements of memorandum or articles or companies act or directions of registrar and Commission, or
e) the company is not carrying on its business or is not in operation for 1 year, or
7) If it is just equitable to revoke the license.