Chapter1 Flashcards
What is a Company?
An organization which is registered under Company law.
What is Company Law?
Includes repealed Companies Act 1913, repealed Companies Ordinance 1984 and 2016, and Companies Act 2017.
What is the Doctrine of Corporate Personality?
The concept that a company is considered by law as an artificial person having separate legal status from its owners.
List the consequences of a company’s separate legal status.
- A company can contract with its own name
- A company owns its assets and is fully liable to pay its debts
- Liability of members is limited
- Separation of ownership from management
- Transfer of ownership and perpetual succession
What does it mean when we say a company has a separation of ownership from management?
Persons who manage the business (directors) are usually different from persons who own the business (members or shareholders).
What is share capital?
Total investment in a company that is subdivided into various smaller parts called shares.
What are the characteristics of a share?
- Shares have rights (e.g. right to receive dividend, right to attend general meeting, voting rights)
- Shares are transferable
What does ‘Voting Right’ mean?
The right of a member to vote on a matter in a general meeting, either in person, through video-link, by proxy, or by postal ballot.
Fill in the blank: A company is considered an _______ legal person.
Artificial
True or False: A company can own assets and is liable for its own debts.
True
Fill in the blank: Each share has a _______ value.
Face/nominal
What is the role of directors in a company?
They manage the business.
What happens to ownership in a company when shares are transferred?
Ownership can change through sale, gift, or inheritance.
What does the concept of “limited liability” mean for shareholders?
Shareholders’ liability is limited to:
• The unpaid amount on the face value of shares (for a company limited by shares).
• The amount guaranteed to contribute at the time of winding up (for a company limited by guarantee).
Why is the word “Limited” added to a company’s name?
To warn creditors that the liability of its members is limited
Who is liable if a company breaks the law or an agreement?
The company itself is liable. Directors and officers are only liable if they exceed their powers.
Who is responsible for paying taxes on a company’s income or profits
The company is liable to pay tax on its income/profits
What is “perpetual succession”?j
A: It means a company continues to exist as a legal entity even if its owners change or die
How is a company created and dissolved
A company is created by a process of law and wound up by a process of law
What are the primary laws governing a company?
- Companies Act, 2017 – Governs creation and operations of companies.
- Memorandum of Association – Constitutional document for external stakeholders.
- Articles of Association – By-laws for internal affairs of the company.
What is the liability of members in a company limited by shares?
Members are liable only up to the unpaid amount on the face value of their shares.
What is the liability of members in a company limited by guarantee?
Members are liable only up to the amount they guarantee to contribute at the time of winding up
Can directors or officers of a company be held personally liable for company debts?
No, unless they exceed their powers or act unlawfully
How does perpetual succession benefit a company
It ensures the company’s continuous existence regardless of changes in ownership or the death of members
What is the role of the Companies Act, 2017?
It provides the legal framework for the creation, operation, and regulation of companies.
What is the significance of the company’s legal personality?
It allows the company to own property, enter into contracts, and sue or be sued in its own name.
What is the definition of “Body Corporate” or “Corporation”?
Companies incorporated in Pakistan under company law.
2. Companies incorporated outside Pakistan.
3. Bodies corporate declared as such under a relevant statute (e.g., State Bank of Pakistan).
A co-operative society registered under any co-operative society law.
2. Any statutory body specified by the Federal Government through notification.
What is a “Foreign Company”?
A company incorporated outside Pakistan that:
1. Conducts business activity in Pakistan, or
2. Has a place of business or liaison office in Pakistan (physically or electronically, directly or through an agent).
What are the types of companies based on status?
Private Company (including Single Member Company).
2. Public Company (listed or unlisted).
What are the types of companies based on liability?
- Limited by Shares.
- Limited by Guarantee.
- Unlimited Company.
What are examples of other types of companies?
Holding Company.
2. Subsidiary Company.
3. Association not for profit.
What is a Private Company?
A company that:
1. Limits its members to a maximum of 50 (excluding employees).
2. Restricts the right to transfer shares.
3. Prohibits public invitations to subscribe for shares, debentures, or redeemable capital.
What is a Single Member Company (SMC)?
A private company with only one member. Its name must include “(SMC - Private) Limited.”
How does a Private Company differ from an SMC?
A private company (other than SMC) requires at least two members and must include “(Private) Limited” in its name
What is the significance of the suffix in a company’s name, like “(SMC - Private) Limited” or “(Private) Limited”?
It indicates the type of company and its status, such as a Single Member Company (SMC) or a Private Company, and highlights the limited liability of its members.
Q: What does “Limited by Guarantee” mean in the context of company liability?
It means members are liable only to the extent of the amount they have guaranteed to contribute at the time of winding up.
What does “Unlimited Company” mean?
It is a company where the members have unlimited liability for the company’s debts, meaning they are personally responsible without any limit.
What is a Single Member Company (SMC)?
It is a company registered with only one member, who is also the director of the company.
What happens in an SMC if the sole member dies?
The nominated person:
1. Manages the company’s affairs as a trustee.
2. Transfers the deceased member’s shares to their legal heirs as per law.
What happens if an SMC’s shares are transferred to more than one legal heir?
The SMC ceases to be an SMC and must convert itself into a private company.
Q: What is a Public Company
A company that is NOT a private company and must add “Limited” to the end of its name.
: What are the types of Public Companies?
Listed Company: Its securities are listed and traded on a stock exchange and issued to the general public.
2. Unlisted Company: Its securities are not listed or traded but can be offered to the public after stock exchange registration.
What is the liability of members in a company limited by shares?
It is limited to the unpaid amount on the face value of shares they acquired.
• Partly paid shares: Members must pay the unpaid amount.
• Fully paid shares: Members have no further liability.
How can a company limited by shares raise additional capital?
By issuing new shares
What is the liability of members in a company limited by guarantee?
It is limited to the amount members agree to contribute to the company’s assets at the time of winding up.
Is a former member of a company limited by guarantee liable for debts after leaving the company?
Yes, they are liable to contribute within one year of leaving, for debts contracted before they ceased to be a member.
What are examples of companies limited by guarantee?
Charities, Trade Associations, and Sports Clubs.
Why are unlimited companies rare in practice?
They are typically used by partnership-style businesses and are not common due to the risk of unlimited liability.
What is the key difference between a listed and an unlisted public company?
Listed Company: Securities are listed and traded on a stock exchange and available to the general public.
• Unlisted Company: Securities are not listed or traded but can be offered to the public after registration with the stock exchange.
What additional naming requirement is there for a company limited by guarantee with share capital?
The name must include “Guarantee Limited” to indicate both share capital and the members’ guarantee.
What happens if a person guarantees a contribution in a company limited by guarantee but fails to fulfill it during winding up?
The amount becomes recoverable as a debt owed to the company, enforceable by legal means.
What is a Public Sector Company?
A company where:
1. More than half of its voting securities are held by the government or its agencies, OR
2. The government or its agencies have the power to appoint the majority of its directors.
Does the nomination of directors by the Commission on a board make it a public sector company?
No, nomination of directors by the Commission does not make an entity a public sector company.
. When is a company considered a holding company?
A company is a holding company if:
1. It controls more than half the voting securities of another company, either by itself or with its subsidiaries, OR
2. It controls the composition of the other company’s board (e.g., appointing/removing all or majority of directors).
When is a company considered a subsidiary company?
A company is a subsidiary if:
1. Another company controls more than half of its voting securities, either by itself or with its subsidiaries, OR
2. Another company controls the composition of its board (e.g., appointing/removing all or majority of directors).
Can holding companies have unlimited layers of subsidiaries?
No, the number of subsidiary layers is limited to what is notified by relevant regulations.
No, the number of subsidiary layers is limited to what is notified by relevant regulations.
A company in which another company owns 100% of its shares.
What are securities?
Instruments used to raise capital, including:
• Shares: Voting securities (equity).
• Debentures: Non-voting securities (debt).
What is the minimum and maximum number of members for an SMC, private company, and public company?
Single Member Company (SMC): 1 member.
• Private Company (other than SMC): Minimum 2, Maximum 50 members.
• Public Unlisted Company: Minimum 3, no maximum.
• Public Listed Company: No minimum or maximum.
What happens if a company operates with fewer than the minimum members for more than 180 days?
A: Every member who is aware of this fact becomes personally liable for the company’s debts incurred after 180 days.
Does a public sector association not for profit qualify as a Public Sector Company?
Yes, if it is licensed by the Commission as such.
How can a holding company control the composition of the board of its subsidiary?
A: By having the power to appoint or remove all or the majority of the directors of the subsidiary.
A: By having the power to appoint or remove all or the majority of the directors of the subsidiary.
A: Yes, but holding companies are restricted from creating layers of subsidiaries beyond a certain limit notified by the authorities.
Can a subsidiary exist without a holding company?
.
A: No, a subsidiary must have a holding company that meets the criteria for control over voting securities or board composition
Can a wholly owned subsidiary issue shares to the public?
A: No, as issuing shares to the public would mean the parent company no longer owns 100% of its shares.
What type of company has no maximum limit on members?
A: Public companies (both listed and unlisted) have no maximum limit on members.
Q: What are the consequences if a company knowingly continues business with fewer than the minimum required members?
A.
:
1. Members aware of the situation become personally liable for debts incurred after 180 days.
2. The company risks penalties or regulatory action for non-compliance
What is the significance of voting securities in a holding and subsidiary relationship?
A: Voting securities determine control over key decisions, including the composition of the board and policy directions.
How does a public listed company differ from a public unlisted company in terms of raising capital?
• Public Listed Company: Can raise capital through stock exchange listings and public trading.
• Public Unlisted Company: Cannot raise capital through public trading until it registers with the stock exchange.
Why is the layer limit on subsidiaries significant?
A: To prevent excessive complexity in corporate structures, improve transparency, and simplify regulatory oversight.
What is the Commission (SECP
The Commission refers to the Securities and Exchange Commission of Pakistan (SECP), which is responsible for regulating and overseeing the affairs of all companies, including those in insurance, banking, and other sectors, under the Companies Act and SECP Act.
Where is the head office of SECP located?
The head office of SECP is located in Islamabad, with 8 regional offices across Pakistan in provincial ca pitals and additional offices in Multan, Faisalabad, and Sukkur.
- Who are considered “members” of a company?
• Members include:
• Subscribers to the memorandum of association, who become members upon registration of the company.
• Persons who acquire shares in the company after its registration.
• Persons whose names are entered in the register of members of the company.
What does the term “Board” refer to in a company?
The Board refers to the Board of Directors of the company, which is responsible for the governance and management of the company.
Who are considered “officers” of a company?
• Officers of a company include:
• Directors
• Chief Executive
• Chief Financial Officer
• Company Secretary
• Share Registrar
• Any other authorized officer of the company.
What is the definition of a “Resolution” in a company?
• A Resolution is a decision made by the majority of members in a meeting. There are two types: Ordinary Resolution and Special Resolution.
What is an Ordinary Resolution?
• An Ordinary Resolution is a decision 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 (as provided in the company’s articles).
What is a Special Resolution?
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• A Special Resolution is a decision passed at a general meeting with a three-fourths majority of members who are entitled to vote and are present in person or by proxy, or through postal ballot.
• Notice for the meeting must be given at least 21 days before the meeting, specifying the resolution.
• It can be passed with less than 21 days notice if all members agree.
What is the minimum notice period for passing a Special Resolution?
• A Special Resolution must typically be passed after a notice period of at least 21 days before the meeting. However, the notice period can be shorter if all members entitled to vote agree.
What are the main powers and functions of the SECP?
• SECP is empowered to regulate and oversee the affairs of all types of companies, including:
• Corporate Governance
• Corporate Financial Reporting
• Regulation of Securities and Stock Markets
• Monitoring Compliance with the Companies Act and SECPact
How is a Special Resolution passed with less than 21 days’ notice?
• A Special Resolution can be passed with less than 21 days’ notice if all members entitled to attend and vote at the meeting give their consent.
What is the significance of the SECP’s regional offices?
• SECP has 8 regional offices across Pakistan, providing services for company registration, regulatory compliance, and investor protection in various cities:
• 1 in Islamabad
• 4 in Provincial capitals
• 1 each in Multan, Faisalabad, and Sukkur
What is the role of the Board of Directors in a company?
• The Board of Directors is responsible for:
• Governance and strategic direction of the company.
• Decision-making on matters such as investments, policies, and corporate structure.
• Ensuring the company adheres to the legal and regulatory framework set by the SECP.
Can a special resolution be passed by a simple majority of members?
•
No, a special resolution requires a three-fourths majority of members entitled to vote at the meeting. It cannot be passed by a simple majority, which is used for ordinary resolutions.
What is the difference between Ordinary and Special Resolutions?
•
Ordinary Resolution:
• Requires a simple majority to pass.
• Typically used for routine matters such as approving financial statements or appointing auditors.
• Special Resolution:
• Requires a three-fourths majority to pass.
• Used for significant matters like amending the articles of association, changing the company’s name, or altering the capital structure.
What does it mean for a person to be a “shareholder” of a company?
A shareholder is a person who holds shares (voting securities) in a company, thus becoming a member. Shareholders have rights to participate in decision-making processes and receive dividends, depending on the type of shares held.
Who is entitled to vote at a general meeting?
•
Members who hold voting shares are entitled to vote at the general meeting of a company, either in person or by proxy, or through postal ballot if allowed by the company’s articles.
Can a company be run by a single director?
•
Yes, a Single Member Company (SMC) can be run by one director and one member. The sole member has the power to make decisions and manage the company, but must adhere to all regulatory requirements for governance.
How are members added to a company after its registration?
• Members are added to the company by subscribing to shares, which are recorded in the company’s register of members. This can happen after the initial registration of the company when new shares are issued or transferred.
What is the role of the Chief Executive in a company?
• The Chief Executive is responsible for the day-to-day operations of the company. They implement the strategies and policies approved by the board, manage resources, and oversee staff performance.
Q: What are the conditions for granting a license as an “Association Not for Profit”?
A:
• Must be a public limited company formed for social purposes like promoting science, arts, education, etc.
• Prohibits the payment of dividends to members.
• Profits must be applied to promote the company’s objects.
• Objects and activities should not be against laws or national interests.
• Memorandum and Articles must be approved by the Commission.
• Additional conditions may be imposed by the Commission.
What are the privileges and obligations of an “Association Not for Profit” once registered?
A:
• It enjoys all privileges and obligations of a limited company.
• It does not need to include “Limited” or “(Guarantee) Limited” in its name.
Under what circumstances can the Commission revoke the license of an “Association Not for Profit”?
Failure to comply with the terms of the license.
• Management acting against public interest.
• Failure to file financial statements or annual returns for 2 consecutive years.
• Engaging in unlawful or fraudulent activities.
• Management involved in terrorist financing or money laundering.
• Number of members falls below 3.
• Not in operation for one year.
What is the procedure before the Commission revokes the license of an “Association Not for Profit”?
Commission must give written notice to the company and provide an opportunity to be heard before revocation.
What must a company do if its license is revoked by the Commission?
Stop all operations except for recovering receivables.
• Cannot receive donations from any source.
• Must complete specified requirements within 90 days or the extended period allowed.
• Can retain reasonable expenses for voluntary winding up or removal from the registrar’s records.
What steps must a company take after the revocation of its license?
File a report to the Registrar within 15 days with specified information and documents.
• Start proceedings for voluntary winding up or apply for removal from the registrar’s records within 30 days of acceptance by the Registrar.
What happens if a company fails to meet the requirements after the revocation of its license?
The Commission may appoint an Administrator to manage the company’s affairs.
• The Commission may initiate proceedings for the company’s winding up.
What restrictions apply to members and officers after the revocation of a company’s license?
Members and officers (or their family members) of the company cannot hold any office in the new company receiving the transferred assets for 5 years from the date of transfer.
Members and officers (or their family members) of the company cannot hold any office in the new company receiving the transferred assets for 5 years from the date of transfer.
The company must stop all operations except for the recovery of amounts receivable.
• It is prohibited from asking for or receiving donations from any source.
• Within 90 days (or the extended period allowed), the company must transfer its net assets to another company with similar objects or complete the winding-up process.
What should a company do after it has complied with the requirements following the revocation of its license?
• The company must file a report to the Registrar within 15 days, including specified information and documents, confirming its compliance with the revocation conditions.
What is the role of the Administrator appointed by the Commission?
The Administrator manages the affairs of the company after the revocation of its license.
• The Administrator ensures the company meets the necessary requirements for winding-up or transferring assets.
What happens to the company’s assets if the license is revoked, and the company has net assets to transfer?
• The company must transfer its net assets to another company with similar objectives.
• Members and officers cannot hold positions in the receiving company for 5 years from the date of asset transfer.
What is required of the company during voluntary winding up after the revocation of its license?
• The company must complete the voluntary winding-up process within 90 days after the revocation of its license.
• It must report to the Registrar and ensure compliance with legal requirements for winding up.
Can the Commission revoke the license of an “Association Not for Profit” without prior notice?
No. The Commission must give written notice to the company of its intention to revoke the license and provide an opportunity for the company to be heard before taking action.
What are the consequences if an “Association Not for Profit” fails to comply with the conditions for license revocation within the specified period?
The Commission may appoint an Administrator to manage the company.
• The company may be subjected to the initiation of necessary proceedings for winding up.
What conditions must an “Association Not for Profit” meet regarding its objects and activities?
Its objects and activities must not be against the laws and national interests of Pakistan.
• The company must be formed to achieve social, educational, or charitable purposes, such as promoting health, science, or social welfare.
When is a person or group obligated to register as a company?
If the business involves 20 or more persons.
What happens if a person fails to comply with the obligation to register as a company?
.
A: The business will face penalties and liabilities under the relevant laws
What are the exceptions to the obligation to register as a company?
A partnership of lawyers, accountants, or other professionals restricted by law.
2. Societies or persons incorporated under any law in Pakistan.
3. A joint family carrying on joint family business.
4. Partnerships of two or more joint families where total members (excluding minors) do not exceed 2
What is the first step in the company registration process
Promoters must apply to the Registrar to reserve a name for the proposed company.
Promoters must apply to the Registrar to reserve a name for the proposed company.
Up to 60 days.
What happens if the Registrar refuses to reserve the name?
An appeal can be filed to the Commission within 30 days, and the Commission’s decision will be final
, How long is the reserved name valid?
Up to 60 days.
What happens if a name is reserved with incorrect information?
The reservation is canceled, and if the company is registered, it must change its name.
What documents must be filed with the Registrar during registration?
Memorandum of Association signed, witnessed, and dated.
2. Articles of Association (optional for a company limited by shares).
3. Declaration of compliance with the Companies Act 2017.
4. Address for correspondence (until the Registered Office is established).
Memorandum of Association signed, witnessed, and dated.
2. Articles of Association (optional for a company limited by shares).
3. Declaration of compliance with the Companies Act 2017.
4. Address for correspondence (until the Registered Office is established).
The Registrar registers the memorandum and other documents and issues a “Certificate of Incorporation.”
Who signs the Certificate of Incorporation?
Registrar
Who are promoters in the context of company registration?
Promoters are individuals who wish to form a company and take necessary steps for its registration.
Is reservation of name required when adding or removing the word “Private” in the company name?
No, it is not required
Q: Who are considered promoters in the registration process?
Promoters are persons desirous of forming a company and responsible for taking necessary steps for its registration.
What is the liability for not registering a business with more than 20 persons as a company?
Non-compliance may result in penalties, inability to enforce legal rights, and other legal consequences under the Companies Act 2017.
Can a joint family carrying on business register as a company?
They are exempted from registering as a company unless their business exceeds 20 members (excluding minors).
Are professional partnerships like lawyers and accountants required to register as a company?
No, they are exempt if their profession is restricted by law.
Can a company appeal if the name reservation is rejected?
Yes, an appeal can be filed to the Commission within 30 days of rejection.
What happens if a company uses a name reserved with incorrect information?
The name reservation is canceled, and the company must change its name.
What additional details must the application include besides documents?
The application must be in the specified form and include the prescribed fee.
What optional document can be submitted for companies limited by shares?
A: Articles of Association are optional for such companies.
What does the Registrar verify before issuing the Certificate of Incorporation?
The Registrar ensures all requirements of the Companies Act 2017 are met and all documents are valid.
What document signifies that a company is officially registered?
The Certificate of Incorporation.
Is the word “Private” mandatory in the name of a private limited company?
.
A: Yes, but its addition or removal does not require reservation of name
How long does the reserved name remain valid?
A: For a period not exceeding 60 days.
Q: What is the governing law for company registration in Pakistan?
A: The Companies Act 2017 governs the registration process.
What role does the Registrar play in the registration process?
A
: The Registrar reviews, approves, and issues the Certificate of Incorporation after ensuring compliance.
