COMPANY LAW

Question 1

What is a Company?

Answer 1

A company is an organization which is registered as a separate legal entity
under companies act or any other law relating to incorporation of companies.

Question 2

What is Doctrine of Corporate
Personality?

Answer 2

Doctrine of corporate personality is that a company is considered as an
artificial person having separate legal status from its owners

Question 3

What is a Fiduciary Relationship in
context of the directors of a
company?

Answer 3

Fiduciary means an ethical or legal relationship of trust between parties.
Directors and members have a fiduciary relationship as directors work in the
best interests of the company

Question 4

What is a Holding Company?

Answer 4

A company which:
i. Holds 50% or more voting rights; or
ii. Controls the composition of the board of another company.

Question 5

What is a Subsidiary Company?

Answer 5

A company whose:
i. 50% or more voting rights; or
ii. composition of the board is controlled by another company.

Question 6

What is Memorandum of
Association

Answer 6

It is the constitution of a company which includes its name, place, principal
line of business, liability and capital clauses

Question 7

What are Articles of Association?

Answer 7

Articles of association contain rules and regulation on internal affairs of a
company. They include rules regarding transfer of shares, proxies, general
meetings, dividends and reserves.

Question 8

What is an Ordinary Resolution?

Answer 8

Ordinary Resolution is a decision in a general meeting which is passed by a
simple majority of members present in person, or by proxy, or through postal
ballot

Question 9

What is a Special Resolution

Answer 9

A special resolution is a decision which is passed by a majority of 3/4 of the
members present in person, or by proxy, or through postal ballot and for
which a 21 days’ notice has been given

Question 10

What is Share Capital?

Answer 10

It is the total amount invested by the members of a company

Question 11

Authorized Share Capital

Answer 11

It is the maximum amount of share capital that can be issued. This amount is
mentioned in the Memorandum of Association and can only be changed
through a special resolution.

Question 12

Issued Share Capital

Answer 12

It is the amount of share capital that is issued to the shareholders. It cannot
exceed the authorized share capital.

Question 13

Paid-Up Share Capital

Answer 13

It is that part of issued share capital which is actually paid up.

Question 14

What is an IPO?

Answer 14

An Initial Public Offering (IPO) refers to the process of offering shares of a
company to the general public for the first time

Question 15

What is a Prospectus?

Answer 15

A prospectus is a document which invites the general public for subscription
of securities (shares or debentures).

Question 16

What are Debentures?

Answer 16

Debentures are securities issued by a company to borrow money. They are
debt instruments and include bonds and term finance certificates

Question 17

Pledge

Answer 17

It is the bailment of goods as a security for a debt. Goods are physically
transferred to the lender

Question 18

Mortgage

Answer 18

It is an interest created on property of a borrower as security. The property
is not physically transferred but title documents are transferred to the
lender.

Question 19

Charge

Answer 19

It is a kind of security for a debt in which neither the property nor its title
documents are transferred to the lender.

Question 20

What is a General Meeting?

Answer 20

A general meeting is a meeting of those shareholders who are entitled to
attend and vote

Question 21

What is a Statutory Meeting?

Answer 21

It is the first general meeting of a public company in which members approve
statutory report and discuss matters relating to formation of the company.
It should be held within 9 months of incorporation or 180 days from
commencement of business, whichever is earlier.

Question 22

What is a Statutory Report?

Answer 22

It is an indicative of financial startup of a company. It includes matters such
as:
- Number of shares allotted and cash received
- Summary of receipts and payments
- Particulars of directors, chief executive, auditors and legal advisors
- Overview of company’s affairs and its business plan

Question 23

What is an Annual General Meeting?

Answer 23

Every company holds a general meeting every year in which members discuss
ordinary business. This is an AGM.
Ordinary business includes consideration of Financial Statements, Directors
Report, Audit Report, approval of dividend, appointment of directors and
auditors

Question 24

When is an AGM conducted?

Answer 24

Firm AGM is conducted within 16 months from date of incorporation and
subsequent AGMs are conducted within 120 days from the close of financial
year.

Question 25

What is an Extraordinary General
Meeting?

Answer 25

A company may hold a general meeting to discuss special business at any
time during the year. This is an EOGM.
Special business includes alterations of MOA and AOA, Investments in
associates and removal of Chief Executive

Question 26

Quorum of a General Meeting of a:
1. Listed Company
2. Unlisted Company
3. Other companies

Answer 26

10 members with 25% voting powers.
2 members with 25% voting powers.
As per their Articles of Association

Question 27

Minimum number of Directors in a:
1. Single Member Company
2. Private Company
3. Unlisted Company
4. Listed Company

Answer 27

One
Two
Three
Seven

Question 28

How are Directors appointed?

Answer 28

The first directors are appointed by subscribers to the Memorandum of
Association.
Subsequent directors are appointed by members in the general meetings.
In case of a casual vacancies the existing directors have to appoint a director
within 90 days.

Question 29

What is the Tenure of Directors?

Answer 29

The first directors hold office till the first AGM.
Subsequent directors hold office for a period of 3 years.
Directors appointed to fill casual vacancies hold office for the remainder of
the term of outgoing directors

Question 30

What are the procedures of
appointing directors in the General
Meetings?

Answer 30

. Directors of the company fix the number of directors to be appointed at
least 35 days before the General Meeting.
2. A notice is sent to the members for a general meeting at least 21 days
before the date of such meeting. The notice must include the number of
directors to be elected and the names of retiring directors.
3. Persons seeking to contest in the elections may file a notice in writing at
least 14 days before the general meeting.
4. All such notices are sent to the members and published in newspapers
(Daily English and Urdu with wide circulation) at least 7 days before the
meeting.
5. Directors are elected unopposed in case the number of candidates is
equal or less than the fixed number. If not, a poll for election is
conducted\
6. Every member shall have total votes equal to:
Number of Shares X Number of directors to be elected
Candidates with the highest votes are declared as elected until the fixed
number of directors to be elected is reached

Question 31

What is the Quorum of a Board
Meeting

Answer 31

For a listed company the quorum is one-third of the total directors or 4,
whichever is higher. For any other companies the quorum is as per the
Articles of Association.

Question 32

What is the Frequency of Board
Meetings?

Answer 32

The board of a public company shall meet at least once in each quarter of a
year

Question 33

What is a Chief Executive?

Answer 33

A chief executive is an individual who is given whole or substantial powers of
management of affairs of a company, subject to control and directions of the
directors. A chief executive is appointed by the directors.

Question 34

What is an Independent Director?

Answer 34

It is a director who is not involved in executive management of a company.
Such a director is expected to give an objective view in decision making of
the board.

Question 35

What is an Associated Company?

Answer 35

Associated Company means any legal entity of which a person or company
has direct or indirect control by:
- Common shareholding of 20% or more
- Common management/control
- Management of a Modaraba

Question 36

What is Dividend? What are its
types?

Answer 36

Dividend is any payment by a company to its shareholders out of its
distributable profits.
Types of Dividends:
1. Interim Dividend: Paid before the year end. Approved/declared by
directors
2. Final Dividend: Paid after the year end. Proposed by directors and
approved by shareholders.