Investments and Disclosure of Interest Flashcards
Ch # 10
Associated company/Associated undertaking
Two or more companies or undertakings interconnected with each other in the following
manner:
- If companies or undertakings are under common management/control
- If one is subsidiary of another
- If undertaking is a modaraba managed by the company
- If a person is owner or partner or director of company/undertaking, or who, directly or
indirectly (spouse/minor child), holds or controls shares carrying not less than 20% of
voting power in such company or undertaking, is also owner or partner or director of
another company/ undertaking, or directly or indirectly, holds or controls shares carrying
not less than 20% of voting power in that company or undertaking.
Exceptions for companies to be included in Associated
Following directorships or shareholdings shall not be considered while
ascertaining status of companies to be associated
- Directorship by virtue of nomination by concerned Minister of the Federal Government or a
Provincial Government or a financial institution directly or indirectly owned or controlled
by such Government; or
- Directorship of a person appointed as “Independent Director”
- Shares owned by National Investment Trust (NIT) or the Investment Corporation of
Pakistan (ICP) or a financial institution directly or indirectly owned or controlled by Federal
Govt or a Provincial Govt; or
- Shares registered in the name of a central depository
Note: Modaraba is an Islamic financing activity, a set up created in order to ensure interest free
financing. Modaraba Management Company is established as a public company which is licensed
to float Modaraba which are separate legal entities
‘Investment’
‘Investment’ include loans, advances, equity guarantees, by whatever name called, or any
amount, which is not in nature of normal trade credit, where the terms and conditions of trade
transaction(s) carried out on arms-length and in accordance with the trade policy of company.
Condition for investment
▪ Company can make investment in any of its associated companies or undertakings only
under Special Resolution
(It shall indicate nature, period, amount of investment and related terms and conditions)
▪ No variation in the nature and terms & conditions of investment or an increase in
amount without passing a special resolution.
Investments of company to be held in its own name also tell exception for it?
All the investments of the company must be made and held in the name of the company
itself and not in someone else’s name
Exceptions
▪ If Investor Company has power to appoint its directors (nominee) on Investee company;
then Investor company is allowed to hold such shares in name of that nominee that are
qualification shares (required for any director) of Investee company.
▪ Holding company may hold any shares in its subsidiary company in name of its nominees if
number of members of subsidiary company has reduced below required minimum member
▪ Company may also place its investment in the name of CDC.
Register for investments of company not held in its own name
Register for investments of company not held in its own name
Register shall contain nature, value and such other particulars as may be necessary fully to
identify such shares or securities.
Inspection of registerby Members for investments of company not held in its own name?
Inspection of Register
▪ Register shall be open to inspection of members free of cost for at least 2 hours daily
▪ Any other person may also inspect register on payment of prescribed fee by the company.
▪ Company may impose certain restrictions on such inspection
▪ Any member may require a certified copy of register or any part:
- On paying the fee fixed by company.
- Certified copies requested shall be issued within 7 days.
▪ If any inspection is refused, Registrar may on an application direct immediate inspection.
Investments of company to be held in its own name and what are the exception to this rule?
All the investments of the company must be made and held in the name of the company
itself and not in someone else’s name
Exceptions
▪ If Investor Company has power to appoint its directors (nominee) on Investee company;
then Investor company is allowed to hold such shares in name of that nominee that are
qualification shares (required for any director) of Investee company.
▪ Holding company may hold any shares in its subsidiary company in name of its nominees if
number of members of subsidiary company has reduced below required minimum member
▪ Company may also place its investment in the name of CDC.
Register for investments of company not held in its own name
Register for investments of company not held in its own name
Register shall contain nature, value and such other particulars as may be necessary fully to
identify such shares or securities.
Inspection of Register
▪ Register shall be open to inspection of members free of cost for at least 2 hours daily
▪ Any other person may also inspect register on payment of prescribed fee by the company.
▪ Company may impose certain restrictions on such inspection
▪ Any member may require a certified copy of register or any part:
- On paying the fee fixed by company.
- Certified copies requested shall be issued within 7 days.
▪ If any inspection is refused, Registrar may on an application direct immediate inspection.
Timing of disclosure of INTEREST BY DIRECTORS
▪ If transaction or arrangement requires directors’ approval before start-up of the contract
or transaction
- At first meeting of directors in which discussion is started
- At first meeting after he becomes so interested
(if director was not interested at the time of first discussion)
▪ If transaction or arrangement does not require directors’ approval
- At first meeting held after transaction etc is entered into.
General notice of ownerships and directorships
▪ Instead making a disclosure on transaction by transaction basis, director may give a
general notice regarding his directorships in other body corporate or partnership in firms
▪ Such notice should be given at directors’ meeting or director may take proper steps to
ensure that notice is read by other directors.
▪ General notice shall expire at end of financial year in which it is given and may be renewed
by fresh notice in last month of expiry.
Interested director not to vote
Over the approval of matter where he is interested; director cannot take part in discussion, or
vote. (Nor to be counted in quorum.)
For listed company, he shall not be present at BOD meeting in which matter involving his
material personal interest, is being considered.
Exceptions:
▪ Private Company (neither subsidiary nor holding of Public)
▪ If director has acted as surety of company and the resolution relates to indemnification or
insurance coverage of that director against any loss incurred by him for becoming surety of
company
(company shall only insure liability arises out of a transaction validly approved by board or
the members of company)
Interest of other officers,
An officer who is in any way, directly or indirectly, concerned or interested in any proposed
contract or arrangement with company is required to:
▪ Disclose nature and extent of his interest in the transaction; and
▪ Obtain the prior approval of the directors.
who is related party of the Company?
▪ A director or his relative (spouse, siblings and lineal ascendants and descendants)
▪ A key managerial personnel or his relative;
▪ A firm, in which a director, manager or his relative is a partner;
▪ A private company in which a director or manager is a member or director;
▪ A public company in which a director or manager is a director or holds alongwith his
relatives, any shares of its paid up share capital;
▪ Any body corporate whose chief executive or manager is accustomed to act in accordance
with the advice, directions or instructions of a director or manager;
▪ Any person on whose advice, directions or instructions a director or manager is
accustomed to act
(advice, directions or instructions given in a professional capacity are excluded)
▪ Any company which is
- A holding, subsidiary or an associated company of such company; or
- A subsidiary of a holding company to which it is also a subsidiary;
▪ Such other person as may be specified;
Office of profit
Receives anything by way of remuneration over and above his remuneration as director;
(by way of salary, fee, commission, perquisites, rent-free accommodation, or otherwise)
How a company can be entered into related party organization
Company may enter into any contract/arrangement with a related party only in accordance
with the policy approved by board, subject to such conditions as may be specified for:
- Sale, purchase or supply of any goods or materials;
- Selling or otherwise disposing of, or buying, property of any kind;
- Leasing of property of any kind;
- Availing or rendering of any services;
- Appointment of any agent for purchase or sale of goods, materials, services or property;
- Related party’s appointment to any office of profit in company/subsidiary/associated.
