RECAP LECTURE 2 In previous lecture we have covered the following topics  Jurisdiction of the courts  Company Benches  Procedure of the court  Appeal against court orders  SECP (Security and Exchange Commission of Pakistan)  Registrar

COMPANY What is a Company  Company ordinarily means an association of a number of individuals formed for some common purpose.  When a company is registered, it is clothed with a legal personality and has the same rights and powers as a human being has.  Its existence is distinct and separate from that of its members.  The members may die or change but the company goes on till it is wound up on the grounds mentioned in the ordinance.  Thus a company is an artificial person.  It can act only through some human agency called the board of directors.  They control and administer the affairs of the company and act as its agent.  But they are not the agent of members of the company.

COMPANY Definition Of a Company  A company is an association of persons united fro a common purpose -Justice James  A company is an association of many persons who contribute money or money’s worth to a common stock and employs it in some trade or business, and who share the profit and loss (as the case may be) arising there from. -James Stephenson

COMPANY Definition Of a Company In Companies Ordinance 1984:  A company is an association of persons  registered under the law  having a distinctive name,  recognized as a separate legal entity,  with a common capital contributed by its members  comprising transferable shares of a fixed denomination,  carrying limited liability and  having a continuous existence and a common seal.

FEATURES OF A COMPANY CHARACTERISTIC FEATURES OF A COMPANY The various definitions quoted reflect the following characteristic features that a company has: Artificial person created by law A company under the existing corporate law is an artificial legal person  having an entity and personality distinct from the members of shareholders constituting it.  A company is a legal person because in law it is capable of having legal rights and obligations just like a natural person.  Like every other human being it can acquire and own property, transfer property, enter into contracts and sue and be sued in its own name.

FEATURES OF A COMPANY Independent legal entity  Since a company is an entity separate from its members hence all assets and liabilities in a business are its own.  No member can claim any ownership rights in it during its existence or winding up.  This was first recognized judicially in the case of Salomon vs. Salomon and company Ltd. In which the House of Lords held that the company was a body corporate distinct from its members

FEATURES OF A COMPANY Perpetual succession  A company has a continued existence and its life is not affected by  the death, lunacy, insolvency or retirement of its members.  Members may come and go but the company continues its operations as long as requirements of law are fulfilled. Common seal  A company must have a common seal for use as an emblem (logo, insignia) in all legal documents.  The common seal is used as a device as the signature of the company.  Any document bearing common seal of the company and duly signed by at least two directors will be legally binding on the company

FEATURES OF A COMPANY Limited liability  Here the word liability refers to the liability of the shareholders towards the company.  This is limited to the value of the shares subscribed to or the amount of guarantee given by them. Separate ownership and management  Being in a large number it is not advisable for the shareholders to run and manage the company.  Hence the law provides for the board of directors, elected by the members at their general meeting to govern the affairs of the company

Public company companies limited by guarantee Unlimited companies Not having share capital Companies limited by shares Private company Having share capital Unlisted companyListed companyOther then single member company Single member company Registered Companies TYPES OF COMPANIES

Registered Company Registered companies are those companies which are registered in Pakistan under the Companies Ordinance,1984 or any previous companies act or ordinance. These companies are further classified into following three broad classifications.[15(2)]  Company limited by shares  Company limited by guarantee  Unlimited company

TYPES OF COMPANIES Company Limited by Shares: It means a company memorandum of association limits the liabilities of its members to the amount unpaid, if any, on the shares held by them in the capital of the company.  It is the most popular and important among the registered companies  It is a company which keeps the liability of its members limited up to the value of the shares purchased by them  It is essential for such companies to use the word Limited at the end of their names so that the people know the liability of its members is limited  Most of the industrial and commercial companies in Pakistan are registered as companies limited by shares.

TYPES OF COMPANIES Company Limited by Guarantee: It means a company whose memorandum of association limits the  liabilities of its members to the amount as the members may respectively undertake to contribute to the assets of the company in the event of its winding up.  This company may or may not have a share capital.  In Pakistan company limited by guarantee use the words (guarantee) Limited as the last words of their names

TYPES OF COMPANIES Unlimited Company: It is a company which is registered  without limiting the liability of its members to the extent of value of the shares held by them.  In other words, in case if such companies there is no limit of liability of members to contribute the assets on a winding up.  Now-a-days such type of companies are not found in Pakistan.

On The Basis Of Articles Of Association By virtue of provisions of articles, companies can further be divided into the following categories Private Company Section 2(1)(28) defines a private limited company as a company which by its articles: A.Restrict the rights to transfer its shares, If any; B.Limits the maximum number of its members to fifty; and C.Prohibits any invitation to the public to subscribe for the shares or debentures of the company

Public Company It is a company which is not a private company. It is a company which does not : a.limits the maximum numbers of its members; b.Restrict the right to transfer its shares, if any; and c.Prohibit from inviting public to subscribe for the shares or debentures of the company. A public limited company can be formed with at least 3 members.

Difference between private and public company: Public company 1. A public company should have at least three (3) members in case of unlisted And (7) members in case of listed company. 2. There is no restriction on the maximum no of members 3. A public company can invite subscription from general public 4. A public company can transfer its shares with out any restriction 5. A public company has to seek certificate for commencement of business Private company 1. A private company should have at least two (2) members except single member company (SMC) 2. Maximum members can not exceed fifty (50) how however the employee members are not counted for the purpose of deciding upper limit 3. A private company cannot invite subscription from general public 4. Transfer of shares is restricted in private company 5. No such certificate is required and it can commence business just after is incorporation

Public Company 6. The public company has to raise minimum subscription before obtaining certificate for commencement of business. 7. A public company is required to file the prospectus or a statement in lieu of prospectus (SILOP) for obtaining the certificate for commencement of business 8. A public company is required to file its accounts with the registrar and also with the commission if it is listed. 9. Auditors qualification is presented as chartered accountants. 10. A public company should have at least three (3)directors in case of unlisted company and seven (7)directors in case of unlisted. Private Company 6. There is no requirement to raise minimum subscription. 7. T here is no requirement of filing prospectus or statement in lieu of prospectus for a private company except when private company converts into public company 8. Filing of accounts is not required by the private company if its paid up capital is less than 7.5 million rupees 9. No qualification is prescribed for an auditor of a private company except when it has a paid up capital exceeding RS 3million. 10. A private company should have least two (2)directors except single member company (SMC).

Public limited companies may further be classified in two categories.  Listed Companies : The companies whose securities are allowed to be treated on a stock exchange are called listed companies.  Un-Listed Companies: The companies whose securities are not allowed to be treated on a stock exchange are called un-listed companies.

On the basis of company of shareholding: On the basis of composition of share holding,companies can be classified in any of the following types  Holding company[section 3]: It means a company or body which holds directly or in directly more than fifty percent (50%)in the voting securities of a company,or has a power to elect and appoint more than fifty percent (50%)of the directors of such other company  Subsidiary company[section 3] : It means a company or a body corporate whose more than fifty percent (50%) voting securities are held or controlled directly or indirectly,by some other company or such other company has a power to elect and appoint more than fifty percent of directors of such company

Associated companies [section 2(1)(2)]: A company whose 20% or more shares (upto50%) are held by another company shall be considered an associated company of that company (for complete definition of an association company )

Associations not for profit [section 42]: If the securities and exchange commission of Pakistan is satisfied with an association which has been formed or is capable of being formed as a limited company that it meets the conditions specified by companies ordinance 1984,the companies may grant a License and direct that the association be registered as a limited company with out the addition of word “limited”,”(private ) limited ”or “(guarantee) limited” as the case may be, to its name and the association may be registered accordingly

5.2 conditions specified by companies ordinance,1984 a. Association should be formed for providing commerce art, science, religion, sports, social services, charity or any other useful object; b. Association applies or intends to apply its profits, if any or other income in promoting its objects; and c. Association prohibits the payment of dividends to its members. 5.3 The conditions and regulations in this regard issued or imposed by the commission shall be binding on the association and may be inserted in memorandum and articles of association or in one of those documents on the direction of commission.

5.4 The association shall enjoy all privileges of a limited company and be subject to all its obligations except using the word “Limited”, “(Private) Limited” or “(Guarantee) Limited”, as the case may be, as part of its name. 5.5 The license may be revoked by securities and exchange commission of Pakistan and upon its revocation, the register shall enter the word “Limited”, “(Private) Limited” or “(Guarantee) Limited”, as the case may be, at the end of the name of Association and Association will cease to enjoy all the exemptions and privileges granted by SECP.

5.6 before the revocation of license, the commission shall give a notice in writing to association of its intention and the association shall be afforded the opportunity of submitting a representation in this regard 5.7 the companies rules 1985 states that the above privileges are available to public limited companies only and no private limited company can be granted license under section 42.

TYPES OF COMPANIES BY VIRTURE OF LEGAL FORM By virtue of legal form companies can be classified in the following types Statutory company  The companies which are formed under special statutes are called statutory companies.  These are governed by the acts or ordinances through which these are created.  Examples of such type of companies are the State Bank of Pakistan, Small Business Finance Corporation, Investment Corporation of Pakistan, etc.

TYPES OF COMPANIES Chartered Company  Chartered Companies are formed by the means of a special charter granted by the head of state, or King or queen of the crown.  Normally these enjoy certain exclusive rights and privileges on other association of persons.  The east India Company and Charted Bank of England are examples of such type of companies.  Prior to the passing of modern companies legislation, these were the only types of companies.  Now they are relatively rare, except for very old companies that still survive (of which there are still many, particularly many British banks)

Government Company  A government Company is a company of which more than 50 percent of the paid up capital is held by the government.  A company which is subsidiary of a government company automatically becomes a government company.