Companies+Ordinance +1984

8/8/2019 Companies+Ordinance +1984

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Corporate Law

The Companies Ordinance 1984


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Types of business

organization

Sole Trader

Partnership

Company


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WHAT IS A COMPANY ?

DEFINITION:

A Company is an association of persons

united for a common purpose. According tothe Companies Ordinance, 1984, Company

means a company formed and registered

under the Companies Ordinance.


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Kinds of Companies

Companies formed under the Companies

Ordinance, 1984 are of three kinds, namely:

(a) Companies limited by Shares(b) Companies limited by Guarantee

(c) Unlimited Companies


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Company limited by Shares

A Company in which the liability of the

members is limited to the nominal value of

the shares (s.16). When the liability of the Company is limited

by shares it means that no member can be

called upon to pay more than the nominal

amount of his shares


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Company limited by Guarantee

A company in which the liability of the

members is limited to the amount which each

has undertaken, by the Memorandum ofAssociation, to contribute to the assets of the

company in the event of a winding-up (s.17)


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Statutory Companies

The Companies which are incorporated by a special act of

legislative or under an ordinance are named as statutory

companies. For Instance, State Bank of Pakistan,National Bank

of Pakistan, PICIC (Pakistan Industrial & Credit Investment

Corporation), Pakistan Steel etc.

The companies under the special act of legislative have been

mostly invested with special powers.

They also enjoy special rights and privileges which are not

available to companies incorporated under the companiesordinance 1984.


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Registered Companies

A company which is formed and registered under the

companies ordinance 1984 is known as a registered

company. The companies ordinance provides

registration of following four(04) types of companies. Company limited by shares

Company limited by guarantee

An unlimited company

Association not for profit


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Company Limited by shares

It is the 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 their names.

Functional Division of Companies

Private Companies

Public Companies


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Company Limited by shares

Private Companies

A private company is an association of minimum two andmaximum fifty share holders. It restricts the rights of itsmembers to transfer their shares in the company. It also

prohibits any invitation to the public to subscribe to itsshare or debentures.

Public Companies

A public company must have at least seven share holders,but there is no limit to the maximum number. Public

company issues a prospectus for inviting people topurchase its shares. The shares of a public company arefreely sold and purchased in the stock market.


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Company Limited by guarantee

It is the company in which the liability of

its members is limited up to the amounts

guaranteed by each member at the time ofwinding up the company.

This type of company is formed mostly for

taking non business operations such as

clubs and charitable institutions, theexamples are stock exchanges, arts

councils, ICAP or ICMA etc.


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An Unlimited Company

An Unlimited company is registered

without any limit on the liability of their

members Every member of the company is liable to

the full extent of his personal asset for all

the debt of a company while he was a

member. The unlimited company, due to great risk

do not exist in Pakistan.


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Association Not for Profit.

It is registered under section 42 of the companies

ordinance without the addition of the word Limited

to its name, it is registered with limited liability.

The association enjoys all the privileges andobligations of a limited company.

It is formed for promoting commerce, arts, science,

religion, charity or any other object.

The Federal Government grants license to theassociation that is capable of being formed as a

company.


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CLASSIFICATION ONTHE BASIS OF

OWNERSHIP

Holding Company

Subsidiary Company

Holding Company

Acompany is said to be the holding company of the other, if itowns or holds more than 50% of the share capital of the other

company, or it has control of more than 50% of its directors.

Subsidiary Company

A company is said to be the subsidiary of the other company whenone of the following conditions are fulfilled.

(I) Formation of Board of Directors is controlled by another

company.(II) The other company controls more than half of the voting rightsof this company.

(III) The other company owns more than 50% share capital of thiscompany.


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STEPS REQUIRED INREGISTRATION OF A

COMPANY

Getting Promoters Together: Those whoform the company are known aspromoters who must get together to work

out the skeleton of the company. Appointment ofAdvisor: Promoters

appoint legal advisors who under theguidance and instructions of promoters,prepare memorandum and articles ofassociation, prospectus, and deal with theoffice of the registrar of the company.


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STEPS REQUIRED INREGISTRATION OF A COMPANY

Preparation of company documents: The

companies ordnance requires

preparation of following documentsbefore the company applies for

registration

1. Memorandum ofAssociation

2. Article of association

3. Prospectus


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Submitting application with the registrar: An application forregistration is submitted along with the registration feethrough the registrar of the company with attachment offollowing documents

1. Memorandum ofAssociation2. Articles of association

3. Prospectus

4. List of names and addresses of directors

5. Signed statement of directors or the secretary that all the

required legal formalities have been completed.6. Address of the registered office of the company.


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Declaration of qualifying shares:All the directors, have tosubmit a declaration certificate that they have taken upqualifying shares and have paid up the money

Issuance ofRegistration Certificate: On the issuance ofregistration certificate by registrar, private company canstart its business immediately, while public company cannotuntil it gets another certificate known as CommencementCertificate.

Publication of Prospectus: On the receipt of the registrationcertificate the company issues prospectus which is aninvitation to the public to buy shares of the company.

Commencement Certificate: After raising capital throughprospectus, the company applies for the commencementcertificate.After obtaining this certificate the public canstart its actual operation


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BASIC LEGAL DOCUMENTATION

Memorandum ofAssociation Articles ofAssociation

Prospectus


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Memorandum ofAssociation

It is a document issued by a company for the

guidance of general public

it is known as the charter of the company

which explains to the public name, address,capital, objectives and liability of the company.

It defines its limitation and powers and guides

shareholders and creditors of the company.

It is divided in to five clauses


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Memorandum ofAssociation

CLAUSES OF MEMORANDUM

Name Clause

A company may adopt any name but it should not resemble the name of any othercompany and should not contain the words like king, queen, govt. bodies, UNOetc. The name should not be objectionable in the opinion of the government. Theword limited must follow the name of the company in case of Public company,

while (private) limited must follow with the name of company in case of Privatecompany

Domicile (Situation) Clause

Every company must have a registered office, a memorandum must mention thename of the province and exact address where the company has its registeredoffice

Objective Clause

A company must specifically, expressly and clearly mention its objectives forwhich it has been formed.

Capital Clause

This clause mention the authorize capital of the company, the companyssubscribed, called up, and paid up capital should not exceed it.

Liability Clause

This clause shows that the liability of the share holders of the company is limitedto the amount invested by them.


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Articles ofAssociation

It is a document explaining rules and regulations

regarding the internal affairs of the company,

according to companys ordinance 1984, every

company registered by shares must prepare andfile articles of association with the registrar of

the companies.

If a company does not prepare and file its own

articles then Table A of the companysordinance would apply for a private company

articles of association are not binding.


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Articles ofAssociation

CONTENTS OF ARTICLES

Amount of share capital issued, transmission of share

Rights of share holder regarding voting, dividend, return of capital

Rules regarding issue of shares and debentures

Procedures as well as regulations in respect of making calls on shares

Manner of transfer of shares Rules regarding appointment of directors, managing directors, agents,

secretaries, treasures

Number, qualification, remuneration, powers and liabilities of directors

Declaration of dividends

Convening and conduct of meetings with reference to notice, forum,polls, proxy, resolutions etc

Rules regarding the forfeiture and surrender of shares Matters relating account and audit

Rules regarding winding up of a company


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Prospectus

It is an invitation, advertisement or circular asking people toinvest and subscribe in the share capital or debenture of thecompany.

For a private company prospectus is not required, even for a

public company it is not compulsory. If a public company does not want to issue prospectus, it

must, then file a statement in lieu of prospectus with theregistrar.

The prospectus must be signed by at least two directors.

In prospectus the detail description regarding theestablishment of the company, its characteristics and itsestimated future is given.


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STATEMENT IN LIEU OF PROSPECTUS

According to company ordinance, if apublic company is not issuing aprospectus on its formation, it then must

file a statement in lieu of prospectus withthe registrar of the company three daysbefore the allotment of shares ofdebentures

Must be signed by each director andinclude all the information that should begiven in the prospectus.


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MANAGEMENT OF THE COMPANY

Shareholders

Directors

Chief Executive

Chief

Executive

Directors

Shareholders


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COMPANY MEETINGS

A public company is required to call ameeting with shareholders with certain

agenda to be discussed there and to

get their vote on important affairs.


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Statutory Meeting

It is the first meeting of the members of a

public limited company. Statutory meetingmust be held at least after three month

and before six months since the

registration of the company.


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Statutory Meeting

Notice of the meeting: a notice of the statutory meeting tothe shareholders must be issued at least 21 days before themeeting.

Issue ofReport: statutory report must also be issued at last

21 days before the meeting is held, and it must be signed byat least three directors, one being the chief executive.

Nature of proceedings of the Meeting: in the meetingfollowing proceedings take place:

a. name, address, nationality, profession of all members

(shareholders).b. the member present at the meeting have the right todiscuss any matter relating to the formation of the companyor arising out of the statutory report.


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Annual General Meeting

Every public company must hold ageneral meeting of its members within

eighteen months from the date of

formation and within fifteen months every

year after first meeting.


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Annual General Meeting

Notice of the meeting: a notice of the annual

general meeting to the shareholders must be

issued at least 21 days before the meeting.

Nature of proceedings of the Meeting: in themeeting following proceedings take place:

a. consideration and adoption of the audited

annual accounts.

b. declaration of the dividends.

c. the election and appointment of the directors.


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Extra-Ordinary General Meeting

All general meetings of a company other than annualgeneral meeting and statutory meeting are known as extra-ordinary general meeting.

It is conducted when an annual general meeting is not due

under the law but pressing affairs have come up to bediscussed with the shareholders.

The meeting can be called:

a. by directors to consider any matter which they think itnecessary.

b. by directors on the requisition of the shareholdersrepresenting not less than one-tenth of the voting power.

c. by the requisiteness if the directors do not proceedwithin 21 days of calling the meeting.

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