Company Law
Role of SECP:
Finance Ministry and SECP looked after corporate sector. Federal Govt vide notification in the official gazette constitutes SECP.
What is a Company?
A company means certain or some persons start their business with some amount of money and together they are called as “Company”. Company is a business organization.
under Companies Act, 2017 Company means a company formed and registered under the Act or an existing company.
Juristic Person:
company is not a person or a citizen however due to its legal status it is a Juristic Person.
Whether company a citizen?
A Company is the group of people with a single, separate entity independent of its owners. It conducts a business by creating a separate corporate personality which is advantageous and beneficial. Company should consists of particular number of persons. It should formed for a lawful purpose. Therefore, company is not a citizen as it should be a natural person.
- Company has a nationality
- Company is registered
- Company can sue and can be sued
- Company has a licence
- Company has lawful purpose
- Company has bank accounts
- Company may have assets and liabilities
- Company has constitutional protection
- Company has professional management
- Company has social status
Company and the Fundamental Rights:
As per Article 24 of the Constitution where company is a juristic person so it can claim protection of fundamental rights as bit holds and owns property in its juristic capacity.
Formation of a Company:
Companies Act is the law relating to formation, registration, regulations, working and conduct of the companies.
What is corporate personality:
Company is a species of corporation. It is a artificial person composes of natural person. Company is formed and registered under Companies Act and becomes a corporate personality which is immediately capable of functioning as incorporated individuals.
Advantages of Corporate Personality:
Perpetual Succession: It exists until the dissolution of company, it continues to exist and survive the death of its directors and share holders.
Separate property: It owns its own property. The assets of the company do not belong to the share holders. The only interest which they have in the asset of the company is indirectly through the medium of their shares. They have no proprietary rights to underlying assets. Similarly creditors of the company are not creditors of the share holders. The creditors must go against the company and it is only if the company is being wound up and there is some evidence found that they may possibly have recourse against the share holders.
Limited Liability: Attributes of separate legal personality in medium law, the liability of the members of a limited company is limited members are only liable for the amount unpaid on their shares. In case of guarantee limited company they are only liable for the amount of their guarantee.
Transferability: When Joint Stock Companies were established the object was that their share, should be capable of being easily transferred. Thus incorporation enables a member to sell his shares in the open market and to get back his investment without having to withdraw the money from the company.
Capacity to sue and be sued: As a separate legally entity, a company being a body corporate can sue and can be sued in its own name.
Professional Management: Company needs management to develop extra ordinary managerial capacities. They also establish financial banking and develop business and its new branches.
Finances: Company is the only medium of organizing business which is given the privilege of raising capital of public subscription either by way of shares or debentures. Public financial institutions lend their resources more willingly to companies than to other forms of business organization. The facility of giving and borrowing is an exclusive privilege of companies. Assets of the company: A company can create a floating charge. This is a type of equitable security which can be granted by companies and others who are empowered under specific legislation. It floats over the assets until an event occurs which causes it to crystalise, whereupon it becomes a fixed equitable mortgage charge until then the company can dispose of its assets in the ordinary course of business.
Non application of Companies Act:
This law is not applicable on
- Trading Corporation;
- Co-operative Society;
- University
Lifting of Corporate Veil:
Basic concept is that company is a separate fictitious person and that the separate existence of a company should not be ignored. However, the courts have at times refused to recognize the separate existence of a duly formed company, needless to mention that in a large number of cases the courts also have respected the Salomon’s principle, therefore it might be fair to say that ignoring the separate personality is an exception and Salomon’s principle the rule. Lifting the corporate veil means that the shareholders and directors of company are personally liable and have no safeguard/shield by the company. The common law grounds are as under:
- Determination of character;
- Fraud;
- Agency;
- Statutory grounds.
Modes of Company:
Public Company:
Any seven or more persons associated for lawful purpose may, by subscribing their names to memorandum of association and comply with the requirements of the Companies Act in respect of registration, may form a public limited company.
Company apply for listing and for share of the company. If the application is not accepted by the Stock Exchange the company refund or pay back the subscription money to the applicants without any surcharge which is required.
company try to advertise in the public by giving advertisement in newspapers. There is a subscription list from which a company wants to buy a share.
maximum amount of application to buy share is Rs. 500 for which security is share, debenture, scripts. Suppose company has 500 shares at a time which is the minimum requirement. Its public issue. At least Rs. 5, 000 majority are the participants. If a person you add 5/- in one share that is the premium, the profit you can and raise money from it.
Private Company:
Any two or more persons associated for a lawful purpose may by subscribing their names to memorandum and complying with the requirements of the Companies Act in respect of registration to form a private company.
Management of Companies:
A company is an artificial person acted through human agents i.e the directors. In private company the share holders and director are invariably the same persons. This is not in the case of public company where the directors may be few in number and may have few shares.
Business of the company managed by directors
the business of the company shall be managed by the directors who may pay all expenses incurred in promoting and registering the company. He may exercise all such powers which are required to be executed by the company in general meeting.
Securities of the Company:
- Shares
- Scrip
- Debenture
- Participation term certificate
- Modaraba certificate
- Musharika certificate
- Term finance certificate
- Bond
- Pre-organization certificate
- Such other instrument as the Federal Government may specify
Limited company raise money in two ways:
By issuing shares:
Share means a share in the share capital of a company. A share is the interest of a share holder in the company, measured by a sum of money for the purpose of liability in the first place and of interest in the second.
A share is a right to a specified amount of the share capital of a company carrying with it certain rights and liabilities. A share has a nominal value which is the total amount the holder is liable to contribute to the capital of the company, and it confers upon the holder the right to participate in the company’s profits and assets in winding up. Only fully paid shares can be issued.
By borrowing debentures:
Debentures are bonds given under the seal of the company and evidence the fact that the company is liable to pay the amount specified with interest and generally change the payment of it upon the property of the company.
Debenture means a document which creates a debt or acknowledges it, and any document which fulfill either of these conditions is a debenture.
Debenture usually give the debenture holder a mortgage or charge on debenture holder on company’s property to rescue the loan, the debenture holder will have the usual remedies of a mortgage against the mortgaged properties. It depends upon the powers of the company to secure the repayment of borrowed money by mortgaging all or some parts of its assets.
Debenture includes debenture stock, bonds, participation term certificates and any securities other than a share of a company whether constituting a charge on the assets of the company or more.
Debenture stock is a borrowed money consolidated into one mass for the sake of convenience. It is generally secured by a trust deed which may gives trustees a charge on the property of the company.
Register of debenture Holding: Every company keep one or more books a register of holders of its debentures and to enter into the following particulars containing name, parentage, nationality of each debenture holder;
Debenture identified through its date, number and amount paid or agreed to be paid on these debentures.
Inspection of Register of Debenture Holders:
Register and index of debenture shall be kept at registered office of the company except when closed shall, during business hours, subject to some reasonable restrictions as company in general meeting may impose, not less than 2 hours in each day be allowed for inspection, and any such debenture holder or other person may make extracts.
Penalty:
If inspection is refused, the company and every officer of the company who is in default shall be liable to fine not exceeding Rs. 500 and to further fine not exceeding Rs. 50 for every day.
Allotment of Shares:
Minimum shares are 7, 500.
NIT invests in certain companies and give certain interests .
Company listed on Stock Exchange is called listed company and is also called quoted company.
If one is desirous to buy shares, if the participant’s amount behind after selling of shares, the amount should be paid back to the owners. The subscribers return money within 10 days.
Minimum subscription must be raised in order to provide the capital required by the company.
Kinds of Companies:
Business firms or companies are classified by economists in many ways. There can be small sized and large sized companies when the corporate firm is adopted, then there usually be the following kinds of companies:
Associated companies and Undertakings
Undertaking: Its a promise, engagement or stipulation.
Undertaking is an engagement by one of the parties to contract to other as distinguished from the mutual management of the parties to each other.
Associated companies or undertaking means where two or more companies inter connected with each other in the following manner:
Person who is the owner, partner, director holds or control share not less than 10% of the voting power in the company;
If the companies are under common management or one of the company is subsidiary to the other company;
If Modaraba managed by the company, person who is the owner, partner or director of a company and he holds share which are not less than 10% of the voting power in the company that person is associated person.
provided that share shall be hold by the owner, director or partner of the company, or by the spouse, or minor children of that person.
It is also provided that:
Directorship who are nominated by the Federal Government, Provincial Government or a financial institution which is directly or indirectly controlled by such Government or shares owned by NIT or any other institution, they shall not be taken into account for determining the status of the company.
Company Limited by Shares
The principal form of registration is that of a company limited by shares whereby each person becomes a member of the company by acquiring one or more of the shares of the company into which its capital is divided, the liability of the person is limited to the amount which is remained unpaid on the shares which is held by him. It may be divided into Private and Public Companies.
If company limited by shares it is an organization by seven or more persons except in the case of private company where minimum number is two and possess common capital contributed by each member. The main feature of such company is that the liability of its members is limited to the nominal value of shares held by each member . Each member must contribute to the company’s assets the amount unpaid for his shares.
The limited liability of members effectively transfers the risk of business failure from them to the creditors. Practically speaking trade creditors take security and personal guarantees in the small scale firm or company. In case of larger firms the limited liability generally facilitates the capital raising from the public.
Company Limited by Guarantee
There are companies in which the liability of its members is limited by the memorandum of association to such amount as the members may respectively undertake to contribute to the assets of the company in the event of its being wound up. It is an organization each member of which under takes that in the event of liquidation he will contribute an amount not exceeding a certain fixed sum towards settling the debts and meeting the cost of winding up provided the organization and is wound up when he was member or within one year from the cessation of his membership. In this the member is contingently liable for the amount which he has undertaken to contribute in the event of insolvent winding up.
Private Company
A company is a private company which by its Articles:
- No transferability of shares;
- Limited number of members;
- No prospectus.
However, the company may enjoy the following privileges:
- only two signatories to the memorandum are sufficient to form a private company;
- can commence allotment of shares before minimum subscription is paid or subscribed;
- not required to issue a prospectus a file a statement in lieu of prospectus;
- in the first instance need not offer further shares to existing members;
- can commence business immediately after incorporation;
- not required to hold statutory meeting;
- may allow disproportionate voting right;
- can have only two directors and they can vote on a contract in which he is interested.
A private company will lose its privilige and will be treated as a public company if it fails to comply with the essential requirements of a private company.
Public Company
public company means a company which is not private company. A company where articles do not contain all the restrictions which are specified for it is a public company.
Public company must have:
- At least seven members;
- Does not restrict the right to transfer the shares;
- Does not limit the number of its members to fifty;
- Does not prohibit any invitation to public to subscribe for the shares or debentures of the company.
Unlimited Company
There are companies which do not have any limit on the liability of their members. This is more than one ordinary partnership. Every member is liable to the full extent of his personal assets for all the debts of the company contracted while he was a member.
Thus, the member’s liability is the same as in a partnership, and for this reason, unlimited companies do not exist. The principal advantage of this type of company is registration and control under the Act and perpetual succession.
However a member of an unlimited company is free from liability at the end of the year from ceasing to be a member.
Listed Company
Word ‘Listed’ in relation to securities means securities which have been allowed to be traded on stock exchange. Various legal provisions of the Act related to listed companies are summarized there under:
Listed company shall prepare half yearly accounts and transmit the same to the members whether admitted or not;
Listed company shall prescribed number of copies of its half yearly accounts whether added or not with the Registrar;
Listed company shall transmit its half yearly accounts to the stock exchange within two months of the close of its half years.
Conversion of Public Company into Private Company
No public company shall convert itself into a private company except with the prior approval of SECP in writing and subject to such conditions as may be imposed by the SECP in this behalf.
Private Company alter its Articles in such a manner that they does not include those provisions which are required to be included in the articles of the company in order to constitute it, the company shall:
Cease to be a private company on the date of alteration;
Within the period of 14 days after the said date, file with the Registrar either by a prospectus or a statement in lieu of prospectus as specified.
Criminal liability of a company:
Company may commit a crime if offence committed by a person who is the embodiment of the company. If crime committed by a person in his individual capacity then the company may escape liability and only that individual will be held liable. In case the company is held liable the penalty is to be paid by the company.
Promoters:
People who are the driving force behind setting up of the company are called promoters. Therefore, a promoter is a person who takes the initiative in developing and organizing the company. Promoters usually become the first directors of the company. They can sell the company, when it is ready to be incorporated and may not like to become the directors.
Liability of promoters:
- Liability to disclose all material facts relating to formation of a company;
- Liability for secret profits;
- Co-promoters
- Pre incorporation contracts
All these contracts entered into by the promoters before the company is formed or incorporated. The liability under such contracts is of the individual (i.e promoter) making the contract and liability cannot be fixed on the company, as the company at that time is not in existence.
The company after incorporation can ratify or adopt or own the pre incorporation contract and in that case the liability of the promoter shifts to the company.
The company might or might not ratify the pre incorporation contract.
Memorandum of Association:
Company is a separate legal person and therefore like any other person should have its own identity. Like natural persons have ID Cards, Memorandum of Association is a document that could be described as ID of a company.
Besides unless a memo of the company is prepared and filed with the Registrar of Companies along with other documents, the company cannot be incorporated.
The memo could be termed as the external constitution of the company. It carries key characteristics of the company:
- Name of the company
Availability of name to be checked to be proposed to the Registrar . Company may change its name during the course of its business by Special Resolution, approval of Registrar, Registration of change of name with the Authority. Registrar enters new name of the company on the register and issues certificate of incorporation. Where company has inadvertently registered the name similar to that of an existing company, it can be changed simply with the sanction of the Registrar. Prohibition of names of the company includes: inappropriate, deceptive, religious susceptibilities, identical, patronage of any connection with Federal or Provincial Governments.
- Registered Office of the Company: In case of change of place of business of the company, it may change by Special Resolution, approval of Registrar and final location shall sent to the Registrar for approval.
- Objects Clause of the business to be conducted by the company; Alteration in Objects Clause limited to the extent of: carry on business economically, attain its main purpose through new and improved means, enlarge or change local area of operations, carry on business otherwise than in MOA, amalgamation, restrict or abandon any of the objects. For change a petition to be filed before the Registrar, Special Resolution to be passed, Form 4 & 26 to be submitted with special resolution, cover letter and affidavit of the Directors for the approval.
- Capital Clause is the base of the company: If it is limited Company with a share capital and its division into shares of a fixed amount, for e.g capital of 1000/- divided into Rs. 10, 000/- shares of rupees to each. This is called authorized or nominal Share Capital which can be co authorized to raise by the issue of shares. The amount of nominal capital is determined, by business consideration and there is no fixed legal minimum or maximum.
The issued capital will depend on how many shares are issued. The stated amount of each share is caused the Nominal Amount or Par Value. The shares may be divided into different classes which is usually done in the Articles. Share Capital may be increased and decreased vide special resolution.
Capital can be altered: a limited company may alter if so authorized by its articles, consolidate or divide the whole or any part of its share capital into shares of larger amount than its existing shares; sub divide into shares, or any of them into shares of smaller amount than is fixed by its memorandum; cancel its unissued share. Alteration proposed to be affected, must be exercised by the company in General Meeting. The Special Resolution to be passed will be indicated in the articles, otherwise an Ordinary Resolution will suffice.
Under Section 96 Company, subject to confirmation by the Court, Company Limited by Shares, if so authorized by its articles may by special resolution reduce its articles by special resolution reduce its share capital in any way and may alter its memorandum by reducing the amount of its share capital and of its shares accordingly.
Shares: Rights attached to different classes of shares shall be varied only in the manner as prescribed in the Companies Act. Although the rights of dissentients are safeguarded by the right of Appeal to Court.
- Nature of liability of the members (limited or unlimited) Where the liability of members by Shares or by Guarantee, the memorandum states that the liability of the members is limited.
If the company obtained a license of the authority to dispense with the word limited as part of its name, the memorandum must contain a statement that the liability of members is limited.
If a company carries on business for more than six months with less than statutory minimum of members every member during that time is severally liable for all the debts contracted during that time and may severally be sued.
Memorandum of a company is a public document and anyone after depositing the requisite fee with Registrar of the Companies, may get a copy.
Articles of Association:
Article means the internal management of a company. Articles are like the bye-laws of a society or an association laying down rules for the conduct of its internal affairs.
Articles provides a uniform and convenient manner in which the working of the company is to be conducted and every subsequent member is automatically by becoming a member bound by the said regulations. articles cannot be inconsistent with the Memorandum, and if they are, the Memorandum will prevail. Secondly, the Articles cannot carry anything repugnant or contrary to the Companies Act, 2017 if it does to that extent the Articles are void.
Article shall:
- Printed
- Divided into paragraphs numbered
- Signed by each subscriber in presence of at least one witness, who must attest signatures
- Registered
If company ls limited by shares shall state in its Articles:
- Inclusion of Table A
- Share Capital, lien, forfeiture, transfer, transmission, variation of class rights, increase and reduction of capital
- Payment of underwriting commission and brokerage
- Managing agent, where permitted their appointments, term of office, remuneration, powers and duties
- Directors, their powers, duties, appointments
- Meetings, conveyancing, notices, chairman, proxies, quorum
- Dividends
If company ls limited by Guarantee shall state in its Articles:
If the company has share capital the articles shall state the amount of share capital with which the company proposes to be registered.
If the company does not have share capital the Articles shall state the number of members with which the company proposes to be registered.
If company in unlimited shall state in its Articles:
If company has a share capital, the Articles shall state the amount of share capital with which the company proposes to be registered.
If the company does not have a share capital, number of members with which the company proposes to be registered.
Restrictions on Alteration of Articles:
Statutory restrictions
- Special resolution
- Ultravires of memo
- Illegal
- Not contrary
- No additional liability
Restrictions imposed by judicial decisions
- Contrary to the order of Court;
- Cppression of minority
- Breach of contract
- Bonafide
- Clerical errors
- Mistake
Steps for Alteration of Articles:
- Legal documents
- Approval of SECP
- Director’s meeting
- Notice of AGM
- Filing of Special Resolution
- Intimation to SECP
- Alterations
- Alteration to be noted in every copy
- Copies of Alteration to Members
Prospectus:
Once you have a public company the capital can be raised from the public through public issue (issue of shares to the public). Offer of shares to the public could only be made through an invitation to the public to buy shares in the company. Therefore, through the invitation the company is asking the public to make offers for its shares and it is the company who is to accept or reject the offer to buy shares i.e invitation to treat is called Prospectus.
the details of the Prospectus are given in the IInd Schedule. However, primarily the prospectus carries an introduction about the company, especially its capital structure the idea is to build through credibility in the market so that people feel encouraged to invest the company. Closely connected with the concept of prospectus is the concept of public participation.
Copy of the prospectus has to be signed by the directors and auditors. They also alter its Bankers, which bank give shares to the company when company pays. This is the Issue which means a Public Issue.
Statement in lieu of Prospectus
If a public company can raise capital through private connections and need not to go to the public it still has to comply with the requirements of the prospectus. However, this time they do not have to publish it in the newspaper but only submit a statement in lieu of the prospectus with the CRO.
Civil Liability for mis-statement in Prospectus
Following persons shall be liable to pay a compensation to every person with subscribers for any share on the faith of the prospectus for any loss or damage he may have sustained by reason of any untrue statement concluded i.e director and promoter.
Expert’s liability for mis-statement:
An expert is liable to pay compensation only in respect of his own untrue statement. He can escape liability by withdrawing his consent in writing and give reasonable public notice of the with drawl.
Fraudulent Mis-representation:
Where a prospectus is issued without knowledge or consent of any of the persons i.e directors of the company and every person who is authorized to issue, shall not be liable to indemnify him against all damages, costs, expenses to which he may be made liable by reason of his name having been inserted in the prospectus of a statement purporting to be made by him as an expert against any legal proceedings brought against him in respect of:
A person specified as a director who has not consented to become a director or to become a director has withdrawn his consent before the issue of the prospectus.
An expert who either has not given his consent withdrawn it before the issue of the prospectus.
Every person who became liable to make any payment on account of damage, cost, expense, may recover contribution from any other person who is sued separately would have been liable to make the same payment, unless the former person was not guilty of fraudulent mis-representation.
Penalty for Fraudulently inducing persons to invest money:
Imprisonment for 3 years or with fine upto Rs. 20, 000 or with both
Chief Executive Officer:
Anyone who heads the Board of Directors is known as the chief executive. He is an individual natural person subject to control the board of directors of the company. He enjoys ultimate executive powers. He has the power to take decision, run the company, day to day affairs of the company. His tenure is as per his contract of service with company and may be renewed.
Appointment:
By the boards of directors in first annual general meeting.
In case of cessation of his office, the director has a right to appoint any person to be the CEO including an elected director.
Then CEO, if he is not already director of the company, be deemed to be its director and entitled to all the rights and liabilities. A person shall not be appointed as CEO who is not eligible for such appointment.
Rights and Priviliges:
- Sign documents and proceedings requiring authentication
- Certain statutory reports as one of the directors required to sign them
- Given consent or deny to his appointment as CEO;
- He need not to be member of the company
- He may be indemnified by the company against any liability incurred in defending the company
- Hold office upto first AGM on the period of appointment
- Eligible for re-appointment on the expiry of his term of office
- On retirement continues to perform duties until his successor is appointed
- Shall be deemed to be a director of the company and entitled to all rights and priviliges
- Sign director’s report
Removal:
Directors of a company passed a resolution by not less than three-fourth of the total number of directors or by special resolution, may remove a CEO before expiration of his term notwithstanding anything contained in the articles or any agreement between the company and the CEO.
Liable to fine upto Rs. 10, 000
Debarred by the SECP from becoming director or CEO of the company for 3 years.
Shares:
A share is a definite portion of a share capital. A share is a functional part of the capital. A share is the interest of share holder measured by a sum of money for the purpose of liability in the first place and of interest in the second.
It also consists of series of mutual covenants entered into by all the share holders inter se. A share in a company is one of the limits into which the total capital of the company is divided.
Since the company is a an incorporated association, the share is an interest in the association because by subscribing for it, the share holder has become a member of an association where assets are to be used in a particular way. He is entitled to participate to some extent in the affairs of the company. The share of company is measured by:
Sum of money i.e nominal amount of share;
By rights and obligations belonged to it under Articles of the company;
The share of any member in a company is movable property, transferable. Each share having a share capital in a company must be distinguished by its appropriate consecutive number called Distinctive Number.
Kinds of Share:
- Preference
These shares have preference in the shape of payment of dividend and capital. Types of Preference Share are:
i. Non-cummulative preference share: these share carry a preference right only to a fixed dividend payable out of the profit each year before the other share holder receive anything. If there are no profits in the year available for distribution, the holder of these shares have go without dividend.
- Cumulative preference share: these shares entitled the holder to an annual fixed dividend. This special right is expressly stated either in MOA or AOA. These shares also carry preference as to repayment of capital in winding up.
iii. Participating preference share: these share are class of preference shares the holders of which are entitled to share with ordinary shareholders, the balance of profits in some proportion after the rights of ordinary share holders have been reasonably met.
- Redeemable preference share : ordinary share of a company are not redeemable. They can be redeemed only when the company goes into liquidation.
- Ordinary
Ordinary shares are those which have no special rights as to dividend or capital allocated to them. In fact, the holders of ordinary shares shall now hold the entire capital of the company. The bulk of company’s capital is held by ordinary share holders. They are virtually the owners of the company. Their right of dividend, ordinary shares is not uniformed. The rate of dividend payable to the holder of ordinary shares is determined by the director who have discretionary power in this matter.
- Deferred
These are also called Founders or Management Shares. The shares are generally hold to remunerate the promoters and founders of the company or the under writers of the share capital. These are always few in number. A holder of these shares are usually receive no dividends until the dividends on all other classes of shares are paid in full or all the issued shares.
There is usually no limit placed on the rate of dividend that may be payable to deferred share holders, but it would be necessary to place some restriction on the amount of dividend payable to the ordinary share holders where deferred share have been issued.
- Bonus
When a company do not chooses to distribute all its profits during the particular year, it may issue fully paid bonus share which are given to members instead of dividend or in addition to dividend that may be paid to them. Profits are capitalized by the company by power given under MOA or AOA of the company.
Allotment of Shares and Debentures
Allotment is an appropriation of certain number of shares. Prospectus issued by a company is an invitation to the public at large to make offers for company’s shares or debentures. Allotment is the acceptance of that offer by the company which creates a binding contract between the parties.
Allotment of shares or debentures merely a contract until the allottee of the shares if registered in the register of members when to become a member of the company.
There is no binding contract between company and applicant for shares or debentures until the allotment has been made by the directors and the notice of the allotment has reached the allottee.
Penalty:
- An application shall be liable to fine upto Rs. 10,000 if he:
- Makes an application for shares or debentures of less than such nominal specified by the Authority;
- Uses form of application other than specified by Authority;
- Makes an innocent statement, declaration in the application.
Restriction on Allotment :
- Private company can issue the allotment of shares
- When there is no public offer of shares no allotment shall be made unless minimum subscription has been subscribed; full amount of each share has been paid and received by the company; statement in lieu of prospectus has been filed with the Registrar.
When there is public offer of shares:
- Public company shall not make any allotment of any share capital offered to public for subscription unless following conditions fulfilled:
- Minimum subscription has been subscribed;
- Minimum subscription as determined in exclusive amount payable than in cash;
- All money received from applicants kept in a separate bank account for shares;
- The amount payable on application on each share is the full amount of the share, this condition shall apply to first subsequent allotment;
- Where minimum subscription has not been obtained within 40 days after issue of the first prospectus, all moneys received from the applicants are to be returned without surcharge.
Penalty: fine 10, 000 continuing contravention to a further fine 3000 for every day.
Irregular Allotment:
Any allotment of shares made in contravention of against the Companies Act, against the officers, is called an irregular allotment.
Repayment of money for shares not allotted:
Where a company invites the public to subscribe for its shares or other securities, the company shall take a decision within 10 days of the closure of subscription list as to what application have been accepted or refund.
If refund is not made within 10 days, directors of the company shall be jointly and severally liable to repay that money with surcharge for every month.
Fine: Rs. 5, 000 on expiration of 15th day; in case of continuing offence Rs. 100 every day.
Return of Allotment:
Allotment to Bank/Institution:
Applicable to shares which are allotted or issued to a scheduled bank/financial institution in pursuance of any obligation to issue such shares.
In case of default made by a company, the return of allotment so filed shall be deemed to have been filed by the company itself. The bank/financial institution shall be entitled to recover from the company the amount of any fee paid by it to the Registrar in respect of the return.
Shares allotted in cash:
Filed with the Registrar return of allotment stating prescribed particulars;
Shares allotted otherwise than in cash:
Purchase for inspection and examination of Registrar; a written contract constitutes the title of allottee to the allotment together with contract of sale.
Shares allotted otherwise than in cash:
Filed with the Registrar, verified copies of such contracts and a return stating that the number and nominal amount of shares, amount to be treated as paid up and consideration for allotment
Where contract not in writing:
Filed with the Registrar, the prescribed particulars of allotment.
Bonus Shares:
Filed with the Registrar, return of allotment together with a copy of resolution authorizing the issue.
In case of issue of shares at discount a copy of resolution authorizing the issue.
MEETINGS
Meeting is gathering of two or more persons by mutual arrangement for transaction of business of the company.
Kinds:
Statutory
It is the first meeting can be held within 6 months from the date the company is entitled to commence business. There is only one statutory meeting in the life of public company.
Only public company required to hold this meeting.
- Every public company limited by shares
- Every public company limited by guarantee and having a share capital
- Every private or connected with a public company of either of classes mentioned above
- First meeting of the members after the company has been allotted to commence business is the statutory meeting. This meeting should be held within the following time limits
- In case of public limited company by shares within period of not less than 3 months, not more than 6 months from the date at which the company is entitled to commence business
- In case of public limited by guarantee and having a share capital
- In case of private company converted into a public company either of the classes
How statutory meeting convene:
The directors shall send notice of the meeting to all the members of the company at least 21 days before the date of meeting stating that it is statutory meeting of the company and also forward to every member a report called Statutory Report duly certified.
Purpose of this meeting is to give all members an opportunity of learning at an early stage in Company career:
Details of the formation of company;
To what extent financial appeal to the public has been successful;
What property has been acquired by the company in exchange for its issued capital;
What has been done with the actual money received in payment of shares;
Approve modification of the terms of any contract disclosed in the prospectus; and
To discuss these or any other matters arising therefrom.
Meeting may adjourn from time to time at any adjourned meeting any resolution of which notice has been given in accordance with the Articles, either before or after the general meeting, adjourned meeting has the same powers as an original meeting.
List of Members: directors shall cause list of members showing specified particulars to be produced at commencement of meeting and to remain open during continuance of meeting.
Annual General Meeting:
Meeting convened and held by every company whether public, private or guarantee, for the first time incorporation within 18 months of the event and thereafter during every calendar year through out its existence.
there shall be one general meeting every year. The AGM is an addition to any other meeting.
By whom held: Every company hold general meeting as its AGM. It can be held by directors. Members have no authority to convene such meeting. In case of default, every officer of the company is liable to penalty.
How convened: AGM is to be called by order of directors. A notice is to be given to all the members at least 21 days before the meeting.
AGM may be held once in a year for transaction of business
Time for holding:
Every company must hold meeting, as its AGM within 18 months form the date f its incorporation and at least in every calendar year within a period of 6 months, not more than 15 months after holding of its last preceding AGM.
It may extend time for special resolution within which AGM must held not exceeding 90 days. AGM shall be held in a town where registered office of the company situates.
Notice of meeting:
It must be sent to shareholders at least 21 days before date fixed for meeting and in case of listed company such notice must also be published.
Penalty:
For Listed Company in case of default in not convening AGM the company and every officer of the company who is willfully a party to default shall be liable:
Fine of Rs. 10, 000 which shall not exceed Rs. 20,000 and in case of continuance of fraud Rs. 2000 every day.
In case of any other Company in case of default in not convening AGM the company and every officer of the company who is willfully a party to default shall be liable:
Fine of Rs. 5, 000 which and in case of continuance of fraud Rs. 2000 every day.
The Company may be wound up by the Court if defaulter failed to hold two consecutive AGM.
Extra Ordinary General Meeting
In case of any special business cannot be transacted as per AOA, it is of urgent nature that it cannot conveniently wait till next AGM than an Extraordinary General Meeting must be held for such business. at times company may call AGM and EGM to be held on same day one after another, in that case notice to be issued to the members for both the meetings.
How held:
By the directors or the requisition on their own initiative as per AOA. Apart from that the directors may call an EGM when they thick its appropriate.
When convened:
Meeting called when there is some special business to be done; as per Articles of Association it cannot be done in AGM;
Notice:
Notice to be sent to all the members at least 21 days before the date of meeting.
In case of listed company notice shall be published at least in one issue of a daily newspaper in English and Urdu languages.
Penalty:
For Listed Company: Fine of Rs. 10,000 not exceeding Rs. 20, 000and in case of continuing default Rs. 20, 000 every day.
For any other company: Fine of Rs. 20, 000 and in case of continuing default Rs. 200 every day.
Director:
Articles of Association of a company provides invariably that business of the company shall be managed by directors who will collectively act as a board. Director includes any person occupying the position of director by whatever name called. Power to appoint director is usually vested by the articles in the company in general meeting such an appointment is held only until the next following AGM when the appointee can be re-elected.
In case of public company, each proposed director must be voted on individuality unless there is unanimous consent to block resolution.
Number of Directors:
In private Company: Only one director
In Public Company: At least two, although number of directors may be increased or decreased vide ordinary resolution.
Qualification of directors:
Director is a natural person who can become director of a company and no director can be variable representative of a body corporate. Following persons can become or appointed as director:
- person representing the Govt, an institution, authority;
- whole time director who is an employee of the company;
- chief executive;
- person representing a director.
Dis-qualification of directors:
- A person shall not be appointed as director who is
- Minor
- Unsound mind
- Has applied for adjudication as insolvent
- Has been convicted by a court of law for an offence involving moral turpitude
- Has been debarred from holding such office under any provision for the Act
- Lack of fiduciary behavior and declaration to this effect has been made by the court at any time during proceeding is not a member
Circumstances in which non-member becomes a Director:
It shall be effective only when approved by the directors in the special resolution.
In absence of a Director:
Director has the power to appoint with approval of other directors, alternate/substitute director to act for him during his absence from Pakistan for not less than 3 months.
Board Meetings & Director:
Every director is entitled to have reasonable notice of meeting but the AOA may provide that notice need not be given to a director who is absent from Pakistan.
Relationship between Company & Director:
- Members appoint the directors to formulate policy and supervise the management of company’s activities
- Directors have the power and duties of carrying out whole business of the company as its agents
- Directors cannot delegate their powers or duties without special authority in the AOA
- Restrictions are imposed on directors vide MOA & AOA of the company
- Directors are under legal responsibility for carrying on their fiduciary duties and may entail their liability either for breach of company and a general law.
Winding Up:
It is the process by which the assets of the company are collected in and its liabilities discharged and the net surplus distributed in accordance with the company’s AOA only when this has been done is the company’s existence finally terminated, by a process known as dissolution. The dissolution of a company is equivalent to the death of an individual. The law tries to maintain an equality between creditors so that assets are distributed pari passu. It must be remembered that winding up as a process may be applicable to either solvent or insolvent companies.
Winding up Compulsory or Voluntary:
Compulsory Winding Up: Company may be wound up by court:
- If the court has by special resolution resolved that the company may be wound up by the court
- If default is made in filing the statutory report or in holding statutory report
- If the company does not commence its business within a year from its incorporation or suspends its business for a whole year
- If number of members is reduced in case of private company
- If the company is unable to pay its debt
Commencement of winding up:
In case of wind up by the court the winding up dates from the presentation of the petition. Where a winding up is made after voluntary winding up has commenced, the winding up dates from the passing of the resolution and all proceedings taken in the voluntary winding up are deemed to have taken unless the court otherwise order. The effect of winding up is to avoid all dispositions of the property of the company made between the commencement of the winding up. winding up of the company by court shall be deemed to commence at the time of its presentation of petition of winding up.
Cessation of power: Winding up order effects the company by terminating employment of all employees, agents.
Effect of winding up order: Where a company is being wound up by or subject to the supervision of court, everything seized to exist.
Commencement of winding up by Court:
Winding up of a company by court shall be deemed to commence at the time of presentation of the petition for winding up.
Hearing of petition by court:
Petition for winding up of a company shall come up for regular hearing, proceeded with and decided in the manner provided in the Act. The court may at any time after presentation of the petition and before making an order, upon the application of the company. The court shall not refuse winding up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets.
Voluntary Winding Up:
Companies which to be wound up, by for the larger number are wound up voluntarily, this is in accordance with the intention of legislature which contemplates voluntary winding up at the normal mode of liquidation. Proceedings in voluntary winding up are not entirely a matter of arrangement by the members of the company but in certain respects are subject to statutory and official regulations.
Special Resolution and ordinary resolution, voluntary winding up initiated by a resolution of the share holders.
Commencement of voluntary winding up of the company after that the company must cease to carry on its business except so far as required for the beneficial winding up. A liquidation must be appointed, and with his appointment the director’s powers cease. He can be appointed as soon as the resolution for winding up has been passed, even without notice.
Meeting of Auditors:
No such meeting need to be hold if winding up is contemplated as member’s voluntary winding up. This is only possible if the company is thought to be solvent and declaration of solvency can be filed accordingly.
Circumstances of voluntary winding up:
- Happening of occurrence
- Special resolution
Kinds of Voluntary Winding Up:
I. Member’s voluntary winding up It take splace only when the company is solvent. Entirely managed by the members and liquidator is appointed by them;
- Declaration of solvency
- Auditor’s report
- Creditor’s voluntary winding up Company must summon a meeting of the creditors of the day on which resolution for winding up is to be proposed. Notice must be advertised in two local newspapers
- Audit of accounts
- Discharge of liabilities
- Exercise of power by liquidator
- Power of court to appoint and remove liquidator
- Notice of appointment of liquidator
- Application of court
- Application by liquidator to court for public examination of promoters, directors, etc
- Payment of cost of winding up
- Saving for right of creditors and contributories both
Supervision winding up:
When company passed a resolution for winding up, court may order that winding up shall continue subject to the supervision of court. Petition for continuance of voluntary winding up subject to supervision is deemed to be a petition for winding up by the court.
Appointment of Liquidator
When an order is made for winding up subject to supervision, the court may appoint an official liquidator having the same powers if he had appointed by a company. Effect of supervision order is to allow the liquidator can exercise all the powers of liquidator in winding up.
Petition in winding up subject to court’s supervision:
Court shall not make winding up order unless it is satisfied that winding up subject to supervision of court cannot be continued with due regard to interests of creditors, contributors or both.
Official Liquidator:
The term liquidation was first introduced in the Joint Stock Companies Act. This replaced a system of official managers under winding up . There is automatic cession bonorum to the liquidator. The court may direct that all or any pf the property shall vest in him but otherwise his position is perhaps most analogous to the directors whom he replaces with the qualification that he must be of a higher grade of skill and care.
- He is an officer of the court, honest, impartial manner responsible to court for the performance of his duties
- He is an agent of the company; he can bind the company without incurring personal liability
- In certain aspects he is a trustee for the creditors as a general body
Duties:
- Acts in good faith for a purpose
- Impartial
- Not allowed a conflict of interest and duty
- Secure control of assets of the company
- To ascertain his liabilities
- Distribute any surplus amongst the contributories and to adjust their rights. The court will only act as intervenor if it is shown that he has not exercised his powers in good faith or has acted in a manner otherwise
Powers:
- To sell property of the company by public auction or private contract
- To do all things for and on behalf of the company
- To prove rank and claim in bankruptcy
- To direct, accept, make and endorse any bill of exchange, promisory note in the name an don behalf of the company
- To raise on security of the assets of the company any money requisite
- To take out in his official name letters of administration to any deceased contributory
- To appoint an agent to do any business which the liquidator is unable to do himself
Sanction of court is necessary for exercise of following powers by Liquidator:
- To defend legal proceedings in the name and on behalf of the company
- To carry on business of the company as may be necessary for the beneficial winding up
- To appoint solicitor to assist him in performance of his duities
- To make any compromise or arrangement with creditors
- To compromise all liabilities, debts, claims and all questions relating to the assets or winding up of the company
Remuneration:
Remuneration of official liquidator shall be entitled to such percentage of the amount realized by him by disposing of assets as may be fixed by court and the nature of work subject to such limits as may be prescribed by the Act. The court may permit payment of monthly allowance, in addition to aforesaid remuneration, of liquidator for meeting the expenses of winding up for a period not exceeding 12 months, from the date of winding up order.