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Companies Ordinance (Summarized)
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Ahmed Raza RizviCopyright:
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Companies Ordinance
Summarized
By
Shahrukh Malik
Preface
The following is a summary of the Companies Ordinance 1984 that I made during the September 2010 attempt of my Company Law (Module D) paper. It is not complete and limited to only 262 sections. However, the content is made much more easy to understand than the bare law. Thank you for reading my notes. Shahrukh Malik
File version: 10.11.28 An updated version may be available at: http://www.shahrukhmalik.com If anyone finds any problem or has a suggestion, please inform me at: contact@shahrukhmalik.com
Table of Contents
Preface
................................................................................................................................................
2
Table
of
Contents
.............................................................................................................................
3
Part
I:
Preliminary
..........................................................................................................................
8
1:
Short
title,
extent
and
commencement:
.........................................................................................
8
2:
Definitions:
..............................................................................................................................................
8
3:
Meaning
of
subsidiary
and
holding
company:
......................................................................
9
4:
Ordinance
not
to
apply
to
certain
corporations:
........................................................................
9
5:
Application
of
Ordinance
to
non-trading
companies
with
purely
provincial
objects:
...
9
6:
Ordinance
override
memorandum,
articles,
etc.:
.......................................................................
9
Part
II:
Jurisdiction
of
Courts
....................................................................................................
10
7:
Jurisdiction
of
courts:
........................................................................................................................
10
8:
Constitution
of
company
benches:
................................................................................................
10
9:
Procedure
of
court:
............................................................................................................................
10
10:
Appeals
against
court
orders:
......................................................................................................
10
Part
III:
Corporate
Law
Authority
...........................................................................................
11
11:
Repealed
..............................................................................................................................................
11
12:
Powers
and
functions
of
the
Commission:
...............................................................................
11
13:
Reference
by
the
Federal
Government
or
Commission
to
the
court:
.............................
11
Part
IV:
Incorporation
of
Companies
and
Matters
Incidental
thereto
.......................
12
14:
Obligation
to
register
as
company:
............................................................................................
12
15:
Mode
of
forming
a
company:
........................................................................................................
12
16,
17,
18,
19:
Memorandum
of
association:
.................................................................................
13
20,
21,
22,
23,
24,
25:
Alteration
of
memorandum:
.....................................................................
13
26,
27:
Articles
of
association:
............................................................................................................
14
28:
Alteration
of
articles
.......................................................................................................................
15
29:
Form
of
memorandum
and
articles:
..........................................................................................
15
30,
31,
32,
33:
Registration
of
memorandum
and
articles:
.......................................................
15
34:
Effect
of
alteration
in
memorandum
and
articles:
................................................................
16
35:
Copies
of
memorandum
and
articles
given
to
members:
...................................................
16
36:
Alteration
of
memorandum
and
articles
to
be
noted
in
each
copy:
................................
16
37:
Prohibition
of
certain
names:
......................................................................................................
16
38,
39,
40,
41:
Change
of
name
by
company,
Ordinance
or
on
change
of
status:
...............
17
42:
Power
to
dispense
with
Limited
in
name
of
charities
and
other
companies:
..........
17
43:
Provision
as
to
companies
limited
by
guarantee:
.................................................................
18
44:
Conversion
of
public
company
into
private
company:
........................................................
18
45:
Prospectus
or
statement
in
lieu
of
prospectus
to
be
filed
when
converting
from
private
to
public
limited
company:
...................................................................................................
18
46:
On
default
of
conditions
constituting
a
private
company:
.................................................
18
47:
Liability
for
carrying
on
business
with
less
than
legal
minimum
members:
...............
18
48:
Service
of
documents
on
company:
............................................................................................
19
49:
Service
of
documents
on
registrar:
............................................................................................
19
50:
Service
of
notice
on
members,
etc.:
............................................................................................
19
51:
Authentication
of
documents
and
proceedings:
....................................................................
19
Part V: Prospectus, Allotment, Issue and Transfer of Shares & Debentures & Deposits... ........................................................................................................................................ 20 52: Prospectus to be dated: .................................................................................................................. 20
53: Matters to be stated and reports to be set out in prospectus: .......................................... 20 54, 55, 56: Experts report and consent to issue prospectus: ................................................... 21 57: Approval, issue and registration of prospectus: .................................................................... 21 58: Terms of contract mentioned in prospectus/SILOP not to be varied: ........................... 21 59: Civil liability for misstatement in prospectus: ....................................................................... 21 60: Criminal liability for misstatements in prospectus: ............................................................ 22 61: Document containing offer of shares or debentures for sale to be deemed as prospectus: ................................................................................................................................................ 23 62: Offer of shares/debentures for sale by certain persons: .................................................... 23 62-A: Issue of securities outside Pakistan: ..................................................................................... 23 63: Interpretation of provisions relating to prospectus: ........................................................... 23 64: Newspaper advertisement of prospectus: ............................................................................... 24 65: References of offering shares/debentures to public, etc.: ................................................. 24 66: Penalty for fraudulently inducing persons to invest money: ............................................ 24 67: Application and allotment of shares/debentures: ................................................................ 24 68: Restriction as to allotment: .......................................................................................................... 24 69: Statement in lieu of prospectus: ................................................................................................. 25 70: Effect of irregular allotment: ........................................................................................................ 26 71: Repayment of money received for share not allotted: ........................................................ 26 72: Allotment of shares/debentures to be dealt in stock exchange: ...................................... 26 73: Return as to allotment: ................................................................................................................... 27 74: Limitation of time for issue of certificates: ............................................................................. 27 75: Issue of duplicate certificates: ..................................................................................................... 28 76: Transfer of shares and debentures: ........................................................................................... 28 77, 78: Directors not to refuse transfer of shares and notice of refusal: .............................. 28 78-A: Appeal against refusal of transfer: ......................................................................................... 29 79: Transfer to successor-in-interest: .............................................................................................. 29 80: Transfer to nominee of a deceased member: ......................................................................... 29 81: Transfer by nominee or legal representative: ....................................................................... 29 82: Power to pay and prohibition of certain commissions and discounts: .......................... 30 83: Application of premium received on issue of shares: .......................................................... 30 84: Power to issue shares at a discount: .......................................................................................... 31 85: Redemption of preference shares: ............................................................................................. 31 86: Further issue of capital: ................................................................................................................. 31 87: Issue of shares in lieu of outstanding balance of any loans, etc.: ..................................... 32 88: Deposits not to be invited without issuing an advertisement: ......................................... 32
Part
-
VI:
Share
Capital
and
Debentures
...............................................................................
33
89:
Nature
of
shares
and
certificate
of
shares:
..............................................................................
33
90:
Classes
and
kinds
of
shares:
.........................................................................................................
33
91:
Only
fully
paid
shares
to
be
issued:
............................................................................................
33
92,
93,
94:
Power
of
company
limited
by
shares
to
alter
its
share
capital:
.........................
33
95:
Prohibition
of
purchase
or
grant
of
financial
services
for
purchase
of
own
or
holding
companys
shares:
...................................................................................................................................
34
95-A:
Power
of
company
to
purchase
its
own
shares:
................................................................
34
96,
97,
98,
99,
100,
101,
102,
103:
Reduction
of
share
capital:
................................................
35
104:
Liability
of
members
in
respect
of
reduced
shares:
...........................................................
36
105:
Penalty
on
concealment
of
creditor:
.......................................................................................
36
106:
Publication
of
reason
of
reduction:
.........................................................................................
36
107:
For
companies
limited
by
guarantee
having
share
capital:
............................................
36
108:
Variation
of
shareholders
rights:
............................................................................................
36
109:
Registration
of
unlimited
companies
as
limited:
................................................................
37
110:
Power
of
unlimited
company
to
provide
reserve
share
capital
in
re-registration:
37
111:
Limited
company
may
have
directors
with
unlimited
liability:
....................................
37
112: Special resolution of limited company making liability of directors unlimited: ..... 37 113: Right of debenture holder and shareholder to have copies of trust deed: ................ 38 114: Debentures not to carry voting rights: ................................................................................... 38 115: Perpetual debentures: ................................................................................................................. 38 116: Power to re-issue redeemed debentures: ............................................................................. 38 117: Specific performance of contract to subscribe for debentures: .................................... 39 118: Payment of debts out of assets subject to floating charge in priority to the claims: ....................................................................................................................................................................... 39 119: Power and liabilities of trustee: ............................................................................................... 39 120: Issue of securities and redeemable capital not based on interest: ............................... 40
Part-VII:
Registration
of
Mortgages,
etc.
...............................................................................
41
121:
Certain
mortgages
and
charges
to
be
void
if
not
registered:
..........................................
41
122:
Registration
of
charges
on
properties
acquired
subject
to
charge:
.............................
41
123,
124:
Particulars
in
case
of
series
of
debentures
with
equal
rights
and
commission,
etc.:
...............................................................................................................................................................
42
125,
126:
Register
and
index
of
mortgage
and
charges:
............................................................
42
127,
128:
Certificate
of
registration
of
mortgage/charge
and
its
endorsement:
...............
42
129:
Duty
of
company
and
right
to
interest
party
as
regards
registration:
........................
42
130:
Copy
of
instrument
creating
mortgage/charge
to
be
kept
at
registered
office:
.......
43
131:
Rectification
of
register
of
mortgages:
...................................................................................
43
132:
Registration
of
payment
or
satisfaction
of
mortgages
and
charges:
............................
43
133:
Power
of
registrar
to
make
entries
in
register
of
mortgages/charges:
......................
43
134:
Penalties:
..........................................................................................................................................
43
135:
Companys
register
of
mortgages:
............................................................................................
43
136:
Right
to
inspect
instruments
and
register
of
mortgage/charge:
...................................
44
137:
Registration
of
appointment
of
receiver
or
manager:
......................................................
44
138:
Filing
of
accounts
of
receiver
or
manager:
............................................................................
44
139:
Disqualification
for
appointment
as
receiver
or
manager:
.............................................
44
140:
Application
to
Court:
....................................................................................................................
44
141:
Power
of
Court
to
fix
remuneration,
etc.
of
receiver
or
manager:
................................
45
Part-VIII:
Management
and
Administration
.......................................................................
46
142:
Registered
office
of
the
company:
............................................................................................
46
143,
144:
Publication
of
name
by
limited
company:
...................................................................
46
145:
Publication
of
authorized
and
paid-up
capital:
...................................................................
46
146:
Restrictions
on
commencement
of
business:
.......................................................................
46
147:
Register
of
members
and
index:
...............................................................................................
47
148:
Trust
not
to
be
entered
on
register:
........................................................................................
47
149:
Register
and
index
of
debenture-holders:
............................................................................
47
150:
Inspection
of
registers:
................................................................................................................
47
151:
Power
to
close
register:
...............................................................................................................
48
152:
Power
of
Court
to
rectify
register:
...........................................................................................
48
153:
Punishment
for
fraudulent
entries
and
omission
from
register:
..................................
48
154:
Notice
of
registrar
of
rectification
of
register:
.....................................................................
48
155:
Register
to
be
evidence:
..............................................................................................................
48
156:
Annual
list
of
members,
etc.:
......................................................................................................
49
157:
Statutory
meeting:
.........................................................................................................................
49
158:
Annual
general
meeting:
.............................................................................................................
50
159:
Extraordinary
general
meeting:
...............................................................................................
50
160:
Provisions
as
to
meetings
and
votes:
......................................................................................
51
160-A:
Circumstances
in
which
proceedings
of
general
meeting
may
be
declared
invalid:
.......................................................................................................................................................................
52
161:
Proxies:
.............................................................................................................................................
52
162,
163:
Representation
of
corporations
and
creditors
and
government
at
meetings:
53
164: Notice of resolution: ..................................................................................................................... 53 165, 166: Voting by show of hands: ................................................................................................... 53 167: Demand for poll: ............................................................................................................................ 53 168: Time of taking poll: ....................................................................................................................... 54 169: Resolution passed at adjourned meeting: ............................................................................. 54 170, 171: Power of Commission to call meetings: ........................................................................ 54 172: Filing of resolution, etc.: .............................................................................................................. 54 173: Minutes of proceeding of general meetings and directors meetings: .......................... 54 174: Minimum number of directors: ................................................................................................ 55 175: Only natural persons to be directors: ..................................................................................... 55 176: First directors: ................................................................................................................................ 55 177: Retirement of directors: .............................................................................................................. 55 178: Procedure for election of directors: ........................................................................................ 55 178-A: Fresh elections on request of substantial acquirer: ...................................................... 56 179: Circumstances when elections may be declared in valid: ............................................... 56 180: Term of office of director: ........................................................................................................... 56 181, 182, 183: Removal of director and nomination of directors: ......................................... 56 184: Consent to act as director to be filed with registrar: ......................................................... 57 185: Validity of acts of directors: ....................................................................................................... 57 186: Penalties: .......................................................................................................................................... 57 187: Ineligibility of certain persons to become director (and chief executive S201): ..... 57 188: Vacation of office by directors: ................................................................................................. 58 189: Penalty for unqualified person acting as director: ............................................................ 58 190: Ineligibility of bankrupt to be director: ................................................................................. 58 191: Restriction on directors remuneration: ............................................................................... 58 192: Restriction on assignment of office by directors: ............................................................... 58 193: Meeting of directors: .................................................................................................................... 58 194: Restriction on exemption from liabilities: ............................................................................ 58 195: Loans to directors: ......................................................................................................................... 59 196: Power of directors: ........................................................................................................................ 59 197: Prohibition of political contributions: ................................................................................... 60 197-A: Prohibition of distributing gifts: .......................................................................................... 60 198: Appointment of first chief executive: ...................................................................................... 60 199, 200: Appointment of subsequent chief executive: ............................................................. 61 201: Restriction on appointment of chief executive: .................................................................. 61 202: Removal of chief executive: ........................................................................................................ 61 203: Chief executive (of public company) not to engage in business competing with companys business: ............................................................................................................................... 61 204: Penalty: ............................................................................................................................................. 61 204-A: Certain companies to have secretaries and share registrars: .................................... 61 205: Registers of directors and officers: .......................................................................................... 62 206: Ban on appointment of managing agent, sole purchase and sales agent, etc.: ......... 62 207: Terms and conditions of appointment of managing agent: ............................................ 63 208: Investment in associated companies and undertakings: ................................................. 63 209: Investments of a company to be held on its own name: ................................................... 63 210: Form of contract: ........................................................................................................................... 64 211: Bills of exchange and promissory notes: ............................................................................... 64 212: Execution of deeds: ....................................................................................................................... 64 213: Power of company to have official seal for use abroad: ................................................... 64 214, 215, 216, 217: Disclosure of interest by director and other officers: .......................... 64 218: Disclosure of directors interest to members in contracts appointing chief executive, managing agent, whole-time director or secretary: ............................................... 65 219: Register of contracts and appointments of directors, etc.: .............................................. 65 220: Register of officers shareholdings, etc.: ................................................................................ 66
221: Duty of officers to make disclosure of shareholdings, etc.: ............................................. 66 222: Submission of statements of beneficial owners of listed securities: ............................ 66 223: Prohibition of short-selling: ....................................................................................................... 67 224: Trading by officers and principal shareholders: ................................................................ 67 225: Contracts by agents of company in which company is undisclosed principal: ......... 67 226: Securities and deposits, etc.: ...................................................................................................... 67 227, 228, 229: Employees provident funds and securities: ..................................................... 67 230: Books of account to be kept by company: ............................................................................. 68 231, 232: Inspection of books of account by registrar, etc.: ..................................................... 68 233: Annual accounts and balance sheet: ....................................................................................... 69 234: Contents of financial statements: ............................................................................................. 69 234-A: Special audit: ............................................................................................................................... 70 235: Treatment of surplus arising out of revaluation of fixed assets: ................................... 70 236: Directors report: ........................................................................................................................... 70 237: Consolidated financial statements: ........................................................................................ 70 238: Financial year of holding company and subsidiary: .......................................................... 71 239: Rights of holding companys representatives and members: ........................................ 71 240: Balance sheet of modaraba company to include modaraba accounts, etc.: ............... 71 241: Authentication of financial statements: ................................................................................. 71 242: Copy of financial statements to be forwarded to registrar: ............................................ 71 243: Right of members to copies of financial statements and auditors report: ................. 72 244: Penalty for improper publication of financial statements: ............................................. 72 245: Quarterly accounts of listed companies: ............................................................................... 72 246: Power of Commission to require submission of additional documents: .................... 72 247: Rights of debenture-holders to receipt and inspection of financial statements: .... 72 248: Certain restrictions on declaration of dividends: ............................................................... 72 249: Dividends to be paid only out of profits: ................................................................................ 73 250: Dividend not be paid except to registered shareholders or their order or bankers: ....................................................................................................................................................................... 73 251: Period of payment of dividend: ................................................................................................ 73 252, 253: Appointment, removal and remuneration: ................................................................. 74 254: Qualification and disqualification: .......................................................................................... 74 255: Powers and duties of auditors: ................................................................................................. 75 256: Reading and inspection of auditors report: ......................................................................... 75 257: Signature on audit report: .......................................................................................................... 75 258: Audit of cost accounts: ................................................................................................................. 76 259: Penalty for non-compliance by companies: .......................................................................... 76 260: Penalty for non-compliance by auditors: .............................................................................. 76 261: Power of registrar to call for information: ........................................................................... 76 262: Seizure of documents by registrar: ......................................................................................... 76
Part I: Preliminary
1: Short title, extent and commencement:
Title: The Companies Ordinance 1984 Extent: whole of Pakistan Commencement: immediately
2: Definitions:
Articles:
means the articles of association as originally framed or as altered in accordance with the ordinance.
Associated companies/undertakings:
Two companies/undertakings are associated if: a person is the owner/partner or, directly or indirectly, holds or controls 20% of the voting power in those two companies they are under common management or control one is a subsidiary of the other the undertaking is a modaraba managed by another company
Associated persons:
A person who is the owner/partner or holds or controls 10% of the voting power in a company is associated with all other such persons. Shares are treated as held by a person even if held by a spouse or minor child. A person who is nominated as director by Federal or Provincial government or a financial institution under its control and shares owned by National Investment Trust, Investment Corporation of Pakistan, Central Depository, Federal or Provincial government are not taken into account for determining associated persons.
Body corporate/corporation:
includes a company incorporated outside Pakistan but does not include: a corporation sole a registered co-operative society any other body corporate not being a company as defined in the ordinance, which the Federal government may notify in the official gazette.
Chief executive:
a person entrusted with the management of the affairs of the company, subject to the control and directions of the directors. May be a director or any other person by whatever name appointed.
Company:
means a company formed or registered under this ordinance or an existing company.
Company limited by shares:
means a company having the liability of its members limited by its memorandum to the amount of unpaid shares held by them.
Company limited by guarantee:
means a company having the liability of its members limited by its memorandum to the amount undertaken by them to contribute in case of winding up of the company. It may or may not have share capital.
Debenture:
includes debenture stock, term finance certificates and any other securities other than shares. They may or may not have a charge on companys assets.
Private company:
means a company which, by its articles: restricts the right to transfer its shares limits the number of members to 50, excluding employees prohibits invitation of shares and debentures to public <insert_more_definitions>
3: Meaning of subsidiary and holding company:
A company is a subsidiary of the other if: the other company or body corporate directly or indirectly controls, holds or beneficially owns 50% or more of its voting securities or otherwise has the power to elect and appoint more than 50% of its directors it is the subsidiary of another subsidiary of the other company The other company is then its holding company. Shares held by CDC will only make it a holding company if they are held beneficially.
4: Ordinance not to apply to certain corporations:
This ordinance is not applicable to: a trading corporation carrying out business within a province and owned or controlled by the Provincial government a co-operative society a university
5: Application of Ordinance to non-trading companies with purely provincial objects:
Provincial government has all the powers that the Federal government or Commission has over non-trading companies operating within that province only.
6: Ordinance override memorandum, articles, etc.:
The ordinance shall be effective regardless of the clauses of memorandum, articles, agreements or any resolution passed. Any provisions that are against the ordinance will be void to that extent.
Part II: Jurisdiction of Courts
7: Jurisdiction of courts:
The high court in the place of the registered office will be the court having jurisdiction. The Federal government can empower a civil court to deal with the companies within its territorial jurisdiction. For cases of winding up, the place of registered office is that where it has been situated for the most time in the last 6 months. A case taken to a court not having jurisdiction will not invalidate it.
8: Constitution of company benches:
Each high court having power under S7 shall have one or more benches named Company Bench to deal with the cases relating to this ordinance.
9: Procedure of court:
Cases will be heard from day to day (except on reasonable cause) and judgment made within 90 days. Hearing may not be adjourned for more than 14 days at once and 30 days in total.
10: Appeals against court orders:
For cases of winding up of a company having paid-up capital of not less than 1 million rupees, an appeal can be made in the Supreme Court. For other cases of winding up, appeal can be made only if the Supreme Court grants leave to appeal. An appeal shall be disposed off within 90 days.
10
Part III: Corporate Law Authority
11: Repealed 12: Powers and functions of the Commission:
The Commission shall exercise and perform such powers and functions as are conferred upon it by the ordinance or any other law. The Federal government may empower the Commission with its powers under any restrictions or conditions.
13: Reference by the Federal Government or Commission to the court:
The Federal government or Commission may refer to the Court for any specific matter that requires special consideration or a court order. The Court will make just and equitable orders.
11
Part IV: Incorporation of Companies and Matters Incidental thereto
14: Obligation to register as company:
An association, partnership or company consisting of more than 20 persons operating for profit must get registered as a company under this ordinance. On contravention, every member pays Rs. 5,000 plus will be personally liable to all liabilities incurred in such business. This section does not apply to: a society, body or association, other than partnership, formed or incorporated under any other Pakistan law a joint family carrying on joint family business a partnership between two or more joint families where total members of such members does not exceed 20 a partnership formed to carry out practice as lawyers, accountants or other professions where a limited liability company is not permitted
Memorandum of Association
15: Mode of forming a company:
Any 3 or more persons can form a public company by subscribing to its memorandum and complying with the requirements of the Ordinance with respect to registration. (3 or more for unlisted company, 7 or more for listed company) Any 1 or more persons can form a private company in a similar manner. (1 for single-member company, 2-50 for private company) The company formed maybe limited by shares and/or guarantee or unlimited.
12
16, 17, 18, 19: Memorandum of association:
The memorandum shall be: printed dated divided into paragraphs numbered consecutively signed by each subscriber with their particulars in presence of witness who shall sign with their particulars
Contents:
Company Limited by Shares name of the company with Limited or (Private) Limited as its last word Company Limited by Guarantee name of the company with (Guarantee) Limited as the last word Unlimited Company name of the company
Name Clause
Registered Office Clause Object Clause Limited Liability Clause Share Capital Clause
the province or part of Pakistan not forming a province where the registered office of the company is to be situated the objects of the company and, except for trading companies, the territories to which they extend that the liabilities of the members are limited -
the amount of share capital the company proposes to be registered and its division thereof that each member undertakes for payment in debts an liabilities in case the company winds up while he is a member or within 1 year afterwards up to a specified amount
Guarantee Clause
No subscriber shall take less than one share. Each subscriber shall write the number of shares taken up by him opposite of his name. Notwithstanding anything in any law or memorandum or articles, every company has an implied power to obtain loan or credits and to issue securities not based on interest.
20, 21, 22, 23, 24, 25: Alteration of memorandum:
A company can alter its memorandum with a special resolution after confirmation by Commission only in respect of the following: Registered Office Clause from one province to another from part of Pakistan not forming a province to a province or vice versa from one city/town in a province to another (does not require approval) from Islamabad Capital Territory to Punjab (does not require approval)
13
Object Clause to carry business more economically and effectively to attain its main purpose by new and improved means to enlarge or change the local area of its operations to carry on some hew business not specified in the memorandum to restrict or abandon any objects mentioned in the memorandum to sell or dispose of the whole or any part of the undertaking of the company to amalgamate with any other company or body of persons
Before confirming the alteration, the Commission must be satisfied that: sufficient notice has been given to debenture holders and any persons whose interest might be affected by the alteration all objections by creditors that are entitled to object have been satisfied through his consent, disposal of debt or security against debt The Commission may dispense for the requirement of giving notice for persons it specifies. The Commission may confirm alteration in full or part under any terms and conditions that it specifies. In doing so, it shall keep regard of the rights and interests of all classes of members and creditors. It may adjourn its proceedings until such interests have been purchased by the company under its orders and directions. (Capital of the company may not be expended in this purchase) Once the Commission confirms the alteration, a copy of the order along with the altered memorandum shall be filed with the registrar with 90 days of the order. Commission may extend this time to a period it thinks fit. The registrar will register the alteration and issue a certificate that will be conclusive evidence that all requirements of the Ordinance have been met. If the alteration and order by Commission is not registered with 90 days or the extended time allowed, they would be made void. However, they may be revived on sufficient cause through application to Commission within further 90 days.
Articles of Association
26, 27: Articles of association:
Companies limited by guarantee and unlimited companies shall register its articles signed by the subscribers along with its memorandum. This is optional for companies limited by share (then they shall use Table A of First Schedule). The articles may adopt all or part of the regulations in Table A of First Schedule. Table A of First Schedule is applicable on all companies limited by shares up to the extent not altered or excluded by its own registered articles. The articles of companies limited by guarantee and unlimited companies shall state: if it has share capital: the amount of share capital the company proposes to be registered with otherwise: the number of members with the company proposes to be registered with The articles shall set out the regulations of the company. They shall be explicit and unambiguous. They shall state the voting and other rights attached to different classes of shares and securities issued or to be issued. The articles shall be: printed dated divided into paragraphs numbered consecutively
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signed by each subscriber with their particulars in presence of witness who shall sign with their particulars
28: Alteration of articles
A company can add to or alter its articles through special resolution, subject to the provisions of the Ordinance. If such alteration affects substantive rights or liabilities of members, 3/4th majority of the affected class of members is required through voting.
Forms of Memorandum and Articles
29: Form of memorandum and articles:
Company type Limited by Shares Limited by Guarantee not having share capital Limited by Guarantee having share capital Unlimited Company having share capital Articles Table A Table C Table D Table E Memorandum Table B
Tables A-E refer to tables in First Schedule.
Registration of Memorandum and Articles
30, 31, 32, 33: Registration of memorandum and articles:
The memorandum and articles shall be filed with the registrar along with a declaration, by a director or other officer, of compliance with the requirements of the Ordinance. If the registrar is satisfied that the company is made for a lawful purpose, none of its objects stated in memorandum are inappropriate or deceptive or insufficiently expressive and that all requirements of the Ordinance have been met (the declaration is sufficient evidence to this), he shall register the memorandum and articles. If registration is refused, the subscribers or any one of them authorized in writing may: supply the deficiency and remove the defect, or prefer an appeal within 30 days of order of refusal: to the registrar: if order of refusal was passed by an additional registrar, a joint registrar, a deputy registrar or an assistant registrar to the Commission: if the order of refusal was passed by the registrar An order against the appeal shall be final and not questioned in any Court or under any other authority. Upon registration, the registrar shall issue a certificate of incorporation that will be conclusive evidence that all requirements of the Ordinance with respect to the incorporation of the
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company have been met and the association is incorporated. It shall also certify the limited liability status of the company. The memorandum and articles, when registered, are binding upon the company and its members as if signed by each of them and contained a covenant on part of the member, his heirs and legal representatives to be bound by all the provisions. From the date of incorporation mentioned in the certificate, all subscribers of the memorandum shall be a body corporate under the registered name and be capable of exercising all the functions of an incorporated company. They shall have perpetual succession and a common seal. Their liability in case of winding up of the company will be that mentioned in the Ordinance (which says to follow memorandum). All money payable by any member under the memorandum or articles shall be a debt due to him to the company. (He will be treated as a debtor).
34: Effect of alteration in memorandum and articles:
If any alteration requires a member to take or subscribe for more shares or in any way increases his liability to contribute to share capital or otherwise to pay money, that part of the alteration will be void unless the member has agreed in writing, before or after the alteration.
35: Copies of memorandum and articles given to members:
A member can request a copy of memorandum and articles from the company upon payment of a prescribed sum. This request must be fulfilled in 14 days. On default, company will pay fine of up to Rs. 100.
36: Alteration of memorandum and articles to be noted in each copy:
When an alteration is made, every copy of the memorandum and articles issued after the date of alteration shall conform to the memorandum and articles as altered. On default, the company and every knowing officers will pay fine up to Rs. 1,000.
Provisions with respect to Names of Companies
37: Prohibition of certain names:
A company shall not register a name that is: inappropriate deceptive designed to exploit or offend religious susceptibilities of the people identical with a company already in existence resembling to a company already in existence as to be calculated to deceive except where that company is being dissolved and gives consent A company must get prior approval of the Commission if the name it wants to be registered with contains any words suggesting or calculated to suggest: the patronage of any, past or present, Pakistani or foreign, Head of State; any connection with the Federal Government or a Provincial Government or any department or authority of any such Government any connection with any corporation set up by or under any Federal or Provincial law the patronage of or any connection with any foreign Government or any international organization
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If a question of violation arises, the decision of the Commission shall be final.
38, 39, 40, 41: Change of name by company, Ordinance or on change of status:
If a company is registered under a name not allowed by the Ordinance, it can get its name changed with the approval of the registrar. In addition, the registrar can order the company to change it and the company must do so within 30 days. However, the registrar cannot give any such order if the company has been registered with that name for 3 years. A company can change its name by passing a special resolution and with approval of the registrar. The registrar shall write the new name in place of the former name in the register and issue a new certificate of incorporation. Upon change of name, the company shall mention both its new and former name outside of its registered office and all documents for one following year. Addition/deletion of (Private) from the name in consequence of conversion does not require approval or mentioning of former name along with the new one. The registrar shall update the name with the addition/deletion of (Private) and issue a new certificate of incorporation. After commencement of this Ordinance, every company shall have: Limited as its last word unless compensated by the Ordinance (Private) before Limited in case of a private limited company (Guarantee) before Limited in case of a guarantee limited company and the memorandum, articles and all documents shall be deemed to reflect the change. The change of name will have no effects on the rights and obligations of the company nor render any legal proceedings by or against it; they will continue under the companys new name. On default, company and every knowing officer shall pay fine of up to Rs. 10,000 plus Rs. 200 per day
Associations not for Profit
42: Power to dispense with Limited in name of charities and other companies:
A company may be allowed to dispense with the words Limited, (Private) and (Guarantee) by the Commission if the company: is formed for the promotion of commerce, art, science, charity, sports, religion, social services or any other useful object applies or intends to apply its profits and income for the promotion of its object only prohibits payment of dividends to its members The Commission will grant the company a license, under which it will operate as a limited company with all its powers, privileges and obligations. Certain conditions may be put on the license; it might be required that these be mentioned in the memorandum and/or articles of the company. The Commission may revoke the license after giving notice to the company of its intention and allowing a representation against the revocation. When the license is revoked, the words Limited, (Private) and/or (Guarantee) will be added by the registrar after the name of the company.
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Companies Limited by Guarantee
43: Provision as to companies limited by guarantee:
A company limited by guarantee not having share capital cannot give any part of its divisible profits to anyone who is not a member, even if the memorandum, articles or any resolution allows so. A provision in the memorandum or articles or any resolution to divide the undertaking into shares or interests shall be treated as provision of share capital.
Conversion between Public and Private Companies
44: Conversion of public company into private company:
A public company can convert to a private company by changing its memorandum and articles with written approval from the Commission, under any conditions put by the Commission.
45: Prospectus or statement in lieu of prospectus to be filed when converting from private to public limited company:
A private company can convert to a public company by altering its memorandum. The company must then file a prospectus (listed companies) or statement in lieu of prospectus (unlisted companies) to the registrar within 14 days of the alteration. Prospectus is made according to Section 1, 2 and 3 of Part I of Second Schedule. Statement in lieu of prospectus is made according to Section 1, 2 and 3 of Part III of Second Schedule. If any adjustments are made, either an explanation is to be given in the prospectus/statement in lieu of prospectus or in a statement attached with it, signed by the persons making those reports. On default, company and knowing officers pay fine of up to Rs. 5,000 plus Rs. 100 per day. On misstatement, persons who authorized shall be imprisoned for up to 2 years plus pay fine of up to Rs. 10,000; unless, he proves that the misstatement is immaterial or he had reasonable grounds to believe at that time that the statement was true. Misstatement means: info is falsely stated to mislead in form or context info is omitted to mislead
46: On default of conditions constituting a private company:
If the memorandum or articles of a private company do not contain the conditions that are required to make the company a private company, it shall be treated as a public company; unless, the Commission is satisfied that the failure was accidental or due inadvertence or any other sufficient cause.
Carrying on Business with less than Legal Minimum Members
47: Liability for carrying on business with less than legal minimum members:
If a company operates like this for more than 6 months, all members during this time will be severally liable to pay for the debts of the company and may be sued separately from all other members.
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Service and Authentication of Documents
48: Service of documents on company:
A document may be served on a company by sending it to the company or any officer at the registered office by post under certificate of posting, by registered post or by leaving it at the registered office of the company.
49: Service of documents on registrar:
A document may be served on the registrar by sending it to him at his office by registered post or by delivering it to him or leaving it for him at his office under acknowledgement of receipt.
50: Service of notice on members, etc.:
A notice may be given to a member by delivering it personally or sending it by post to his registered address. If there is no registered address in Pakistan, then to any other address the member has given for serving of notices. A notice is considered served this way if it was properly addressed, prepaid and posted at the date when it would have been received under ordinary course of post. If no address is given by the member, an advertisement given in a newspaper circulating in the province or part of Pakistan not forming a province in which the registered office is situated is treated as a notice duly given to him on the day of the publishing of the ad; it must be addressed to him or to the members in general. In case of listed company, the ad must be published in at least one Urdu and one English newspaper having circulation in the province in which the stock exchange where it is listed is situated. A notice to the joint-holders is treated as served to all of them if given to the person whose name is mentioned first in the register of members. In consequence of death or insolvency of a member, a notice to the person entitled to the share shall be given a notice by sending them a letter addressed to them by their name or by the title of the former member, representatives of a deceased member, assignees of an insolvent member at the address in Pakistan supplied for this purpose by the person claiming entitlement. Until such an address is found, it may be served as it would have been if death or insolvency had not occurred. A notice of general meeting shall be given to: every member except who does not have a registered address in Pakistan or an address in Pakistan specified to the company for the purpose every person who would be entitled to receive the notice had a member been dead or insolvent the auditors of the company
51: Authentication of documents and proceedings:
A document needing authentication of a company may be signed by the chief executive, a director, company secretary or any other authorized officer. It need not be under the common seal.
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Part V: Prospectus, Allotment, Issue and Transfer of Shares & Debentures & Deposits...
Prospectus
52: Prospectus to be dated:
A prospectus must be dated. This date will be taken as the date of its publication, unless the contrary is proved.
53: Matters to be stated and reports to be set out in prospectus:
A prospectus issued must be by on behalf of: a company a person engaged or interested in the formation of the company and shall be made in accordance with Section 1, 2 and 3 of Part I of Second Schedule. Sufficient copies of the prospectus shall be made available at: the registered office of the company the stock exchange where the company is or proposes to be listed the bankers to the issue and printed in its full text or abridged form in at least one Urdu and one English newspaper. Prospectus must be published between 7 to 30 days before the opening of the subscription list. (That is at least 7 days and at maximum 30 days before). The Commission may allow publishing before 30 days for special reasons. (Get approval within 60 days preceding issue) On default, knowing and responsible person shall pay fine of up to Rs. 10,000 plus Rs. 200 for everyday until a correct prospectus is issued. A condition in the prospectus requiring or binding the applicant to: waive compliance with this section, or to affect him with a contract, document or notice not referred to in the prospectus shall be void. A form of application for shares/debentures must be accompanied with a prospectus fulfilling the above conditions except if: the invitation is for entering into an underwriting agreement the shares/debentures are not offered to the public the invitation is to existing members/debenture holders the invitation is for shares/debentures which are similar in kind to shares/debentures previously issued and being dealt in or quoted on a stock exchange On default, person shall pay fine of up to Rs. 2,000. A director or any other responsible person shall not incur any liability if: he proves that he had no knowledge of a matter not disclosed he proves that the non-compliance/contravention arose from an honest mistake of fact the non-compliance/contravention was immaterial or otherwise reasonably excusable in the opinion of the registrar This does not relieve liability under general law or other sections of the Ordinance.
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54, 55, 56: Experts report and consent to issue prospectus:
An expert, who is not and has net been engaged or interested in the formation or promotion of the company, shall issue a report to be attached in the prospectus. The prospectus should also include a statement of experts consent, that he has given consent to issue the prospectus with his report and has not withdrawn it. On default, knowing persons to issue prospectus shall pay a fine of up to Rs. 5,000.
57: Approval, issue and registration of prospectus:
An existing or proposed listed company shall get approval of the Commission within 60 days preceding issue of prospectus. The Commission may impose any conditions as it thinks fit. A copy of the prospectus signed by all existing or proposed directors or their agents in writing shall be filed with the registrar on or before the date of issue of prospectus. It shall have attached: experts consent copy of contracts or particulars of contracts not yet reduced to writing that are referred in the prospectus a statement with reasons of adjustment made in the prospectus signed by each person making those adjustments. (i.e. when Section 2 of Part I of Second Schedule is not followed in whole) The registrar will register the prospectus only if: all requirements of the above and this section have been met a consent of the persons mentioned in the prospectus as the auditor, legal advisor, attorney, solicitor, banker and broker (member of stock exchange) have been obtained to act in that capacity A prospectus issued under this section shall on its face: state that a copy of it has been submitted to the registrar specify the documents that were attached with the copy submitted to the registrar (may also specify these in a separate statement attached with the prospectus) if the company proposes to be listed, that an application has been made or is proposed On default, company and knowing persons will pay a fine of up to Rs. 10,000 plus Rs. 200 for everyday until a correct prospectus has been delivered to the registrar.
58: Terms of contract mentioned in prospectus/SILOP not to be varied:
A company shall not vary the terms of contract mentioned in a prospectus unless by authority of a general meeting.
59: Civil liability for misstatement in prospectus:
The following persons shall be liable to pay compensation to a person who subscribes or purchases shares/debentures on faith of prospectus for any loss or damage by reason of an untrue statement: the directors of the company at the time of the issue every person who has authorized to name him as director in the prospectus or as having agreed to become a director immediately or after a time period every promoter of the company every expert, auditor, legal advisor, attorney, solicitor, banker and broker who has given consent to issue prospectus (only with regard to any untrue statement made by him)
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A person, other than an expert, shall not be liable if he proves that: having consented to become a director, he has withdrawn his consent and the prospectus was issued without his authority or consent the prospectus was issued without his knowledge or consent and he gave a reasonable public notice about it after issue of prospectus but before allotment, on becoming aware of an untrue statement, he withdrew his consent and gave a reasonable public notice of withdrawal with reasons with regard to an untrue statement not made by an expert, he believed up to the time of allotment that it was true with regard to an untrue statement made by an expert, the statement was in a correct copy or fair extract of experts report and he believed up to the issue that the expert was competent and had given his consent and not withdrawn it up to allotment with regard to an untrue statement made by a public official person, the statement was in a correct copy or fair extract of the public official document A person, who is an expert, shall not be liable if he proves that: he withdrew his consent before delivery of a copy of prospectus for registration after registration and before allotment, he became aware of an untrue statement and withdrew his consent in writing and gave reasonable public notice of withdrawal with reasons he was competent to make a statement and had reasonable grounds to believe and did up to allotment believe that the statement was true Where the prospectus specifies: the name of a person as a director or having agreed to become a director, whereas he has not consented to be a director or has withdrawn his consent before the issue of prospectus the consent of an expert whereas he had not given consent or has withdrawn it before the issue, the directors, excluding those without whose knowledge or consent the prospectus was issued, and every other person who authorized the issue shall be liable to indemnify those persons against all damages, costs and expenses that he may be made liable by reason of their name being inserted in the prospectus or in defending themselves in any suit or legal proceeding. A person shall not be deemed as having authorized the issue of prospectus by reason only of his having giving consent as an expert. A person made liable under this section may recover the contribution of other person who would have been liable.
60: Criminal liability for misstatements in prospectus:
Where a prospectus includes an untrue statement, every person who signed it or authorized its issue shall be imprisoned for up to 2 years and/or pay fine of up to Rs. 10,000; unless, he proves that the statement was immaterial or that he had reasonable grounds to believe that the statement was true. A person shall not deemed to have been authorized the issue by reason only of having given his consent as an expert, auditor, legal advisor, attorney, solicitor, banker or broker (member of stock exchange).
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61: Document containing offer of shares or debentures for sale to be deemed as prospectus:
If a company allots or agrees to allot shares/debentures to a person with a view that all or some of them be offered to public, any document through which offer to the public is made is treated as a prospectus. All rules and regulations are applicable on that document. The person receiving shares is treated as subscriber of those shares/debentures. If the person is a company/firm, signature by 2 directors or half of the partners (or agents authorized in writing) is sufficient. An allotment or agreement to allot shall be treated, unless contrary is proved, as having been done with view to offer shares/debentures in public if: an offer to public for sale of share/debenture was made within 1 year of allotment or agreement to allot at the date of the offer, whole of the consideration against the shares was not received by the company the offer was made in pursuance of an understanding in which the company was directly or indirectly a party, or under a condition imposed by any authority in relation to the position, business or privileges of the company The prospectus shall, in addition to other requirements, state: the net amount of consideration received or to be received by the company in respect of the shares/debentures to which the offer relates the place and time where the said shares/debentures to be allotted may be inspected
62: Offer of shares/debentures for sale by certain persons:
A person having more than 10% share or debenture holding in a company must get approval from Commission before selling them off. The document used by him for offer of sale shall be treated as prospectus with all requirements and regulations. His duties shall be the same as that of a director of the company with regards to the prospectus. If the person is a company/firm, signature by 2 directors or half of the partners (or agents authorized in writing) is sufficient. A document soliciting bids, offer, proposals or tenders in the following cases is not treated as sale to public or require prospectus: for sale of shares/securities acquired in the normal course of business for negotiating sale or expressing intention to disinvest shares/securities issued by a scheduled bank or financial institution
62-A: Issue of securities outside Pakistan:
No company shall issue securities outside Pakistan without the approval of the Commission.
63: Interpretation of provisions relating to prospectus:
For the previous sections, where: a statement included in the prospectus is misleading in form or context in which its included omission of any matter is calculated to mislead the prospectus shall be treated as including an untrue statement. A statement included in prospectus means a statement: included in the prospectus itself contained in any report or memorandum appearing on its face or referred in the prospectus
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64: Newspaper advertisement of prospectus:
Newspaper advertisements of prospectus may omit mentioning the contents of the memorandum, its signatories and the number of shares subscribed by them.
65: References of offering shares/debentures to public, etc.:
Offer of shares/debentures to public means to the whole of the public or to a section (including existing members). An offer is not treated as offer to public if: it allows subscription or purchase only by those persons receiving the offer it is a domestic concern of persons receiving and making the offer A provision in the articles of a company, prohibiting offer of shares/debentures to the public, does not prohibit offering to existing members in the manner stated above. Same provisions apply for private companies as well.
66: Penalty for fraudulently inducing persons to invest money:
If a person fraudulently induces persons to invest money, he may be imprisoned for up to 3 years and/or pay a fine of up to Rs. 20,000. Here, fraudulently inducing means inducing or attempting to induce a person by making a statement, promise or forecast which is false, deceptive or misleading, whether knowingly or recklessly. Here, investing money means to enter into or offer to enter into: an agreement for acquiring, disposing, subscribing or underwriting shares/debentures an agreement to secure a profit from purchase & sale of shares/debentures or from fluctuation of values of shares/debentures
Allotment
67: Application and allotment of shares/debentures:
The Commission sets the minimum amount for which an application for allotment can be made. It may also specify the form of application containing declarations and verifications as it sees fit in the public interest. This form shall be part of the prospectus. All certificates, statements and declarations made by applicants shall be binding upon them. An application for shares/debentures in pursuance of a prospectus shall be irrevocable. On default, person shall pay a fine of up to Rs. 10,000.
68: Restriction as to allotment:
Allotment of shares can be made only if the minimum subscription has been subscribed, paid in full and received by the company in cash. First allotment: The minimum subscription is the amount mentioned in the memorandum or articles as minimum subscription or the whole of the share capital, except the part agreed upon to be paid in other than cash.
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Subsequent allotment: The minimum subscription is the minimum amount that, in the opinion of the directors, must be raised to fund the objectives for which a share issue was, arrange. It is to be stated in the prospectus and be exclusive of any amount payable otherwise than in cash. All moneys received from the applicants will be kept in a separate bank account in a schedule bank until returned due to minimum subscription not being subscribed to or until certificate of commencement has been received (under Section 146) or until it may become liable to return them. The amount payable on application is the full nominal amount of the share. If the above conditions are not met within 40 days of the first issue of the prospectus, all moneys received from applicants shall be refunded. If any such money is not refunded within 50 days, the directors of the company shall jointly and severally be liable to pay a surcharge of 1.5% per month or part thereof; except those who prove that the default in repayment was not due to their misconduct or negligence. Any condition requiring the applicant to waive compliance with this section will be void. On default, knowing directors, promoters and other persons shall pay a fine of up to Rs. 20,000 plus up to Rs. 200 per day.
69: Statement in lieu of prospectus:
A company that does not issue prospectus due to its nature (unlisted public company and not a private company) or a company who did not proceed to allot shares/debenture offered to public shall file a statement in lieu of prospectus at least 3 days before allotment of such shares/debentures. It shall be signed by every person named therein as director or proposed director containing certain particulars in certain cases according to sections 1, 2 and 33 of Part II of the Second Schedule. If any adjustments are made to the prospectus according to clause 5 of Part II of Second Schedule, the prospectus shall have endorsed thereon or attached thereto a written statement signed by the persons making the adjustments along with reasons. On default, company and knowing officer shall pay fine of up to Rs. 5,000 plus Rs. 100 per day. If the SILOP includes an untrue statement, knowing persons may be imprisoned for up to 2 years and/or pay a fine of up to Rs. 10,000; unless, he proves that he had reasonable grounds to believe and did up to the time of registering the SILOP believe that the statement was true. Included means included in the SILOP or contained in any report or memorandum appearing on its face or incorporated by reference or issued with it. Untrue statement means: a statement is misleading in form or context omission of a statement is calculated to be misleading
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70: Effect of irregular allotment:
An allotment in contravention of Section 68 and 69 will be voidable by the applicant within 30 days: after the statutory meeting where no such meeting is to be held or allotment is done after the meeting, after allotment even if the company is being wound up. On default, knowing officers shall compensate the company and allottee for any loss, damages or costs. Such proceeding shall not be commenced 2 years after the date of allotment.
71: Repayment of money received for share not allotted:
Where shares/securities were issued to the public, the company shall take a decision within 10 days of the closing of the subscription listed about which applicants to accept. Unsuccessful applicants will be refunded within 10 days of such decision. If the refund is not made with 15 days of the decision, the directors shall jointly and severally be liable to pay the applicant a surcharge of 1.5% per month (or part thereof) and a fine of up to Rs. 5,000 plus Rs. 100 daily; unless, he proves that the default was not due to his misconduct/negligence. Any condition requiring or binding the applicant to waive off this section shall be void.
72: Allotment of shares/debentures to be dealt in stock exchange:
Where the prospectus states that an application has been made or will be made for the offered shares to be listed in the stock exchange, any allotment shall be void if: no application is made within 7 days of the first issue of the prospectus the stock exchange does not grant permission within 21 days of the closing of the subscription lists or such longer period not exceeding 42 days as may be notified to the applicant by or on behalf of the stock exchange within these 21 days If permission is not granted, all money received in pursuance of that prospectus shall be refunded within 8 days since the company becomes liable to pay it. On default, the directors shall jointly and severally be liable to pay the applicant a surcharge of 1.5% per month (or part thereof) and a fine of up to Rs. 5,000 plus Rs. 100 daily; unless, he proves that the default was not due to his misconduct/negligence. Permission by the stock exchange is not treated to be refused if it is intimated that it will be given further consideration. All money received shall be deposited in a separate bank account in a scheduled bank for as long as the company may become liable to return them. On default, the company and every knowing director shall pay a fine of up to Rs. 5,000. Any condition requiring or binding the applicant to waive off this section shall be void. For this section, an underwriter is treated as an applicant. For the offer of sale of shares/debentures (instead of allotment), this section applies as it is except that allotment will be replaced by sale; companys and directors liability will be replaced by the liability of the person offering shares for sale.
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73: Return as to allotment:
Whenever a company having share capital allots shares, it shall within 30 days, or any extended period as the registrar may allow thereafter, file with the registrar a return of the allotment stating number, nominal amount and paid amount of shares allotted and particulars of each allottee. Where shares were allotted for other than cash, the following should also be submitted: contract constituting the title of the allottee to the allotment contract of sale, services or other consideration against which allotment is made a return of allotment stating the number and nominal amount of shares and the amount to be treated as paid-up and the consideration for which the shares have been allotted If such contract is not in writing, the particulars of the same will be written down on a stamp paper with the same stamp duty as it would have been paid for the contract. In case of bonus shares, the return shall also include a copy of the resolution authorizing such issue. In case of shares on discount, the return shall also include a copy of the resolution authorizing such issue and a copy of the order of the Commission sanctioning the issue. If the discount rate is more than 10%, a copy of the order of the Commission permitting such higher discount shall also be submitted. On default, the company and knowing officers shall pay a fine of up to Rs. 500 per day. This section also applies to shares allotted/issued to a scheduled bank or financial institution in pursuance of an obligation of the company to do so. In such a case, the bank may file the return with the registrar and recover any fees paid from the company. Shares shall not be treated to have been paid in cash unless cash has actually been received. Where payment is made/to be made for any property or service from a person, it shall be deducted from the amount of any cash payment made for the shares and only the balance remaining shall be treated as having been paid in cash. Any other securities equivalent to cash are not considered.
Certificate of Shares and Debentures
74: Limitation of time for issue of certificates:
A company must complete and keep ready for delivery the share/debenture certificates: 90 days after allotment 45 days after receiving an application for transfer The certificate may be posted or delivered to the entitled person or a notice given to him within this period that the certificate is ready for delivery. On default, company and knowing officers shall pay a fine of up to Rs. 100 per day. The company must transfer its shares to (i.e. register with) the CDC within 5 days after such an application is made. (This does not mean any transfer that the company is entitled to refuse)
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75: Issue of duplicate certificates:
A company shall issue a duplicate certificate within 45 days from an application of the same if the original: is proved to be lost or destroyed having been deface, mutilated or torn is surrendered to the company After making any inquiries it deems fit, the company shall issue a duplicate and shall not charge a fee exceeding the prescribed sum and the actual expense incurred on such inquiry. If the company is unable to issue a duplicate for a reasonable cause, it shall notify the applicant within 30 days of the application. On default, company and knowing officers shall pay a fine of up to Rs. 500. If duplicates are issued with intent to defraud, the company shall pay a fine of up to Rs. 20,000 and every knowing person may be imprisoned for up to 6 months and/or pay a dine of up to Rs. 10,000.
Transfer of Shares and Debentures
76: Transfer of shares and debentures:
The company shall transfer a share/debenture on an application from the transferor or transferee on receiving a proper instrument of transfer duly stamped and executed by both parties along with the scrip under an operation of the law If the transferee claims that such transfer deed has been lost, mutilated or destroyed, the company shall register the transfer if the transferee proves this up to the satisfaction of the directors and gives an application bearing the stamp required for the instrument of transfer. In addition, the company may demand such indemnity from the transferee as it thinks fit. The company shall maintain a register of all such transfers that shall be open for inspection by members and supply of copy thereof (as per Section 150). On default, company and knowing officers shall pay a fine of up to Rs. 5,000. For public companies, a financial institution may be appointed as the transfer agent. For companies not having share capital, transfer of shares/debentures means the interests of members in the company.
77, 78: Directors not to refuse transfer of shares and notice of refusal:
The directors may not refuse transfer of shares except because of the defect or invalidity of the transfer deed. They shall notify the applicant of any defects and reason of refusal of transfer within 30 days, 5 days in case of CDC. The transferee shall, after removal of such defect, be entitled to re-lodge the transfer deed. For a private company, the conditions imposed in the articles shall be applicable. On default, company and knowing officer shall pay a fine of up to Rs. 20,000 plus Rs. 1,000 per day.
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78-A: Appeal against refusal of transfer:
The transferor, transferee or the person intimating the transmission by operation of law may appeal to the Court against refusal of transfer, transmission or notice of the same. He must do so within 2 months from the date of receiving of notice of refusal or expiry of time giving to company for giving such notice. The Commission shall take representations from all parties, including the previous owner, and ask the company for reason of refusal of transfer/transmission. The Commission may direct either that the company need not register the transfer/transmission or that it must do so within 15 days of receiving such order along with other incidental and consequential directions including payment of costs. On default, knowing officers shall pay a fine of up to Rs. 500 per day.
79: Transfer to successor-in-interest:
Shares/debentures of a deceased member/holder shall be transferred to his lawful successorin-interest on an application made by him with all supporting documents evidencing his nomination or lawful award. The company may demand any indemnity and write his name in the register of members.
80: Transfer to nominee of a deceased member:
A member may appoint one or several nominees by submitting a document of nomination stating the right of each nominee (such that shares are divided in whole numbers). Upon death of the member, the nominees are individually entitled to their part of the shares. They shall file an application upon which the shares shall be transmitted to their name unless such nomination: is varied by another nomination deposited before death of member is expressly cancelled by notice in writing by member becomes invalid by reason of some contingency mentioned in the nomination If the nominee dies before the member, that part of nomination would become void. If a second person was mentioned in the deed, rights of that nominee shall transfer to this second one. A nomination deed does not limit the owners right of transfer, disposal or otherwise dealing in the shares. It is effective only from the day of his death. Only the following relatives of the member may be nominated: spouse father or mother brother or sister son or daughter (including step or adopted child)
81: Transfer by nominee or legal representative:
A transfer of share/debenture by a nominee or legal representative of a deceased member shall be as valid as if he was the member of the company even if his name was not yet written in the register of members.
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Commission, Discount, Premium and Redeemable Preference Shares
82: Power to pay and prohibition of certain commissions and discounts:
A company can pay commission to a person for subscribing, agreeing to subscribe, procuring subscription or agreeing to procure subscription for any shares/debentures of the company if: payment of such commission is allowed by the articles the rate of commission does not exceed that fixed by Commission (on default, fine of Rs. 2,000) the amount or rate of commission paid or agreed to be paid is mentioned in the document inviting subscription (prospectus - public offer, SILOP or other document - not public offer) (on default, fine of Rs. 1,000) number of shares/debenture for which persons have agreed to subscribe absolutely for a commission is disclosed on the document inviting subscription (on default, fine of Rs. 1,000) Companies may not give any other commission, discount or allowance for subscribing, agreeing to subscribe, procuring subscription or agreeing to procure subscription to any person. Provided that: The company can pay any broker but the amount paid shall not be more than 1% of the price of shares/debentures actually sold through the broker or any higher rate that the Commission may specify. The company can pay any commission to a vendor or promoter or other person if payment is made to them in shares/debentures and giving commission to them would have been legal if paid directly. On default, company and officer shall pay a fine of up to Rs. 500.
83: Application of premium received on issue of shares:
Any premium received on sale of shares, whether in cash or otherwise, will be transferred to the Share Premium Account. For matters of reduction of capital, it will be treated as paid-up capital of the company. The share premium can be applied in: writing off preliminary expenses of the company writing off expenses of issue of shares/debentures, including commission/discount allowed providing for the premium paid on redemption of redeemable preference shares or debentures issuing bonus shares to existing members For shares issued before the commencement of this ordinance, share premium must be separated the same way as if they had been issued after commencement. The amount of premium that has been applied and does not form a part of the reserves of the company shall be disregarded.
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84: Power to issue shares at a discount:
A company can issue shares at a discount if: it is authorized by a resolution stating the maximum rate of discount it is sanctioned by the Commission at the date of such issue, one year has passed since the commencement of business the shares are issued within 60 days of the Commissions sanction (or any extended period allowed by the Commission) After such issue, every prospectus and balance sheet issued shall include particulars of the shares issued at discount or of that amount of discount as has not been written off. The company shall give an application to the Commission to sanction the discount after passing the resolution. Issue of shares at discount is not treated as reduction in share capital.
85: Redemption of preference shares:
A company may redeem its fully paid-up preference shares if: the redemption is to be done out of: divisible profits which would otherwise be available for dividend to members a sinking fund created specially for this purpose proceeds of a fresh issue sale proceeds of any property of the company in case of redemption other than out of divisible profit, a capital redemption reserve had been made in case of redemption our of fresh issue, premium on redemption is provided out of divisible profits or the share premium account On default, company and knowing officers shall pay a fine of up to Rs. 5,000. Redemption of shares is not treated as reduction of authorized capital. The provisions of the articles shall be applicable on redemption.
Further Issue of Capital
86: Further issue of capital:
Directors of the company may decide to increase the share capital of a company by rights issue. Shares shall be offered to the existing members in proportion to their existing shareholding, irrespective of class, by serving a notice/circular signed by the directors stating: a time period after which the offer shall be treated as declined material information about the state of affairs of the company and the need of further capital Where fractional shares are created, they will be consolidated and disposed off by the company and the proceeds shall be paid to the entitled shareholders. If any part or whole of the shares are declined, the directors might dispose them off as they deem fit. In order to issue shares without rights issue, a public company would pass a special resolution authorizing such issue and send an application to the Federal Government.
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A public company may keep some of its share for its employees under Employees Stock Option Scheme that is to be approved by the Commission.
87: Issue of shares in lieu of outstanding balance of any loans, etc.:
A company may convert 20% of the balance of a loan, credit, deposit or other non-interest bearing securities if the following conditions are fulfilled: the term of the loan, etc. is not less than 3 years at least 5 years have passed since the start of commercial production in any 2 of the previous 3 years, the rate of return to the scheduled bank/financial institution has fallen below the minimum laid out by the State Bank of Pakistan
Regulation of Deposits
88: Deposits not to be invited without issuing an advertisement:
A company may not invite, allow any person to invite or cause to be invited on its behalf any deposit unless: such deposit complies with the rules set out by the Federal Government, which may prescribe the limits up to which, the manner in which and the conditions subject to which deposits may be invited, accepted or retained an advertisement/prospectus including a statement of the financial position of the company has been issued On default, the company shall be liable to pay a fine of: up to Rs. 20,000 for inviting deposits not less than the amount of deposits accepted On default, knowing officers shall be imprisoned for up to 2 years and pay a fine. This section is not applicable to a banking company and any other the Commission may specify.
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Part - VI: Share Capital and Debentures
89: Nature of shares and certificate of shares:
Shares and interests shall be a moveable property, transferable as per the articles of the company. Each share shall have a distinctive number. A certificate under the common seal of the company specifying any shares held by any member shall be prima facie evidence of the title of the member to shares mentioned therein.
Classes and Kinds of Shares
90: Classes and kinds of shares:
A company limited by shares may have different types of share capital and classes as provided by the memorandum and articles. Different rights and privileges may only be conferred as prescribed.
General Provisions as to Share Capital
91: Only fully paid shares to be issued:
No company shall issue partly paid shares. If a company has partly paid shares before the commencement of the Ordinance, it shall: not issue any further shares until those shares become fully paid up pay the dividend in proportion of the amount paid up
92, 93, 94: Power of company limited by shares to alter its share capital:
A company may alter its share capital if allowed by the articles by altering its memorandum in a general meeting by a passing a resolution to: increase its share capital or number of members consolidate and divide the whole or part of its share capital into larger amounts sub-divide all or some of its shares into smaller amounts cancel shares that have not been taken up to the date of the alteration (not reduction of capital) Resolution to increase capital or members shall not be effective unless a notice including particulars of the new shares and affects to existing shares is filed with the registrar. The rights and rank of the new shares shall be similar to existing shares of the same class. The rights of shares consolidated or sub-divided shall be in proportional to the rights attached to previous shares. When shares are issued to a scheduled bank or financial institution under an obligation to do so, if the authorized share capital or unsubscribed share capital is insufficient, the same shall be deemed to have increased notwithstanding anything in the Ordinance or any other law or the articles or memorandum. If default is made in filing of notice, the bank may file the notice and recover any fee paid to the registrar. Where any of the mentioned changes occur, the registrar shall be notified within 15 days. On default, company and knowing officers shall pay a fine of up to Rs. 100 per day.
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95: Prohibition of purchase or grant of financial services for purchase of own or holding companys shares:
A company cannot buy its own or its holding companys shares. However, a subsidiary is allowed to: act as a trustee if its holding company is not the beneficiary deal in the share of its holding company as a broker and not exercise any voting rights
A company can still redeem its redeemable capital and purchase its shares according to the provisions of the Ordinance.
A company, other than a private company that is not a subsidiary of a public company, may not give any financial assistance to any person to purchase its own or its holding companys shares. However, a company can give advance to a salaried employee (including CEO who is not already a director) to purchase shares of the company or its subsidiary or holding company if such advance is part of the contract of service of such employee. On default, company and knowing officers shall be liable to a fine of up to Rs. 10,000 for listed companies and Rs. 2,000 for other companies.
95-A: Power of company to purchase its own shares:
A company can purchase its own shares by passing a special resolution that shall state: maximum number of shares to be purchased maximum price at which the shares shall be purchased the period within which the shares shall be purchased the mode of the tender to purchase the shares The notice of the meeting in which the special resolution is to be passed shall include: justification for the purchase source of funding effect on financial position of the company nature and extent of interest of the directors The purchase shall always be in cash and out of the divisible profits of the company. The purchase shall be made through a tender, the mode of which will be decided by special resolution. Any premium on purchase shall be paid out of the Share Premium account and the divisible profits. Any discount on purchase shall be credited to the Capital Re-purchase Reserve account. The shares purchased shall be canceled and not resold. The share capital shall decrease by the amount of the shares purchased. The decrease in share capital shall be transferred to the Capital Re-purchase Reserve account after accounting for any discount. The Capital Re-purchase Reserve may only be used to issue bonus shares. The company shall maintain debt-equity ratios as may be prescribed. Majority of the directors and the CEO shall declare a statement of solvency (that the company will stay a going concern and pay its liabilities on time for the next financial year) verified by an affidavit at the meeting. A register of shares purchased under this section will be maintained containing: number of shares purchased consideration paid for the shares purchased mode of purchase date of cancellation of such shares
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A return containing particulars of the purchase and the statement of solvency shall be filed within 30 days of the purchase with the Commission and the registrar. On default, company and knowing officers shall pay a fine of up to Rs. 1,000,000 and/or be imprisoned for up to 6 months.
Reduction of Share Capital
96, 97, 98, 99, 100, 101, 102, 103: Reduction of share capital:
A company can reduce it share capital if allowed by its articles by passing a special resolution and getting confirmation from the Court. The company may: reduce liability on shares that are not paid-up cancel any paid-up share capital which is lost or unrepresented by companys assets pay off any paid-up share capital which is in excess of the companys needs It shall apply to the Court by petition for an order confirming the reduction.
Objection by creditors
Where reduction involves reduction of liability on shares or payment to any share holder of paid-up capital or in any other case as directed by the Court, creditors, who would have been entitled to a debt/claim in case the company was wound up on a date specified by the court, would be entitled to object to the reduction. The Court shall determine the list of creditors entitled to object. The creditors may apply to the Court for their name to be included. The Court may publish notice restricting the time by which the creditors can apply or be excluded from the right to object. If the claims of objecting creditors are not discharged, the Court may dispense with their consent by requiring the company to give security against the debt up to: full amount of the claim if the company recognizes the debt or is willing to pay an amount fixed by the Court as if the company was being wound up
Order confirming reduction
If the court is satisfied that claims of creditors entitled to object have been discharged or secured, it may issue an order confirming the reduction. The company shall then alter its memorandum to reflect the changes. It shall add and reduced after its name until a date fixed by the Court; unless, the Court allows the company to not add these words on the basis that no liability on shares was diminished or payment made to any share holder of paid-up capital.
Registration
The company shall present to the registrar a certified copy of the Court order and file with him: the Court order the minutes of meeting passing the resolution, approved by the Court, showing: amount of share capital number of shares into which capital is divided amount of each share amount paid-up on each share The registrar shall then register the order and minute and issue a certificate that shall be conclusive evidence that all requirements of the Ordinance have been complied with. A notice of registration shall be published in the manner stated by the Court.
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Effective date
The resolution shall be effective on the date of the registration of the order and minute.
Changes to memorandum
The minute shall be made part of the memorandum and be thought of as originally included in the memorandum and shall be alterable. It shall be included in all copies of memorandum issued after its registration. On default, the company and officer shall be liable to pay a fine of up to Rs. 50 per copy issued.
104: Liability of members in respect of reduced shares:
Members shall not be liable to pay more than the difference between the amount of shares fixed by the reduction and the amount that has been paid or is deemed to be paid after the reduction. If a creditor that would have been entitled to object could not get his name entered in the list of objecting creditors and the company is unable to pay his debt after the reduction: every person who was a member at the date of registration of the reduction shall be liable to such amount as they would have been if the company was wound up on the day before registration if the company is wound up, the Court will settle a list of persons liable who shall be treated as ordinary contributors in the winding up of the company
105: Penalty on concealment of creditor:
If an officer conceals or helps to conceal the name or true nature or amount of a debt from a creditor, he shall be imprisoned for up to 1 year and/or be liable to a fine.
106: Publication of reason of reduction:
The Court may require the company to publish the reasons of the reduction, the causes that lead to the reduction and any other information the Courts thinks should be given to the public.
107: For companies limited by guarantee having share capital:
The same rules are applicable for companies limited by guarantee having share capital as that of companies limited by shares in respect of increase and reduction of capital.
Variation of Shareholders Rights
108: Variation of shareholders rights:
Rights of shareholders can only be varied as mentioned under Section 28, i.e. by 3/4th majority of affected class of members. If 10% or more of the affected shareholders are aggrieved, they may apply to the Court for an order canceling the variation. Such application may be made by one or many of the affected shareholders authorized in writing on behalf of the shareholders entitled to make it. The Court shall pass the order if it is shown that:
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some facts were concealed to get the approval of the shareholders the variation will unfairly affect the rights of the class represented by the applicants
The decision of the Court shall be final. The company shall file with the Court order with the registrar within 15 days. On default, the company and knowing officers shall be liable to a fine of up to Rs. 200 per day.
Registration of Unlimited Company as Limited
109: Registration of unlimited companies as limited:
An unlimited company may register itself as a limited company under this Ordinance. The rights and obligations acquired before registration shall not be affected. A limited company may re-register itself. On such registration, the registrar shall close the former registration of the company and dispense with any documents furnished to him on original registration. The new registration shall take place in the same manner as the first registration.
110: Power of unlimited company to provide reserve share capital in reregistration:
An unlimited company may increase the nominal value of its shares when registering as a limited company if mentioned in the same resolution. However, the increase in capital cannot be called up except in case of winding up of the company.
Unlimited Liability of Directors
111: Limited company may have directors with unlimited liability:
A limited company may have the liability of some or all of its directors to be unlimited as mentioned in the memorandum. The director or member who proposes a person for election to the office of director with unlimited liability shall add this fact in the proposal and an officer or promoter must give notice about this to that person before he accepts the proposal. On default, the director, promoter or officer shall be liable to a fine of up to Rs. 2,000 and shall pay any damages to the person so elected. The liability of the person elected will not be affected.
112: Special resolution of limited company making liability of directors unlimited:
A company may make the liability of all or some of its directors unlimited by altering the memorandum, if allowed by the articles. The resolution shall not be applicable to a director for the term he was already elected for without his consent.
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Special Provisions as to Debentures
113: Right of debenture holder and shareholder to have copies of trust deed:
A copy of the trust deed securing issue of debenture shall be given to every holder of such debenture and to the shareholders of the company on their request and payment of a fee not exceeding prescribed amount. On default, company and knowing officers shall be liable to pay up to Rs. 500 plus Rs. 50 daily. Registrar may order immediate supply of a copy.
114: Debentures not to carry voting rights:
A company may not issue any debentures with voting rights after the commencement of this Ordinance and debenture holders with such rights shall not exercise them except in a meeting of debenture holders only. Debentures convertible to ordinary shares may have voting rights at the option of the company but these would not be in excess of the rights of ordinary shares holders.
115: Perpetual debentures:
A condition in the deed of a debenture shall not be invalid by the reason that it makes the debentures redeemable or irredeemable on happening of a contingency, however remote, or expiration of a time period, however long.
116: Power to re-issue redeemed debentures:
A company can reissue any of its redeemed debentures if: allowed by the articles the redemption was not due to an obligation on the company except the obligation from the person the debenture was issued to The company shall have power to keep redeemed debentures alive and re-issue them either by reissuing the same debentures or some other debentures in its place. Upon such reissue, the person entitled to the debentures shall have the same rights as if the debentures had not been previously issued. If debentures are transferred to a nominee for the purposing of keeping a debenture alive, it is treated as a re-issue of the debentures. If debentures are deposited to secure advances on a current account, the debentures shall not be treated as redeemed only by reason of the company not being in debit while the debentures are so deposited. Re-issue of a debenture is treated as issue of new debenture for purpose of registration and stamp duty but not for limiting the number or amount of debentures to be issued. A person lending money on security of a debenture that appears to be duly stamped can provide it as an evidence for enforcing his security without payment of stamp duty or penalty; unless he had notice or could have discovered that the debenture was not duly stamped. In any case, the company shall be liable to pay the stamp duty and penalty. This section does not prejudice the rights of the company against any debenture paid off.
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117: Specific performance of contract to subscribe for debentures:
A contract with a company to take up and pay the debentures of the company may be enforced by decree of specific performance.
118: Payment of debts out of assets subject to floating charge in priority to the claims:
Where a receiver is appointed or possession is given over to or on behalf of some debenture holders with respect to a charge on an asset, if the company is not in the course of being wound up, the debts shall be paid out of the assets in priority to all other debts. Any payments made with respect to these debts will be recouped out of assets available for payment of general creditors.
119: Power and liabilities of trustee:
A trustee nominated or appointed under a trust deed to secure issue of debentures shall be entitled to sue for all redemption monies in the following cases: where the issuer of debenture binds himself to pay the loan and interest thereon on the due date where the mortgaged property has become damaged or otherwise insufficient other than by wrongful act or default of the issuer and the issuer has failed to give any other security in a reasonable time where the trustee is deprived of whole or part of the mortgaged property by wrongful act or default of the issuer where the trustee is entitled to possession of the mortgaged property but the issuer fails to deliver or secure the possession without disturbance from the issuer or a person with a title superior to that of the trustee In the first two cases, the Court may stay the suit until the trustee has exhausted all other available remedies or has abandoned the security and retransferred the mortgaged property back to the issuer. A trustee or a person actin on his behalf may, if allowed by the trust deed, sell or concur in selling any part of the mortgaged property on default of redemption payment according to the payment schedule or of interest accrued at the due date. Any provision in a trust deed exempting or indemnifying a trustee against a liability for breach of trust shall be void. This does not invalidate: any release validly given in respect of anything done or omitted before the release (i.e. a mistake can be forgiven if legal) th a provision in the deed enabling such a release if authorized by 3/4 of the debenture holders in a meeting with respect to specific acts or omissions or on the trustee dying or ceasing to act any provision in force immediately before the commencement of this Ordinance if the person given the benefit remains the trustee of the deed any exemption or right to be indemnified in respect of anything done or omitted while such provision was in force Where a trustee is saved by the last two cases, the benefits may be given to all present and future trustees or any named trustees by passing of a resolution by 3/4th of the debenture holders in a meeting.
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120: Issue of securities and redeemable capital not based on interest:
A company may: by public offer or a written contract issue redeemable capital against moneys, cash or otherwise, or against a promise, guarantee, undertaking or indemnity to one or more scheduled banks, financial institutions or any other persons specified by the Federal Government either severally, jointly or through their syndicate Such an agreement may include all or some of the following matters: mode and basis of repayment by company within a certain time period arrangement of sharing of profit creation of special reserve called the participation reserve the right of the redeemable capital holders to convert their balance capital into ordinary shares incase of net loss on the due date These terms should not be in conflict with any provisions of the ordinance, memorandum, articles, resolutions or any other document.
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Part-VII: Registration of Mortgages, etc.
121: Certain mortgages and charges to be void if not registered:
A mortgage/charge shall be valid only if its particulars are registered with the registrar along with filing of a copy of the instrument creating the mortgage/charge within 21 days of the creation of the mortgage/charge if it relates to a mortgage/charge on: securing any issue of debentures uncalled share capital immovable property book debts of the company movable property, not being a pledge undertaking or property of company (including stock), being a floating charge a ship or a part of it goodwill, patent, license, trademark or copyright agreement of issue of redeemable capital musharika agreement hire purchase or lease agreement for acquisition of assets If a mortgage/charge becomes void, the debt against which it was made shall be immediately due. A person acquiring any property with a registered mortgage/charge shall be deemed to have notice of the mortgage/charge as from the date of registration. For a mortgage/charge of property outside Pakistan: if mortgage/charge is made outside Pakistan, the 21 days allowed for registration shall start after the time when the instrument could have in due course of post reached the registrar if mortgage/charge is made within Pakistan, it may be registered even if further proceedings are necessary to make it effective in that foreign country Where a negotiable instrument for securing book debts of the company and any deposit is made to secure advance is not treated as mortgage/charge.
(although it seems as if an instrument is issued against cash, the actual form is different; hence, not treated as mortgage/charge)
A person shall not be treated as interested in an immoveable property only by reason of his holding a debenture with a charge on that property.
122: Registration of charges on properties acquired subject to charge:
When a company acquires a property with a charge that requires registration, the company shall register the particulars of the charge along with a copy of the instrument evidencing the charge with the registrar within 21 days of acquiring the property. For a mortgage/charge of property outside Pakistan, if mortgage/charge is made outside Pakistan, the 21 days allowed for registration shall start after the time when the instrument could have in due course of post reached the registrar. On default, company and knowing officers shall pay a fine of up to Rs. 2,000.
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123, 124: Particulars in case of series of debentures with equal rights and commission, etc.:
Where a series of debentures with equal rights are secured, the following particulars must be filed with the registrar: total amount secured by the whole series dates if resolutions authorizing the issue and the creation of the charge general description of property charged the names of the trustee along with a copy of the trust-deed, or a debenture if there is not trust-deed if the debentures are issued at more than one times, the dates and amounts of each issue (omission of this does not affect validity of debentures) where any commission, allowance or discount is given to a person to subscribe, agree to subscribe, procure or agree to procure debentures, the amount or percentage of commission, allowance or discount shall be filed with the registrar. (omission of this does not affect validity of debentures)
125, 126: Register and index of mortgage and charges:
The registrar shall maintain a register of all mortgages and charges created by companies including the following particulars: date of creation amount of security short particulars of property mortgaged or charged names of mortgagees or persons entitled to charge The register shall be open to inspection by any person on payment of prescribed fee. The registrar shall also maintain a chronological index of the mortgages and charges registered.
127, 128: Certificate of registration of mortgage/charge and its endorsement:
The registrar will issue a certificate of registration of every mortgage/charge stating the amount secured thereby. It shall be conclusive evidence that the requirements of the Ordinance have been met. The company shall endorse a copy of this certificate on all debentures, issued by the company after registration, secured by the mortgage/charge. On default, every knowing persons shall be liable to a fine of up to Rs. 2,000. (Section 134)
129: Duty of company and right to interest party as regards registration:
It is the duty of the company to get a mortgage/charge registered but it may also be effected on application of any person interested therein, who shall be entitled to recover any fees paid from the company. Where a mortgage/registration is modified, it is the duty of the company to get file the particulars of the modification along with copy of instrument authorizing the modification.
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130: Copy of instrument creating mortgage/charge to be kept at registered office:
A company shall keep a copy of every instrument creating a mortgage/charge, where its related to a series of debentures with equal rights, copy of one of them is sufficient.
131: Rectification of register of mortgages:
Where a company was unable to register a mortgage/charge or its settlement within the time allowed, the Commission may order an extension of the time if its satisfied that it was accidental or out of inadvertence and was not intended to prejudice the position of the creditor or shareholder. The company, or other person on whose application it was passed, shall file a copy of the order with the registrar within 21 days.
132: Registration of payment or satisfaction of mortgages and charges:
It shall be the duty of the company to inform the registrar of the satisfaction in full of a registered mortgage/charge. The registrar will send a notice to the holder of the mortgage/charge to show-cause, within a time of up to 14 days, why the satisfaction should not be registered. If a cause is shown, the registrar shall note it in the register and notify the company. Otherwise, it shall record a full satisfaction of the mortgage/charge.
133: Power of registrar to make entries in register of mortgages/charges:
The registrar, on receiving evidence to his satisfaction, may enter in the register that: the debt for which the mortgage/charge was given has been paid in full or part the part of property/undertaking that was under mortgage/charge has been released or ceased to be part of the company
134: Penalties:
If the company makes default in filing with the registrar the particulars of: a mortgage/charge any payment/satisfaction of a mortgage/charge an issue of debenture in series and no other party has done the same, the company and every knowing officer shall be liable to a fine of up to in case of creation of a mortgage/charge or issue of debenture, Rs. 500 per day in case of payment/satisfaction of a mortgage/charge, Rs. 100 per day If the company makes default in any other way, the company and knowing officers shall be liable to pay a fine of up to Rs. 5,000 plus Rs. 100 per day. On default of endorsing a copy of the certificate of registration on all debentures, every knowing persons shall be liable to a fine of up to Rs. 2,000.
135: Companys register of mortgages:
A company shall keep a register of all mortgages/charges affecting property of the company and write in it: short description of property mortgaged/charged amount of mortgage/charge names of mortgagees or persons entitled thereto, except in case of securities to bearers
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On default, knowing officers shall be liable to pay a fine of up to Rs. 2,000 per entry omitted.
136: Right to inspect instruments and register of mortgage/charge:
The copies of the instruments creating mortgage/charge and the companys register of mortgages/charges shall be open to inspection by a creditor or member without fee at all reasonable times. The register shall be open to inspection by any other person on payment of a prescribed fee. On refusal of inspection, company and knowing officers shall be liable to pay up to Rs. 500 plus Rs. 50 per day. The registrar may compel an immediate inspection.
Receivers and Managers
137: Registration of appointment of receiver or manager:
Where a person is appointment as a receiver or manager by an order or by powers contained in an instrument, he shall notify the registrar within 15 days. The registrar shall enter that fact in register of mortgages/charges upon payment of a prescribed fee. On default, the person shall be liable to a fine of up to Rs. 200 per day.
138: Filing of accounts of receiver or manager:
A receiver shall file with the registrar an abstract of all receipts and payments relating to the mortgaged/charged property within 30 days after every 6 months and also after ceasing to be a receiver. He shall, after 15 days of ceasing to be a receiver, file a notice to that effect that the registrar shall enter in the register of mortgages/charges. Where a receiver is appointed, all documents issued having the name of the company shall include a statement that a receiver has been appointed.
139: Disqualification for appointment as receiver or manager:
The following persons cannot be appointed as a receiver or manager: a minor a person of unsound mind a body corporate a director of the company an undischarged insolvent a person disqualified by Court as having been taking part in the management of the company, unless leave is granted by Court
140: Application to Court:
A receiver or manager may apply to the Court for directions regarding any issues that arise. The Court may give directions to the receiver or manager or make an order declaring the right of persons before the Court. A receiver or manager shall be personally liable for any contract entered for performance of his functions and be entitled to indemnity out of the assets, as far as the contract provides. This does not affect any other indemnity or any liability on contracts entered into without authority.
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141: Power of Court to fix remuneration, etc. of receiver or manager:
By application of the receiver or manager, the Court may fix the remuneration of the receiver or manager; it must not exceed a prescribed amount. Such an order shall hold the following powers if no other order had been made by the Court: it shall extend to fixing of remuneration for a period before the making of the order it shall be exercisable regardless that the receiver or manager had died or ceased to act before making of the order it shall make the receiver or manager or his representative accountable for any amount taken in excess of the amount fixed by the order before making of the order (this clause is exercisable only if the Court thinks fit under any special circumstances) The Court may amend its order on application by liquidator, receiver, manager or the registrar and issue direction to the receiver or manager. This cannot be done to increase remuneration.
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Part-VIII: Management and Administration
142: Registered office of the company:
A company shall have a registered office from the earlier of: the day from which it starts its business passing of 28 days from the date of incorporation Notice of the situation of the registered office shall be given to the registrar within 28 days of incorporation or of change. Mentioning the new address in documents in not enough notice. On default, company and knowing persons pay fine of up to Rs. 200 per day.
143, 144: Publication of name by limited company:
Every limited company shall: paint or affix its name outside its registered office and other places of business in English or Urdu or any local language if it operates beyond the jurisdiction of the High Court have its name engraved in English or Urdu in its seal have its name mentioned in all letter heads and documents that it issues On default, company and knowing officers shall pay a fine of up to Rs. 200 per day. Knowing officers shall be made personally liable if the company does not pay for any such instrument of money or goods.
145: Publication of authorized and paid-up capital:
Where a notice, publication or advertisement mentions the amount of the authorized share capital of the company, it must also mention the paid-up share capital in an equally noticeable manner. On default, company and knowing officers shall pay a fine of up to Rs. 5,000.
Commencement of Business by a Public Company
146: Restrictions on commencement of business:
A company (limited by either shares or guarantee and having share capital) can commence its business and exercise its borrowing powers when: shares to be allotted have been allotted to fulfill the condition of minimum subscription every director has fully paid for the shares taken or contracted to be taken by him in cash no money is or may become liable to be refunded to the applicant on reason of failure to get permission of dealing the shares/debentures on any stock exchange in case a prospectus was not issued, a statement in lieu of prospectus has been filed with the registrar the chief executive and director have given written representation that the above conditions have been met and the registrar has issued a certificate of commencement On default, company and knowing officers or persons shall pay a fine of up to Rs. 1,000 per day. Any contract made by the company shall be provisional until the date of commencement, after which it shall be binding.
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Register of Members and Debenture Holders
147: Register of members and index:
Every company shall keep a register of its members with the following particulars: the name of the member name of members father for a man and unmarried woman or name of husband for a married woman or a widow nationality of member address of member occupation of member, if any number of shares and amount of each share held and the amount paid or considered to be paid, if company has share capital the date at which the person was entered into the members register the date at which the person ceased to be a member and the reason thereof If the number of members exceeds 50 and the register of members is not indexed, the company shall keep a separate index, which shall be updated within 14 days of any change in the register. On default, company and knowing officers shall pay a fine of up to Rs. 200 per day.
148: Trust not to be entered on register:
A notice of trust shall not be entered into the register of members.
149: Register and index of debenture-holders:
Every company shall keep a register of its debenture-holders with the following particulars: the name of the member name of members father for a man and unmarried woman or name of husband for a married woman or a widow nationality of member address of member occupation of member, if any number of debentures held and the amount considered to be paid for each debentureholder the date at which the person was entered into the debenture-holders register the date at which the person ceased to be a debenture-holder If the number of debenture-holders exceeds 50 and the register of debenture-holders is not indexed, the company shall keep a separate index, which shall be updated within 14 days of any change in to register. On default, company and knowing officers shall pay a fine of up to Rs. 200 per day.
150: Inspection of registers:
The registers of members and debenture-holders shall be kept in the registered office and be open for inspection during business hours subject to restrictions set by the general meeting such that they stay open for inspection for at least 2 hours per day. A member or debenture-holder can inspect them for free whereas a person who is not a member or debenture-holder may be charged a prescribed fee.
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Any person, member or debenture-holder may order a certified copy in full or part of the registers upon payment of prescribed fee. A copy shall be delivered to him within 10 working days, excluding those when transfer books of the company are closed. On default, company and knowing officers shall be liable to a fine of up to Rs. 500 plus Rs. 50 per day.
151: Power to close register:
A company can close its registers by giving at least 7 days notice in an advertisement for up to 30 days at a time and 45 days in total in a year. The advertisement shall be published in a newspaper having circulation in the province or other part of Pakistan where the registered office of the company is situated. For a listed company, an advertisement shall also be published in a newspaper having circulation in the province or other part of Pakistan where the Stock Exchange on which the company is listed is situated.
152: Power of Court to rectify register:
If the name of a person is wrongly entered or omitted from the registers or an unreasonable delay is made in entering the fact that the person has ceased to be a member or debentureholder, the person aggrieved or any member or debenture-holder or the company can apply to the Court to get the registers rectified. The Court may refuse the application or order rectification on payment of damages to aggrieved parties and at such costs as it deems fit. It will do so after deciding upon all disputes regarding title of a person to be entered or removed from the register. An appeal to the Courts decision can be made: decision by a Civil Court to a High Court decision by Company Bench with single judge to a Company Bench with more 2 or more judges
153: Punishment for fraudulent entries and omission from register:
A person who fraudulently enters or omits the name of a person in the registers shall be imprisoned to up to 1 year and/or pay a fine of up to Rs. 10,000.
154: Notice of registrar of rectification of register:
Listed companies shall file a copy of the order of rectification with the registrar within 15 days of the order.
155: Register to be evidence:
The register of members, debenture-holders and transfer of shares (S76) shall be evidence that all requirements of the Ordinance regarding matters to be inserted in them have been met.
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156: Annual list of members, etc.:
Every company shall prepare a return according to: for companies having share capital, Form A of the Third Schedule for companies without share capital, Form B of the Third Schedule and shall file it with the registrar within: 45 days for listed company 30 days for other companies of the date of the AGM or, where no such meeting is held or concluded, on the last calendar day. An extension of further 15 days maybe allowed by the registrar to listed companies on reasonable grounds. On default, the company and knowing officers shall be liable to a fine: for listed company, of up to Rs. 10,000 plus Rs. 200 per day for other companies, of up to Rs. 2,000 plus Rs. 50 per day
Meetings and Proceedings
157: Statutory meeting:
A public limited company having share capital shall hold a general meeting called the Statutory Meeting within 3 to 6 months of the date of commencement of business (or conversion, in case the public company was converted from a private company within 1 year of incorporation). This section is not applicable to a public company that has converted from a private company after 1 year of incorporation.
Statutory report:
The directors shall make and forward a Statutory Report to every member at least 21 days before the Statutory Meeting. They shall also send 5 copies of the report to the registrar. This report shall be signed by at least 3 directors.
Contents of Statutory Report:
The statutory report shall include: the total number of share allotted, along with whether they were against cash or some other consideration total amount of cash received from allotment of shares statement of payments and receipts, including preliminary expenses, up to 7 days before the report particulars of officers of the company and any changes that occurred since incorporation particulars of a contract that is to be modified and approval is required in the meeting extent to which underwriting contracts, if any, have been carried out and reasons to why they have not been fully executed particulars of brokerage or commission paid or to be paid in relation to issue or sale of shares to any officer of the company or a private company of which an officer is a director brief state of affairs of the company since incorporation and the business plan, including any proposed changes that might affect shareholders interests auditors report about the correctness of the amounts of cash receipts and other receipts and payments mentioned in the report
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During the meetings
The directors shall make a list of their names, particulars and the number of shares held by each and keep it open for inspection during the commencement of the statutory meeting. Members shall be allowed to discuss any matter relating to formation or arising out of the statutory report, whether previous notice had been given or not; however, no resolution shall be passed whose notice has not been given in accordance with the articles. The meeting may be adjourned from time to time. Any resolution whose notice has been given according to articles, whether before or after the original meeting, can be passed.
Default
On default, the company and knowing officers shall: in case of listed company, pay a fine between Rs. 10,000 to Rs. 20,000 plus Rs. 2,000 per day in case of another company, pay a fine of up to Rs. 5,000 plus Rs. 200 per day
158: Annual general meeting:
Every company shall hold a general meeting called an Annual General Meeting within 18 months of incorporation and then once in each calendar year within a period of 4 months from the closing of the financial year and not more than 15 months after last annual general meeting. An extension of 1 month to conduct the AGM may be given: by the Commission to a listed company by the Registrar to any other company The AGM of a listed company shall be conducted in the town where the registered office is situated unless permission is taken from the Commission to hold the meeting at any other place. A notice of the AGM shall be sent to the shareholders at least 21 days before the date of the AGM. In case of a listed company, it shall also be published in an English and Urdu newspaper having circulation in the province in which the Stock Exchange in which the company is listed is situated. On default, company and knowing officers shall: in case of a listed company, pay a fine between Rs. 40,000 and Rs. 500,000 plus Rs. 2,000 per day in case of any other company, pay a fine of up to Rs. 100,000 plus Rs. 500 per day
159: Extraordinary general meeting:
All general meetings, other than the statutory meeting and annual general meeting, shall be called extraordinary general meeting. The directors may call an extraordinary general meeting whenever some decision has to be made that requires approval of the shareholders. The directors shall also call a meeting upon requisition of members with at least 10% voting power on the date of requisition. The requisition shall be signed by the requisitionists and state the objects of the meeting. If the directors dont call a meeting within 21 days of the requisition, a majority of the requisitionists can call it within 3 months of the date of requisition. Expenses made by the
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requisitionists shall be recoverable from the company, which pays it out of remuneration of the directors that were in default. A notice of the extraordinary general meeting shall be given to the shareholders at least 21 days before the meeting. In case of a listed company, it shall also be published in an English and Urdu newspaper having circulation in the province in which the Stock Exchange in which the company is listed is situated. In case of an emergency, the registrar may allow directors to call a meeting at a shorter notice. On default, company and knowing officers shall: in case of a listed company, pay a fine between Rs. 10,000 and Rs. 20,000 plus Rs. 2,000 per day in case of any other company, pay a fine of up to Rs. 2,000 plus Rs. 200 per day
160: Provisions as to meetings and votes:
Notice of the meetings stating the objects, place and time shall be given to: every member of the company a person entitled to share on the death of the member, if such interest is in knowledge of the company the auditors of the company in accordance with S50, however, accidental omission or non-delivery shall not invalidate the proceedings of the meeting. If a special resolution is to be passed in the meeting, it shall be mentioned in the notice along with the interests of directors and how a document requiring approval can be inspected. If a director is to be appointed in the meeting, it shall be mentioned in the notice. Members may participate in meeting personally or through proxy. The quorum of a general meeting shall be set by the articles of the company but shall not be less than: in case of a listed company, 10 members present personally representing at least 25% of total voting power personally or through proxy in case of any other company, 2 members present personally representing at least 25% of total voting power personally or through proxy In case of single member company, the single member present personally or by proxy is quorum. If the quorum is not present within 30 minutes of the appointed time of the meeting, the meeting shall be: adjourned till next week at the same day, time and place dissolved if it was called by requisitionists If quorum isnt present within 30 minutes in an adjourned meeting, 2 members shall be the quorum unless the articles provide otherwise. The chairman of a general meeting shall be the Chairman of BOD. If there is no such Chairman or he is not present within 15 minutes of the appointed time or he is unwilling to preside as the chairman of the meeting, any of the present directors shall become the chairman. For a company having share capital, the number of votes available to a member shall be proportionate to the paid-up value of the shares held by him that carry voting rights according to the class of shares. A member cannot be debarred from casting his vote even by the articles. Fractional votes shall not be taken into account.
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For a company limited by guarantee without share capital, each member shall have one vote. On a poll, votes may be given personally or through proxy. On default, knowing officers shall be liable to: for a listed company, a fine of up to Rs. 50,000 plus Rs. 2,000 per day for other companies, a fine of up to Rs. 10,000 plus Rs. 200 per day
160-A: Circumstances in which proceedings of general meeting may be declared invalid:
Where a petition is filed by members holding at least 10% voting rights within 30 days of the meeting, the Court may decide to declare the proceedings of a general meeting or a part of it invalid by reason of any material defect or omission in the notice or an irregularity in the proceedings which prevented the members from using their rights effectively and order holding of a new general meeting.
161: Proxies:
A member of a company having share capital can appoint any one other member (unless articles permit to allow a non-member) as a proxy to attend and vote in a meeting instead of him. The proxies shall be lodged at least 48 hours before the meeting and any provision in the articles contrary to this shall be void. All notices of meetings shall declare the members right to appoint a proxy and have attached with it a proxy form. The instrument appoint proxy shall be in writing and shall: be signed by the appointer or his attorney authorized in writing in case of a body corporate, be under its seal or signed by an officer or an attorney authorized in writing An instrument appointing proxy made according to Regulation 39 of Table A in the First Schedule shall be valid even if it does not comply with any special provisions regarding a proxy form in the articles. If more than one instruments of proxy are deposited with the company, all such instruments shall be rendered invalid. In a general meeting, every member and proxy can: demand a poll abstain from exercising its voting rights fully Every member entitled to vote can inspect, during business hours, the list of proxies lodged with the company. On default and on failure to issue notices on time or with material defects that affect the rights of the members, company and knowing officers shall: for a listed company, a fine of up to Rs. 5,000 for other companies, a fine of up to Rs. 2,000
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162, 163: Representation of corporations and creditors and government at meetings:
A company that is a member of another company may authorize, by a resolution of the directors, any person to act as its representative in a general meeting of the other company. The person appointed shall have the same powers as if he was an individual shareholder. A company that is a creditor of another company may authorize any person to act as its representative in a meeting of creditors held in pursuance of this Ordinance or in any other meeting that the creditor has a right to attend due to any debenture or trust deed or any other document. The person appointed shall have the same powers as the creditor company it represents. The Federal Government and Provincial Government may appoint any person as its representative in a meeting of a company that it is a member of. The person appointed shall have the same powers as the Federal or Provincial Government has as the member of the company.
164: Notice of resolution:
The notice of a meeting shall have attached to it draft resolutions that are to be considered during the meeting except the ordinary resolutions. Members having at least 10% voting rights may also give a notice with a proposed resolution. This notice shall reach the company at least 15 days before the meeting or, in case of a meeting called by requisitionists, with the requisition. The company shall then forward it to all the members. On default, company and knowing officers shall: in case of a listed company, pay a fine between Rs. 5,000 in case of any other company, pay a fine of up to Rs. 2,000
165, 166: Voting by show of hands:
At a general meeting, a resolution shall be decided by a show of hands; unless, a poll is demanded. The chairman will make a declaration whether the resolution has been carried out or not, whether unanimously or by a particular majority. This declaration shall be entered into the minutes of the meeting and shall be proof without number or proportion of votes cast in favor or against the resolution; unless, the contrary is proved.
167: Demand for poll:
A poll for voting on a resolution can be ordered before or after the results of show of hands by: the chairman, on his own motion in case of a public company, 5 members having right to vote in the resolution, present in person or by proxy in case of a private company: in case seven or less members having right to vote in resolution are present personally, by one member present in person or proxy in other case, by 2 members present in person or proxy by a member or member present in person or by proxy having 10% or more voting rights by a member or member present in person or by proxy having a paid-up amount 10% or more of the total paid-up amount of shares having right to vote in the resolution A demand of poll maybe withdrawn at anytime by the persons who demanded it.
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168: Time of taking poll:
A poll demanded by the chairman or on the question of adjournment of the meeting shall be taken immediately. Any other poll shall be taken within 14 days when it was demanded, as directed by the chairman. The chairman or his nominee and a representative of the members demanding the poll shall inspect the votes and the chairman shall announce the result. The result shall be taken as the decision of the meeting.
169: Resolution passed at adjourned meeting:
Where a resolution is passed at an adjourned meeting, it shall be treated to have been passed as on that date and not before.
170, 171: Power of Commission to call meetings:
If default is made on calling of a statutory meeting, annual general meeting or an extraordinary meeting requisitioned by members, the Commission can call or direct the calling of the meeting, either on its own motion or on application of any director or member. It may also give any additional directions. The meeting shall be treated as having been duly called and conducted. All expense shall be paid by the company; unless, the Commission directs that they be recovered from any officer of the company. On default, company and knowing officers shall be liable to fine of up to Rs. 10,000 plus Rs. 200 per day.
172: Filing of resolution, etc.:
A copy of every special resolution passed shall be: filed with the registrar within 15 days; on default, company and knowing officers shall pay fine of up to Rs. 100 per day attached in the registered articles of the company, if any; on default, company and knowing officers shall pay fine of up to Rs. 1,000 forwarded to any member on request and payment of prescribed fee; on default, company and knowing officers shall pay fine of up to Rs. 1,000
173: Minutes of proceeding of general meetings and directors meetings:
Every company shall keep at the registered office, a fair and accurate record of the minutes of all meetings held along with the names of the participant. Any such minute, signed by the chairman of that or the next succeeding meeting, shall be evidence to the proceedings of the meeting. On default, company and knowing officers shall pay a fine of up to Rs. 5,000 plus Rs. 100 per day. Unless the contrary is proved, all meetings whose minutes have been recorded shall be considered as duly called and conducted and all proceedings shall be deemed valid.
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The records of the minutes of general meetings shall be open to inspection by members without charge during business hours subject to restrictions of the articles such that they are open for at least 2 hours everyday. A copy of the minutes of a meeting of the Board of Directors shall be forwarded to all directors within 14 days of the meeting. A copy of the minutes of a general meeting shall be forwarded to a member within seven days on his request made after seven days of the meeting and payment of a prescribed fee. On default in inspection or furnishing of a copy, company and knowing officers shall be liable to a fine of up to Rs. 1,000 plus Rs. 50 per day. The registrar may order immediate inspection or supply of copy.
Directors
174: Minimum number of directors:
Company type Single member Private Public Unlisted Public Listed Minimum directors 1 2 3 7
175: Only natural persons to be directors:
Only a natural person can be a director of a company. A variable representative of a body corporate cannot be director.
176: First directors:
Appointed by: majority of subscribers in writing (until then, all subscribers who are natural persons are deemed as directors) Term: till election of directors in first annual general meeting
177: Retirement of directors:
Retired directors continue to act until new directors are elected. They should take steps to immediately hold elections. If there is some problem, they should report to the registrar within 15 days of becoming retired.
178: Procedure for election of directors:
The directors shall fix the number of directors to be elected in the general meeting and this number cannot be changed except with the prior approval of the meeting. The notice of a meeting where directors are to be elected shall state: the number of directors to be elected the names of the retiring directors
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A person who wants to be elected as a director shall notify the company of his intention at least 14 days before the meeting in which the elections are to be held. He may withdraw his notice at any time before the holding of elections. All notices with intentions of persons to be elected as directors shall be forwarded to all members at least 7 days before the meeting and, in case of a listed company, be published in an English and an Urdu newspaper having circulation in the province in which the stock exchange in which the company is listed is situated. For a company having share capital If the number of candidate directors exceeds the number of directors fixed, the members shall elect the directors. All members shall have voting rights equal to: Votes = Voting shares held x Number of directors to be elected A member may give all his votes to a single person or to more than one as he may choose. The candidates with the highest votes shall be declared as directors. For a company without share capital The directors will be elected by the members as provided by the articles of the company.
178-A: Fresh elections on request of substantial acquirer:
A person who acquires 12.5% or more of the voting shares in a listed company on his own name can apply to the Commission to require the company to hold fresh elections in the forthcoming general meeting. The Commission will allow this is it is in the interest of the company, its minority shareholders and the capital markets. The person making such request shall not dispose off his shares for at least 1 year from the elections.
179: Circumstances when elections may be declared in valid:
When members holding more than 20% of the voting rights of a company apply to the Court within 30 days of the elections, the Court may declare the election of one, many or all directors as invalid if it is proven that there has been a material irregularity in holding the elections.
180: Term of office of director:
A director elected shall hold office for 3 years unless he resigns, becomes disqualified or otherwise ceases to hold office. A casual vacancy shall be filled by the directors and the person appointed shall hold office for the rest of the term of the retiring director.
181, 182, 183: Removal of director and nomination of directors:
Members of a company can remove a director by passing a special resolution. In case of a company having share capital, the resolution shall not be passed if the votes against it are equal or greater than: for directors elected by voting in a meeting, the minimum number of votes that were cast for the election of directors in the immediately preceding elections for first directors and those appointed for casual vacancy, the answer of: Voting shares held Number of directors to be elected
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Directors may be nominated by: creditors of the company Federal Government or Provincial government foreign equity holders on the board of PICIC Limited or other co-operation approved by the Federal Government When such directors are nominated, the minimum number of votes that would have been required to elect those directors shall be removed from the votes available with the members. These directors shall hold office for a time period as the entity nominating them directs.
184: Consent to act as director to be filed with registrar:
A person cannot be appointed or nominated or named by another person as the director or chief executive of a company unless he has written given consent to for such position. The names of all consenting directors along with their consents shall be filed with the registrar by the company within 14 days from the date of appointment or nomination. This does not apply to a private company that is not a subsidiary of a public company.
185: Validity of acts of directors:
If any defect is discovered in the appointment of a director, all his actions before the discovery will still remain valid. However, he shall not exercise the right of his office until the defect is rectified.
186: Penalties:
On a default in way, knowing persons shall be liable to a fine of up to Rs. 10,000 and maybe debarred from holding office as a director of that company for up to 3 years.
187: Ineligibility of certain persons to become director (and chief executive S201):
The following persons shall not be appointed as directors of a company: a minor a person of unsound mind a person who has applied to be declared as insolvent and his application is pending an undischarged insolvent a person convicted of moral turpitude a person debarred from holding such office by the Ordinance a person who has betrayed lack of fiduciary behavior and this is declared by the Court in the preceding 5 years a person who is not a member except if: the person represents the Government or institution or authority that is a member he is a whole-time director and an employee of the company a chief executive the person represents a creditor And if it is a listed company the following persons shall also be ineligible: a person who has been declared as a defaulter of repayment of a loan from a financial institution of an amount that the Commission may set a person who is engaged in a brokerage business or he or his spouse is the sponsor, director or officer of a corporate brokerage house (except when the company is a stock exchange)
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188: Vacation of office by directors:
A director shall cease to hold office if: he becomes ineligible to become director as stated above he absents himself from any 3 consecutive meetings of the directors or from all meetings within 3 months, whichever is longer without leave from directors he or a firm/company of which he is a partner/director: accepts a loan in contravention to the Ordinance holds office of profit in a general meeting without the sanction of the company, other than that of chief executive, legal or technical advisor or a banker any other matter as stated in the articles of the company
189: Penalty for unqualified person acting as director:
If a person who is not qualified for being a director or chief executives or has vacated his office describes or represents himself or allows or causes himself to be as a director or chief executive, he shall be liable to a fine of up to Rs. 200 per day.
190: Ineligibility of bankrupt to be director:
A person who is an undischarged insolvent and is working in a company (including a company incorporated outside Pakistan which has a place of business in Pakistan) shall be imprisoned for up to 2 years and/or liable to a fine of up to Rs. 10,000.
191: Restriction on directors remuneration:
The remuneration of the directors for performing extra services, including the holding the office of chairman and attending meetings of directors, shall be decided by the directors of the company or by a general meeting, in accordance with the articles of the company.
192: Restriction on assignment of office by directors:
A provision in the articles or an agreement between a person and a company empowering a director to assign his office shall not be valid unless it is approved by a special resolution. The appointment of a substitute director with the approval of the directors during the absence of a director from Pakistan for less than 3 months shall not be treated as assignment of office. The substitute shall vacate the office when the director returns to Pakistan.
193: Meeting of directors:
Quorum: 1/3rd of all directors or 4, whichever is greater The directors of a public company shall meet at least once in every quarter of the year. On default (absence of quorum or no meeting held), the chairman and directors shall be liable: in case of a listed company, to a fine of up to Rs. 10,000 plus Rs. 100 per day in case of other company, to a fine of up to Rs. 2,000 plus Rs. 50 per day
194: Restriction on exemption from liabilities:
Any provision in any document or contract, exempting an officer or auditor of a company for any liabilities with respect to negligence, default, breach of duty or breach of trust that they may take up under any law shall be void.
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Except if it was to indemnify any such officer or auditor in a case in which judgment was made in his favor or he was acquitted.
195: Loans to directors:
A company cannot give a loan, provide guarantee or provide security against a loan for the following persons: a director of the lending company or the holding company of the lending company a partner or relative of the director a private company of which the director is a director or member a body corporate who has 25% of the voting rights with the director or his relative, or more than one such directors or their relatives a body corporate whose directors or chief executive are are/is accustomed to acting on directions of the director A company may, with the approval of the Commission, give a loan or guarantee or provide security in connection with a loan by another person to a director who is a full-time employee of the company for the purpose of: acquisition or construction of a house or land thereof conveyance household medical treatment of himself or a relative as allowed to employees generally Note: relatives mean spouse and minor children Where such a loan, guarantee or security was given before the commencement of this Ordinance, the company shall enforce repayment of the loan giving or the loan to which the guarantee or security relates to within 6 months; except, where such loan was given to a whole-time director with the approval of the Commission. A person shall within 14 days of becoming a director or chief executive file with the registrar the particulars of any loan, guarantee or security obtained from the company that would not have been allowed under this Ordinance without approval of the Commission if he had been a director or chief executive at that time. On default, the person taking a loan shall be liable to a fine of up to Rs. 5,000 and/or imprisonment for up to 6 months. If the loan has been repaid in full, no punishment will be given. If the loan has been paid partly, the punishment will be reduced proportionally. On default, knowing persons giving loan, guarantee or security shall be jointly and severally liable for repayment of the loan or the sum of borrowing cost that the company had to pay in relation to a guarantee or security.
196: Power of directors:
The directors manage the business of the company. They may pay the initial promoting and registration expenses. They may exercise the powers of the company in a general meeting that are not specifically required to be exercised by the company in the Ordinance, articles or a resolution. The directors shall also exercise the following powers on behalf of the company after passing of a resolution: to make calls on unpaid share capital to issue shares to issue debentures and redeemable capital to borrow money otherwise than on debentures
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to invest the funds of the company to make loans; to authorize a director or the firm of which he is a partner or any partner of such firm or a private company of which he is a member or director to enter into any contract with the company for making sale, purchase or supply of goods or rendering services with the company to approve annual or half-yearly or other periodical accounts as are required to be circulated to the members to approve bonus to employees to incur capital expenditure on any single item or dispose of a fixed asset, in accordance with the limits as prescribed by the Commission: to undertake obligations under leasing contracts exceeding one million rupees to declare interim dividend to write off bad debts, advances and receivables to write off inventories and other assets of the company; and to determine the terms of and the circumstances in which a law suit may be compromised and a claim or right in favor of a company may be released, extinguished or relinquished
The directors of a public company may not do the following except with authorization from the general meeting: sell or lease the whole or a sizable part of the undertakings, unless the main business of the company comprises of such selling or leasing remit, give any relief or give extension of time for the repayment of any debt outstanding against any loan to a director On default, knowing persons shall be liable to a fine of up to Rs. 100,000 and be severally and jointly liable to damages.
197: Prohibition of political contributions:
A company shall not contribute any amount to: a political party a person for any political purposes On default, company shall be liable to a fine of up to Rs. 10,000 and knowing officers shall be liable to imprisonment for up to 2 years and also of fine.
197-A: Prohibition of distributing gifts:
A company shall not distribute gifts to its members in a meeting in any form. On default, company and knowing officers shall be liable to a fine not exceeding Rs. 500,000.
Chief Executive
198: Appointment of first chief executive:
Every company, other than a company managed by a managing agent, shall have a chief executive. The first chief executive shall be appointed by the directors of a company at the earlier of the commencement of business or 15 days after the date of incorporation. The shall then hold office until the first annual general meeting, unless a shorter period is fixed by the directors or he resigns or ceases to act otherwise.
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199, 200: Appointment of subsequent chief executive:
A subsequent chief executive shall be appointed by the directors within 14 days of the election of directors in the first annual general meeting or the office becoming vacant for a time not exceeding 3 years. Any person, including an elected director and a retiring chief executive, may become a chief executive. The terms and conditions of the appointment of chief executive shall be determined by the directors in accordance with the articles of the company. A retiring chief executive will continue to exercise his office until a successor is appointed unless the non-appointment is due to his fault or his office is expressly terminated. A casual vacancy shall be filled by the directors of the company. A chief executive, if he is not already a director, shall be treated as a director of the company having the same powers, duties and liabilities.
201: Restriction on appointment of chief executive:
Same as that of directors: S187
202: Removal of chief executive:
A chief executive can be removed by: a resolution of the directors with 3/4th majority a special resolution
203: Chief executive (of public company) not to engage in business competing with companys business:
A chief executive of a public company shall not engage, directly or indirectly, in a business that is of the same nature and directly competes with the business of the company or its subsidiary. Upon appointment, he shall disclose to the company the nature of any such business and his interest therein.
Indirect engagement means that the persons spouse or minor children carry out the business.
204: Penalty:
On default of the above, the person shall be liable to a fine of up to Rs. 10,000 and maybe debarred from holding office as a director or chief executive in any company for up to 3 years.
204-A: Certain companies to have secretaries and share registrars:
A listed company shall have a whole time secretary and a share registrar, both holding qualifications as specified by the Commission. A single member company shall have a secretary holding qualifications as specified by the Commission.
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Register of Directors and Other Officers
205: Registers of directors and officers:
Every company shall keep at its registered office a register with particulars of all the officers of the company including directors, chief executive, managing agent, secretary, auditor and legal advisor. The register shall be open to inspection during business hour in accordance with the articles such that it is open for not less than 2 hours per day. Members will not be charged any fee whereas other person shall pay a prescribed fee for each inspection. A person shall file these particulars about himself within 10 days of appointment and of any change in particulars. The company shall file with the registrar the particulars of the register within 14 days of the date and of any change in the contents of the register. On default, company and knowing officers shall be liable to a fine of up to Rs. 500 plus Rs. 50 per day. The registrar may order immediate inspection of the register if it was refused.
Ban on Appointment of Managing Agent and Sole Purchase and Sales Agent
206: Ban on appointment of managing agent, sole purchase and sales agent, etc.:
A company shall not appoint a managing agent or a sole purchase, sale and distribution agent, whether incorporated in Pakistan or outside Pakistan.
Exceptions:
A company incorporated or person residing outside Pakistan can appoint a sole purchase, sales and distribution agent if the major part of its business is not in Pakistan. A company can have a managing agent that is solely owned by the Federal or Provincial government. Other cases allowed with approval of the Federal Government are: an investment advisor in relation to an investment company a foreign collaborator in relation to a company which owns a hotel in Pakistan a collaboration of public sector financial institutions a non-banking financial company undertaking asset management services in relation to an investment company a non-banking financial company licensed as a venture capital company in relation to a fund registered with the Commission On default, company, body corporate, knowing officers or other persons shall be liable to imprisonment for up to 2 years and/or fine of up to Rs. 100,000.
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Terms of Appointment of Managing Agent
207: Terms and conditions of appointment of managing agent:
Where a managing agent is appointed by a company as per exemptions allowed in the Ordinance, such appointment shall be subject to terms and conditions as the Federal Government may impose. On default, company and knowing officers shall be liable to a fine of up to Rs. 20,000 and the officers shall be liable to any damages to the company that it may incur.
Miscellaneous Provisions Regarding Investments, Contracts, Officers and Shareholdings, Trading and Interests
208: Investment in associated companies and undertakings:
A company shall not make an investment in an associated company except by passing of a special resolution that shall indicate the nature, period, amount and terms and conditions of the investment. Any change shall also require a special resolution. Return on investment in form of loan shall not be less than the borrowing cost of the investing company. The Commission may specify a class of companies that can invest in associated companies without a special resolution but subject to such conditions as the Commission may impose. On default, knowing directors shall be liable to a fine of up to Rs. 10,000,000 plus damages to the company if any losses are incurred.
209: Investments of a company to be held on its own name:
All investments by a company shall be held by its own name. Any investment not held on its own name shall either be caused to be transferred to its own name or disposed off.
Exceptions:
where it is the principal business of the company where a company has a right to appoint or get elected a director in another company, it may register the shares required to be held by the director jointly in its own name and the name of the director, or the director alone a holding company may register its shares in a subsidiary company in the name of nominees to ensure that the number of members does not fall below the minimum amount specified by the Ordinance deposition of shares or securities with the bank of the company for collection of dividends or interest deposition in, transfer to or holding in the name of a scheduled bank or financial institution of shares or securities to facilitate transfer; company should retransfer to itself if the shares are not transferred within 6 months deposition with or transfer to a person of any shares as security against a loan or obligation deposition with, transfer to or holding in the name of the CDC of any shares or securities
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Where any investment is not held by the company in its own name, it shall write the particulars to identify the investment in a register and also state in whose custody are those shares or securities. This register shall be open for inspection of members, debenture-holders and creditors during business hours in accordance with the articles such that it is open for not less than 2 hours per day. On default, company and knowing officers shall be liable to a fine of up to Rs. 5,000 plus Rs. 200 per day. The registrar may order immediate inspection of the register.
210: Form of contract:
A contract between private persons: is required to be in writing but will still be valid if made orally only shall be signed by all parties if in writing maybe made on behalf of a company by a person acting under its authority, express or implied may be varied or discharged in the same manner All contracts made this way shall be binding on the company, its successors and all other parties, their heirs and legal representatives.
211: Bills of exchange and promissory notes:
A bill of exchange, hundi or promissory notes shall be deemed to have been made, drawn, accepted or endorsed on behalf of a company if done in the name of, by, on behalf of or on account of the company by a person under its authority, express or implied.
212: Execution of deeds:
A company may empower a person by writing under its common seal as its attorney, whether generally or for a specific order, to execute deeds on behalf of the company whether inside or outside Pakistan. Every deed signed by that person and under his seal shall be binding on the company and have the same effect as if it were under its common seal.
213: Power of company to have official seal for use abroad:
A company may have an official seal for use outside Pakistan if required by its objects or transactions and allowed by its articles. It shall be a copy of the common seal with the addition of the name of areas where it is to be used. The company can give authority in writing to any person outside Pakistan to use the seal on any deed or document. This authority may last a specified time period or until it is revoked. The person shall write the date and place of fixation of the seal on the document. Such documents shall be binding on the company.
214, 215, 216, 217: Disclosure of interest by director and other officers:
A director shall disclose his interests in all contracts that the company entered or is to be entered into, including the interests of his relatives: at the meeting of directors where such contract is taken into consideration for the first time if the director became interested after entering into the contract, at the first directors meeting after his becoming so interested
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by giving a general notice to the directors in a meeting of directors about his being a partner, director or otherwise interested in a firm or company with which the contract is being entered with or otherwise interested in the contract. Such a notice will expire at the end of the financial year and may be renewed by a fresh notice given in the last month of the financial year. The director shall not be allowed to discuss or vote in the decision of the contract and his presence shall not count as quorum in that matter. This is not apply to: a private company that is not a subsidiary or holding company of a public company any contract of indemnity against any loss that the directors may suffer due to becoming a surety for the company any contract with a public company where the director was nominated by the company as director and he holds no more than the shares required to be appointed as director. Any other officer shall not be allowed to enter into a contract in which he is personally interested unless he discloses the nature of his interest and gets prior approval of the directors. On default, director or other officer shall be liable to a fine of up to Rs. 5,000. The court may declare the director to be lacking fiduciary behavior.
218: Disclosure of directors interest to members in contracts appointing chief executive, managing agent, whole-time director or secretary:
Where a company enters into or alters a contract appointing a chief executive, managing agent, whole-time director or secretary of the company, it shall mention the interests of directors in such contract in the directors report along with abstracts of terms and conditions of contract. This section applies to directors resolution to same effect as it applies to a contract. In case of a contract appointing chief executive, the company shall send a report to all members within 21 days of entering into or alteration of the contract. If a director becomes interested in any such contract after entering into it, a report shall be sent within 21 days of his becoming interested. A register of such contracts shall be maintained at the registered office that shall be open for inspection of members who can also take extracts from it or request a certified copy on payment of a prescribed fee. On default, company and knowing officers shall be liable to a fine of up to Rs. 5,000.
219: Register of contracts and appointments of directors, etc.:
The company shall maintain at its registered office and keep open for inspection a register which shall contain the particulars of all contracts and of all appointments of whole-time directors, chief executives, managing agents and secretary in which a director is interested including, as applicable: date of contract/appointment names of parties principal terms and conditions date on which it was placed before the directors names of directors voting in favor or against of the contract/appointment or staying neutral name of director or officer interested and nature of such interest notices given by directors to disclose their interests to the directors
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The register shall be updated after: in case of a contract/appointment requiring directors approval, seven days after it has been approved in case of other contracts/appointments, seven days after it has been received in the registered office or 30 days, whichever is later. It shall be put up for signature of the directors in the next meeting of directors On default, company and knowing officers shall be liable to a fine of up to Rs. 5,000 plus Rs. 200 per day. This section is not applicable to contracts: of goods or services costing less than Rs. 2,000 in aggregate in a year by a banking company for collection of bills in ordinary course of business
220: Register of officers shareholdings, etc.:
A listed company shall maintain at its registered office a register of the shareholding of its officers and every other person holding not less than 10% beneficial interests in the company along with: number, description and amount of shares/debentures, of the company, its subsidiary, its holding company or a subsidiary of its holding company, of which he has right to become holder whether on payment or otherwise date of agreement of transaction due to which the persons name was entered into or omitted from the register nature and extent of any interest or right in any shares/debentures of any director or person, if it is required by him The register shall be open for inspection of members as per articles and Ordinance, except for the period starting from 14 days before the annual general meeting and ending 3 days after its conclusion. On default, company and knowing officers shall be liable to a fine of up to Rs. 10,000. The registrar may order immediate inspection. It shall be open for any person attending the annual general meeting. On default, company and knowing officers shall be liable to a fine of up to Rs. 1,000.
221: Duty of officers to make disclosure of shareholdings, etc.:
An officer of a listed company or a person holding not less than 10% shares in a listed company shall give a notice to the company within 15 days of such acquisition or change in interest or the date of such agreement. On default, the person shall be liable to imprisonment of up to 2 years and/or fine of up to Rs. 5,000.
222: Submission of statements of beneficial owners of listed securities:
An officer of a listed company or a person holding not less than 10% shares in a listed company shall file a return to the registrar and the Commission in a prescribed form within: in case of interests existing before commencement of Ordinance, within 30 days of commencement of Ordinance in case the company was listed in the stock exchange or the interest was acquired or the person held an office in the company after the commencement of the Ordinance, within 30 days of doing so in case of any change in position of office or interest, within 15 days of the change in case the Commission by an order so requires, within any period specified in the order On default, the person shall be liable to a fine of up to Rs. 30,000 plus Rs. 1,000 per day.
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223: Prohibition of short-selling:
An officer of a listed company or a person holding not less than 10% shares in a listed company shall not practice short selling such securities. On default, the person shall be liable to a fine of up to Rs. 30,000 plus Rs. 1,000 per day.
224: Trading by officers and principal shareholders:
An officer of a listed company or a person holding not less than 10% shares in a listed company shall tender any gain on purchase and sale of securities within 6 months and report the fact to the registrar and Commission; unless, the securities were acquired in satisfaction of a debt. Where such a person does not tender such amount to the company or the company is unable to recover the amount within a period of 6 months of the gain or within 60 days of a demand, whichever is later, the amount shall vest with the Commission and, unless deposited in a prescribed account, shall be recoverable as land arrears. On default, the person shall be liable to a fine of up to Rs. 30,000 plus Rs. 1,000 per day.
225: Contracts by agents of company in which company is undisclosed principal:
If an officer or other agent of a company, other than a private company that is not a subsidiary of a public company, shall, upon entering into a contract where the company is an undisclosed principal, make a memorandum including the terms and parties of the contract. He shall deliver this memorandum to the company and send copies to directors of the company. It shall be filed at the registered office of the company and presented at the next meeting of directors. On default, the officer or agent shall be liable to a fine of up to Rs. 2,000 and the contract shall be void at the option of the company.
226: Securities and deposits, etc.:
A company or any of its officers or agents may not receive or utilize any money received as security or deposit except in accordance with a written contract: in which case all such money shall be kept in a special bank account, or, as advance payment for goods or services sold to a agent dealer or sub-agent On default, the company and knowing officers shall be liable to a fine of up to Rs. 5,000 and loss suffered by depositor.
227, 228, 229: Employees provident funds and securities:
All moneys or securities deposited with the company by an employee in pursuance to his contract of service shall be deposited within 15 days in a special account in a scheduled bank or in the National Saving schemes and no part of it shall be used by the company except after giving notice to employee in case of breach of duty of contract by the employee. If the company maintains a provident fund, all contributions by the company and the employee shall either be: deposited in: National Savings Schemes a special account in a scheduled bank
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a special account in the company itself if it is a scheduled bank invested in: government securities bonds or redeemable capital issued by WAPDA and in listed securities
If a trust has been created to manage the provident fund, the company shall collect contributions from the employees and deposit them along with its own contributions with the trust. This shall relieve the company from obligations of depositing or investing the contributions. The employee shall have the right to see the receipt of the bank or other body for his contribution on a request made to the company, the trustees or any other person concerned. On default, the company and knowing officers shall be liable to a fine of up to Rs. 5,000 and loss suffered by employee.
Accounts
230: Books of account to be kept by company:
Every company shall at its registered office keep proper books of accounts with respect to: cash flows receipts and payments sales and purchases of goods assets and liabilities manufacturing accounts if the company engages in such activities If the directors decide to keep the books at a place in Pakistan other than the registered office, a notice must be filed with the registrar within 7 days of the decision. Records of a branch office in or outside Pakistan shall be kept in the branch office and summarized return of a period not more than 3 months shall be returned at the registered office or other place decided by directors and notified to the registrar. The books shall be open to inspection by the directors during business hours. The directors shall decide how and when the books shall be open for the inspection of members. Non-members may only inspect when and in the manner allowed by the Ordinance, the directors or members in a general meeting. Books shall be maintained for the last 10 financial years preceding the current. On default, officers and chief accountant shall be liable: in case of a listed company, to imprisonment of up to 1 year and fine between Rs. 20,000 and Rs. 50,000 plus Rs. 5,000 per day in case of other companies, to imprisonment of up to 6 months and fine of up to Rs. 10,000
231, 232: Inspection of books of account by registrar, etc.:
The books of a company shall be open for inspection to the registrar or any other officer authorized by the Commission in writing. He shall be allowed to make copies and to mark the books. After inspection, the registrar or other officer shall report to the Commission.
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It shall be the duty of the officers and employees of the company to deliver the required documents in the inspection at such time and place as specified and to give all assistance that the company may reasonably be expected to give. On default, knowing persons shall be liable to imprisonment of up to 1 year and fine not less than Rs. 10,000. Any officer convicted shall be declared vacated out of his office and shall be disqualified for holding such office in any company for 5 years.
233: Annual accounts and balance sheet:
The directors shall put up the financial statements of the company in front of the members not more than 18 months from the date of incorporation and then not more than 4 months after the financial statement date. An extension of 1 month may be allowed by: in case of a listed company, by Commission in case of other company, by registrar The period of financial statements shall not exceed 12 months unless the registrar grants special permission. The financial statements shall be audited and an auditors report shall be attached in the form and manner specified by the Commission. The company shall send the financial statements to the members at least 21 days before the meeting in which it is to be laid in front of the members. They shall also be open for inspection at the registered office by the members during at least 21 days before the meeting. A listed company shall also send five copies to the registrar, Commission and the stock exchange. On default, officers and chief accountant shall be liable: in case of a listed company, to imprisonment of up to 1 year and fine between Rs. 20,000 and Rs. 50,000 plus Rs. 5,000 per day in case of other companies, to imprisonment of up to 6 months and fine of up to Rs. 10,000
234: Contents of financial statements:
They must give true and fair view of the financial position and performance of the company and: in case of listed company and a company that is a subsidiary of a listed company, comply with the 4th schedule in case of any other company, comply with the 5th schedule comply with the IAS in case of a listed company, contain the statement of changes in equity and cash flow in case of a listed company, state the accounting policies and auditors opinion on any change therein The Federal Government may change the provisions of the 4th and 5th schedules and give exemption to any company or class of companies if it is in public interest. On default, officers and chief accountant shall be liable: in case of a listed company, to imprisonment of up to 1 year and fine between Rs. 20,000 and Rs. 50,000 plus Rs. 5,000 per day in case of other companies, to imprisonment of up to 6 months and fine of up to Rs. 10,000
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234-A: Special audit:
The Commission on its own motion or on application by members holding not less than 20% voting rights in a company, order a special audit and appoint an auditor with special instructions. Upon receiving the audit report it may give orders for immediate compliance to the company and its management. If the audit was ordered on request of members, they shall bear half the expenses of the audit, the rest borne by the company. If the Commission ordered it on its own motion, all the expenses shall be borne by the company. However, the Commission may incur expenses on behalf of the members or the company and get it reimbursed later.
235: Treatment of surplus arising out of revaluation of fixed assets:
A surplus on revaluation of fixed assets shall be credited to the Surplus on Revaluation of Fixed Assets Account and it shall be part of the reserves of the company. It shall be used to set off deficit on revaluation of fixed assets and to for incremental depreciation only. The assets shall be depreciated on historical cost and surplus on revaluation shall be amortized. On default, knowing directors shall be liable to a fine of up to Rs. 20,000 plus any damages to the company.
236: Directors report:
A directors report shall be attached to the financial statements of the company. It shall include: state of affairs of the company any amount to be transferred to any reserve in this or subsequent years and in case of a public company or a private company that is a subsidiary of a public company it shall also include: particulars of material changes and commitments after the balance sheet date particulars of changes in nature of business of the company or its subsidiaries or the industry; unless, exempted by the Commission on the ground that it will prejudice the position of the company explanation to qualifications in the auditors report pattern of shareholding name and country of if incorporation of its holding company earnings per share reasons of loss and future prospects of profit particulars of bad debts The report shall be signed by the chairman of directors or chief executive on behalf of the directors, if authorized; otherwise, it shall be signed by the chief executive and a director (or two directors if chief executive is out of country). On default, directors and chief executive shall be liable: in case of a listed company, to imprisonment of up to 1 year and fine between Rs. 20,000 and Rs. 50,000 plus Rs. 5,000 per day in case of other companies, to imprisonment of up to 6 months and fine of up to Rs. 10,000
237: Consolidated financial statements:
Companies shall attach consolidated financial statements of its subsidiaries with its own financial statements.
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Disclosures shall be made according to the Fourth Schedule and relevant IAS. Signature of the persons that are to sign financial statements of holding company shall be required. If the financial year of a subsidiary precedes that of its holding company by more than 3 months, it shall make an interim closing to perform the consolidation. Auditors of the financial statement shall also report on the consolidated financial statements and the interim financial statements made for consolidation by a subsidiary. On default, knowing officers shall be liable to a fine of up to Rs. 50,000.
238: Financial year of holding company and subsidiary:
The directors of a holding company shall ensure that the financial years of the holding company and all of its subsidiaries coincides; except, when there is a good reason not to do so. To help coincide the financial years of a holding company and subsidiary, the Commission may order if thinks fit and on the application or consent of the directors to extend the time of holding of annual general meeting and making of financial statements of either the holding company or the subsidiary.
239: Rights of holding companys representatives and members:
The holding company may authorize its representatives by a resolution to inspect documents of its subsidiaries, which shall allow such inspection during business hours.
240: Balance sheet of modaraba company to include modaraba accounts, etc.:
The accounts of a modaraba company shall include the accounts of the modaraba. If their financial years do not coincide, it shall include the accounts of the last financial year of the modaraba. On default, knowing officers shall be liable to a fine of up to Rs. 50,000.
241: Authentication of financial statements:
The financial statements shall be signed by the chief executive and at least 1 director. If the chief executive is out of the country, they shall be signed by 2 directors along with attachment of a statement as to why the chief executive could not authorize them. On default, company and knowing persons shall be liable to a fine of up to Rs. 5,000.
242: Copy of financial statements to be forwarded to registrar:
Within 30 days of the annual general meeting in which the financial statements are shown, the following number of copies shall be forwarded to the registrar: 3 in case of a listed company 2 in case of other company not applicable on private company having paid-up capital of less than Rs. 7.5 million If the annual general meeting does not adopt the financial statements or it is adjourned, this fact along with reasons shall be attached to the financial statements and to the copies sent to the registrar.
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On default, company and knowing officers shall be liable: in case of a listed company, to a fine of up to Rs. 10,000 plus Rs. 200 per day in case of other companies, to a fine of up to Rs. 2,000 plus Rs. 50 per day
243: Right of members to copies of financial statements and auditors report:
A member may request a copy of the financial statements, directors report and auditors report on payment of prescribed fee.
244: Penalty for improper publication of financial statements:
If a copy of financial statement is published without including all the required documents, company and knowing officers shall be liable to a fine of up to Rs. 5,000 per copy.
245: Quarterly accounts of listed companies:
Every listed company shall make quarterly financial statements (audited or not) and forward a copy to all members and its stock exchange and 3 copies to the registrar and Commission within 1 month of each quarter. Half-yearly financial statements shall be authenticated by a chief executive and a director (or two directors if chief executive is out of country). On default, knowing officers and chief accountant shall be liable to a fine of up to Rs. 100,000 plus Rs. 1,000 per day.
246: Power of Commission to require submission of additional documents:
The Commission may order a company or class of companies to submit additional documents to members, registrar, an authority or any other person and to get them audited. On default, company and knowing persons shall be liable to a fine of up to Rs. 1,000,000 plus Rs. 10,000 per day.
247: Rights of debenture-holders to receipt and inspection of financial statements:
Debenture-holders and their trustees hold the same rights as those of the members in this regard.
Dividends and Manner and Time of Payment thereof
248: Certain restrictions on declaration of dividends:
The company may declare dividend in a general meeting but it shall not exceed the amount recommended by the directors. Dividend shall not be taken out of profits from sale of immovable property or fixed assets that comprise the undertaking or any of the undertakings except after setting off losses from the same; unless, doing so is the principal business of the company. Dividend shall not be taken out of unrealized gain in investment property credited to the P/L Account.
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249: Dividends to be paid only out of profits:
No dividend shall be paid by otherwise than profits.
250: Dividend not be paid except to registered shareholders or their order or bankers:
Dividend can only be paid to a registered shareholder or to his banker or a financial institution on his order, without their making a separate application of payment. The dividend warrants shall be sent by registered post unless otherwise ordered by the shareholder.
251: Period of payment of dividend:
When dividend is declared, the company or directors shall not defer payment and the chief executive shall be held responsible for payment within in the time specified by the Commission. On default, he shall be liable to imprisonment of up to 2 years and/or fine of up to Rs. 1,000,000 and shall be debarred from holding office of chief executive or director of any company for 5 years. No default is considered if: dividend could not be paid due to operation of law shareholder gave an order regarding payment and they could not be complied with there is a dispute the dividend has been adjusted against any sum due from the shareholder for any other reason, the delay was not due to default by the company and the company made an application to the Commission within 45 days of declaration and the Commission allowed the company to withhold or defer such payment after hearing from both parties. Dividend is deemed to have been declared on: in case of dividend declared and approved in a general meeting, on the date of the general meeting in case of interim dividend, on the date of closing of registers for determination of entitlement of dividend in case of interim dividend where registers are not closed, on the date of approval by the directors
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Audit
252, 253: Appointment, removal and remuneration:
Auditors shall be appointed as an AGM for a time till the next AGM. They may be removed before that by a special resolution.
Appointment:
First Auditors
Directors within 60 days of incorporation
Members
after 60 days and within 120 days of incorporation
Commission after 120 days of incorporation
auditors are not appointed at AGM or unwilling to act or not qualified
Term
till first AGM
Subsequent Auditors
in AGM
till next AGM
Casual Vacancy
within 30 days of its occurring
in general meeting when removed by a resolution
within 30 days of its occurring
till next AGM
auditors appointed in AGM cannot be removed except by special resolution
must be notified within one week of power becoming exercisable
unless removed by resolution
Where a new auditor is to be appointed in a general meeting, whether after a removal or after end of term, a notice must be given to the company at least 14 days before the general meeting by a member nominating a new auditor. The company must forward the notice to the retiring auditor immediately and to all members at least 7 days before the general meeting. A listed company shall also publish it in one English and one Urdu newspaper having circulation in the province in which the stock exchange of the company is situated. If an auditor makes a representation on receiving of such notice, the representation shall be sent with any notices to the members. If this could not be done, the representation may be required by the auditor to be read aloud in the meeting; unless, the registrars approves that it may not be read aloud on the application of the company or any other person. The company shall notify the registrar within 14 days of any removal or appointment, along with written consent, of an auditor.
Remuneration:
Remuneration is set by whoever appoints the auditor: directors, members or Commission.
254: Qualification and disqualification:
The following persons shall not be appointed as an auditor: in case of a public company and a private company with paid-up capital of more than Rs. 3 million, if the auditor is not a Chartered Accountant a person who was an officer or employee of the company during the previous 3 years a person who is a partner or employee of an officer or employee of the company
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the spouse of the director of the company a person indebted to the company except: a person owing not more than Rs. 500,000 to a credit-card issuer a person owing dues to a utility company for a period not exceeding 90 days a body corporate a person who holds any shares in the company or its associated company or his spouse, minor children or any partner in audit firm holds such shares (this fact shall be disclose at appointment and shares shall be disinvested within 90 days of appointment) a person disqualified to be an auditor of the companys holding company or subsidiary or a another subsidiary of its holding company
On default, auditors shall be liable to a fine of up to Rs. 25,000.
255: Powers and duties of auditors:
Auditors shall have unrestricted access to documents and may demand representations. Copies normally sent to the principal office in Pakistan from a branch office outside Pakistan should be made accessible to the auditors in satisfaction of unrestricted access to documents of the branch office. The auditors shall make a report on the financial statements directed to the members stating: whether they have obtained sufficient, appropriate audit evidence whether the books of accounts are made in compliance of the Ordinance whether the financial statements are made in compliance of the Ordinance and give a true and fair view whether the business conducted was in accordance with the companys objects and the expenses were for the purposes of business whether the Zakat deductible at source has been deposited in the Central Zakat Fund For any negative remark, the report shall contain a reason. The Commission may require a company or a class of companies that their auditors report on certain additional matters as well. The auditor shall be entitled to attend general meetings receive all notices of general meetings that a member is entitled to speak at a general meeting that he attends In the general meeting in which audited financial statements are considered, the auditor or a person authorized by him in writing must be present. On any default by an officer, he shall be liable to a fine of up to Rs. 5,000 plus Rs. 100 per day.
256: Reading and inspection of auditors report:
The auditors report shall be read in general meeting and be open for inspection of members.
257: Signature on audit report:
The auditors report may only be signed by a partner of a firm operating in Pakistan that has been appointed to act as auditors of the company; it shall also include the date and place of signature.
75
258: Audit of cost accounts:
Where a company is required to make manufacturing accounts, it shall also get those accounts audited by either a Chartered Accountant or a Cost and Management Accountant.
259: Penalty for non-compliance by companies:
On any default by the company, the company and knowing officers shall be liable to a fine of up to Rs. 50,000 plus Rs. 2,000 per day.
260: Penalty for non-compliance by auditors:
On default by auditors, all partners of the firm shall be liable to a fine of up to Rs. 100,000. If the default was made to make profit to the auditor or loss to another person, the auditors shall also be liable to imprisonment of up to 1 year.
Power of Registrar to Call for Information
261: Power of registrar to call for information:
The registrar can, by written order, demand additional information from past and present officers of the company regarding a document submitted by a company in pursuance of the Ordinance. An officer who ceased to hold office more than six years earlier may not be asked to furnish information. If required information could not be given in the time specified, the registrar may order inspection of the books of accounts. On default, company and knowing persons shall be liable to a fine of up to Rs. 20,000 plus Rs. 5,000 per day and to imprisonment of up to 1 year. Registrar may order immediate inspection of books.
262: Seizure of documents by registrar:
If the registrar thinks that the company will destroy, mutilate, falsify or make secret any documents or books of the company, it may seize them by permission of the Court or a Magistrate of First Class, who may authorize a subordinate of rank of at least assistant registrar for assistance. The registrar shall return the books as soon as possible and within 30 days of seizure. The Commission may allow the registrar to hold the books for another 30 days after giving opportunity to the company to represent against it.
76
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