Lecture – 5 - A

Transfer to nominee of a deceased member (Section 80)

80. Transfer to nominee of a deceased member.-

(1) Notwithstanding anything contained in any other law for the time being in force or in any
disposition by a member of a company of his interest represented by the shares held by
him as a member of the company, a person may on acquiring interest in a company as
member, represented by shares, at any time after acquisition of such interest deposit with
the company a nomination conferring on one or more persons the right to acquire the
interest in the shares therein specified in the event of his death:

Provided that, where a member nominates more than one person, he shall specify in the
nomination the extent of right conferred upon each of the nominees, so however that the
number of shares therein specified are possible of ascertainment in whole numbers.

(2) Where any nomination, duly made and deposited with the company as aforesaid, purports
to confer upon any person the right to receive the whole or any divisible part of the
interest therein mentioned, the said person shall, on the death of the member, become
entitled, to the exclusion of all other persons, to become the holder of the shares or the
part thereof, as the case may be, and on receipt of proof of the death of the member
alongwith the relative scrips, the transmission of the said shares shall be registered in
favour of the nominee to the extent of his interests unless—

(a) such nomination is at any time varied by another nomination made and deposited
before the death of the member in like manner or expressly cancelled by notice in
writing to the company; or
(b) such nomination at any time becomes invalid by reason of the happening of some
contingency specified therein;
and if the said person predeceases the member, the nomination shall, so far as it relates to the
right conferred upon the said person, become void and of no effect:

Provided that where provision has been duly made in the nomination conferring upon
some other person such right in the stead of the person deceased, such right shall, upon
the deceased as aforesaid of the said person, pass to such other person.

(3) The person to be nominated as aforesaid shall not be a person other than the following
relatives of the member, namely, a spouse, father, mother, brother, sister and son or
daughter, including a step or adopted child.

(4) The nomination as aforesaid shall in no way prejudice the right of the member making
the nomination to transfer, dispose of or otherwise deal in the shares owned by him
during his lifetime and shall have effect in respect of the shares owned by the said
member on the day of his death.

81. Transfer by nominee or legal representative.- A transfer of the shares or debentures or

other interest of a deceased member of a company made by his nominee or legal representative
shall, althoug-i the nominee or legal representative is not himself a member, be as valid if he had
been a member at the time of execution of the instrument of transfer.

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85. Redemption of preference shares.-

(1) Subject to the provisions of this section, a company limited by snares may redeem the
preference shares issued by it: Provided that—
no such shares shall be redeemed except out of profits of the company t which would otherwise
be available for dividend or from out of a sinking 'fund created for this purpose 7>r~ouT~T5f Ifie
proceeds'of a freshjssuejjf sharejjTia^eJoiJh^^urposesof the redemption or out of sale proceeds of
any property of the company; ~ ~~~"
no such shares shall be redeemed unlessJlje^jreJyJjyjDaidj where any such shares are redeemed
otherwise than out of the proceeds jf a fresh issue, there shall out of profits which would
otherwise have seen available for dividend be transferred to a reserve fund, to be called "the
capital redemption reserve fund", a sum equal to the amount applied in redeeming the shares, and
the provisions of this Ordinance relating to the reduction of the share capital of a company shall,
except as provided in this section, apply as if the capital redemption reserve fund were paid-up
share capital of the company;
where any such shares are redeemed out of the proceeds of a fresh issue, the premium, if any,
payable on redemption must have been provided for out of the profits of the company before the
shares are redeemed or out of the share premium account.
If a company fails to comply with the provisions of sub-section (1), the # company and every
officer of the company who knowingly and willfully is in default shall be liable to a fine not
exceeding five thousand rupees.
(3) The redemption of preference shares under this section by a company . shall not be taken
as reducing the amount of its authorised share capital.
(4) Subject to the provisions of this section, the redemption of preference shares thereunder may
be effected on such terms and in such manner- as may be provided by the articles of the
company.____________________

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 Lecture – 5 - A

Section 86 (Continue….)

Employees Stock Option Scheme (EPOS): A public company is entitled to reserve a percentage
of further issue of paid up capital to its employees under "Employees Stock Option Scheme*.
This scheme is required to be approved by the Commission.

* Public Companies (Employees Stock Option Scheme) Rules, 2001 are reproduced as under-
"3. Ineligibility to participate in a Scheme.- Only regular^mployees who are on the pay roll efa
company shall be eligible to participate in a Scheme.
4. Compensation Committee.- (1) No Scheme shall be offered unless the company constitutes a
Compensation Committee for administration and superintendence of the Scheme. ~"~ ~"—"" : ~~
—————
0, (2) The Compensation Committee shall be a Committee appointed by the Board of Directors
but shall not include the directors who can be classified asemployees of_a company or
J* are on its pay roll.
5. Powers and functioning of Compensation Committee.- (1) The Compensation Committee
shall, inter alia, formulate the detailed terms and conditions of a Scheme including the following,
namely:-
x (i) quantum of option to be granted under a Scheme to each employee and in f
aggregate;
(ii) conditions under which option vested in an employee may lapse in case of
termination of employment for misconduct; (Hi) exercise period within which an employee
should exercise option and that option
shall lapse on failure to exercise the same within the exercise period; (iv) specified time
period within which an employee shall exercise vested options in
the event of termination from service or resignation; (v) right of an employee to exercise all
options vested in him at one time or at
various points of time within an exercise period;
(vi) procedure for making a fair and reasonable adjustment to the number of options and to an
exercise price in case of rights issues, bonus issues and other corporate actions; (vii) grant,
vesting and exercise of option in case of an employee who is on long
leave; and
(viii) procedure for cashless exercise of options.
(2) The Compensation Committee shall make suitable policies and systems to ensure that there is
no violation of insider trading provisions of the Securities and Exchange Ordinance, 1969 (XVII
of 1969), and the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997), or
the rules made under those laws.
6. Shareholders' approval.- (1) No Scheme shall be offered to employees of a company
unless shareholders of the company approve the Scheme by passing a special ) resolution in the
general meeting.
(2) The statement of facts annexed to a notice and resolution proposed to be passed in a general
meeting for a Scheme shall, inter alia, contain the following information, namely:-
(a) total number of options to be granted;
(b) identification of classes of employees entitled to participate in the Scheme;
(c) requirements of vesting and period of vesting;
(d) maximum period within which any option shall be vested;
(e) exercise price or pricing formula;
(f) exercise period and process of exercise;
(g) appraisal process for determining eligibility of an employee to the Scheme; (h)
maximum number of options to be issued per employee and in aggregate; and (i) a statement
to the effect that the company shall conform to the accounting

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policies specified in rule 13 .

(3) Approval of shareholders by way of separate resolution in a general meeting shall be obtained
by a company in case 'of-
(a) grant of option to employees of a subsidiary or holding company; and

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(b) grant of option to identified employees, during any one year, equal to or exceeding
onejoe_r_GBDt-af the issued_£apjtal (excluding outstanding conversions) qf_the company at the
time of'grant of option.
7. Variation of terms of a Scheme.- ~(i) A company shall not vary the terms of a Scheme in any
manner which may be detrimental to the interests of its employees.
(2) A company may by special resolution in a general meeting vary the terms of a Scheme offered
pursuant to an earlier resolution of a general body but not yet exercised by its employees
provided such variation is not prejudicial to the interests of the option holders.
(3) The provisions of sub-rule (3) of rule 6 shall apply to such variation of terms as they do to the
original grant of option.
8. Pricing.- A company granting option to its employees pursuant to a Scheme shall have the
freedom to determine the exercise price subject to conforming to the accounting policies specified
in rule 13.
9. Lock-in period and rights of an option-holder.- (1) There shall be a minimum period of one
year between the grant of option and vesting of option.
(2) A company shall have the freedom to specify the lock-in period for the shares issued pursuant
to an exercise of option.
(3) An employee shall not have right to receive any dividend or to vote or in any manner enjoy
the benefits of a shareholder in respect of option granted to him, till shares are issued to him on
exercise of option.
10. Consequence of failure to exercise option.- In case of failure to exercise the option, the right
granted shall lapse.
11. Option not transferable.- (1) An option granted to an employee shall not be transferable to
any other person except to an entitled employee of a company.
(2) Under the cashless system of exercise, a company may itself fund the payment of exercise
price which shall be adjusted against the sale proceeds of some or all the shares.
(3) An option granted to an employee shall not be pledged, hypothecated, mortgaged or otherwise
alienated in any other manner.
(4) In the event of death of an employee while in employment of a company, all options granted
to him till the date of his death shall vest in his legal heirs or nominees.
(5) In case an employee suffers a permanent incapacity while in employment of a company, all
options granted to him, as on the date of permanent incapacitation, shall vest in him on that day.
(6) In the event of resignation or termination of service of an employee, all options not vested as
on that day shall expire:
Provided, the employee shall, subject to the terms and conditions of a Scheme formulated in
terms of rule 5, be entitled to retain all the vested options.
12. Disclosure in the Board of Directors' Report.- The Board of Directors, shall, inter alia,
disclose in the annexure to the Annual Report, the following details of a Scheme, namely:-
(a) options granted;
(b) pricing formula;
(c) options vested;
(d) options exercised;
(e) total number of shares arising as a result of exercise of option;
(f) options lapsed;
(g) variation of terms of options;
(h) money received against exercise of options;
(i) employee-wise details of options granted to-
(i) Senior managerial personnel; ,
(ii) Any other employee who receives a grant in any one year of option amounting to five per
cent or more of option granted during that year; and ';•

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(Hi) Identified employees who were granted option, during any one year, equal to or exceeding
one per cent of the issued capital (excluding outstanding conversions) of a company at the time of
grant; and
(k) diluted earnings per share pursuant to issue of shares on exercise of option calculated in
accordance with International Accounting Standard No. 33.
13. Accounting policies.- Every company that has passed a special resolution for a Scheme under
these rules, shall comply with the accounting policies specified in the Schedule to these rules.
14. Certificate from auditors.- In the case of every company that has passed a special resolution
for a Scheme, the Board of 'Directors shall at each annual general meeting place before the
shareholders, a certificate from the auditors of the company that the Scheme has been
implemented in accordance with these rules and in accordance with the resolution of the company
passed in a general meeting.
15. Options outstanding at public issue.- (1) If any option is outstanding at the time of an initial
public offering by a company, the promoters' contribution shall be calculated with reference to
the enlarged capital which would arise on exercise of all vested options.
(2) If any options granted to employees in pursuance of a Scheme are outstanding at the time of
initial public offering, the offering document of a company shall disclose all the information
specified in rule 12.
16. Preferential allotment.- Nothing in these rules shall apply to shares issued to employees at
the time of public offering through the prospectus of a company.
17. Relaxation of rules:- Where the Commission is satisfied that it is not practicable to comply
with any requirement of these rules in a particular case or class of cases, the Commission may,
for reasons to be recorded in writing, relax such requirement subject to such conditions as it may
deem fit.
18. Penalty: Whoever fails or refuses to comply with, or contravenes any provision of these rules
, or knowingly and willfully authorizes or permits such failure, refusal or contravention, shall, in
addition to any other liability under the Companies Ordinance , 1984 (XLVII of 1984), be also
punishable with a fine not exceeding two thousand rupees, and in case of continuing failure,
refusal or contravention, to a further fine not exceeding one hundred rupees for every day after
the first during which such failure, refusal or contravention continues.
(ICMAP Winter 1999)
* Relevant Rule of the Companies (Issue of Capital) Rules, 1995 is reproduced as under:-
5. Issue of right shares by a listed company -A listed company may issue right shares subject to
following conditions, namely -
(i) The company shall not make a right issue within one year of the first issue of capital to
the public or further issue of capital through right issue;
(ii) the company, while announcing right issue, shall clearly state the purpose of he right
issue, benefits to the company, use of funds and financial projections for three years. The
financial plan and projections shall be signed by all the directors who were present in the meeting
in which the right issue was approved;
(Hi) the decision of the company to issue right shares shall be communicated to tht
Commission and the respective stock exchange on the day of the decision
(iv) the company may charge premium on right shares up to the free reserves per share as
certified by the company's auditors and the certificate of the auditors shall be furnished to the
Commission and the respective stock exchange alongwith intimation of the proposed right issue:
Provided that where a company proposes to charge premium on right issue, above the free
reserves per share it shall be required to fulfill the following requirements, namely --
(a) At least 40% of all the shareholders undertake to subscribe their portion of right issue; and

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(b) the remaining right issue shall be fully underwritten and the underwriters, not being
associated companies, shall include at least two financial institutions including commercial banks
and investment banks and the underwriters shall give full justification to the amount of premium
in their independent « diligence reports;
(v) right issue of a loss making company or a company whose market share price during the
preceding six months has remained below par value shall be fully and firmly underwritten; (yi)
book closure shall he made within 45 days of the announcement of the right issue
and the payment and rejiuncjation date once announced for the letter ofjj@1if?&-shall not be
extended except with the permission of the respective stock ' exchange under special
circumstances; and
(vii) if the announcement of bonus and right issue is made simultaneously, resolution of the
board of directors shall specify whether the bonus shares covered by the announcement qualify
for right entitlements.
Explanation. - "Free reserves" includes any amount which, having been set aside out of revenue
or other surpluses after adjustment of all intangibTe~oTficIifJous assets, is free in that it is not
retained to meet any diminution in value of assets, specific liability, contingency or
commitment known to exist at the date of the balance sheet, but does not include-reserves created
as a result of re-valuation of fixed assets; goodwill reserve; (Hi) depreciation reserve to the
extent of ordinary depreciation including allowance for
shifts admissible under the Income Tax Ordinance, 1979 (XXXI of 1979); (iv) development
allowance reserve created under the provisions of the Income Tax
Ordinance, 1979 (XXXI of I 979); (v) workers welfare fund; (vi) provisions for taxation
to the extent of the deferred or current liability of the
company: and — '—————— (vii) capital redemption reserve.
Q. Describe the procedure of raising capital through issuance of right letter by a listing company.
[Cover your answer for (a) & (b) above form the role of company secretary perspective]. ICMAP
S/2004.
1
[87. Issue of shares in lieu of outstanding balance of any loans, etc.- L
Notwithstanding anything contained in section 86 or the memorandum and articles, a issue
ordinary shares or grant option to canyejlJDto_oj3linary shares the '
of any_joans^ ^advances or ^credit, a& defined jn_Jhe Banking Companies Ordinance, 1962
(LVII of 1962), or other non-interest bearing securities and_ obligations outstanding or having a
term of not lesjJtJTajTjhje^^e^jS-JD_the manner provided in any contract with any
schedulecfbank oTalmancial institution to the extent of twenty per cent of such_balance: <*
"~ ProvidedTlriat such shares shall not be issued or option to convert the outstanding balance
exercised unless in any_two_jC:f thejgrecedjpg three-year^ after expiry of two years from the
date of commencement of commercial production, the return on such non-interest bearing
securities, obligations, loans, advances or credit has fallen below the minimum rate of return laid
down by the State Bank of Pakistan for the said years.]

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REGULATION OF DEPOSITS
88. Deposits not to be invited without issuing an advertisement.- (1)The Federal Government
may prescribe the limits up to which, the manner in which and the conditions subject to which
deposits may be invited, accepted or retained by a company.
(2) No company shall invite, or allow any other person to invite or cause to be invited on its
behalf, any deposit unless-
(a) such deposit is invited or is caused to be invited in accordance with the rules made under
sub-section (1); and C
(b) an advertisement, including therein a statement showing the financial position of the
company, has been issued by the company in such form and in such manner as may be
prescribed.
(3) The provisions of this Ordinance relating to a prospectus shall, so far as may be, apply to an
advertisement referred to in sub-section (2).
(4) Where a company accepts or invites, or allows or causes any other person to accept or invite
on its behalf, any deposit in excess of the limits prescribed under sub-section (1) or in
contravention of the manner or conditions prescribed under that sub-section or in contravention of
the provisions of sub-section (2), as the case may be,-
(a)
(b)
the company shall be punishable, -
(i) where such contravention relates to the acceptance of any
deposit, with fine which shall not be less than the amount of the
deposit so accepted; and (ii) where such contravention relates to the invitation for any deposit,
with fine which may extend to twenty thousand rupees; and officer of the
every
company which is in default shall be punishable with imprisonment for a term which may extend
to two years and shall also be liable to fine.
Explanation:-For the purposes of this section, "deposit" means any deposit of money with, and
includes any amount borrowed by, a company, but shall not include a loan raised by issue of
debentures or a loan obtained from a banking company or financial institution.
(5) Nothing contained in this section shall apply to-
Conditions of Deposits:
»1. Deposits can be obtained for company's own business. 2. Deposits cannot be obtained from
another 11 company except a holding company, ii 3. Demand deposits are not allowed. II 4.
Time deposits of 6 to 36 months are allowed. It means that deposits of less than 6 months ||
and more than-3 years are not allowed. „ 5. Deposits for less than 6 months for short term
requirements of funds can be obtained which should be less than 25% of equity and
minimum period should be 3 months. 6. Deposits should' not exceeds 25% of the aggregate of the
paid-up share capital and free reserves.

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a banking company, or
such other class of companies as the Commission may specify in _,____this
behalf.____________________________
The companies are allowed to invite and accept deposits from the general public but such
deposits are regulated under the provisions of THE COMPANIES (INVITATION AND ACCEPTANCE
OF DEPOSITS) RULES, 1987 reproduced hereinafter.
Limits: Deposits should not exceed 25% of the paid up capital of the companies.
The companies are required to maintain the depositors' accounts.
The companies are also required to make the return on deposits on uniform basis.
The companies are required to file periodical returns under the rules.
The advertisement can be made according to the specimen provided in the schedule to the
Rules.
Application: The provision applies to all companies except the banking companies.
Deposits: Deposits are confined to money deposits and bofrowings and do not include loans
and debentures.
Investment for liquidity purposes: Atleast 10% of total deposits is required to be invested
in National Savings Scheme, Government securities or such other securities as are notified
by the Commission for the
purpose.
Advertisement: Text of
advertisement is approved by
BOD and contains matters as
provided in Form No. 1.
Circulation of information to
the depositors: Information
contained in advertisement are
required to be circulated to
depositors within 6 months of
close of financial year.
Agent: Agent cannot be
appointed for soliciting,
collecting and receiving
deposits.
Return : Return of deposits on
Form II made upto 31st December is filed with the registrar upto 31st March each year. A
copy of return is filed with the Commission.
Register: A register of deposits is required to be maintained by the companies.
Narrate the restrictions and limitations • in the Companies Ordinance 1984 regarding invitation
and acceptance of deposits from the public. ICAP Inter S/2004
Exemptions to deposits: Following deposits are exempted:-
(1) Deposits received from Federal or Provincial Government or Government controlled
corporation.
(2) Loans or debentures or redeemable capital.
Finance obtained from a banking company or a
financial institution.
Share deposit money.
Security deposits and earnest-money.
Rent advance.
Suppliers' advance or distributors' advance.
Employees' security deposit.
Employees' contribution towards provident

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annuities or superannuation benefits. (10) Deposits of a director and his spouse and children.
(3)
(4)
(5)
(6)
(7)
(8)
(9)
fund,
aaH
PART VI. - SHARE CAPITAL AND DEBENTURES NATURE, NUMBERING AND
CERTIFICATE OF SHARES
89. Nature of shares and certificate of shares.- (1) The shares or other interest of any member
in a company shall be moveable property, transferable in the manner provided by the articles of
the company.
(2) Each share in a company shall have a distinctive number.
(3) 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 the shares therein specified.

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