Mercantile Law Notes

Mercantile Law and Business Law notes for Commerce, Business and CA students, and for CSS
aspirants.

A law is a system of rights and obligations which the state might impose and enforce. The Mercantile
law is related to the commercial activities (trade and commerce) of the people of a country. The
Mercantile law is divided in the following Acts:
 Contract Act 1872
 Partnership Act 1932
 Negotiable Instrument Act 1881
 Sales of Goods Act 1930
 Companies Ordinance 1984
1. Contract Act 1872
What is Contract?
In simple words, we can define contract as an agreement between two or more parties to do or not
to do a particular thing and the agreement is of such a nature that the law will provide some remedy
for its breach.
Definition of Contract
Contract is defined by Sec. 2(h) as, "An agreement enforceable at law is a contract."

Thus Contract is composed of:

1. An agreement, and
2. That agreement must be enforceable at law
Contract = Agreement + Enforceability
Agreement
Agreement is defined by Sec. 2(e) as, "Every promise or every set of promises forming the
consideration for each other."

Thus, every contract is an agreement but not vice versa.

Promise
Promise is defined by Sec. 2(b) as, "A proposal (offer) when accepted becomes a promise.".

Hence, it could be concluded that, "An agreement is an accepted proposal."

Agreement = Proposal + Acceptance
Agreements are of two types:
1. Social Agreements
2. Legal Agreements
Social Agreements:
Social agreements are social in nature and are not enforceable at law, hence cannot be called
contract.
For example, Father promise to pay his son Rs.1000 if he got first position in exams. The son cannot
recover the amount if the father refuses to pay.

Legal Agreements:
These agreements are enforceable at law. Legal agreements are composed of:
1. An agreement
2. An intention to create legal obligations
The ordinary test of legal obligation is that, "When both the parties know that they would be attended
by legal consequences if they default."

Intention to Create Legal Relations

There are agreements which do not result into contract, since the defaulter would not attended by
legal consequences.

For example, A invited B at dinner, B came but A did not hosted the dinner. B cannot sue A because
there wes no intention of the parties to create legal relation (OR Legal obligation).

The intention to create legal relation is known from the terms and conditions of the contract and
surrounding circumstances.

Balfour v. Balfour Case

A husband promise to pay his wife, a domestic allowance of $30 per month. Later the parties
separated and the husband defaulted the payment, Held, the wife could not recover since there was
no intention to create legal relations at the time of entering into the agreement.
Contract
Sec.10 defines, "An agreement is a contract if it is made by the free consent of the parties,
competent to contract, for a lawful consideration and for a lawful object."

The direct conditions laid down in Sec.10 and few derived condition are called "Essentials of a valid
Contract".

Essentials of a valid Contract

For an agreement to become a contract; it must satisfies the following conditions:

1. Agreement
Offer by one party, and the acceptance by other party.

2. Consensus ad Idem
Consensus an idem means that both the parties agree on the same thing in the same sense.

3. Legal Relationship
It arises when both the parties know that they would be attended by legal consequences if they
default.

4. Lawful Consideration
Consideration means "Something in return". For a valid cntract, consideration must be lawful.
For example, A agrees to sell his house to B for Rs.500,000. Here, for A, the consideration is
Rs.500,000 and for B, the consideration is House.

5. Capacity of Parties
Parties must be competent to contract, that is, any party must not a minor, detain person etc.

6. Free Consent
Consent must be free, that is, it must not caused by coersion, mis-representation, fraud, undue
influence etc.

7. Lawful object
The object of contract must not be:
 Illegal or unlawful
 Immoral
 Opposed to public policy
8. Contract must be certain and capable of being performed.
9. Appropriate legal formalities must be performed like writing, registration, witnesses, attestation
etc.
Offer (Proposal)
Proposal (Offer) is defined by Sec. 2(a) as, "When one person signifies to another his willingness to
do or abstain from doing anything with a view to abstaining the assent of that other to such act or
abstinence, he is said to make a proposal."

Person making the offer is called offerer, and the person to whom the offer is made called offeree.

Types of offer
The types of offer can be categrise as:
1. Mode of offer
2. Scope of offer
Mode of offer:
Offer may be:
 Express offer: When offer is made in words spoken or written, the offer is "express offer".
 Implied offer: When offer is "expressed by conduct", the offer is implied.
Scope of offer: Offer may be:
 Specific offer: When offer is made to a particular person, or a particular class of person, and
that could be accepted by that particular person or that particular class of person, the offer is
specific.
  General offer: When offer is made to the world at large, and that could be accepted by
anyone performing the conditions of the offer, the offer is general. For example,
announcement of the reward to the person, solving some particular problem.
Offer and Invitation to offer:
These two terms must clearly be differetiated. Invitation to offer is intention to make offer, or
invitation to make offer. On the other hand offer is final propsal by the offerer to be bound by his
promise.

For example, Bilal tells Saad that he is going to sell his car for at least Rs.600,000. This is intention
to make offer (or invitation to make offer). Saad replied, I can buy it for Rs.500,000. This is offer.

Legal Rules as to offer:

1. Offer must be capable of being accepted and giving rise to legal relationship.
2. Terms of offer: Terms of offer must not be ambigious, uncertain and vague.
For example, I will pay you Rs.1,000 more if there is rain on that day.
3. Offer is different from: (i) Declaration of intention, tenders etc. (ii) Invitation to make offers,
quotations, circular etc.
4. Offer must be communicated.
5. Offer must be made with a view to obtaining the assent, and not merely with a view to
disclosing the intention of making an offer.
6. Offer should not contain a term, the non-compliance which would amount to acceptance.
For example, I plan to sell you my car for Rs.500,000. If I don't receive a reply I presume that
you have accepted the offer. In this case the offer is not accepted if person don't send reply.
It may be Acceptance of offer or Revocation.
Acceptance
Acceptance is defined as, "When the person to whom the proposal is made signifies his assent
thereto, the proposal is said to be accepted".

Who can accept?

Acceptance can be made by the person to whom offer is made. If it is made to particular person, it
can be accepted only by him and by no third person on his behalf.

If the offer is made to the world at large, any person or persons, with notice of the offer, may accept
the offer.

Performane of the conditions of the offer

According to the Sec.8 of Contract Act, "Performance of the conditions of the proposal is an
acceptance of the proposal".

For example, A person lost his original documents, then he announced that he would pay Rs.10,000
to the person who bring his documents. Another person after knowledge of the offer, search and find
the documents, and hand over to the person. He is liable to Rs.10,000.
Legal Rules as to acceptance
1. Acceptance must be absolute and unqualified.
Offeree cannot accept some part of offer and reject some part. Similarly, offeree cannot
suggest or demand amendmends, if he did it would be counter offer.
2. Acceptance must be in the prescribed mode: If no particular mode is prescribed it must be in a
reasonable mode.
3. Acceptance must be communicated to the offerer.
4. Acceptance must be given within reasonable time or within specified time limit.
5. Acceptance cannot be given before communication of offer.
6. Acceptance must be made before the offer lapses or offer is withdrawn.
7. Acceptance can be made by the party to whom the offer is made.
8. Acceptance must show intention to fulfil the promise.
Revocation of an Offer
Revocation means "cancellation".That is offerer cancelled (revoked) the offer before the acceptance
of offeree.

Communication of Revocation
The communication of revocation is complete - as against the person who makes it, when it is put
into a course of transmission to the person to whom it is made, so as to be out of the power of the
person who makes it, as against the person to whom it is made, when it comes to his knowledge.

Modes of Revocation of an offer

Sec.6 of Contract Act deals with various modes of revocation of an offer. In all these cases offer
comes to an end.
1. Revocation of offer by communication of notice by offerer to offeree before acceptance.
2. Revocation by lapse of time.
For example, college stipulated March 18 to accpet the offer, and Bilal could not send
acceptance letter till March 18. The offer is revoked.
3. Revocation by failure to fulfil a condition precedent to acceptance. For example, Bilal agrees
to sell his house to Anas if he pays half of the price till March 11. Anas could not pay, the offer
is revoked.
4. Revocation by death or insanity of the offerer
5. Revocation by cross offer.
For example, Bilal agrees to sell his house to Anas for Rs.500,000. Anas replied I will buy it
for Rs.475,000. The offer from Bilal is revoked by this counter offer.
6. Revocation by failure to accept according to the prescribed mode.
Rejection of offer by the offeree
Offeree may be reject the offer. Once he has rejected, he cannot subsequently accept it.

Rejection may be expressed or implied

 Express: by words spoken or written
 Implied: by counter offer or conditional offer
Rules governing the procedure of revocation of offer by the offeree
 1. Offeree can revoke the offer at any time before the communication of its acceptance is
complete as against the offerer but not afterwards.
2. Revocation takes place when it is actually communicated to the offeree.
Rules governing the procedure of revocation of offer by the offerer
1. Offerer can revoke the offer at any time before the offer is accepted by the offeree.
2. If offerer has agreed to keep the offer open for a certain period, he can revoke it before
expiration period if there is no consideration for keeping the offer open.
IMPORTANT:
 Once the offer revoked, there cannot be subsequent acceptance.
 Once the offer accepted, there cannot be subsequent revocation.
Communication of Offer and Acceptance
According to Sec.4, "The communication of an offer is complete when it comes to the knowledge of
the person to whom it is made."

"The communication of an acceptance is complete:

 as against the proposer when it is put in a course of transmission to him, so as to be out of the
power of the acceptor.
 as against the acceptor when it comes to the knowledge of the proposer."
For example, A college sent admission letter to Bilal on March 10, and Bilal received the letter on
March 12. The communication of offer is complete when Bilal receive the letter (on March 12) -
When it comes to the knowledge to the person to whom it is made.

Bilal accepts the offer and send acceptance letter to college on March 14. The college received the
letter on March 16. The communication of acceptance is complete as aginst the college when Bilal
posted the letter on March 14 (The communication of an acceptance is complete as against the
proposer when it is put in a course of transmission to him, so as to be out of the power of the
acceptor) as against Bilal, when the letter is received by the college (as against the acceptor when it
comes to the knowledge of the proposer).
Consideration
Consideration is defined by Sec.2(d) as, "When at the desire of promiser, the promisee or any other
person has done or abstained from doing, or does or abstains from doing or promises to do or
abstains from doing, something such act or abstinence or promise is called consideration for the
promise."

On anlysing we find that consideration involves:

1. (a) Doing of an act: A handedover his house to B on rent for C's guarantee, that B will pay
the rent after 2 months. House on rent to B by A is the consideration for C's promise.

(b) Abstinence or forbearance: B was unable to pay rent after 2 months. D promise to pay
the rent after 1 month for not sueing B. A's not sueing B is consideration for D's promise.
 2. A return promise: A agrees to sell his house to B for Rs.500,000 and B agrees to purchase
the house for Rs.500,000. A's selling house is consideration for B's payment of Rs.500,000,
and B's payment is consideration for A's house.
Legal rules as to consideration
1. It must move at the desire of the promiser
2. It may move from the promisee or any other person
3. It may be past, present or future
4. It must be real and not illusory
5. It need not be adequate
6. It must be something that the promiser is not already bound to do
7. Consideration must not be unlawful.
Contracts without consideration
If there is no consideration; there is no contract. However, there is some exception to this rule.

In the following cases, contracts shall be valid and effective without consideration.

1. Natural love and affection

A contract without consideration is enforceable if the following conditions are satisfied:
 The contract is made out of natural love and affection
 The contract is registered
 The contract is in writing
 Parties to it stand in near relation to one-another
2. Compensation for voluntary services
A promise to compensate wholly or in part, a person who has already voluntarily done something for
the promiser is enforceable. Hence, there are two conditions:
 The service should have been rendered voluntarily, and
 For the promiser
For example, A finds documents of B and handedover to him. B promise to pay A. This is a contract.

3. No consideration is required to create an agency

4. No consideration is required to completed gifts

When there is agreement for gift that has been made, this is a contract and does not require
consideration. For example, A school announced gifts to students obtained first 3 positions in
exams. This is a contract.

5. Contracts under seal

A contract made in the form of deed under seal is valid and does not require consideration.
Capacity of Parties
Sec.10 defines that parties to contract must be competent to contract.

Competency is defined by Sec.11 as, "Every person is competent to contract if he is of the age of
majority according to the law to which he is subject, is of sound mind and is not disqualified from
contracting by any law to which he is subject".

Thus, to be competent to contract one must be of:

 Age of majority
 Sound mind
 Must not disqualified from contracting by any law to which he is subject
Equaivalently, incompetency is caused by:
 Minority
 Unsoundness of mind
 Disqualification from contracting by any law to which he is subject
Minor
Every one is minor who have not attained the age of 18. Before completion of 18 years a person is a
minor. Once he has completed 18 years, he is of the age of majority.

In following two cases the age of majority is 21 years:

 A guardian of minor's person and property has been appointed by the Court under the
Guardians and Wards Act 1890.
 A minor is under the guardianship of court of wards.
Position of Minor at Law
Law protects minor against his inexperience and inability of proper decisions.

Nature of Minor's Agreements

1. Agreement with a minor is void ab initio
2. Minor may be a promisee or beneficiary
3. Minor cannot become a partner nor can a new partnership be started with minor as a partner
4. Minor can be an agent
5. There can be no specific performance of an agreement made by a minor
6. A minor can always plead minority
7. Minor cannot ratify the agreements entered into during minority on the attainment of majority
8. A minor cannot be adjudged insolvent
9. A minor is liable for the necessaries supplied to him or to his dependents.
Unsoundness of Mind
A person's soundness of mind depends on two facts:
 His ability to understand the business concerned, and
 His ability to form a rational judgement as to its effect on his interests.
Unsoundness of mind may arise from lunacy, idiocy, or drucness etc. Contracts with such persons
are void when entered into at a time when the person was in an unsound state of mind.
Disqualified Persons
1. Ambassadors, Envoys etc. These persons can enter into contracts and enforce them in our
courts. But they cannot be sued unless they of their own submit to the jurisdiction of the court.
2. Corporations: Corporations and companies are artificial persons created by law. As such,
they can enter into contracts, sue and be sued.
 3. Convicts: A convict while undergoing imprisonment is incapable of entering into a contract,
except under a special licence called "Ticket of leave".
Free Consent
Consent is said to be free when it is not caused by:
1. Coersion
2. Undue influence
3. Fraud
4. Misrepresentation
5. Mistake
When consent to a contract is cause by coersion, undue influence, fraud or misrepresentation, the
agreement is a contract voidable at the option of the party whose consent was not free. The party
has liberty whether he uphold the contract or reject it. If the party uphold the contract, the contract is
binding on both the parties.

When contract is caused by mistake, the contract is void, because there was no consensus ad idem
and hence, there is no contract.
Coersion
Coersion is defined by Sec.15 as, "Committing or threatening to commit an act forbidden by the law,
or detaining or threatening to detain any property whatever, with the intention of causing any person
to enter into an agreement. It is immaterial whether the particular law is or is not in force where the
coersion is employed."

Examples,
1. Consent obtained at gun point is caused by coersion.
2. A threats to kill B or threats to detain B's property is committing or threatening to commit an
ulawful act. Hence the consent is caused by coersion.

Effect of coersion
A contract induced by coersion is voidable at the option of the party whose consent was caused by
coersion.

Sec.72 states, "A person to whom money has been paid or anything delivered by mistake or under
coersion, must repay or return it."

Threat to commit suicide

Committing suicide is unlawful and forbidden by law, and hence threatening to commit suicide is
threatening to commit unlawful act. Thus, a threat to commit suicide amounts to coersion.
Undue influence
Undue influence is defined by Sec.16(1) as, "A contract is said to be induced by undue influence
where the relations subsisting between the parties are such that one of the parties is in position to
dominate the will of other and uses that position to obtain an unfair advantage over the other."
When a person, is deemed to be in a position to dominate the will of another, is defined by Sec.16(2)
as, "When he holds real or appearent authority over the other. Capacity is temporarily or
permenently affected by reason of age, illness or mental or bodily distress."
In order to establish the
presumption of undue
influence, two essentials have
to be proved:
1. The relation between the parties is such that one of them is in a position to dominate the will
of the other, and
2. The party uses that position to obtain an undue influence over the other.
How to rebutt the presumption?
The party deemed to use the undue influence can rebutt the presumption by showing that:
1. Full disclosure was made regarding all facts of the contract
2. Consideration was adequate
3. Dominated party was in a position to receive independent advice.
Examples,
1. Father purchased a car from his son for Rs.500,000 while the actual price of car was Rs.800,000.
Later on son took the case to the court. The court annul the contract on the basis of undue influence
used by father.

2. A, being in debt to B, the police officer, contracts another loan to A on high interest rate. Later on,
A repay first loan to B, and took the case to court for the second loan (the loan on high interest rate).
The court annul the contract on the basis of undue influence used by B.

Cases giving rise to the presumption of "undue influence", when the relation between the parties is:
1. Parent and Child
2. Guardian and ward
3. Fiance and Fiancee
4. Trustee and Beneficiary
5. Doctor and Patient
6. Solicitor and Client
No such presumption exists in the following cases:
1. Husband and wife
2. Landlord and Tenant
3. Creditor and Debtor
Effect of undue influence
A contract induced by undue influence is voidable at the option of the party whose consent was
caused by undue influence. The party may uphold the contract or reject it.
Fraud
Fraud means "intentional misrepresentation".

Fraud is defined by Sec.17 as, "Fraud means and includes any of the following acts committed by a
party to a contract or with his connivance or by his agent,
 1. The suggestion as to a matter of fact of that which is not true by one who does not believe it to
be true.
2. The active concealment of a fact by one having knowledge or belief of the fact.
3. A promise made without an intention of performing it.
4. Any other act fitted to deceive.
5. Any such act or omission as the law specially declares to be fraudlent."
In other word "fraud" exists if it is shown that a false representation has been made:
1. Knowingly
2. Without belief of its truth
3. Recklessly (whether it be true or false).
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Sales of Goods Act 1930

Sales of Goods Act deal with all those agreements and contracts in which the transfer of moveable
property from one person to another takes place. There occur numerous contracts for the sale of
goods in which either the goods are delivered immediately or they are delayed to a certain date.
These two possibilities are explored in this Act under two different topics which are 'Sale &
Agreement to Sell'
Contract of Sale
Under Section#4(1) of Sale of Goods Act, "A contract of sale of goods is a contract whereby the
seller transfers or agrees to transfer the property in goods to buyer for a price."

Essentials to Contract of Sale

From the definition of 'Sale' mentioned above, we draw a list of its essentials;
 Two Parties
There must have been two different persons or parties known as buyer and the seller. One
person cannot sale and buys from himself.
 Saleable Property in Goods
The property must be saleable which better is to be in goods. As far as 'Goods' are
concerned, that may include every moveable property other than actionable claims and
money; even electricity, water, gas, stock and shares, growing crops are included in moveable
property.
 Transfer of Goods
The seller must have transferred the possession of the goods sold to the buyer.
 Reception of Price
The buyer must have paid the seller for the goods he bought from him.
Agreement to Sell
We have studied that, sale is a contract in which there occurs immediate transfer of possession of
goods for a price; on the other hand, Section#4 (3) of the same Act introduces us with 'Agreement to
Sell'. It states that, "An agreement to sell is an agreement whereby the transfer of the property in
goods is to take place at a future time or subject to some condition thereafter to be fulfilled."

Illustration
Barring the presence of two parties, fixation of price and moveable property as essentials of the
agreement to sell; it is the fourth requisite that differs from that of 'contract of sale'. Here, the transfer
of goods has not been accomplished but it is due to a certain date in future or is contingent with the
fulfillment of some condition.
Difference between Sale and Agreement to Sell
Transfer of Property
Sale
In sale of contract, goods are immediately transferred to the buyer.
Agreement to Sell
In this case, goods sold are to be transferred at a certain date in future.

Existence of Goods
Sale
This contract takes place over the existing specific goods.
Agreement to Sell
The goods may exist or may the contract have been made over contingent goods.

Burden to Bear Loss

Sale
In sale contract, if the goods are destroyed, then the buyer who has paid the price will bear the loss.
Agreement to Sell
The seller will bear the loss in case if the goods are deteriorated.

Breach by Seller
Sale
In case the breach of sale contract is observed by seller, the buyer can sue him for damages as well
as can follow the goods in the hands of third person.
Agreement to Sell
In this case, if the breach is observed by the seller, buyer can only sue him for damages but not
receive the goods as it was still seller's property.

Insolvency of Seller
Sale
If the seller becomes solvent, the buyer is entitled to recover the goods for which he has paid.
Agreement to Sell
In this case, the buyer who has paid but has not attained the possession of goods yet may claim for
the paid money back.

Insolvency of Buyer
Sale
If buyer becomes insolvent without having paid for goods, the seller can claim for recovery of price.
Agreement to Sell
Here, the seller can refuse to deliver the goods to the buyer.

Right to Release
Sale
In this type, seller who has been paid for the goods cannot resale those goods even if they are in his
possession.
Agreement to Sell
In agreement to sell, if the seller resells, the buyer can sue him for breach of contract only.
Condition and Warranty
Agreements and contracts are in fact the meetings of minds on certain terms, statements and
promises. In every contract, there are some promises which formulate its base and their fulfillment is
of utmost importance while some terms are mere formalities and their performance is not as
essential as those of which give base to contract.

Condition
Section 12(2) of the sale of goods act states that, "A condition is a stipulation, essential to the main
purpose of the contract, the breach of which gives ride to a right to treat the contract as repudiated."

From the above mentioned definition of 'Condition' we can debate over following points;
 A condition is a 'Stipulation'. The word 'Stipulation' pertain to the meanings of 'the requirement
of something as an essential condition of a contract'. It means that, a condition forms the very
basis of a contract.
 A condition is always directly related to the main purpose of the contract and it's essential to
be taken care of for the performance of contract.
 The breach of condition will provide the injured party with the right to cancel the contract.
Warranty
Section 12(3) of the Act states that, "A warranty is a stipulation, collateral to the main purpose of the
contract, the breach of which gives rise to the claim for damages but not the right to reject the goods
and to treat the contract repudiated."
The worth mentioning points in this definition are following;
 Unlike condition, warranty is a stipulation not essential for the main purpose of the contract but
it is collateral to the main purpose. 'Collateral' means that its essentiality runs side by side to
the purpose of contract.
 The breach of warranty unlike condition will not repudiate the contract but it will provide the
injured party with the right to just receive damages.
Difference between Condition and Warranty
Essentiality
Condition
A condition is stipulation; essential to the main purpose of contract therefore, it's very essential to the
contract. It goes direct to the roots of the contract.
Warranty
Warranty is stipulation; collateral to the main purpose of the contract. Its essentiality is lessor than
that of condition as it does not form the basis of contract.

Breach
Condition
Breach of condition will give right to the injured party to repudiate the contract.
Warranty
The repudiation of contract will not be the result of the breach of contract. But, the injured party will
possess the right to recover damages.

Treatment
Condition
A condition on breach can be treated as a warranty if the injured party accepts the damages.
Warranty
The breach of warranty will not be treated as a breach of condition. The injured party can demand
for damages only and can't cancel the contract.
When Condition changes into Warranty
We have thoroughly discussed the breach of condition and warranty along with their legal
consequences which are that a breach of condition will lead to repudiation of contract while breach
of warranty will give rise to the right of claiming damages. But barring these tack, there is another
way where condition is treated as warranty. It is possible only when even after the breach of
condition the injured party;
 Does not exercise his right to repudiate the contract
 Claims for damages instead
 Accepts the goods if he is a buyer
Types of Condition and Warranty
Generally speaking, there are two major categories in which both condition and warranty are
classified separately. They are expressed in detail as following;

Express Condition and Express Warranty

Both the condition as well as the warranty falls in the first category if they are written of properly
spoken at the time of signing the agreement. This category of condition and warranty is simple and
clear totally based on the certain prescribed terms and statements.

Implied Condition and Implied Warranty

When the condition or warranty has not been expressly revealed upon any of the parties then from
the terms and conditions of the contract, one can draw a number of implied conditions or warranties.
These are discussed in Implied Condition and Implied Warranties section.
Implied Conditions
The condition which are not incorporated in contract but the law presumes their existence may
include;
 Implied Condition as to Title
The first implied condition is that the transfer of the title of the goods can only be made by
either owner or his agent. For example, 'A' bought a car from 'B'. He used it for several
months and later it appeared that 'B' had no title to the car. 'A' was compelled to surrender
and he would be entitled to recover his money as a breach of implied condition.
 Implied Condition as to Sale by Description
When the contract has been made with the aim to sale the goods with the description of the
goods, then it will give rise to implied warranty that the goods shall correspond to the
description. If goods do not correspond to the description then the buyer can reject the goods.
 Implied Condition as to Sale by Sample
If the contract has been drawn that the goods would be sold by the sample, then it will
become an implied condition that the goods must correspond to the sample. The buyer will
have reasonable time to match the goods with the sample and if not found in accordance with
that then as a consequence of the breach of condition, he will have the right to repudiate the
contract by rejecting the goods.
 Implied Condition as to Fitness or Quality
When a buyer expresses upon the seller the purpose of his buying certain goods then it is
implied condition that the seller should arrange the goods reasonable to the purpose of the
buyer. In this case after expressing the purpose, the buyer must have relied on the skills and
judgment of the seller.
 Implied Condition as to Ability of Merchant
In case the abilities of merchant have been uttered by the buyer whether the merchant is a
manufacturer or producer or dealer, then it is implied condition to revive goods from that
merchant only.
Implied Warranties
The unexpressed warranties which the law presumes may include;
  Implied Warranty as to Quiet Possession
In every contract of sale, the buyer under an implied warranty is presumed to possess the
right to have and enjoy quiet possession of the goods. If that warranty is breached then buyer
can claim for damages.
 Implied Warranty as to Freedom from Encumbrances
There is an implied warranty on the part of the seller that the goods is sold to the buyer must
have been free from any charge or encumbrance.
 Implied Warranty as to Usage of Trade
Implied warranty as to quality and fitness for a particular purpose may be annexed by usage
of trade.
Caveat Emptor
In the ancient times, goods were sold in the open markets where a buyer used to visit the market
and after having completely satisfied from the quality and fitness of the goods, he used to buy them.
This rule is related to the care of buyer while buying the goods.

What is Caveat Emptor?

Caveat Emptor means 'Buyer Beware'. Under section#16 of Sale of Goods Act, "Subject to the
provisions of this Act; there is no implied warranty or condition as to the quality or fitness of any
particular purpose of good supplied under a contract of sale."

Illustration
'Buyer Beware' is a cautious step taken by this Act keeping in view the customary practice of sale of
goods. This rule encourages the buyer to take every possible care in order to check the quality and
fitness of the goods which he is going to buy. A buyer is given reasonable time to satisfy his mind
regarding the goods and the intention of the seller. The scope of this rule is that, it minimizes the
chances of litigation and keeps check on the seller by granting this right to the buyer.
Exceptions to the rule of Caveat Emptor
There have been mentioned certain exceptions where the rule of 'Buyer Beware' fails to show its
implication. Some are following;

A. Purchase by Description
When the goods have been purchased by description, the rule of caveat emptor does not apply. It
becomes clear to the buyer when he hears about the quality and fitness of the goods from the seller.
The seller may point out if there is any flaw in the goods.

B. Purchase by Sample
Even when the goods are bought after examining a sample and they get matched with the sample,
rule of caveat emptor is not applicable.

C. Fitness for Purpose

When the buyer has informed the seller about the purpose for buying certain goods and he trusts
upon the skill and judgment of the seller in arranging such goods, then the rule of 'Buyer Beware'
won't be applicable.

D. Trade Name
When the goods are bought under certain trade name, there is no implied condition to its fitness for
any particular purpose.

E. Mercantile Quality
The rule does not apply when goods are purchased by description from a seller who deals in with
goods of that description. This is because there is then an implied condition that the goods shall be
of mercantile quality.

F. Consent by Fraud
This rule is not applicable where the seller intentionally makes false statement or conceals
something about the goods.

---------------------------------------------------

Partnership Act
Definition (Article#4)
"Partnership is the relation between persons who have agreed to share the profits of a business
carried on by all or any of them acting for all."

Who is Partner?
Persons who have entered into partnership with one another are individually called 'partners'. A
partner has the legal status of a person.

What is Firm?
Persons who have entered into partnership with one another are collectively called 'firm'. As far as
the legal status of a firm is concerned, it is neither a person nor a legal entity. It has no existence
apart from its members. A firm carries a business under some name, it is called 'firm name'.
Essentials of Partnership
The definition of partnership establishes following essentials of the 'Partnership'.

A. Specified Number of Persons

A person is a legal entity who may enter into a partnership with any other person. But it has been
specified that the number of persons making going for partnership must be at least two. Partnership
is the name of association of at least two persons.
It has been noted in the
Company Law that the number
of persons in partnership must
not exceed 20. So, this check
 of company law is ought to be
observed in order to ensure
existence of a legal
partnership.
B. Existence of an Agreement
Section#5 of the Act states that, "The relation of partnership arises from contract and not from
status."

Illustration
In particular the members of a Hindu undivided family carrying on a family business as such, or a
Burmese Buddhist husband and wife carrying on business as such are not partners in such
business.

C. Business
Section#2(B) of the Act says, "Business includes every trade, occupation and profession." So, it is
essential to launch partnership for some appropriate legal business. In case the business is illegal or
later any clause of any act enforced in the country goes contrary to a business then the partnership
will automatically dissolve.

D. Sharing the Profits

A partnership basically aims at running a business with efficient management and gaining the
desired profit. The agreement between two or more partners must be upon some business, the profit
from which will be shared by them. The agreement to share business can be express as well as
implied. The acquiescence of carrying on a business with one or more persons and gaining profit
from it will be taken as implied consent to the partnership. On the other hand, sharing the losses
does not constitute partnership.
Types of Partnership
Types of partnership are often classified on the basis of time duration, purpose and number of
persons as well. As far as the reasonable duration of a partnership is concerned, the partners have
the original right to mention it in the agreement otherwise the Act has discussed two aspects;
A. Partnership at Will
Article#7 of the Act states
that; "Where no provision is
made by contract between the
partners for the duration of
their partnership, or for the
determination of their
partnership the partnership is
partnership at will."
B. Particular Partnership
The generality of the duration of partnership has been specified to accomplishment of some task in
the Article#8 of the Act as; "A person may become a partner with another person in particular
adventures or undertakings."

C. Limited Partnership
A partnership is usually formed with the joining of at least two partners in a business and are liable to
the extent of their respective investments. In Limited Partnership, there is a limited partner who may
have access to all sort of transactions taking place in the partnership but neither receives dividends
nor accounts for complete liability. This kind is also referred as 'Limited Liability Partnership'.

Duties of Partners
Partners of a business owe certain duties to each other as well as to the performance of the
business they have adopted. Partnership Act - 1932, in this regard, maintains following duties on the
partners of a firm;

A. General Duties
Article#9 of the Act establishes a number of general duties that every partner has to observe;
 To Carry on Business
It is general duty of every partner to carry on the business of the firm to the greatest common
advantage. This is to be rendered by performing for what he has been tasked.
 Faithfulness
A partner is ought to remain faithful to the business that its firm owns and to the partners he
has contract with.
 Accounts Information
Every partner must render true accounts and full information of all things affecting the firm, or
to any other partner or his legal representative.
B. Indemnification for Loss
Article#10 imposes an important duty upon the partners of a firm by stating that; "Every partner shall
indemnify the firm for any loss caused to it by his fraud in the conduct of the business of the firm."
Rights of Partners
Beyond 'conduct of business' there are other rights and liabilities which the partners of a firm face;
 Sharing Gain & Loss
The partners are entitled to share equally in the profits earned, and shall contribute equally to
the losses sustained by the firm.
 Indemnification of Partner
The firm shall indemnify a partner in respect of payments made and liabilities incurred by him.
CASE REFERENCE: Kadar Bux v. Buki Bihari (1932)
A & B are the partners who share profit and loss equally. They start partnership with X & Y without
agreeing upon the future sharing-ratio. The conflict arose when X & Y allege that A & B are entitled
to the 1/3rd share contrary to their claim of having right over 1/4th share of profit. Thus, keeping in
view equal share in loss and profit it was held that, if A & B have joined as a firm then they have right
over 1/3rd of the profit but if they have joined individually, they are entitles to 14th of the total profit.

Rights in Conduct of Business

  Every partner has a right to take part in the conduct of the business;
 Every partner is bound to attend diligently to his duties in the conduct of the business;
 Any difference arising as to ordinary matters connected with the business may be decided by
a majority of the partners, and every partner shall have the right to express his opinion before
the matter is decided, but no change may be made in the nature of the business without the
consent of all the partners; and
 Every partner has a right to have access and to inspect and copy any of the books of the firm
Checks as to Profits earned by Partners
Personal Profit Earned by Partners from Partnership Property
If a partner derives any profit for himself from the use of the property or business connection of the
firm or the firm name he shall account for that profit and pay it to the firm.

Profit Earned by Partner from Business Competing to the Firm

If a partner carries on any business of the same nature as and competing with that of the firm, he
shall account for and pay to the firm all profits made by him in that business.

Case Reference: Loch v. Lynam (1854)

A & B partners were running a business of supplying meat to the government. Subsequently, it was
found out that, A was also engaged with C in supplying meat to the same government. Thus, in lieu
of having started a business competing to the firm of which A was a part, he was ordered to account
the firm for the profits made by him.
Rights and duties after a change in the firm
Rights and duties of partners after a change in the firm, after the expiry of the term of the firm
and where additional undertakings are carried out
a. Where a change occurs in the constitutions of a firm, the mutual rights and duties of the
partners in the reconstituted firm remain the same as they were immediately before the
change as far as may be;
b. Where a firm constituted for a fixed term continues to carry on business after the expiry of that
term, the mutual rights and duties of the partners remain the same as they were before the
expiry, so far as they may be consistent with the incidents of partnership-at-will; and
c. Where a firm constituted to carry out one or more adventures or undertakings carries out other
adventures or undertakings, the mutual rights and duties of the partners in respect of the other
adventures or undertakings are the same as those in respect of the original adventures or
undertakings.
Minor
First, read basics of minor at Minor, Law.

Minor can't be made Partner but Admitted in Profit

A minor may not be a partner in a firm, but, with the consent of all the partners for the time being, he
may be admitted to the benefits of partnership.

Rights of Minor
Such minor has a right to such share of the property and of the profits of the firm as may be agreed
upon, and he may have access to and inspect and copy any of the accounts of the firm.

Personal Liability of Minor

Such minor's share is liable for the acts of the firm but the minor is not personally liable for any such
act.

Minor can't Sue other Partner

Such minor may not sue the partners for an account or payment of his share of the property or
profits of the firm
Minor
Notice on Attaining Majority Age or Becoming a Partner
At any time within six months of his attaining majority, or of his obtaining knowledge that he had
been admitted to the benefits of partnership, whichever date is later, such person may give public
notice that he has elected to become or that he has elected not to become a partner in the firm.

Rights & Liabilities when Minor turned Major elects to be Partner

Where such person becomes a partner;
 His rights and liabilities as a minor continue upto the date on which he becomes a partner, but
he also becomes personally liable to third parties for all acts of the firm done since he was
admitted to the benefits of partnership
 His share in the property and profits of the firm shall be the share to which he was entitled as
a minor.
Rights & Liabilities when Minor turned Major elects not to be Partner
Where such person elects not be to become a partner;
 His rights and liabilities shall continue to be those of a minor under the section upto the date
on which he gives public notice
 His share shall not be liable for any acts for the firm done after the date of the notice
 He shall be entitled to sue the partners for his share of the property and profits
Dissolution of Partnership/Firm
The dissolution of a partnership among all the partners of a firm is called the "dissolution of the firm".

Dissolution by Agreement
A firm may be dissolved with the consent of all the partners or in accordance with a contract
between the partners.

Compulsory Dissolution
A firm is dissolved by;
 the adjudication of all the partners or of all the partners but one as insolvent
 the happening of any event which makes it unlawful for the business of the firm to be carried
on
Dissolution on the happening of certain contingencies
A firm is dissolved;
 if constituted for a fixed term, by the expiry of that term
 if constituted to carry out one or more adventures or undertakings, by the completion thereof
 by the death of a partner
 by the adjudication of a partner as an insolvent
Dissolution by notice of Partnership at Will
Where the partnership is at will, the firm may be dissolved by any partner giving notice in writing to
all the other partners of his intention to dissolve the firm.

Dissolution by the Court

At the suit of a partner, the Court may dissolve a firm on any of the following grounds;
1. Partner has become of unsound mind
2. Partner, other than the partner suing, has become in any way permanently incapable of
performing his duties as partner
3. Partner, other than the partner suing, is guilty of conduct which is likely to affect prejudicially
the carrying on of the business
4. Partner, other than the partner suing, willfully or persistently commits breach of agreements
relating to the management of the affairs of the firm of the conduct of its business
5. Partner, other than the partner suing, has in any way transferred the whole of his interest in
the firm to a third party
6. Business of the firm cannot be carried on save at a loss
7. On any other ground which renders it just and equitable that the firm should be dissolved
-----------------------------------------------------

Negotiable Instrument Act

The word 'negotiable' means, "transferable from one person to another in return for consideration".
The word 'instrument' means, "a written document by which a right is created in favour of some
person". Hence, the term Negotiable Instrument means "a document in writing which creates a right
in favour of some person", and which is freely transferable by delivery.

According to Section 13(1) of the Negotiable Instrument Act, "A negotiable instrument means a
promissory note, bill of exchange or cheque payable either to order or to bearer".
Types of Negotiable Instrument
Three major types of Negotiable Instruments
The three major forms of a negotiable instrument discussed under the Negotiable Instruments Act of
1881 are: Promissory Note, Bill of Exchange and Cheque.

What is Promissory Note?

A "promissory note" is in an instrument in writing, containing an unconditional undertaking signed by
the maker, to pay on demand or at a fixed or determinable future time] a certain sum of money only
to, or to the order of a certain person, or to the bearer of the instrument.
For example; A signed instrument in the following terms: "I promise to pay B or order Rs. 500." This
will form a promissory note.

What is Bill of Exchange?

A "bill of exchange" is an instrument in writing containing an unconditional order, signed by the
maker, directing a certain person to pay on demand or at a fixed or determinable future time, a
certain sum of money only to, or to the order of, a certain person or to the bearer of the instrument.

What is a Cheque?
A "cheque" is a bill of exchange drawn on a specified banker and not expressed payable otherwise
than on demand.
Negotiable Instrument Terms
Definitions of the Terms used in the Act (Section 3).

Accommodation Party
It means a person who has signed a negotiable instrument as a marker, drawer acceptor or
endorser without receiving the value and for the purpose of lending his name to some other person.

Banker
Banker is a person transacting the business of accepting, for the purpose of lending or investment,
of or deposits of money from the public, repayable on demand otherwise withdrawable by cheque,
draft, order, or otherwise, and includes any Post Office Savings Bank.

Bearer
Bearer is a person who by negotiable comes into possession of a negotiable instrument, which is
payable to bearer.

Delivery
It is transfer of possession actual or constructive, from one person to another.

Issue
Means the first delivery of a promissory notice, bill of exchange of cheque complete in form to a
person' who takes it as holder.

Material Alteration
In relation to a Promissory note, bill, of exchange or cheque includes an alteration of the date, the
sum payable, the time of payment, the of payment, and, where any such instrument has been
accepted generally, the addition of a place of payment without the acceptor's assent.

Notary Public
It includes any person appointed by the Central Government to perform the functions of notary public
under this Act and a notary appointed under the Notaries Ordinance, 1961
Cheque and Crossing of a Cheque
What is Cheque?
Under the Section-6 of the Negotiable Instruments Act, 'a cheque is a bill of exchange drawn on a
specified bank and not expressed to be payable otherwise on demand.'

Cheque is a type of negotiable instrument.

What is Crossing of a Cheque?

A cheque crossed is one which carries the explicit instruction about the method in which it is to be
redeemed. It is payable only via the banker mentioned and cannot be cashed at the bank counter.

Purpose of Crossing a Cheque

The object behind crossing a cheque is to affirm the security of the cheque-holder.

Types of Cheque-Crossing
Under the Negotiable Instruments Act 1881, the crossed cheque falls under any of the two following
broad categories;

A. Generally Crossed Cheque

A cheque crossed in general has been defined under section 123 of the Negotiable Instruments Act,
"Where a cheque bears across its face an addition of the words "and company" or any abbreviation
thereof, between two parallel transverse lines, or of two parallel transverse lines simply, either with
or without the words "not negotiable", that addition shall be deemed a crossing and the cheque shall
be deemed to be crossed generally".

Besides the generally crossed cheque, another similar form is Cheque Crossed 'Account Payee'.
Along with being generally crossed, this cheque carries an additional aspect. It has been defined
under section 123A of the Negotiable Instruments Act, "Where a cheque crossed generally bears
across its face an addition of the word "account payee" between the two parallel transverse line
constituting the general crossing, the cheque, besides being crossed generally, is said to be crossed
"account payee".

B. Cheque Crossed Specifically

Second major kind of crossed cheque has been defined in the Section 124 of the said Act, "Where a
cheque bears across its face an addition of the name of a banker either, with or without the words
not negotiable, that addition shall be deemed a crossing, and the cheque shall be deemed to be
crossed specially, and to be crossed to that banker".

Can a Cheque be Crossed after having Issued?

The answer to this has been clarified in the Section 125 of the Negotiable Instruments Act. It gives
following regulations in this regard:
 Where a cheque is uncrossed, the holder may cross it generally or specially.
 Where a cheque is crossed generally, the holder may cross specially.
 Where a cheque is crossed generally or specially the holder may add the words "not
negotiable".
 Where a cheque is crossed especially, the banker to whom it is crossed may again cross it
specially to another banker, his agent, for collection.
 When an uncrossed cheque, or a cheque crossed generally, is sent to a banker for collection
he may cross it especially to himself.
Payment of Generally Crossed Cheque
Where a cheque is-crossed generally, the banker on whom it is drawn shall to pay it.

Payment of Specifically Crossed Cheque

Where a cheque is crossed specially, the banker on whom it is drawn shall not pay it
otherwise than: to the banker to whom it is crossed.

Restriction regarding Cheque bearing 'Non Negotiable'

A person taking a cheque crossed generally or specially, bearing in either case the words
"not negotiable," shall not have, and shall not be capable of giving, a better title to the
cheque than that which the person from whom he took it had. This rule has been laid in
section 130 of the Act.

Discharge of Negotiable Instrument

What is Discharging of Negotiable Instrument?
Discharging of a negotiable instrument means that all the rights of action under it are completely
extinguished and it ceases to be negotiated anymore.

Modes of Discharge of Liability in Negotiable Instrument

Under following modes the maker, acceptor and endorser of a negotiable instrument is discharged
from liability;
1. By Cancellation
Under this scheme, a holder who cancels acceptor's or endorser's name apparently or with
intention to discharge him from the negotiable instrument, the latter is said to have
discharged.
2. By release
A holder thereof who, by means other than cancellation, discharges maker, acceptor or
endorser, and to all parties deriving title under such holder after notice of such discharge.
3. By Payment in the Due Course
When the payment on an instrument, at its maturity, is made by the party liable then all the
parties stand discharged from the liability of negotiable instrument.
4. By Allowing Drawee
In this case, if a person holding the negotiable instrument allows the drawee for over 48 hours
to consider whether he will accept the same then all the previous who didn't consent to the
said allowance stand discharged.
 5. Material Alteration
In case a material alteration brought in the instrument, all the parties who do not consent to
the said alternation stand discharged from the liability.
6. Notice of Dishonor
In case the holder of negotiable instrument fails to issue notice of dishonor to all the previous
parties, they stand discharged.
7. By Operation of Law
Liability against the negotiable instrument also stand discharged in case of legal operations
like;
 Insolvency of debtor
 Loss of remedy on expiry of the limitation
 Merger of note into judgement debt
 Merger of lesser security into higher security
Maturity of Negotiable Instrument
The maturity of a promissory note or bill of exchange is the date at which it falls due. It's an important
aspect of the Act.

How to Calculate Maturity of bill of note payable so many months after date or sight
In calculating the date at which a promissory note or bill of exchange, made payable a stated
number of months after date or after sight, or after a certain event, is at maturity, the period stated
shall be held to terminate on the day of the month which corresponds with the day on which the
instrument is dated, or presented for acceptance or sight, or noted for non-acceptance, or protested
for non-acceptance or the event happens, or, where the instrument is a bill of exchange made
payable a stated number of months after sight and has been accepted for honor, with the day on
which it was so accepted. If the month in which the period would terminate has no corresponding
day, the period shall be held to terminate on the last day of such month.

For example: A negotiable instrument, dated 29th January, 1878, is made payable at one month
after date. The instrument is at maturity on the third day after the 28th February, 1878.

How to Calculate Maturity of bill of note payable so many days after date or sight
In calculating the date at which a promissory note or bill of exchange made payable a certain
number of days after date or after sight or after certain event is at maturity, the day of the date, or of
presentment for acceptance of sight, or of protest for non-acceptance, or on which the event
happens, shall be excluded.

In Case the day of Maturity is a Holiday

When the day on which a promissory note or bill of exchange is at maturity is a public holiday, the
instrument shall be deemed to be due on the next preceding business day.

For instance: The expression "public holiday" shall mean the day or days declared by the Federal
Government, by notification in the official Gazette to be public holidays.
Negotiable Instrument: More Topics
Who is a Drawer & a Drawee?
The marker of a bill of exchange or cheque is called the "drawer―. Whereas, the person thereby
directed to pay is called the "drawee."

Who is a Holder?
The "holder" of a negotiable instrument is the payee or endorsee who is in possession of it or the
bearer thereof but does not include a beneficial owner.

Explanation
Where the note, bill or cheque is lost and not found again, or is destroyed, the person in possession
of it or the bearer thereof. At the time of such loss or destruction shall be deemed to continue to be
its holder.

Who is Holder in Due Course?

"Holder in due course" means any person who for consideration becomes the possessor of a
promissory note, bill of exchange or cheque if payable to bearer, or the payee or endorsee, if
payable to order, before it became overdue, without notice that the title of the person from whom he
derived his own title was defective.

Define 'Payment in Due Course'

"Payment in due course" 'means payment in accordance with the apparent tenor of the instrument in
good faith and without negligence to any person in possession thereof under circumstances which
do not afford a reasonable ground for believing that he is not entitled to receive payment of the
amount therein mentioned.

What is Inland Instrument?

A promissory note, bill of exchange or cheque drawn or made in Pakistan and made payable in, or
drawn upon any person resident in, Pakistan shall be deemed to be an inland instrument.

Definition of Foreign Instrument

Any such instrument not so drawn, made or made payable shall be deemed to be foreign instrument.

What is Negotiation?
When a promissory note, bill of exchange or cheque is transferred to any person, so as to constitute
that person the holder thereof, the instrument is said to be negotiable.

Define Endorsement and Who is Endorser?

When the maker or holder of a negotiable instrument signs the same, otherwise than as such maker,
for the purpose of negotiable, on the back or face thereof or on a slip of paper annexed thereto, or
so signs for the same purpose a stamped paper intended to be completed as a negotiable
instrument, he is said to endorse the same, and is called the "endorser".
Types of Endorsement
Endorsement "in blank"
If the endorser signs his name only, the endorsement is said to be "in blank",

Endorsement "in full"

If the endorser adds a direction to pay the amount mentioned in the instrument to, or to the order of,
a specified person, the endorsement is said to be 'in full", and the person so specified is called the
"endorsee" of the instrument.

Define Ambiguous Instrument

Where an instrument may be construed either as a promissory note or bill of exchange, the holder
may at his election treat it as either and the instrument shall be then certificate re-forward treated
accordingly.

What are Instruments Payable on Demand?

A promissory note or bill of exchange is payable on demand where:
1. It is expressed to be so, or to be payable at sight or on presentment
2. No time for payment is specified in it
3. The note or bill accepted or endorsed after it is overdue, as regards the person accepting or
endorsing it
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Companies Ordinance
Corporation as known in the US and Company as called in the UK are the terms representing the
same business. Evolved through ages, the early partnership was replaced by company when it could
not cope with the growing challenges of the business. The 'Societas' of the ancient Rome which
were recognized as business partnerships of that time later were successful in grabbing the attention
of Italy and France. When it went to the UK, kings named them as 'Privileged Companies' regulated
by the King's charter. East India Company, Dutch East India Company and French Mississippi
Company were a few of the earliest companies thus formed. The end of 17th century brought an
opportunity for all to incorporate companies under the law.

Company
Literally 'Company' is combination of two Latin terms; 'Cum & Panis' reflecting the meanings, 'taking
meals together'.

Definition
Lord Lindley, the expert in the landmark Solmon v. Solmon & Co. case noted; "By company is meant
an association of many persons who contribute money or money's worth and employ it (the money
contributed) in some trade or business and who (members) share the profit or loss as the case may
be arising there from."
Private Company
Section2(28) of the Companies Ordinance explicitly states that; "Private Company" means a
company which, by its articles
1. Restricts the right to transfer its shares, if any;
2. Limits the number of its members to fifty not including persons who are in the employment of
the company; and
3. Prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the
company.
Illustration
 Private company restricts the transfer of share unlike a public company but the share can be
offered to the directors of the company if they will to buy.
 Private company must not exceed from 50 as far as its membership is concerned otherwise it
would become an illegal association. The minimum number of members required have been
reduced from two to one in lieu of introduction of amendment is 2002.
 Private company neither publishes any prospectus to invite public nor does it make any
statement in place of prospectus.
 Private Company does not hold the statutory meeting which a public company is bound to call
within a definite period after its incorporation.
 Private company can commence its business instantly soon after incorporation without even
waiting for the certificate of commencement of business.
 Private company does not publish its accounts.
 It does not get its accounts audited by the qualified auditor unless its capital exceeds certain
amount.
Public Company
No lengthy definition of public company has been given in the statute except that; public company is
something which is not a private company. (Section#2(30).
Difference between private and public company
Distinction between the public and private company in accordance with their respective explanations
in the statute and their modes of practical functioning is as following;

1. Relevant Statutes & Provisions

Both private and public company are governed by the Companies Ordinance-1984 with clause 28 of
section#2 concerning the former and clause 30 of the same section related to the latter.

2. As to Membership
 Previously the minimum number of members for incorporating a public company was 7 which
were later reduced to 3 in accordance with amendments made in 2002.
 In private company the minimum number of members should be 1 in accordance with the
amendments made in 2002 which introduced Single Member Company's concept in Pakistan.
The maximum members should not exceed 50.
3. As to Management
  A company is to be managed by the director chosen for three years individually and the board
of directors collectively. Such board comprises of 7 members.
 A private company is also governed by directors but not elected as in public company.
4. As to Transfer of Share
 In public company a share can be easily transferred.
 Here, in a private company the transfer of case has been strictly checked.
5. As to Capital
 Capital of public company can be raised by issuance of more shares or debentures.
 Raising the capital in private company is not that easy as neither shares nor the debentures
are to be issued here.
6. As to Managing Accounts
 Public company is bound to manage its accounts and book it with the registrar.
 Private company may manage its accounts but is not bound to book with the registrar.
7. As to Statutory Meeting
 Public Company does hold the statutory meeting within a definite period after its incorporation.
 Private company does not call any such meeting.
8. As to Registration
Both kinds of companies are to be registered with the SECP.

9. As to Publication of Balance Sheet

 Balance sheet is to be published by public company after every three months.
 Private company needs no step to take in this regard.
10. As to Commencement of Business
 Business is commenced by a public company after it receives the certificate of
commencement.
 Private company may commence its business without any such certificate.
11. As to Allotment of Shares
 Public company does not allot its shares soon after incorporation.
 Private company may allot its shares soon after its incorporation.
12. As to Issuance of Prospectus or Statement
 Public company is bound to publish any of the two.
 Private company neither publishes prospectus not issues statement.
13. As to Directors
 Public company shall not have less than three directors.
 Private company shall not have less than two directors in case of 'Multiple Member Company'
providing an exception to 'Single Member Company.'
14. As to Issuance of Debentures
 Public company can issue debentures.
 Private company does not issue debentures.
15. As to Dissolution
 Public company is dissolved as directed in the ordinance.
 Private company has a separate procedure for its dissolution.