Company Law

University of the Punjab

Gujranwala Campus

Company Law

Presented to:
Sir Irfan Ali

Presented By:
Asim Mc09132 (4th evening)

By Asim MC09132 (4 evening)

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Company Law

University of the Punjab

Gujranwala Campus

Company Definition:
Divided into 4 parts 1. 2. 3. 4. Voluntary Association for Profit Capital divisible into transferable shares Limited liability Perpetual Succession and Common seal

Explanation:
Voluntary Association for Profit: It means that group of people must have free consent to form a company and together for earning profit. Capital divisible into shares: It means that capital should be divided into a small and distinct unit and which can be transferred easily from one person to other person in the company registered office. Limited liability: In the partnership there is a unlimited liability and personal property of the members are held liable for the payment of the debt of the partnership if the partnership insolvent. But in the company the liability of the members is limited up to the amount of the invested capital. Example: If the person has purchased 10 shares@20 each than his liability is only 200 Rs and his personal property will not held liable. Soon the person fully paid the shares his liability will null. Perpetual Succession: It means that company will not dissolve upon the death, insolvent, insane of the members. Common seal: Company has a unique stamp which represents the company and considered its signature.

Characteristics of the Company

Distinct personality: The company is distinct from its members. The common seal represents the distinct personality of the company. As a distinct personality company can purchase or sale the property on his name.
Note: Public functionary: Any one from peon to president which are working/ serving the federal and provincial Government

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Company Law
Artificial person:

University of the Punjab

Gujranwala Campus

When the company is incorporated it becomes artificial person and has attained the status of legal person. As an artificial person it enjoys the similar rights and duties as the natural person enjoys. It can sue and being sue as the natural does. Separate ownership: When the company purchases the new property it will register on his name not on the name of its members. The assets and liabilities are the ownership of the company not the ownership of the members. Perpetual succession: Company will never die upon the death, insanity or insolvency of its members and even the in and out of the members in company Shares transferable: The capital of the company is divided into small and distinct parts which are called shares. The shares of the company can easily transferred from one person to other person in the company registered office. Nationality holder: When the company incorporated it obtains the nationality of that country in which it is incorporated. It can take passport for conducting the meeting in the foreign countries as well as in the home country. The one thing which the Natural person has but Company not has is the Citizenship. Company has no fundamental rights because fundamental rights are granted to citizenship holders. Limited liability: One of the distinct features of the company is that the members have limited liability. The property of the members will not held liable for paying off the debts of the company. The liability of the members is limited up to the amount of the invested capital. When the share holder pay the full amount of the share than his liability will null.

Kinds of companies
Chartered company: The company which is establish under the special charter of the Monarch (king, queen, crown). All the powers and limitations are defined under the charter. If the company deviates from its charter the soveirgn has the power to Annul (cancel) the charter. Such company does not exist in the Pakistan. The Famous example of the chartered company is East India Company.
Note: Share is the minimum part of the capital and divided into distinctive numbers (not in fraction).

By Asim MC09132 (4 evening)

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Company Law
Statutory Company:

University of the Punjab

Gujranwala Campus

These companies are incorporated by the special act which is passed by the federal or provincial legislation. Statutory companies have not memorandum and article of Association. The powers and limitations are defined in its statue. Such company cannot amend its powers and limitations only legislators are responsible for amendment. Statutory companies are incorporated are incorporated in order to meet the needs of General public not for earning profit. State bank of Pakistan and Wapda is the best example. Incorporated companies: Are such companies which are incorporated under the companies ordinance 1984. Such company obtains the certificate of incorporation from company registrar. Such company derives powers from the companies ordinance 1984 and from the Memorandum and Article of Association which are drafted under the companies ordinance 1984. Kinds of incorporated Companies: Company Limited by shares: In this type the liability of the members of the company is limited up to amount of the invested capital Company limited by Guarantee: In this company the members of the company undertake that they will contribute that specified amount at the time of winding up of the company. There are two types of such company Company limited by Guarantee having share capital: Company limited by Guarantee Having no share Capital (Pakistan cricket Board is the best example) Unlimited companies: Such companies has no limit on the liability. The members personal property are liable for the debt of the company in the proportions of their respective interest in the company. There properties are responsible according to Profit and loss sharing ratio. Foreign company: The company which is incorporated or place of business outside the Pakistan. If foreign company desired to establish business in the Pakistan than the foreign company under the statutory requirement it has to provide the following document to the company registrar in respective province in which it wants to incorporated
Note: in Pakistan there are fully paid up shares. Corporate democracy: All the decisions are made through majority voting.

By Asim MC09132 (4 evening)

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Company Law
1. 2. 3. 4. 5. 6.

University of the Punjab

Gujranwala Campus

Memorandum and article of Association of that company which is incorporated abroad. The full name and address of the principal office outside the Pakistan List of directors The name of the person authorized by the company to accept the service of process and post The registered address of the company inside in the company When company domiciled into Pakistan than it must provide the 3 copies of profit and loss A/c and Balance Sheet. If not than provide the 3 copies of Financial statements

Listed company: Is a company whose securities are traded on the stock exchange. Holding company: Is a company which holds the more than 50% securities of other company Subsidiary company: Is a company whose more than 50% shares are purchased by other company Government Company: Such company is established by the Government but registered it under the Companies ordinance 1984. Association not for profit: Companies which are establish for development of science, art, heritage and education and for charitable purposes. Such company cannot write the word Pvt and Public at the end of the name but it can only write the name of the company such as Kashf bank. Such companies obtains the license from the federal government and also have memorandum and article of association. Illegal Association: Companies ordinance defines that if members of the partnership across the limit of 20 members than under statutory requirements it is required to convert the partnership into company. If such association remains in progress than it is called illegal association. Consequences of the illegal association: 1. 2. 3. 4. 5. Every member of the illegal association shall be liable to fine Rs 5000 each Every member is liable for the debt incurred by the illegal association The illegal association cannot arise the cause of action(sue and being sue) in the court of law Such associations has no procedure of winding up Such associations cannot enter into any contract

Note: Prospectus: basically it is a document which gives attraction to public for investment

By Asim MC09132 (4 evening)

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Company Law
Public company:

University of the Punjab

Gujranwala Campus

A company which is establish under the companies ordinance 1984 and does not restricts to transfer shares and invite the public for investment and no of members range from 3 to unlimited Private company: A company which is establishes under the companies ordinance 1984 and restricts the right to transfer the shares and not invite the public for investment and no of members range from 1 to 50.

Difference between Public Company and Private Company

Point of Difference 1.Members 2.Name of company Public company 3 to unlimited At the end of name only word limited is edited Shares are freely transferable Invite general Public for investment like the issue of shares and debentures Under the statutory requirement it issue the prospectus Public company start his business after obtaining the certificate of commencement Statutory meeting once held in the life of public company within 3 to 6 months of its incorporation Private Company 1 to 50 At the end of name (pvt) limited is edited Restrict to transfer shares Cannot invite the general public

3.Shares Transfer 4.Public subscription

5.Issue of prospectus

It has no statutory requirement to issue prospectus Private company commence his business after taking the certificate of incorporation Not bound under law to held statutory meeting

6.Commencement of Business

7.Holding of statutory Meeting

By Asim MC09132 (4 evening)

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Company Law
Partnership:

University of the Punjab

Gujranwala Campus

In partnership there are 2 to 20 people associate together to carry on the business for the purpose of making profit

Company Vs Partnership
Point of Difference Partnership Company

Act

A partnership is governed by partnership Act 1932

A company is governed by companies ordinance 1984

Registration

The registration of firm is optional

The registration of company is compulsory

Members

There are 2 to 20 members in partnership

In public company 3 to unlimited and in private 1 to 50 members

Listing at Stock exchange

Partnership firm cannot apply for listing at stock exchange

A public company can apply for listing at stock exchange

Entity

A partnership firm has no separate legal entity

A company has separate legal entity apart from its members

Liability

The liability of partners is unlimited. The private property is held liable for debts

The liability of shareholders is limited up to the amount of shares value held by him

Shares

A partner cannot transfer his share without the consent of other partner

A shareholder can sell his shares without the other shareholders

Management

Ownership and management is in the hands of partners

Ownership and management are different in case of public company

Agent

A partner is an agent of the firm

A shareholder is not the agent of company 7

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Company Law

University of the Punjab

Gujranwala Campus A partnership cannot use word limited with its name A partnership cannot issue prospectus Company can use word limited with its name A public company can issue the prospectus

Limited

Prospectus

Dissolution

A partnership comes at end on the death or retirement of partner

A company have separate legal entity so death or retirement does not effect the life of company

Changes in documents

The partnership can change the documents when partners decide to do so

The company can change the documents but it has to follow the rules given by law

Salomon vs. Salomon & company (1892)

Salomon for many years running a prospers business as a leather merchant and shoes manufacturer. He decided to convert his business into limited company. New formed company his wife, his daughter and four sons took up share each one pound and he himself took up shares of 2000 pound(one pound per share) and fulfill the statutory requirement at least seven members. Salomon and his sons constituted a board of directors. After the allotment of shares the 1000 debentures gave to the Salomon(1 pound each) that was charged overall assets of the company. Almost the company ran into difficulties and yearly later current debentures appoint the liquidators and went on liquidation. The position on the liquidation secured creditors 10000 pounds and unsecured creditors 7000 and the assets of the company were 6000. After paying the debenture holders nothing left to pay unsecured creditors. The unsecured creditors contended (they raise plie) that salomon and salomon company the one and same person. The company was mare sharm an dagent for salomon who remain the real owner an dsalomon was bound to pay unsecured creditors of the company out of his pocket inspite of fact that his shares are fully paid up. So it was held that company once incorporated under the act the company is a separate and legal entityindependent from its members. Salomon who was holding substantially holding the share capital was also be the secure creditors where the salomon is secured creditors, he was entitled to be paid in priority over unsecured creditors.

Territiory of Pakistan:
Sindh, KPK, Punjab, Balochistan, Islamabad, Azad Jammon Kashmir, Fata, Pata

By Asim MC09132 (4 evening)

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Company Law

University of the Punjab

Gujranwala Campus

Jurisdiction of High court:

All the matter regarding the companies case shall be instituted before the high court in that province in which company is establish. High court is bound to decide the case within the 90 days regarding the company case but judge has discretion to delay the case not more than 14 days for one cause and not more than 30 days for all cause. It must be in writing Appeal: Removal of cause from inferior court to superior court for checking the soundness of the decision. Appeal regarding the company matter shall lie in Supreme Court. Note: the federal government may invest (grant) the power in any civil court of district to hear the company case.

Hierarchy of Court in Pakistan

Supreme Court Supreme C

High Court

District Court

District court judges are called Civil Jude and Civil judges normally hear the family matters/civil case.

Season Court

Season court judges are called Magistrate and they normally hear the criminal case

By Asim MC09132 (4 evening)

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Company Law

University of the Punjab

Gujranwala Campus

Formation of Company
There are 4 steps of formation of Company 1. 2. 3. 4. Promotion stage Registration and Incorporation stage Subscription stage Commencement stage

Promotion stage: In the promotion stage promoter first float the idea which business is started and than makes detailed investigation. In the detailed investigation Promoter thinks Whether private or Public company establish, where it be situated, what will be the capital, what will be the size of the business, how capital realized, how profit will be distributed, what type of risk element involve in business, from where the labor and material will be collected. Registration and incorporation stage: In the incorporation stage the promoter prepare and file documents, pay fees and stamp duties to companies registrar office of that province in which company desired to establish. Filed Documents before the Incorporation: 1. Memorandum Of Association 2. Article of Association 3. Endorsement on Memorandum If the private company not submits the article of association than table A will be considered his article of association 4. Statutory declaration The persons who subscribe the memorandum have purchase the shares and minimum subscription shares are issued and directors have give the consent to become director and all the requirements have been met. 5. Original copies of Receipted Challans: In respect of the payment of duty on share capital and prescribed filling fee.

Note: Subscribed Memorandum: when the members signed the memorandum than it becomes the subscribed memorandum

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Company Law

University of the Punjab

Gujranwala Campus

Documents after Incorporation: 1. Consent to become directors: list of persons who want to become directors within the 7 days of the issue of certificate of incorporation 2. Notice of situation of companys registered office within the 28days after the date of incorporation 3. Prospectus on or before the date of its publication Documents by private company: 1. 2. 3. 4. Memorandum of association Article of association Statutory declaration Notice of registered office(after incorporation)

Certificate of incorporation: When the company is registered than the registrar of the company issue a legal document which bears the date of issue, name of the company incorporated, province in which its office is establish and seal of registrar Who issue registrar of companies 1. Registrar of the companies of the province in which registered office of the company is stated by the memorandum of association to be situated. 2. Of the part of Pakistan not forming a part of a province where the registered office is to be situate When can be issued 1. On the registration of the company 2. On the change in the company 3. When any person makes a request under section 466(6) on the payment of prescribed fees.

Effects of Incorporation
1. 2. 3. 4. 5. Becomes artificial person Perpetual succession Separate ownership Common seal Can exercise all the functions of incorporated company

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Company Law
Subscription stage:

University of the Punjab

Gujranwala Campus

In the subscription company circulate and advertise the prospectus for raising the money from general public. Commencement of business: Law makes different treatment for the public and private company Commencement of business for the private company: The private company starts the business after obtaining the certificate of incorporation. Commencement of business for the public company: The public company cannot start the business after incorporation. It has to obtain the certificate of commencement for starting the business. For obtaining the certificate of commencement of business the following formalities are to be filed 1. 2. 3. 4. Shares payable in cash have been allotted to the amount of minimum subscription Every director has purchase the shares according to their given consent in memorandum In case of over subscription the company has to refund the money to the applicants A statutory declaration signed by chief executive or one of the directors and secretary that all above requirements have been full filled.

Promoter
1. A person who originates a scheme for the formation of a company, has the memorandum and article of association prepared, executed and registered, and finds the first director, settle the terms of preliminary contracts and prospectus (if any), and make arrangements for advertising and circulating the prospectus and placing the capital is a promoter. 2. A promoter is one who undertakes to form a company with reference to a given project and set it to going and who takes the necessary steps to accomplish that purpose.

3. A promoter is one who undertakes to form a company with reference to a given object and set it to going and who takes necessary steps to accomplish that purpose 4. The promoter term involves the idea of exertion for the purpose of setting up and starting a company or what is called floating it.

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Company Law

University of the Punjab

Gujranwala Campus

Functions of promoter
1. Float the idea of forming the company 2. Make detailed investigation whether it is profitable or not 3. Defines the capital amount and dividend into shares and also defines the rights attached to shares 4. Make arrangement for forming the company 5. Pay preliminary expense 6. Drafted the memorandum and article of association and registered 7. Find the first director of the company 8. Find the person who are willing to become member and signed the memorandum 9. Issue the prospectus and circulate it to public 10. Make underwriting contracts for procuring the capital 11. Arranges the factory, staff, machinery so that company can run 12. Obtains loans if capital is not available for the incorporation of company 13. Take steps for compliance with the undertaking which are given in the memorandum for taking the certificate of commencement Whether promoter is agent or trustee: Promoter is not a agent or trustee of the company. Because at that time there was no company exist. He has fiduciary relationship with the company. As a fiduciary relationship promoter defines which type of company should be formed and when, whether at medium scale or large scale, and under what supervision company shall start into existence and start trading.

Duties and obligations of promoter

1. Not to make secret profits 2. Disclose all material facts regarding the formation of the company 3. Must disclose the full facts of his property which he wants to sell or already sold to company to: Independent board of directors of company In the prospectus In the article of association 4. Promoter must not make unauthorized use of his position 5. Promoter must act honestly

Note:vicarious liability: if agent performs some actions on the behalf of principal than principal will held liable. Trust: any organization for the benefit of the Mankind

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Company Law

University of the Punjab

Gujranwala Campus

Liabilities of Promoter
Liability to disclose: The promoter is liable to disclose full material facts regarding the formation of the company. The promoter should disclose to independent board of director, in the prospectus, in the article of association. If he fails to disclose than he will be liable for any damages arising from the non disclosure of information. Liability for the secret profit: A promoter is liable for any secret profit made during the formation of company. Remember the promoter is liable for any secret profit when the company is formed. If the company is not formed than promoter is not held liable.

Remuneration of Promoter
A promoter cannot claim the remuneration as a matter of right. Legally promoter cannot claim the remuneration and expense incurred on the formation of the company. It is cleared in following calintons claims A syndicate promoted a company, and incurred expenses on fees, stamp duty, etc. There was no contract for the recovering of expenses and remuneration. Later the company failed and went into liquidation. Promoter claimed their expenses from the liquidator. Court rejected the claim. The promoter can claim only from the board of directors for the remuneration before the liquidation of the company. Some ways of remuneration of the promoter follows 1. 2. 3. 4. 5. 6. Lump sum amount for the services Grant some shares of the company Grant commission on shares sold by the company Grant commission on the property purchased through the promoter Stock option to buy at lower price than the market price Sell his own property at higher price than market price which gives the profit

Note: certificate of incorporation is a conclusive evidence Promoter is the term of business not the law. Syndicate: a body or person who takes decisions for the organization

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Company Law

University of the Punjab

Gujranwala Campus

Memorandum of association
Under the companies ordinance 1984 every company is required to draft the memorandum without the memorandum no company cannot be incorporated. The preparation of the memorandum is the starting point of the formation of the company. What is memorandum? A document which defines the permitted range of the enterprise

Or
It lays downs the powers and objects of the company and scope of operations beyond which its actions cannot go. Purpose of memorandum The purpose of memorandum of association is to enable shareholders, creditors and those who dealt with the company to know for what purpose the company is formed and what are its powers and objects. So that persons dealing with the company to know whether their dealings are under the objects of the company.

Clauses of memorandum
There are six clauses of Memorandum of association 1. 2. 3. 4. 5. 6. Name clause Object clause Situation/registered office clause Liability clause Capital clause Association and subscription clause

Company limited by shares have above 6 clauses. The company limited by guarantee having no share capital will not have capital clause. Unlimited company having no capital clause will also not have capital clause.

Note: Doctorine of constructive notice: when the company is incorporated and its memorandum and article registered before the registrar office than it becomes the public memorandum and article

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Company Law
Name clause:

University of the Punjab

Gujranwala Campus

1. Name should be inappropriate to deceive someone 2. Name should be without sound and spell deception 3. (Pvt) Ltd should be added in case of private company and Ltd should be added in case of public company and (Gua)Ltd should be added at the end of name of guarantee limited companies 4. The name of ordinance such as Sadar cannot use as the name of company such as Sadar asif ali zardari, King Abdullah 5. Liquor names cannot taken such as wine name cannot taken Registered office clause: This clause tells the name of province and complete address in which registered office will situate. After obtaining the certificate of incorporation it is essential for the company to establish office within 28 days Object clause: This clause defines the permitted range of the company. This clause defines what company is going to manufactured, which plant and machinery it will used. Remember object must be lawful. Every company has its own law. Object of the company should be in accordance with the law of that country in which it operates. So Object Must be lawful Should not against the public Should not against the general law Should not against the companies ordinance 1984

Liability clause: This clause tell the liability of members whether it is limited by by shares or limited by guarantee or unlimited liability. Capital clause: In this clause company defines the authorized capital and also defines no of shares and rights attached to these shares whether these are ordinary shares, cumulative shares or preference shares. Association and subscription clause: This clause tells about such persons who subscribe the memorandum whether they are willing to become the members of the company and also declares that they will purchase the specified amount of shares. In the subscription clause public company gives declaration that it will issue the prospectus.
Note: if person has objection regarding the memorandum. It can file sue within the 3 years from the registration of memorandum date.

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Company Law

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Requirement of memorandum
1. 2. 3. 4. 5. Must be printed Must be in paragraph Numbers should be allotted to each paragraph It should be signed by required subscribers 3 in case of public and 1 in case of private company. Subscribers must signed the memorandum in the presence of at least one witness and witness must attested the signature 6. Every subscriber should write his address, description and occupation 7. Witness should also write his address, description and occupation 8. It must be stamped according to stamp act.

Alteration of memorandum
Steps to change the memorandum 1. Preliminary discussion among the directors and company advisors to determine the nature of change and also select the best course to adopt the change 2. If the company is quoted on the stock exchange than it should aware about the requirements of the stock exchange and should comply it. The company should close his dealings in the stock exchange on that day in which the change is to be done 3. The company should make prior concentration with debenture holders, shareholders and creditors for changing the object in the memorandum 4. Printing the notice of general meeting 5. Routine of convening and holding and make some necessary arrangements for the general meeting and filing the copies to registrar. 6. Any matter be settle with the registrar for change, whether a name will meet his approval 7. Decide whether new share certificate are issued or old ones are altered by placing stamp on them 8. Printing of the special resolution required to be annexed to the memorandum and to be registered with the registrar. Remember alteration is not easy. You have to satisfied all the shareholders, creditors and debenture holders and other officials.

Corporate governing body

There are two corporate governing body Company registrar Securities and Exchange Commission of Pakistan

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Company Law

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Alteration in name clause(only approval of registrar is required)

Company can change the name during its existence by passing special resolution and registered it only with the company registrar.

Alteration in registered office clause

1. If the company wants to shift his registered office from one province to other province than it has to pass the special resolution and take the approval first from the SECP and second from the company registrar. 2. If the company wants to shift the office from one city to other city but within the same province than it is required to pass the special resolution and take permission from the registrar 3. If the company wants to shift the office from Islamabad to Lahore or from Lahore to Islamabad than it has to pass the special resolution and requires to take permission from the registrar.

Alteration in Object Clause (by passing special resolution and registered it with the registrar)
Why we need to alter object 1. 2. 3. 4. 5. 6. To run business more efficiently To improve purpose For enlarging the operations in local area To restrict any object Combine the business with the new one Amalgamate to rum more effectively

Alteration in Capital clause (by special resolution first approval from court and than registered with registrar)
Private company can decrease the capital but public company cannot decrease the capital. However both can increase the capital The liability and Association and subscription clause cannot be change

Note: in special resolution majority is required for alteration. But in ordinary resolution 51% majority is required to do so.

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Company Law

University of the Punjab

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Article of association
After filling the memorandum the next step is to draft the article of association. Because every company is legally bound to draft the article of association so that it can obtain the certificate of incorporation. However if the private company not submit the article of association than table a will considered his article of association. Article of association is the subordinate document to the memorandum. If the public company does not submit the article of association than it must give declaration that table a is our article of association. In the article of association there are contents rather than clauses. Definition: Article of association are rules or bylaws for internal management of the company.

Article of association
1. 2. 3. 4. 5. 6. 7. Defines the remuneration of all syndicate Rights and duties of directors and others By laws for internal management Which punishment will enforce if you not perform the duty Defines the mode of winding up of the company When meeting will held How shares will transfer

Contents of article of association

General provisions: 1. 2. 3. 4. 5. 6. 7. 8. 9. Definition of important terms and phrases Whether to adopt the table a as article of association or make itself article of association How shares will be issued How directors appointed and remove How it sent the notice for general meeting What will be the procedure of conducting the meeting Procedure of winding up the company The borrowing powers of the company What will be the voting power of the members

Company limited by shares: 1. 2. 3. 4. Whether table a adopted or not Procedure of issuing the shares and transmission Procedure of increasing the capital How underwriting contracts makes and commission paid

Note: quorum: minimum requirement of members to conduct the meeting

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Company Law

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5. Procedure of appointing managers and directors as well as their powers, duties and remuneration 6. What will be the quoram of meeting 7. How dividend will paid Guarantee company: 1. If the company has share capital than it should state the share capital 2. If the company have no share capital than it should state the no of members Unlimited company: 1. If the company has share capital than it should state the share capital 2. If the company has no share capital than it should state the no of members

Requirement of article
1. 2. 3. 4. Should be printed Must be in paragraph Paragraph should be numbered Should be signed by required no of persons 3 in case of public, 1 in case of private in the presence of at least one witness 5. The subscribers must write his occupation, description, father name, nationality of origin, in case of a married women or widow her husbands name in full 6. The witness should attest the signature and should write his occupation, description, father name, nationality of origin, in case of a married women or widow her husbands name in full

Effect of article of association

1. 2. 3. 4. Every person is required to oblige the article in his true spirit Members in member capacity Company in company capacity Company will not grant the right which is beyond the article and association

Alteration of article of association

The alteration of article of association is a very simple process. Just pass the special resolution and inform to registrar. If the company is listed than it should also have to inform to stock exchange and meet all the requirements of stock exchange.
Note: transfer: when the person purchase the shares and registered on his name than it is called transfer Transmission: when the person acquire the right through inheritance or gift or will than it is called transmission

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Company Law

University of the Punjab

Gujranwala Campus

Restrictions on the alteration of article of association

Statutory restrictions: 1. 2. 3. 4. Should pass the special resolution Alteration should not conflict with the memorandum Not conflict with the company ordinance Not violate the contract of company

Restrictions by judicial decisions: 1. The court in their judgments have imposed the following restrictions on companies power to alter its article 2. If the court passed order to amend any content of article which is inconsistent with the law than company should amend the article 3. Alteration cannot be done to defraud the minority of share holders 4. Alteration cannot be done which results in the breach of contract with the third person 5. Alteration cannot be done to provide the benefit to someone 6. If there is clerical mistake than it should rectified through court order 7. The court has no jurisdiction to rectify a mistake in the registered article

Steps for alteration of article

1. Preliminary discussion among the directors and company advisors to determine the nature of change and also the best course to adopt the change 2. Satisfied the creditors, shareholders and debenture holders 3. If the company is quoted on the stock exchange than it should aware about the requirements of the stock exchange and comply it 4. After the stock exchange approval company should call the directors meeting to formally approve the change and fix the date of general meeting 5. Printing the notice of meeting 6. Routine of convening and holding and make some necessary arrangements for general meeting and filing the special resolution to registrar within the 15 days of general meeting 7. Company should send the copy of special resolution and amended article to stock exchange 8. Company should amend all unissued article

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Company Law

University of the Punjab

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Difference between memorandum and article

Point of Difference 1.Definiton Memorandum of Association Permitted range of enterprise Article of Association By laws/ rules for internal management It deals with the inside It is subsidiary document

2.Deals 3. Document

It deals with outsides It is fundamental document

4.Alteration

It is difficult to alter

Is simple and easy process to change but in article we can make change first and than can rectify by passing the special resolution It is not compulsory to register

5.Rectification

In memorandum we first pass the special Resolution and than make change It is compulsory to register

6.Register

Prospectus:
After obtaining the certificate of incorporation the next step is to issue the prospectus so that company can raise the capital from the general public. The public company is required under the law to issue the prospectus however the private company cannot issue the prospectus because the private company raised capital through his private sources Definition: Is a document which induce the general public for investment purpose

Objectives of Prospectus:
1. To inform the public that company has established 2. To inform the public that company provides the best opportunity for investment and company has honest directors 3. To declare the directors will be held liable for the contents provided in the prospectus. 4. To present the true and certified record so that people trust on the organization

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Company Law

University of the Punjab

Gujranwala Campus

Legal rules for issue of prospectus

1. Time of issue of prospectus: No prospectus shall be issued or published in news paper less than 7 days or more than 30 days before the opening of subscription. 2. Date of prospectus Prospectus must bear the date of its publication 3. Consent of expert The consent of directors, chartered accountant, Engineers and chief executive that company have sound financial system and good persons must be obtain 4. Registration of prospectus Prospectus should be registered before issue 5. Terms of contract not to be varied The terms of contract must not be varied when the prospectus registered 6. Application form for shares or debenture No application form for the shares or debentures will be issued when the same application form accompanied by the prospectus

Guidelines for framing the prospectus

1. 2. 3. 4. Induce the public that we are offering best opportunity Disclose the material facts honestly and accurately No fact should be omitted which later on effect the shareholders Any misstatement should not be given

Classes of prospectus
1. Prospectus issued generally When the company first issue the prospectus to induce the public for investment than it is prospectus issued generally 2. Prospectus issued generally, but exempt from the certain requirements

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Company Law
3. Prospectus not issued generally

University of the Punjab

Gujranwala Campus

This type of prospectus is issued to existing members or debenture holders whether they are going to give the incentive or withdrawal the incentive they are giving already

Contents of prospectus
The prospectus is a important document. Public takes decision based in the prospectus whether to invest in the company or not. So the company should provide the certain information in prospectus to enable the prospective investor whether to invest or not. The following information should be presented in the prospectus 1. 2. 3. 4. 5. 6. Who are directors and what benefit they are giving Profit made by promoter Capital required by the company in cash Past financial records of the company Preliminary contracts, commission and preliminary expenses Voting and dividend rights of each class of shares

Statement in lieu of prospectus:

For the public company it is essential that it should issued the prospectus. But when the promoters considered that they can arrange the capital from the private source than it should issued the statement in lieu of prospectus

Pramatha Narth sangal v kali k dutt case

When the company gives advertisement in the news paper that some shares are available for sale which may be obtained through the application. This advertisement also a prospectus because it induce the public to invest Remember. It is not essential for the public company to inform the whole public about the prospectus. It can give the advertisement in the local news paper.

Note: company limited by guarantee no need to register the article

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By Asim MC09132 (4 evening)

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