Ghulam Murtaza Korai CED

Sole Proprietorship

Partnership

Company/ Joint Stock Company/ Incorporated

 Definition of 'Sole Proprietorship' The sole proprietor is an unincorporated business with one

owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners. Many sole proprietors do business under their own names because creating a separate business or trade name isn't necessary. Sole proprietorship is also known as "proprietorship".

 There is no separate legal entity created by a sole

proprietorship, unlike corporations and limited partnerships. Consequently, the sole proprietor is not safe from liabilities incurred by the entity. The debts of the sole proprietorship are also the debts of the owner. However, all profits flow directly to the owner of a sole proprietorship.
The benefit of the sole proprietorship is the tax advantage. The disadvantage of a sole proprietorship is obtaining capital funding, specifically through established channels, such as equity (selling shares) and obtaining bank loans or lines of credit. As a business grows it often transitions to a limited liability company (LLC)

 '"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.
Persons who have entered into partnership with one another are called individually "partners" and collectively "a firm", and the name under which their business is carried on is called the "firm name".

 Agreement Association of persons

Business
Profit Sharing Mutual agency

 Partnership at will:

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". Particular Partnership: A person may become a partner with another person in particular adventures or undertakings.

 Particular partnership duration of.- Partnership

Deed clearly stating formation of Partnership, to run agency acquired by plaintiff at a particular station from a particular company. Partnership, held formed for a single venture and could continue only as long as agency lasted. Partners if wishing to carry on partnership on expiry of agency for running some other business, could do so only by a fresh agreement.

 Disadvantages of Unregistered Partnership Firm: Partners can not sue each other The firm can not sue third party

Third Party can sue partnership firm

The firm can sue the third party for the recovery of Rs.

100

 Need of Joint Stock Company

The Limitations of sole-proprietorship and partnership forms of

business organizations gave birth to joint stock company. The Industrial Revolution coupled with the revolution in the fields of Transport and Communication brought about radical changes in the field of production and communication brought about radical changes in the field of production and distribution, thereby necessitating large capital investments, better managerial skills and further, increased risks. Sole proprietorship and partnership having the disadvantages of limited resources, unlimited liability, limited managerial skills, etc were not suitable for large scale business.

 It denotes joint stock enterprise in which the capital is contributed by a large

number of people. In popular parlance, company denotes an association of like minded people formed for the purpose of carrying of same business.
Definition By a company is meant an association of many persons who

contribute money or moneys worth to the common stock and employ it for a common purpose. The common stock so contributed is denoted in money and is capital of the company. The persons who contribute it or to whom it belongs are members. The proportion of each member is entitled is his share. Shares are always transferable, although the right to transfer them is often restricted. Lord Justice Lindley

 Association of Persons:

A company is an association of persons and comes into existence only after its registration under the companys ordinance 1984.

Separate Legal Entity: Artificial Person:

A company can be said to be an artificial person as it is created by law and law only can dissolve it.

Common Seal: Perpetual Succession: Members may come and members may go but

the company goes on forever. Separation of Ownership and Management: Limited Liability: Transferability of Shares: Separate Property Power to Sue and to be Sued:

 The main points of difference between a partnership and a company PARTNERSHIP COMPANY 1. A partnership is not a distinct legal person, but is made of the

persons composing it. 1. A company is a distinct legal person. 2. Creation of Partnership is purely a matter of agreement between the parties such an agreement need not even be in writing. 2. Creation of Company involves elaborate legal formalities. 3. In a firm partner can not transfer his interest with the consent of the other partners. 3. Shares in a Company (especially, in a public Company) are generally freely transferable.

 4. Each partner is prima facie the agent of others, and can bind them

by his contract made in the course of business of the partnership. 4. Shareholders in a Company are not the agents of one another. 5. Each partner is liable in full for the debts of the firm. 5. The liability of Companys shareholders is limited by shams or by guarantee. 6. A partner can not contract with his firm. 6. A share holder in a company can contract with the company. 7. Partners may make any private arrangements among themselves. For instance a partner may buy his partners share. 7. Arrangements in regard to Companies are regulated by law and statute for instance a company cannot buy its member's shares, but a partner can.

 8. The Maximum number of partners can be twenty. But in banking

business it is ten. 8. There is no maximum number of share holders laid down by the law in a public company though the minimum is seven. In a private Company, the minimum is two, and the maximum is fifty. 9. The death or retirement of a partner dissolves a firm. 9. Death or retirement of a share holder does not dissolve the company. 10. Property may be the common property of partners. 10. Property belongs to the company and not to its members. 11. Restrictions contained in a partnership deed will not affect third parties, who are not aware of such restrictions. 11. On the other hand restrictions in the Articles of a Company affect third parties also. 12. A firm cannot sue and be sued in its own name. 12. A company can sue and be sued in its own name.

 13. Decree against a firm can be executed against the partners. 13. A Decree against a company cannot be executed against its

shareholders. 14. Registration is optional. 14. Registration is compulsory. 15. A firm having no separate legal existence, cannot be shareholder of company. 15. A company on the other hand can be a shareholder of another company.

 For the convenience of general public, promoters and

directors of companies, SECP has established its eight CROs at Islamabad, Karachi, Lahore, Peshawar, Faisalabad, Multan, Sukkur and Quetta. Online facilities for incorporation of companies and filing of returns have been made available. Besides registration of companies and monitoring of their working according to law, functions of CROs include providing services and guidance and also to ensure that the companies and their directors comply with the statutory requirements as provided under the Companies Ordinance, 1984 (the Ordinance).

 The record of companies maintained by the CROs is

public record and the investors, shareholders, creditors and general public, may inspect the record of any company whenever they need and they may also obtain certified copy of any specific document on payment of nominal amount of fee.

 Following are the requirements for registration of a

new company under the Companies Ordinance, 1984: (a)The first step with regard to incorporation of a company is to seek the availability of the proposed name for the company from the registrar. For this purpose, an application is to be made and Rs.200/- for online application and Rs. 500/- for offline application is required to be paid for seeking availability certificate for each name.

 b. Documents for registration of a limited company I. Copy of national identity card or passport, in case of

foreigner, of each subscriber and witness to the memorandum and article of association. II. Memorandum and articles of association Four printed copes of Memorandum and Articles of Association in case of offline submission and one copy for online submission, duly signed by each subscriber in the presence of one witness. In order to facilitate the general public, the standardized specimen of Memorandum of Association of various sectors has been provided on the Commissions Website.

 III. Form 1 Declaration of compliance with the pre

requisites for the formation of a company IV. Form 21 Notice of situation of registered office of the company V. Form 29 Particulars of first directors of the company VI. Registration/filing fee Original paid Challan evidencing the payment of fee as prescribed in Table II, in any of the authorized branches of MCB Bank Limited. VII. Authorization by sponsors The authorization of sponsors in favor of a person to make good the deficiencies, if any, in the memorandum and articles of association and other documents as may be pointed out by the registrar concerned and to collect the certificate of incorporation.

 c. Additional Requirements for the Incorporation

of a public Company In addition to the requirements for incorporation of a private limited company as stated above, the public companies are required to file the following documents at the time of incorporation: i. Form 27 (List of persons consenting to act as director ii. Form 28 (Consent of Directors)

 d. Additional Requirements for incorporation of a

Single Member Company Any person may form a single member company and would file with the registrar at the time of incorporation a nomination in the form as set out in Form S1 indicating at least two individuals to act as nominee director and alternate nominee director, of the company in the event of his death.

 a. Private companies

i. Directors of every company are required to appoint

the first chief executive not later than fifteen days from the date of incorporation and thereafter within fourteen days from the date of election. ii. The first auditor is required to be appointed by the directors within sixty days from the date of incorporation and thereafter in each AGM of the company.

 iii. A single member company is also required to appoint a

company secretary within fifteen days of incorporation or of becoming a single member company or of the office of company secretary falling vacant and notify such appointment on Form 29 within fourteen days of the date of such appointment. iv. First directors i.e. the directors appointed at the time of incorporation of the company shall hold office till the election of directors in the first annual general meeting. The directors so elected shall hold office for a period of three years. However, casual vacancy occurring on account of death, resignation or removal of any director may be filled up by the other directors for the remainder period of the term.

 v. Any appointment, election or change in the

Directors, Chief Executive, Auditors, Chief Accountant, legal adviser etc is required to be notified to the registrar concerned on Form '29 within 14 days of the said election, appointment or change (Section 205). vi. A company is required to notify the change in its registered office on Form-21 within 28 days from the date of change. (Section 142)

 vii. First Annual General Meeting (AGM) of the

company is required to be held within eighteen months from the date of incorporation and subsequent Annual General Meetings are required to be held once at least in every calendar year, within a period of four months following the close of its financial year and not more than fifteen months after holding of its last preceding AGM (Section 158).

 The company may alter its memorandum of association. Procedure

of

Amendment

in

Memorandum

of

Association. NAME CLAUSE: A company may change its name in the manner: a) pass a special resolution; b) get written approval of the Registrar of Joint Stock Companies; c)an altered certificate of incorporation is to be issued by the Registrar (Sec 40). The Certificate is called Certificate of Incorporation on change of name and d) the write the old name on all documents.

 THE CAPITAL CLAUSE: The company can increase,

decrease or sub-divide its share capital its share capital by passing an ordinary resolution. The company shall file the registrar notice of such alteration within 15 days. Registered Office Clause: a) pass a special resolution; b) obtain permission within 60 days of resolution from SECP by filing a petition; and c) give the certified copies of the Order of the Commission to the Registrar of the old and new provinces within 90 days of confirmation of the Commission.

 THE OBJECT CLAUSE:

a) pass a special resolution; b) obtain confirmation within 60 days from the SECP by filing a petition; and c) file the certified copy of the Commission with the Registrar within 90 days. ALTERATIN IN ARTICLES OF ASSOCIATION. As the articles are subordinate to the memorandum of association and the Companies Ordinance, 1984 thus any alteration can be made if the same is allowed by the Memorandum and The Ordinance.

 No public company shall except with the prior

approval of commission in writing and subject to such conditions as may be imposed by the commission in this regard, convert itself into a private limited company. A private company can be converted into public company by the following procedure:

 the Articles of Association shall be altered so that all

the clauses applicable to private company under section 2(1)(28) will no longer be included; and Sec 2(1)(28) restricts the rights to transfer the shares, if any; b) limits the maximum number of its members to 50; and prohibits any invitation to the public to subscribe for the share or debentures of the company. Prospectus or a statement in lieu of prospectus, as the case may be, shall be filed with the registrar within 14 days after the date of conversion; Further , a private company on conversion into public company would be require to increase the number of its members and directors.

 This increase, in case of unlisted company to listed

company would be 3 to 7. A public company may also be converted into private company with the prior approval of the Commission in writing. In this case also the company shall have to alter its articles to incorporate all the conditions of Section 2(1)(28). Further the word (private) would start appearing in its name. It will also have to obtain a new certificate of incorporation.