Lecture – 2

Modaraba 2 (23)

Modaraba and modaraba company have the same meaning as in the modaraba companies
and modaraba (Floatation and Control) Ordinance, 1980 (XXXI of 1980).

Modaraba means a business in which a person participates with his money and another
with his efforts or skill or both his efforts and skills. And shall include Unit Trust and
Mutual Funds by whatever name called. [Section 2(1)(a) of Modaraba Companies and
Modaraba (Floatation and Control) Ordinance, 1980.]

Officer: 2 (24)

Includes any director, chief executive, managing agent, secretary or other executive of
the company, howsoever designated, but save in section 205, 220 to 224, 260, 261, 268,
351, 352, 412, 417, 418, 474 and 482, does not include and auditor

Private Company: 2 (28)

Means a company which, by its articles:

(i) restricts the right to transfer its shares, if any

(ii) limits the number of its members to fifty not including persons who are in the
employment of the company
(iii) prohibits any invitation to the public to subscribe for the shares, if any, or
debentures of the company.

Advantages of a private company:

1. A private company is not required to raise minimum subscription and can

commence business just after incorporation.
2. A private company is not required to convene Statutory Meeting and approve the
Statutory Report.
3. Auditor of a private company is not necessarily a qualified Chartered Accountant.
4. Least restrictions are imposed on borrowing by directors from a private company.
5. No restrictions are imposed for inter-corporate investment.
6. No restriction is imposed on carrying on competitive business by chief executive
of a private company.

Disadvantages of a private company:

Effective embargo on access to the capital markets for getting the subscription from
public, restriction on transfer of shares and restricted number of members are the
disadvantages of a private company.

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 Lecture – 2

Private Company being subsidiary of Public Company:

A private company, which is subsidiary of a public company, is treated like a public

company.

Prospectus: 2 (29)

Means any document described or issued as prospectus, and includes any notice, circular,
advertisement, or other communication, inviting offers from the public for the
subscription or purchase of any shares in, or debentures of, a body corporate, or inviting
deposits from the public, other than deposits invited by a banking company or a financial
institution approved by the Federal Government, whether described as prospectus or
otherwise.

Public Company: 2 (30)

Means a company which is not a private company.

Redeemable Capital: 2 (30A)

Includes finance obtained on the basis of participation terms certificate (PTC), musharika
certificate, terms finance certificate (TFC), or any other security or obligation not based
on interest, other than an ordinary share of a company, representing an instrument or a
certificate of specified denomination, called the face value or nominal value, evidencing
investment of the holder in the capital of the company on terms and conditions of the
agreement for the issue of such instrument or certificate or such other certificate or
instrument as the Federal Government may, by notification in the official Gazette, specify
for the purpose.

Registrar: 2 (30B)

Means a registrar, an additional registrar, a joint registrar, a deputy registrar or an

assistant registrar, performing under this Ordinance the duty of registration of companies.

Secretary: 2 (33)

Means any individual appointed to perform the secretarial, administrative or other duties
ordinarily performed by the secretary of a company.

Special Resolution 2 (36)

Means a resolution which has been passed by a majority of not less than three-fourths of
such members entitled to vote as are present in person or by proxy at a general meeting of
which not less than twenty-one days notice specifying the intention to propose the
resolution as a special resolution has been duly given.

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 Lecture – 2

Provided that, if all the members entitled to attend and vote at any such meeting so
agree, a resolution may be proposed and passed as a special resolution at a meeting of
which less then twenty-one days notice has been given;

Security: 2 (34)

Means any share, script, debenture, participation term certificate, modaraba certificate,
musharika certificate, term finance certificate bond, pre-organization certificate or such
other instrument as the Federal Government may, by notification in the official Gazette,
specify for the purpose.

Share: 2 (35)

Means share in the share capital of a company.

Stock Exchange: 2 (37)

Means a stock exchange registered under the securities and exchange Ordinance, 1969
(XVII of 1969).

Stocks Exchange means any person who maintains or provides a market place or
facilities for bringing together, buyers and sellers of securities or for otherwise
performing with respect to securities the functions commonly performed by a stock
exchange, as that term is generally understood, and includes such market place and
facilities. [Section 2(m) of Securities and Exchange Ordinance, 1969] A stock exchange
is registered under the Securities and Exchange Ordinance, 1969.

Incorporation of Companies:

Procedure for Incorporation of Company

- Procedure for incorporation of company is mentioned as under:-

1. Firstly availability of name is ascertained from Registrar of
companies as required under section 37 of Companies Ordinance, 1984. (The
procedure for obtaining the availability of name letter is provided under Section
37).
2. Preparation and filing of documents:
a. Documents especially Memorandum and Articles of
Association are prepared. (The Memorandum of Association has been
provided under Sections 16-19 and Articles of Association under Section 26.
b. Following documents are filed:
i. Memorandum and Articles of Association
duly signed by the subscribers and witnessed.

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 Lecture – 2

- One copy of Memorandum and Articles of Association is affixed

with adhesive stamps which are called original one. (The adhesive
stamps are affixed by the district treasury officer as per the prescribed
stamp duty by the concerned provincial government).
- Three extra copies are also provided.
ii. Form 1 regarding declaration of compliance with the requirements of
the Companies Ordinance, 1984 (Section 30).
iii. Form 21 regarding situation of Registered Office. (May be filed
within 28 days.
iv. Form 29 regarding Particulars of Directors in duplicate, (filing
period 14 days – Section 205).
v. Form 27 containing list of directors consenting to act as directors –
for public company. (Section 184).
vi. Form 28 containing consents of directors for public company.
(Section 184).
vii. Letters of intent/ no objection certificates/ licence etc. if applicable.
(see special requirements provided hereinafter).
viii. Power of Attorney/ Letter of authority on non-judicial stamped paper
signed by the subscribers authorizing a representative to make
amendments and/or alternation in the Memorandum and Articles of
Association and other documents. The power of attorney is also attested
by notary public.
ix. Copy of availability of name issued by the registrar.
x. Copies of National Identity Cards/ Passports etc. of the subscribers.
xi. Bank challan (deposited in relevant branch of HBL) regarding
Registration and Fling Fee. Chart of Registration Fee is given hereinafter
and filing fee @ Rs. 200/- per documents is also deposited. (in case of
private company, the filing fee is Rs. 800 and for public company it is Rs.
1200.

Memorandum of Association

Any three or more persons associated for any lawful purpose may, by subscribing their
names to a memorandum of association and complying with the requirements of this
Ordinance in respect of registration, form a public company and any one, or more persons
so associated may, in like manner, from a private company.

- a company limited by shares

- a company limited by guarantee
- an unlimited company

Memorandum of company limited by shares:

In the case of a company limited by shares:

(a) the memorandum shall state –

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 Lecture – 2

(i) the name of the company with the word “limited” as the last word of
the name in the case of public limited company, and the parenthesis
and words “(Private) Limited” as the last words of the name in the
case of a private limited company;
(ii) the Province or the part of Pakistan not forming part of a Province, as
the case may be, in which the registered office of the company is to be
situate;
(iii) the objects of the company, and, except in the case of a trading
corporation, the territories to which they extend;
(iv) that the liability of the members is limited; and
(v) the amount of share capital with which the company proposes to be
registered, and the division thereof into shares of a fixed amount;

(b) no subscriber of the memorandum shall take less than one share; and
(c) each subscriber of the memorandum shall write opposite to his name the
number of shares he takes.

Clauses
1. Name clause
2. Registered Office clause
3. Object clause
4. Liabilities clause
5. Authorised capital clause

Article of Association:

There may, in the case of a company limited by share, and there shall, in the case of a
company limited by guarantee or an unlimited company, be registered with the
memorandum, articles of association signed by the subscribers to the memorandum and
setting out regulations for the company.

Contents of Articles of Association

- interpretation and definition

- business
- shares
- transfer of share
- transmission of shares
- general meetings i.e. AGM & EGM
- notice and proceedings
- votes of members
- directors
- powers and duties of directors
- common seal
- disqualification of directors
- proceedings of directors

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 Lecture – 2

- filling of vacancies
- dividends and reserve
- accounts and audit
- notices for meetings
- secrecy
- indemnity
- arbitration

Central Depository

Means a company formed to establish and operate a system for the central handling of
securities, whether or not listed on a stock exchange, whereby such securities are
deposited with or held in custody by, or registered in the name of the company as a
nominee for the depositors and dealings in respect of such securities are effected by
means of entries in securities accounts with the physical delivery of scraps, and
registered with the Commission under section 32A of Securities and Exchange
Ordinance 1969.

SINGLE MEMBER COMPANY (SMC)

A new concept of company 'Single Member Company (SMC) " has been introduced through the Companies
(Amendment) Ordinance, 2002. Now a sole proprietorship can be transformed into a company and it will
not be necessary for a person to associate with another person just to form a company. 'A single individual
or person may form a company just by subscribing to memorandum of association. The single member
shall now be able to enjoy the privilege of limited liabilities as envisaged under the provisions of the
Companies Ordinance. Moreover, the benefit of having a status of a company shall also be availed by such
a single member. For the purpose of having a second person in a meeting and have sound documentation,
an SMC shall be under obligation to appoint a company secretary. The SMC shall have all the rights and
privileges as well as obligations and liabilities as other private company has. The transformation of sole
proprietorship into SMC will, of course, help in documentation of economy.

DIFFERENCES BETWEEN A PUBLIC COMPANY AND A PRIVATE COMPANY

Public Company Private Company

1. A public company can 1. .A private company
invite subscription from the public. cannot invite subscription from the public.
2. A public company 2. Transfer of shares is
does not have restriction on transfer of restricted in a private company.
shares.
3. A public company 3. A private company
should have at least seven members. should have at least two members.
4. There is no restriction 4. Maximum members
on upper limit of the members. cannot exceed 50 members. However, the
employee members are not counted for the
purpose of deciding upper limit and joint
shareholders are counted as one.
5. A public company has 5. A private company is not
to seek certificate for commencement of business. required to obtain certificate for
commencement of business and it can
commence business just after its incorporation

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 Lecture – 2

Public Company Private Company

6. A public company has 6. There is no
to raise minimum subscription before obtaining requirement to raise minimum subscription
certificate for commencement of business. by a private company.
7. A public company is 7. There is no requirement
required to file prospectus or statement in of filing of prospectus or statement in lieu of
lieu of prospectus for obtaining certificate far prospectus by a private company except, when
commencement of business. a private company converts into a public
company.
8. A public company is 8. Filing of accounts is not
required to file its accounts with the registrar. required by a private company.
9. Auditor's qualification 9. No qualification is
is prescribed as chartered accountant. prescribed for an auditor of a private
company except when it has paid up capital
exceeding Rs. 3 million.
10. Investment in 10. No restriction is imposed
associate companies and undertakings is for investment in associate companies and
restricted. undertakings.
11. Chief executive of a 11. No restriction is imposed
public company cannot engage in a competitive on the business of a chief executive.
business.
12. Beneficial ownership 12. No reporting of
of listed public companies is controlled and beneficial ownership is required.
reported.
13. A public company is 13. A private company is not
required to hold a statutory meeting once in its required to hold a statutory meeting.
life.
14. A public company is 14. A private company is not
required to file statutory report required to file statutory report.
.
15. Quorum for a general 15. Quorum for a general
meeting of a public company is two members meeting of a private company is two members
present in person having not less than 25% present in person having not less than 25%
voting power of their own account or through voting power of their own account or through
proxies. However, quorum in case of listed proxies. However, quorum in case of SMC is
company, shall be ten members present in presence of the sole member personally or
person having voting power as aforesaid. through proxy.
16. Minimum number of 16. Minimum number of
members should be three in case of unlisted members should be two in case of private
public company and seven in case of listed company and one in case of a single member
company. company.
17. Minimum number of 17. Minimum number of
directors should be three in case of unlisted directors should be two in case of a private
public company and seven in case of listed company and one in case of a single member
company. company.

DIFFERENCES BETWEEN A PRIVATE COMPANY AND A SINGLE MEMBER COMPANY (SMC)

Private Company Single Member Company (SMC)

1. A private company cannot invite
subscription from the public.
2. Transfer of shares is restricted in a private
company.
1. Same.
2. Transfer of shares is restricted and shall
be at' the will of single member only. A
nomination form would be filed by the single

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 Lecture – 2

Private Company Single Member Company (SMC)

member for the purpose.

3. A private company should have at least 3. An SMC shall have only one member.
two members. However, it can be converted into two-member
private company just by inducting another
person as a member.
4. Maximum members cannot exceed 50 4. It has only one member.
members. However, the employee members are
not counted for the purpose of deciding upper
limit and joint shareholders are counted as
one.
5. A private company is not required to 5. Same.
obtain certificate for commencement of
business and it can commence business just
after its incorporation.
6. There is no requirement to raise minimum 6. Same.
subscription by a private company.
7. There is no requirement of filing of 7. Same.
prospectus or statement in lieu of prospectus by
a private company except when a private
company converts into a public company.
8. Filing of accounts is not required by a 8. Same.
private company except where private company
is subsidiary of a public company.
9. No qualification is prescribed for an 9. Same.
auditor of a private company except when it
has paid up capital exceeding Rs. 3 million.
10. No restriction is imposed for investment in 10. Same.
associate companies and undertakings.
11. No restriction is imposed on the business 11. Same.
of a chief executive.
12. No reporting of beneficial ownership is 12. Same.
required.
13. A private company is not required to hold 13. Same.
a statutory meeting.
14. A private company is not required to file 14. Same.
statutory report.
15. A private company is not obliged to 15. An SMC is obliged to appoint a qualified
appoint a company secretary. company secretary.
16. Quorum for a general meeting of a private 16. Single member can be present personally
company is two members present in person or through proxy. Second present person shall
having not less than 25% voting power of be the company secretary.
their own account or through proxies.

DIFFERENCES BETWEEN A PUBLIC LISTED COMPANY AND A PUBLIC UNLISTED

COMPANY

Public listed Company Public Unlisted Company

1. A listed public company has actually 1. An unlisted public company can
obtained subscription from the public. invite subscription from the public.
2. A listed public company does not have 2. Same.
restriction on transfer of shares.

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 Lecture – 2
Public listed Company
3. A listed public company should have at
least seven members.
4. There is no restriction on upper limit of the
members.
5. A public company has to seek certificate
for commencement of business.
6. A listed public company has to raise
minimum subscription before obtaining
certificate for commencement of business.
7. A listed public company is required to file
prospectus and declaration on form 22 for
obtaining certificate for commencement of
business.
8. A listed public company is required to file
its accounts with the Commission and the
registrar.
9. Auditor's qualification is prescribed as
chartered accountant.
10. Investment in associate companies and
undertakings is restricted.
11. Chief executive of a listed public company
cannot engage in a competitive business.
12. Beneficial ownership of listed public
companies is controlled and reported.
13. A listed public company is required to hold
a statutory meeting once in its life.
14. A public company is required to file
statutory report.
15. Quorum for a general meeting of a listed •
company is ten members present in person
having 25% voting power of their own account
or through proxies.
16. Minimum number of members should be
seven.
17. Minimum number of directors should be
seven.
18. A listed company prepares its accounts in
accordance with Fourth Schedule and lASs.
19. A listed company has to publish notices for A
GM, election of directors etc. in at least two
newspapers having circulation in the province in
which stock exchange exists on which the
company is listed.
20. Penal provisions relating to listed companies
are more stringent than unlisted public
companies.
21. Appointment of whole time qualified
company secretary is mandatory.
22. A member of a stock exchange or his
spouse cannot become director of a listed
company.
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Public Unlisted Company
3. An unlisted public company should have at
least three members.
4. Same.
5. Same.
6. Same.
7. An unlisted public company is required to
file statement in lieu of prospectus and
declaration on form 23 for obtaining
certificate for commencement of business.
8. An unlisted public company is required to
file its accounts with the registrar only.
9. Same.
10. Same.
11. Same.
12. No such restriction on unlisted public
company.
13. Same.
14. Same.
15. Quorum for a general meeting of
an unlisted public company is two members
present in person having not less than 25%
voting power of their own account or through
proxies.
16. Minimum number of members should be
three.
17. Minimum number of directors should be
three.
18. An unlisted public company prepares its
accounts in accordance with Fifth Schedule
and lASs.
19. No such requirement of publication of
notices in newspapers is relevant to the
unlisted public company.
20. Penal provisions relating to unlisted
companies are not so- coercive and stringent
as those relate to listed public companies.
21. Appointment of whole time qualified
company secretary is not mandatory.
22. There is no such restriction on unlisted
public company.
Lecture – 2

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 Lecture – 2

ALTERATION OF MEMORANDUM (Section 21)

21. Alteration of memorandum.- (1) Subject to the provisions of this Ordinance, a company
may, by special resolution, alter the provisions of its memorandum so as to change the place
of its registered office from one Province to another, or from one city or town in a Province to
another, or from a part of Pakistan not forming part of a Province to a Province or from a
Province to a part of Pakistan not forming part of a Province, or with respect to the objects of the
company, so far as may be required to enable it—
(a) to carry on its business more economically or more efficiently; or
(b) to attain its main purpose by new or improved means; or
(c) to enlarge or change the local area of its operations; or
(d) to carry on some business, not being a business specified in its memorandum, which may
conveniently or advantageously be combined with the business of the company; or
(e) to restrict or abandon any of the objects specified in the memorandum; or
(f) to sell or dispose of the whole or any part of the undertaking of the company; or
(g) to amalgamate with any other company or body of persons.

(2) The alteration shall not take effect until and except in so far as it is confirmed by the
Commission on petition:

Provided that an alteration so as to change the place of registered office of a company

from a place in the Province of the Punjab to the Islamabad Capital Territory or from the latter to
a place in the Province of the Punjab, or from one city in a Province to another, shall not require
confirmation by the Commission.

(3) Before confirming the alteration, the Commission must be satisfied—

(a) that sufficient notice has been given to every holder of debentures of the company, and to
any person or class of persons whose interest will, in the opinion of the Commission, be
affected by the alteration; and
(b) that, with respect to every creditor who in the opinion of the Commission is entitled to
object, and who signifies his objection in manner directed by the Commission, either his
consent to the alteration has been obtained or his debt or claim has been discharged or
determined, or has been secured to the satisfaction of the Commission:

Provided that the Commission may, in the case of any person or class of persons, for special
reasons, dispense with the notice required by clause (a).

Application to the Registrar concerned (power of the Commission has been delegated to the
registrar) is made in accordance with Rule 3 of Companies (General Provisions and Forms)
Rules, 1985 reproduced as under

"Rule 3. An application for confirmation of the alteration of any of the provisions of the
memorandum of the company under sub-section (2) of Section 21 shall be submitted to the
Commission by a responsible officer not later than sixty days from the date on which the special
resolution seeking such alteration was passed.

(2) The application shall contain the following information correct as on the day
immediately preceding the day of the passing of the special resolution and signed by a
responsible officer, namely:-

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(i) name and address of the company;

(ii) number and date of incorporation;
(iii) subscribed and paid up capital;
(iv) redeemable capital:
(v) business actually being carried on and the clause in the memorandum justifying
it;
(vi) statement in a comparative form showing the existing provisions of the
memorandum as is proposed to be altered and the provisions as would appear
after the proposed alterations have been made, indicating the clause of subsection
(I) of Section 21 under which each alteration is considered permissible by the
company alongwith brief reasons explaining how it considers it permissible;
(vii) reasons for the proposed alteration;
(viii) pattern of holding of its shares in Form 34;
(ix) name and address of each of its creditors, including debenture holders to whom
an amount exceeding Rs. 25,000 is due, with the amount mentioned against each
name; and
(x) interests affected.

(3) The following documents correct as on the day immediately preceding the day of
the passing of the special resolution and certified by responsible officer shall be
submitted alongwith the application, namely:-
(i) a copy of the memorandum and the articles;
(ii) a copy of the special resolution
(iii) minutes of the meeting at which the special resolution was adopted; and
(iv) particulars of dissenting shareholders or creditors together with their objections.

POWER OF COMMISSION WHEN CONFIRMING ALTERATION – (Section 22)

22. Power of Commission when confirming alteration.- The Commission may make an order
confirming the alteration either wholly or in part, and on such terms and conditions as it thinks fit,
and, make such order as to costs as it thinks proper.

EXERCISE OF DISCRETION BY COMMISSION – (Section 23)

23. Exercise of discretion by Commission.- The Commission shall in exercising its discretion
under sections 21 and 22 have regard to the rights and interests of the members of the company or
of any class of them, as well as to the right and interests of the creditors, and may, if it thinks fit,
adjourn the proceedings in order that an arrangement may be made to the satisfaction of the
Commission for the purchase of the interests of dissident members; and may give such directions
and make such orders as it may think expedient for facilitating or carrying into effect any such
arrangement:

Provided that no part of the capital of the company may be expended in any such
purchase.

PROCEDURE ON CONFIRMATION OF THE ALTERATION – (Section 24)

24. Procedure on confirmation of the alteration.- (1) A certified copy of the order confirming
the alteration, together with a printed copy of the memorandum as altered, shall, within ninety
days from the date of the order, be filed by the company with the registrar, and he shall register
the same, and shall certify the registration under his hand, and the certificate shall be conclusive
evidence that all the requirements of this Ordinance with respect to the alteration and the

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confirmation thereof have been complied with, and thenceforth the memorandum so altered shall
be the memorandum of the company.

(2) Where the alteration involves a transfer of the registered office from one Province to
another, or from the Islamabad Capital Territory to a Province or from a Province to Islamabad
Capital Territory, a certified copy of the order confirming such alteration shall be filed by the
company with the registrar in each of such provinces or the Islamabad Capital Territory, as the
case may be, and each such registrar shall register the same, and shall certify under his hand the
registration thereof, and the registrar for the Province or the Territory from which such office is
transferred shall send to the registrar for the other Province or Territory all documents relating to
the company registered or filed in his office.

(3) The Commission may by order at any time extend the time for the filing of documents
with the registrar under this section for such period as it thinks proper.

EFFECT OF FAILURE TO REGISTER WITHIN NINETY DAYS – (Section 25)

25. Effect of failure to register within ninety days.- No such alteration ' shall have any
operation until registration thereof has been duly effected in accordance with the provisions of
section 24, and if such registration is not effected within ninety days next after the date of the
order of the Commission confirming the alteration, or within such further time, as may be
allowed by the Commission, in accordance with the provisions of section 24, such alteration and
order, if any, and all proceedings connected therewith shall, at the expiration of such period of
ninety days or such further time, as the case may be, become null and void:

Provided that the Commission may, on sufficient cause shown, revive the order or
alteration, as the case may be, on application made within a further period of ninety days.

 If the company fails to file the documents within 90 days, it can seek the extension in the
time for filing the documents through an application narrating reasons accompanied with
bank challan (deposited in relevant branch of HBL) of Rs. 500.00 being application fee
and affidavit.

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