2.

SOME IMPORTANT TERMS USED IN COMPANIES ORDINANCE, 1984

2.1 ARTIFICIAL PERCON.

It means that a company possesses separator legal entity, identity and personally of its own,
part from its shareholder. It can borrow money, enter into contracts, and hold property in its
own name. It can sue and be sued by its shareholder.

2.2 AUDITORS.

Auditors are independent persons who examine the accounts of the company and report on the
same. They express their opinion on the accounts and are also supposed to detect frauds,
manipulations of account aimed at concealment of true financial position of the company.

2.3 COMMON SEAL

Every company must have a seal of its own, called “Common Seal”. Director must provide for its
safe custody. This shall be affixed to share certificated and any other instrument, only on the
authority of a resolution of directors.

2.4 COVENENT

An agreement convention, or promise of two or more parties, by deed in writing, signed, and
delivered, by which either of the parties pledges himself to the other that something is either
done, or shall be done, or shall not be done or stipulates for the truth of certain facts.

In its broadest usage, it means any agreement or contract.

2.5 FRIDUCIARY

This term is use to refer to a person having duties involving good faith, trust special confidence,
and candor towards other.

2.6 FRIDUCIARY BEHAVIOUR

It refers to the behavior in good faith, trust, special confidence, and candor towards other.

2.7 INCORPORATED ASSOCIATION

Incorporation means the recognition of the existence of a company, in the eyes of law, as a
separate legal entity.

2.8 IPSO FACTO

It means:

(a) By the fact; or

(b) By the mere fact; or
 (c) By the mere effect of an act or a fact

2.9 IRREDEEMABLE SHARE CAPITAL

Share capital is the capital collected by the subscription to the shares of the company. This
capital is non-refundable except in the case of winding up and reduction of capital.

2.10 LIMITED LIABILITY

It means that the liability of the members of the company to pay back the debts of the company
is limited up to the face value of their shares. The fact limited liability stems from the fact of
company being an artificial person. Liabilities for repayments of loans tend to be divided
between company and the shareholders.

Note:

The privilege of limited liability has been defeated to a large extent by other laws, such as
Taxation law which lays down that in the case of private companies directors and shareholders
holding not less than 10% of the company’s shares individually shall be personally liable for the
company’s unpaid tax liability. Moreover, Banks have made it a usual practice to obtain personal
guarantees from the directors of companies for the loans which they advance to the companies,
however, this practice is more common in case of private companies.

2.11 MUTATIS MITANDIS

It means that matters or things are generally the same, but be entered when necessary, as to
names, offices, and the like.

2.12 PAR VALUE/STATED VALUE

The face or state value of a share or stock or bond is called par value.

2.13 PARI PASSU CHARGE

It means a charge equal progress; ratably; and without preference.

2.14 PERPETUAL SUCCEESSION

It means that a company possesses permanent life which is not affected by death, insolvency,
insanity or withdrawal of any of its members.

2.15 PRIMA FACIE

It means:

(a) At first sight; or

(b) On the first appearance; or
(c) Presumably.
2.16 PROVISO

A condition, stipulation, limitation, or provision which is inserted in a deed, lease, mortgage, or

contract, or on the performance or non-performance of which the validity of the instrument
frequently depends; it usually beings with word “provided”.

2.17 SHARE TRANSFRABILITY.

The shares of public companies are easily transferable without any restriction whereas in case of
private companies this is subject to restrictions as may be imposed in the Articles of Association.

2.18 APESIAL PURPOSE.

A company is incorporated for the accomplishment of special purpose or purposes which are
clearly laid down in the objects clause of memorandum of association. Any act beyond those is
an ultra vires act.

2.19 SUCCESSOR IN INTEREST

One who follows another in ownership or control of property.

In order to be a “successor in interest”, a party must continue to retain the same rights as
original owner without change in ownership and there must be a change in form only and not in
substance, and transferee is not a “successor in interest”.

In case of corporation, the term ordinarily indicates statutory succession as, for instance, when
corporation changes its name but retains same property.

2.20 SUCCESSORS

Those persons, other than creditors, who are entitled to property of a decedent under his will or
succession statute.

2.21 TEAM OF MANAGEMENT.

Shareholder, being the entrepreneurs, are owners of the company and as such have the right to
manage the company, but owing to their large number, they delegate most of their managerial
powers to their elected representatives called Directors. Board of Directors appoints Chief
Executives as the nucleus.

Thus a team of management gets constituted as follows:

(a) Chairman,
(b) Chief Executive
(c) Board of Director
(d) Shareholders
(e) Secretary,
 (f) Chief Accountant,
(g) Managers, and
(h) Other Functionaries.

2.22 ULTERA VIRES

It means, “An act performed without any authority to act on the subject.”

2.23 WIHTOUT PREJUDICE

Where an offer or admission is made, “without prejudice”, or a motion is denied or a suit

dismissed “without” prejudice, it is meant as a declaration that no rights or privileges of the
party concerned are to be considered as thereby waived or lost except in so far as may be
expressly conceded or decided.

Chapter -3

TYPES OF COMPANIES

1- BY VIRTUE LEGAL FORM

By virtue of their legal form, companies can be classified In the following types:
1.1 STATUTORY COMPANY:
The companies which are formed under special statutes are termed as statutory companies.
These are governed by the Acts or Ordinance through which these are created. Example of such
type of companies are the state Bank of Pakistan, small Business Finance corporation,
investment Corporation of Pakistan, etc.
1.2 CARTERED COMPANY:
Chartered companies are formed by means of a special charter granted by the head of state, or
King or Queen of the Crown. Normally these enjoy certain exclusive rights and privileges on
other associations of persons. The East India Company and the Chartered Bank of England are
examples of such type of companies.
1.3 GOVERNMENT COMPANY:
A government company is a company of which not less than 51% (fifty-one percent) of the paid
up capital is held by the Government. A company which is a subsidiary of a Government
company automatically becomes a Government company.
1.4 REGISTERED COMPANY:
Registered companies are those companies which are registered in Pakistan under the
companies Ordinance, 1984 or any previous Companies Act or Ordinance. These companies are
further classified into the following three broad classifications [15(2)]:
(a) Company limited by shares [2(8)]
It means a company whose memorandum of association limited the liabilities of its
members to the amount unpaid, if any, on the shares held by them in the capital of the
company.
(b) Company Limited by Guarantee [2(9)]
 It means a company whose memorandum of association limited the liabilities of its
members to the amount as the members may respectively under take to contribute to the
assets of the company in the event of its winding up. This company may or not have a share
capital.
(c) Unlimited company
It is a company which is registered without limited the liability of the members to the extent
of the value of the shares held by them. Now-a-days such type of companies are not found
in Pakistan.
2- ON THE BASIS OF ARTICLES OF ASSOCIATION
By virtue of provisions of the articles, companies can further be divided into the following
categories.

2.1 PRIVATE COMPANY

Section 2(1)(28) defined a private limited company as a which by its articles,--

(a) Restricts the right to transfer its shares, if any:

(b) Limit the maximum number of its members to fifty: and
(c) Prohibits any invitation to the public to subscribe for the shares or debentures of company.

Note: Where two or more persons hold one or more shares jointly they shall be treated as a single
member.

2.2 public company

It is a company which is not a private company. It is a company which does not:

(a) Limited the maximum umber of its members;

(b) Restrict the right to transfer its shares, if any; and
(c) Prohibit from inviting public to subscribe for the shares and debentures of the company.

A public limited company can be formed with at least three (3) members.

Public limited companies may further be classified in the following two categories.

(i) Listed companies[2(20)]

The companies whose securities are allowed to be traded on a stock exchange are called
listed companies.

(ii) Un-listed companies

The companies whose securities are not allowed to be traded on a stock exchange are called
unlisted companies.

2.3 SINGLE MEMBER COMPANY:

 Please see chapter 36 of this book.

3. ON THE BASIS OF COMPOSITION OF SHAREHOLDING:

One the basis of composition of shareholding, companies can be classified in any of the
following types:

3.1 HOLDING COMPANY [SECTION-3]

It means a company or a body corporate which holds (directly or indirectly) more than fifty
percent (50%) in the voting securities of accompany, or has a power to elect and appoint more
than fifty percent (50%) of the directors of such other company.

3.2 SUBSIDIARY COMPANY [SECTION-3]

It means a company or a body corporate whose more than fifty percent (50%) voting securities
are held or controlled (directly or indirectly), by some other company or such other company
has a power to elect and appoint more than fifty percent (50%) of the director of such company.

Note:

If the holding company is a subsidiary of another company, every company which is the
subsidiary of such holding company will automatically become the subsidiary of the another
company.

3.3 ASSOCIATED COMPANIES [SECTION 2(1) (2)]

A company whose 20% or more shares (up to 50%) are held by another company shall be
considered an associated company of that company (for complete definition of an associated
company see Para 1.1 Chapter-)

4. REGISTERED COMPANIES

_____________________________________________

Companies limited by shares companies limited Unlimited companies

By Guarantee

Having shares capital Not having shares capital

Private company Public company

Single member other then single listed company Unlimited company

Company member company

5. ASSOCIATION NOT FOR PROFIT [SECTION 42]

5.1 If the securities and Exchange Commission of Pakistan satisfied with an association which has
been formed or is capable of being formed as a limited company that it meets the conditions
specified by Companies Ordinance, 1984, the Companies may grant a licence and direct that the
association be registered as a limited company without the addition of word “Limited” or
“Guarantee Limited”, as the case may be, to its name and the Association may be registered
accordingly.

5.2 CONDITIONS SPECIFIED BY COMPANIES ORDINANCE, 1984

(a) Association should be formed for providing commerce art, science, religion, sports,
social services, charity or any other useful object;

(b) Association applies or intend to apply its profit, if any or other income in promotion its
objects; and

(c) Association prohibits the payment of dividends to its members.

5.3 The conditions and regulation in this regard issued or imposed by the Commission shall be
binding on the association and may be inserted in Memorandum and Articles of Association or
one of those on the direction of Commission.

5.4 The association shall enjoy all privileged of a limited Company subject to all its obligation except
using the word “Limited” or5 “Guarantee Limited”, as the case may be.

5.5 The licence may be revoke by Securities and Exchange Commission of Pakistan and upon its
revocation, the registrar shall enter the word “Limited”, Private Limited”, or “Guarantee
Limited”, as the case may be, at the end of the name of Association and the Association will
cease to enjoy all the exemptions and privileges granted by SECP.
5.6 Before the revocation of licence, the Commission shall give a notice in writing to up Association
of its intention and the association shall afford the opportunity of submitting a representation
in this regard.
5.7 The above rules are application to public limited companies only and private limited company
can be granted licence under section 42.
6. Difference between private and public company:
Public company
1- A public company should have at least
Three (3) members in case of unlisted
Company and seven (7) members in case
Of listed company
2-There is no restriction on the maximum no
Of members.
3- A public company can invite subscription
From general public.
4. A public company can transfer its
Subscription from general public.
5- A public company has to seek certificate
For commencement of business.
6- The public company has to raise minimum
Subscription before obtaining certificate of
Commencement of business.
7- A public company is required to file the
Prospectus or a statement in lieu of
Prospectus (SILOP) for obtaining the certificate
For commencement of business.
8- A public company is required to fill its
Accounting with the accounting.
9- Auditor’s qualification is prescribed as
Chartered Accountant.
10- A public company should have at least
Three (3) directors in case of unlisted
Company and seven (7) directed in case of
Listed company.
private company
1- A private company should have least two (2)
member except single member company (SMC).
2- Maximum member cannot exceed fifty (50).
However, the employee members are not
Counted for the purpose of deciding upper
limit.
3- A private company cannot invite subscription
From general public.
4-Tranfer of share is restricted in private
Company.
5- No such certificate is required and it can
Commence business just after is incorporation.
6- There is no requirement to raise minimum
subscription.
7- There is no requirement of filling prospectus
or statement in lieu of prospectus for a private
company except when private company coverts
Into public company.
8- Filing of accounting is not required by the
Private company.
9- No qualification is prescribed for an auditor
Of a private company except when it has a paid
Up capital exceeding Rs. 3 million.
10- A private company should have least two (2)
directed except single member company(SMC).
7- Difference between public listed and public unlisted company:

Public listed public unlisted

1-Minimum number of director should be 1- Minimum number of director should be

Seven (7). Three (3).

2-A listed company should have at least 2-An unlisted should have at least three (3)
Seven (7) members. Members

3-A listed public company is required to file 3-An unlisted public company is required file its
Its account with commission and the accounts with the Registrar only.
Registrar.
4-Beneficial ownership of a listed public 4-No such restriction on unlisted public
Company is controlled and reported. Company.
5-Quorum for general meeting of listed 5-Quorum for general meeting of an unlisted
Company is ten (10) members present in company is tow (2) members present in person
Person or through proxy having not less or through proxy having not less than 25%
Than 25% voting power. Voting powers.
6-Listed public company prepares its account 6-Unlisted company prepares its accounts in
In accordance with fourth schedule and IASs. Accounts in accordance with fifth schedule and
IASs.
7-Appointment of whole time qualified 7-Appiontment of whole time qualified
Company secretary is mandatory, company secretary is not mandatory.
8-A member of stock exchange or his spouse 8-There is no such restriction on unlisted public
Cannot becomes director of a listed company. Public company.
9-ot is required to issued prospectus 9-It is only required to file statement in lie of
Prospectus.