1 - introduction to company law111

8/8/2019 1 - Introduction to Company Law111

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Introduction to

Company Law


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Definition o

fLaw

Law in its ordinary sense is a generalrule ofexternal human action enforced by

a sovereign political authority, in theoryconduct must under penalty confirm andthus distinct from law ofGod.

The Constitution of Islamic Republic ofPakistan By Justice M. Munir former ChiefJustice of Pakistan (1999)


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Meaning and Scope ofCompany

Law Company law is the law relating to

companies formed and registered under

any act/ordinance relating to the regulationof the working and conduct ofcompanies.Company law is the body ofstatutes andcase law relating to companies.

Various aspe

cts relating to th

eaff

airs ofcompanies


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Set rules and regulation of incorporation of

companies

It makes rules regarding the issue ofprospectus.

It lays down the conditions under which shares

can be allotted.

It makes rules regarding the distribution ofshare

capital, the rights attached to various classes of

shares, the transfer ofshares, the alteration of

share capital, the reorganization ofshare capital.


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Cont. It makes provision regarding the rights, duties

and liabilities ofpromoters, directors, managers,

managing agents, secretaries, chiefexecutive,and other officers of the company and provisions

regarding the rights, duties and liabilities of

members, auditors, liquidators, creditors and

other persons dealing with the companies.


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Cont. It makes rules regarding the preparation of

memorandum, and articles, rules regarding the

nature and extent ofpowers which registeredcompanies are to posses and the manner inwhich they can carry on business, rulesregarding the holding ofmembers and directorsmeetings, it provides the manner in which apublic company may be converted into a privatecompany and vice versa.


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Cont. It gives power to company to refer matters

to arbitration and enter into compromises,

it makes provision for the winding up and

amalgamation ofcompanies, it provides

for the punishment ofoffences relating to

companies.


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Law governing Companies

Theexisting law governing the company form oforganization is found in the companiesordinance 1984.

The ordinanceextends to the whole ofPakistan.The section 1 of the ordinance had come intoforcefrom 8th Oct, 1984 but the remainingprovisions came into force on such dates as thefe

deral gov

ernm

ent by noti

fication in th

eofficialgazette, appointed, and different dates had been

so appointed for different provisions.


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Companies Ordinance- Preamble and

Section 4 and 5

Object:

The Companies ordinance, 1984 has been promulgatedto consolidate and amend the law relating to companiesand certain associations for the purpose ofhealthygrowth ofcorporateenterprise, protections of investorsand creditors, promotion of investment and developmentofeconomy and matters arising out ofor connectedtherewith

Ordinance Not to Apply- Section 4. The companiesOrdinance 1984 does not apply to


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Cont.a) A trading corporation owned or controlled by a

province and carrying on business only within

that province, orb) A co-operative society, or

c) A university


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Application to Non- trading Companies- Section 5

The provincial Government shall, in relation to

companies which are not trading corporations

and the objects ofwhich are confined, to a singleprovince, have the same powers as are

conferred by the companies ordinance on the

Federal government or the Authority.

Limited Liability Company, meaning Of


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Cont.Voluntary association for profit:

The company is an artificial person created by law andendow

ed with c

ertain pow

ers.It exists in theeyes or contemplation of law as though it

were a natural person, separate and distinct from thepersons who are its members.

It is an artificial legal person. The company has a right

to use and can be used, can own property and havebanking account in its own name, own money, becreditor and can contract in its own name.


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Cont. It is created for a particular purpose and is managed

through agents called directors.

The company has independent life in the sense that itcontinues to exist without regard to the death of theindividuals involved in its corporate affairs or the transferby them of their interests in the company; even the deathofall members does not end the company.

This me

ans that the

life

of

the

company is inde

pend

entof the life of its members, giving immorality to the

company, and goes on until dissolved.


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Cont. To sum up, the principal characteristics ofa company

are:

1) Distinct personality: Company has a separate anddistinct personality from its members which constitute it.

2) Artificial person: Upon incorporation it becomes anartificial legal person, enjoying similar rights and owningsimilar obligation as a natural person.

3) Separate Ownership: Company, as a Corporate personis entitled to own and hold property as distinct from itsmember.


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Cont. Perpetual Succession: As a juristic person

distinct from its members it has perpetual

succession. Shares transferable: Shares in the capital of the

company are generally freely transferable.

Limited liability: liability of its shareholders is

limited to theextent ofunpaid value of the

shares held by them.


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Cont. No Citizenship: Company, though a person having

nationality and a domicile is not a citizen. It cannotexercise the right offranchise, nor it can be punished, in

its own person, by imprisonment for criminal offences,although it can befined for the contravention of theordinance.

No fundamental rights: As a company is not a citizen andcan act only through natural persons, it has no

fundamental rights under the constitution.


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Body Corporate-Section 2(4)

A body corporate or corporation is to be distinguished from acompany formed under the companies ordinance, everycompany formed under the ordinance is a company within the

meaning of Pakistan law; It is also a body corporate or corporation. On the other hand

the expression body corporate or corporation is an expressionused more appropriately to foreign corporations. A British orAmerican corporation is not a company within the meaning of

the companies Ordinance, 1984


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Cont. It is only when an association is incorporated, under

Pakistan companies Ordinance, then it is called a

company. But the expression body corporate orcorporation includes foreign corporations andcompanies incorporated in Pakistan.

Section 2(4) of the companies Ordinance, 1984 doesnot define a body corporate; but mentions what a

body corporate: or corporation includes. A bodycorporate or corporation includes a companyincorporated outside Pakistan, but does not includethe following:


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Cont. An association formed for trading may be perfectly

legal at its formation, but if the numbers of persons

increases later on and exceeds the maximumallowable under section 14, the association becomes

illegal one.


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Illegal Association

An association or partnership contravening theabove requirements is an illegal association, inthe sense that as a body, it has no legal

existence, and cannot be wound up under thecompanies ordinance, not even as anunregistered company (1) The law does notrecognise an association within the terms ofsection 14 and which is not registered(2).

Effect of Illegal Association

Non of the provision ofpartnership act apply


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Cont. It does not get any benefit or protection afforded

by the companies ordinance in as much as it is

not registered as a company under the companyordinance.

The consequences ofan illegal association are

as follows:

1) One member cannot sue another in respect of

any matter connected with the association


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Cont.2) Any member or outsider cannot maintain a suit

against the association for it cannot contract

any debt.

3) Cannot enter into any contract

4) One member cannot suefor partition ofexisting assets orfor any other relief.

5) Such an association cannot be wound upunder the companies ordinance at the instanceeither of the association, or creditor or member


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Cont.2) An action by an illegal association whether

against a member or outsider, will fail as soon

as the

illegality is disclos

ed.

3) Such association has no legal recognition as ajurall unit.

4) Every member is personally liablefor all

liabilities incurr

ed in th

ebusin

ess.

5) Every member is punishable with fine upto Rs.5,000/- Section 14


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Definitions orBasic terminology

1 Article

2 Associated companies and associated undertaking

3 Commission

4 Body Corporate or Corporation5 Book and paper

6 Chiefexecutive (6a) Commission

7 Company

8 Company limite

d by Shares

9 Company limited by Guarantee

10 The Court

11 Debenture

12 Director


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Cont.14 Documents

15 Existing Company

15a Financial institution

16 Financial year17 Form

18 Holding company

19 Listed

20 Listed company

21 Member

22 Memorandum

23 Modaraba and Modaraba company

24 Officer


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Cont.25 Participatory redeemable capital

26 Prescribed

27 Previous Companies Act

28 Private Company

29 Prospectus

30 Public Company 30(a) Redeemable Capital

30(b) Register

31 Registrar32 Scheduled Bank

33 Secretary

34 Security


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Cont.35 Share

36 Special resolution

37 Stock exchange