EXECUTIVE SUMMARY

Pakistan government has made some laws after it came into being in 1947 which has to be
followed by every citizen living in Pakistan. Law plays very important rule in every country,
mostly the business law which helps country to maintain its positions in front of other countries,
so that they can do trade with each other.

Putting these entire factors in mind we have created the report of business law that what its
importance and how it is effected in various conditions, what is its effect on society and on
international trade.

We have also discussed about the types of laws and the types of business forms in Pakistan. The
report helps us to gain knowledge about business law which will be very helpful for us in future.
 INTRODUCTION TO BUSINESS LAW

Business:- All those activities which are aimed at transfer of goods & services from the
production centre to consumption centre carried out by an entrepreneur by optimally utilizing
resources at his command i.e. money, man, material & machine with a view to maximize profit.

Law: - Rules & Regulations which has a force of authority, passed by legislative bodies.

• law in its most general and comprehensive sense signifies-

• a rule of action

• it applies indiscriminately to all kinds of action

• animate or inanimate; rational and irrational

– Anything that brings uniformity in human behavior can be called as Law

• Law is a general rule of external human action, enforced by the Sovereign Political
Authority.

LAWS

Constitutional Law Criminal Law Civil Law International Law

(Relating to rights, (Crime & Punishment) (Business & Property (Dealing between

Duties of citizen’s matters) citizens of two

Towards the state countries)

& administration)
 Meaning, necessity and Importance of ‘Law’

Most of us are required to observe many different kinds of rules. School children may be
required to wear a uniform. People belonging to certain religion are prohibited to eat a particular
substance or do a particular thing.
Law is often based on morality. For example, murder and rape are regarded as immoral, and
are punishable in all societies and are proscribed by most religions. In such cases, the law
coincides with morality but this need not always is the case. For example lending money at
interest is practiced since times immemorial. But this is prohibited by Islam. Similarly,
Christianity prohibits Usury, i.e. excessive interest. Traditional Hindus follow the rule of
Damdupat, i.e. the total interest must not increase the principal sum. The Money-lender Acts in
force of various states do regulate interest which, by virtue of the practice of compounding their
interest but they have limited application
There are many perspectives regarding Law. From one outlook, law can be said as an
abstract body of rules and statues. And from the other, it could be seen as a social method of
dispute resolution of the conflicting interests of the people living in the society. Law may also be
considered as of having a coercive character, or can also be seen as made by the customs,
traditions or religion. Law can also be said to inherently exist in the society.
Some thinkers have made an attempt to clear the picture of the concept of law. In the
words of Kant law is the ‘sum total of the conditions under which the personal wishes of one
man can be combined with the personal wishes of another man in accordance with the general
law of freedom’ . Hegel explains law as the, ‘the abstract expression of the general will exist in
and for itself’. John Austin says, Law is the command of Sovereign, Sevigne considers law as
Volksgeist i.e. the spirit of the people. While, Roscoe Pound, a thinker of Sociological school of
law, considers law as ‘Social Engineering’.
ROLE OF BUSINESS LAW:
• 1. An instrument to provide justice in businesses

• 2. Stability and social security of organization.

• 3. Regulating behavior and interactions between people of companies

Sources of Law:
• Formal source

– Validity and force is drawn by law

• Material source

– Sources used to create the law

– Legal source

• Legislations, case laws, customary laws

• Historical sources

– Sources used to import meaning to the law

• Juristic writing, literary works, foreign decisions

Classification of Law:

• Imperative law

– General course of action imposed on other by way of physical force or other

compulsions

• Smoking on screen, theft

• Physical law

– Uniformities, regularity and harmony observable by all

• Traffic rules
• Conventional law

– Regulation of conduct towards each other

• Family visits

• Customary Law

– It is firmly established and enforced by state

• marriage

• Practical law

– The law with social objectives

• Town and country planning act

• Civil Law

– Public law, private law, personal law, business law, industrial law etc

• Law of Contract

– Regulating the relationship arising out of contract

COURTS IN PAKISTAN
 LAW AND THE SOCIETY

Law is nothing more than the morals and ethics of group "A" being imposed upon group "B".
Whether it's a representative legislature, a panel of judges, a supernatural deity, or a dictator, the
law is passed and handed down by a supposed "higher" power to those deemed to be of a lower
status or class. In anything other than a true "one man, one vote" society, the law's only purpose
is to keep the "lesser" citizenry in check and toeing the line.

Laws are only effective on the law-abiding citizen, and they do serve their purpose, to an extent.
Most people agree that murdering another human for sport is wrong, therefore a law against
hunting humans for fun is justified...but then again, the deranged mind that enjoys hunting other
people probably won't be deterred by something as simple as a law.

Basically, the lawless will always have contempt for the law. For example, the United States is
the lone industrialized and "democratic" country to still implement the death penalty, yet its
citizens continue to commit crimes that they know will earn them a sentence of death. Suspects
knowingly open fire upon police officers, and people willingly and meticulously plan out
murders. At their most basic level, the lawless do not obey the law. Laws are only effective as
long as those who are being governed accept the moral and ethical basis for said laws; the
ineffectiveness of law stems from the fact that it is impossible to legislate morality.

Laws exist to keep a society from tearing itself apart through immorality and inhumane acts.
They do serve their purpose, but like any other man-made device or construct, they do have the
potential for abuse, and sometimes they are all too easily ignored, especially if the morals and
ethics of the governed change over time.
 Objectives of study of Pakistan business law

It is essential to know about business law before starting a business, as it will help you operate your
business without the hindrances of ignorance. It is better to seek the expert guidance of an accountant and
an attorney to learn about the latest business laws that will affect your business.

The study of Pakistan business law provides a good working understanding of

• What is legal consideration in making contracts?

• What are the constraints upon setting up and running companies?

• How employment contracts are protected.

• Realizing the business ethics, he or she must follow.

• To run a proper and authenticated business.

Effects of law on business:

Just as law affects actions of private individuals, so it affects actions of businessmen. Trade
is nothing but a series of contracts. Such contracts shall be enforceable and valuable to
business only when they are legally protected. Law lays down rules and guidelines for setting
up and administrative running of certain categories of businesses e.g.

• Partnership organization is governed by the partnership act, 1932.

• Companies are governed by companies ordinance, 1984.

• Insurance companies are subjected to insurance act, 1938.

• Banking companies are controlled by banking companies ordinance, 1962.

 • Modaraba companies are regulated by modaraba companies and modaraba (floatation &
control) ordinance, 1980.

Effects of law on various professions:

An accountant is considered an expert in auditing, taxation and corporate law matters and the clients very
often ask him for advice on these matters, so if he does not study law and acquire necessary knowledge he
cannot render any profession any professional assistance to his clients. An accountant, whether in public
practice or in full-time employment, is required to his client or employer on a number of matters
involving law, such as:

• Formation of a company

• Underwriting agreement

• Agency contracts

• Purchase and supply contracts

• Forward trading

• Settlement of labor disputes

• Protection of trademarks, copy rights

• Many other matters of business interest

Effects of law on international trading:

International trade

International trade can be defined as either the buying (importing) or selling (exporting) of goods
or services on a global basis.

Thanks in great measure to the Internet; many starting businesses can enrich their prospects of
success by incorporating IT into their overall business plan. In some cases, a business can be
enhanced by incorporating IT marketing to supplement a domestic operation. In other cases, a
business can depend solely on international trade. Let’s review some examples:

Advantages and Disadvantages of International Trade

• Enhance your domestic competitiveness
• Increase sales and profits
• Gain your global market share
• Reduce dependence on existing markets
• Exploit international trade technology
• Reduce dependence on existing markets
• Exploit international trade technology
• Extend sales potential of existing products
• Stabilize seasonal market fluctuations
• Enhance potential for expansion of your business
• Sell excess production capacity
• Maintain cost competitiveness in your domestic market

Disadvantages to keep in mind:

• You may need to wait for long-term gains
• Hire staff to launch international trading
• Modify your product or packaging
• Develop new promotional material
• Incur added administrative costs
• Dedicate personnel for traveling
• Wait long for paymen
• Apply for additional financing
• Deal with special licenses and regulations
• International law body of rules considered legally binding in the relations between
national states, also known as the law of nations. It is sometimes called public
international law in contrast to private international law (or conflict of laws ), which
regulates private legal affairs affected by more than one jurisdiction.
 International law includes both the customary rules and usages to which states have given
express or tacit assent and the provisions of ratified treaties and conventions.
International law is directly and strongly influenced, although not made, by the writings
of jurists and publicists, by instructions to diplomatic agents, by important conventions
even when they are not ratified, and by arbitral awards. The decisions of the International
Court of Justice and of certain national courts.

Business Laws in Pakistan

This overview of business laws of Pakistan is a very brief description of common forms of
businesses adopted by private and public sector investors in Pakistan. An attempt has also been
made to outline general requirements and regulatory regimes for each of these forms of
businesses in Pakistan. These brief notes are for general guidance only and should not be taken
as a substitute for thorough and professional legal advice.

What are the common forms of business in Pakistan?

Main forms of business organisations adopted by private sector in Pakistan are as follows:

• Sole proprietorship in Pakistan

• Partnership in Pakistan
• Limited liability company in Pakistan
• Joint venture in Pakistan

Main forms of business organisations adopted by the public sector, where the government wishes
to undertake an enterprise, in Pakistan are either a limited liability company or a statutory
corporation.

Out of these diverse forms of business set ups in Pakistan, a limited liability company remains
the most favourable form of business organisation for medium and large-scale businesses in
Pakistan.
 Important Business Laws of Pakistan

THE COMPANIES ORDINANCE, 1984:

An ordinance to consolidate and amend the law relating to companies and certain other
associations, for the purpose of healthy growth of corporate enterprises, protection of investors,
promotion of investment and development of economy and matter arising out of and connect
there with.

OBJECTIVES

1. Healthy Growth of the corporate enterprises.

2. Protection of investors and creditors.

3. promotion of investment, and

4. Development of economy.

PRELIMINARY
-Short title extent and commencement
 1. This ordinance may be called the companies ordinance 1984.

2. It extends to whole of Pakistan.

3. This section come into force at once and remaining provisions of this ordinance shall
come into force on such date as the Federal Government may, by notification in the
official Gazette, appoint, and different date may be so appointed for different provisions.

COMPANY

Company means a company formed and registered under this ordinance or an existing
company.

“Company limited by shares” means a company having the liability of its members limited by
the memorandum to the amount, if any, unpaid on the shares respectively held by them.

“Company limited by guarantee” means a company having the liability of its members limited
by the memorandum to such amount as the members may respectively thereby undertake to
contribute to the assets of the company in this event of its winding up.

DIFFERENCE BETWEEN PUBLIC AND PRIVATE COMPANY

1. A public company can invite subscription from the public, a private company can not.
2. A public company does not have restriction on transfer of the shares. Transfer of shares
restricted in private company.
3. A public company should have at least seven members a private company have at least
two members.
4. There is no restriction on upper limit of the members while private company can not
exceed 50 members.
5. A public company is required to file its accounts with the registrar; filing of accounts is
not required in private company.
INCORPORATION OF COMPANIES AND MATTERS
INCIDENTAL THRETO
OBLIGATION:
1. No association, partnership or company consisting of more than twenty persons shall be
formed for the purpose of carrying on any business that has for its object the acquisition
of gain by the association, partnership or company, or by the individual members thereof,
unless it is registered as a company under this ordinance.
2. Every person who is member of any association, partnership or company carrying on
business in contravention of provisions of this section shall be punishable with fine which
may extend to five thousand rupees and also be personally liable for all the liabilities
incurred in such business.
3. Nothing in this section shall apply to…

• Any society, body or association other than a partnership, formed or incorporated

under any other Pakistan law; or
• A joint family carrying on joint family business; or
• A partnership of two or more joint families where the total numbers of members such
families, excluding the minor members, does not exceed 20 members.
• A partnership form to carry on practice as lawyers, accountants or any other
profession where practice as a limited liability company is not permitted under the
relevant laws or regulation for such practice.
The Contract Act, 1872
Law of contract is that branch of commercial or business law which ensures that the promises
made by one person to another in respect of any transaction shall be performed by the parties exactly in
accordance with the arrangement between them and in case of any default the party shall compensate the
innocent party.

Definition of contract
A contract is an exchange of promises by two or more persons resulting in an obligation to do or to
refrain from doing a particular act, which obligation is recognized and enforced by law.

Main feature of contract:

• Offer and acceptance

• Capacity of contract

• Free consent

• Consideration

• Legality of objects

• Agreements declared void

• Contingent contracts

• Performance of contract

• Discharge of contract

• Quasi contracts

• Breach of contract indemnity of guarantee

 • Bailment and pledge

• Contract of agency

Promise & agreement:

Promise: when the person to whom the proposal is made signifies his assent thereto, the
proposal is said to be accepted. A proposal, when accepted, becomes a promise.
• Promise for consideration

• At the desire of the promisor

• Express and implied promises

• Acceptance of consideration for a promise.

Agreement: every promise and every set of promises, forming the consideration for each
other is an agreement.

• Agreements required to be in writing

• Executed and executor agreement

• Agreement to sell

Bailment:
Def: Delivery of goods by one person to another for some purpose upon a contract and to be
returned or disposed otherwise when the purpose is accomplished.

Delivery and possession of goods

Delivery and possession is temporary
It is for some purpose
Goods delivered to be returned or disposed off according to the direction of bailer, when
the purpose is accomplished
Only the moveable properties can be given for bail money

Kinds of Bailment

Deposit: Simple Bailment. Delivery of goods by one person to another to keep for bailers
use.
 Commodatum: The goods lent to a friend gratis.
HIRE: Goods given on HIRE.
Pawn: Goods delivered to another by way of security for money borrowed.
 For Reward: goods carried for reward

Contract of Agency
Agent & Principal: A person employed to do any act for another or to represent another
in dealing third parties/persons. The person for whom such act is done is called
Principal.
 Basic ingredients: basic ingredients of contract of agency are;
1) Agent has a power on behalf of the principal to deal with the third persons so as
to bind the principal.

2) Subject matter of the agency has to be dealt with as the property of the principal
and not of the agent.

3) The agent acts as intermediary for consideration and,

The liability of the agent is always to account for the sale proceeds to the principal

Sales of Goods Act:

 Def: It is a contract whereby seller, transfers or Agrees to transfer the property
(Ownership) in goods to the buyer for a price.

 Goods: Goods mean every kind of moveable property other than Actionable claims and
money But includes stocks/shares/bonds, growing crops, grass and things attached to or
forming part of land. Goodwill, trademark, patent, water, electricity, gas, ships are all
goods.

 Specific Goods: Goods identified and agreed upon at the time of contract of sale.
  Ascertained Goods: Goods which become ascertained subsequent to the formation of
a contract sale.

 Conditions: It is a stipulation which is essential to the main purpose of the contract,

breach of which gives the aggrieved party a right to treat the contract as repudiated.

 Warranty: stipulation collateral to the main purpose of the contract breach of which
gives the aggrieved party a right to sue for damages only.

 Implied conditions in Sales

 Condition as to title

 Sale by description

 Sale by sample

 Sale by sample and description

 Quality of fitness

 Merchantability

 Wholesomeness

 Implied Warranties
 Buyer must enjoy quit possession of goods

 Goods free from any charge or encumbrances

 Quality or fitness for particular purpose

Effects of the contract:

Transfer of property as between seller and buyer

 Goods must be ascertained.

 Property passes when intended to pass.

 Specific goods in a deliverable state.

 Specific goods to be put into a deliverable state.

 Specific goods in a deliverable state, when the seller has to do anything thereto in
order to ascertain price.
  Goods sent on approval or on sale or return.

 Reservation of right of disposal.

Partnership Act
Def: It is the relation between persons who have agreed to share the profit of a business
carried on by all or any of them acting for all.

Duties of Partners
 To work for the greatest common advantage.

 To be just and faithful

 To render true account

 To provide full information

 To indemnify for fraud

 To attend duties diligently

 No claims of remuneration

 To share losses

 To indemnify for willful neglect

 Hold and use property for firm

 Account for private profit

 Accounts for profits of competing business.

 To act within authority

 To be liable jointly.

Right of partners
 Take part in business

 Be consulted
  Access accounts

 Share in profits

 Interest on capital

 Interest on advances

 Be indemnified

 Of joint ownership of property.

 As agent of the firm

 Act in emergency

 Refuse permission to new partner

 No liability prior to joining firm

 Retire

 Not to be expelled

Dissolution of Partnership
 Dissolution by Agreement

 Compulsory

a) Insolvency of all or all but one partner

b) When business becomes unlawful

 Contingent

c) Expiry of the term for which the partner was created

d) On completion of a particular project/undertaking.

a) Death of a partner

b) Adjudication of a partner as an insolvent.

 By notice

a) Partnership at will

 Dissolution by Court
 b) When any one partner becomes of unsound mind.

c) When anyone partner becomes permanently incapacitated.

d) Misconduct by one partner

e) When any one partner disregards the agreement

f) When partner sells his share to a third party

g) When the business can be carried only on loss

h) Any other reasonable cause.

Formation of partnership
Creation of partnership
Partnership is created by an agreement. The partnership agreement may be made orally or
in writing or may be implied from the course of dealings among persons concerned. All
the essential elements of a valid contract must be present. There must be free consent,
lawful object and the partners must be competent to contract.

 Minor being incompetent to contract cannot become a partner in a firm, but if all
the partners agree, he may be admitted to the benefits of partnership.

 No consideration is required to create a partnership.

Partnership Agreement:
Def: partnership deed is a written document legally drafted to incorporate the expressly
agreed terms and conditions between the persons desirous of forming a trading
partnership.

Partnership deed:
The document which contains the partnership agreement is called partnership deed or articles of
partnership. Partnership deed contains the agreement between the persons who have consented to
form a partnership.

Contents: the partnership deed usually provides for these matters:

1. Name of firm and names of partners,

2. Nature and place of business,

3. Date of commencement of partnership,

4. Duration of firm,

5. Capital, interest or drawings,

6. Operation of banking account,

7. Profit sharing ratio,

8. Management,

9. Accounts,

10. Valuation of goodwill,

11. Arbitration,

12. Continuance or otherwise of firm on death or insolvency of partner,

13. Rules regarding admission, retirement, expulsion,

14. Salaries of partners,

15. Settlement of account on discussion.

Who may or may not be partner

1. Married women

2. Alien friend

3. Corporation

4. Person of unsound mind

5. Minor

6. Alien enemy

7. Lender

8. Servant or partner

9. Widow of a deceased partner

10. Previous owner of business

Registration of Firm
Registration of partnership firm means that the firm has complied to the legal requirements
specified in section 56 to 71 of the partnership Acts, 1932 and the name of the firm has been
entered in the register of firms maintained by the registrar of firm.

Procedure of registration:
1. Prepare an application in the prescribed form.

2. Payment of prescribed amount of fees.

3. Submission of application to registrar.

4. Scrutiny and acceptance of application by registrar.

5. Issuance of certificate of registration.

6. Registration of material changes.

Preparation of application

An application for registration of firm shall be prepare in the prescribed form. The
application shall contain the following information:
1. Name of firm

2. Principal place and the places of business.

3. Names and addresses of partners.

4. Date on which each partner joined the firm.

5. Duration of partnership, if decided.

6. Profit and loss sharing ratio.

The application shall be signed by each partner or by their authorized agent.

Effects of non registration

1. Partner can not sue other partners.

2. Firm cannot sue third parties.

 3. Third party can sue firm.

4. No claim for set-off allowed.

International Law

• A body of rules

• Governing the intercourse of states

• Governing actions of International Organizations

Recent developments
• Negotiations on
– Trade

– Conventions

– Curbing terrorism

– Mechanism of peaceful settlement of disputes

– International institutions

– Maritime, air and space law

 – Refugee problem

– Immigration problem

– Citizenship problem

– International peace missions

International Business Law

• States concern
– Monetary policy

– Defense Policy

– Customs and Cultural Policy

Tariffs

• Tax imposed on imported products

• Protectionist measure

• Tariffs- four kinds

• Specific

• Alternative

• Compound

• Ad valorem

1. Ad Valorem duty
The kind most commonly used is one that is calculated as a percentage of the value of the
imported goods - for example, 10, 25 or 35 per cent.

This may be based, depending on the country, either on destination (c.i.f.), or on the value of the
goods at the port in the country of origin (f.o.b.).
2. A Specific duty
Is a tax of so much local currency per unit of the goods imported (based on weight, number,
length, volume or other unit of measurement. Specific duties are often levied on foodstuffs and
raw materials.

3. An Alternative duty
Is where both an Ad valorem duty and A Specific duty are prescribed for a product, with the
requirement that the more onerous one shall be Ad valorem duty value plus 10 cents per kilo.

4. Compound duties
Are imposed on manufactured goods that contain raw materials that are themselves subject to
import duty. The "specific" part of the compound duty (called compensatory duty) is levied as
protection for the local raw material industry.

Reasons for tariffs

• Reduces consumption

• Increases the domestic production

• Improves the balance of trade position

• Generates revenue

• Welfare effect

WTO
World Trade Organization

• Marrakesh agreement
 • The Marrakech Agreement was an agreement signed in Marrakech, Morocco, in 1994.
The agreement established the World Trade Organization, which came into being upon
its entry into force on January 1, 1995.
• The Marrakech Agreement developed out of the General Agreement on Tariffs and
Trade, which it includes; but it supplemented it with several other agreements, on such
issues as trade in services, sanitary and phytosanitary measures, trade-related aspects of
intellectual property and technical barriers to trade. It also established a new, more
efficient and legally binding means of dispute resolution. The various agreements which

• Make up the Marrakech Agreement combine as an indivisible whole; no entity can be

party to any one agreement without being party to them all.

General Agreement of tariff and trade

• Objects:
– Raising standard of living
– Ensuring full employment
– Ensuring large and steady growth of income and economy
– Expanding the production, trade

Basic Principles (WTO)

• Trade without discrimination

• No MFN (most favored nation)
• No national special treatment
• Freer trade
• Predictability by binding tariff
• Promoting fair competition
• Encouraging development and economic reform