CORPORATE LAW

LECTURE NO. 1

Company means a legal entity formed by a person or association of persons for lawful business activities
registered under the Companies Act,2017.

General concept of a company: A company is a legal person separate from its members which is termed
as Doctrine of Corporate Personality. Any legal person can own shares in a company including
individuals. Shareholders may include another company which is called a corporate shareholder.

The company itself is the legal owner of assets purchased by it. The shareholders are the owner of the
shares they have purchased from the company and they are not the owners of assets of the company.

Kinds of companies:

a) Statutory Company:
The companies formed under special statutes are statutory companies. It means that general
laws are not applicable in this case as these are governed under specific law. Examples of
statutory companies are State Bank of Pakistan, House Building Finance Corporation etc.
b) Government Company:
A company in which government has more than 50% voter power e.g. Pakistan Petroleum Ltd in
which government holds more than 50% shares.
c) Unlimited Companies:
Liability of members is unlimited and therefore it is just like a partnership firm. Advantages of
this type of company are:
i) Perpetual succession
ii) Registration and control under the Companies Ordinance.
d) Company limited by shares:
A company whose memorandum of association limits the liability of its members to the extent
of share capital.
e) Company limited by guarantee:
A company whose memorandum of association limits the liability of its members to the
amounts undertaken by the members to contribute to the assets of company in the event of its
winding up. This company may further be divided into:

From the desk of:

Mr. Talal M. Arif
 i) Company limited by guarantee having share capital
ii) Company limited by guarantee not having share capital

A company limited by guarantee is required to use the words “(Guarantee) Limited” as the last
words of its name.

f) Holding Company / Subsidiary Company – Section 2(68)(37)

A company (holding company) which holds directly or indirectly more than 50% in the voting
securities of another company (subsidiary company) or has a right to elect and appoint more
than 50% of the directors of that other company.

Private Company – Section 2(49)

A company which by its articles –

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

b) Limits the maximum number of its members to 50 not including the persons who are in the
employment of the company; and
c) Prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the
company:

A private company is required to use the words “(Private) Limited” as the last words of its name

Public Company – section 2(52)

A company which is not a private company. A public company may be divided into two categories:

a) Public listed company {at least 7 directors}

b) Public unlisted company {at least 3 directors}

Association not for profit – section 42

An association which is formed for promoting commerce, art, science, religion, sports, social services,
charity or any other useful object and to apply its profits in promoting its objects and to prohibit
payment of any dividend to its members can be registered with limited liability without adding the word
“Limited” to its last name.

Principal characteristics of a company:

a) Company is a separate and distinct personality from its members.

b) A company becomes an artificial legal person upon incorporation enjoying similar rights and
obligations as a natural person. A company has a nationality / domicile but it is not a citizen and
a fine can be imposed upon a company and its directors. The directors can also be imprisoned.
c) Company as a juristic person, distinct from its members has a perpetual succession i.e.
continued existence or it never dies. Any change in the membership does not affect the

From the desk of:

Mr. Talal M. Arif
 company’s continuity. The death, insanity or insolvency of the members does not affect the
corporate existence of the company.
d) The company as a legal person and having independent existence can file suits against others in
its own name.
e) Company is entitled to own and hold property in its own name
f) Business documents are signed to make them legally binding. Since a company is not a natural
person it cannot sign any document. Law has permitted the use of common seal having
company’s name engraved thereon as a substitution of signature.
g) Shares are generally freely transferrable.

INCORPORATION OF A COMPANY

Stages of formation of a company:

a) Promotion stage
b) Clearance of name of the company from the registrar
c) Preparation of memorandum of association
d) Articles of association
e) Documents to be filed along with challan fee
f) Certificate of incorporation and the case where registration is refused by the registrar
g) Documents to be filed after incorporation

Promotion Stage:

Promotion is the discovery of business opportunity and the subsequent organization of funds, property
and managerial ability into a business concern for the purpose of making profits therefrom.

The one who undertakes to form a company with reference to a given object and to set it going and who
takes the necessary steps to accomplish that purpose. The term promoter includes anyone who makes
business preparations for the company, such as inviting others to accept appointment as directors or
arranging acquisition of assets by the company or arranging an offer of the shares to the public.

A promoter may be an individual, firm or a company. However, a person who acts merely in a
professional capacity in the company formation such as a legal advisor or an accountant is not a
promoter.

Name of the Company:

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 a prescribed fee
is required to be paid for seeking availability certificate for each name.

From the desk of:

Mr. Talal M. Arif
Prior approval of SECP required for certain company names:

There are certain words and expressions which if used in a company may imply a particular status. These
words are generally allowed on producing sufficient justification by the promoters so as to ensure that
there should not be a wrong impression with the name. These include names which contain any words
suggesting or calculated to suggest:

a) Patronage of any past or present Pakistani or foreign Head of State.

b) Any connection with the government or any department or authority of the Government.
c) Any connection with any corporation set up by or under any Federal or Provincial law; or
d) Patronage of or any connection with any Foreign Government or any International Organization.

Memorandum of Association:

Refer separate chapter for Memorandum of Association.

Articles of Association:

Refer separate chapter for Articles of Association.

Documents to be filed for incorporation:

The following documents are required to be filed to the Registrar for incorporation of a company:

a) Copy of national identity card (copy of passport in case of a foreigner) of each subscriber and
witness to the memorandum and articles of association.
b) Four printed copies of Memorandum and Articles of Association duly signed by each subscriber
in the presence of one witness. One copy should be affixed with special adhesive stamps at the
rate prescribed under the Stamp Act.
c) Statutory declaration that all the requirements in respect of registration of the company have
been complied with [also called declaration of compliance].
d) Registration / filing fee challan.
e) The authorization of sponsors in favour of a person to make good the deficiencies, if any, in the
Memorandum and Articles of association as may be pointed out by the Registrar and to collect
the certificate of incorporation.
f) A company is required to notify the registered office of the Company on Form-21 within 28 days
from the date of its incorporation. Registered office is a single place notified by the company as
registered office and all the communications and notices are addressed to the registered office.
Any change therein shall also be notified to the Registrar within 28 days.

From the desk of:

Mr. Talal M. Arif
Certificate of Incorporation:

If the Registrar is satisfied that:

a) All the legal formalities have been complied with;

b) The company is being formed for lawful purpose; and
c) None of its objects stated in the memorandum is inappropriate, deceptive or insufficiently
expressive

he will issue a certificate of incorporation which is a conclusive evidence that all the requirements of
the Ordinance in respect of registration have been complied with.

The Certificate of Incorporation provides evidence that the company is incorporated under the
Companies Act, 2017. It enables a company to carry on business activities within the ambit of its
Memorandum and not beyond that.

However, it is not a permission to carry on any type of business where further license or approval of
relevant government authorities is required and the company shall have to conform to the relevant
statutory regulations and laws while carrying on any such business activities.

From the desk of:

Mr. Talal M. Arif