TYPES OF COMPANIES

Professor & Lawyer

Puttu Guru Prasad
Senior Faculty for Management
Studies - VVIT
 RECAP
LECTURE 2
In previous lecture we have covered the following topics
Jurisdiction of the courts
Company Benches
Procedure of the court
Appeal against court orders
SECP (Security and Exchange Commission of Pakistan)
Registrar
 COMPANY
What is a Company
Company ordinarily means an association of a number of
individuals formed for some common purpose.
When a company is registered, it is clothed with a legal personality and has
the same rights and powers as a human being has.
Its existence is distinct and separate from that of its members.
The members may die or change but the company goes on till it is wound
up on the grounds mentioned in the ordinance.

Thus a company is an artificial person.

It can act only through some human agency called the board of directors.
They control and administer the affairs of the company and act as its
agent.
But they are not the agent of members of the company.
 COMPANY
Definition Of a Company

A company is an association of persons united fro a common

purpose
-Justice James

A company is an association of many persons who contribute

money or moneys worth to a common stock and employs it in
some trade or business, and who share the profit and loss (as the
case may be) arising there from.
-James Stephenson
 COMPANY
Definition Of a Company In Companies Ordinance 1984:

A company is an association of persons

registered under the law
having a distinctive name,
recognized as a separate legal entity,
with a common capital contributed by its members
comprising transferable shares of a fixed denomination,
carrying limited liability and
having a continuous existence and a common seal.
 FEATURES OF A COMPANY
CHARACTERISTIC FEATURES OF A COMPANY
The various definitions quoted reflect the following characteristic features
that a company has:

Artificial person created by law

A company under the existing corporate law is an artificial legal person
having an entity and personality distinct from the members of shareholders
constituting it.
A company is a legal person because in law it is capable of having legal rights
and obligations just like a natural person.
Like every other human being it can acquire and own property, transfer
property, enter into contracts and sue and be sued in its own name.
 FEATURES OF A COMPANY
Independent legal entity

Since a company is an entity separate from its members hence all

assets and liabilities in a business are its own.

No member can claim any ownership rights in it during its

existence or winding up.
This was first recognized judicially in the case of Salomon vs. Salomon and
company Ltd. In which the House of Lords held that the company was a
body corporate distinct from its members
 FEATURES OF A COMPANY
Perpetual succession
A company has a continued existence and its life is not affected by
the death, lunacy, insolvency or retirement of its members.

Members may come and go but the company continues its

operations as long as requirements of law are fulfilled.

Common seal
A company must have a common seal for use as an emblem (logo,
insignia) in all legal documents.
The common seal is used as a device as the signature of the
company.
Any document bearing common seal of the company and duly signed by at
least two directors will be legally binding on the company
 FEATURES OF A COMPANY
Limited liability
Here the word liability refers to the liability of the shareholders towards the
company.
This is limited to the value of the shares subscribed to or the amount of guarantee given by
them.

Separate ownership and management

Being in a large number it is not advisable for the shareholders to run and
manage the company.
Hence the law provides for the board of directors, elected by the members at their general
meeting to govern the affairs of the company
 TYPES OF COMPANIES
Registered Companies

Companies limited by companies limited by Unlimited

shares guarantee companies

Having share Not having share

capital capital

Private company Public company

Single member Other then Listed company Unlisted company

company single member
company
 TYPES OF COMPANIES
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 following three broad
classifications.[15(2)]

Company limited by shares

Company limited by guarantee

Unlimited company
 TYPES OF COMPANIES
Company Limited by Shares:

It means a company memorandum of association limits the

liabilities of its members to the amount unpaid, if any, on the
shares held by them in the capital of the company.

It is the most popular and important among the registered

companies
It is a company which keeps the liability of its members limited up to
the value of the shares purchased by them
It is essential for such companies to use the word Limited at the end
of their names so that the people know the liability of its members
is limited
Most of the industrial and commercial companies in Pakistan are
registered as companies limited by shares.
 TYPES OF COMPANIES

Company Limited by Guarantee:

It means a company whose memorandum of association

limits the
liabilities of its members to the amount as the members
may respectively undertake to contribute to the assets
of the company in the event of its winding up.
This company may or may not have a share capital.
In Pakistan company limited by guarantee use the
words (guarantee) Limited as the last words of their
names
 TYPES OF COMPANIES
Unlimited Company:
It is a company which is registered
without limiting the liability of its members to the
extent of value of the shares held by them.
In other words, in case if such companies there is no
limit of liability of members to contribute the assets
on a winding up.
Now-a-days such type of companies are not found in
Pakistan.
On The Basis Of Articles Of Association

By virtue of provisions of articles, companies can further be

divided into the following categories
Private Company
Section 2(1)(28) defines a private limited company as a
company which by its articles:

A. Restrict the rights to transfer its shares, If any;

B. Limits the maximum number of its members to fifty; and
C. Prohibits any invitation to the public to subscribe for the
shares or debentures of the company
Public Company
It is a company which is not a private company. It is a
company which does not :
a. limits the maximum numbers of its members;
b. Restrict the right to transfer its shares, if any; and
c. Prohibit from inviting public to subscribe for the shares or
debentures of the company.
A public limited company can be formed with at least
3 members.
Difference between private and public company:
Public company
1. A public company should have at
least three (3) members in case of
unlisted
And (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
shares with out any restriction
5. A public company has to seek
certificate for commencement of
business
Private company
1. A private company should have at
least two (2) members except single
member company (SMC)
2. Maximum members can not exceed
fifty (50) how 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. Transfer of shares is restricted in
private company
5. No such certificate is required and
it can commence business just after
is incorporation
 Public Company
6. The public company has to raise 6.
minimum subscription before
obtaining certificate for 7.
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 8.
business
8. A public company is required to file its
accounts with the registrar and also 9.
with the commission if it is listed.
9. Auditors qualification is presented as
chartered accountants.
10. A public company should have at least 10.
three (3)directors in case of unlisted
company and seven (7)directors in
case of unlisted.
Private Company
There is no requirement to raise
minimum subscription.
There is no requirement of filing
prospectus or statement in lieu of
prospectus for a private company
except when private company converts
into public company
Filing of accounts is not required by
the private company if its paid up
capital is less than 7.5 million rupees
No qualification is prescribed for an
auditor of a private company except
when it has a paid up capital exceeding
RS 3million.
A private company should have least
two (2)directors except single member
company (SMC).
Public limited companies may further be classified
in two categories.
Listed Companies:
The companies whose securities are allowed to be treated
on a stock exchange are called listed companies.
Un-Listed Companies:
The companies whose securities are not allowed to be
treated on a stock exchange are called un-listed companies.
On the basis of company of shareholding:
On the basis of composition of share holding ,companies can be
classified in any of the following types
Holding company[section 3]:
It means a company or body which holds directly or in directly
more than fifty percent (50%)in the voting securities of a company
,or has a power to elect and appoint more than fifty percent
(50%)of the directors of such other company
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 of directors
of such company
Associated companies [section 2(1)(2)]:
A company whose 20% or more shares
(upto50%) are held by another company shall be
considered an associated company of that
company (for complete definition of an
association company )
Associations not for profit [section 42]:
If the securities and exchange commission of Pakistan is 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 License and direct that the association be registered as a limited
company with out the addition of word limited,(private ) 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 intends to apply its profits, if any or
other income in promoting its objects; and
c. Association prohibits the payment of dividends to its
members.
5.3 The conditions and regulations 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 in one of
those documents on the direction of commission.
5.4 The association shall enjoy all privileges of a limited company
and be subject to all its obligations except using the word
Limited, (Private) Limited or (Guarantee) Limited, as the case
may be, as part of its name.

5.5 The license may be revoked by securities and exchange

commission of Pakistan and upon its revocation, the register shall
enter the word Limited, (Private) Limited or (Guarantee)
Limited, as the case may be, at the end of the name of
Association and Association will cease to enjoy all the exemptions
and privileges granted by SECP.
5.6 before the revocation of license, the commission shall give a
notice in writing to association of its intention and the
association shall be afforded the opportunity of submitting a
representation in this regard

5.7 the companies rules 1985 states that the above privileges are
available to public limited companies only and no private limited
company can be granted license under section 42.
 TYPES OF COMPANIES
BY VIRTURE OF LEGAL FORM
By virtue of legal form companies can be classified in the following types

Statutory company
The companies which are formed under special statutes are
called statutory companies .
These are governed by the acts or ordinances through which
these are created.
Examples of such type of companies are the State Bank of Pakistan, Small
Business Finance Corporation, Investment Corporation of Pakistan, etc.
 TYPES OF COMPANIES
Chartered Company
Chartered Companies are formed by the 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 association of persons.
The east India Company and Charted Bank of England are examples of
such type of companies.
Prior to the passing of modern companies legislation, these were
the only types of companies.
Now they are relatively rare, except for very old companies that still
survive (of which there are still many, particularly many British banks)
Government Company
A government Company is a company of which more than 50 percent
of the paid up capital is held by the government.
A company which is subsidiary of a government company automatically
becomes a government company.