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1Forms of Doing Business in Pakistan

Business Law Project

COURSE: Business Law

END TERM PROJECTForms of BusinessOrganizations and

ManagementNEXT CAPITAL LIMITED"

SUBMITTED TO:PROF. SHARIQ MEHMOOD

SUBMITTED BY:JOUN ALI

FAIZA RAUF

MOMIN TARIQMAHAM ZAHID

NADIA MEHMOODMATEEN HASHMAT

MUHAMMAD BUNYAD ALIHASSAN MEHMOOD SHEIKH


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AKNOWLEDGEMENTWe have faced many daunting tasks and challenges in our life and

have come over many obstacles leaving us with something new learnedevery time with success, the greater proportion of the thanks is solely tothe Allah Almighty, who has given us strength and ability to comprehendand make vital use of resources provided to us in the process ofcompleting the challenges accepted by us with honor and respect. Wehave also learned to accomplish any task with the complete success rateand have followed a quote which suggested to us that failure is not anoption, which is as under;

Great ability develops and reveals itself increasingly with everynew assignment (Baltasar Gracian)

Provided with the divine help which played an important role inguiding us, it would be highly unjust if the kind help and support providedto us by our sincere and respectable instructor Prof. Sharik Mahmood isleft unacknowledged.

During the course of conducting the research and analyzingdifferent aspects of this project practically, we came across massivevolume of hindrances and confusions but it is safe to say that we wouldnot have been able to accomplish this term project and to achieve thedesired goals if we would not have been enlightened with the

extraordinary knowledge and experience of our esteemed instructor Prof.Sharik Mahmood.Getting information about the Business Law and the Company understudy NEXT CAPITAL LIMITED was a step by step process, firstly we wentto the company, the Secretary guided us to visit S.E.C.P for the copy ofdocuments and Visit the legal consultants at CORPORATE REET. It wouldbe highly unjust if we dont acknowledge MR. RAJA TAHIR for his detailedguidance regarding the legal procedures.

Other than the assistance provided to us by our instructor, therewas a major role played by our Teaching Assistant Miss. Rabia Suhail whohas provided us with all the guidelines required by us in order to get the

task completed and have most effectively and efficiently provided all theinformation and details to us without any delay.

EXECUTIVE SUMMARY


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This paper is being written keeping in view the objectives that wehave been expected to achieve after studying the basics and principlesthat pertains to law, particularly business law, that pertains to theoperations of the business whatever the kind in which they exist. Thispaper includes our understanding of the business law with respect todifferent kinds and forms of businesses that operates in Pakistan underdifferent Acts or Ordinance. Under the law there is certain code of conductdefined and explained in detail for carrying out business under theboundaries defined by the law. The major advantage of these written rulesand regulations is that they conform compliance.

This term paper includes discussing different forms of BusinessOrganizations and their management in relation with the course contentand develops a clear understanding about how this business world iscontrolled under the law.

The ultimate goal/objective of any entrepreneur is profit orientationfor which he/she takes an initiative, invests a certain sum of money, fulfillsmany legal requirements and undergoes legal procedures defined by thelaw and finally forms a legal business entity to carry out the operations toserve his/her personal interests of profit orientation. Under the law thereare different forms of business organizations categorized according to theobjectives to be achieved and the scale on which the operations will beconducted. These different forms of business give vast opportunities tothe entrepreneurs to select any such form that best fits their businessstyle.

The legal forms of businesses include Sole Proprietorship, Partnership,Non Profit Organization And Corporation, each having certain advantagesand disadvantages respectively. Each of these is adapted by theentrepreneurs according to their needs and wants.

Sole Proprietorship being the simplest form among the businesses iseasy to establish with no or minimum legal requirements. It is the mostflexible form of business because the owner has the sole authority to takedecisions. However the liability of the owner is unlimited (which meanshis/her personal assets may be at risk), this form of the business haslimited life and terminates with the death of the owner. The smaller scaleentrepreneurs with limited amount of capital to carry out the businessnormally adapt this form of business. In sole proprietorship the owner issolely entitled to the profits.


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Partnership remains a common mode of business enterprise inPakistan for small to medium business set-ups. Partnerships are normally

formed where there is a desire to have some structural flexibility alongwith some formality of relationship between partners. There is nocompulsory requirement for registration of a partnership in Pakistan.Nonetheless some litigation and tax related consequences andadvantages are linked to a registered partnership. Legal regime forestablishment and regulation of partnerships in Pakistan is stated in thePartnership Act, 1932 which defines a partnership in the following terms:"as the relation between persons who have agreed to share the profits ofa business carried on by all or any of them acting for all "Any twenty orless persons desiring to carry out a lawful commercial activity or aprofession may form a partnership except in certain cases e.g. where

twenty or more persons may form partnership to undertake practice aslawyers or accountants or any other practice which cannot be carried outas a limited liability company under the provisions of law. A partnershipmay be registered with the Registrar of Firms of an area where the officeof the firm is situated. Partnership agreement should spell out matterssuch as division of profits or dissolution of the partnership. Since apartnership is a voluntary association, you or any partner can end it at anytime. Partners can simply say they no longer wish to be a partner. Thedeath of a partner also automatically ends a partnership. Therefore, apartnership agreement should include provisions for dissolution. Theagreement also covers the payment or performance of partnershipobligations, division of assets, and continued use of the name andownership of intellectual property rights, good will and trade mark.

A Nonprofit Organization (abbreviated as NPO, also known asa not-for-profit organization is an organization that does not distributeits surplus funds to owners or shareholders, but instead uses them to helppursue its goals. Ownership is the quantitative difference between for- andnot-for-profit organizations. The classification as a nonprofit does notmean that the business does not make a profit nor does it mean that it

tried but failed to make a profit. It simply means that the Internal RevenueService has determined that it has filed for and meets the requirements asan organization that provides a service to the community for certainpurposes. These purposes may be religious, charitable, scientific, testingfor public safety, literacy, educational, fostering a national or internationalamateur sports competition, or the prevention of cruelty to children oranimals.Nonprofits are prohibited from distributing Net Income to owners,members, directors, or officers but they may pay fair compensation totheir employees. Contributions to nonprofits are tax deductible by the


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donor, which is a great advantage in raising funds.Nonprofits are controlled just as other corporations by a board of

directors, but they have no stockholders. A nonprofit does not pay incometax, but it does file informational returns. Just as with profit corporations,the nonprofit offers insulation from liability to its board, officers, andemployees.

A Corporation is an Artificial Person Created by Law, endowed with aperpetual succession and an entity apart from its members, it signifiesassent by the means of common seal. It is capable of holding property,incurring debts, and suing and being sued, in the same manner as anindividual. It has a separate legal entity, apart from the persons operatingit. The corporations make all contracts by its own name, and are

responsible for all the obligations.

A Corporation can manage its own affairs, hold property, borrowmoney, and legally does nearly anything an individual can do.Stockholders may be, but need not be, employees, officers, and/ordirectors of the corporation as well.

An advantage of corporations is that they protect stockholders fromunlimited-liability. If the corporation operates according to laws andregulations, creditors only have access to the corporate assets forbusiness debts. The personal assets are not at risk. The law requirescorporations to operate separately from the owner. Corporations have alarger amount of capital, its shareholders are the owners of their part ofinvestment, and are only liable for their part in case of insolvency. Theliability of the shareholders is limited.

There are different types of Companies which includes CompanyLimited by Guarantee (A guarantee company does not usually have ashare capital or shareholders, but instead has members who act asguarantors. The guarantors give an undertaking to contribute a nominalamount (typically very small) in the event of the winding up of the

company), Company Limited by Shares ("Company Limited by Shares"means that the company has shareholders, and that the liability of theshareholders to creditors of the company is limited to the capital originallyinvested, i.e. the nominal value of the shares and any premium paid inreturn for the issue of the shares by the company) and Limited LiabilityCompany (A limited liability company (LLC) is a flexible form ofenterprise that blends elements of partnership and corporate structuresLimited Liability Company (LLC) is a business structure allowed by statestatute. LLCs are popular because, similar to a corporation, owners have


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limited personal liability for the debts and actions of the LLC. Owners of anLLC are called members. There is no maximum number of members).

Public companies are companies whose shares can be publiclytraded, often (although not always) on a regulated stock exchange.Private companies do not have publicly traded shares, and often containrestrictions on transfers of shares.

Company Registration (formation/incorporation) in Pakistan isadministered under a single umbrella of Securities Exchange Commissionof Pakistan, which acts as the prime regulatory authority for thecompanies in most cases.

Securities Exchange Commission of Pakistan works for companyregistration (formation/incorporation), periodic monitoring, compliance

issues of corporate laws and legislation, before and after companyregistration for companies of all sizes in Pakistan.

The record of companies maintained by the Company RegistrationOffices is public record/data covered under Freedom to InformationOrdinance, 2002 of Pakistan, therefore, the investors, shareholders,creditors and general public, may inspect the record of any company(whether it be private company or a Public company) whenever they needand they may also obtain certified copy of any specific document forthwithon payment of an amount of fee. There are certain types of companies

which require Prior Approval before Company Formation/Registration inPakistan.

The main focus of this Term Project is to analyze the Corporation inaccordance with the Companies Ordinance 1984, to understand the legalprocedures through which the companies go through before they can starttheir operations, and the conduct of Business in a Corporation. To achievethis objective, NEXT CAPITAL LIMITED was approached. Following werethe documents provided by the SECP (Securities and ExchangeCommission of Pakistan) after charging a fee, which includesMemorandum of Association, and Articles of Association, Certificate of

Incorporation and Certificate of Commencement, along with theapplication for the availability of Name and the Fee Chillan forRegistration. These documents are under study with reference toCompanies Ordinance 1984, and many other Clauses regarding theprovisions for Prospectus, Directors; their appointments along with theirrights and duties, Accounts, Audit, Appointment of the Chief Executive,General meetings, Extra-Ordinary Meetings and Votes of the Members.

This paper includes, every day to day operation of a Company (NEXTCAPITAL LIMITED) from the day of Commencement and onwards including


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the Nature of the Business which is Brokerage in Stocks, Shares,Securities, Mutual Funds, Commodities, Commercial Papers, Modaraba

Certificates, Bonds, Obligations, Debentures, Treasury Bills etc. We havedisused Articles of associations in detail, with respect to NEXT CAPITALLIMITED that how being a public listed company, the number of shares,company has issued, the boundaries which they have fixed to make thefirst allotment of shares. The time period that it requires to register ortransfer the share. Furthermore, how and when the general meetings, thenotices and proceedings of general meetings, Rights and duties has beendescribed beginning from Voters till the Chief Executive, not only this, thepowers and duties of directors are mentioned in the Articles. All theprovisions regarding the dividends and reserved have been discussed,management of the accounts, the audit committee notice, provisions for

the secrecy of the business including a separate section for winding upand indemnity and arbitration as are stated in the articles of theassociation. The paper includes the main contents of the memorandum ofAssociations, Memorandum of Associations and its clauses, Procedure forthe alteration of the objects, Procedure for the change of name, contentsof the Articles of Associations, Procedure for alteration of the article ofAssociation, Prospectus and its contents, Procedure of the of the CompanyCourt, Registration of the Change of the Name, Civil Liability for themisstatement in the Prospectus, Criminal Liability for the misstatement inprospectus, Notice for the refusal of Transfer of Shares, Publication for thenon publication of Name, Penalties for non publication of Name, StatutoryMeeting of the Company, the annual general meeting, Calling of Extra-Ordinary General Meeting, Minimum number of Directors, Procedure forthe Election of Directors, Retirement of Directors, The term of the office ofthe Director, Powers and Duties of the Directors, Appointment of thesubsequent Chief Executive, Removal of the Chief Executive, Provisionsregarding Accounts, Books of Accounts to be kept by the Company,Appointment and Remuneration of the Directors, Provisions as toresolutions relating to the appointment of the Auditors, Qualification anddisqualification of the Auditors, Powers and Duties of the Auditors,inspection of the Auditors Report, General Meetings and Notice and the

Proceedings of the General Meeting and the Votes of the Members.


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FORMS OF DOING BUSINESS IN PAKISTAN

When identifying an appropriate legal form of business, most oftenentrepreneurs consider these factors: control, taxes, liability,transferability of ownership, longevity of the business, and raising capital.The key is to identify the legal structure that best meets ones needs andthe needs of ones business. In an ideal world, one would select a legalform of business, understanding every legal requirement and taximplication. The reality is that one must rely on the advice of attorneysand accountants to help make this decision. They can anticipate onesconcerns based on their experience and on information provided. Still, thelegal structure of the business is ones own decision to make and live with.

Legal forms of doing business are:

Sole Proprietorship Partnership Corporation Non-Profit Organizations

Legal Forms of Doing Business and their characteristics, advantages,and disadvantages are individually under the study, which constitutes the

legal forms and the scope and boundaries defined by the Law pertainingto these Legal Forms. Limitations under which the operations can beconducted and defined by the Law in detail. Analyzing the situation,relating to the form of Business that best suits to ones Business Goals.

SOLE PROPRIETORSHIP

A Sole Proprietorship is a business owned by only one person andoperated for his or her profit. It is the easiest legal entity to form andmaintain, requiring little to no paperwork or approvals to begin, hence, themost easily to form and operate.

In a sole proprietorship, the owner alone controls the entire business.The Owner can either manage it or hire managers to conduct the day today operations. All the profits and losses belong to the owner. The Ownerhim/herself is the business.

In a sole proprietorship, the owner is liable for any debts of thebusiness. Because the business and the business owner are the same, noseparate legal entity exists, the owners personal assets are available topay the debts of the business and business assets may satisfy your


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personal obligations. Hence, leading to the Unlimited Liability for theOwner to finance its debts.

IN PRACTICAL TERMS:

Suppose that an individual starts a business as a Sole Proprietor,invests rupees ten million (10 M) to carry out the operations, the profit orloss that occurs from the operations of the business is solely entitled tothe owner and no other individual can claim. The owner might have amanagement team butt the team is only entitled to the salaries for theirpart of the service.

The same owner takes a loan of RS 3 Million for raising the capital bysubmitting the collaterals belonging to his personal assets. In case he

suffers a loss in the business and at the time of repayment of the loan heis unable to finance the amount of debt, his further personal assets willnow be sold to finance the amount of debt, because he is the only oneresponsible for the repayment and no other individual from themanagement is responsible for his part of debt.

The owner can sell a sole proprietorship as a business or close itsdoors and sell its assets. The business ends upon the death of the ownerand may end upon the owners permanent disability or prolongedabsence, or in case of Insanity or any other abnormal circumstances.

The ability of a sole proprietorship to raise capital is limited. Since,the Owner is theOnly individual to finance or raise capital to conduct the businessoperations and have limited Credibility or Collaterals to obtain Loan forwhich he is alone liable. The Owner cannot sell shares of the business toraise the Capital. Generally, these entities obtain loans after fullycollateralizing them with personal assets, and taking the wholeresponsibility of the repayment.

Advantages of forming a sole Proprietorship in Pakistan:

The main advantages of a sole proprietorship (sole ownership) are that:

Sole Proprietorships are easy to start up. (minimum or no legalrequirements)

Sole Proprietorship is subject to fewer regulations relative to other typesof businesses.

The Sole Proprietorship owner has full autonomy with regard to businessdecisions.


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Sole Proprietorship is easy to discontinue as well. Another significant advantage is that one takes all the profits of the

business.

A sole proprietor usually has a quick decision process and doesnt haveany opposition when making a decision as he / she has total control of hisor her business. All profits and losses accrue to the owner.

The owner does not have the tension regarding conflicts among otherpartners, as there are no partners. Also its easy to set up, with havinglittle paper work to fill in and little money spent on setting up, this is oneof the easiest types of business to start.

PARTNERSHIP

A Partnership isformed when two or more entities join together for acommon business purpose. Partnership means a formal agreementbetween two or more parties that have agreed to work together in thepursuit of common goals. A partnership can be general or limited.Although no written document is required to form a partnership, for allpartners sakes a partnership agreement should be written. This documentshould spell out matters such as division of profits or dissolution of thepartnership.

A partnership business operates under the rules and regulationsdefined in the PARTNERSHIP ACT 1932.

The partners control a partnership according to their agreement.They have a great deal of flexibility. If they have no other agreement, thelaw assumes that partners share control equally. In a limited partnership,the general partner controls the operations and the limited partner issimply an investor.

Some experts recommend avoiding a partnership, corporation, or LLC


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that splits ownership 50/50. What happens if the owners do not agree? Amajority cannot be achieved. Instead of a 50/50 ownership, a third party in

which the partners have complete trust, could have a very smallpercentage of ownership or a written agreement to resolve tie votes. If thepartners agree, that person never hears from them. If the partners cannotagree, this third party votes so the business can act.

Partnerships have a fairly simple tax structure. Income and lossearned by the partnership passes through to the partners, and they reportit on their respective tax returns. The partners then pay the tax on theirshare of the profits. The partnership itself does not pay any tax on profits.

Some authorities strongly advise against using the general

partnership form of organization for most types of businesses becauseliabilities are personal and unlimited. Moreover, each partner is fullypersonally liable for the actions of any other partner. In a limitedpartnership, only the general partner is personally liable. The limitedpartners liability is limited to the amount of investment.

Since a partnership is a voluntary association, you or any partner canend it at any time. Partners can simply say they no longer wish to be apartner. The death of a partner also automatically ends a partnership. Therefore, a partnership agreement should include provisions fordissolution. The agreement also covers the payment or performance ofpartnership obligations, division of assets, continued use of the name andownership of intellectual property rights, good will and trade mark.

When land development costs exceeded the initial estimates and thepartners needed to make additional contributions, only one of them hadthe funds to do so. Since the partnership was contractually bound tocomplete the buildings, everything would be lost if they did not perform.The partner with the funds purchased the interests of the other twopartners for far less than their initial investment and made all the profithimself when the land was eventually sold. The partnership structure

wasnt right for the two partners who had to sell at a loss. Under adifferent structure they might have been able to maintain their share inthe company and then had the entity raise the needed funds.

A partnership is primarily dependent upon the individual assets of thepartners to raise additional capital. Adding investors requires convertingfrom a general to a limited partnership. It would create a new entity.Lenders will look for a fully collateralized loan to be personally guaranteedby the partners. Since limited partners are generally investors whoseliability is limited to their investment, it is unlikely that they would be


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willing to personally guarantee a loan.

Partnership remains a common mode of business enterprise inPakistan for small to medium business set-ups. Partnerships are normallyformed where there is a desire to have some structural flexibility alongwith some formality of relationship between partners. There is nocompulsory requirement for registration of a partnership in Pakistan.Nonetheless some litigation and tax related consequences andadvantages are linked to a registered partnership. Legal regime forestablishment and regulation of partnerships in Pakistan is stated in thePartnership Act, 1932 which defines a partnership in the following terms:"as the relation between persons who have agreed to share the profits of

a business carried on by all or any of them acting for all "Any twenty orless persons desiring to carry out a lawful commercial activity or aprofession may form a partnership except in certain cases e.g. wheretwenty or more persons may form partnership to undertake practice aslawyers or accountants or any other practice which cannot be carried outas a limited liability company under the provisions of law. In all othercases where the number of intended partners increases beyond the figureof twenty a company should be incorporated. A partnership may beregistered with the Registrar of Firms of an area where the office of thefirm is situated. A statement in prescribed form must be delivered to therelevant Registrar stating:

Firm name Place or principal place of business of the firm Names of any other places where the firm carries on business Date when each partner joined the firm Names in full and permanent addresses of the partners Duration of the firm

Major Characteristics of Partnership:

A partnership is not a distinct legal person, but is made of the personscomposing it. Creation of Partnership is purely a matter of agreement between theparties such an agreement need not even be in writing. In a firm partner cannot transfer his interest with the consent of theother partners. Each partner is prima facie the agent of others, and can bind them byhis contract made in the course of business of the partnership. Each partner is liable in full for the debts of the firm.


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A partner cannot contract with his firm. Partners may make any private arrangements among themselves.

For instance a partner may buy his partners share. The Maximum number of partners can be twenty. But in bankingbusiness it is ten. The death or retirement of a partner dissolves a firm. Property may be the common property of partners. Restrictions contained in a partnership deed will not affect thirdparties, who are not aware of such restrictions. A firm cannot sue and be sued in its own name. Decree against a firm can be executed against the partners. Registration is optional. A firm having no separate legal existence cannot be shareholder of

company. Persons who enter into partnership are collectively called a firm.


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NONPROFIT

A Nonprofit Organization (abbreviated as NPO, also known asa not-for-profit organization is an organization that does not distributeits surplus funds to owners or shareholders, but instead uses them to helppursue its goals. Ownership is the quantitative difference between for andnot for profit organizations. For profit organizations can be privately

owned and may re-distribute taxable wealth to employees. By contrast,not for profit organizations do not have private owners. They havecontrolling members or boards, but these people cannot sell their sharesto others or personally benefit in any taxable way.

While they are able to earn a profit, more accurately called a surplus;such earnings must be retained by the organization for its selfpreservation, expansion and future plans. Earnings may not benefitindividuals or stake holders. While some nonprofit organizations putsubstantial funds into hiring and rewarding their internal corporateleadership, middle-management personnel and workers, others employunpaid volunteers and even executives may work for no compensation.There is a wide diversity of structures and purposes in the NPO framework.For legal classification and eventual inspection, there are, nevertheless,some structural elements of prime legal importance:

Economic activity

Supervision and management provisions

Representation

Accountability and Auditing provisions

Provisions for the amendment of the statutes or articles of incorporation

Provisions for the dissolution of the entity

Tax status of corporate and private donors

Tax status of the foundation

Some of the above must be, in most jurisdictions, expressed in thedocument of establishment. Others may be provided by the supervisingauthority at each particular jurisdiction. While affiliations will not affect alegal status, they may be taken into consideration in legal proceedings asan indication of purpose.


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The classification as a nonprofit does not mean that the business

does not make a profit nor does it mean that it tried but failed to make aprofit. It simply means that the Internal Revenue Service has determinedthat it has filed for and meets the requirements as an organization thatprovides a service to the community for certain purposes. These purposesmay be religious, charitable, scientific, testing for public safety, literacy,educational, fostering a national or international amateur sportscompetition, or the prevention of cruelty to children or animals.

Nonprofits are prohibited from distributing Net Income to owners,members, directors, or officers but they may pay fair compensation totheir employees. Contributions to nonprofits are tax deductible by the

donor, which is a great advantage in raising funds.

Nonprofits are controlled just as other corporations by a board ofdirectors, but they have no stockholders. A nonprofit does not pay incometax, but it does file informational returns. Just as with profit corporations,the nonprofit offers insulation from liability to its board, officers, andemployees.

In Pakistan, there are at least seven laws that are of principalrelevance to the registration and operation of nonprofit organizationseither singly or are applicable alongside others. There is only one lawwhich requires that all nonprofit organizations engaged in providing forthe welfare of a specified list of disadvantaged people or for specificallyidentified purposes must be mandatorily registered. Some of the lawsconfer the status of an artificial juridical person (namely it can be suedor sue under its own name and property and assets can be held under itsown name) upon the NPOs. Registration under the incorporatingAct/Ordinance and subsequently under the Income Tax Ordinance,however, bestows certain advantages, which may include one or all of thefollowing:

The assets are held in perpetuity. Exemptions from tax on income and profits. Exemptions to donors on the donations they make, thereby improving the

financial sustainability of the recipient organization. Recognition.

All NPOs registered as nonprofit companies can use their namewithout the suffix Limited, (Private) Limited or (Guarantee) Limited.Each nonprofit company must, however, clearly indicate on all bills,receipts and correspondence that it is a Company with limited liability


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under section 42 of the Companies Ordinance, 1984. Its members are notentitled to any share in the profits of the company, nor do they allow to be

remunerated for services rendered. Their liability is limited by theMemorandum to such amounts as each member may undertake tocontribute to the assets of the Company in the event of its winding up.

A Nonprofit Company may be wound up in a number of specifiedways. There is, however, one over-riding principle - no assets may bedistributed among the Members. They must be given to any otherorganization with a charitable purpose by the liquidator with the approvalof the court. The ways in which a nonprofit company may be wound up,dissolved or liquidated are:

Voluntarily:A Company may be wound up voluntarily on the followinggrounds:When the period, if any, fixed for the duration of the Company by theArticles expires, and the company in a general meeting resolves that theCompany be wound up voluntarily if the company resolves in a specialmeeting that the Company be wound up voluntarily.

Subject to the Supervision of the Court: Where a Company haspassed a resolution for winding up on a voluntary basis, the court, may ofits own motion or on application by any person entitled to apply to thecourt for the winding up of the company, may make an order that thevoluntary winding up will continue under supervision of the court.

Through a Court: A Company may be wound up through a court for anumber of reasons, some of which are as follows:

If a Company, by special resolution, has resolved that it be wound upthrough court.

If the number of its members is reduced to less than the minimumrequirements

COMPANY

A Corporation is an Artificial Person Created by Law, endowed with aperpetual succession and an entity apart from its members, it signifiesassent by the means of common seal. It is capable of holding property,incurring debts, and suing and being sued, in the same manner as anindividual. It has a separate legal entity, apart from the persons operatingit.


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A Corporationis a legal entity created under state law. A corporationcan manage its own affairs, hold property, borrow money, and legally does

nearly anything an individual can do. Stockholders may be, but need notbe, employees, officers, and/or directors of the corporation as well.

An advantage of corporations is that they protect stockholders fromunlimited-liability. If the corporation operates according to laws andregulations, creditors only have access to the corporate assets forbusiness debts. The personal assets are not at risk. The law requirescorporations to operate separately from the owner and to file allgovernmentally required reports and taxes.

Corporations have a three-tiered control system. Stockholders elect

the directors of the corporation. In turn, directors elect the officers. Otherthan electing directors and expecting dividends, stockholders generallyhave no other function. The directors make primary decisions for thecorporation, and the officers direct day to day operations.Some states permit one person to fill the roles of stockholder, director,and officer. Others permit only one owner but require two officersminimum. All states requirements are based on the concept that thecorporation is a separate legal entity from those individuals who own andoperate it.

Shares of a corporation represent ownership of the corporation. Whileyou may restrict shares through the laws of the corporation, one maytransfer ownership of all or part of the corporation relatively easily. Acorporation can exist forever apart from its founders. When you want tosell your business, the corporation provides a much more salable packagethan a sole proprietorship or partnership.

The corporation is the only entity that can deduct as businessexpenses many benefits such as health care and retirement plans. Theseexpenses reduce the taxable profits of the corporation and giveemployees valuable benefits, which are not taxed as income.

Incorporating a business carries many advantages. One of the mostsignificant advantages is tremendous financial flexibility in raising capital.A corporation has the ability to provide the capital structure that is neededto accomplish the business goals.

TYPES OF COMPANIES:

There are various types of companies that can be


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formed/registered/incorporated in Pakistan under the companiesOrdinance, 1984, but the most common forms of company (generally

formed by registration) are:

1) A Company Limited by Guarantee:

A private company limited by guarantee is an alternative typeof corporation used primarily for non-profit organizations that require legalpersonality. A guarantee company does not usually have ashare capital or shareholders, but instead has members who act asguarantors. The guarantors give an undertaking to contribute a nominalamount (typically very small) in the event of the winding up of thecompany. It is often believed that it cannot distribute its profits to itsmembers but (depending on the provisions of the articles) this is notactually true. However a company limited by guarantee that distributes itsprofits to members would not be eligible for charitable status. Commonlyused where companies are formed for non-commercial purposes, such asclubs or charities. The members guarantee the payment of certain(usually nominal) amounts if the company goes into insolvent liquidation,but otherwise they have no economic rights in relation to the company.

2) A Company Limited by Shares:

"Company Limited by Shares" means that the company hasshareholders, and that the liability of the shareholders to creditors of thecompany is limited to the capital originally invested, i.e. the nominalvalue of the shares and any premium paid in return for the issue of theshares by the company. A shareholder's personal assets are therebyprotected in the event of the company's insolvency, but money invested inthe company will be lost. The most common form of company used forbusiness ventures. Specifically, a limited company is a company in whichthe liability of each shareholder is limited to the amount individuallyinvested with corporations being the most common example of a limitedcompany. This type of company is the most common in Pakistan to beregistered under the Companies Ordinance 1984.

3) A Limited-Liability Company.

A limited liability company (LLC) is a flexible form of enterprisethat blends elements of partnership and corporate structures. It is a legalform of company that provides limited liability to its members. LLCs do notneed to be organized for profit.


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A Limited Liability Company (LLC) is a business structure allowed bystate statute. LLCs are popular because, similar to a corporation, owners

have limited personal liability for the debts and actions of the LLC. Otherfeatures of LLCs are more like a partnership, providing managementflexibility and the benefit of pass-through taxation. Owners of an LLC arecalled members. There is no maximum number of members. A few typesof businesses generally cannot be LLCs, such as banks and insurancecompanies.

Public Companies and Private Companies:

Companies are also sometimes distinguished for legal andregulatory purposes between public companies and private companies.

Public companies are companies whose shares can be publicly traded,often (although not always) on a regulated stock exchange. Privatecompanies do not have publicly traded shares, and often containrestrictions on transfers of shares.

Company Taxation in Pakistan

Pakistans taxation system for companies is based upon two basesi.e. Direct Taxation and Indirect Taxation. Effective rate of tax may differfor companys depending upon their size, allowances and exemption toparticular company/industry, location, exports and so forth. As a generalguide companies are taxed as follows on their net income directly:

Corporate Tax Rates Tax Year 2010(running from 1st of July, 2009 to30th of June, 2010)

Public Companies 35%

Private Ltd. Companies 35%

Banking Companies 35%

Small company 20% up to 35%

Indirect Taxation includes deduction at source, which may bepayment on supplies, services, imports, exports, dividends and so forth.Rates of deduction may vary from as low as 1% up to as high as 30%.

Company Incorporation / Registration Offices in Pakistan


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Company Registration (formation/incorporation) in Pakistan isadministered under a single umbrella of Securities Exchange Commission

of Pakistan, which acts as the prime regulatory authority for thecompanies in most cases.

Securities Exchange Commission of Pakistan works for companyregistration (formation/incorporation), periodic monitoring, complianceissues of corporate laws and legislation, before and after companyregistration for companies of all sizes in Pakistan.

Company Registration Offices are established in Lahore, Karachi,Islamabad, Peshawar and other major cities of Pakistan. Functions of theseCompany Registration Offices include providing services and guidance,

while also ensuring that the companies, their directors, legalrepresentatives, employees and other related parties comply with thestatutory requirements as provided under the Companies Ordinance, 1984(Pakistan).

The record of companies maintained by the Company RegistrationOffices is public record/data covered under Freedom to InformationOrdinance, 2002 of Pakistan, therefore, the investors, shareholders,creditors and general public, may inspect the record of any company(whether it be private company or a Public company) whenever they need

and they may also obtain certified copy of any specific document forthwithon payment of an amount of fee.

Public Company Formation/Registration:

Any three or more persons associated for any lawful purpose may,by subscribing their names to the Memorandum of Association andcomplying with the requirements of the Companies Ordinance of Pakistancan form a public company.

Private Limited Company Formation/Registration:

Any one or more persons so associated may, in like manner, form aprivate company. If only one member forms a private company, it is calleda single member company and if more than one member forms it, it istermed as a private company.

Types of Companies in Pakistan and Prior Approval


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before Company Formation/Registration in Pakistan:

Prior approval of the Ministries/Departments etc. may be neededdue to law/legislation before commencing on formation/incorporation of acompany in Pakistan which includes the following:

(a) A banking company has to seek permission and complete the legalrequirements of the State Bank of Pakistan and Ministry of Finance inPakistan before commencing with company incorporation/registration.

(b) A Non-Banking Finance company (NBFC) has to seek permission andcomplete the legal requirements of the State Bank of Pakistan andMinistry of Finance in Pakistan before commencing with companyincorporation/registration with Securities and Exchange Commission ofPakistan

(c) A Security Service Company has to appoint people from the Army ofprominent rank and seek permission and complete the legal requirementsof the Ministry of Interior before commencing with companyincorporation/registration with Securities and Exchange Commission ofPakistan.

(d) A Corporate Brokerage House has to seek approval of the concerned

stock exchange before commencement of Business.

(e) A Money Exchange Company as required for Banking Companyrequires the prior approval of the State Bank of Pakistan to proceed withcompany registration.

(f) An Association not for profit, such association may need to applydirectly to SECP (Security and Exchange Commission of Pakistan) for aLicense.

(g) A trade organization would require a License from the Ministry ofCommerce before it can work as a trade organization.

NEXT CAPITAL LIMITED IN ACCORDANCE WITH THECOMPANIES ORDINANCE 1984

Companies Ordinance 1984 may be defined as An Ordinance toconsolidate and amend the law relating to companies and certain otherassociations. WHEREAS it is convenient to consolidate and amend the lawrelating to the companies and certain other associations for the purpose of


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healthy growth of the corporate enterprises, the industrial economy for theprotection of investors and creditors, promotion of investment and

development of economy and matters arising out of or connectedtherewith, and the amendments are made with the Satisfaction of thePresident necessary to take immediate actions. It extends to the whole ofPakistan.

The Companies Ordinance 1984 is under study with reference to thePractical Working of the company according to the rules and regulationsstated in the Companies Ordinance. This study has been made extensivelyin order to firstly understand the course content and then apply it to thecompany chosen which is NEXT CAPITAL LIMITED, this is a Public Listed

Company which is trading its share at the Lahore Stock Exchange, andfully complies with the regulations of the Companies Ordinance,Registered at SECP (Securities Exchange Commission of Pakistan).

Beginning with the Registration of the Company under the Law:

REGISTRATION:

Registration of a Company and Commencement of Business inPakistan:

The first step toward incorporation of a company in Pakistan is to filean application before the Registrar of Companies for availability of name.If the proposed name of the company is available and it is not incontravention to the provisions of the Companies Ordinance, 1984 and theRules formed there under, then the Registrar shall issue a certificatestating that the proposed name is available to be adopted.

The next step is to file the Memorandum of Association and Articlesof Association, which in effect is the constitution of any company, with theRegistrar of Companies in the Province where proposed company is to be

incorporated, along with other necessary forms prescribed under theCompanies Ordinance, 1984. When the company has been registered, theRegistrar issues a Certificate of Incorporation. Once such a certificate hasbeen issued by the Registrar a private limited company may commenceits business immediately. Nonetheless, a public limited company cannotcommence its business or exercise its borrowing powers yet unless theRegistrar has issued a Certificate for Commencement of Business. TheRegistrar issues the Certificate for Commencement of Business only if thefollowing requirements have been fulfilled:


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purchase)

7. Statutory declaration of legal documents of incorporation

After these documents have been submitted to and approved,

THE SECURITIES AND EXCHANGE COMISSION OF PAKISTAN had issued

certificate of incorporation with identification number 0071068 with the

company title ofNEXT CAPITAL LTD on the 14th day of December 2009.

After receiving a fee of Rs. 639,500.

CERTIFICATE OF COMMENCEMENT OF BUSINESS:

The NEXT CAPITAL LTD has been issued the certificate of commencement

after the submission of following documents

I. Declaration by the company that the minimum subscription as per

prospectus has been received in cash

II. Declaration by the company that all the directors have taken up their

qualification shares and paid for them.

III. Declaration by the company that all legal requirements to the

commencement of business have been fulfilled.

BASIC LEGAL DOCUMENTS

a) Memorandum of association (companys charter)


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It is the basic document on which the whole superstructure of the

company is based. It is also called the constituents of the company, it is

primary document it the company formation. It is for the external

management of the company.

Contents of memorandum of association.

1 In case of public ltd co the names of the co with the word

limited as the last word of the name while the private ltd with

the name of the private ltd co as the last word of the name.

2 The province where the registered office of the co is to be

situated.

3 The objects of the co and their extensions

4 The liabilities of the members is limited

5 The amount of the shares capital and the no of shares with which

the company is to be registered.

Form of memorandum of association

1 It must be printed

2 Must be divided into paragraphs and consecutively numbered

3 Signed by each subscriber (who must give his full address and

occupation) in the presence of at least one witness who must

attest the signature.

Memorandum of association consist of 6 clauses

1. Name clause

2. Situation clause

3. Object clause (objectives of company)

4. Liability clause (limited up to their investment)

5. Capital clause

6. Subscription clause (integral part of capital clause)


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PROCEDURE FOR ALTERATION OF OBJECTS

The following procedure must be followed otherwise alteration become

void.

1 A special resolution is passed by giving a notice to all persons who

are interested in alteration.

2 An application is filled with the SECP for confirmation of change.

3 The SECP must check the objections of creditors and be satisfied

that their consent is obtained.

4 After that the SECP will confirm the change if it deems fit.

5 Within 90 days from the date of order of SECP , a certified copy of

the order of the court along with the printed copy of memorandum

must be submitted with the registrar of SECP

6 Registrar will then issue a certificate of registration, which will be a

proof of alteration in objects.

PROCEDURE FOR CHANGE OF NAME.

A company at many times during the course of its business may

change its name by fulfilling the following conditions.

1 A special resolution is passed

2 Approval of registrar is obtained in witting with respect to change in

name.

3 The registrar enters the new name in register and shall issue a

certificate of incorporation in the changed name.

4 Where the co has unintentionally registered a name similar to that

of an existing name, it can be changed only with the sanction of the

registrar.


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B) ARTICLE OF ASSOCIATION

It is also known as supplementary or secondary document of the

company. It is used for the internal matters/management of the company.

Articles of association must be signed by each subscriber.

Contents of articles of association

1. Amount of share capital issued and transmission of shares

2. Rights of shareholders regarding voting, dividend and return of

capital

3. Rules regarding issue of shares and debentures.4. Procedures as well as regulations on making calls on shares

5. Manners of transfers of shares

6. Rules regarding appointment of directors, managing agent,

secretary and treasurers etc

7. Number , qualification, power and liabilities of directors

8. Convening and conduct of meetings with respect to quorum , poll,

proxy , resolution etc

9. Rules regarding the forfeiture of share.

10.Rules regarding the winding up of shares

11.Matters relating the winding up of the Co.

12.Declaration of dividend. (Responsibility of Board of directors)

Difference b/w Transfer of shares and transmission of

sharesTransfer of share: when the person is mentally sound and sale out

his shares (dispose off).Transmission of shares: it is the process of transfer

of shares to legal successor (next to kin) or representative of the

deceased person (shareholder) by the operation of law in case of death,

insolvency or lunacy (unsound mind).


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a company or inviting deposits from the public.

Contents of prospectus

I.The contents of memorandum with the name, address, occupation and

description of the person whos names (there in memorandum), the

nature and the extent of interests of the shareholders in the profit and

property of the Company.

II.Description of business to be undertaken

III.Description regarding remuneration of the directors or chief executive

officer

IV.The names, address, occupation and description of the important office

bearers of the company.

V.Where shares are offered to the public for subscription, information

regarding minimum subscription, preliminary expenses payable and

underwriting commission payable etc.

VI.The date and time of opening and closing subscription list.

VII.The names of the underwriters and directors opinion about them that

their resources are sufficient to fulfill their obligation.

VIII.The names, addresses, description and occupation of the company

vendors and the amount paid or payable to them.

IX.The estimated amount of preliminary expenses paid or payable by the

company

X.Any amount paid to the promoters in previous two years.

XI.The names and addresses of auditors and legal advisors.

XII.The right of voting of meeting and dividend attached to shares.

XIII.The length of time during which the business of the company has been

carried on.

XIV.A reasonable time and place for the inspection of balance sheet and

income statement.

XV.A summery in column from the earnings of the company for each 3

financial years.


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XVI.Pending legal proceedings to which the Company is a party.

PROCEDURE OF THE COMPANY COURT

i. All matters coming before court under the company ordinance shall

be disposed off (solved) and the judgment pronounced as soon as possible

but not later than 90 days from the date of the presentation of the petition

to the court except in extra ordinary circumstances, the court shall hear

the case from day to day.

ii. The hearing of the matters shall not be adjourned except for

sufficient cause or for more than 14days at one time or for 30days at all.

GENERAL PROVISIONS WITH RESPECT TO REGISTRATION

OF MEMORANDUM AND ARTICLES

Registration of Memorandum and Articles:

The Memorandum and the Articles of Association, if any, shall befiled with the registrar in the Province or the part of Pakistan not formingpart of a Province, as the case may be, in which the registered office of thecompany is stated by the memorandum to be situated.

PROVISIONS WITH RESPECT TO NAMES OF COMPANIES

Registration of change of name:When a company changes its name, the registrar shall enter the new

name on the register in place.

When a company changes its name it shall, for a period of one yearfrom the date of issue of a certificate by the registrar, continue to mentionits former name along with its new name on the outside of every office orplace in which its business is carried on and in every document or notice.


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to believe, and did up to the time of the issue of the prospectus believe,that the statement was true.

Directors not to refuse transfer of shares.

The directors of a company shall not refuse to transfer any fully paidshares or debentures unless the transfer deed is, for any reason, defectiveor invalid:

Notice of refusal to transfer.

If a company refuses to register a transfer of any shares ordebentures, the company shall, within thirty days after the date on whichthe instrument of transfer was lodged with the company, send to thetransferee notice of the refusal indicating the reasons for such refusal.

Limited company may have directors with unlimitedliability.

In a limited company, the liability of the directors or of any directormay, if so provided by the memorandum, be unlimited. In a limitedcompany in which the liability of any director is unlimited, the directors ofthe company, if any, and the member who proposes a person for electionor appointment to the office of director, shall add to that proposal astatement that the liability of the person holding that office will beunlimited and the promoters and officers of the company, or one of themshall, before that person accepts the office or acts therein, give him noticein writing that his liability will be unlimited.

If any director or proposer makes default in adding such a statement,or if any promoter or officer of the company makes default in giving such anotice, he shall be liable to a fine which may extend to two thousandrupees and shall also be liable for any damage which the person so electedor appointed may sustain from the default, but the liability of the personelected or appointed shall not be affected by the default.

MANAGEMENT AND ADMINISTRATION REGISTEREDOFFICE, PUBLICATION OF NAME, ETC.


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Registered office of company.

A company shall as from the day on which it begins to carry onbusiness, or as from the twenty-eighth day after the date of itsincorporation, whichever is the earlier, have a registered office to which allcommunications and notices may be addressed.

Notice of the situation of the registered office and of any changetherein shall be given within twenty-eight days after the date of theincorporation of the company or of the change, as the case may be, to theregistrar who shall record the same.

Publication of name by a limited company

Every limited Company, shall paint or affix, and keep painted oraffixed, its name on the outside of every office or place in which itsbusiness is carried on, in a conspicuous position, in letters easily legibleand in English or Urdu characters, and also, if the registered office issituate in a place beyond the local limits of the ordinary original civil jurisdiction of a High Court, in the characters of one of the vernacularlanguages used in that place; shall have its name engrave in legibleEnglish or Urdu characters on its seal; shall have its name mentioned in

legible English or Urdu characters, in all ill-heads and letter papers and inall documents, notices and other official publications of the company, andin all bills of exchange, hundis, promissory notes, endorsements, chequesand orders for money or goods purporting to be signed by or on behalf ofthe company, and in all bills of parcels, invoices, receipts and letters ofcredit of the company.

Penalties for Non-Publication of Name:

If a limited company does not paint or affix, and keep painted oraffixed, its name in manner directed by this Ordinance, it shall be liable toa fine which may extend to two hundred rupees for every day during whichits name is not so kept painted or affixed, and every officer of the companywho knowingly and willfully authorizes or permits the default shall be liableto the like penalty.

If any officer of a limited company, or any person on its behalf, usesor authorizes the use of any seal purporting to be a seal of the companywherein its name is not so engrave as aforesaid, or issues or authorizes the


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issue of any bill-head, letter paper, document, notice or other officialpublication of the company, or signs or authorizes to be signed on behalf of

the company any bill of exchange, hundi, promissory note, endorsement,cheque or order for money or goods, or issues or authorizes to be issuedany bill of parcels, invoice, receipt or letter of credit of the company,wherein its name is not mentioned in manner aforesaid, he shall be liableto a fine which may extend to two thousand rupees, and shall further bepersonally liable to the holder of any such bill of exchange, hundi,promissory note, cheque or order for money or goods, for the amountthereof unless the same is duly paid by the company.

REGISTER OF MEMBERS AND DEBENTURE-HOLDERSRegister of members and index.

Every company shall keep in one or more books a register of itsmembers and enter therein the following particulars, mainly:(1) The name in full, father's name (in the case of a married woman orwidow, the name of her husband or deceased husband), nationality,address, and the occupation, if any, of each member, and, in the case of acompany having a share capital, a statement of the shares held by each

member, distinguishing each share by its number, and of the amount paidor agreed to be considered as paid on the shares of each member;

(2) The date at which each person was entered in the register as amember.(3) The date at which any person ceased to be a member and thereason for ceasing to be a member.

(4) Every company having more than fifty members shall, unless theregister of members is in such a form as to constitute in itself an index,

keep an index of the names of the members of the company and shall,within fourteen days after the date at which any alteration is made in theregister of members, make the necessary alteration in the index.

MEETINGS AND PROCEEDINGS


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(g) The particulars of any commission or brokerage paid or to be paid inconnection with the issue or sale of shares to any director, chief executive,

secretary or officer or to a private company of which he is a director.

(h) The statutory report shall also contain a brief account of the state ofthe company's affairs since its incorporation and the business plan,including any change or proposed change affecting the interest ofshareholders and business prospects of the company.

(I) the statutory report shall, so far as it relates to the shares allotted bythe company, the cash received in respect of such shares and to thereceipts and payments of the company, be accompanied by a certificate ofthe auditors of the company as to the correctness of such allotment,

receipts of cash, receipts and payments.

(j) The directors shall cause at least five copies of the statutory report,certified as aforesaid, to be delivered to the registrar for registrationforthwith after sending the report to the members of the company.

(k) The directors shall cause a list showing the names, occupations,nationality and addresses of the members of the company, and thenumber of shares held by them respectively, to be produced at thecommencement of the meeting and to remain open and accessible to anymember of the company during the continuance of the meeting.

(l) The members of the company present at the meeting shall be atliberty to discuss any matter relating to the formation of the company orarising out of the statutory report, whether previous notice has been givenor not, but no resolution of which notice has not been given in accordancewith the articles may be passed.

(m) The meeting may adjourn from time to time, and at any adjournedmeeting any resolution of which notice has been given in accordance withthe articles, either before or after the original meeting, may be passed,

and an adjourned meeting shall have the same powers as an originalmeeting.

ANNUAL GENERAL MEETING

Every company shall hold, in addition to any other meeting, ageneral meeting, as its annual general meeting, within eighteen monthsfrom the date of its incorporation and thereafter once at least in everycalendar year within a period of four months following the close of itsfinancial year and not more than fifteen months after the holding of its last


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preceding annual general meeting:

Provided that, in the case of a listed company, the Commission, and,in any other case, the registrar, may for any special reason extend thetime within which any annual general meeting, not being the first suchmeeting, shall be held by a period not exceeding sixty days.

An annual general meeting shall, in the case of a listed company, beheld in the town in which the registered office of the company is situated,Provided that the Commission, for any special reason, may, on theapplication of such company, allow the company to hold a particularmeeting at any other place.

The notice of an annual general meeting shall be sent to the

shareholders at least twenty-one days before the date fixed for themeeting and, in the case of a listed company, such notice, in addition to itsbeing dispatched in the normal course, shall also be published at least inone issue each of a daily newspaper in English language and a dailynewspaper in Urdu language having circulation in the Province in which thestock exchange on which the company is listed is situated.

CALLING OF EXTRAORDINARY GENERAL MEETING

All general meetings of a company, other than the annual general

meeting shall be called extraordinary general meetings.

The directors may at any time call an extraordinary general meetingof the company to consider any matter which requires the approval of thecompany in a general meeting, and shall, on the requisition of membersrepresenting not less than one-tenth of the voting powers on the date ofthe deposit of the requisition, forthwith proceed to call an extraordinarygeneral meeting.

The requisition shall state the objects of the meeting, be signed bythe requisitionists and deposited at the registered office of the company,

and may consist of several documents in like form, each signed by one ormore requisitionists.

If the directors do not proceed within twenty-one days from the dateof the requisition being so deposited to cause a meeting to be called, therequisitionists, or a majority of them in value, may themselves call themeeting, but in either case any meeting so called shall be held within threemonths from the date of the deposit of the requisition.

Any meeting called under sub-section by the requisitionists shall be


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called in the same manner, as nearly as possible, as that in whichmeetings are to be called by directors.

Any reasonable expense incurred by the requisitionists by reason ofthe failure of the directors duly to convene a meeting shall be repaid to therequisitionists by the company, and any sum so repaid shall be retained bythe company out of any sum due or to become due from the company byway of fees or other remuneration for their services to such of the directorsas were in default.

Notice of an extraordinary general meeting shall be sent to themembers at least twenty-one days before the date of the meeting.

Provided that, in the case of an emergency affecting the business of

the company, the registrar may, on the application of the directors,authorize such meeting to be held at such shorter notice as he mayspecify.

Every officer of the company who knowingly or willfully fails tocomply with any of the provisions of this section shall be liable if:

The default relates to a listed company, to a fine not less thanten thousand rupees and not exceeding twenty thousand rupees andin the case of a continuing default to a further fine which may extendto two thousand rupees for every day after the first during which thedefault continues.

The default relates to any other company, to a fine which mayextend to two thousand rupees and in the case of a continuingdefault to a further fine which may extend to two hundred rupees forevery day after the first during which the default continues.

DIRECTORS

Minimum Number of Directors

(a) Every single member company shall have at least one director.(b) Every other private company shall have not less than two directors.(c) Every public company other than a listed company shall have not lessthan three directors.(d) Every listed company shall have not less than seven directors to beelected in a general meeting.


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(e) Only a natural person shall be a director and no director shall be the

variable representative of a body corporate.

FIRST DIRECTORS AND THEIR TERM

The number of directors and the names of the first directors shall bedetermined in writing by a majority of the subscribers of the memorandumand until so determined, all the subscribers of the memorandum who arenatural persons shall be deemed to be the directors of the company.

The first directors shall hold office until the election of directors inthe first annual general meeting.

Retirement of Directors

On the date of the first annual general meeting of a company alldirectors of the company for the time being who are subject to electionshall stand retired from office and thereafter all such director shall retireon the expiry of the term laid down, provided that the directors so retiringshall continue to perform their functions until their successors are elected.Provided further that the directors so continuing to perform their functionsshall take immediate step to hold the election of directors and in case of

any obstacle report the circumstances of the case to the registrar withinfifteen days of the expiry of the term laid.

Procedure for Election Of Directors

Any person who seeks to contest an election to the office of directorshall, whether he is a retiring director or otherwise, file with the company,not later than fourteen days before the date of the meeting at whichelections are to be held, a notice of his intention to offer himself forelection as a director.

All notices received by the company shall be transmitted to themembers not later than seven days before the date of the meeting, in themanner provided for sending of a notice of general meeting in the normalmanner or in the case of a listed company by publication at least in oneissue each of a daily newspaper in English language and a daily newspaperin Urdu language having circulation in the Province in which the stockexchange on which its securities are listed is situate.

Term of Office of Directors


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A director elected holding office for a period of three years unless he

earlier resigns becomes disqualified from being a director or otherwiseceases to hold office. Any casual vacancy occurring among the directorsmay be filled up by the directors and the person so appointed shall holdoffice for the remainder of the term of the director in whose place he isappointed.

Eligibility of a Person to Become a Director

A person is appointed as a director if he:

is a major share holder

is of sound minded

is a member of a company

has not been convicted by court of law

is a solvent person

is a natural person

Powers of DirectorsThe business of a company shall be managed by the directors, who

may pay all expenses incurred in promoting and registering the company,and may exercise all such powers of the company as are not by thisOrdinance, or by the articles, or by a special resolution, required to beexercised by the company in general meeting. The directors of a companycan exercise the following powers on behalf of the company, and shall doso by means of a resolution passed at their meeting.

a. To make calls on shareholders in respect of moneys unpaid on theirshares.

b. To issue sharesc. To issue debenturesd. To borrow moneys.e. To invest the funds of the company.f. To make loans.g. To approve bonus to employees.h. To incur capital expenditurei. To undertake obligations under leasing contracts exceeding one

million Rupees.j. To write off bad debts, advances and receivables;


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CHIEF EXECUTIVE

The directors of every company shall as from the date from which itcommences business or as from a date not later than the fifteenth dayafter the date of its incorporation, whichever is earlier, appoint anyindividual to be the chief executive of the company. The chief executiveappointed as aforesaid shall, unless he earlier resigns or otherwise ceasesto hold office, hold office up to the first annual general meeting of thecompany or, if a shorter period is fixed by the directors as the time of hisappointment, for such period.

Appointment of Subsequent Chief Executive

Within fourteen days from the date of election of directors, the officeof the chief executive falling vacant, as the case may be, the directors of acompany shall appoint any person, including an elected director, to be thechief executive, but such appointment shall Not be for a period exceedingthree years from the date of appointment. On the expiry of his term of achief executive shall be eligible for reappointment.

The chief executive retiring shall continue to perform his functionsuntil his successor is appointed unless non-appointment of his successor isdue to any fault on his part or his office is expressly terminated.

Removal Of Chief ExecutiveThe directors of a company by resolution passed by not less than

three-fourths of the total number of directors for the time being, or thecompany by a special resolution, may remove a chief executive before theexpiration of his term of office notwithstanding anything contained in thearticles or in any agreement between the company and such chiefexecutive.

Chief Executive Not to Engage In Business Competing

With Company's Business.A chief executive of a public company shall not directly or indirectlyengage in any business which is of the same nature as and directlycompetes with the business carried on by the company of which he is thechief executive or by a subsidiary of such company.

Certain Companies to Have SecretariesA listed company shall have a whole time secretary and a single

member company shall have a secretary.


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Register of directors, officers, etc.Every company shall keep at its registered office a register of its

directors and officers, including the chief executive, managing agent,secretary, chief accountant, auditors and legal adviser.

The register to be kept during business hours, subjectto such reasonable restrictions as the company may by its articles or ingeneral meeting impose so that not less than two hours in each day beallowed for inspection, be open to the inspection of any member of thecompany without charge and of any other person on payment of theprescribed fee or such lesser sum as the company may specify for eachinspection.

If any inspection required under this section is refused or if default ismade in the company and every officer of the company or other person

who is knowingly and willfully in default shall be liable to a fine which mayextend to five hundred rupees and to a further fine which may extend tofifty rupees for every day after the first during which the default continues.

Register Of Contracts, Arrangements And AppointmentsIn Which Directors, Etc., Are Interested.

Every company shall keep a register in which shall be enteredseparately particulars of all contracts, including the following particulars.

a. The date of the contract, arrangement or appointment.b. The names of the parties.c. The principal terms and conditions.d. The date on which it was placed before the directors.e. The names of the directors voting for and against the contract,

arrangement or appointment and the names of those remainingneutral.

f. The name of the director or officer concerned or interested in thecontract, arrangement or appointment and the extent or nature ofhis interest.

ACCOUNTS

Books of Account to Be Kept By Company

Every company shall keep at its registered office proper books ofaccount with respect to:

(a) All sums of money received and expended by the company and thematters in respect of which the receipt and expenditure takes place.


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(b) All sales and purchases of goods by the company.(c) All assets of the company.

(d) All liabilities of the company.(e) In the case of a company engaged in production, manufacturing ormining activities, such particulars relating to utilization of material orlabor or the other inputs or items of cost as may be prescribed, ifsuch class of companies is required by the Commission by a generalor special order to include such particulars in the books of accounts.

(f) Provided that all or any of the books of account aforesaid may bekept at such other place in Pakistan as the directors may decide, andwhen the directors so decide, the company shall, within seven daysof the decision, file with the registrar a notice in writing giving thefull address of the other place.

Inspection of Books of Account by RegistrarThe books of account and books and papers of every company shall

be open to inspection by the registrar or by any officer authorized by theCommission in this behalf. It shall be the duty of every director, officer orother employee of the company to produce to the person making all suchbooks of account and books and papers of the company in his custody orunder his control, and to furnish him with any such statement, informationor explanation relating to the affairs of the company, as the said personmay require of him within such time and at such place as he may specify.

Any officer authorized to make an inspection shall have all the powers thatthe registrar has in relation to the making of inquiries.

AUDIT

Appointment and Remuneration of Auditors

The first auditor or auditors of a company shall be appointed by thedirectors within sixty days of the date of incorporation of the company; andthe auditor or auditors so appointed shall hold office until the conclusion ofthe first annual general meeting.Provided that:

The company in a general meeting may remove any such auditor orauditors and appoint in his or their place any other person or personswho have been nominated for appointment by any member of thecompany and of whose nomination notice has been given to themembers of the company not less than fourteen days before thedate of the meeting.


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Any auditor appointed to fill in any casual vacancy shall hold office

until the conclusion of the next annual general meeting.

The remuneration of the auditors of a company shall be fixed, in thecase of an auditor appointed by the directors or by the Commission,as the case may be; and in all other cases, by the company ingeneral meeting or in such manner as the general meeting maydetermine.

Provisions as to Resolutions Relating To Appointmentand Removal of Auditors

A notice shall be required for a resolution at a companys annualgeneral meeting appointing as auditor a person other than a retiringauditor.

The notice referred shall be given by a member of the company tothe company not less than fourteen days before the annual generalmeeting, and the company shall forthwith send a copy of such notice tothe retiring auditor and shall also give notice thereof to its members notless than seven days before the date fixed for the annual general meetingand, if the company is a listed company, shall also publish it at least in one

issue each of a daily newspaper in English language and a daily newspaperin Urdu language having circulation in the Province in which the stockexchange on which the company is listed is situate.

Every company shall, within fourteen days from the date of anyappointment of an auditor, send to the registrar intimation thereof,together with the consent in writing of the auditor concerned.

Every company shall, within fourteen days from the date ofretirement, removal or otherwise ceasing to hold office of an auditor, send

intimation thereof to the registrar.

Qualification and Disqualification of Auditors

A person shall not be qualified for appointment as an auditor IF: In the case of a public company or a private company which is

subsidiary of a public company unless he is a Chartered Accountant. In the case of a private company having paid up capital of three

million rupees or more unless he is a Chartered Accountant.


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None of the following persons shall be appointed as auditor of acompany, mainly:

(a) A person who is, or at any time during the preceding three yearswas, a director, other officer or employee of the company.

(b)A person who is a partner of, or in the employment of, a director,officer or employee of the company.

(c) The spouse of a director of the company.

(d) A person who is indebted to the company.

(e) A body corporate.

(f) A person or his spouse or minor children, or in case of a firm, allpartners of such firm who holds any shares of an audit client or anyof its associated companies.

Powers and Duties of AuditorsEvery auditor of a company shall have a right of access at all times

to the books, papers, accounts and vouchers of the company, whetherkept at the registered office of the company or elsewhere, and shall be

entitled to require from the company and the directors and other officersof the company such information and explanation as he thinks necessaryfor the performance of the duties of the auditors.

In the case of a company having a branch office outside Pakistan, itshall be sufficient if the auditor is allowed access to such copies of, andextracts from, the books and papers of the branch as have beentransmitted to the principal office of the company in Pakistan.

The auditor shall make a report to the members of the company onthe accounts and books of accounts of the company and on every balance-

sheet and profit and loss account or income and expenditure account andon every other document forming part of the balance-sheet and profit andloss account or income and expenditure account, including notes,statements or schedules appended thereto, which are laid before thecompany in general meeting during his tenure of office, and the reportshall state:

Whether or not they have obtained all the information andexplanations which to the best of their knowledge and belief werenecessary for the purposes of the audit.


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Whether or not in their opinion proper books of accounts as required

by this Ordinance have been kept by the company.

Whether or not in their opinion the balance-sheet and profit and lossaccount or in the income and expenditure account have been drawnup in conformity with the

Ordinance and are in agreement with the books of accounts.

Whether or not in their opinion and to the best of their informationand according to the explanations given to them, they said accountsgive the information required by this Ordinance in the manner so

required and give a true and fair view.

The auditor of a company shall be entitled to attend any generalmeeting of the company, and to receive all notices of, and anycommunications relating to, any general meeting which any memberof the company is entitled to receive, and to be heard at any generalmeeting which he attends on any part of the business whichconcerns him as auditor.

Provided that, in the case of a listed company, the auditor or aperson authorized by him in writing shall be present in the generalmeeting in which the balance-sheet and profit and loss account andthe auditors report are to be considered.

Reading and Inspection of Auditors Report

The auditors report shall be read before the company in generalmeeting and shall be open to inspection by any member of the company.

GENERAL MEETINGSA general meeting, to be called annual general meeting, shall be

held, within eighteen months from the date of incorporation of thecompany and thereafter once at least in every year within a period of sixmonths following the close of its financial year and not more than fifteenmonths after the holding of its last preceding annual general meeting asmay be determined by the directors.

All general meeting of a company other than the statutory meetingor an annual general respectively shall be called extraordinary generalmeetings.


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The directors may, whenever they think fit, call an extraordinary

general meeting, and extraordinary general meetings shall also be calledon such requisition, or in default, may be called by such requisition. If atany time there are not within Pakistan sufficient directors capable of actingto form a quorum, any director of the company may call an extraordinarygeneral meeting in the same manner as nearly as possible as that in whichmeeting may be called by the directors.

NOTICE AND PROCEEDINGS OF GENERAL MEETINGS

Twenty-one days notice at the least (exclusive of the day on whichthe notice is served or deemed to be served, but inclusive of the day for

which notice is given) specifying the place, the day and the hour ofmeeting

bijinesh laaaa

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