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The Company Law

(Includes Companies Ordinance,1984)

1. The Functions of Company Law and its Sources
2. The Meaning of Company and its Types
3. Choosing the Business Form
4. The Corporate Form
5. Memorandum, Articles, Prospectus and Associated Doctrines
6. Financing the Company: Share Capital and Loan Capital
7. Transactions in Shares, Profits and Dividends
8. Corporate Structure
9. Corporate Books and Records
10. Compromises, Arrangements and Reconstruction
11. Winding Up
12. Securities Regulations

Detailed Contents
1 The Functions of Company Law and its Sources

1.1 The Objects and Divisions of Company Law
1.1.1 Objects of Company Law
1.1.2 The Functions of Company Law
1.1.3 The Divisions of Company Law
1.2 Outline History of Company Law
1.2.1 From the 11th to the 16thCentury: Earlier Forms
1.2.2 From the 16th Century Until 1825: Royal Charters
1.2.3 1720: Fear of Companies
1.2.4 Unincorporated Associations
1.2.5 The Formative Years—1825 to 1855: Repeal of the Bubble Act and Creation of Limited Liability
1.2.6 The Joint Stock Companies Act, 1844
1.2.7 Later Developments—1856 to 1910
1.2.8 The Companies Act, 1913 Till the Present
1.3 The Sources of Company Law
1.4 The Future

2 The Meaning of Company and its Types

2.1 Definition of Company
2.2 Distinctive Features of Companies
2.3 Company, “body corporate,” and “corporation”
2.4 Holding Companies and Their Subsidiaries
2.5 Associated Undertakings and Associated Persons
2.6 Foreign Companies
2.7 Illegal Associations and Obligatory Registration
2.7.1 Associations that is not illegal
2.7.2 Consequences for the illegal association
2.7.3 Unregistered Companies
2.8 Companies and Other Forms of Business Organisation
2.9 Types of Companies in General
2.10 Companies Registrable Under the Ordinance
2.11 Applicability of Ordinance to Statutory Companies
2.12 Government Companies
2.13 Non-Banking Finance Companies
2.13.1 Forex Companies
2.14 Company Law and the Jurisdiction of the Courts
2.14.1 Power of Commission to Initiate Action in Court Against Management

3 Choosing the Business Form

3.1 The Advantages and Disadvantages of Incorporation
3.1.1 Advantages
3.1.2 Disadvantages
3.2 Brief Description of Registered Companies
3.2.1 The Concept of Limited Liability
3.2.2 Company limited by shares
3.2.3 Company limited by guarantee
3.2.4 Unlimited company
3.3 Conversion of partnerships into companies
3.4 Private Companies and Their Privileges
3.4.1 Privileges and exemptions for private companies
3.4.2 Handicaps for a private company
3.5 Distinction between Public and Private Companies
3.6 The Single Member Company

4 The Corporate Form

4.1 Formation of a Company
4.1.1 Stages in the Formation of a Company
4.2 Pre-incorporation Contracts, Provisional Contracts and Promoters
4.2.1 Promoters
4.2.2 Pre-incorporation contracts
4.2.3 Provisional contracts
4.3 Incorporation Procedure
4.4 Registration and the Role of the Registrar
4.4.1 Registration of memorandum and articles under
4.4.2 Registration and its effect
4.4.3 Certificate of Incorporation: conclusive evidence that the objects of the company are lawful
4.5 Commencement of Business
4.6 Steps to be Followed After Registration
4.7 Conversion of a Private Company into a Public Company and Vice Versa
4.8 The Effect of the Separate Legal Personality of the Company
4.8.1 A company is distinct from its members
4.8.2 A company may make a valid contract with one of its members
4.8.3 The property of the company belongs to it and not to its members
4.8.4 A company’s business is not the business of the member
4.9 Piercing the Corporate Veil or Disregarding the Corporate Form
4.9.1 When the company becomes an enemy company in times of war
4.9.2 When the company is acting as an agency of its members
4.9.3 When the company is used to perpetrate a fraud
4.9.4 When the company is used to evade contractual obligations
4.9.5 When the statutory law requires that the veil be lifted

5 Memorandum, Articles, Prospectus and Associated Doctrines

5.1 General Constitutional Features
5.1.1 Two Constitutional Documents
5.1.2 The Death of the Objects Clause in the Memorandum
5.2 Memorandum of Association
5.2.1 Contents of the Memorandum: Six Clauses
5.2.2 Form of the Memorandum
5.2.3 Name
5.2.4 Registered office
5.2.5 Objects and Powers in the Memorandum
5.2.6 Alteration of the Clauses of the Memorandum
5.3 Articles of Association
5.3.1 Form of Articles of Association
5.3.2 Content of Articles of Association
5.3.3 Alteration of Articles of Association
5.4 Memorandum and Articles of Association as a Contract
5.4.1 Binding on members in relation to the company
5.4.2 Binding on company in relation to the members
5.4.3 Binding on members inter se (in their relation to one another)
5.4.4 Not binding on the company in relation to outsiders
5.5 Company Contracts and Associated Doctrines
5.5.1 Preliminary: Conditions or hurdles pertaining to contracts concluded by a company
5.5.2 Doctrine of Ultra Verse
5.5.3 Constructive Notice of Memorandum and Articles
5.5.4 Doctrine of Indoor Management
5.6 Interpretation of the Memorandum and Articles
5.7 Prospectus and Statement in Lieu of a Prospectus
5.7.1 Meaning of Prospectus and its Objects
5.7.2 Contents of the Prospectus
5.7.3 Legal Rules for Issuing Prospectus
5.7.4 Liability for Untrue Statements in the Prospectus
5.7.5 Statement in Lieu of a Prospectus
5.7.6 Prospectus by Implication
5.7.7 Making a Public Offering Abroad
5.7.8 Prospectus of a Foreign Company

6 Financing the Company: Share Capital and Loan Capital

6.1 The Meaning and Forms of Capital
6.1.1 Share Capital
6.1.2 Redeemable capital
6.1.3 Loan Capital
6.1.4 The Meaning of Security and Equity Security
6.2 Borrowing Powers and Charges
6.2.1 Borrowing Powers of Companies
6.2.2 Debenture and Types of Debentures
6.2.3 Difference Between Share and Debenture
6.2.4 Legal Provisions Pertaining to Debentures
6.2.5 Remedies Available to Debenture Holders
6.2.6 Underwriting and Underwriting Agreement
6.2.7 Fixed and Floating Charges and Registration of Charges
6.2.8 Acceptance of Deposits
6.3 The Raising, Employment and Maintenance of Capital
6.3.1 Raising capital
6.3.2 Employment of capital
6.3.3 Maintenance of capital
6.4 Alteration and Reduction of Share Capital
6.5 Buying Back By Company of its Own Shares

7 Transactions in Shares, Profits and Dividends

7.1 Shares and Their Transfer
7.2 The Legal Status of a Share
7.3 Allotment of Shares
7.3.1 Meaning of allotment
7.3.2 Rules governing allotment
7.3.3 Allotment procedure and return of allotment
7.3.4 Irregular allotment and its effect
7.4 Shares at a Premium and at a Discount
7.4.1 Shares at a premium
7.4.2 Shares at a discount
7.5 Share Certificates and Share Warrants
7.5.1 Share certificate
7.5.2 Share warrants
7.6 Transfer and Transmission of Shares
7.6.1 Transfer of shares
7.6.2 Transmission of shares
7.7 Procedure for Transfer of Shares
7.8 Blank Transfers
7.9 Bonus Shares, Right Shares and Lien on Shares
7.9.1 Bonus shares
7.9.2 Right shares
7.10 The Meaning of Calls, Forfeiture and Surrender of Shares
7.11 Insider Trading and Market Manipulation
7.12 Divisible Profits Under the Ordinance
7.13 Dividends: Statutory Requirements
7.13.1 Dividends are to be paid out of profits alone
7.13.2 Dividends are to be paid of profits of the current year or previous years
7.13.3 Dividends are to be paid in cash alone
7.13.4 Dividends are to be paid to the holder of the shares
7.13.5 Dividends are to be paid on the nominal value of the shares
7.13.6 Dividends are to be paid within fort-five days of their declaration
7.13.7 Before payment of dividends a part of the profits may be transferred to the reserve fund
7.13.8 Dividends can be declared only by a resolution passed by members in a general meeting
7.13.9 Directors may declare an interim dividend
7.13.10 Dividend once declared becomes final and amounts to a debt to be paid to the shareholders
7.14 Unclaimed Dividends

8 Corporate Structure

8.1 The Major Players in the Corporate Structure
8.1.1 The Players and Their Interests
8.1.2 The Major Players in Pakistan
8.1.3 The Function of Shareholders
8.2 Member of a Company
8.2.1 Where a person is a member, but not a shareholder
8.2.2 Where a person is a shareholder, but not a member
8.2.3 Legal capacity of a member
8.2.4 Acquiring and relinquishing membership
8.2.5 Minimum and maximum number of members
8.2.6 Register of Members and Index
8.2.7 Return of Annual List of Members
8.2.8 Rights and Liabilities of a Member
8.2.9 Voting Rights and Variation of shareholder rights
8.3 The Directors: Appointment, Duties and Liabilities
8.3.1 The Director and His Legal Position
8.3.2 Qualifications and Appointment of Directors
8.3.3 Vacation of Office and Removal of Directors
8.3.4 Election of New Directors Under the Ordinance
8.3.5 Powers of Directors
8.3.6 Duties and Liabilities of Directors
8.4 Professional Managers and Officials
8.4.1 Managing Director or Chief Executive Officer
8.4.2 The Company Secretary
8.4.3 Remuneration of Managers
8.5 Company Meetings
8.5.1 Types of Meetings in a Company
8.5.2 Meetings of the Board of Directors and Other Meetings
8.5.3 Legal Validity of Meetings
8.5.4 Voting at Meetings
8.5.5 Resolutions in Meetings and Their Types
8.5.6 Minutes of Meetings
8.6 Protection of Minority Shareholders
8.6.1 Majority Rule
8.6.2 Protection of minority under the Ordinance
8.7 Prevention of Mismanagement and Oppression
8.7.1 Instances of oppression
8.7.2 Instances of mismanagement
8.7.3 Remedies for preventing oppression and mismanagement

9 Corporate Books and Records

9.1 Books of Account
9.1.1 Meaning of Books of Account
9.1.2 Legal Requirements for Books of Account
9.1.3 Annual accounts of the company
9.2 Auditors: Qualifications, Appointment and Removal
9.2.1 Necessity of Audit
9.2.2 Qualification and Disqualifications of Auditors
9.2.3 Appointment, Remuneration and Removal of Auditors
9.3 Auditors: Rights, Duties and Liabilities
9.3.1 Rights
9.3.2 Duties of Auditors
9.4 Special Audit and Cost Audit

10 Compromises, Arrangements and Reconstruction

10.1 Distinction Between Compromises, Arrangements, Reconstruction and
10.2 Procedure for Effecting Organizational Changes

11 Winding Up

11.1 Distinction Between Winding Up and Dissolution
11.2 Modes of Winding Up
11.3 Compulsory Winding Up by the Court
11.3.1 Reasons for compulsory winding up
11.3.2 Persons entitled to apply for compulsory winding up
11.3.3 Provisions Applicable to Compulsory Winding Up
11.4 Liquidators
11.5 Voluntary Winding Up
11.5.1 Kinds of voluntary winding up
11.5.2 Members’ voluntary winding up
11.5.3 Creditors’ voluntary winding up
11.6 Contributory
11.6.1 Meaning of contributory and the nature of his liability
11.6.2 Liability of directors whose liability is unlimited
11.6.3 Liability of past and present members: lists of contributories
11.7 Order of Payment of Liabilities
11.8 Defunct Companies

12 Securities Regulation

12.1 The Origin of Securities Law
12.2 The Securities and Exchange Commission of Pakistan (SECP)
12.2.1 The Preliminary Part of the SECP, 1997
12.2.2 The Commission
12.2.3 The Board
12.2.4 Powers and Functions of the Commission and the Board
12.3 The Meaning of Security and Exchange
12.4 The Major Areas to be Regulated
12.4.1 Company Affairs
12.4.2 Stock Exchanges
12.4.3 Insider Trading
12.4.4 Securities, Credit and Fraudulent Acts

Companies Ordinance, 1984 229



Author:Imran Ahsan Khan Nyazee
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