Law Governing Companies – I
📘 Law Governing Companies
– I (Companies Act, 2017)
4.1 Introduction to Companies Act, 2017
Definition:
The Companies Act, 2017 is a legal framework that governs the formation,
management, regulation, and dissolution of companies in Pakistan.
Purpose:
- Modernize
corporate law
- Promote
ease of doing business
- Ensure
corporate governance and investor protection
Business Advantage:
Provides a legal structure for starting and growing businesses with
transparency and accountability.
4.2 Company Courts
These are special courts or judicial benches
designated to deal with company law disputes such as:
- Mismanagement
- Fraud
- Winding
up
Example:
If a company is involved in shareholder dispute, it goes to a company bench of
a High Court.
4.3 Corporate Law Authority (Now SECP)
Securities and Exchange Commission of Pakistan (SECP)
is the regulatory body under the Companies Act.
Functions:
- Company
registration
- Regulation
of stock exchanges
- Licensing
and compliance
- Investor
protection
Business Relevance:
Ensures companies follow rules and maintain transparency.
4.4 Registration of Company
Types of Companies:
- Private
Limited Company
- Public
Limited Company
- Single
Member Company (SMC)
Steps:
- Name
reservation via SECP portal
- Submission
of documents (MoA, AoA, Form 29, etc.)
- Payment
of fee
- Issuance
of incorporation certificate
Advantage:
Legal identity, limited liability, access to credit.
4.5 Memorandum of Association (MoA)
A fundamental document that defines the external
boundaries of a company.
Contains:
- Name
Clause
- Registered
Office Clause
- Object
Clause
- Liability
Clause
- Capital
Clause
Example:
If a textile company includes real estate in its MoA, it can legally enter that
business.
4.6 Name of Company
Name must:
- Be
unique and not misleading
- Not
violate trademarks
- End
with (Pvt) Ltd, Ltd., or SMC depending on type
SECP reserves names for 60 days.
Business Tip:
A good name reflects branding and legal credibility.
4.7 Registered Office
The official address of the company where legal documents
are served.
Example:
A company's office in Islamabad mentioned in MoA will be its legal domicile.
4.8 Object Clause
Specifies activities the company is allowed to
conduct.
Importance:
- Prevents
ultra vires acts (acts beyond company’s scope)
- Guides
directors and investors
Example:
A logistics company cannot start a restaurant unless the object clause permits.
4.9 Capital Clause of Memorandum
States:
- Authorized
capital (maximum limit)
- Division
into shares (e.g., 1 million shares of Rs. 10 each)
Types of Capital:
- Authorized
Capital
- Issued
Capital
- Paid-up
Capital
4.10 Articles of Association (AoA)
Internal rulebook of the company.
Covers:
- Powers
of directors
- Voting
rights
- Meetings
- Dividend
policy
Example:
AoA may specify that quorum for board meeting is 3 directors.
4.11 Promoters
Persons who:
- Formulate
the idea
- Organize
and register the company
- Arrange
capital and documentation
Duties:
- Act
in good faith
- Disclose
personal interests
Example:
Ali and Sara promote a software startup by raising capital and filing
incorporation.
4.12 Contracts
Types:
- Pre-incorporation
contracts: Not binding unless ratified after incorporation
- Post-incorporation
contracts: Binding as company is a legal entity
Example:
Promoters buying land before registration must have the contract approved by
the new company.
4.13 Prospectus
A public document issued by a public company inviting
the public to buy shares or debentures.
Must Include:
- Business
details
- Risk
factors
- Financial
status
Legal Requirement: Must be filed with SECP before
issuing.
4.14 Commission, Discount and Premium
- Commission:
Payment to agents/brokers for share subscription.
- Discount:
Issue of shares below face value (prohibited under 2017 Act).
- Premium:
Shares issued above face value.
Example:
A Rs. 10 share sold for Rs. 15 has a Rs. 5 premium.
4.15 Allotment of Shares
Process by which shares are allocated to applicants.
Procedure:
- Receipt
of application
- Board
resolution
- Filing
with SECP
- Entry
into register
4.16 Commencement of Business
- Private
Company: Starts business upon incorporation.
- Public
Company: Needs Certificate of Commencement of Business from SECP.
Example:
XYZ Ltd must get approval from SECP even after registration to legally begin
operations.
4.17 Membership
Persons who agree to become shareholders.
Methods:
- Subscription
- Application
and allotment
- Transmission
Members' Rights:
- Vote
- Dividend
- Attend
meetings
4.18 Share Capital
Funds raised by issuing shares.
Types:
- Equity
Share Capital
- Preference
Share Capital
Business Relevance:
Essential for financing operations, attracting investors, and scaling growth.
4.19 Shares and Certificates
Shares: Units of ownership in a company
Share Certificate: Proof of ownership issued to shareholders
Types of Shares:
- Ordinary
- Preference
- Redeemable
4.20 Transfer and Transmission of Shares
- Transfer:
Voluntary sale/gift of shares.
- Transmission:
Involuntary transfer due to death, inheritance.
Process:
- Submission
of forms
- Approval
by board
- Updating
share register
4.21 Directors
Persons elected by shareholders to manage the company.
Role:
- Set
strategy
- Appoint
executives
- Ensure
compliance
Qualifications:
- Must
meet SECP fit & proper criteria
- Minimum
2 for private; 3 for public companies
4.22 Chief Executive
Also known as CEO or Managing Director
Appointed by:
- Board
of Directors
Responsibilities:
- Day-to-day
management
- Execution
of policies
- Reporting
to board
✅ Why Business Students Must
Learn Company Law
|
Benefit |
Description |
|
Legal Literacy |
Understand legal structure of businesses |
|
Startup Readiness |
Know how to incorporate and run a company |
|
Investor Protection |
Learn about rights, risks, and compliance |
|
Corporate Governance |
Know directors' duties and legal obligations |
|
Strategic Growth |
Understand share capital, equity, and expansion |
