Law Governing Companies – II
📘 Law Governing Companies
– II (Companies Act, 2017)
5.1 General Meetings
Definition:
Formal gatherings of company members (shareholders) to discuss and decide on
business matters.
Types:
- Annual
General Meeting (AGM): Held once a year.
- Extraordinary
General Meeting (EGM): Held for urgent matters.
Example:
XYZ Ltd holds an AGM to approve financial statements and declare dividends.
Business Relevance:
- Ensures
transparency
- Provides
shareholder oversight
5.2 Meetings of Directors
Meetings of the Board of Directors to make managerial
decisions.
Key Points:
- Must
meet quarterly
- Decisions
are made through resolutions
Example:
Board meeting to approve budget or appoint CEO.
Advantage:
- Facilitates
strategic planning
- Enhances
governance
5.3 Secretary
An officer responsible for administrative and compliance
duties.
Responsibilities:
- Prepare
minutes of meetings
- File
returns with SECP
- Ensure
legal compliance
Example:
Company secretary ensures the AGM is properly conducted and recorded.
5.4 Dividend
Dividend: Profit distributed to shareholders.
Types:
- Interim
(declared mid-year)
- Final
(declared at AGM)
Example:
ABC Ltd declares Rs. 2 per share dividend after earning profits.
Business Impact:
- Attracts
investors
- Indicates
financial health
5.5 Auditor
A qualified professional who examines company
accounts to ensure accuracy and compliance.
Duties:
- Audit
financial statements
- Report
findings to shareholders
Example:
A Chartered Accountant auditing annual accounts of a listed company.
5.6 Managing Agents (No longer applicable in modern
company law but historically relevant)
Previously, companies appointed agents to run operations.
Now replaced by Board and CEO under the Companies Act.
5.7 Investment by Company
Companies can invest in:
- Other
companies (subsidiaries, associates)
- Securities
(stocks, bonds)
- Property
Example:
ABC Ltd invests surplus funds in a real estate firm.
Advantage:
- Portfolio
diversification
- Enhanced
returns
5.8 Debentures
A type of long-term debt instrument issued by
companies to borrow funds.
Types:
- Secured
- Unsecured
- Convertible
Example:
A company issues Rs. 1 million in 5-year debentures at 8% interest.
Benefits:
- Cheaper
than equity
- No
dilution of ownership
5.9 Private Companies
Defined under Section 2(68) of Companies Act.
Features:
- 2 to
50 members
- Restricts
share transfers
- No
public subscription
Example:
TechStart (Pvt) Ltd owned by 3 founders.
5.10 Guarantee Company
A company formed not for profit, where members
guarantee to contribute a fixed amount in case of winding up.
Example:
Educational or charitable institutions.
Relevance:
- Useful
for NGOs
- Promotes
social entrepreneurship
5.11 Unlimited Company
A company where liability of members is not limited.
Risk: Personal assets can be used to settle debts.
Use Case: Rare; used when high trust is needed (e.g.,
professional firms).
5.12 Accounts
Companies must maintain books of accounts and
prepare:
- Balance
Sheet
- Profit
and Loss Account
- Cash
Flow Statement
Example:
Annual accounts audited and presented at AGM.
Importance:
- Assures
investors
- Required
by SECP and tax laws
5.13 Inspection
SECP or authorized officers may inspect:
- Company
records
- Financials
- Compliance
status
Purpose: Detect fraud, mismanagement.
5.14 Annual Return
A mandatory filing containing:
- Directors'
details
- Shareholders
- Share
capital
Due Date: Within 30 days of AGM
Penalty: Late filing leads to fines.
5.15 Winding up by Court
Court may order winding up in case of:
- Insolvency
- Public
interest
- Failure
to commence business
Filed under Section 301 of Companies Act.
5.16 Winding up of Companies
Winding up: Process of closing a company and
distributing assets.
Modes:
- By
Court
- Voluntary
- Under
Supervision of SECP
5.17 Contributors and Creditors
- Contributors:
Present or past shareholders liable to contribute during winding up.
- Creditors:
Entities owed money by the company.
Priority: Creditors are paid before shareholders.
5.18 Voluntary Winding up
Initiated by:
- Passing
a special resolution
- On
expiry of fixed period
- Completion
of business objective
Procedure:
- Notify
SECP
- Appoint
liquidator
5.19 Winding up of Unregistered Companies
Applies to:
- Foreign
companies
- Firms
not incorporated under Companies Act
Handled by Courts under special provisions.
5.20 Reconstruction and Amalgamation
- Reconstruction:
Restructuring a company’s capital or business.
- Amalgamation:
Two or more companies merge into one.
Example:
Merger of Ufone and PTCL.
Benefits:
- Synergy
- Market
expansion
5.21 Companies Established Outside Pakistan
Foreign Companies must:
- Register
with SECP
- File
accounts and returns
- Follow
Pakistan’s tax and regulatory laws
Example:
Unilever Pakistan (registered under foreign laws, operating locally).
5.22 Official Liquidator
Court-appointed person who:
- Takes
control of the company during winding up
- Sells
assets
- Settles
debts
Appointed by: SECP or High Court
✅ Importance for Business
Students
|
Concept |
Why It Matters |
|
Meetings & Management |
Teaches corporate governance |
|
Finance (dividends, debentures) |
Builds financial planning skills |
|
Legal Compliance |
Helps avoid penalties and lawsuits |
|
Winding Up & Restructuring |
Key for exit strategies and M&A |
|
Secretary, Auditor |
Clarifies key professional roles |
|
Global Understanding |
Prepares students for multinational business law |
