Lecture 01:

INTRODUCTION TO COMPANY LAW

Muhammad Zubair Tariq

Lecturer (Business Administration)
Noon Business School
University of Sargodha, Sargodha, Pakistan
E-mail: zubair.tariq@uos.edu.pk
 What is Company Law
 Company law is a branch of law which exclusively deals with all
matters relating to companies from the time of incorporation of a
company up to the time of its winding up
 It is a law relating to companies formed and registered under an
Act or Ordinance relating to the regulation of the working and
conduct of companies
 Company law is a body of Statutes and Case Laws
 It spells out the rules regulating the constitution and incorporation
of companies, issue of prospectus, conditions under which shares
can be allotted, rules regarding distribution of share capital, rights
attached to various classes of shares, transfer of shares, the
alteration of share capital
 What is Company Law
 The law makes provisions regarding the rights, duties and
liabilities of promoters, directors, managers, secretaries, chief
executives and other officers of the company
 It also make provisions regarding rights duties and liabilities of
members, auditors, liquidators, creditors and other persons dealing
with the company
 It makes rules regarding the preparation of MOA and AOA
 Rules regarding the nature and extent of powers which registered
companies are to possess and the manner in which they can carry
on a business
 Rules regarding the holding of members and directors meetings
 It gives powers to a company to refer a matter to arbitration and
enter into compromises
 What is Company Law
 Rules regarding conversion of a Private company into a public
company
 It makes provisions for the winding up and amalgamation of
companies
 It also provides for the punishment of the offenses relating to
companies
Ordinance Does Not Apply-Section 04
a) Co-operative society
b) University
c) Trading Corporation (Owned or controlled by a province and
carrying on a business only within that province)
Objects of Companies Ordinance (Preamble)
 Objects of a legislation explain and point out purposes of
introducing a new law or replacing the existing law on a subject
which has become obsolete and does not fulfil the present day
requirements
 Companies Ordinance 2017 replaced Companies Ordinance 1984
 Before that Companies ordinance 1984 replaced the Companies
Act, 1913
 The objects of Company law are those with which the Companies
Ordinance was promulgated and are summarized hereunder
1. Consolidate and amend the law relating to companies
2. Healthy growth of corporate enterprise
3. Fix minimum standard of integrity promotion and management
4. Prevent misconduct and malpractices
 Objects of Companies Ordinance (Preamble)

5. Promotion of investment
6. Protect legitimate interest of shareholders
7. Enforce proper performance of duties
8. Require full and fair disclosure of information
9. Adjust rights of management and shareholders
10. Empower Government to intervene and investigate
 Law Governing Companies
 The existing law governing companies is contained in Companies
Ordinance 2017
 The Ordinance extends to whole of the Pakistan i.e. All the
provinces and federally administrated areas of Pakistan
 The ordinance does not extends to Azad Jammu and Kashmir as
such territories are not part of Pakistan
 It may be observed that Government of Azad Jammu and Kashmir
completely adopted in 1989 the Companies Ordinance through a
special enactment
 Historical Development
England:
 The history of Company Law in UK started at the end of 16th
century when regulated companies were given charter
 At the end of 17th century Joint Stock Companies were formed
 Various Act to regulate, control and improve the law were passed
in 1720, 1825, 1837, 1844, 1855, 1856, 1862. 1867, 1890, 1900
and 1907
Pakistan:
 In 1913 a Companies Act was passed which after independence
was adapted by Pakistan
 Companies Ordinance was promulgated on 8th October 1984
which replaced the Companies Act, 1913
 What Is Company???
Definition
Section 2 (7) defines a company as: “Company means a
company formed and registered under the Companies Ordinance or
an existing company”.
 A company is legally registered as a person having rights,
liabilities and duties at law
 A company is not a natural person
 It is an artificial person created by law as it has no body, no soul or
conscious, no physical existence except in the eyes of law
 A company do every act like a natural person, it can be held liable
for statuary violation like an individual but it can not be
imprisoned
Characteristics Or Advantages Of A Company

1. Separate Legal Entity

 A company has its existence separate from its members and deals
in its own name
2. Artificial Person
 A company is an artificial person and enjoys similar rights and
owing similar obligations as a natural person
3. Separate Ownership
 Company is the owner of all assets and capital and property of
company is not the property of the shareholders
4. Perpetual Succession:
 Company has a perpetual succession and never dies
 The death, insanity or insolvency of the members does not affect
Characteristics Or Advantages Of A Company

the corporate existence of the company

5. Capacity To Sue And Being Sued
6. Possess Common Seal
 For making contracts and agreements binding in law, Ordinance
has permitted the use of common seal having company’s name
engraved thereon as a substitute for signature
7. Members Liability Limited
 The liability of the members of a company is limited to the extent
of nominal value of shares held by them
8. Shares Freely Transferable:
 Section 89 (1) provides that the shares of a company shall be
moveable property and are freely transferable and can be
purchased and sold in the share market
Characteristics Or Advantages Of A Company

9. Other Advantages
 Autonomy and independence in forming policies and in
implementing the same
 Promotion of professional management and efficiency
 Privilege of collecting interest free finance
 Restriction on purchase of own shares provide permanence of
capital
 Disadvantages of Incorporation
1. Formation Requires Formalities and Expense
 For registration a number of documents are required to be prepared,
printed, signed, witnessed and filed with the registrar
 In addition payment of stamp duty, filing fee, purchasing statuary
books, common seal etc.
2. No Citizenship:
 A company as a legal person has a nationality and domicile but it is
not a citizen
 Under the Constitution of Pakistan and Pakistan Citizenship Act only
a natural person can be recognized a citizen
3. Members Have No Effective Control:
 Members are scattered all over the country and therefore they do not
have effective control of working of a company
 Disadvantages of Incorporation
4. Heavy Tax Burdon
 A company is charged to tax on whole of its income at a flat rate
and without any maximum limit
5. Doctrine Of Corporate Veil:
 Sometimes the position of a company as a separate legal entity
ignored and in such situation some of the advantages of the
company disappear
6. Winding Up Procedure is Expensive:
 The procedure of liquidating a company is detailed, elaborate,
time consuming and expensive
7. No Fundamental Rights
 A company not being a citizen has no fundamental rights
 Mode Of Forming A Company-Section 15
Public Company
“Any three or more persons associated for lawful purpose may
by subscribing their names to a MOA and complying with the
requirements of Companies Ordinance in respect of registration, form a
public limited company”. Section 15 (1)
Private Company
“Any one or more persons associated for a lawful purpose may,
by subscribing their names to MAO and complying with the
requirements of the Companies Ordinance in respect of registration,
form a private company”. Section 15 (1)
Single Member Company:
A single individual or a person can form a limited company just by
subscribing his name to MAO
 Limited Liability Concept
 A type of liability that does not exceed the amount invested in a
Private or Public Limited company
 The limited liability feature is one of the biggest advantages of
investing in publicly or privately listed companies
 A shareholder can participate wholly in the growth of a company,
his or her liability is restricted to the amount of the investment in
the company, even if it subsequently goes bankrupt and racks up
millions or billions in liabilities
 Doctrine of Corporate Personality
Doctrine of Corporate Personality
 The distinct status of a business organization that has complied
with law for its recognition as a legal entity and that has an
independent legal existence from that of its officers, directors, and
shareholders
 Corporate personality encompasses the capacity of a corporation
to have a name of its own, to sue and be sued, and to have the right
to purchase, sell, lease, and mortgage its property in its own name.
In addition, property cannot be taken away from a corporation
without Due Process of Law
 A company’s acts are not a director or manager’s acts and its
liabilities are not their liabilities
 Doctrine Of Lifting Veil Of Corporation
 Doctrine of Lifting the Veil o Corporate Personality is a deviation
from the ‘Principle of Corporate Personality’
 Under this doctrine the separate legal entity of a company is set
aside or ignored
 The court has lifted the veil where it was intended to use the
corporate form for the purpose of fraud, or as a device to evade a
contractual or other legal obligation