Company Law

What is a company?
A company means a company formed and registered under this act or company law. Company
law means the repealed Companies Act, 1913; Companies Ordinance, 1984 and Companies
Ordinance, 2016.
Ordinarily, the word company means an association of a number of individuals formed for some
common purpose. It involves two ideas:
a) It has numerous members, and
b) A member may transfer his interest without the consent of others.
If such an association is incorporated according to law, it becomes a legal person, an entity
distinct and separate from its members. Most of the present-day companies are incorporated
under the Companies Act, 1913 and the Companies ordnance, 1984.

KINDS OF COMPANIES

On the basis of incorporation:

On the basis of incorporation, following are the three kinds of companies:
1. Chartered Company:
It is incorporated under a special charter granted by crown. The East India Company, the
Chartered Bank of Australia and the Bank of England are different examples of chartered
companies.
The power and nature of business of chartered company is explained by the charter. It has
wide powers. It can deal with its property. It has wide powers. It can deal with its property. In
case the company does not function as prescribed by the charter, the crown may cancel the
charter and close the company.
Such companies do not exist in Pakistan.
2. Statutory Company:
This company is formed by the special act of Parliament or by the order of the head of the state.
The act by which the companies are formed, defines the powers, liabilities and activities
of the companies. These companies are generally formed for public utility such as electricity,
gas, water, Railways and Finance. These are formed for the purpose of providing services to the
public and not earning profit.
 The State Bank of Pakistan, Agricultural Development Bank of Pakistan, Pakistan
railways, WAPDA and NDFC are different examples of statutory companies.
Such companies don't have memorandum and articles of association and get their powers
from the Acts under which they are formed. These enjoy certain Special Powers. Alteration in
the powers of such companies can be made by the parliament.
3. Registered Company:
They are formed under the Companies Act 2017, Companies Ordnance 1984 or under the
Companies Act passed earlier to this. Such companies come into existence only when these are
registered under the Act or ordinance. Search companies get their powers from the companies
Act, 2017 and from the memorandum of association. This is the most popular mode of
incorporating a company.

On the basis of Liability:

On the basis of liability, the following are four kinds of Companies:
1. Company Limited by shares:
The company which keeps the liability of its members Limited up to nominal value of shares
purchased by them.
Such companies must use the word “Limited” at the end of their names so that the public
can understand that the liability of the members is limited. These are formed for earning profits.
2. Company Limited by Guarantee:
It is also company with limited liability of its members. In such a company, the liability of the
members is limited to the amount each of them has undertaken to pay in the event of winding up
of the company.
These companies can further be divided into two kinds
a) Companies limited by guarantee having a share capital
b) Companies limited by guarantee and not having a share capital
These companies may or may not issue shares. In case of a company limited by guarantee and
having a share capital, liability of its members is limited to the extent of the unpaid amount of
the shares held by them plus the amount guaranteed by them. Such companies are generally
formed for business which is of non-profit making nature
The Pakistan stock exchange is the example of the company limited by guarantee.
3. Unlimited Company:
If the liability of the members is unlimited, then the company is called unlimited company.
It means that not only the property of the shareholders in the company but also their personal
property can be used to pay off the debts of the company. In case of an unlimited company, the
articles, if the company has a share capital, shall state the amount of share capital with which the
company proposes to be registered.
In case of an unlimited company, if the company has not a share capital, the articles shall
state the number of the members with which the company proposes to be registered. This may
either be a public company or a private company. Such companies are rare these days.
4. Association not for profit:
Generally, the companies are formed for earning profit. But some associations are formed not for
the purpose of earning profit. However, under section 42, Association not-for-profit can be
registered as a company with limited liability.
Such an association do not, add the word “limited: or “(Private) limited” or “(guarantee)
limited” to their names.
The authority shall register such associations after being satisfied about their conditions:
a) The association is being formed to promote commerce, art, science, religion, sports or
any other useful object.
b) It will apply its profits, to promote its objects.
c) It will not pay dividends to its members.
d) The permission will be granted subject to some conditions which will be binding on
associations.
e) The association will include those conditions in its documents.

On the basis of number of members:

On the basis of number of members, the following are two kinds of Companies:
1. Private Company:
"Private company" means a company which, by its articles:
a) Restricts the right to transfer its shares, if any.
b) Limits the number of its members to 50 not including persons who are in the employment
of the company.
c) Prohibits any invitation to the public to subscribe for the shares, if any or debentures of
the company.

2. Public Company:
Public company means a company which is not a private company.

On the basis of control:

 1. Holding Company:
The relationship of holding or subsidiary companies is established either with the control of
Board of Directors or control of share capital. A company will be a holding company of another
in the following scenarios:
a) Controls the composition of the Board of Directors of the other company.
b) Exercises or controls more than 50% of the total share capital either on its own or
together with one or more of its subsidiary companies.

2. Subsidiary Company:
A company or body corporate shall be deemed to be a subsidiary of another if that other
company or body corporate directly or indirectly controls, beneficially owns or holds more than
fifty per cent of its voting securities or otherwise has power to elect and appoint more than fifty
per cent of its directors

3. Associate Company:
If a company has significant influence over another company, the latter will be the Associated
Company of the first company. Significant influence is derived either from control of at-least
20% of the total share capital, or of business decisions under an agreement.

Distinction between a Company and a Partnership:

A company may be distinguished from a partnership in the following particulars:
Legal entity
A company is a separate legal entity from its A firm is not distinct from the persons who
members composed it
Property
In a company, the property of the company In partnership, the property of the firm is the
belongs to the company and not to the property of the individuals composing it.
individuals composing it.
Liability to creditors
In case of a company, the creditors can In case of partnership, the partners are liable
proceed against the company alone and the to the creditors jointly as well as severally
members of the company are not liable to
them
Availability of restrictions on powers against outsiders
The restrictions on power imposed in the The restrictions on the powers of a particular
company in the articles of association are partner, contained in the agreement of the
effective against the public because they are partnership, will not avail against outsiders.
public document and one can find out what
they contain
Contract with firm or company
A member of a company can contract with his A partner cannot contract with his firm.
company.
Transfer of shares
A shareholder of a company can transfer his A partner cannot transfer his shares and make
shares without the consent of other the transferee a member of the firm without
shareholders because the company’s shares the consent of the other partners
are freely transferable.
Limit of liability
The liability of shareholders of a company The liability of the partners of a firm is
may be limited by shares or by guarantee. unlimited.

Distinction between a Company and a Chartered Company:

Incorporation
A chartered company is incorporated in A company is incorporated in accordance
accordance with royal charter. with Companies Ordnance 1984 or under the
Companies Act passed earlier to this.
Limit of liability
The members of the chartered company and The liability of shareholders of a company is
not liable for the debt of the corporation. limited to the extent of their shares.
Existence
Such companies do not exist in Pakistan. Such Companied exist in Pakistan.
Powers and nature of the Business
The power and nature of business of chartered The power and nature of business of chartered
company is explained by the charter through company is explained by the Companies
which it is established. Ordnance 1984, Memorandum of association
and Articles of association.

Distinction between a Company and a Statutory Company:

Incorporation
A company is incorporated by Companies A statutory company is incorporated by a
Ordnance 1984 or under the Companies Act special act of the legislation.
passed earlier to this.
Purpose of incorporation
A company is incorporated for the sake of A statutory company is incorporated for the
earning profit. sake of Public utility.
Powers
The powers of a company depend on the The powers of the statutory company are
memorandum of association. narrated in the special act which creates the
company
 Limit of liability
The liability of the shareholders, in case of a The liability of the members, in case of a
registered company is limited by shares or statutory company is fixed by the special act
guarantee
Borrowing power
The borrowing powers of a registered The borrowing powers of a statutory company
company are generally unlimited. are generally limited.
Lease of assets
If the memorandum allows, the registered A statutory company cannot lease its
company can lease the whole or part of its undertaking without the consent of
undertaking parliament.

Ordinance not to apply to certain corporations:

Nothing in this Ordinance shall apply to—
a) a trading corporation owned or controlled by a Province and carrying on business only
within that Province; or
b) a co-operative society; or
c) a university.

Special Resolution:
"special resolution" means a resolution which has been passed by a majority of not less than
three-fourths of such members entitled to vote as are present in person or by proxy at a general
meeting of which not less than twenty-one days’ notice specifying the intention to propose the
resolution as a special resolution has been duly given