Company is legally an entity apart from its members, capable of rights and duties of its own, and endowed with the potential of perpetual succession. It is an ‘intricate, centralized, economic, administrative structure run by professional managers who hire capital from the investors”. In other words a company means certain persons registered under the Companies Ordinance, 1984. Companies Ordinance is the most potent statute dealing with the company registration process in Pakistan. Its primary purpose is the promotion of investment and development of economy of Pakistan, and also the healthy growth of the corporate enterprises and the protection of investors and creditors.
Kinds of Companies in Pakistan
Private Limited Company
Any one or more persons may by subscribing to a memorandum of association for a lawful purpose shall form a private company. (The Companies Ordinance, 1984)
Public Limited Company
Any three or more persons may form a public limited company, and any seven or more persons may form a listed public company in the same manner and purpose. (The Companies Ordinance, 1984) Both the companies stated above might either be limited by share, or guarantee, or unlimited.
Advantages of Registering the Business as a Company in Pakistan
Where greater mobilization of capital is required, which the resources of a few persons cannot provide, the formation of a company is advisable as this is the only form of business organization which offers the privilege of limiting of members’ liability for debts of the company. The Companies Ordinance, 1984 strictly lays down that no company shall be formed for the acquisition of gain through its mode of business unless it is registered as a company under the ‘Ordinance’. Hence any person who shall do so in contravention of the provisions of the ‘Ordinance’ shall be liable for the payment of fine which may extend to Rs. 5000 and also for all the liabilities incurred in the business.
Company Registration Offices (CRO’s) in Pakistan
For the convenience of the general public and the promoters of companies, Securities & Exchange of Pakistan (SECP) has established seven company registrations offices (CROs) at Islamabad, Karachi, Lahore, Peshawar, Faisalabad, Multan, Quetta and Sukker.
The main function of the CROs is to provide services and guidance in connection with the registration of new companies and also to ensure that their directors comply with the statutory requirements as provided under the Companies Ordinance 1984.
The record of the companies maintained by the given CROs’ is public record, and investors, shareholders and other concerned parties, may inspect the record of any company whenever needed by them and, they may also obtain certified copies of any specific document in accordance with the prescribed procedure.
The Formation, Incorporation and Registration of a Company in Pakistan
- The Pre-Incorporation Stage.
- The Post-Incorporation Stage.
Both these stages entail the filing of various documents, fees and stamp duties with the Company Registrar.
Pre- Incorporation Stage
Certain persons called promoters undertake the task of forming a company. In order to register a company the promoters must prepare and file certain documents with the registrar of companies and pay fees and stamp duties. Such documents are to be filed with the Registrar in the province or the part of Pakistan not forming part of a province, as the case may be, in which the registered office of the company is stated by the memorandum to be situated, under section 30 of the Companies Ordinance, 1984.
Under section 174 of the Company Ordinance, 1984: —
- Every single member company shall have at least one director
- Every other private company shall have not less than two directors
- Every public company other than a listed company shall have not less than three directors
- Every listed company shall have not less than seven directors to be elected in a general meeting in the manner provided in this Ordinance.
Application for Availability of Name
- Application for availability of name may be made manually for Rs. 500 or online for Rs. 200.
- Application for the availability of the company name must be made to the Registrar.
- The name must not be inappropriate, deceptive, designed to exploit or defend any religion, be identical or have a close resemblance with that of an existing company name.
- On receiving the application, the Registrar issues a certificate of availability of name within 2 days if he thinks fit.
- The name is reserved for 90 days from the receiving of the certificate of the availability of name.
- On failure of the promoters to get the company registered within 90 days from the receipt of such certificate, the Registrar may allocate such name to any other applicant seeking the same name.
Memorandum of Association
- The promoters of the company prepare the memorandum of association
- It is the most important document of the company.
- It is the charter of the company and defines its powers and states its objectives.
The mandatory contents of the memorandum of association to form a company in Pakistan are as follows:
The Name Clause
The name clause must include:
- The word “Limited” as the last word in case of a Public Limited Company.
- The words “(Private) Limited” as the last words in the case of a Private Limited Company.
- The words “(SMC-Private) Limited” as the last words of a Single Member Private Limited Company.
Registered Office Details
This clause must state the address details of the company offices.
This is the most important part of the memorandum of association and is to be worded immensely carefully. A company cannot legally take up any business that is not authorized by its object clause. The object clause cannot contain anything contrary to the provisions of the Companies Ordinance, 1984. It is generally very lengthy and the scope of the company’s activities is widened by including the words “and the doing of all such other things incidental or conductive of the environment of the above objects.”
The clause must include whether the company is limited by share or guarantee. The effect of this statement is in the event if the company is wound up, the members of the company will not be liable to contribute more than the amount, if any, unpaid on their shares, in case of a company limited by shares. In the case of a company limited by guarantee, the members undertake to contribute a specific amount to the assets of the company.
Share Capital Clause
The following information is provided in this clause, except for guarantee companies having no share capital and unlimited companies:
- The amount of share capital with which the company is formed and registered.
- The division of share capital into shares of fixed amounts.
The memorandum of association must be signed by the subscribers i.e. the first members of the association.
Articles of Association
- The Articles provide a description of the regulations and by-laws with which the company intends to conduct and regulate its daily working on various issues e.g. transfer of shares, general meetings, voting, notices, etc.
- The subscribers to the memorandum of association must sign the Articles of Association.
- These members may also adopt all or any of the regulations specified in Table A of the First Schedule of the Companies Ordinance, 1984, in case they do not prepare the articles of association.
Post Incorporation Stage
The post incorporation stage is almost the same for both the private and public companies with a few minor differences.
Private Companies After Incorporation
- Private companies may commence business from the date of incorporation.
- The first annual general meeting is required to be held within eighteen months of incorporation (Section 158). Consequently, Form-A is to be filed with the registrar within 30 days.
- Subsequent annual general meetings are to be held once every year, within a period of four months following the close of its financial year, and not more than 15 months after the holding of the last AGM (Section 158).
- The first election of directors is to be conducted at the first annual general meeting. Re-election should take place every three years. (Sections 176, 178 & 180)
- An annual return prescribed on Form-A is required to be filed with the registrar at the end of each year.
- In the case of increase in paid-up capital, the company is required to offer new shares to its members in proportion to the existing shares held by each member. A circular (under section 86(3)) shall be issued to all the members. A copy of this will also be filed with the registrar concerned, and thereafter Form-3 to be filed within 30 days of the allotment of shares (Section 73).
- Any appointment or change in the Directors, Chief Executive, Auditors, Chief Accountant is required to be notified to the concerned registrar by filing Form-29. This is to be done within 14 working days for any appointment or change (Section 205).
- The first auditors of the company must be appointed within 60 days of the date of incorporation (Section 252). Subsequent auditors must then be appointed at the annual general meeting to hold office from the conclusion of that meeting until the conclusion of the next annual general meeting (Section 252).
- Every mortgage or charge created by the company on its property should be registered with the concerned registrar. Any changes thereafter in this should also be registered.
Public Companies After Incorporation
- A public company may not commence business unless a “Certificate of Commencement of Business” is obtained from the Registrar concerned (Section 146).
- A statutory meeting is required to be held within a period of not less than 3 months and not more than 6 months from the date at which it becomes entitled to commence business (Section 157). A statutory report is required to be forwarded to the members at least 21 days before this meeting (Section 157). 5 duly certified copies of the statutory report shall be delivered to the registrar immediately after sending the report to the members.
- The first audited accounts are required to be shown in the first annual general meeting to be held within 18 months from the date of incorporation (Section 233). Five duly attested copies of the accounts and an Annual Return in form “A” is to be filed with the registrar within 30 days of the date of the AGM.
- Subsequent AGMs shall be held once every year in which audited accounts are presented. Every AGM must be held within four months of the closing of the financial year and not more than 15 months after the last meeting (Section 158).
- The procedure of appointing of directors is exactly the same as shown in private companies above.
- Any change in Directors/Chief Executives, Auditors, Secretaries, Chief Accountants, and Legal Advisors etc shall be conducted in the same manner as discussed in private companies.
- Again the procedure stated for in increase of paid up capital described above should also be followed.