CAF - 7

COMPANY LAW

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN i

Third edition published by
The Institute of Chartered Accountants of Pakistan
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Karachi – 75600 Pakistan
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© The Institute of Chartered Accountants of Pakistan, February 2023

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ii THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 TABLE OF CONTENTS

CHAPTER PAGE

Chapter 1 Company: introduction, types and registration 1

Chapter 2 Memorandum and articles 33

Chapter 3 Directors 59

Chapter 4 Chief executive and other officers 99

Chapter 5 Share capital 115

Chapter 6 Prospectus and commencement of business 129

Chapter 7 Mortgages and charges 147

Chapter 8 Meetings and resolutions 163

Chapter 9 Distribution of profits 205

Chapter 10 Investments and disclosure of interest 221

Chapter 11 Accounts and annual return 241

Chapter 12 Introduction to winding up 273

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 CHAPTER 1

COMPANY: INTRODUCTION,
TYPES AND REGISTRATION

AT A GLANCE

AT A GLANCE
IN THIS CHAPTER: A company is an artificial legal person owned by members /
shareholders and managed by directors. It is entitled to enter
AT A GLANCE in to contracts and own assets. A company itself is liable for its
debts rather than owners and directors provided the directors
SPOTLIGHT act within their powers and according to law.
1. The Features of a Company Any legal person can hold shares in a company and the liability
of members is limited up to their investments in the company.
2. Definition and Types of Perpetual succession means change in ownership does not
Company affect existence of company.
A company is defined as a company formed and registered
3. Authorities, Officials, under the company law. The term body corporate is broader

SPOTLIGHT
Members and Resolutions and includes companies incorporated outside Pakistan and
statutory bodies.
4. Association Not for Profit
A company may be limited by shares, limited by guarantee or
5. Registration of a Company unlimited company Further, it may be SMC private, other
private, public listed, public unlisted or a public sector
6. Objective Based Q&A company.
Authorities relevant to companies are Securities and Exchange
STICKY NOTES Commission of Pakistan and registrar.
The decisions of company are made in meetings through
resolutions.

STICKY NOTES
The Act allows certain associations not for profits to be
registered as companies subject to certain conditions. These
companies work for benefits of general public.
A business consisting of more than 20 persons is obligated to
be registered as a company by filing the required documents
with registrar with certain exceptions.
Private company (other than SMC) has minimum two members
while public company has minimum three members.

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 CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION CAF 7: COMPANY LAW

1. THE FEATURES OF A COMPANY

1.1 Company as artificial legal person
A sole trader is an individual who owns and runs his or her own business. The law does not recognize the
business: the law recognizes only the individual who runs it. The individual is liable for the debts of the business
and is also personally liable for any breaches of the law by the business.
A partnership is a group of individuals who own and run their own business. Each partner usually contributes
capital to the business. A partnership business is not recognised as a ‘person’ by the law. Individual partners are
personally liable, jointly with the other partners, for the debts of the business.
Unlike sole traders and Partnerships, a company is a legal person, separate from its owners. This is called
doctrine of corporate personality i.e. the law recognises a company as a person, with legal rights and obligations
AT A GLANCE

similar to those of ordinary individuals.

 Example 01:
Suppose Mr. Zahid set up a limited liability company ABC (SMC–PVT) Limited with 10,000 shares
of Rs. 10 each. Mr. Zahid (the individual) and ABC (SMC-PVT) Limited (the company), for the
purpose of the law, would be two separate persons – both would have separate legal existence.
A company is an ‘artificial person’, whereas individual people are ‘natural persons’. Essentially, however, the law
treats persons in the same way, whether they are artificial or natural. The following are characteristics of
company as an artificial person:

Contractual rights and obligation

As a legal person, a company may enter into contracts with other persons – individuals or other companies.
SPOTLIGHT

Debts and liability

If a company incurs a debt, the company itself is liable and its owners (the shareholders) are not.

Ownership of assets / property

A company owns its own assets. Although the members (ordinary shareholders) own the company, they do not
own the assets of the company. The shareholders are simply owners of the shares in the company. The company
itself is the legal owner of its assets.

Right to receive from debtors

STICKY NOTES

The debtor of the company owes the money to the company, and not to its owners.

Management by directors
Companies are managed by their directors, who should be members of the company as well (with a few
exceptions). In small companies, the shareholders and directors may be the same individuals, but in large
companies, the directors might hold a small proportion of the shares or even no shares at all.

Liability to pay tax

A company is personally liable to pay tax on its income (profits).

Legal obligations
If a company breaks the law, it is usually the company itself that is liable, although there are circumstances in
which its owners or its ‘officers’ (mainly directors) may be personally liable.

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CAF 7: COMPANY LAW CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION

1.2 Consequences of separate personality

The separate legal personality of companies has several consequences:
 limited liability of the owners of business
 separation of ownership from control i.e. members and directors
 transfer of ownership and perpetual succession/perpetual existence.

1.3 Transfer of ownership and perpetual succession

Share capital and members

The capital of a company is represented by shares, and the shareholders (members) are its owners. The term
“member” and “shareholder” are used interchangeably, however, there are few differences that have been

AT A GLANCE
discussed later in this chapter.

Who can own shares?

Any legal person can own shares in a company. This includes other companies. It is very common in practice for
some companies to own some or all of the shares of other companies.

Transfer of ownership
The shares can be transferred easily (by sale, gift, and inheritance) without seeking any approval from other
owners (as opposed to partnership).

Share transfer

SPOTLIGHT
When shares are transferred, the rights associated with the shares, such as the right to receive a portion of any
dividend paid by the company or the right to attend and vote at general meetings of the company, are transferred
to the new owner.

Perpetual succession (perpetual existence)

The change in ownership or even the death or bankruptcy of owners does not affect the existence of company
(as opposed to partnership).

1.4 The concept of limited liability

Liability of company

STICKY NOTES
Limited liability applies to the shareholders of a company. It does not apply to the company itself. A company is
fully liable for all its debts and other liabilities; just as any other person is fully liable for the debts that he or she
incurs.

Liability of directors
The directors and other officers of a company act on behalf of the company (as an agent), and provided that they
act within their powers and in accordance with the law, they will not be personally liable for debts of the
company.

Liability of members
The concept of limited liability applies to the owners (members) of a company. The liability of the owners of a
company for the debts of the company is limited to the amount of their investment in the company and they don’t
have to pay any other amount in case of insolvency of the company.

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 CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION CAF 7: COMPANY LAW

Liability of members in case of partly paid shares

There is an exception to this rule of no further liability, but only when the shares issued by a company have not
yet been fully paid up.
 Example 02:
Suppose that a company has issued 1,000,000 shares with a face value (nominal value) of Rs. 10
each, and Rs. 7.5 of the face value has been paid (subscribed) by the shareholders. If the company
goes into liquidation, the holders of the 1,000,000 shares will be liable to subscribe the remaining
Rs.2.5 per share, and this money can be used to pay the company’s debts. This amount may be
called by the directors of the company even during the life time of the company if they so decide.

How creditors are warned?

AT A GLANCE

The word ‘limited’ in the name of the company draws the fact of limited liability to the attention of anyone dealing
with it.
 This is why private limited companies in Pakistan are required to include the word “(Private) Limited”
in their name.
 It is also why public companies in Pakistan are required to include the words “Limited” in their name.

1.5 Law and governance of a company

Relevant law
Companies are created by a process established by company law (i.e. Companies Act, 2017).
SPOTLIGHT

Memorandum of association
A company must also have a written constitution. The constitutional document that focuses on external
stakeholders is called memorandum of association.

Articles of association
The bye-laws which focuses on internal procedures of a company are called articles of association.
STICKY NOTES

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CAF 7: COMPANY LAW CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION

2. DEFINITION AND TYPES OF COMPANY

2.1 Definitions
Definition: Company [Section 2(17)]
“company” means a company formed and registered under the Companies Act, 2017 or the company law.

Definition: Company law [Section 2(18)]

“company law” means the repealed Companies Act, 1913, Companies Ordinance, 1984, Companies Ordinance,
2016 and also includes Companies Act, 2017 unless the context provides otherwise.

Definition: Body corporate [Section 2(9)]

AT A GLANCE
"Body corporate" or "corporation" includes
 a company incorporated under Companies Act, 2017 or company law;
 a company incorporated outside Pakistan, or
 a body corporate declared as body corporate in the relevant statute
but does not include
 A co-operative society registered under any law relating to the registration of co-operative societies; or
 Any other entity, not being a company as defined in Companies Act, 2017 or any other law for the time
being, which the concerned Minister of the Federal Government may, by notification, specify in this
behalf.

SPOTLIGHT
Analysis of above definitions
The literal meaning of ‘body corporate’ is artificial legal person and therefore, every company (as defined above)
is also a body corporate.
However, the definition of body corporate is broader and in addition to companies registered in Pakistan it also
includes companies registered in foreign countries and statutory body corporates, for example, State Bank of
Pakistan constituted under State Bank of Pakistan Act, 1956.
However, for the purpose of Companies Act, 2017, a cooperative society shall not be considered a body corporate.
Federal Government may also exclude a foreign company or statutory body from the definition of body corporate
for the purposes of the Act.
 Example 03:

STICKY NOTES
Orange Limited is a company incorporated in Pakistan and is operating branch offices around
the globe. Orange Limited is a company and also a body corporate.
 Example 04:
Orange Inc. is a company incorporated in USA and is operating a branch office in Pakistan. It is a
body corporate but not a company.
 Example 05:
XYZ Housing Cooperative society is generally a body corporate but for the purposes of Companies
Act, it shall not be considered as a body corporate.
 Example 06:
Orange Inc. is a company incorporated in USA and is operating a branch office in Pakistan. It is a
body corporate but not a company. The concerned minister of Federal Government notified that
Orange Inc. shall not be considered a body corporate for the purposes of Companies Act, 2017.
Orange Inc. shall not be a body corporate for application of provisions of Companies Act, 2017.

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Definition: Foreign company [Section 2(35)]

“foreign company” means any company or body corporate incorporated outside Pakistan, which:
a) has a place of business or liaison office in Pakistan whether by itself or through an agent, physically or
through electronic mode; or
b) conducts any business activity in Pakistan in any other manner as may be specified.
 Example 07:
Orange Inc. is a company incorporated in USA and is operating a branch office (a place of
business) in Pakistan. It is a foreign company.

2.2 Types of company – according to members’ liability

AT A GLANCE

2.2.1 Definition: Company limited by shares [Section 2(20)]

“company limited by shares” means a company; having the liability of its members limited by the memorandum
to the extent of amount, if any, remaining unpaid on the shares respectively held by them.
Most businesses that incorporate as companies are companies limited by shares. The great advantage of this
form of company is that the company is able, if the shareholders approve, to raise additional capital by issuing
new shares.

2.2.2 Definition: Company limited by guarantee [Section 2(19)]

“company limited by guarantee” means a company having the liability of its members limited by the
memorandum to such amount as the members may respectively thereby undertake to contribute to the assets of
the company in the event of its being wound up.
SPOTLIGHT

A company limited by guarantee may or may not have share capital.

The liability of members of company limited by guarantee not having share capital is restricted to the amount of
guarantee as mentioned in memorandum.
The liability of members of company limited by guarantee having share capital is restricted to the amount of
guarantee as mentioned in memorandum, in addition to unpaid amount on shares, if any.

2.2.3 Definition: Unlimited company [Section 2(71)]

“unlimited company” means a company not having any limit on the liability of its members.
This has all the advantages of a normal company except that the liability of its members is not limited. In practice
unlimited companies are fairly rare but are sometimes used by a ‘partnership style’ business.
STICKY NOTES

2.3 Types of company – private vs public

2.3.1 Definition: Single member company [Section 2(65)]
“single member company” means a company which has only one member.
It is a company which consists of a single member who is also the director of the company. These companies are
governed by special rules. In these companies, “(SMC PVT) Limited” is added to the name of the company.

2.3.2 Definition: Private company (other than SMC) [Section 2(49)]

“private company” means a company which, by its articles:
a) restricts the right to transfer its shares, save as otherwise provided in the Act;
b) limits the number of its members to fifty not including persons who are in the employment of the
company; and
c) prohibits any invitation to the public to subscribe for the shares or debentures of the company:

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Provided that, where two or more persons hold one or more shares in a company jointly, they shall, for the
purposes of this definition, be treated as a single member.
Private companies are usually small and medium sized family owned businesses.

2.3.3 Definition: Public company [Section 2(52)]

“public company” means a company which is not a private company.
A public company may (or may not) apply for listing on stock exchange.

2.3.4 Public listed company

Such form of public company whose securities are listed on an exchange and they are traded as per regulations
of that stock exchange.

AT A GLANCE
Securities are tradable financial instruments used to raise capital. It includes equity securities (shares) and debt
securities (debentures).

Definition: Listed company [Section 2(38)]

“listed company” means a public company, body corporate or any other entity whose securities are listed on
securities exchange.
 Example 08:
The securities of Engro Fertilizers Limited are allowed to be traded on Pakistan Stock Exchange
(PSX) i.e. people can buy and sell those securities using the mechanism provided by PSX. Engro
Fertilizers Limited is a listed company.

SPOTLIGHT
2.3.5 Public unlisted company
Public unlisted companies have not made an offer of their shares to general public hence their shares are not
traded on a stock exchange.
A public unlisted company however is entitled to make an offer to the general public as and when it thinks fit
unlike private companies which are forbidden to invite subscriptions from general public.

2.3.6 Public sector company [Section 2(54)]

It is also important to distinguish between a ‘public company’ and a ‘public sector company’. A public sector
company has been defined as follows:
“public sector company” means a company, whether public or private, which is directly or indirectly controlled,

STICKY NOTES
beneficially owned or not less than fifty-one percent of the voting securities or voting power of which are held
by the Government or any agency of the Government or a statutory body, or in respect of which the Government
or any agency of the Government or a statutory body, has otherwise power to elect, nominate or appoint majority
of its directors and includes a public sector association not for profit, licenced by the Commission (SECP):
Provided that nomination of directors by the Commission on the board of the securities exchange or any other
entity or operation of any other law shall not make it a public sector company.
 Example 09:
Pak Arab Refinery Company Limited (PARCO), a joint venture between Government of Pakistan
and the Emirate of Abu Dhabi was incorporated as a public limited company in 1974. The
Government of Pakistan holds 60% of the shareholding while 40% of the shares are held by
Emirate of Abu Dhabi. PARCO is a public sector company.
 Example 10:
XYZ Limited is a public company registered under Companies Act, 2017 and also listed on
Pakistan Stock Exchange. The Government has no direct or indirect investment in this company.
XYZ Limited is a public company but not a public sector company.

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2.4 Holding company and subsidiary company

Definition: Holding company [Section 2(37)]
“holding company”, means a company which is another company‘s holding company if, but only if, that other
company is its subsidiary.
Definition: Subsidiary company [Section 2(68)]
“subsidiary company” or “subsidiary”, in relation to any other company (that is to say the holding company),
means a company in which the holding company:
a) controls the composition of the board; or
b) exercises or controls more than one-half of its voting securities either by itself or together with one or
more of its subsidiary companies.
AT A GLANCE

However, such class or classes of holding companies shall not have layers of subsidiaries beyond such numbers,
as may be notified.
For the purpose of above meaning of subsidiary company:
i. a company shall be deemed to be a subsidiary company of the holding company even if the control
referred to in sub-clause (a) or sub-clause (b) is of another subsidiary company of the holding company.
ii. the composition of a company‘s board shall be deemed to be controlled by another company if that other
company by exercise of power exercisable by it at its discretion can appoint or remove all or a majority
of the directors.
iii. the expression “company” includes any body corporate.
iv. “layer” in relation to a holding company means its subsidiary or subsidiaries.
 Example 11:
SPOTLIGHT

Hill Limited owns 40% voting securities in Stone Limited only but has the power to appoint or
elect the majority of directors due to a contractual arrangements with other shareholders. Hill
Limited is Holding company of Stone Limited.
Now if Stone Limited is a holding company of Stylish Stones Limited due to owning 80% voting
securities therein, then being the holding company of Stone Limited the Hill Limited shall also be
considered as holding company of Stylish Stones Limited.

Definition: Wholly owned subsidiary [Section 2(74)]

“wholly owned subsidiary” a company shall be deemed to be a wholly owned subsidiary of another company or
the statutory body if all its shares are owned by that other company or the statutory body.
STICKY NOTES

 Example 12:
ABC Limited owns 100% shares of XYZ Limited. XYZ Limited shall be deemed to be wholly owned
subsidiary of ABC Limited.
 Practice Question 01:
Under the provisions of the Companies Act, 2017 explain the term ‘body corporate or
corporation’.
 Solution:
“body corporate” or “corporation” includes a company incorporated under the Act or company
law, or a company incorporated outside Pakistan, or a statutory body declared as body corporate
in the relevant statute,
but does not include:
i. a co-operative society registered under any law relating to cooperative societies; or
ii. any other entity, not being a company as defined in the Act or any other law for the time
being which the concerned Minister-in-Charge of the Federal Government may, by
notification, specify in this behalf.

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 Practice Question 02:

A Secretary has recently joined ABC (Pvt) Ltd. She informed the CEO that the membership of the
company has crossed the maximum number provided under the Companies Act, 2017. The data
she shared with the CEO was:

Corporate members 14
Individuals 34
Joint share-holding (3,000,000 shares held by 4 members jointly) 4
Total 52

Under the relevant provisions contained in the Companies Act, 2017, suggest the course of action
in the given scenario.

AT A GLANCE
 Solution:
The definition of a private limited company as contained in the Companies Act 2017, along with
other conditions, limits the number of its members to fifty. In computing this number, those who
are in the employment of the company would not be counted. Moreover, where two or more
persons hold one or more shares in a company jointly, they shall, for the purposes of this
definition, be treated as a single member.
Therefore, in the given scenario, the total number of shareholders turns out to be 49 rather than
52. The total number of shareholders is thus not exceeding the limit as fixed by the Companies
Act 2017 hence no action is required.
 Practice Question 03:

SPOTLIGHT
Kaghan Resham Limited (KRL) holds 60 percent shares out of total paid up capital of another
public company named Naran Silk Limited (NSL). NSL further owns 14 percent shares of
Thandiyani Ice-creams Limited (TIL). NSL has also entered into an agreement with other
shareholders of TIL to appoint four out of seven directors on the board of directors of TIL.
Explain their relationships with each other under Companies Act 2017.
 Solution:
Kaghan Resham Limited (KRL) is the holding company of Naran Silk Limited (NSL) as KRL holds
more than 50 percent shares of NSL.
NSL is the holding company of Thandyani Ice-creams Limited (TIL) as NSL can appoint more than
fifty percent directors of TIL and hence control the composition of its board.

STICKY NOTES
So as per the definition of the holding and subsidiary company under the Act, KRL is also the
holding company of TIL (indirectly).
 Practice Question 04:
Masters Limited (ML) has made equity investment in Abbas Limited (AL). In the light of
Companies Act, 2017 state under what circumstances ML may classify AL as its subsidiary.
 Solution:
AL may be considered as a subsidiary company of ML if:
 ML controls composition of the board of AL. The composition shall be deemed to be
controlled by ML if it can appoint or remove all or a majority of AL’s directors; or
 ML exercises or controls more than one-half of its voting securities either by itself or
together with one or more of its subsidiary companies.

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3. AUTHORITIES, OFFICIALS, MEMBERS AND RESOLUTIONS

3.1 The Commission (SECP)

Definition: The Commission [Section 2(16)]

The Commission means the Securities and Exchange Commission of Pakistan constituted under Section 3 of
Securities and Exchange Commission of Pakistan Act, 1997.

Organization
Securities and Exchange Commission of Pakistan (SECP) established under the Securities and Exchange
Commission of Pakistan Act 1997 was operationalized on 1st January 1999. SECP replaced Corporate Law
Authority, the former corporate regulatory body. It has been vested with adequate operational, administrative
AT A GLANCE

and financial autonomy.

Offices
The SECP’s head office is at the Federal Capital, Islamabad and it has eight regional offices (Company Registration
Offices), one at Federal Capital, four at provincial capitals and three in other major cities i.e. Multan, Faisalabad
and Sukkur.

Powers and Functions [Section 7]

The Commission shall exercise such powers and perform such functions as are conferred on it by or under
Companies Act, 2017.
The powers and functions of the Commission under Companies Act, 2017 are in addition to the powers and
SPOTLIGHT

functions of the Commission under the Securities and Exchange Commission of Pakistan Act, 1997.
SECP has been vested with lot of powers under the Companies Act 2017 and other relevant laws. SECP has got
powers to regulate the affairs of all the companies including Insurance Companies, Banking Companies, and
other companies.
Law has vested various powers to SECP and also federal government is empowered to vest its powers to the
SECP to the extent it thinks fit.

3.2 Registrar

Definition: Registrar [Section 2(57)]

STICKY NOTES

“Registrar” means a registrar, an additional registrar, an additional joint registrar, a joint registrar, a deputy
registrar, an assistant registrar or such other officer as may be designated by the Commission, performing duties
and functions under Companies Act, 2017.

Power and Duties

The powers and duties of registrar start from registration of companies to receiving various documents which
the companies are required to submit to the authorities under Companies Act, 2017.
He keeps the record of mortgages and charges and also keeps track of company routine documents besides his
powers to call the officers of the company including directors for information and explanations and he is also
empowered to inspect the books and records of the company. He may seize the books and records if he believes
that seizure is necessary to reach out certain facts by SECP.

3.3 Officials in a company

Definition: Officer [Section 2(45)]
“officer” includes any director, chief executive, chief financial officer, company secretary or other authorised
officer of a company.

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Definition: Board [Section 2(8)]

“board”, in relation to a company, means board of directors of the company.
The meetings of directors are called board meetings in which they make decisions on behalf of company.

3.4 Members of a company [Section 118]

The subscribers to the memorandum of association are deemed to have agreed to become members of the
company and become members on its registration and every other person:
a) to whom is allotted, or who becomes the holder of any class or kind of shares; or
b) in relation to a company not having a share capital, any person who has agreed to become a member of
the company;

AT A GLANCE
and whose names are entered; in the register of members, are members of the company.
The terms ‘shareholder’ and ‘member’ is used interchangeably but from the above definition it is clear that
‘member’ is a broader term.
 Example 13:
Adeel is member of ABC (Guarantee) Limited which does not have share capital. Adeel has
guaranteed to contribute an amount up to Rs. 1 million if needed in case of winding up of the
company. Adeel is member of ABC (Guarantee) Limited but there are no shareholders in this
company.
 Example 14:
Maria along with other members of her family subscribed a memorandum for registration of a
company XYZ (Private) Limited. The company has been registered but shares certificates have

SPOTLIGHT
not been printed and allotted yet. Maria is member of the company although she does not
(technically) hold any shares yet.

3.5 Types of resolutions by members

The decisions of company are made in meetings through resolutions. A meeting of members is called general
meeting.

Definition: Voting rights [Section 2(73)]

“voting right” means the right of a member of a company to vote on any matter in a meeting of the company
either present in person or through video-link or by proxy or by means of postal ballot.

STICKY NOTES
Provided that attending of meeting through video-link shall be subject to such facility arranged by the company
and in the manner as may be specified, save as otherwise provided in the Act.

Definition: Ordinary resolution [Section 2(46)]

“ordinary resolution” means a resolution passed by a simple majority of such members of the company entitled
to vote as are present in person or by proxy or exercise the option to vote through postal ballot, as provided in
the articles or as may be specified, at a general meeting.

Definition: Special resolution [Section 2(66)]

“special resolution” means a resolution which has been passed by a majority of not less than three-fourths of
such members of the company entitled to vote as are present in person or by proxy or vote through postal ballot
at a general meeting of which not less than 21 days‘ notice specifying the intention to propose the resolution as
a special resolution has been duly given:
Provided that if all the members entitled to attend and vote at any such meeting so agree, a resolution may be
proposed and passed as a special resolution at a meeting of which less than 21 days’ notice has been given.

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The special resolution requires more than just a simple majority and long notice of at least 21 days to take effect.
This implies that this type of resolution is required for more important matters for members of the company and
company itself.
 Practice Question 05:
Under the provisions of the Companies Act, 2017 discuss how a person may become a member
of the company.
 Solution:
A person may become the member of the company in any of the following ways:
 The subscribers to the memorandum of association are deemed to have agreed to
become members of the company and become members on its registration.
AT A GLANCE

and in other cases:

 A person to whom shares of any kind are allotted, or who becomes the holder of any
class or kind of shares; or
 in relation to a company not having a share capital, any person who has agreed to
become a member of the company;
and whose names are entered; in the register of members, are members of the company.
 Practice Question 06:
Under the provisions of the Companies Act, 2017 briefly describe the term ‘Special resolution’.
 Solution:
SPOTLIGHT

Special resolution is a resolution which is passed by a majority of not less than three-fourths of
such members of the company entitled to vote as are present in person or by proxy or vote
through postal ballot at a general meeting of which not less than 21 days‘ notice has been given
specifying the intention to propose the resolution as a special resolution:
Provided that if all the members entitled to attend and vote at any such meeting so agree, a
resolution may be proposed and passed as a special resolution at a meeting of which less than 21
days’ notice has been given.
STICKY NOTES

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4. ASSOCIATION NOT FOR PROFIT

4.1 Licencing of associations with not for profit objects [Section 42]
Concept
People working for useful objects of the society sometimes need protection of limited liability for such work.
Companies Act allows the registration of companies as associations not for profit if they satisfy certain conditions
to SECP.

Criteria for licence

Where it is proved to the satisfaction of the Commission that an association is to be formed as a limited company
and meets the following criteria, the Commission may, by licence for a period to be specified, permit the
association to be registered as a public limited company, without addition of the word “Limited” or the

AT A GLANCE
expression “(Guarantee) Limited”, to its name:
i. for promoting commerce, art, science, religion, health, education, research, sports, protection of
environment, social welfare, charity or any other useful object;
ii. such company:
 intends to apply the company‘s profits and other income in promoting its objects; and
 prohibits the payment of dividends to the company‘s members; and
iii. such company‘s objects and activities are not and shall not, at any time, be against the laws, public order,
security, sovereignty and national interests of Pakistan.
Conditions and regulations

SPOTLIGHT
The licence may be granted on such conditions and subject to such regulations as the Commission thinks fit and
those conditions shall be inserted in and deemed part of the memorandum and articles, or in one of those
documents.
Form of memorandum and articles
Memorandum and articles of association of a company, licenced as above, shall be in accordance with the form
set out in Table F in the First Schedule and approved by the Commission.

Privileges and obligations

The association on registration as above shall enjoy all the privileges and be subject to all the obligations of a
limited company.

STICKY NOTES
4.2 Revocation of licence [Section 42]

Reasons for revocation

The Commission may at any time by order in writing, revoke a licence granted with such directions as it may
deem fit, on being satisfied that:
a) the company or its management has failed to comply with any of the terms or conditions subject to which
a licence is granted; or
b) any of the requirements specified or any relevant regulations are not met or complied with; or
c) affairs of the company are conducted in a manner prejudicial to public interest; or
d) the company has made a default in filing with the registrar its financial statements or annual returns for
immediately preceding two consecutive financial years; or
e) the company has acted against the interest, sovereignty and integrity of Pakistan, the security of the
State and friendly relations with foreign States; or
f) the number of members is reduced, below three; or

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g) the company is:

i. conceived or brought forth for, or is or has been carrying on, unlawful or fraudulent activities;
or
ii. run and managed by persons who fail to maintain proper and true accounts or they commit
fraud, misfeasance or malfeasance in relation to the company; or
iii. run and managed by persons who are involved in terrorist financing or money laundering; or
iv. managed by persons who refuse to act according to the requirements of the memorandum or
articles or the provisions of Companies Act, 2017 or failed to carry out the directions or
decisions of the Commission or the registrar given in exercise of the powers conferred by
Companies Act, 2017; or
v. not carrying on its business or is not in operation for one year; or
AT A GLANCE

h) it is just and equitable that the licence should be revoked.

Opportunity of being heard

However, before a licence is so revoked, the Commission shall give to the company a notice, in writing of its
intention to do so, and shall afford the company an opportunity to be heard.

4.3 Effect of revocation of licence [Section 43]

Requirements on revocation
On revocation of licence of a (not-for-profit) company by the Commission:
a) the company shall stop all its activities except the recovery of money owed to it, if any;
b) the company shall not solicit or receive donations from any source; and
SPOTLIGHT

c) all the assets of the company after satisfaction of all debts and liabilities shall be transferred to another
(not-for-profit) company, preferably having similar or identical objects to those of the company, within
90 days from the revocation of the licence or such extended period as may be allowed by the
Commission.
However, a reasonable amount to meet the expenses of voluntary winding up or making an application to the
registrar for striking the name of the company off the register may be retained by the company.

Report to Registrar
After compliance of the requirements mentioned above, the board of the company shall file within 15 days from
the date of such compliance, a report to the registrar containing relevant information and documents.
STICKY NOTES

Proceedings for winding up

Within 30 days of acceptance of the report by the registrar, submitted by the company, the board shall initiate
necessary proceedings for winding up of the company voluntarily or where it has no assets and liabilities make
an application to the registrar for striking the name of the company off the register.
Appointment of Administrator
In case of default, the Commission may appoint an administrator to manage affairs of the company and initiate
necessary proceedings for winding up of the company.
Restriction on members and officers
Where any assets of the company are transferred, in consequence of revocation of licence, to another (not-for-
profit) company, the members and officers of the first mentioned company or any of their family members shall
not be eligible to hold any office in the later company for a period of 5 years from the date of transfer of such
assets.

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 Example 15:
The management of Shareer General Hospital (SGH) a company formed under section 42 of the
Companies Act, 2017 received show cause notice from the Commission of its intention to revoke
the licence because the Commission is satisfied that the affairs of SGH are conducted in a manner
prejudicial to public interest. SGH management was unable to defend their position and finally
the Commission revoked SGH licence on 13th January 2020 and ordered transfer of all its assets
by 11th April 2020.
SGH management transferred all the assets to Good Eye Hospital (GEH) a company formed under
section 42 of the Companies Act, 2017 on 3rd April 2020. In light of the provisions of Companies
Act, 2017 the members and officers of SGH shall not be eligible to hold any office in GEH for a
period of five years i.e. by 2nd April 2025.
 Practice Question 07:

AT A GLANCE
Alfalah Associates is an association of persons. It wants to register itself as a limited company but
does not wish to include the word “Limited” in its name.
In view of the provisions of the Companies Act, 2017 you are required to explain the conditions
that need to be satisfied before the Commission may issue it a licence and allow it to dispense
with the word “Limited” from its name.
 Solution:
The Commission may grant a licence for a period to be specified and direct that the Alfalah
Associates be registered as a company with limited liability, without the addition of the words
"Limited", to its name, if Alfalah Associates satisfies the following conditions:
 It should be capable of being formed as a public limited company.

SPOTLIGHT
 It should be formed for promoting commerce, art, science, religion, health, education,
research, sports, protection of environment, social welfare, charity or any other useful
object.
 It applies or intends to apply its profits/income in promoting its objects.
 It prohibits the payment of any dividend to its members.
 such company’s objects and activities are not and shall not, at any time, be against the
laws, public order, security, sovereignty and national interests of Pakistan.
 Practice Question 08:
The licence of Cancer Research Association (CRA), issued under section 42 of the Companies Act,

STICKY NOTES
2017, was revoked by the Commission as the affairs of CRA were conducted in a manner
prejudicial to public interest. Under the Companies Act, 2017 briefly discuss the effect of
revocation of licence on CRA, its members and officers.
 Solution:
On revocation of licence of CRA issued under section 42, by the Commission:
i. the company shall stop all its activities except the recovery of money owed to it, if any;
ii. the company shall not solicit or receive donations from any source; and
iii. all the assets of the company after satisfaction of all debts and liabilities shall be
transferred to another company licensed under section 42, preferably having similar or
identical objects to those of the company, within 90 days from the revocation of the
licence or such extended period as may be allowed by the Commission:
Provided that a reasonable amount to meet the expenses of voluntary winding up or
making an application to the registrar for striking the name of the company off the
register may be retained by the company.

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iv. The members and officers of the first mentioned company (whose assets have been
transferred) or any of their family members shall not be eligible to hold any office in the
later company (the company to whom such assets have been transferred) for a period of
five years from the date of transfer of such assets.
 Practice Question 09:
Identify any four criteria on the basis of which a company formed under section 42 of the
Companies Act, 2017 differs from any other limited liability company.
 Solution:
A Company formed under section 42 of the Companies Act, 2017 i.e. association not for profit
differs from any other limited liability company in following manner:
 It can only be formed as a public company.
AT A GLANCE

 The promoters shall have to apply to the Commission for licence to permit the
association to be registered with registrar.
 The licence granted as aforesaid shall be for a specified period only.
 The licence may be granted on such conditions and subject to such regulations as the
Commission thinks fit, which shall be inserted in and deemed part of the memorandum
and articles.
SPOTLIGHT
STICKY NOTES

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5. REGISTRATION OF A COMPANY
5.1 Obligation to register as company [Section 9]
No association, partnership or entity consisting of more than 20 persons shall be formed for the purpose of
carrying on any business that has for its object the acquisition of gain by the association, partnership or entity,
or by the individual members thereof, unless it is registered as a company under the Companies Act, 2017 and
any violation shall be an offence punishable as mentioned below.
A person guilty of an offence under this section shall be liable to a penalty not exceeding of level 1 on the standard
scale and also be personally liable for all the liabilities incurred in such business.
 Example 16:
In an MBA class, 28 class fellows decided to form a partnership firm to work collectively as

AT A GLANCE
marketing and advertisement advisors. The carrying on business under such partnership shall
be a punishable offence. They should form a company under Companies Act, 2017.

Exceptions
The obligation to register as a company is not applicable in following circumstances:
a) any society, body or association, other than a partnership, formed or incorporated under any law for the
time being in force in Pakistan; or
b) a joint family carrying on joint family business; or
c) a partnership of two or more joint families where the total number of members of such families,
excluding the minor members, does not exceed twenty; or
d) a partnership formed to carry on practice as lawyers, accountants or any other profession where

SPOTLIGHT
practice as a limited liability company is not permitted under the relevant laws or regulations for such
practice.
 Example 17:
A group of 130 persons formed a housing co-operative society in Multan and got it registered
under the Cooperative Societies Act, 1925. They are not required to be registered under the
company law.
 Example 18:
A registered Hindu Undivided Family of 37 members is carrying on joint family business. They
are not required to be registered under the company law.

STICKY NOTES
 Example 19:
After qualifying CA, 28 Chartered Accountants decided to form a partnership firm to work
collectively as Chartered Accountants. The Chartered Accountants Ordinance, 1961 prohibits to
practice as Chartered Accountants with limited liability. Such partnership is allowed under the
law.

5.2 Mode of forming a company [Section 14]

Public, private or single member company

Any three or more persons associated for any lawful purpose may, by subscribing their names to a memorandum
of association and complying with the requirements of the Act in respect of registration, form a public company.
Any two or more persons so associated may in the like manner form a private company.
Any one person may form a single member company by complying with the requirements in respect of
registration of a private company and such other requirement as may be specified. The subscriber to the
memorandum shall nominate a person who in the event of death of the sole member shall be responsible to:

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i. transfer the shares to the legal heirs of the deceased subject to succession to be determined under the
Islamic law of inheritance and in case of a non-Muslim members, as per their respective law; and
ii. manage the affairs of the company as a trustee, till such time the title of shares are transferred.
Provided that where such transfer is made to more than one legal heir, the company shall cease to be a single
member company and comply with the provisions relating to conversion to a private company.

Limited by shares or guarantee, or unlimited company

A company formed as above may be a company with or without limited liability, that is to say:
a) a company limited by shares; or
b) a company limited by guarantee; or
c) an unlimited company.
AT A GLANCE

5.3 Process of incorporation

The process of incorporation usually involves the following steps:
 Getting availability of suitable name from the registrar of companies
 Preparing memorandum of association, articles of association of proposed company along with
supportive documents.
 File the above documents along with application form for incorporation to registrar.
 Registrar shall issue the certificate of incorporation of company upon being satisfied that all the
requirements have been complied with.

5.4 Registration of memorandum and articles [Section 16]

SPOTLIGHT

Filing with Registrar

There shall be filed with the registrar an application on the specified form containing the following information
and documents for incorporation of a company, namely:
a) a declaration of compliance with all of the requirements of Companies Act, 2017 in respect of
registration;
b) memorandum of association of the proposed company signed by all subscribers, duly witnessed and
dated;
c) articles of association (optional for company limited by shares) signed by the subscribers duly witnessed
and dated; and
d) an address for correspondence till its registered office is established and notified.
STICKY NOTES

Revised documents / Removal of defects

Where the registrar is of the opinion that any document or information contains any matter contrary to law or
does not otherwise comply with the requirements or is not complete owing to any defect, error or omission or is
not properly authenticated, the registrar may either require the company to file a revised document or remove
the defects or deficiencies within the specified period.

Refusal by register
Where the applicant fails to remove the deficiencies conveyed within the specified period, the registrar may
refuse registration of the company.

Appeal to Commission
The subscribers of the memorandum or any one of them authorised by them in writing may, within 30 days of
the order of refusal, prefer an appeal to the Commission.
An order of the Commission shall be final and shall not be called in question before any court or other authority.

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Criteria for registration

If the registrar is satisfied that all the requirements of Companies Act, 2017 and the rules or regulations made
thereunder have been complied with, he shall register the memorandum and other documents delivered to him.

Certificate of incorporation
On registration, the registrar shall issue a certificate of incorporation that shall state:
a) the name and registration number of the company;
b) the date of its incorporation;
c) whether it is a private or a public company;
d) whether it is a limited or unlimited company; and
e) if it is limited, whether it is limited by shares or limited by guarantee.

AT A GLANCE
Certificate to be Conclusive evidence
The certificate shall be signed by the registrar or authenticated by the registrar‘s official seal.
The certificate shall be conclusive evidence that the requirements of Companies Act, 2017 as to registration have
been complied with and that the company is duly registered under the Act.

5.5 Effect of registration [Section 18]

The registration of the company has the following effects, as from the date of incorporation:
a) the subscribers to the memorandum, together with such other persons as may from time to time become
members of the company, are a body corporate by the name stated in the certificate of incorporation;

SPOTLIGHT
b) the body corporate is capable of exercising all the functions of an incorporated company and having
perpetual succession;
c) the status and registered office of the company are as stated in, or in connection with, the application for
registration;
d) in case of a company having share capital, the subscribers to the memorandum become holders of the
initial shares; and
e) the persons named in the articles of association as proposed directors, are deemed to have been
appointed to that office.

5.6 Carrying on business with fewer than minimum number of members [Section 15]

STICKY NOTES
Minimum number of members
The minimum number of members in a company are:
a) two, in case of private company other than single member company; and
b) three, in case of public company.

Effect of carrying on business with fewer than minimum number of members

If at any time the company carries on business for more than 180 days while the number of members is reduced
below the minimum as mentioned above, every person who is a member of the company during the time that it
so carries on business after those 180 days and is cognizant of the fact that it is carrying on business with fewer
than two members or three members, as the case may be, shall be severally liable for payment of whole debts of
the company contracted during that time and may be sued therefor without joinder in the suit of any other
member.

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 Example 20:
Raheel and his father, Rashid are only members in RR (Private) Limited. Upon death of Rashid,
all the estate (including shares in RR (Private) Limited) were transferred to Raheel being the only
heir on 25th April 2020. Raheel carried on business alone till 14th December 2020, when he
transferred some of the shares to two of his family members. Raheel shall be personally liable for
the debts of the company contracted during the time from 22 October 2020 (i.e. 180 days from
25th April) to 14th December 2020 when the company carried on business with fewer than two
members.
 Practice Question 10:
On 29 April 2012, a memorandum of association of AB Limited was filed for registration in the
office of Registrar. However, on 25 May 2012, a letter from the registrar office was received by
the subscribers to the memorandum in which the registration was refused on the ground that
AT A GLANCE

the principal line of business clause stated in the memorandum was inappropriate.
Describe what course of action is available to AB Limited in the above situation, according to the
Companies Act, 2017.
 Solution:
The subscribers of the memorandum of association of AB Limited or any one of them, authorised
by them in writing, may appeal to the Commission within 30 days of the order of refusal.
An order of the Commission shall be final and shall not be called in question before any Court or
other authority.
 Practice Question 11:
The Registrar, after registering the memorandum and articles of association, has issued the
SPOTLIGHT

certificate of incorporation to Shahbaz Limited, a company with an authorized share capital of

Rs. 300 million. Under the Companies Act, 2017 briefly describe the effects of such registration.
 Solution:
The registration of Shahbaz Limited has the following effects as from the date of incorporation:
 The subscribers to the memorandum, together with such other persons as may from
time to time become members of the company, are a body corporate by the name stated
in certificate of incorporation;
 The body corporate is capable of exercising all the functions of an incorporated company
having perpetual succession;
STICKY NOTES

 The status and registered office of the company are as stated in, or in connection with,
the application for registration;
 The subscribers to the memorandum become holders of the initial shares;
 The persons named in the articles of association as proposed directors, are deemed to
have been appointed to that office.
 Practice Question 12:
Under the provisions of the Companies Act, 2017:
(a) identify when a business is mandatorily required to be registered as a company.
(b) list down any three exceptions to (a) above.
 Solution:
Part (a)
When more than 20 persons get together for the purpose of carrying on any business with the
object of acquisition of gain such business is mandatorily required to be registered as a company
under the Companies Act, 2017.

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Part (b)
Following are the exceptions to the requirement when a business is mandatorily required to be
registered as a company under the Companies Act, 2017:
 any society, body or association formed or incorporated under any law for the time being
in force in Pakistan; however, this exception shall not apply to a partnership business.
 a joint family carrying on joint family business.
 a partnership of two or more joint families where the total number of members of such
families, excluding the minor members, does not exceed twenty.
 a partnership formed to carry on practice as lawyers, accountants or any other
profession where practice as a limited liability company is not permitted under the
relevant laws or regulations for such practice.

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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6. OBJECTIVE BASED Q&A

01. Which type of business structure is created by a process of incorporation
(a) Sole Proprietor
(b) Partnership
(c) Company
(d) None of the above

02. Body corporate or corporation includes

(a) A company incorporated under Companies Act, 2017 or company law
AT A GLANCE

(b) A company incorporated outside Pakistan

(c) A body corporate declared as body corporate under relevant statute
(d) All of the above

03. “Men may come and men may go but the company exists”. This explains which characteristics of the
company as per the Companies Act, 2017.
(a) Separate legal entity
(b) Perpetual Succession
(c) Perpetual Liability
SPOTLIGHT

(d) Capacity to Sue

04. What is separate legal personality

(a) That the members in general meeting are regarded by law as a person.
(b) That the board of directors is regarded by law as a person
(c) That the company as an entity is regarded by law as a person
(d) That the managing director of the company is regarded by law as a person.
STICKY NOTES

05. The effects of separate legal personality are

(a) Limited liability of the owners of the business
(b) Separation of ownership from control
(c) Transfer of ownership and perpetual succession.
(d) All of the above

06. The concept of limited liability applies to

(a) The directors of the company
(b) To the creditors of the company
(c) To the owners (Shareholders) of the company
(d) To the Bankers of the company

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07. If a limited company is unable to pay its debts, it may be forced into liquidations. The assets of the
company will then be used to pay some of its unpaid liabilities and
(a) The directors will be required to pay personally remaining unpaid debts of the company
(b) The shareholders will be required to pay personally remaining unpaid debts of the company
(c) The debenture holders will be required to pay personally remaining unpaid debts of the company
(d) The shareholders will not be required to pay personally remaining unpaid debts of the company

08. Limited liability applies to

(a) All companies

AT A GLANCE
(b) All public companies
(c) All limited companies
(d) All unlimited companies

09. The directors and other officers of the company act on behalf of the company, and provided that they act
within their powers,
(a) They will be personally liable for the debts of the company
(b) They will not be personally liable for the debts of the company
(c) They along with the shareholders will be personally liable for the debts of the company
(d) They along with the other officers of the company will be personally liable for the debts of the

SPOTLIGHT
company

10. Company law includes

(a) The Companies Act of 1913
(b) The Companies Act of 2017
(c) The Companies Ordinance of 1984
(d) All of the above

STICKY NOTES
11. Public listed company means
(a) Such form of public company whose securities are listed on an exchange
(b) Such form of private company whose securities are listed on an exchange
(c) Such form of public company whose name of the members are listed on an exchange
(d) Such form of public company whose name of the directors are listed on an exchange

12. Private company other than single member company can be registered by
(a) At least2 members and it restricts the maximum number of members to fifty (50)
(b) At least 1member and it restricts the maximum numbers of members to twenty-five(25)
(c) At least 5 members and it restricts the maximum number of members to fifty (50)
(d) At least 1 member and it restricts the maximum numbers of members to fifty (50)

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13. A company or body corporate which exercises or controls more than one-half of the voting securities of
any other company or controls the composition of the board of such other company is known as
(a) Subsidiary company
(b) Co-operative company
(c) Holding company
(d) Listed company

14. License to association not for profit shall be granted by Commission on the fulfilment of certain
conditions. Choose the incorrect one.
(a) It shall apply its profit, if any, in promoting its objects
AT A GLANCE

(b) They can pay profits to its members out of it.

(c) The payments of any dividend to its members is prohibited
(d) They will work only for useful objects of the society

15. SECP has been vested with lot of powers under the Companies Act, 2017 and it has got powers to regulate
the affairs of
(a) All the companies and insurance company
(b) Banking companies and modarabas
(c) Non-banking finance companies
SPOTLIGHT

(d) All of the above

16. Registration of company is actually the registration of its constitution i.e.

(a) Articles of association
(b) Memorandum of association
(c) Certificate of incorporation
(d) Prospectus
STICKY NOTES

17. Registration of memorandum and articles means the registration of the company. The registrar after
registering the company, shall issue a certificate of incorporation, which shall state.
(a) CNIC number of the directors
(b) Date of birth of CEO
(c) Date of incorporation
(d) Address of the directors

18. Which of the following is obligated to be registered under Companies Act, 2017:
(a) A co-operative society with 35 members already registered under relevant law.
(b) A joint family of 27 members carrying on the joint family business.
(c) A trading partnership firm with 22 partners
(d) A law partnership firm with 22 partners

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19. Any _______________ persons associated for any lawful purpose may, by subscribing their names to a
memorandum of association and complying with the requirements of the Act in respect of registration,
form a public company.
(a) Two
(b) Two or more
(c) Three
(d) Three or more

20. Under the provisions of the Companies Act, 2017, the composition of a company’s board shall be deemed
to be controlled by another company if that other company by exercise of power exercisable by it at its
discretion can:

AT A GLANCE
(a) Appoint all or a majority of the directors
(b) Appoint or remove majority of the directors
(c) Appoint or remove all or majority of the directors
(d) Appoint majority of directors

21. Mega Stars Limited (MSL) shall be deemed to be the holding company of Little Stars (Private) Limited
(LSPL) if:
(a) MSL owns 50% shares of LSPL and by virtue of such investment, MSL has nominated three
directors out of six directors on board of LSPL
(b) MSL and one of its associated companies own 45% and 10% voting shares of LSPL respectively

SPOTLIGHT
(c) MSL and one of its associated companies own 30% and 35% voting securities of LSPL and by virtue
of such investments, both companies have nominated two directors each out of six directors on the
board of LSPL
(d) MSL owns 5% voting shares in LSPL; however, LSPL’s other shareholders having 60% voting
shares have empowered MSL to appoint four directors out of six directors of LSPL

22. Which of the following information does NOT form part of ‘Certificate of incorporation’?
(a) The name and registration number of the company
(b) The date of commencement of business

STICKY NOTES
(c) Whether it is a private or a public company
(d) Whether it is a limited or unlimited company

23. A company limited by guarantee means a company in which liability of members is limited, in the event
of its being wound up, by the:
(a) articles of association, to such amount as the members may respectively thereby undertake to
contribute to the liabilities of the company
(b) articles of association, to such amount as the members may respectively thereby undertake to
contribute to the assets of the company
(c) memorandum of association, to such amount as the members may respectively thereby undertake
to contribute to the liabilities of the company
(d) memorandum of association, to such amount as the members may respectively thereby undertake
to contribute to the assets of the company

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24. Orange International Association (OIA) has been formed as a charitable organisation. However, due to
non-compliance of the requirements of the Companies Act, 2017 the Commission revoked its licence.
On 11 March 2022, OIA’s board has completed all the compliances related to the revocation of the license.
Which of the following dates would be the latest date of filing the compliance report to the registrar?
(a) 21 March 2022
(b) 25 March 2022
(c) 9 April 2022
(d) 9 May 2022
AT A GLANCE
SPOTLIGHT
STICKY NOTES

26 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

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ANSWERS
01. (c) Companies are created by a process known as incorporation, established and governed by the
companies Act 2017.
02. (d) The word company means a setup formed and registered under the company law and the body
corporate can be regarded as any company registered under any law.
03. (b) It is common for a company to be in existence for many years, during which time its ownership
has changed many times. This phenomenon is called perpetual succession or perpetual
existence.
04. (c) Separate legal personality means that the law regards a company as a person, separate from its
owners. A company is an artificial person.

AT A GLANCE
05. (d) The consequences of separate legal personality includes limited liability of members,
separation of ownership and transfer or ownership freely.
06. (c) The liability of the owners of a company for the debts of the company is limited to the amount
of their investment in the company.
07. (d) The shareholders will lose what they have invested, but will not be required to pay anymore.
08. (c) The word limited in the name of the company draws the fact of limited liability to the attention
of anyone dealing with it.
09. (b) The directors and other officers of a company act on behalf of the company and when they act
within their powers, they will not be held personally liable.
10. (d) The repelled companies Act, 1913, Companies Ordinance, 1984 & Companies Act, 2017 comes

SPOTLIGHT
within the meaning of Company law.
11. (a) Public listed company is a company whose shares and debentures are listed on a stock
exchange.
12. (a) Such type of company can be registered by at least 2 members and it restricts the maximum
number of members to 50.
13. (c) Holding company can be defined as a company which holds more than 50% in the voting
securities of any other company or control the composition of the board of such other company.
14. (b) Association not for profit shall prohibit the payment of any profit or dividend to its members.
15. (d) SECP is the corporate regulatory body which has been vested with adequate operational,

STICKY NOTES
administrative and financial autonomy.
16. (b) Memorandum of Association is the constitution of the company. It binds all the members of the
company.
17. (c) The certificate of incorporation shall state name & registration of the company, date of
incorporation, whether it’s a private or public company and whether its liability is limited or
not.
18. (c) A trading partnership firm with 22 partners. [Section 9]
19. (d) Three or more. [Section 14]
20. (c) Appoint or remove all or majority of the directors [Section 2(68)]
21. (d) MSL owns 5% voting shares in LSPL; however, LSPL’s other shareholders having 60% voting
shares have empowered MSL to appoint four directors out of six directors of LSPL
22. (b) The date of commencement of business

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 CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION CAF 7: COMPANY LAW

23. (d) memorandum of association, to such amount as the members may respectively thereby
undertake to contribute to the assets of the company
24. (b) 25 March 2022
AT A GLANCE
SPOTLIGHT
STICKY NOTES

28 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

CAF 7: COMPANY LAW CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION

STICKY NOTES

Consequences of separate personality

1. Limited liability of the owners of the business
2. Seperation of ownership from control i.e. members and directors
3. Transfer of ownership and perpetual succession

The concept of limited liability

AT A GLANCE
1. Liability of company: Unlimited
2. Liability of directors: Not personally liable with certain exceptions
3. Liability of members: Limited
4. Liability of members in case of partly paid shares (upto the amount unpaid)
5. How creditors are warned? The word “limited” in the name of company.

Basic definitions
1. Definition: Company

SPOTLIGHT
2. Definition: Company law
3. Definition: Body corporate
4. Definition: Foreign company

Types of company – according to members’ liability

1. Definition: Company limited by shares
2. Definition: Company limited by guarantee
3. Definition: Unlimited company

STICKY NOTES
Types of company – private vs public
1. Definition: Single member company
2. Definition: Private company (other than SMC)
3. Definition: Public company
4. Public listed company
5. Public unlisted company
6. Public sector company

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 CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION CAF 7: COMPANY LAW

Holding company and subsidiary company

1. Definition: Holding company
2. Definition: Subsidiary company
3. Definition: Wholly owned subsidiary

Authorities
1. The Commission (SECP)
2. Registrar
AT A GLANCE

Other relevant concepts

1. Definition: Officer
2. Definition: Board
3. Members of a company
4. Definition: Voting rights
5. Definition: Ordinary resolution
6. Definition: Special resolution
SPOTLIGHT

Licencing of associations with not for profit objects

1. Concept
2. Criteria for licence
3. Conditions and regulations
4. Form of memorandum and articles
5. Privileges and obligations
6. Reasons for revocation of licence
STICKY NOTES

7. Opportunity of being heard before revocation

Effect of revocation of licence

1. Requirements on revocation (stop activities, stop receiving donations,
transfer assets to another association NFP)
2. Report to Registrar
3. Proceedings for winding up
4. Appointment of Administrator
5. Restriction on members and officers (5 years)

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Registration of Company
1. Obligation to register as company (4 exceptions)
2. Mode of forming a company
Public, private or single member company
Limited by shares or guarantee, or unlimited company

Registration of memorandum and articles

1. Filing with Registrar (declaration of compliance, memorandum, articles,
address for corrspondence)

AT A GLANCE
2. Revised documents / Removal of defects
3. Refusal by register
4. Appeal to Commission (within 30 days)
5. Criteria for registration
6. Certificate of incorporation to be Conclusive evidence
7. Effect of registration (body corporate, perpetual succession etc)

Carrying on business with fewer than minimum number of members

SPOTLIGHT
1. Minimum number of members (Private 2; Public 3)
2. Effect of carrying on business with fewer than minimum number of members

STICKY NOTES

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 CHAPTER 1: COMPANY: INTRODUCTION, TYPES AND REGISTRATION CAF 7: COMPANY LAW
AT A GLANCE
SPOTLIGHT
STICKY NOTES

32 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 2

MEMORANDUM AND ARTICLES

AT A GLANCE
IN THIS CHAPTER: Memorandum of association includes name clause, registered
office clause, principal line of business clause, liability clause,

AT A GLANCE
AT A GLANCE authorized capital clause (for companies limited by shares) and
undertaking clause. It includes implied borrowing powers of
SPOTLIGHT company and should be printed, signed and dated.
1. Memorandum of Association According to the type of company word “Limited”, “(Private)
Limited”, (SMC - Private) Limited”, “(Guarantee) Limited” or
2. Name of Company “Unlimited” is part of the name of company.
The Act describes the types of names prohibited or need prior
3. Registered Office and approval from SECP. On application, a desired name may be
Principal Line of Business reserved. A company may change its name by passing special
resolution and approval from registrar. The name must be
4. Articles of Association displayed at business place and should be printed on

SPOTLIGHT
documents.
5. General Provisions as to
Memorandum and Articles Every company shall have a registered office and should notify
the registrar its address within 30 days of incorporation. A
6. Objective Based Q&A company may change its registered office afterwards by
following the required procedures.
STICKY NOTES A company may by special resolution alter the provisions of its
memorandum to change its principal line of business.
Articles are the byelaws of the company. A company limited by
shares can adopt Table A as it articles. In case of unlimited
company or company limited by guarantee, amount of share

STICKY NOTES
capital or number of members shall be stated by articles. In case
of violation of articles company and its officers shall be liable to
penalty. Articles should be printed, signed and dated.
In case of any alteration in articles, special resolution is required
and the altered copies are to be filed with the registrar.
A company shall provide the copies of memorandum and
articles to members on payment of fee. When registered
memorandum and articles are binding on the company and all
members.

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

1. MEMORANDUM OF ASSOCIATION
1.1 Clauses of memorandum [Section 26 to 29]
Memorandum of association consists of various clauses which contain variety of information and it may vary
from company to company on the basis of the type of the company or the business of the company. Following
clauses usually exist in the memorandum of association of the company.

1.1.1 Name clause

The name of the company with the addition of the following words at the end of the name in case of each of the
following companies:

Public Company "Limited"

AT A GLANCE

Private Company "(Private) Limited"

Single Member Company “(SMC-Private) Limited”
Guarantee Limited Company “(Guarantee) Limited"
Unlimited Company “Unlimited”

1.1.2 Registered office clause

This clause shall state 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 to be situated.
 Example 01:
SPOTLIGHT

If the company proposes to have a registered office in Lahore, they will write in their
memorandum that ‘the registered office of the company shall be situated in province of Punjab’,
However if the company will have a registered office in Islamabad, it would write that ‘the
registered office of the company shall be situated in Islamabad’ reason being that Islamabad is
capital territory and it is a part of Pakistan that does not form part of any province.

1.1.3 Principal line of business clause

“Principal line of business” means the business in which substantial assets are held or likely to be held or
substantial revenue is earned or likely to be earned by a company, whichever is higher.
 Example 02:
STICKY NOTES

TSF Mills Limited is being proposed to be registered to carry on business involving manufacture
and sale of textile, sugar and flour products. The extracts from financial projection are:

Estimated Assets Estimated (Average) Revenue

Business
Rs. m % Rs. m %
Textile 500 55.6% 2,200 29.3%
Sugar 300 33.3% 4,500 60%
Flour 100 11.1% 800 10.7%
Total 900 7,500

The revenue is higher than assets and substantial revenue is being generated by Sugar business.
Therefore, the principal line of business shall be manufacture and sale of sugar.

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CAF 7: COMPANY LAW CHAPTER 2: MEMORANDUM AND ARTICLES

A company may carry on or undertake any lawful business or activity and do any act or enter into any transaction
being incidental and ancillary thereto which is necessary in attaining its business activities. However, the
principal line of business of the company shall be mentioned in the memorandum of association of the company
which shall always commensurate with name of the company.
 Example 03:
A proposed company’s principal line of business is manufacture and sale of textile products. One
of the subscriber to memorandum has suggested name “TSF Consultancy Limited”. The name is
not appropriate since it does not commensurate with the principal line of business clause.
A company shall not engage in a business which is:
a) prohibited by any law for the time being in force in Pakistan; or
b) restricted by any law, rules or regulations, unless necessary licence, registration, permission or approval

AT A GLANCE
has been obtained or compliance with any other condition has been made.
The existing companies (those registered before Companies Act, 2017 was effective) may continue with their
existing memorandum and the object clause be treated as the principal line of business.

1.1.4 Liability clause

In case of a company limited by shares and limited by guarantee, the liability clause states that ‘the liability of the
members is limited’.
In case of an unlimited company, the liability clause states that ‘the liability of the members is unlimited’.
In case of a company limited by guarantee, an additional sentence is added to clarify the extent of liabilities of
the members of that company in the event of its being wound up.

SPOTLIGHT
1.1.5 Authorised capital clause (only for companies having share capital)
This clause contains the amount of share capital with which the company proposes to be registered, and the
division thereof into shares of a fixed amount. This is the maximum number of shares that can be subscribed.
 Example 04:
The authorised capital clause may be: “The authorised capital of the company shall be Rs. 10
million divided into 1 million ordinary shares of Rs. 10 each.”
In the same clause, every subscriber of the memorandum is required to agree at least one share in the share
capital of the company.
Each subscriber is required to write opposite to his name the number of shares he has agreed to take in the share

STICKY NOTES
capital of the company.

1.1.6 Undertaking / Subscription clause

The company shall add an undertaking, as may be specified by the SECP, in their memorandum.
All of the above clauses are undertaken to be abide by, by the subscribers of the memorandum, as they are the
first members of the company, they write as follows:
“We, the several persons whose names and addresses are subscribed, are desirous of being formed into a
company, in pursuance of the memorandum of association, and we respectively agree to take the number of
shares in the capital of the company set opposite our respective names.”

1.2 Borrowing powers to be part of memorandum [Section 30]

The memorandum and articles of a company is deemed to include (implied) power to enter into any arrangement
for obtaining loans, advances, finances or credit, and to issue other securities not based on interest for raising
resources from a scheduled bank, a financial institution or general public.

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

1.3 Memorandum to be printed, signed and dated [Section 31]

The memorandum shall be:
a) printed in the manner generally acceptable;
b) divided into paragraphs numbered consecutively;
c) signed by each subscriber, who shall add his present name in full, his occupation, nationality and his
usual residential address and such other particulars as may be specified, in the presence of a witness
who shall attest the signature and shall likewise add his particulars; and
d) dated.
 Practice Question 01:
What are the main clauses of a Memorandum of Association of a company limited by guarantee
AT A GLANCE

and not having a share capital?

 Solution:
The memorandum of association of a company limited by guarantee shall include the following
clauses:
Name clause: The first clause of the memorandum is the name clause of the company which
contains the name of the company with the addition of the words Guarantee Limited in case of a
company limited by guarantee.
Registered office clause: For registered office clause 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 to
be situated.
Principal line of business clause: The principal line of business means the business in which
SPOTLIGHT

substantial assets are held or likely to be held or substantial revenue is earned or likely to be
earned by a company, whichever is higher.
An undertaking as may be specified
Liability clause: In case of a company limited by guarantee, the liability clause states that ‘the
liability of the members is limited’. In case of a company limited by guarantee, an additional
sentence is added to clarify the extent of liabilities of the members of that company in the event
of its being wound up.
STICKY NOTES

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CAF 7: COMPANY LAW CHAPTER 2: MEMORANDUM AND ARTICLES

2. NAME OF COMPANY
2.1 Prohibition of certain names [Section 10]

Prohibited names
A company shall not be registered by a name which contains such word or expression, as may be notified by the
Commission or in the opinion of the registrar is:
a) identical with or resemble or similar to the name of a company; or
b) inappropriate; or
c) undesirable; or
d) deceptive; or

AT A GLANCE
e) designed to exploit or offend religious susceptibilities of people; or
f) any other ground as may be specified.
 Example 05:
If a company named ‘ABC Fertilisers Limited’ is already registered, another company with the
name ‘ABC Fertilizers Limited’ to be registered with this name shall not be allowed. Although the
spelling are different but the name resembles so much that it cannot be allowed.
 Example 06:
A proposed company with the name ‘Spread Violence (Private) Limited’ may not be allowed on
account of inappropriate name.
 Example 07:

SPOTLIGHT
A proposed business trading in industrial machinery may not be allowed name ‘Industry Bank
Limited’ on account of deceptive name.

Names requiring prior approval of SECP

Prior approval in writing of the Commission shall be required if the proposed name contains any words
suggesting:
a) the patronage of any past or present Pakistani or foreign head of state;
b) any connection with the Federal Government or a Provincial Government or any department or
authority or statutory body of any such Government;
c) any connection with any corporation set up by or under any Federal or Provincial law;

STICKY NOTES
d) the patronage of, or any connection with, any foreign Government or any international organisation;
e) establishing a modaraba management company or to float a modaraba; or
f) any other business requiring licence from the Commission.
 Example 08:
A proposed company running bus transport services with the name ‘Pakistan Bus Transport
Authority Limited’ is not allowed unless it obtains prior approval of SECP in writing as the name
suggest connection with Federal Government (or authority of such government).

Decision of Commission is final

Whenever a question arises as to whether or not the name of a company is in violation of the above provisions,
decision of the Commission shall be final.

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

Reservation of name
A person may make an application to the registrar for reservation of a name set out in the application for a period
not exceeding 60 days.
Where it is found that a name was reserved, by furnishing false or incorrect information, such reservation shall
be cancelled and in case the company has been incorporated, it shall be directed to change its name. The person
making application shall be liable to a penalty.
If the name applied for is refused by the registrar, the aggrieved person may within 30 days of the order of refusal
prefer an appeal to the Commission.
An order of the Commission shall be final and shall not be called in question before any court or other authority.
2.2 Rectification of name of a company [Section 11]
AT A GLANCE

Company on its own & on direction by registrar

A company which, through inadvertence or otherwise, is registered by a name in contravention of the Companies
Act or the name was obtained by furnishing false or incorrect information:
a) may, with approval of the registrar, change its name; and
b) shall, if the registrar so directs, within 30 days of receipt of such direction, change its name with approval
of the registrar.
However, the registrar shall, before issuing a direction for change of the name, afford the company an
opportunity to make representation against the proposed direction.

Failure to comply with direction

If the company fails to report compliance with the direction issued within the specified period, the registrar may
SPOTLIGHT

enter on the register a new name for the company selected by him, being a name under which the company may
be registered under Companies Act, 2017 and issue a certificate of incorporation on change of name.

Penalty
If a company makes default in complying with the direction issued by the registrar or continue using previous
name after the name has been changed by the registrar, it shall be liable to a penalty.

2.3 Change of name by a company [Section 12]

Procedure
STICKY NOTES

A company may, by special resolution and with approval of the registrar signified in writing, change its name.

Approval not required

The permission of the registrar shall not be required if the only change is the addition or deletion of the word
and parenthesis “(Private)” or “(SMC-Private)” or “Limited” or “(Guarantee) Limited” or “Unlimited” as the case
may be upon the change in the status of a company.

2.4 Registration of change of name and effect thereof [Section 13]

New certificate of incorporation

Where a company changes its name the registrar shall enter the new name on the register in place of the former
name, and shall issue a certificate of incorporation altered to meet the circumstances of the case and, on the issue
of such a certificate, the change of name is complete.

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CAF 7: COMPANY LAW CHAPTER 2: MEMORANDUM AND ARTICLES

Mentioning old name with new name

Where a company changes its name it shall, for a period of 90 days from the date of issue of a certificate by the
registrar, continue to mention its former name along with its new name on the outside of every office or place in
which its business is carried on and in every document or notice.

No effect on legal proceedings

The change of name shall not affect any rights or obligations of the company, or render defective any legal
proceedings by or against the company and any legal proceedings that might have been continued or commenced
against the company by its former name may be continued by or commenced against the company by its new
name.

2.5 Publication of name by a company and penalty [Section 22 & 24]

AT A GLANCE
Name on business places
Every company shall display in a conspicuous position, in letters easily legible in English or Urdu characters its
name and incorporation number outside the registered office and every office or the place in which its business
is carried on.

Certificate of incorporation
Every company shall display a certified copy of certificate of incorporation at every place of business of the
company.

Name on documents

SPOTLIGHT
Every company shall have its name mentioned in legible English or Urdu characters, in all bills of exchange,
promissory notes, endorsements, cheques and orders for money or goods purporting to be signed by or on behalf
of the company and in all bills of parcels, invoices, receipts and letters of credit of the company.

Name and particulars on documents

Every company shall get its name, address of its registered office, telephone number, fax number, e-mail and
website addresses, if any, printed on letter-head and all its documents, notices and other official publications.

Penalties
A penalty of level 1 be levied on company and its officers in default for not displaying its name in the manner
provided for by Companies Act, 2017.

STICKY NOTES
An officer shall be personally liable for debt for issuing / authorizing any document without mentioning the name
of the company, unless duly paid by the company.
 Practice Question 02:
A group of persons intends to form a limited liability company, with the objective to provide
research related services to pharmaceutical companies. In this respect, one of the promoters
proposed ‘Pharma Research Authority’ as a name of the proposed company which was liked by
all the promoters.
Under the provisions of the Companies Act, 2017 comment on the validity of the name proposed
by the promoters and suggest how they can overcome the deficiencies, if any, in it.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN 39

 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

 Solution:
The name proposed by the promoters is not valid under the provisions of the Companies Act,
2017 due to following two reasons:
i. The word “Authority” cannot be used as it implies connection with a Government.
According to the Companies Act, 2017 “no company shall be registered by a name which
contains any word suggesting or calculated to suggest any connection with a
Government.”
However, in order to overcome this the promoters with the prior approval in writing of
the Commission may be able to get the company registered with such word.
ii. The word “Limited” is missing from the name of the company. According to the
Companies Act, 2017 the word limited is required to be written at the end of the name
of a company.
AT A GLANCE

However, if the group of persons intend to form a limited liability company with
charitable and not for profit objects then they have to apply to the Commission for a
licence and the Commission, if satisfied, may allow them to be registered as a limited
liability company without addition of the word “Limited” to its name.
Moreover, it should also be ensured that the proposed name is not identical with or resemble or
similar to the name of already registered company or inappropriate or deceptive.
 Practice Question 03:
Printing (Pvt.) Limited (PL) wants to change its name to Printing and Marketing (Pvt.) Limited.
Under the provisions of the Companies Act, 2017 describe the steps to be followed by PL for
changing its name and matters to be complied with after the change of name.
SPOTLIGHT

 Solution:
The steps required for change of names are as follows:
i. Pass special resolution and obtain written permission of the registrar for the new name
ii. Obtain certificate of incorporation bearing the new name
After the change of its name PL shall for a period of 90 days from the date of issue of a certificate
by the registrar continue to mention its former name along with its new name on the outside of
every office or place in which its business is carried on and in every document or notice of the
company.
STICKY NOTES

40 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

CAF 7: COMPANY LAW CHAPTER 2: MEMORANDUM AND ARTICLES

3. REGISTERED OFFICE AND PRINCIPAL LINE OF BUSINESS

3.1 Registered office of a company [Section 21]

Purpose
Registered office is a place which is the address of the company for receiving all of its communications. It does
not necessarily be same as head office of the company. There may be more than one office for business of the
company but registered office shall be only one.

Notify to registrar
A company shall have a registered office to which all communications and notices shall be addressed and such
address shall be notified to the registrar within a period of 30 days of its incorporation.

AT A GLANCE
Notice of change and special resolution
Notice of any change in situation of the registered office shall be given to the registrar within a period of 15 days
after the date of change:
The change of registered office of a company shall also require approval of general meeting through special
resolution if it is from:
a) one city in a Province to another; or
b) a city to another in any part of Pakistan not forming part of a Province.

3.2 Alteration of registered office clause in memorandum [Section 32 to 34]

SPOTLIGHT
Alteration
A company may by special resolution alter the provisions of its memorandum so as to change the place of its
registered office from:
a) one Province to another Province or Islamabad Capital Territory and vice versa; or
b) one Province or Islamabad Capital Territory to a part of Pakistan not forming part of a Province and vice
versa.

Confirmation from SECP

The alteration shall not take effect until it is confirmed by the Commission on petition.

STICKY NOTES
The Commission may make an order confirming the alteration on such terms and conditions and make such
order as to costs as it thinks proper.
The Commission shall in exercising its discretion have regard to the rights and interests of the members of the
company or of any class of them, as well as to the rights and interests of the creditors and may, if it thinks fit, give
such directions and make such orders as it may think expedient for facilitating or carrying into effect any such
arrangement.

Copy of order to company and registrar

A copy of the order confirming the alteration duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within 7 days from the date of the order.

Conclusive evidence of alteration

An altered copy of the memorandum shall within 30 days from the date of the order be filed by the company with
the registrar, who shall register the same and issue a certificate which shall be conclusive evidence that all the
requirements of the alteration and the confirmation thereof have been complied with.

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

Extension in time limit

The Commission may by order, at any time on an application by the company, on sufficient cause shown extend
the time for the filing of memorandum with the registrar.

Transfer of record
Where the alteration involves a transfer of registered office from the jurisdiction of one company registration
office to another, physical record of the company shall be transferred to the registrar concerned of the company
registration office in whose jurisdiction the registered office of the company has been shifted.

3.3 Alteration of principal line of business clause [26 & 32]

Alteration
AT A GLANCE

A company may by special resolution alter the provisions of its memorandum to change its principal line of
business.

Approval from Commission not required

An alteration so as to change its principal line of business shall not require confirmation by the Commission.

Filing of amended memorandum

Where the alteration involves change in principal line of business, the company shall file the amended
memorandum of association with the registrar within 30 days, which shall be recorded.

Change of name may be directed by registrar

SPOTLIGHT

Any change in the principal line of business shall be reported to the registrar within 30 days from the date of
change, on the form as may be specified and registrar may give direction of change of name if name does not
commensurate with principal line of business of the company.

3.4 Adoption of business activity subject to approval under any law [Section 32 to 34]

Alteration
A company may by special resolution alter the provisions of its memorandum to adopt any business activity or
any change therein which is subject to licence, registration, permission or approval under any law.

Confirmation from SECP

STICKY NOTES

The alteration shall not take effect until it is confirmed by the Commission on petition.
The Commission may make an order confirming the alteration on such terms and conditions and make such
order as to costs as it thinks proper.
The Commission shall in exercising its discretion have regard to the rights and interests of the members of the
company or of any class of them, as well as to the rights and interests of the creditors and may, if it thinks fit, give
such directions and make such orders as it may think expedient for facilitating or carrying into effect any such
arrangement.

Copy of order to company and registrar

A copy of the order confirming the alteration duly certified by an authorised officer of the Commission shall be
forwarded to the company and to the registrar within 7 days from the date of the order.

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Conclusive evidence of alteration

An altered copy of the memorandum shall within 30 days from the date of the order be filed by the company with
the registrar, who shall register the same and issue a certificate which shall be conclusive evidence that all the
requirements of the alteration and the confirmation thereof have been complied with.

Extension in time limit

The Commission may by order, at any time on an application by the company, on sufficient cause shown extend
the time for the filing of memorandum with the registrar.
 Practice Question 04:
In the annual general meeting of Paramount Limited, a shareholder objected to the shifting of the
registered office from Multan to Lahore without obtaining confirmation from the Commission.

AT A GLANCE
Explain whether the objection is valid.
 Solution:
The shareholder’s objection is not valid, because an alteration to change the place of registered
office of a company from one city or town to another in the same province does not require
confirmation by the Commission.
 Practice Question 05:
The Directors of Muntaqil Limited are considering to re-locate company’s registered office from
Karachi to Islamabad to carry on business more economically.
Advise Company Secretary about the steps which must be taken to re-locate the registered office
under the provisions of the Companies Act, 2017.
 Solution:

SPOTLIGHT
For alteration in the registered office, Muntaqil Limited shall:
 Pass a special resolution.
 Obtain confirmation from Commission
 Submit altered copy of memorandum to registrar within 30 days.
 When Muntaqil Limited actually shifts its registered office, it shall inform the registrar
within 15 days of the date of such change.
 Practice Question 06:
Describe the provisions contained in the Companies Act, 2017 relating to ‘principal line of
business’ of a company.

STICKY NOTES
 Solution:
Principal line of business means the business in which substantial assets are held or likely to be
held or substantial revenue is earned or likely to be earned by a company, whichever is higher.
Principal line of business of the company shall be mentioned in the memorandum of association
of the company which shall always commensurate with name of the company.
Any change in the principal line of business shall be reported to the registrar within 30 days from
the date of change, on the form as may be specified and registrar may give direction of change of
name if the name does not commensurate with the principle line of business of the company.
 Practice Question 07:
Mackerel Limited (ML) is a listed company engaged in the business of fish farming. As part of its
expansion plan, ML’s board has decided to invest in poultry and dairy businesses for which the
principal line of business is required to be changed.
Under the provisions of the Companies Act, 2017 describe the prescribed procedure for changing
ML’s principal line of business.

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

 Solution:
The prescribed procedure for changing ML’s principal line of business are as follows:
 ML shall alter the provisions of its memorandum of association through special
resolution.
 ML shall file duly authenticated special resolution with the registrar within 15 days from
passing of special resolution.
 ML shall report to the registrar within 30 days from the date of change, on the specified
form and file the amended memorandum of association.
 Registrar may give direction of change of name if the name of ML does not
commensurate with the principal line of business.
AT A GLANCE
SPOTLIGHT
STICKY NOTES

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4. ARTICLES OF ASSOCIATION
4.1 Registration of articles [Section 36]
Articles are the byelaws of the company, subordinate to the constitution of the company and further subordinate
to the Companies Act. The articles may be stricter than the Companies Act but not vice versa.
 Example 09:
The Companies Act requires that a public company which is not listed shall have at least three
directors. Law requires minimum three directors; hence company may write in its articles that
the company shall always have not less than five directors if the members of the company want
to do so. Further the company may make various classes of its shares, the exact rights and
liabilities of each class of shareholders shall be stated in the articles of association.

AT A GLANCE
Registration of articles
The articles of association signed by the subscribers to the memorandum and setting out regulations for the
company may/shall be registered with the memorandum.
 Optional for company limited by shares
 Compulsory for company limited by guarantee or unlimited company

Adopting Table A
Articles of association of a company limited by shares may adopt all or any of the regulations contained in Table
A in the First Schedule to the Companies Act.

SPOTLIGHT
Amount of share capital
In the case of an unlimited company or a company limited by guarantee, the articles, if the company has a share
capital, shall state the amount of share capital with which the company proposes to be registered.

Number of members
In the case of an unlimited company or a company limited by guarantee, if the company has no share capital, the
articles shall state the number of members with which the company proposes to be registered.

Applicability of Table A
 Table A is applicable in full if articles are not registered.

STICKY NOTES
 Table A is applicable to the extent not modified or excluded by articles filed by a company.
 Table A not applicable at all, if specifically excluded by articles filed by a company.

Clarity and voting rights

The articles of every company shall be explicit and without ambiguity and shall list and enumerate the voting
and other rights attached to the different classes of shares and other securities.

Penalty
If a company contravenes the provisions of its articles of association, the company and every officer of the
company shall be liable to a penalty.

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4.2 Contents of articles – Table A

The following is list of contents of Table A:
 Business
 Shares
 Transfer and Transmission of Shares
 Form for Transfer of Shares
 Bank Account Details of Transferee for Payment of Cash Dividend
 Transmission of Shares
 Alteration of Capital
 General Meetings
AT A GLANCE

 Notice and Proceedings of General Meetings

 Votes of Members
 Instrument of Proxy
 Directors
 Powers and Duties of Directors
 Minute Books
 The Seal
 Disqualification of Directors
 Proceedings of Directors
 Filling of Vacancies
SPOTLIGHT

 Dividends and Reserve

 Accounts
 Notices
 Winding Up
 Indemnity

4.3 Articles to be printed, signed and dated [Section 37]

The articles shall be:
a) printed in the manner generally acceptable;
STICKY NOTES

b) divided into paragraphs numbered consecutively;

c) signed by each subscriber, who shall add his present name in full, his occupation, nationality and his
usual residential address and such other particulars as may be specified, in the presence of a witness
who shall attest the signature and shall likewise add his particulars; and
d) dated.

4.4 Alteration of articles [Section 38]

Alteration by special resolution

Subject to Companies Act and memorandum, a company may, by special resolution, alter its articles and any
alteration so made shall be as valid as if originally contained in the articles and be subject in like manner to
alteration by special resolution.

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Restriction on alteration
When alteration in articles affects the substantive rights or liabilities of members or of a class of members, it shall
be carried out only if a majority of at least three-fourths of the members or of the class of members affected by
such alteration, as the case may be, exercise the option through vote personally or through proxy vote for such
alteration.

Filing to registrar
A copy of the articles of association as altered shall, within 30 days from the date of passing of the resolution, be
filed by the company with the registrar and he shall register the same and the articles so filed shall be the articles
of the company.
 Practice Question 08:

AT A GLANCE
A team of young engineers is planning to incorporate a private limited company which would
provide machine maintenance services to large companies. The company would initially be
incorporated with a share capital of Rs. 20 million. However, the engineers are not certain about
“Registration and signing of articles of association”. Advise the team of engineers in respect of
the above matters in the light of the Companies Act, 2017.
 Solution:
The company limited by shares has the option to set out its own regulations for the company and
get it registered with the memorandum of association, or adopt Table A as its Article of
association.
If articles are not registered, or, if articles are registered, in so far as the articles do not exclude
or modify the regulations in Table A in the First Schedule to the Companies Act, those regulations

SPOTLIGHT
shall, so far as applicable, be the regulations of the company in the same manner and to the same
extent as if they were contained in duly registered articles.
The article shall be signed by each subscriber, in the presence of a witness who shall attest the
signature of the subscriber.

STICKY NOTES

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5. GENERAL PROVISIONS AS TO MEMORANDUM AND ARTICLES

5.1 Act to override [Section 4]
Unless otherwise expressly mentioned in the Companies Act, 2017, the provisions of the Act shall have effect
notwithstanding:
 anything contained in any other law; or
 the memorandum; or
 articles of a company; or
 in any contract or agreement executed by it; or
 in any resolution passed by the company in general meeting or by its directors,
AT A GLANCE

whether the same be registered, executed or passed, as the case may be, before or after the coming into force of
the said provisions of the Act.
Any provision contained in the memorandum, articles, contract, agreement, arrangement or resolution, to the
extent to which it is repugnant to the provisions of the Act, shall be void.

5.2 Copies of memorandum and articles to be given to members [Section 39]

Each company shall send to every member, at his request and within 14 days on payment of fee fixed by the
company, a copy of the memorandum and the articles.

5.3 Effect of memorandum and articles [Section 17]

Binding on Company and members

SPOTLIGHT

The memorandum and articles, when registered, bind the company and the members of the company as if they
had been signed by the members and, his heirs and legal representatives that they shall observe and be bound
by the memorandum and articles, unless in conflict with the Companies Act.

Money payable to be debt

All moneys payable by a subscriber in pursuance of his undertaking in the memorandum of association shall be
a debt due from him and be payable in such time, manner and condition as may be notified by the Commission.

Penalty
Any violation of direction given by registrar shall be an offence liable to a penalty of level 1 on the standard scale.
STICKY NOTES

5.4 Effect of alteration in memorandum or articles [Section 35]

If the memorandum of association or articles of association are altered and such alteration requires the members
to take more shares in the company than they already have or to undertake more amount of guarantee than the
existing amount, such alteration shall be applicable to a member only if he gives his consent in writing either
before or after the alteration.

5.5 Alteration to be noted in every copy [Section 40]

Where an alteration is made in the memorandum or articles of a company, every copy of the memorandum or
articles issued after the date of the alteration shall conform to the memorandum or articles as so altered.
For each copy issued in contravention of above, the company and every officer of the company who is in default
shall be liable to the penalty.

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5.6 Form of memorandum and articles [Section 41]

The form of memorandum and articles of following companies shall be in accordance with Table of First Schedule
mentioned:

Type of company Document Form

Company limited by shares Articles Table A
Memorandum Table B
Company limited by guarantee and not having a share capital Articles & Memorandum Table C
Company limited by guarantee and having a share capital Articles & Memorandum Table D
Unlimited company having a share capital Articles & Memorandum Table E

AT A GLANCE
A company licensed under section 42 i.e. Association not for profit Articles & Memorandum Table F

 Practice Question 09:

Mr. Zouk is an employee in a brokerage house and he wants to prepare some reports on request
of some potential investors for a company named as “Arizona Grill Limited”. For the preparation
of the report he requires Memorandum & Articles of association of the company.
State whether he can obtain such copies of Memorandum & Articles of Association from “Arizona
Grill Limited” and explain why.
 Solution:
The Companies Act 2017 requires the company to forward a copy of Memorandum of Association

SPOTLIGHT
and Articles of Association on the request of a member only on payment of certain fixed fee. Any
unconcerned person cannot demand such copies from the company. So “Arizona Grill Limited” is
not bound to provide such copies to Mr Zouk.
 Practice Question 10:
Ahmed, Ahmer and Akbar being the founder members of M/s Excellent (Pvt) Limited got the
certificate of incorporation of the company on 1st March 2020. They have given the undertaking
to subscribe 10,000 shares each of Rs. 10/- per share of the company. Discuss.
 Solution:
The amount of Rs. 100,000 shall be considered debt payable to company from Ahmed, Ahmer
and Akbar each. This amount must be paid in such time, manner and condition as may be notified

STICKY NOTES
by the Commission.

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6. OBJECTIVE BASED Q&A

01. Under the Companies Act, 2017 in which document would you find the principal line of business clause?
(a) Statutory declarations
(b) Articsles of association
(c) Memorandum of association
(d) Prospectus

02. A person may make an application in specified form and manner with a specified fee to the registrar for
reservation of any name. If the application is refused by registrar, aggrieved person may prefer an appeal
to Commission with in
AT A GLANCE

(a) 60 days
(b) 30 days
(c) 15 days
(d) 90 days

03. Companies Act, 2017 allows the alteration of various clauses of the memorandum of association of the
company however there is difference as to the procedure or requirement of law. Which clause cannot
be altered in the lifetime of the company?
(a) Name clause
SPOTLIGHT

(b) Subscription clause

(c) Liability clause
(d) Registered office clause

04. Toys & Toys Limited (TTL) resolved to shift its registered office from Gujranwala to Lahore i.e. within
the province of Punjab. For this purpose, TTL must:
(a) Obtain consent of creditors who are entitled to object and obtain prior approval of the Commission
(b) Give notice of change to the Commission within a period of fifteen days after the change
STICKY NOTES

(c) Obtain approval of the registrar prior to shifting of its registered office
(d) Give notice of change in situation of the registered office to the registrar within a period of fifteen
days after the date of change

05. For registered office clause the province or the part of Pakistan not forming part of a province shall be
mentioned. e.g. if the company proposes to have a registered office in Islamabad, they will write in their
memorandum that
(a) The registered office will be situated in province of Sindh
(b) The registered office will be situated in province of Punjab
(c) The registered office will be situated in Islamabad
(d) None of the above

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06. The first clause of the memorandum is the name clause of the company which contains the name of the
company with the addition of appropriate parenthesis. Choose the incorrect parenthesis
(a) Abdullah (Private) Limited is a private company
(b) Rahim (Guarantee) Limited is a guarantee limited company
(c) The Lawyer (PLC) is a public limited company
(d) Khan (SMC-Private) Limited is a single member company

07. Every company shall supply within a period of 14 days, a copy of the memorandum and articles of the
company, upon the request and payment of a prescribed amount, to its
(a) Creditor

AT A GLANCE
(b) Auditor
(c) Director
(d) Member

08. What type of resolution is required to change company’s name?

(a) Special resolution
(b) Ordinary resolution
(c) Ordinary resolution with 14 days’ notice
(d) Special resolution with 14 days’ notice

SPOTLIGHT
09. In relation to a company’s articles of association, which of the following is incorrect?
(a) The articles of association set down the internal regulations of a company
(b) Promoters may or may not submit their own form of articles when submitting the forms necessary
to form a company limited by shares.
(c) The articles of association form a contract between the members and the company and the
members among themselves.
(d) Articles of association may be changed by ordinary resolution.

STICKY NOTES
10. If a company changes its name, then former name is required to be mentioned along with the new name
for a period of
(a) 90 days from the date of issue of the new certificate of incorporation.
(b) 120 days from the date of issue of the new certificate of incorporation.
(c) One year from the date of issue of the new certificate of incorporation.
(d) None of the above is correct

11. A company has been incorporated with a name in contravention of the relevant provisions of the
Companies Act, 2017. Now the directors have received an order from the Registrar to rectify the name
after providing an opportunity of being heard. The name is required to be rectified/change within a
period of
(a) 15 days

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 CHAPTER 2: MEMORANDUM AND ARTICLES CAF 7: COMPANY LAW

(b) 30 days
(c) 120 days
(d) None of the above is correct

12. Which of the following clauses is not covered in Table A of the First Schedule?
(a) Proceedings of directors
(b) Votes of members
(c) Instrument of proxy
(d) Annual return
AT A GLANCE

13. A company is changing its registered office from Gulgasht Colony to Bukhari Colony within the city of
Multan. Which of the following requirements are applicable:
(i) Notify to registrar.
(ii) Pass a special resolution.
(iii) Get confirmation from the Commission on petition.
(a) (i) only
(b) (i) and (ii) only
(c) (i) to (iii) all
(d) (ii) and (iii) only
SPOTLIGHT

14. A company is changing its registered office from Lahore (Punjab Province) to Multan (Punjab Province).
Which of the following requirements are applicable:
(i) Notify to registrar.
(ii) Pass a special resolution.
(iii) Get confirmation from the Commission on petition.
(a) (i) only
(b) (i) and (ii) only
(c) (i) to (iii) all
STICKY NOTES

(d) (ii) and (iii) only

15. A company is changing its registered office from Mardan (Khyber Pakhtunkhwa Province) to Quetta
(Baluchistan Province). Which of the following requirements are applicable:
(i) Notify to registrar.
(ii) Pass a special resolution.
(iii) Get confirmation from the Commission on petition.
(a) (i) only
(b) (i) and (ii) only
(c) (i) to (iii) all
(d) (ii) and (iii) only

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16. Any change in principal line of business shall be reported by the company from the date of change to:
(a) the Commission within thirty days
(b) both the Commission and the registrar within thirty days
(c) the registrar within thirty days
(d) both the Commission and the registrar within fifteen days

17. Approval of the shareholders at the general meeting is NOT required when shifting the registered office
of a company from:
(a) one city in a Province to another

AT A GLANCE
(b) one place to another place within the same city
(c) one city to another in any part of Pakistan not forming part of a Province
(d) Islamabad to any city of Pakistan

18. Zahid is planning to incorporate a company under the Companies Act, 2017 with the name and style
‘Herring’, with his own capital. He shall be the sole member and director in the company.
In this regard, which of the following names is in compliance with the Companies Act, 2017?
(a) Herring (SMC) Limited
(b) Herring (SMC-Private) Limited

SPOTLIGHT
(c) Herring (Private) Limited
(d) Herring Limited

19. Asadullah and Anas are in the process of forming a company and they have selected the name “Green
Foods (Private) Limited” as the name of the proposed company. On 1 March 2022, they applied to the
registrar for reservation of the said name.
The proposed name can be reserved with the registrar maximum up to __________.
(a) 15 March 2022
(b) 30 March 2022

STICKY NOTES
(c) 29 April 2022
(d) 29 May 2022

20. If alteration in shareholding structure affects the substantive rights of a class of members, it shall be
carried out only if it is approved by:
(a) members having 3/4th majority in general meeting present in person or through proxy
(b) board of directors and then ratified by at least 50% of affected class of members in general meeting
(c) at least 3/4th majority of the class of members affected by such alteration
(d) class of members not affected by such alteration representing not less than 10% voting power

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21. On 11 July 2022, Plum Limited (PL) changed its business activity by altering its memorandum of
association (MOA). On 1 August 2022, PL has made a petition to the Commission for the confirmation of
alteration.
On 26 August 2022, the Commission confirmed the alteration in MOA and on 31 August 2022, PL
received the copy of the order confirming the alteration. Identify the last date on which PL shall file the
altered copy of its MOA with the registrar.
(a) 10 September 2022
(b) 15 September 2022
(c) 24 September 2022
(d) 25 September 2022
AT A GLANCE
SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (c) The principal line of business clause is the part and parcel of MOA.
02. (b) An aggrieved person may within 30 days of the order of refusal prefer an appeal to
commission.
03. (b) Subscription clause of the memorandum of association of the company cannot be altered in
the lifetime of the company.
04. (d) Give notice of change in situation of the registered office to the registrar within a period of
fifteen days after the date of change. [Section 21]
05. (c) The company is required to write only the province or part of Pakistan not forming part of the
province in its memorandum of association.

AT A GLANCE
06. (c) The public company must only use “Limited” at the end of the name.
07. (d) Every company, upon the request and payment of a prescribed amount by its member, shall
supply a copy of the memorandum and articles of the company.
08. (a) The company can change its name by passing a special resolution and obtaining written
permission of the registrar.
09. (d) The articles of association can be altered only by passing special resolution in the general
meeting.
10. (a) After the change of name, the former name shall also be mentioned for 90 days from the date
of issue of the new certificate of incorporation.

SPOTLIGHT
11. (b) The registrar may also direct the company to change its name within 30 days of the receipt of
such directions.
12. (d) Annual return. [Table A]
13. (a) Only notice to registrar is required. [Section 21]
14. (b) Special resolution and notice to registrar is required. [Section 21]
15. (c) Special resolution, confirmation order from the Commission and notice to registrar is required.
[Section 32]
16. (c) the registrar within thirty days
17. (b) one place to another place within the same city

STICKY NOTES
18. (b) Herring (SMC-Private) Limited
19. (c) 29 April 2022
20. (c) at least 3/4th majority of the class of members affected by such alteration
21. (c) 24 September 2022

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STICKY NOTES

Memorandum of Association
Clauses of memorandum
1. Name clause
2. Registered office clause
3. Principal line of business clause
4. Liability clause
AT A GLANCE

5. Authorised capital clause (only for companies having share capital)

6. Undertaking / Subscription clause
Borrowing powers to be part of memorandum (impliedly)
Memorandum to be printed, signed and dated

Name of Company
1. Certain names are prohibited
2. Certain names require prior approval of SECP
3. Decision of Commission is final in relaton to name of company
SPOTLIGHT

4. Reservation of name (for 60 days)

5. A company may rectify its name on its own or on direction by registrar
6. Change of name by company (special resolution & registrar’s approval)
7. Registration of change of name (new certificate; menioning old name with
new name; no effect on legal proceedings)
7. Publication of name by a company (on business places, certificate of
incorporation, on documents)
STICKY NOTES

Registered office of a company

1. Notify to registrar (within 30 days of incorporation)
2. Notice of change (within 15 days) and special resolution (if change in city)
Alteration of registered office clause in memorandum
1. Alteration (change in province etc)
2. Confirmation from SECP
3. Copy of order to company and registrar (within 7 days)
4. Conclusive evidence of alteration
5. Extension in time limit (by the Commission)
6. Transfer of record (when jurisdiction changes)

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Alteration of principal line of business clause

1. Alteration (special resolution)
2. Approval from Commission not required
3. Filing of amended memorandum (within 30 days)
4. Change of name may be directed by registrar (to commensurate with
principal line of business)

Adoption of business activity subject to approval under any law

AT A GLANCE
1. Alteration (special resolution)
2. Confirmation from SECP
3. Copy of order to company and registrar (within 7 days)
4. Conclusive evidence of alteration
5. Extension in time limit (by the Commission)

Registration of articles
1. Registration of articles (optional for company limited by shares)

SPOTLIGHT
2. Adopting Table A
3. Amount of share capital (unlimited company and company limited by
guarantee if having share capital)
4. Number of members (unlimited company and company limited by
guarantee if not having share capital)
5. Applicability of Table A
6. Clarity and voting rights
7. Articles to be printed, signed and dated

STICKY NOTES
8. Alteration (by special resolution)
9. Variation in class rights (by 3/4th of affected class voting in favour)

Effect of memorandum and articles

1. Binding on Company and members
2. Money payable to be debt
3. Penalty

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General Provisions as to Memorandum and Articles

1. The Companies Act to override other law, memorandum, articles, contract
and resolutions.
2. Copies of memorandum and articles to be given to members (within 14 days)
3. Effect of alteration in memorandum or articles (applicable to member only if
he gives consent, in case his obligation is increased)
4. Alteration to be noted in every copy issued after the alteration
5. Form of memorandum and artilces are given in Table A to F of the Act
AT A GLANCE
SPOTLIGHT
STICKY NOTES

58 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 3

DIRECTORS

AT A GLANCE
IN THIS CHAPTER: Only natural person can become a director. Subject to certain
exceptions director must be member of the company. All

AT A GLANCE
AT A GLANCE directors have equal authority and decide matters in the board
meeting. The Act also describes the persons ineligible to become
SPOTLIGHT directors.

1. Introduction and Eligibility First directors are named in incorporation document and they
hold office until first AGM. Term of subsequent elected directors
2. Election, Nomination and is three years.
Casual Vacancy Subsequent directors are elected in general meeting by
following the specified procedure of election.
3. Vacation of Office and
Removal In case a person acquires requisite shareholding in a company;
he may demand fresh election of directors.

SPOTLIGHT
4. Powers and Duties In case of any dispute members holding at least 10% voting
rights may apply to court for rendering the election invalid.
5. Proceedings
Actions of directors are valid even if a defect in appointment is
6. Restrictions, Prohibitions and subsequently discovered. A casual vacancy is filled by the
Limitations directors themselves.
On certain grounds office of directors may be considered
7. Objective Based Q&A vacated or directors can be removed by members.

STICKY NOTES Certain powers of directors are to be exercised by resolution in

their meeting and certain other powers are subject to approval
of members.

STICKY NOTES
The record of resolutions and minutes of meetings of directors
is also maintained.
Directors are not allowed to assign their office except in certain
circumstances. However, alternate directors may be appointed
in case of absence from Pakistan.
All cash transactions with directors are to be through banking
channels and there are certain restrictions on loan to directors
as well.
Companies are not allowed to make any political contribution or
distribute gifts to members in general meetings.

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 CHAPTER 3: DIRECTORS CAF 7: COMPANY LAW

1. INTRODUCTION AND ELIGIBILITY

1.1 Introduction

Definition: Director [Section 2(25)]

“Director” includes any person occupying the position of a director, by whatever name called.
The definition above focuses on function and position and not on specific designation and the word ‘director’ in
a job title does not necessarily mean that a person is legally a director.
 Example 01:
Faisal is senior employee of ABC Limited and his designation is Human Resource Director.
However, he is not appointed to board of directors and does not participate in board of directors’
AT A GLANCE

decision making. He is not a director of ABC Limited.

 Example 02:
Naveed is senior employee of ABC Limited and his designation is General Manager Operations.
He is also appointed to board of directors and participates in board of directors’ decision making.
He is director of ABC Limited.

Natural person [Section 154]

Only natural persons shall be directors of a company. A company or body corporate (even if it is subscriber to
the memorandum) shall not be a director of another company.
 Example 03:
SPOTLIGHT

ABC Limited is holding company and owner of 80% shares of XYZ Limited. ABC Limited cannot
become director of XYZ Limited as it is not a natural person. However, using its voting power it
may appoint/elect natural persons of its choice as directors of XYZ Limited by following the
procedures given in Companies Act, 2017.

Not to be variable representative

A director cannot claim to be variable representative of the company. It means that a director cannot claim relief
from his responsibility as a director on the basis that he is not concerned with any particular area of the
company’s business. When he is a director, he is a director in entirety.

To be member
STICKY NOTES

Directors must be member of the company except where law specifically allows the non-members as directors.
In the board of directors meeting, every director shall have one vote but the same persons while sitting in a
general meeting as members may have different voting rights based on the number of shares they hold.

Authority
Directors act collectively or by majority, every decision by the directors is made in a board meeting of the
directors or by passing a resolution by circulation and every director has got one vote in decision making. It
means when appointed as a director, every director is an equal director and there is no difference in their
authority.

Fiduciary relationship
Directors of the company may well be said as agents of the company whom members have given the right to
make decisions on their behalf. They are supposed to make decisions in the best interest of the company and its
stakeholders. They must be vigilant and not be negligent in performance of their duties.

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Directors have fiduciary relationship with the company. A fiduciary relationship is generally established only
when the confidence given by one person is accepted by the other person.
No director can hold office of a director if he is declared as lacking fiduciary behaviour by the court.

Consent to act as director [ Section 167]

No person shall be appointed or nominated as a director or chief executive unless such person has given his
consent in writing to the company for such appointment or nomination. The company shall file such consent with
the registrar within 15 days of appointment or nomination.

Number of directorships [Section 155]

No person shall hold office as a director, including as an alternate director at the same time in more than such
number of companies as may be specified, however, this limit shall not include the directorships in a listed

AT A GLANCE
subsidiary.

Minimum number of directors [Section 154]

A company may require a larger number of directors by its articles.

Type of company Minimum number of directors

Single member company One
Other private company Two
Public unlisted company Three
Public listed company Seven

SPOTLIGHT
1.2 Eligibility / ineligibility of certain persons to become director
The company may by its articles fix any conditions to become the director of the company including holding a
specific number of shares as a minimum (qualification shares) to become a director or may be specific
educational requirements.

Ineligibility [Section 153]

No person shall be appointed as a director of a company if he:
a) is a minor;
b) is of unsound mind;

STICKY NOTES
c) has applied to be adjudicated as an insolvent and his application is pending;
d) is an undischarged insolvent;
e) has been convicted by a court of law for an offense involving moral turpitude (conduct that is believed
to be contrary to community standards of honesty, good morals, or justice, e.g. murder, kidnapping, etc.);
f) has been debarred from holding such office under Companies Act;
g) is lacking fiduciary behaviour and a declaration to this effect has been made by the Court at any time
during the preceding 5 years;
 Example 04:
Last year, the court declared Sami as lacking fiduciary behaviour as he did not disclose his
interest in transactions with the company. He cannot be appointed as a director. He may be
appointed as director once five years have elapsed after the court order.

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h) does not hold National Tax Number. The Commission may grant exemption from this requirement;
i) is not a member. However, this shall not apply in the case of:
 a person representing a member who is not a natural person;
 a whole-time director who is an employee of the company;
 a chief executive; or
 a person representing a creditor or other special interests through contractual arrangements.
 Example 05:
Babar is senior employee of the company and because of his experience, he was appointed as
director and is now also involved in board of directors’ decision making. He would be termed as
whole-time director (or executive director).
AT A GLANCE

Further for listed companies only, a person shall not be appointed as a director if he:
a) has been declared by a court as defaulter in repayment of loan to a financial institution;
b) is engaged in the business of brokerage or is a spouse of such person or is a sponsor, director or officer
of a corporate brokerage house.

Ineligibility of bankrupt [Section 177]

If any person being an undischarged insolvent acts as chief executive or director of a company, he shall be liable
to imprisonment for a term not exceeding two years or to a fine, or to both.

1.3 Term of directors [Section 157, 158 & 161]

At incorporation
SPOTLIGHT

The names and number of first directors shall be decided by the subscribers of memorandum, and their specified
particulars shall be submitted along with the documents for incorporation.

Additional directors
Number of first directors may be increased by appointing additional directors in general meeting.

Retirement of first directors

The first directors shall hold office until the election of directors in the first annual general meeting of the
company.
STICKY NOTES

Term of office of subsequent directors

An elected director shall hold office for a period of three years unless he earlier resigns or otherwise ceases to
hold office.
However, the term of office of directors of a company limited by guarantee and not having share capital may be
a period of less than three years as provided in the articles.
The retiring directors shall continue to perform their functions until their successors are elected.

Duty of retired directors

The directors so continuing to perform their functions shall:
 take immediate steps to hold the election of directors; and
 in case of any impediment, report such circumstances to the registrar within 45 days before the due date
of the annual general meeting or extra-ordinary general meeting, as the case may be, in which elections
are to be held.

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Such AGM or EGM shall not be delayed for more than 90 days from the due date of the meeting or such extended
time as may be allowed by the registrar, for reasons to be recorded, only in case of exceptional circumstances
beyond the control of the directors or in compliance of any order of the court.

Direction by registrar
The registrar, may on expiry of period (for election), either:
a) on its own motion; or
b) on the representation of the members holding at least 10% of total voting powers in a company having
share capital; or
c) on the representation of the members holding at least 10% of total members of the company not having
share capital of the company,

AT A GLANCE
directs the company to hold annual general meeting or extra-ordinary general meeting for the election of
directors on such date and time as may be specified in the order.
 Practice Question 01:
Zafar was recently appointed as a Director of HP Limited, a listed company. In March 2018 the
board of directors came to know that Zafar had been declared a defaulter by the High Court.
Discuss his appointment.
 Solution:
Zafar will be ineligible from being a director only if he had defaulted in repayment of a loan to
financial institution. If he has been declared a defaulter for any other reason, he would still be
eligible for appointment as director.

SPOTLIGHT
 Practice Question 02:
Sajid was recently appointed as a director of SE Limited, a public unlisted company. In July 2020,
the board of directors came to know that Mrs. Sajid is engaged in business of brokerage on
Pakistan Stock Exchange. Discuss the appointment of Sajid as director.
 Solution:
Sajid is not ineligible for the reason that his wife is engaged in brokerage business as SE Limited
is unlisted company.

STICKY NOTES

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2. ELECTION, NOMINATION AND CASUAL VACANCY

2.1 Procedure for election of subsequent directors [Section 159]

Fixing the number of directors

The existing directors of a company shall fix the number of directors to be elected in the general meeting, not
later than 35 days before convening of such meeting. Such number once fixed shall not be changed except with
the prior approval of the general meeting in which election is to be held.
The notice of the meeting shall expressly state, among other matters, the number of directors fixed as above and
the names of retiring directors.

Notice of contesting the election

AT A GLANCE

Any member (including retiring director) who seeks to contest the election of directors shall file the notice of his
intention to the company, at least 14 days before the date of meeting at which election is to be held. However,
any such person may withdraw such notice at any time before the election.
The company shall transmit such notices (of intention to contest the election of directors) to the members not
later than 7 days before the date of the meeting, in the same manner as a notice of general meeting is given to the
shareholders. In case of a listed company, it shall also be published in at least one issue of a daily newspaper in
English and Urdu language having wide circulation.

Elected unopposed
If the number of persons offering themselves to be elected as director is not more than the number of directors
fixed for election by the directors, the directors shall stand elected unopposed.
SPOTLIGHT

 Example 06:
Existing directors fixed the number of directors at eight for the next term and only eight persons
have sent notices of interest to contest the election of directors, all applicants shall stand elected
unopposed. If more than eight persons send notice of interest to become a director, poll shall be
taken for election.

Number of votes
During a poll for election of directors every member is entitled to cast the number of votes equal to the product
of number of voting shares or securities held and the number of directors to be elected.
STICKY NOTES

A member can give all his votes to any one candidate or he may divide them between more than one candidate
as he deems appropriate.
 Example 07:
Ali has got 10,000 voting shares of Rs. 10 each and he is entitled to cast vote for the purpose of
election of directors and the company has to elect eight directors for the term, he shall have
80,000 votes to cast. He may cast all the votes in favour of any one person or may so distribute
as he may like.

Result of polling
The candidate getting the highest number of votes shall be declared elected as a director then the candidate who
gets the next highest number of votes shall be so declared and so on until the total number of directors to be
elected has been so elected.

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 Example 08:
ABC Limited held voting for election of directors. Five candidates contested the election for three
seats of directors. Adeel, Babar, Chandio, Dawood and Ehsan got 75000, 44000, 12000, 57000
and 17000 votes respectively. Adeel, Dawood and Babar shall be declared to be elected directors.

All directors are equal

After election as a director, every director shall have equal authority and they shall not be superior or inferior on
the basis of number of votes they got in election or on any other grounds.
 Example 09:
ABC Limited held voting for election of directors. Five candidates contested the election for three
seats of directors. Adeel, Babar, Chandio, Dawood and Ehsan got 75000, 44000, 12000, 57000

AT A GLANCE
and 17000 votes respectively. Adeel, Dawood and Babar were declared to be elected directors.
Although Adeel had got much more votes as compared to Dawood and Babar, he has no
superiority over other directors. Adeel, Dawood and Babar shall have one vote each in board
meetings.

Procedure for company limited by guarantee not having share capital

In case of a company limited by guarantee and not having share capital, the procedure for election of directors
shall be mentioned in its articles.

2.2 Nominee directors [Section 164 & 165]

Nominated by creditors

SPOTLIGHT
In addition to directors elected, a company may have directors nominated by the company’s creditors or other
special interests by virtue of contractual arrangements.

Nominated by Government or body corporate

The directors may be nominated by a body corporate or a company or Federal Government or Provincial
Government if they have made investment in the company. Such person shall be considered to be an elected
director termed as ‘deemed to have been elected director’ and shall be considered for the calculation of minimum
number of directors required for any company. Such nominated director shall hold office during the pleasure of
the nominating body.
The number of votes as are proportionate to the number of votes required to elect the director if they had offered

STICKY NOTES
themselves for election, shall stand excluded from the total number of votes available to the nominating body at
an election of director.

2.3 Fresh election of directors [Section 162]

Criteria
Where a person acquires the requisite shareholding to get him elected as a director on the board of a company,
he may require the company to hold fresh election. However, the number of directors fixed in the preceding
election shall not be decreased.

Time limit and procedure

The board shall, upon receipt of such requisition, as soon as practicable but not later than 30 days, proceed to
hold fresh election of directors of the company.
A listed company for the purpose of fresh election of directors shall follow such procedure as may be specified
by the Commission.

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2.4 Powers of the court to declare election invalid [Section 160]

Appeal criteria
Members holding at least 10% of the voting power in the company may apply to the court to declare the election
of all directors or any one or more of them invalid.

Time limit
Such appeal may be made within 30 days of the date of election.

Decision of court
The court shall declare the elections invalid if it is satisfied that there has been material irregularity in the holding
of the elections and incidental or relating matters.
AT A GLANCE

2.5 Validity of acts of directors [Section 168]

Validity of acts already done

The acts of a person acting as a director are valid even if it is afterwards discovered that there was a defect in his
appointment; or he was disqualified from holding office; or he had ceased to hold such office.

When defect is noticed

However, as soon as any such defect has come to notice, the director shall not exercise the right of his office till
the defect has been removed.
SPOTLIGHT

2.6 Casual vacancy [Section 161 & 155]

Term of office
Any casual vacancy occurring among the directors may be filled up by the directors and the person so appointed
shall hold office for the remainder of the term of the director in whose place he is appointed.

Appointment not necessary

If the number of directors of the company is equal or above the minimum number of directors required for that
company, even after the casual vacancy, such directors may not fill in the casual vacancy and complete the term
without filling such vacancy.
STICKY NOTES

Time limit (listed company)

Any casual vacancy on the board of a listed company shall be filled up by the directors at the earliest but not later
than 90 days from the date of vacancy. There is no time limit specified in Companies Act for other companies.
 Practice Question 03:
Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017.
“A company may change the number of directors to be elected at least 21 days before the date of
general meeting at which the election is to be held.”
 Solution:
The statement is not in accordance with the provisions of the Companies Act 2017 because the
directors shall fix the number of directors to be elected not later than 35 days before the
convening of the general meeting at which directors are to be elected, and the number so fixed
shall not be changed except with the prior approval of a general meeting of the company.

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 Practice Question 04:

ABC Limited, a public unlisted company, has 10 million ordinary shares and five directors. Shahid
acquired 2.5 million ordinary shares. Can he require the company to hold fresh elections?
 Solution:
Yes. The total number of votes are 50 million (i.e. 10 million shares x 5 directors), the requisite
votes are 10 million (i.e. 50 million votes / 5 directors). Shahid has requisite shareholding which
gives him 12.5 million votes (i.e. 2.5 million shares x 5 directors).
 Practice Question 05:
Recently, the company secretary of Al-Falah Sugar Mill Limited (ASML) has received a letter from
Ghalib, a shareholder whose holdings in the company’s shares has increased to 14% during the
year, seeking appointment on ASML’s board of directors. The company secretary has informed

AT A GLANCE
him that he cannot be admitted on the board till the next elections become due.
Not being satisfied with the response, Ghalib has asked you to advise on the above matter and
explain the course of action available to him under the Companies Act, 2017.
 Solution:
Under the Companies Act, 2017 the tenure of the board of directors is 3 years and before expiry
of the term a person can only be admitted to fill in the casual vacancy. However, as per the
requirements of Companies Act 2017, where a person acquires requisite shareholding to get him
elected as a director, he may require the company to hold fresh election of directors.
Listed company shall follow such procedure as may be specified by the SECP. The board shall, as
soon as practicable but not later than 30 days from receipt of such requisition, proceed to hold

SPOTLIGHT
fresh election of directors of the company. It is important to note that the number of directors
fixed in the preceding election shall not be decreased.
 Practice Question 06:
Junaid was elected as a director of Abid Limited in its last annual general meeting. After a few
months, it was found that Junaid’s appointment was not valid as votes by certain members were
counted twice due to an error. Few directors have challenged the validity of all meetings attended
by him and the actions taken therein. Advise.
 Solution:
Any act of a director or a meeting of a director cannot be considered invalid merely on the ground
of any defect subsequently discovered in his appointment. Therefore, all the acts of Junaid during

STICKY NOTES
this period are valid. However, he should not exercise right of his office with immediate effect
and any act after this cannot be considered valid.
 Practice Question 07:
Abid, Qasim and Tariq were the only members of Alpha Securities Limited (ASL), a public
company and were elected as directors on 30 October 2018. Qasim expired on 2 February 2019
in a road accident. Advise Alpha Securities Limited.
 Solution:
ASL is a public company and is required to have at least three members as well as three directors.
On the death of Qasim, the number of directors of ASL has been reduced to two which is in
contravention of the provisions of the Companies Act. The casual vacancy arising due to the death
of Qasim may be filled up by Abid and Tariq and the person so appointed would hold office for
the remainder of the term (till 30th October 2021) of Qasim in whose place he is appointed.

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 Practice Question 08:

Lalazar Limited, a public unlisted company has a paid up capital of Rs 100 million consisting of
shares having face value of Rs 10 each. Last election of its Board of Directors was held on April
15, 20X3 in which eight directors were elected. Four of the directors belonged to the same family.
The remaining directors were Javed, Bader, Qasim and Dawood. They secured 600,000, 350,000,
480,000 and 220,000 votes respectively. The remaining votes were equally distributed among
the four directors of the family. Javed died on May 30, 20X3 and Aslam was appointed as a
director on June 15, 20X3 to fill in the casual vacancy.
Explain the following in the light of the provisions of the Companies Act, 2017:
a) Is Lalazar Limited in compliance with the requirements of minimum number of
directors?
AT A GLANCE

b) Who is responsible to fill the casual vacancy in the Board and when would Aslam’s term
of office be completed?
 Solution:
Part (a)
Every public company other than a listed company shall not have less than three directors. As
Lalazar Limited has eight directors on their board, therefore they are in compliance with the
requirements of law.
Part (b)
Any casual vacancy occurring among the directors may be filled up by the directors. Aslam shall
hold office for the remainder of the term of the director Javed in whose place he has been
appointed.
SPOTLIGHT

 Practice Question 09:

Goldfish Limited (GL) is a public unlisted company with paid-up share capital of Rs. 200 million
divided into 20 million ordinary shares of Rs. 10 each.
Following directors were elected in GL’s annual general meeting held on 25 October 2020:

Name Votes casted in favour

Tariq Ali 42 million
Munim Ahmed 28 million
Areeb Khan 21 million
STICKY NOTES

Siddique Ghani 14 million

Gia Ghouri 14 million
Rahim Zaheer 14 million
Fawad Zia 7 million

Zakir Hussain, an existing shareholder of GL, purchased additional 1.5 million shares in GL on 3
September 2021 due to which his shareholding percentage increased to 15%. Zakir Hussain now
demands to have a suitable position on GL’s board.
Under the provisions of the Companies Act, 2017:
a) discuss the validity of Zakir Hussain’s demand. Also list the grounds under which he may not
be elected on GL’s board.
b) Assuming that Zakir Hussain is eligible to be appointed on GL’s board, state the procedure
to be followed by GL for his appointment.

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 Solution:
Part (a) Conditions to be met for appointment of Zakir Hussain on GL’s board
Validity of Zakir Hussain’s demand
Under the Companies Act, 2017 the requisite shareholding to demand fresh elections of GL is
14.28% (i.e. 100% ÷ 7 directors).
Considering this, Zakir Hussain’s demand seeking a position on GL’s board is valid as he now
holds 3 million shares in GL equal to 15% which is more than the requisite shareholding.
Grounds under which Zakir Hussain may not be elected
Following are the grounds under which Zakir Hussain might not be eligible to become a director
on GL’s board i.e. if he:

AT A GLANCE
i. is a minor;
ii. is of unsound mind;
iii. has been convicted by a court of law for an offence involving moral turpitude;
iv. has been debarred from holding office of director under the Companies Act, 2017;
v. is lacking fiduciary behaviour and a declaration to this effect have been made by the
Court under Companies Act, 2017 at any time during preceding five years;
vi. does not hold National Tax Number as per the provisions of Income Tax Ordinance, 2001
unless the Commission has granted an exemption;
vii. holds office as a director, including as an alternate director at the same time in more

SPOTLIGHT
than such number of companies as may be specified.
Part (b) Procedure to be followed for appointment of Zakir Hussain on GL’s board
i. GL shall call the board meeting forthwith to consider the requisition made by Zakir
Hussain.
ii. Board, upon receipt of requisition shall as soon as practicable but not later than 30 days
from the receipt of such requisition, proceed to hold fresh election of directors by calling
general meeting. [It could be AGM if to be held within 30 days of request otherwise by
calling extraordinary general meeting].
GL shall send notice of general meeting not less than 21 days before the said general
meeting for holding election of directors to all the members of GL specifying the number

STICKY NOTES
of directors to be elected (this shall be same as was fixed in immediately preceding
election, unless members in general meeting increase the same).
iii. All notices received by GL from persons seeking to contest election of directors shall be
transmitted to the members not later than 7 days before the date of the meeting, in the
same manner in which notice of said general meeting has been sent.
iv. If the number of persons who offer themselves to be elected are more than the number
of directors required to be elected in the said general meeting then each member of GL
shall be given such number of votes as is equal to the product of the number of voting
shares held by him and the number of directors to be elected.
If the number of persons who offer themselves to be elected are equal to the number of
directors to be elected then directors shall stand elected unopposed in the general
meeting.
Zakir Hussain may also be appointed if there occurs a casual vacancy on board through
resignation of a director. In this case, with mutual consent of GL’s directors, he is appointed on
board since casual vacancy on board of a company may also be filled up by directors themselves.

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3. VACATION OF OFFICE AND REMOVAL

3.1 Vacation of office [Section 171]
A director shall be treated to have vacated the office of director if:
 he becomes ineligible to be appointed as director;
 he absents himself from three consecutive meetings of the board without seeking leave of absence;
 he, his partnership firm in which he is a partner or any private company in which he is a director, accepts
any loan or guarantee from the company in contravention of Companies Act; or
 accepts any office of profit (other than that of chief executive or a legal or technical adviser) without
sanction of the company in a general meeting.
AT A GLANCE

A company may include additional grounds for vacation of office in its articles.

3.2 Removal of directors [Section 163]

A director may be removed from the office by the members of the company by passing a resolution. The director
shall not be considered to have been removed if votes against removal equal or exceed as follows:

Type of director to be removed Not removed if votes against removal equal to or exceed
Elected director Minimum number of votes which were enough to qualify a person as a
director in the last election of directors.
Elected unopposed Average votes i.e.
First directors 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑖𝑟𝑒𝑐𝑡𝑜𝑟𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑡𝑒𝑟𝑚 × 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑣𝑜𝑡𝑖𝑛𝑔 𝑠ℎ𝑎𝑟𝑒𝑠
=
SPOTLIGHT

Casual vacancy 𝑛𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝑑𝑖𝑟𝑒𝑐𝑡𝑜𝑟𝑠 𝑓𝑜𝑟 𝑡ℎ𝑒 𝑡𝑖𝑚𝑒 𝑏𝑒𝑖𝑛𝑔

 Practice Question 10:

Kalim is a director of Behaal Limited. On 1 October 2017 Kalim went abroad on a personal trip
and returned back on 15 February 2018. He was unable to attend five board meetings which
were held during this period. Advise Kalim.
 Solution:
Kalim shall ipso facto cease to hold office if he was absent for at least three consecutive board
meetings unless he has obtained leave of absence.
STICKY NOTES

 Practice Question 11:

Aslam was elected as a director in ABC Limited one year ago; company has 2 million shares and
seven directors. He was the last one to become director by securing 1.5 million votes. A resolution
has been moved in the general meeting to remove Aslam from his position. How much votes
Aslam require to save his seat?
 Solution:
At least 1.5 million votes which is the least number of votes sufficient to make a person director
in last election of directors.
 Practice Question 12:
A public unlisted company has four directors namely Adeel, Babar, Chand and Dawood and in the
last election they were elected by securing 80,000, 70,000, 68,000 and 63,000 votes respectively.
Ehsan who also contested election secured 57000 votes and could not be elected as director. One
of the majority shareholders has indicated to remove Babar in coming AGM. How much votes
Babar require to save his seat?

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 Solution:
Babar being an elected director needs 63,000 votes against his removal which is the least number
of votes sufficient to make a person director in last election of directors.
 Practice Question 13:
Aslam was elected as a director to fill in a casual vacancy; company has 2 million shares and seven
directors. The last one to become director had secured 1.5 million votes in last election of
directors. A resolution has been moved in the general meeting to remove Aslam from his position.
How much votes Aslam require to save his seat?
 Solution:
He shall not be removed from his office if the number of votes casted against the resolution equals
or exceeds the number of votes calculated as per the following formula:

AT A GLANCE
(Number of directors for the term × Number of shares) ÷ Number of directors for the time being
7 × 2,000,000 ÷ 7 = 2,000,000 votes
 Practice Question 14:
Due to a dispute among the directors of Sun Limited, a listed company, all the directors want to
remove Hameed from the directorship of the company prior to the completion of his term. State
the procedure and the conditions to be complied with if the company wants to remove Hameed
from the directorship of the company, under each of the following assumptions:
 He was elected as a director of the company.
 He became the director of the company by subscribing to the memorandum of

SPOTLIGHT
association of the company.
 Solution:
In either case, the company may remove Hameed from the directorship by passing a resolution
in general meeting.
If Hameed was appointed by the election of directors of the company.
Hameed shall be removed if votes cast against the resolution for removal are less than the
minimum number of votes that were cast for the election of director at the immediately
preceding election of directors. However, if Hameed was elected unopposed then he shall be
removed if votes cast against the resolution for removal are less than the total number of votes
for the time being computed as a product of number of shares held by voter and number of

STICKY NOTES
director elected at the time of his appointment divided by the number of directors for the time
being.
If Hameed was appointed by the subscribers to the memorandum of association of the
company.
Hameed shall be removed if votes cast against the resolution for removal are less than the total
number of votes for the time being computed as a product of number of shares held by voter and
number of director elected at the time of his appointment divided by the number of directors for
the time being.
 Practice Question 15:
Baalbek Limited is an unlisted public company and has eight directors. Its paid-up capital is Rs.
50,000,000 divided into ordinary shares of Rs. 500 each. The directors have decided to remove
Aga Kirmani from the board due to his dismal performance. Aga Kirmani was elected unopposed
on the board.
In the light of the provisions of the Companies Act, 2017 briefly describe how Aga Kirmani can
be removed from the board.

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 Solution:
Aga Kirmani may be removed from the board by passing a resolution in a general meeting.
However, since he was appointed unopposed, he shall not be removed from his office if the
number of votes casted against the resolution equals or exceeds the number of votes calculated
as per the following formula:
(Number of directors for the term × Number of shares) ÷ Number of directors for the time being
i.e. 8 × (50,000,000÷500) ÷ 8 = 100,000 votes
Therefore, Aga Kirmani would be removed from the board if less than 100,000 votes are casted
against the resolution.
 Practice Question 16:
AT A GLANCE

Lalazar Limited, a public unlisted company has a paid up capital of Rs 100 million consisting of
shares having face value of Rs 10 each. Last election of its Board of Directors was held on April
15, 20X3 in which eight directors were elected. Four of the directors belonged to the same family.
The remaining directors were Javed, Bader, Qasim and Dawood. They secured 600,000, 350,000,
480,000 and 220,000 votes respectively. The remaining votes were equally distributed among
the four directors of the family. Javed died on May 30, 20X3 and Aslam was appointed as a
director on June 15, 20X3 to fill in the casual vacancy.
Explain the following in the light of the provisions of the Companies Act, 2017.
The conditions required to be fulfilled if a person desires to remove the following directors:
i. Aslam
ii. Bader
SPOTLIGHT

 Solution:
A company may by resolution in a general meeting remove a director appointed to fill in the
casual vacancy or a director appointed by members in a general meeting of the company.
(i) Aslam
The situation relates to the removal of director appointed to fill in the casual vacancy. Therefore,
the number of votes cast against the resolution should not be equal to or exceed the total number
of votes for the time being computed in a manner similar to the method used for directors’
election divided by the number of directors, which in this case would be 10,000,000 x 8 ÷ 8 =
10,000,000.
STICKY NOTES

(ii) Bader
Bader can be removed from his office only when the votes cast against the resolution are less
than 220,000 i.e. the minimum number of votes through which the director was elected in the
immediately preceding election of directors.

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4. POWERS AND DUTIES

4.1 Powers of board [Section 183]
The business of a company shall be managed by the board, who may exercise all such powers of the company as
are not by Companies Act, or by the articles, or by a special resolution, required to be exercised by the company
in general meeting.

Power to be exercised by passing a board resolution

The board shall exercise the following powers by ‘passing a resolution’ in board meetings:
 to issue shares, debentures or other redeemable capital or to otherwise borrow money or invest the
funds of the company;

AT A GLANCE
 to make loans. This restriction of passing a board resolution does not apply to banking company
advancing loans in ordinary course of its business;
 to approve annual and periodical accounts and to approve bonus for employees;
 to incur capital expenditure on any single item or dispose of a fixed asset in accordance with the limit as
may be specified;
 to undertake obligations under leasing contracts exceeding such amount as may be notified;
 to declare interim dividend;
 to authorize the following to enter into any contract with the company for making sale, purchase or
supply of goods or rendering services with the company:
 a director;


SPOTLIGHT
the firm of which a director is a partner or any partner of such firm; or
 a private company of which such director is a member or director;
 if the amount is material as per Generally Accepted Accounting Principles:
 to write off bad debts, advances and receivables;
 to write off inventories and other assets; and
 to determine the terms of and the circumstances in which a law suit may be compromised and a claim
or right in favour of a company may be released, extinguished or relinquished.
 to take over a company or acquiring a controlling or substantial stake in another company;
 any other specified matter.

STICKY NOTES
Authorisation of general meeting
The board of a company shall not except with the consent of the general meeting either specifically or by way of
an authorisation, do any of the following things, namely:
 sell, lease or otherwise dispose of the undertakings or a sizeable part thereof unless the main business
of the company comprises of such selling or leasing; and
 sell or otherwise dispose of the subsidiary of the company;
 remit, give any relief or give extension of time for the repayment of any debt outstanding against any
director of the company or of its holding company; or to any of this relatives.
A listed company is not entitled to sell or otherwise dispose of the undertaking, which results in or may lead to
closure of business operation or winding up of the company, without there being a viable alternate business plan
duly authenticated by the board.
Any resolution passed (authorisation of general meeting) if not implemented within one year from the date of
passing shall stand lapsed.

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4.2 Duties of directors [Section 204]

Duties
The Companies Act mentions following duties of directors:
 a director of a company shall act in accordance with the articles of the company.
 a director of a company shall act in good faith in order to promote the objects of the company for the
benefit of its members as a whole, and in the best interests of the company, its employees, the
shareholders, the community and for the protection of environment.
 a director of a company shall discharge his duties with due and reasonable care, skill and diligence and
shall exercise independent judgment.
 a director of a company shall not involve in a situation in which he may have a direct or indirect interest
AT A GLANCE

that conflicts, or possibly may conflict, with the interest of the company.
 a director of a company shall not achieve or attempt to achieve any undue gain or advantage either to
himself or to his relatives, partners, or associates and if such director is found guilty of making any undue
gain, he shall be liable to pay an amount equal to that gain to the company.
 a director of a company shall not assign his office and any assignment so made shall be void.
 In addition to above, the Commission may provide for the extent of duties and the role of directors as
may be specified.

Breach and ratification

Any breach of duty, default or negligence by a director in contravention of the articles of the company or any of
its policy or decision of the board may be ratified by the company through a special resolution and the
SPOTLIGHT

Commission may impose any restriction as may be specified.

4.3 Compliance with the code of corporate governance [Section 156]

Power of Commission
The Commission may provide for framework to ensure good corporate governance practices, compliance and
matters incidental and auxiliary for companies or class of companies in a manner as may be specified.

Duty of directors
The above would require duty of directors to act in line with good corporate governance practices.
STICKY NOTES

4.4 Liabilities of directors and officers [Section 180]

Restriction on indemnification
Any provision, whether contained in the articles of a company or in any contract with a company or otherwise,
for exempting any officer or auditor of the company, from, or indemnifying him against, any liability which by
virtue of any law would otherwise attach to him in respect of any negligence, default, breach of duty or breach of
trust of which he may be guilty in relation to the company, shall be void except as specified below.

Exception
However, a company is not prohibited from indemnifying any of its director, chief executive or officer against
any liability incurred by any of them in defending any proceedings against him, in which judgement is given by
the court in his favour or in which any of them is acquitted; irrespective of the fact that whether the proceedings
against any of them were in respect of any civil or criminal nature.

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4.5 Non-executive director [Section 181]

A non-executive director means, a person on the board of the company who:
 is not from among the executive management team and may or may not be independent;
 is expected to lend an outside viewpoint to the board of a company;
 does not undertake to devote his whole working time to the company and is not involved in managing
the affairs of the company;
 is not a beneficial owner of the company or any of its associated companies or undertakings;
 does not draw any remuneration from the company except the meeting fee.

4.6 Independent director [Section 166]

AT A GLANCE
Definition
An independent director means a director who is not connected or does not have any other relationship, whether
pecuniary or otherwise, with the company, its associated companies, subsidiaries, holding company or directors;
and he can be reasonably perceived as being able to exercise independent business judgment without being
subservient to any form of conflict of interest. In essence, an executive director can never be an independent
director.

Criteria
Without affecting the generality of the above definition, no director shall be considered independent if one or
more of the following circumstances exist:
a) he has been an employee of the company, any of its subsidiaries or holding company within the last 3

SPOTLIGHT
years (last 2 years in respect of public sector companies);
b) he is or has been the chief executive officer of subsidiaries, associated company, associated undertaking
or holding company in the last 3 years (last 2 years in respect of public sector companies);
c) he has, or has had within the last 3 years (last 2 years in respect of public sector companies), a material
business relationship with the company either directly, or indirectly as a partner, major shareholder or
director of a body that has such a relationship with the company. Explanation: The major shareholder
means a person who, individually or in concert with his family or as part of a group, holds 10% or more
shares having voting rights in the paid-up capital of the company;
d) he has received remuneration in the 3 years preceding his/her appointment as a director or receives
additional remuneration, excluding retirement benefits from the company apart from a director‘s fee or
has participated in the company‘s stock option or a performance-related pay scheme;

STICKY NOTES
e) he is a close relative of the company‘s promoters, directors or major shareholders. Explanation: “close
relative” means spouse(s), lineal ascendants and descendants and siblings;
f) he holds cross-directorships or has significant links with other directors through involvement in other
companies or bodies not being the associations licenced as not for profit;
g) he has served on the board for more than 3 consecutive terms (2 consecutive terms in case of public
sector company) from the date of his first appointment. However, such person shall be deemed
“independent director” after a lapse of one term;
h) a person nominated as a director by creditors, Government or body corporate.
Further, an independent director in case of a public sector company shall not be in the service of Pakistan or of
any statutory body or any body or institution owned or controlled by the Government.

Manner of selection and maintenance of data bank

An independent director to be appointed under any law, rules, regulations or code, shall be selected from a data
bank containing names, addresses and qualifications of persons who are eligible and willing to act as
independent directors, maintained by any institute, body or association (the institute), as may be notified by the

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Commission, having expertise in creation and maintenance of such data bank and post on their website for the
use by the company making the appointment of such directors.
However, responsibility of exercising due diligence before selecting a person from the data bank referred to
above, as an independent director shall lie with the company or the Government, as the case may be, making such
appointment.

Election process and consent

The independent director of a listed company shall be elected in the same manner as other directors are elected
and the statement of material facts annexed to the notice of the general meeting called for the purpose shall
indicate the justification for choosing the appointee for appointment as independent director.
No individual shall be selected for the data bank of independent directors without his consent in writing.
AT A GLANCE

Relaxation in requirements
The above requirements may be relaxed by the Commission on an application made by the company supported
with the sufficient justification or the practical difficulty, as the case may be.

Power of Commission
The manner and procedure of selection of independent directors on the databank who fulfil the qualifications
and other requirements shall be specified by the Commission. In this regard, the Commission has notified the
Companies (Manner and Selection of Independent Directors) Regulations, 2018.

Eligibility criteria [Regulation 4]

Any person desirous of including his/her name on the databank of independent directors, shall fulfil the
SPOTLIGHT

following educational and other requirements, namely:

a) A person who:
i. Either holds at least a graduate degree from a university recognized and approved by the Higher
Education Commission of Pakistan or is a member of a professional body; and
ii. Has at least five years of relevant experience in one or more of the fields of finance, law,
management, sales, marketing, administration, research, corporate governance, technical
operations or other disciplines relevant to the company’s business; or
b) has at least fifteen years of relevant work experience in one or more of the fields of finance, law,
management, sales, marketing, administration, research, corporate governance, technical operations or
other disciplines relevant to the company’s business; and
STICKY NOTES

c) the person is willing to act as an independent director and can confirm that on appointment, would
devote reasonable time to the affairs of the company in order to enable him/her to discharge his/her
stewardship responsibilities as given under the applicable law, corporate governance directives and
where applicable, licensing requirements.
The expression, “professional body” means:

a) Established in Pakistan, governed under a special enactment of the Federal Government as a self-
regulatory organization manged by a representative National Council, and has a prescribed minimum
criterion of examination and entitlement of membership of such body; or
b) Established outside Pakistan and established under a special enactment in the country of its origin and
which is a member of the international body relevant for such field.
Directors’ Training Program [Regulation 4]
Every independent director, after being appointed/ elected on board, shall complete Director’s Training Program
(DTP) or avail exemption from the Commission as per the requirements of the Listed Companies (Code of
Corporate Governance) Regulations, 2017 within twelve months of such appointment/ election.

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Maintenance of data bank [Regulation 4]

The institute shall place the information on process of registration in databank, eligibility criteria, fees and
documents and other relevant details on its website and the institute must ensure that information shall be in
the format easily accessible and downloadable by the applicants.
The institute may determine the necessary measures, conditions and procedure for including and retaining
details of individuals in the databank.
The institute, with the prior approval of the Commission, may fix a fee to be paid by the individuals for inclusion
and retaining their names in the databank.
Every person whose name is included in the databank shall be responsible for the accuracy, adequacy and
completeness of the information and particulars provided by him/her to the institute and in case of any
subsequent change therein.

AT A GLANCE
Responsibility of company and disclaimer by the Institute [Regulation 4]
Every company shall be responsible for exercising its own due diligence before selecting an individual form the
databank for appointment as independent director. In particular, every company shall require such individual to
submit an undertaking on a non-judicial stamp paper that he/she meets the requirements of this regulation
alongwith relevant supporting information supporting the same.
The institute shall conspicuously display the following disclaimers on its website:
“It is responsibility of every person appointing independent director, to exercise due diligence in terms of
requirements of the Act or applicable laws for purpose of selecting a person from the data bank;
Inclusion in databank does not guarantee selection as an independent director; institute shall neither guarantee nor
make any representation regarding the accuracy and or reliability of the information about any person whose name

SPOTLIGHT
has been included in the databank; and
Institute shall not be responsible for any contravention of any law committed by any company or its directors by the
reason of the fact that the person appointed by the company as an independent director was selected from the
databank nor it will be a defence in any court of law.”
4.7 Protection to independent and non-executive directors [Section 181]
An independent director and a non-executive director shall be held liable, only in respect of such acts of omission
or commission by a listed company or a public sector company which had occurred with his knowledge,
attributable through board processes, and with his consent or connivance or where he had not acted diligently.
 Practice Question 17:

STICKY NOTES
At the annual general meeting of Rahbar Refineries Limited (RRL), certain shareholders have
raised objections on matters related to the use of the company’s funds. In the opinion of those
shareholders the board have exceeded the authority vested upon them by the Companies Act,
2017.
Identify those powers of board which the shareholders of RRL may be referring to.
 Solution:
Powers of Board.
The shareholders seem to be referring to the following powers of the board of RRL:
 Invest the funds of the company.
 Make loans.
 Incur capital expenditure on any single item or dispose of a fixed asset, in accordance
with the limits prescribed.
 Undertake obligations under leasing contracts exceeding limits prescribed.
 Declare interim dividend

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 To authorize sale, purchase or supply contracts with interested companies and firms
 To approve bonus to employees
 To take over a company or acquire a controlling or substantial stake in another company
 Practice Question 18:
Rashid was appointed as Chief Executive of Chalaak Limited (CL). At the time of his appointment,
Adil, one of the major shareholders and founder member informed him that since last four years
CL is paying 90% cash dividend to all the shareholders, however, Adil mentioned that he didn’t
like to pay dividend to minority shareholders and advised Rashid not to pay from this year.
Rashid informed Adil that as per the provisions of Companies Act, 2017 Chief Executive shall be
punishable with imprisonment that may extend to two years and with fine which may extend to
five million rupees if the dividend is not paid within specified period of time after dividend has
been declared.
AT A GLANCE

Adil proposed Rashid to sign a contract with CL in which it will be clearly indicated that Rashid
will be indemnified against all sort of liabilities if any imposed on him due to non-payment of
dividend to the minority shareholders of CL. The contract was signed on 28th March 2020
between CL and Rashid. Is the contract valid?
 Solution:
In light of the provisions of the Companies Act, 2017 the aforesaid contract between CL and
Rashid shall be void.
 Practice Question 19:
Asad filed criminal case against Bilal, who is working in the capacity of Chief Financial Officer of
Shining Star Limited (SSL), on the premise that Bilal has misappropriated SSL’s funds to the tune
SPOTLIGHT

of Rs. 10 million. Bilal appointed M/s Dayyanat-dar & Co. Legal Advisors and provided all the
evidences with respect to all the allegations raised by Asad in the said criminal case and paid
Rs.500,000/- on account of legal fee. Based on the documentary evidences provided by Bilal the
court acquitted i.e. declared Bilal as innocent. Bilal requested SSL management to indemnify him
Rs. 500,000/- paid by him to the lawyer and provided the Legal Advisors invoice along with other
necessary documents. Can SSL indemnify Bilal in above situation.
 Solution:
In the light of the provisions of Companies Act, 2017 SSL may indemnify Bilal.
STICKY NOTES

 Practice Question 20:

Election of directors of Excellent Technologies Limited (ETL), a listed company, is scheduled to
be held on 15 October 2020. The board of directors has requested Mohsin, one of the leading
engineers, to contest the upcoming election as non-executive director for adding value to the
board.
Before responding to the offer of ETL’s board, Mohsin has sought your advice on the following
concerns:
i. Since he has no relationship with ETL either pecuniary or otherwise, can he contest the
election as non-executive director?
ii. Would he be subjected to unforeseen liability that may arise due to adverse action of
other directors?
Under the provisions of the Companies Act, 2017, advise Mohsin with regard to the above
concerns.

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 Solution:
Part (i) non-executive director
It is pertinent to note that pecuniary or other relationship with company are not the only criteria
to establish eligibility of a person to be a non-executive director. Rather, in order to be a non-
executive director of ETL, Mohsin shall have to ensure that he:
 is not from among the executive management team and may or may not be independent;
 is expected to lend an outside viewpoint to ETL’s board;
 does not undertake to devote his whole working time to ETL and will not involve in
managing the affairs of the ETL;
 is not a beneficial owner of ETL or any of its associated companies or undertakings;


AT A GLANCE
does not draw any remuneration from ETL except the meeting fee.
Part (ii) Liability
As far as the unforeseen liability due to adverse action of ETL’s other directors are concerned
Mohsin if elected as non-executive director, shall be held liable, only in respect of such acts of
omission or commission by ETL which had occurred with his knowledge, attributable through
board processes, and with his consent or connivance or where he had not acted diligently.
 Practice Question 21:
a) Under the provisions of the Companies Act, 2017 discuss the manners of selection of an
independent director.
b) Under the provisions of the Companies (Manner and Selection of Independent Directors)
Regulations, 2018:

SPOTLIGHT
i. list down the eligibility criteria for a person who is desirous of including his/her name
on the databank of independent directors maintained by any institute, body or
association as notified by the Commission.
ii. state the responsibilities of a person whose name has been included in the databank of
independent directors and has received an offer to be an independent director on the
board of a listed company.
iii. briefly discuss the responsibilities of a listed company which is considering to appoint
an independent director from the databank of independent directors.
 Solution:

STICKY NOTES
Part (a)
An independent director shall be selected from the data bank, containing names, addresses and
qualifications of persons who are eligible and willing to act as independent directors, maintained
by any institute, body or association as may be notified by the Commission, having expertise in
creation and maintenance of such data bank.
Part (b) (i)
A person desirous of including his/her name on the databank of independent directors
maintained by any institute, body or association as notified by the Commission shall fulfil the
following educational and other requirements, namely:
 a person who:
o either holds at least a graduate degree from a university recognized and
approved by the Higher Education Commission of Pakistan or is a member of a
professional body; and

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o has at least five years of relevant experience in one or more of the fields of
finance, law, management, sales, marketing, administration, research, corporate
governance, technical operations or other disciplines relevant to the company's
business. Or
 has at least fifteen years of relevant work experience in one or more of the fields of
finance, law, management, sales, marketing, administration, research, corporate
governance, technical operations or other disciplines relevant to the company's
business.
Part (b) (ii)
A person whose name has been included in the databank of independent director shall be
responsible for the accuracy, adequacy and completeness of the information and particulars
provided by him / her to the Institute and in case of any subsequent change therein.
AT A GLANCE

A person who has received an offer to be an independent director on the board of a listed
company shall confirm that on appointment, would devote reasonable time to the affairs of the
company in order to enable him/her to discharge his/her stewardship responsibilities as given
under the applicable law, corporate governance directives and where applicable, licensing
requirements.
Part (b) (iii)
A listed company which is considering to appoint an independent director from the databank
notified by the Commission shall:
 be responsible for exercising its own due diligence before selecting an individual from
the databank for appointment as independent director.
SPOTLIGHT

 require such individual to submit an undertaking on a non-judicial stamp paper that

he/she meets the eligibility criteria requirements of the Companies (Manner and
Selection of Independent Directors) Regulations, 2018 along with relevant supporting
information supporting the same.
STICKY NOTES

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5. PROCEEDINGS
5.1 Proceedings of the board [Section 176]
Quorum of listed company
The quorum for a meeting of directors of a listed company shall not be less than one-third of their number or
four, whichever is greater and the participation of the directors by video conferencing or by other audio-visual
means shall also be counted for the purposes of quorum.
Quorum for other than listed company shall be as provided in the articles.
 Example 10:
A listed company has seven directors. The quorum for board meetings shall be complete by

AT A GLANCE
participation of at least four directors.
 Example 11:
A listed company has seventeen directors. The quorum for board meetings shall be complete by
participation of at least six directors.

Casual vacancy situation

If there are not enough directors to form a quorum to fill a casual vacancy, all the remaining directors shall be
deemed to constitute a quorum for this limited purpose.
 Example 12:
A listed company has seven directors. Unfortunately four directors died in a car accident

SPOTLIGHT
together. The remaining three directors shall be considered valid quorum for filling in casual
vacancies arising in such situation.

Frequency of meetings
The board of a public company shall meet at least once in each quarter of a year.

5.2 Passing of resolution through circulation [Section 179]

Validity
A resolution in writing approved by majority of the directors/committee of directors for the time being entitled
to receive notice of a meeting shall be as valid and effectual as if it had been passed at a meeting of

STICKY NOTES
directors/committee of directors duly convened and held.

Manner of circulation
Before passing it, the resolution should be circulated with necessary papers to all directors. Such resolution shall
be noted at a subsequent meeting of board/committee of directors and made part of the minutes of such meeting.

Revocation not allowed

A directors’ agreement to a written resolution, passed by circulation, once approved, may not be revoked.

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5.3 Records of resolutions and meetings of board [Section 178]

Record to be kept
Every company shall keep records comprising:
 all resolutions of the board passed by circulation; and
 minutes of all proceedings of board meetings or committee of directors along with the names of
participants, to be entered in properly maintained books.

Authentication
Minutes recorded as above if purporting to be authenticated by the chairman of the meeting or by the chairman
of the next meeting, shall be the evidence of the proceedings at the meeting.
AT A GLANCE

Copy to directors
A copy of the draft minutes of meeting of board shall be furnished to every director within 14 days of the date of
meeting.

Place for keeping record and time duration

The records must be kept at the registered office of the company from the date of the resolution, meeting or
decision simultaneously in physical and electronic form and it shall be preserved for at least ten years in physical
form and permanently in electronic form.
 Practice Question 22:
Haider Limited (HL), a listed company, is in the process of finalization of a financing facility with
SPOTLIGHT

a bank. The bank requires a copy of the board resolution for approval of the terms of the
financing. However, no board meeting is planned in the near future and few directors are out of
the country.
In the light of the provisions of the Companies Act, 2017 explain what alternative course of action
is available to HL and the steps it would be required to take
 Solution:
Alternative course of action available to HL
HL can pass a resolution in writing approved by majority of the directors of HL for time being
entitled to receive notice of a meeting of the directors approving the terms of the financing.
STICKY NOTES

However, directors’ agreement to a written resolution, passed by circulation, once approved,

may not be revoked.
Steps required for passing a resolution by circulation
 The proposed resolution shall be circulated together with necessary documents, if any,
to all the directors.
 The resolution shall be noted at a subsequent meeting of the board or the committee
thereof, as the case may be, and made part of the minutes of such meeting.

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6. RESTRICTIONS, PROHIBITIONS AND LIMITATIONS

6.1 Restrictions on director’s remuneration [Section 170]

Remuneration for attending meetings

The remuneration to be paid to any director for attending the meetings of the directors or a committee of
directors shall not exceed the scale approved by the company or the board of directors, as the case may be, in
accordance with the provisions of the articles.

Remuneration for extra services

The remuneration of a director for performing extra services, including the holding of the office of chairman, is
determined by the board of directors or the company in general meeting in accordance with the provisions in

AT A GLANCE
the company's articles.

6.2 Prohibition on assignment of office by directors [Section 174]

Prohibition on assignment of office

A director of any company shall not assign his office to any other person and any such appointment shall be void
ab-initio.

Appointment of alternate director is allowed

The appointment by a director, of an alternate or substitute director to act for him during his absence from
Pakistan of not less than 90 days, will not be deemed to be an assignment of office. Such appointment must be

SPOTLIGHT
with approval of the board.
The alternate director so appointed vacates office when the director appointing him returns to Pakistan.

6.3 Restriction on transactions involving directors [Section 211]

Cash transactions
The company shall ensure that all cash transactions with its directors are conducted only through banking
channels.

Non-cash transactions

STICKY NOTES
Unless prior approval is accorded by a resolution of general meeting of company (and if the director or connected
person is a director of its holding company, approval is also required to be obtained by passing a resolution in
general meeting of the holding company) no company shall enter into an arrangement by which:
 A director of company or its holding/subsidiary/associated company or a person connected with him
acquires or is to acquire assets for consideration other than cash, from the company; or
 Company acquires or is to acquire assets for consideration other than cash, from such director or person
so connected.
Notice for approval of resolution shall include the particulars of arrangement along with the value of the assets
involved in such arrangement duly calculated by a registered valuer.

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6.4 Loan to directors [Section 182]

Restriction
The company is not allowed, unless the transaction has been approved by members through resolution, to:
 make a loan to a director of the company or of its holding company or any of his relatives (spouse
and minor children); or
 give a guarantee or security in connection with a loan made by any person to such a director; or to
any of his relatives.

Additional requirement for listed company

Additionally, approval of the Commission is also required in case of a listed company, for such loans.
AT A GLANCE

Exception
The above restrictions do not apply to a company which in the ordinary course of its business provides loans or
gives guarantees or securities for the due repayment of any loan.

6.5 Other prohibitions

Prohibition regarding making of political contribution [Section 184]

A company shall not contribute any amount or allow utilisation of its assets:
 to any political party; or
 for any political purpose to any individual or body.
SPOTLIGHT

Prohibition regarding distribution of gifts [Section 185]

A company is prohibited to distribute gifts in any form to its members in its meeting.
 Practice Question 23:
Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017.
“Directors’ remuneration for performance of extra services including the holding of office of the
chairman or attending the board meeting is decided by the chief executive.”
 Solution:
STICKY NOTES

The statement is not in accordance with the provisions of the Companies Act 2017. The directors’
remuneration for performing extra services, including the holding of the office of chairman, is
determined by the directors or the company in general meeting in accordance with the
provisions in the articles of association of the company.
 Practice Question 24:
Discuss the provisions relating to the payment of remuneration to any of the directors for
attending the board meeting and performing extra services.
 Solution:
The remuneration to be paid to any director for attending the meetings of the directors or a
committee of directors shall not exceed the scale approved by the company or the directors, as
the case may be, in accordance with the provisions of the articles.
The remuneration of a director for performing extra services, including the office of the
chairman, is determined by the directors or the company in general meeting in accordance with
the provisions in the company's articles.

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 Practice Question 25:

Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017.
“A director of a listed company cannot assign his office to another person under any
circumstances.”
 Solution:
The statement is in accordance with the provisions of the Companies Act 2017. Any such
appointment shall be void ab initio.
 Practice Question 26:
In light of the provisions of the Companies Act 2017 advise the directors of KM Limited on the
matter of assignment of director’s office where Faisal, one of the directors, wishes to assign his

AT A GLANCE
office to Saeed as Faisal is going abroad for personal work.
 Solution:
The assignment of office by a director is prohibited and void ab initio. However, the directors
have an option to appoint alternate or substitute director (with the approval of the board) if
Faisal is going abroad for a period not less than 90 days. However, Saeed shall vacate the office
when Faisal returns to Pakistan.
 Practice Question 27:
Mr. Hameed, who is a director in ABC Limited, a listed company, is planning to move to Europe
for one year to set up his own business.
Respond to his request for advice, as regards his responsibilities, under the Companies Act 2017,
in respect of:

SPOTLIGHT
a) attending the annual general meeting of the company.
b) attending the board meetings of the company.
c) conditions under which he may be allowed to assign his office to another person.
 Solution:
Part (a) Director’s attendance at Annual General Meeting.
It is not mandatory for a director to attend the annual general meeting of the company and there
are no consequences of not attending it under Companies Act, 2017.
Part (b) Director’s attendance at Board Meeting.
If Mr. Hameed does not attend, without leave of absence from directors, three consecutive board

STICKY NOTES
meetings he shall ipso facto cease to hold office.
Part (c) Restriction on assignment of office of directors
Mr. Hameed cannot assign his office to another person. However, he may appoint, with the
approval of the board, an alternate or substitute director to act for him during his absence from
Pakistan.
 Practice Question 28:
Rapid Constructions Limited (RCL) is a listed company. Advise the Board of Directors of RCL on
the following matters, in the light of the provisions of the Companies Act, 2017:
a) A request has been made by an independent director for increase in remuneration of
directors from Rs. 25,000 to Rs. 40,000 for attending the Board and sub-committee
meetings and performing extra services.
b) Dawood, who is a director, wants to appoint his brother in his place as he is going abroad
on vacations.
c) Asad is a director but is not a member of the company.

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 Solution:
Part (a)
The remuneration of a director for performing extra services, may be determined by the
directors or the company in general meeting, in accordance with the provisions in the company's
articles. Further, the remuneration for attending the Board of directors’ meetings or Committee
Meetings cannot exceed the scale approved by the company or the directors, as the case may be,
in accordance with the provisions of the articles of the company.
Part (b)
Following conditions must be complied with if Dawood’s brother is to be appointed as an
alternate director.
 The absence of Dawood should be for a period of at least 3 months
AT A GLANCE

 The directors of the company approve the grant of leave to Dawood and the appointment
of alternate director.
 Dawood’s brother must be a member of RCL and should not be ineligible to be appointed
as a director of RCL in any other manner.
Part (c)
The condition for a director to be a member of the company does not apply to Asad if he is:
i. representing the Government or an institution or authority which is a member;
ii. an employee of the company;(whole-time director)
iii. a Chief executive;
iv. representing a creditor.
 Practice Question 29:
SPOTLIGHT

Ahmed is a director on the boards of Nazeer Industries Limited (NIL) and King Limited (KL),
which is the subsidiary of NIL. KL is in process of disposing off its land in Industrial Zone 1 since
it wants to shift the production plant to Industrial Zone 2. Owing to the growing demand of Zone
2, the management of KL has been finding it difficult to obtain the plot in desired zone.
Considering the difficulties of KL, Ahmed has offered to sell his plot in Zone 2 in consideration of
KL’s land in Zone 1. According to Ahmed, the fair values of both properties are approximately the
same.
Under the Companies Act, 2017 state the conditions which must be met before such transaction
is executed under the arrangement proposed by Ahmed
 Solution:
STICKY NOTES

KL cannot enter into such arrangement unless prior approval for the non-cash transaction is
obtained through a resolution in general meeting.
Since Ahmed is also the director of KL’s holding company, approval from shareholders of NIL is
also required to be obtained by passing a resolution in general meeting of the holding company.
The notice for approval of the resolution by KL and NIL shall include the particulars of the
arrangement along with value of the assets involved in such arrangement duly calculated by a
registered valuer.
 Practice Question 30:
Kismet Limited (KL) has entered into an arrangement with Ahmad Laiq, the CEO of Bijli (Private)
Limited for the purchase of a specialized machinery worth Rs. 2,500,000 used in the manufacture
of electric irons. Ahmad Laiq is the brother of one of KL’s directors and also a director in KL’s
holding company. Ahmad Laiq has agreed to take 20,000 shares in KL in consideration for the
payment of machinery.
Advise whether KL can acquire the machinery from Ahmad Laiq.

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 Solution:
KL cannot enter into an arrangement by which it acquires asset(s) for consideration other than
cash, from Ahmad Laiq who is connected with one of KL’s directors’ and is also a director in HL’s
holding company.
The above arrangement can only be entered if prior approval for the arrangement has been
accorded by a resolution in KL’s general meeting.
Since Ahmad Laiq is also a director in KL’s holding company, approval shall also be required to
be obtained by passing a resolution in general meeting of the holding company.
The notice for approval of the resolution by KL and holding company shall include the particulars
of the arrangement along with value of the assets involved in such arrangement duly calculated
by a registered valuer.

AT A GLANCE
 Practice Question 31:
The directors of Shah Limited (SL), a listed company, have offered Shams who is presently
working as General Manager Operations, to become the director of the company to fill in a casual
vacancy. Last year Shams obtained a loan amounting to Rs. 1.2 million in accordance with the
company's employment rules, out of which Rs. 0.8 million is still outstanding. Shams has agreed
to take the position of director but is not in a position to repay the loan immediately.
Discuss the requirements of the Companies Act, 2017 which Shams will need to comply with.
 Solution:
The loan becomes immediately payable unless it is approved by the resolution of the general
meeting and also the approval of the Commission has been obtained as SL is a listed company.

SPOTLIGHT
 Practice Question 32:
Azad Limited (AL) is a listed company engaged in the business of manufacturing and supply of
electrical appliances. Mr. Majnou, a director of AL, has applied for an interest free loan from the
company to be repayable in five years.
In view of the provisions of the Companies Act, 2017 describe the circumstances under which AL
may grant loan to Mr. Majnou.
 Solution:
AL cannot, directly or indirectly, grant any loan to its director, Mr. Majnou unless it has been
approved by the members of AL and also approval of Commission has been obtained.

STICKY NOTES
 Practice Question 33:
In light of the provisions of the Companies Act 2017 advise the directors of TS Limited on the
following matter:
“The CEO has refused the personal loan application of Yasir, who is also employed as a technical
director, on the premise that grant of any loan to directors is prohibited under the law.”
 Solution:
As Yasir is director, the loan to Yasir may be granted subject to following conditions:
 The loan transaction has been approved by a resolution of the members of the company.
 If TSL is listed company, prior approval from SECP is obtained.

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7. OBJECTIVE BASED Q&A

01. The names and number of first directors shall be decided by the
(a) Members of the company
(b) Promotors of the company
(c) Subscribers to the memorandum
(d) CEO of the company

02. Casual vacancy on the board of directors of a listed company must be filled:
(a) By calling an extra ordinary general meeting within 90 days from the date of such vacancy
AT A GLANCE

(b) By the directors not later than 90 days from the date of such vacancy
(c) By the directors or members in general meeting, as the case may be, in accordance with the
provisions contained in the articles of association
(d) By the members in upcoming annual general meeting

03. Which of the following ineligibility applies only to appointment of directors in a listed company:
(a) Is a minor
(b) Is an undischarged insolvent
(c) Has been convicted by a court for an offense involving moral turpitude
SPOTLIGHT

(d) Has been declared by a court as defaulter in repayment of loan to a financial institution.

04. A director shall be treated to have vacated the office of director if he absents himself from
(a) Meetings held in the last three months
(b) Meeting held in the last 120 days
(c) Three consecutive meetings of the board of directors
(d) Three consecutive meetings of the members
STICKY NOTES

05. A company is not allowed to contribute any amount

(a) To any social purpose
(b) To any dividend payment
(c) To any political party
(d) To any Zakat payment

06. The maximum number of director of a public company fixed by the Companies Act, 2017 is
(a) 07
(b) 10
(c) 50
(d) Not specified by the Companies Act, 2017

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07. The quorum for a meeting of directors of a listed company will not be less than
(a) Two-third of their number or 4 whichever is greater
(b) One –third of their number or 4 whichever is greater
(c) One-fourth of their number or 4 whichever is greater
(d) Three-fourth of their number or 4 whichever is greater

08. Robust Limited’s (RL’s) election of directors is to be held next week. RL’s Board of Directors has fixed
nine directors to be elected for the next term. Whereas ten members have filed notices of their intention
with RL to offer themselves for election as a director.
Mr. Arqam owns 100,000 shares in RL. The maximum number of votes Arqam may be allowed to cast in
favour of the director(s) would be?

AT A GLANCE
(a) 9 votes
(b) 100,000 votes
(c) 900,000 votes
(d) 1,000,000 votes

09. Number of directors to be elected in the forthcoming election shall be fixed by the directors at least
(a) 21 days before election in the general meeting
(b) 35 days before election in the general meeting
(c) 60 days before election in the general meeting

SPOTLIGHT
(d) None of the above is correct

10. The persons who may wish to contest the election of directors are required to give notice to the company
at least
(a) 7 days before election
(b) 14 days before election
(c) 21 days before election
(d) None of the above is correct

STICKY NOTES
11. Any casual vacancy on the board of a listed company shall be filled up by the directors at the earliest but
not later than
(a) 90 days from the date, the vacancy occurred.
(b) 120 days from the date, the vacancy occurred.
(c) 60 days from the date, the vacancy occurred.
(d) None of the above is correct

12. In case of any material irregularity in the election of the directors, members having 10% or more voting
power may apply to the court within
(a) 14 days of election
(b) 21 days of election
(c) 30 days of election
(d) None of the above is correct

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13. Mr. M has given a request to the company to hold fresh election of directors upon acquisition of a sizable
shareholding in the company that is public unlisted company. The directors are supposed to proceed to
hold fresh election of directors within
(a) 30 days of such application
(b) 60 days of such application
(c) Any time period as decided by the SECP
(d) One year of such application

14. A person cannot be appointed as director of a company if he is lacking fiduciary behaviour and a
declaration to this effect has been made by the court at any time during preceding
AT A GLANCE

(a) 3 years
(b) 5 years
(c) Any time period as decided by the court
(d) None of the above is correct

15. The directors of a public company shall meet at least once in

(a) Every month
(b) Each quarter of a year
(c) A year
SPOTLIGHT

(d) None of the above is correct

16. Sunstone Limited is a public company with nine directors and a paid-up capital of Rs. 40 million (face
value of Rs. 100 each). Khurram and Asim were elected as directors in the recent elections by securing
400,000 and 300,000 votes respectively. However, subsequently both of them resigned.
Nasir was appointed to fill the casual vacancy created by Khurram while Asim’s position is still vacant.
Board is not satisfied with Nasir’s performance and wish to replace him with Saim. A resolution has been
moved in general meeting to remove Nasir from his position. Nasir will be able to secure his position if
number of votes casted against the resolution equals to or exceeds:
STICKY NOTES

(a) 450,000
(b) 400,000
(c) 350,000
(d) 300,000

17. Which of the following business decisions requires approval of members in a general meeting?
(a) Approval of interim dividend
(b) Approval to invest excess funds in fixed term deposits
(c) Selling all the shares of subsidiary company to the highest bidder
(d) Acquiring shares of another company at seven times higher the book value per share of that
company

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18. Election of directors of Rhinestone Limited (RL) having share capital of Rs. 4 million (face value of Rs. 10
each) was held on 5 March 2021 in which seven directors were elected. Yasir, Samia and Noureen, the
shareholders of RL are of the opinion that the elections were not held fairly and material irregularities
were noted. They intend to apply to the Court for re-election. The shareholders will be eligible to file their
application if they hold atleast:
(a) 40,000 voting shares and submit application by 4 April
(b) 40,001 voting shares and submit application by 20 March
(c) 80,000 voting shares and submit application by 4 April
(d) 80,001 voting shares and submit application by 20 March

AT A GLANCE
19. A director of a public company shall ipso facto cease to hold office if he is absent from:
(a) three consecutive board meetings without leave of absence
(b) three consecutive general meetings without leave of absence
(c) all meetings held during the last three months
(d) three consecutive audit committee meetings

20. The election of the board of directors of Melon (Guarantee) Limited was held on 2 June 2022 in which
Farhan was re-elected. In September, he got sick and has to go to China for medical treatment on 15
September 2022. During his absence, he wants to appoint an alternate director.

SPOTLIGHT
Farhan would be entitled to appoint an alternate director, with the approval of the board, if he returns
on or after:
(a) 15 October 2022
(b) 15 November 2022
(c) 30 November 2022
(d) 15 December 2022

21. Muskmelon Limited’s (ML) election of directors is to be held on 30 September 2022. Kamal intends to
file a notice of intention to offer himself for election as company’s director. He was adjudicated as an

STICKY NOTES
undischarged insolvent on 30 September 2019.
Which of the following statements is NOT correct?
(a) He is eligible to be appointed as director of ML if he is ML’s member and has discharged all his
liabilities
(b) He shall not offer himself for the position of director till he is adjudicated as solvent
(c) He is entitled to contest the election of directors on completion of three years period i.e. 30
September 2022
(d) A person cannot be eligible to offer himself for the position of director if he is adjudicated as an
undischarged insolvent

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ANSWERS
01. (c) First directors shall be decided by the subscribers of memorandum and their particulars shall
be submitted along with the documents for incorporation.

02. (b) By the directors not later than 90 days from the date of such vacancy. [Section 155]

03. (d) A person shall not be appointed as a director of a listed company if he has been declared as
defaulter in repayment of loan to a financial institution.

04. (c) If a director absents himself from the three consecutive meetings of the board of directors, he
shall be treated to have vacated the office.
AT A GLANCE

05. (c) A company is not allowed to contribute any amount to any political party or for any political
purpose.

06. (d) The Companies Act, 2017 has not provided the maximum number of director for any type of
company.

07. (b) The quorum for a meeting of directors of a listed company will not be less than one –third of
their number or 4 whichever is greater

08. (c) 900,000 votes i.e. product of 9 directors to be elected and 100,000 shares. [Section 159]

09. (b) Existing directors decide the number of directors for the next term at least 35 days before the
SPOTLIGHT

date of meeting.

10. (b) Every person interested in contesting the election of the directors sends the notice of his interest
to the company at least 14 days before the meeting.

11. (a) The casual vacancy in a board of a listed company must be filled by the directors within 90 days
from the date of the vacancy.

12. (c) Members holding 10% of the voting power in the company may apply to the court within 30
days of the election of the directors to declare it invalid.
STICKY NOTES

13. (a) Upon receiving such requisition the board shall within 30 days, proceed to hold fresh elections
of directors of the company.

14. (b) A person cannot be appointed as director of a company for the period of 5 years from the court
order.

15. (b) The directors of a public company are required to meet at least once in each quarter of a year.

16. (a) 450,000

17. (c) Selling all the shares of subsidiary company to the highest bidder

18. (a) 40,000 voting shares and submit application by 4 April

19. (a) three consecutive board meetings without leave of absence

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20. (d) 15 December 2022

21. (c) He is entitled to contest the election of directors on completion of three years period i.e. 30
September 2022

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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 CHAPTER 3: DIRECTORS CAF 7: COMPANY LAW

STICKY NOTES

Introduction
1. Relevant definition: Director (based on function and not designation)
2. Natural person (a body corporate cannot be director)
3. Not to be variable representative (responsible for all aspects of company)
4. To be member (with few exceptions)
5. Authority (directors act collectively or by majority)
AT A GLANCE

6. Fiduciary relationship (to act in the best interest of the company)

7. Consent to act as director (file with the registrar within 15 days)
8. Number of directorships (limit as may be specified)
9. Minimum number of directors (SMC: 1; other private: 2; public unlisted: 3;
listed: 7)

Eligibility / ineligibility of certain persons to become director

1. Ineligibility (9 criteria for all companies and 2 additional for listed)
SPOTLIGHT

2. Ineligibility of bankrupt (imprisonment upto 2 years and/or fine)

Term of directors
1. At incorporation (by subsribers to the memorandum)
2. Additional directors (in general meeting)
3. Retirement of first directors (first AGM)
4. Term of office of subsequent directors (generally, three years)
STICKY NOTES

Procedure for election of subsequent directors

1. Fixing the number of directors (not later than 35 days before meeting)
2. Notice of contesting the election (at least 14 days before meeting)
3. Elected unopposed (when contestants are not more than number fixed)
4. Number of votes (voting shares x number of director to be elected)
5. Result of polling (highest votes, second highest and so on)
6. All directors are equal (no difference in authority on the basis of vote)
7. Procedure for company limited by guarantee not having share capital (as
per articles)

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Nominee directors
1. Nominated by creditors (additional to number fixed for election)
2. Nominated by Government or body corporate (deemed to be elected)

Fresh election of directors

1. Criteria (requisite shareholding)
2. Time limit and procedure (30 days; listed company to follow procedure
specified by the Commission)

AT A GLANCE
Powers of the court to declare election invalid
1. Appeal criteria (10% voting power)
2. Time limit (30 days)
3. Decision of court (election invalid in case of material irregularity)

Validity of acts of directors

1. An act done already by director is valid if defect in appointment is discovered.
2. When defect is noticed (the director shall not exercise the right of his office

SPOTLIGHT
till the defect is removed)

Casual vacancy
1. Term of office (remainder of the term)
2. Appointment not necessary (if still have minimum numer of directors)
3. Time limit (listed company) 90 days

STICKY NOTES
Vacation of office and removal
1. Vacation of office (4 circumstances mentioned in the Act; company may
include additional ground in its articles).
2. Removal of elected director (minimum enough votes in last election)
3. Removal in other cases (average votes)

Powers of board
1. Certain powers to be exercised by passing a board resolution
2. Authorisation of general meeting may be required in certain circumstances.

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Duties of directors
1. The Act enlists 7 duties
2. Breach and ratification (by special resolution subject to restrictions imposed
by the Commission)

Compliance with the code of corporate governance

1. The Commission may provide for framework for certain companies
2. Duty of directors to act in line with good corporate governance practices
AT A GLANCE

Liabilities of directors and officers

1. Restriction on indemnification
2. Exception (acquittal or judgement in favour)

Independent director
1. Relevant definition: Independent director
2. Circumstances when a director shall not be considered independent
3. Manner of selection and maintenance of data bank of independent director
SPOTLIGHT

4. Election process and consent (in the same manner as other directors)
5. Relaxation in requirements (by the Commission)
6. Power of Commission (to make rules and regulations)
7. Eligibility criteria (educational and experience requirements)
8. Directors’ Training Program (within 12 months)
9. Maintenance of data bank (by the Institute)
10. Responsibility of company and disclaimer by the Institute
STICKY NOTES

Protection to independent and non-executive directors

1. Liable only for acts done with his consent or where he did not act diligently
etc.
2. Relevant definition: non-executive director

Proceedings of the board

1. Quorum of listed company (higher of 1/3rd of number and 4)
2. Casual vacancy situation (all the remaining directors)
3. Frequency of meetings (public company: once in each quarter)

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Passing of resolution through circulation

1. Validity (as valid and effectual as passed in meeting)
2. Manner of circulation (to be circulated with necessary papers)
3. Revocation not allowed (once approved, may not be revoked)

Records of resolutions and meetings of board

1. Record to be kept (resolutions and minutes)
2. Authentication (chairman of the meeting or next meeting)

AT A GLANCE
3. Copy of draft minutes to directors (within 14 days)
4. Place for keeping record and time duration (registered office; 10 years in
physical form and permanently in electronic form).

Restrictions, prohibitions and limitations

1. Remuneration for attending meetings and for extra services according to
scale approved by the company or board, as per articles.
2. A director cannot assign his office but appointment of alterante director in
certain circumstances is allowed.

SPOTLIGHT
3. Cash transactions: only through banking channels
4. Non-cash transactions: resolution of general meeting required
5. Restriction on loans to director (subject to members’ resolution and for
listed company, approval from Commission).
6. Prohibition regarding making of political contribution
7. Prohibition regarding distribution of gifts

STICKY NOTES

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AT A GLANCE
SPOTLIGHT
STICKY NOTES

98 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 4

CHIEF EXECUTIVE
AND OTHER OFFICERS

AT A GLANCE

AT A GLANCE
IN THIS CHAPTER:
A chief executive manages a company subject to directions and
control of directors. Any person ineligible to be a director
AT A GLANCE
cannot be a chief executive.
SPOTLIGHT The name of first chief executive is decided by subscribers to the
memorandum at the time of incorporation and term continues
1. Chief Executive to the first AGM. The term for subsequent chief executive is
three years. The chief executive holds the office unless the
2. Other Officers successor is appointed.
The terms and conditions of appointment of chief executive are
3. Objective Based Q&A
decided by directors or the company in general meeting, in
accordance with articles. The chief executive is deemed to be a

SPOTLIGHT
STICKY NOTES
director and reports to the board of director.
A chief executive can be removed by special resolution, 3/4th of
directors or by Government/authority holding 75% voting
power.
The chief executive of public company is not allowed to be
engaged in any competing business and should disclose the fact
upon appointment.
A listed company shall also have a chairman of the board who
must be a non-executive director. Listed companies are also
required to appoint an independent share registrar and a public

STICKY NOTES
company shall have a secretary.
For appointing any sole purchase or sale agent, a company
usually needs approval from the Commission.

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1. CHIEF EXECUTIVE
1.1 Definition and Eligibility

Definition: Chief executive [Section 2(14)]

"chief executive", in relation to a company means an individual who, subject to the control and directions of the
directors, is entrusted with the whole, or substantially the whole, of the powers of management of the affairs of
the company and includes a director or any other person occupying the position of a chief executive, by whatever
name called, and whether under a contract of service or otherwise.

Restriction on appointment (ineligibility) [Section 189]

A person who is ineligible to become a director of a company shall not be appointed or continue as the chief
AT A GLANCE

executive of any company.

1.2 Appointment of first chief executive [Section 186]

The name of first chief executive shall be determined by subscribers of memorandum. His specified particulars
shall be submitted along with the documents of incorporation. The first chief executive shall hold office up to the
first AGM unless shorter period is fixed by the subscribers at the time of his appointment. He may earlier resign
or be removed from his office.
Notwithstanding above provisions, the Government shall have the power to nominate chief executive of a public
sector company in such manner as may be specified.

1.3 Appointment of subsequent chief executive [Section 187]

SPOTLIGHT

Appointment time limit

The subsequent chief executive shall be appointed within 14 days of the election of the directors themselves or
occurring of casual vacancy in the office of chief executive.

Term of office
The subsequent chief executive shall be appointed for a maximum period of three years.
The chief executive appointed against a casual vacancy shall hold office till the directors elected in the next
election appoint a chief executive. The retiring chief executive can be re-appointed.
Continue until successor is appointed
STICKY NOTES

Retiring chief executive shall continue to perform his services until his successor is appointed unless:
 his office was expressly terminated; or
 non-appointment of his successor is due to any fault on his part.
Nomination by Federal government
The Government shall have the power to nominate chief executive of a company, where majority of directors are
nominated by the Government.

1.4 Terms of appointment [Section 188]

Terms and conditions
The terms and conditions of appointment of a chief executive are determined by the directors or the company in
general meeting in accordance with the provisions in the articles. The terms and conditions of appointment of a
chief executive nominated by government shall be determined by the Government, in such manner as may be
specified.

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Reports to board
He reports to board and he cannot exceed his authority which has been granted by board of directors.
Status of a director
The chief executive, if not already a director, shall be deemed to be a director in addition to his being a chief
executive of the company. He shall be entitled to all the rights and privileges, and subject to all liabilities, of being
a director.

1.5 Removal of chief executive [Section 190]

Chief executive may be removed through any of the following modes at any point in time regardless of any
provisions in the articles or in his appointment to the contrary:
 by passing a special resolution in general meeting of the company; or

AT A GLANCE
 by passing a resolution in the board of directors meeting supported by at least three-fourth of the
number of directors;
 by Government/authority/person authorised by it, where more than 75% of the voting rights are held
by the Government.

1.6 Not to engage in competing business [Section 191]

Restriction
In case of a public company, a chief executive, his spouse and minor children are prohibited to engage in a
business which competes with the business of the company in which he is a chief executive or with the business
of any of its subsidiary company.

SPOTLIGHT
Disclosure on appointment
Every person who is appointed as chief executive of a public company is required to disclose to the company in
writing the nature of such business and his interest therein.
 Practice Question 01:
Faraya Limited (FL), an unlisted public company, is engaged in the business of manufacturing
and sale of plastic bottles in Lahore. FL is planning to appoint Gul Maher as the chief executive of
the company. During an interview with Gul Maher, he disclosed to the board that his wife Mona
is running a corporate brokerage house in Lahore.
Under the provisions of the Companies Act, 2017 explain whether FL can appoint Gul Maher as

STICKY NOTES
the chief executive of the company.
 Solution:
A person who is ineligible to become a director of a company or has been disqualified to be a
director of the company shall not be appointed as a chief executive of any company.
A person shall not be eligible to be appointed as a director of the company if the person himself
or the spouse of such person is engaged in the brokerage business. However, this condition shall
be applicable only in case of a listed company.
In the given scenario, FL is not a listed company. Therefore, Gul Maher is eligible to be appointed
as the chief executive of FL.
 Practice Question 02:
A team of young engineers is planning to incorporate a private limited company which would
provide machine maintenance services to large companies. The company would initially be
incorporated with a share capital of Rs. 20 million. However, the engineers are not certain about
appointment of the first and subsequent directors and chief executive and terms of their office.

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Advise the team of engineers in respect of the above matters in the light of the Companies Act,
2017.
 Solution:
First directors
The number of directors and the names of the first directors shall be determined by the
subscribers of the memorandum. The number of first directors may be increased by appointing
additional directors by the members in a general meeting. The first directors shall hold office
until the election of directors in the first annual general meeting.
Subsequent directors
Subsequent directors are elected in the first general meeting of the company. The directors so
elected, hold office for a period of three years.
AT A GLANCE

First Chief executive

The name of the first chief executive shall be determined by the subscribers of the memorandum
of association of the company. The first chief executive shall, unless he earlier resigns or
otherwise ceases to hold office, hold office up to the first annual general meeting of the company
or, if a shorter period is fixed by the subscriber at the time of his appointment, for such period.
Subsequent Chief Executive
Within 14 days from the date of election of directors or the office of the chief executive falling
vacant, as the case may be, the board shall appoint any person, including an elected director, to
be the chief executive but such appointment shall not be for a period exceeding three years from
the date of appointment.
 Practice Question 03:
SPOTLIGHT

Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017. Support your answer with reasons.
“A chief executive, other than the first chief executive of the company, is appointed by the
shareholders in the annual general meeting of the company, for a period up to the next annual
general meeting.”
 Solution:
The statement is incorrect. Any chief executive (other than the first chief executive of the
company) is appointed by the directors within 14 days from the date of their election or within
14 days of the office of the chief executive falling vacant.
STICKY NOTES

The chief executive, other than the first chief executive of the company, is appointed for a period
not exceeding three years, a chief executive appointed against a casual vacancy shall be
appointed till the directors elected in the next election appoint a chief executive.
 Practice Question 04:
Tabdily (Pvt) Limited (TPL) has recently been converted into a public listed company and the
directors intend to appoint a new Chief Executive of the company. Under the provisions of the
Companies Act, 2017 briefly explain the requirement(s) for the appointment of a Chief Executive.
Also state the restrictions, if any, on the appointment of a Chief Executive.
 Solution:
Appointment of subsequent chief executive:
The requirements for the appointment of a Chief Executive are as under:
 Within 14 days from the date of election of directors under the Act or the office of the
chief executive falling vacant, as the case may be, the directors of TPL shall appoint any
person, including an elected director, to be the chief executive, but such appointment
shall not be for a period exceeding three years from the date of appointment.

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 On the expiry of his term of office under the Act, a chief executive shall be eligible for
reappointment.
 The chief executive retiring under the Act shall continue to perform his functions until
his successor is appointed unless non-appointment of his successor is due to any fault
on his part or his office is expressly terminated.
Restriction on appointment of chief executive
No person who is ineligible to become a director of TPL under the Act shall be appointed or
continue as the chief executive of TPL.
 Practice Question 05:
Mr. Babar is currently working as a Marketing Manager in ST Limited (STL). The management
intends to appoint him as the Chief Executive of the company. He is willing to accept the offer and

AT A GLANCE
has requested for a loan of Rs. 10 million. Moreover, he had also taken a loan in 2009, of which
Rs.1 million is still outstanding.
State the conditions as specified in the Companies Act, 2017 which STL would need to comply
with, in respect of the above loans.
 Solution:
The loan to Babar being chief executive is loan to a director and may be granted subject to
following conditions:
 The loan transaction has been approved by a resolution of the members of the company:
 If STL is listed company, prior approval from SECP is obtained.
 In respect of the loan taken in 2009, STL must either settle the loan or STL must seek

SPOTLIGHT
appropriate approval from members before appointing him as chief executive.
 Practice Question 06:
The Board of Directors of Hassam Textiles Limited (HTL) is not satisfied with the performance
of its chief executive officer (CEO) and wants to remove him from his office before the expiry of
his term on 31 August 2020.
Briefly explain the options available to HTL for removal of CEO under the above situation.
 Solution:
The Chief Executive may be removed before the expiration of his term of office notwithstanding
anything contained in the article of the company or any agreement between the company and

STICKY NOTES
such chief executive by:
 board resolution passed by not less than three fourths of the total number of directors
for the time being or
 the company by a special resolution.
 Practice Question 07:
Board of directors of ABC Limited consists of 12 directors. The chief executive of ABC Limited
was appointed for a term of three years. It was specifically mentioned in his contract that he shall
not be terminated before the expiry of term of his office. The directors are not satisfied with the
performance of the chief executive and want to remove him. Can they remove the chief executive
in presence of such clauses in the contract which do not allow his early termination?
 Solution:
The answer is yes. Directors may pass a resolution for his removal, if the resolution is voted in
favour by at least 9 directors (three-fourth of total number of directors). They may decide to pass
a special resolution for his removal by calling an extraordinary general meeting of the members
of the company.

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 Practice Question 08:

Bravo (Private) Limited (BPL) has two shareholders. All the directors of the company are
nominees of these two shareholders. The details are as follows:

Name of shareholders No. of shares Nominee directors

Tiara Limited (TL) – listed company 6,030,000 5
Junaid 2,970,000 *3
9,000,000 8

* including chief executive

TL wants to change the chief executive officer and appoint one of its directors as the chief
AT A GLANCE

executive of BPL before the expiry of the term of the office of the existing chief executive.
In the light of the provisions of Companies Act, 2017 advise TL in the above situation.
 Solution:
The directors of a company by a resolution passed by not less than three-fourths of the total
number of directors for the time being, or the company by a special resolution, may remove a
chief executive before the expiration of his term of office.
Therefore, the chief executive of BPL can be removed only if the proposal is supported by:
 at least 6 directors of the BPL, or
 by 3/4th majority of the members in the general meeting either present in person or by
way of proxy.
SPOTLIGHT

Since TL has only 5 nominee directors on the board of BPL and has 67% shareholdings, it cannot
remove the existing chief executive without the support of Junaid or his nominee directors.
 Practice Question 09:
Zameer is the first chief executive of Ryan Industries Limited, a public company. The directors of
the company are not satisfied with his performance. What is the term of office of Zameer and
explain how he can be removed before expiry of the above term?
 Solution:
Zameer being appointed as the first chief executive of Ryan Industries Limited, will hold office
up to the first annual general meeting of the company or if a shorter period is fixed at the time of
STICKY NOTES

his appointment, on expiry of such period unless he earlier resigns or ceases to hold office.
Since the directors are not satisfied with the performance of Zameer they can remove him by a
resolution passed by not less than three-fourths of the total number of directors for the time
being, or by passing a special resolution in the general meeting of the company, notwithstanding
anything contained in the articles or in any agreement between the company and Zameer.
 Practice Question 10:
Faraya Limited (FL), an unlisted public company, is engaged in the business of manufacturing
and sale of plastic bottles in Lahore. FL is planning to appoint Gul Maher as the chief executive of
the company. During an interview with Gul Maher, he disclosed to the board that his son Sultan,
who is a business graduate, is engaged in the business of selling plastic bottles in Multan. Gul
Maher also disclosed to the board that he sometimes provides technical assistance to Sultan
without any charge.
Under the provisions of the Companies Act, 2017 explain whether FL can appoint Gul Maher as
the chief executive of the company.

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 Solution:
A chief executive of a public company shall not directly or indirectly engage in any competing
business with the business carried on by the company of which he is a chief executive.
A business shall be deemed to be carried on indirectly by the chief executive if the same is carried
on by his spouse or any of his minor children.
In the given scenario, Sultan is not a minor son of Gul Maher. Therefore, Gul Maher is eligible to
be appointed as the chief executive of FL.
 Practice Question 11:
In the first meeting of Board of Directors of Hamid Textile Mills Limited (HTML), a listed
company, the name of Mr. Imran was proposed for appointment as chief executive of the
Company. Mr. Jamal opposed the proposal on the following grounds:

AT A GLANCE
i. Mrs. Imran is the Chief Executive Officer of Fahad Textile Mills (Private) Limited.
ii. Mr. Imran is involved in the business of stock brokerage.
iii. Mr. Imran is not a member of HTML.
Comment on the objections raised by Mr. Jamal in the light of the provisions of the Companies
Act 2017.
 Solution:
Part (i)
A chief executive of a public company shall not directly or indirectly engage in any business which
is of the same nature as and directly competes with, the business carried on by the company of

SPOTLIGHT
which he is the chief executive. Since Mr. Imran’s wife is the Chief Executive of FTMPL, he cannot
be appointed as CEO of HTML.
Part (ii)
Moreover, no person shall be appointed as director of a listed company if engaged in the business
of brokerage, or is a spouse of such person or is a sponsor, director or officer of a corporate
brokerage house and as any person who cannot be a director cannot become chief executive.
Therefore, Mr. Imran is not eligible for becoming the CEO of HTML.
Part (iii)
A person can be appointed as chief executive even if he is not the member of the company.

STICKY NOTES
 Practice Question 12:
On 31 December 2020, Ali was appointed as a chief executive of Pearl Limited (PL), a listed
company. In March 2021, he informed the board that on 15 February 2021, his spouse was
appointed as a director in a brokerage house.
Under the provisions of the Companies Act, 2017 evaluate the impact of the appointment of Ali’s
spouse on his position and on PL.
 Solution:
Impact on Ali: Ali shall ipso facto cease to hold office of chief executive in PL from 15 February
2021 when his spouse was appointed as a director of a brokerage house.
Ali being PL’s chief executive shall be deemed to be a director, hence he shall not be able to
continue as the chief executive or a director of any other listed company including PL.
Impact on PL: Ali’s acts till discovery of ineligibility are valid notwithstanding that afterwards it
was discovered that he had ceased to hold his office in PL.

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PL’s board shall have to appoint chief executive within 14 days of occurrence of casual vacancy
in the office of chief executive.
 Practice Question 13:
Under the provisions of the Companies Act, 2017, state the requirements relating to appointment
and removal of subsequent chief executive of a company.
 Solution:
Requirements relating to appointment of subsequent chief executive:
Within fourteen days from the date of election of directors of the company or the office of the
chief executive falling vacant, as the case may be, the board shall appoint any person, including
an elected director, to be the chief executive, but such appointment shall not be for a period
exceeding three years from the date of appointment.
AT A GLANCE

Requirements relating to removal of subsequent chief executive:

The board by resolution passed by not less than three-fourths of the total number of directors
for the time being, or the company by a special resolution, may remove a chief executive before
the expiration of his term of office notwithstanding anything contained in the articles or in any
agreement between the company and such chief executive.
However, the Government or an authority or a person authorized by it shall have the power to
remove chief executive of a company where more than 75% of the voting rights are held by the
government.
SPOTLIGHT
STICKY NOTES

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2. OTHER OFFICERS
2.1 Chairman of a listed company [Section 192]
The board of a listed company shall within 14 days from date of election of directors, appoint a chairman from
among the non-executive directors.
The chairman shall be responsible for leadership of board and ensure that the board plays an effective role in
fulfilling its responsibilities. The annual financial statements shall contain a review report by the chairman on
the overall performance of board and effectiveness of role played by board in achieving the objectives.
The chairman shall hold office for 3 years unless he earlier resigns, becomes ineligible or disqualified or removed
by the directors.
The board shall clearly define the respective roles and responsibilities of chairman and chief executive. The

AT A GLANCE
Commission may specify the classes of companies for which the chairman and chief executive shall not be the
same individual.

2.2 Public company required to have secretary [Section 194]

The company secretary is responsible for advising the board on compliance of corporate laws and for
maintenance of relevant records and registers.
A public company must have a company secretary, possessing such qualification as may be specified.

Definition: Company Secretary [Section 2(21)]

A “company secretary” means any individual appointed to perform secretarial and other duties customarily
performed by a company secretary and declared as such, having such qualifications and experience, as may be

SPOTLIGHT
specified.

2.3 Listed company to have share registrar [Section 195]

Listed companies are further required to appoint independent share registrar to handle the transfer of shares
and all other obligations of the company as an issuer towards shareholder. In case of listed companies all
applications for transfer of shares are directed to the share registrar instead of company. The name of share
registrar of the company is mentioned in the notice of general meetings as well.

2.4 Bar on appointment of sole purchase, sales agents [Section 196]

No company (incorporated in Pakistan or outside) which is carrying on business in Pakistan shall, without the

STICKY NOTES
approval of the Commission, appoint any sole purchase, sale or distribution agent.
 Example 01:
ABC Limited is registered under Companies Act, 2017 and is carrying on business in Pakistan and
Middle East. It is considering appointing a sole purchase agent. It must obtain approval of the
Commission for the appointment.

Exception to above rule:

Company incorporated outside Pakistan are not required to obtain the approval of the Commission for such
appointment (unless the major portion of business of such company or person is conducted in Pakistan).
 Example 02:
ABC Inc. is registered company under the relevant law of USA and is carrying on business in 12
different countries including some business in Pakistan. It is considering appointing a sole sale
agent in Pakistan. It need not obtain approval of the Commission for the appointment.

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 Example 03:
XYZ Inc. is registered company under the relevant law of USA and is carrying on business in 3
different countries including major portion of business in Pakistan. It is considering appointing
a sole distribution agent in Pakistan. It must obtain approval of the Commission for the
appointment.
 Practice Question 14:
Following is the composition of board of directors of Faisal Limited, a listed company:

Independent directors Khalid, Dawood, Rehmat

Non-executive directors Salman, Arif, Ashraf
Executive directors Fasih (CEO), Kashif (Director Finance)
AT A GLANCE

Under the Companies Act, 2017 advise which of the above directors are eligible to be appointed
as Chairman of the board. Also state the time frame for his appointment, duration of office and
his responsibilities.
 Solution:
Since independent directors are also non-executive directors and any of the non-executive
directors (i.e. Khalid, Dawood, Rehmat, Salman, Arif, Ashraf) may be appointed as Chairman. The
board of Faisal Limited shall within 14 days from the date of election of directors appoint a
chairman who shall hold office for a period of three years unless he earlier resigns, becomes
ineligible or disqualified under the Companies Act, 2017 or is removed by the directors.
The responsibilities of the Chairman are defined by the board. Chairman shall be responsible for
SPOTLIGHT

leadership of the board and ensure that the board plays an effective role in fulfilling its
responsibilities. The Chairman is required to issue a review report in every annual financial
statement of the company which shall contain a review on overall performance of the board and
effectiveness of the role played by the board in achieving the company’s objectives.
STICKY NOTES

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3. OBJECTIVE BASED Q&A

01. Afridi, Bader, Dawood and Iffat owns 45%, 25%, 10% and 5% shares respectively of Splendid Mills
Limited (SML), a public unlisted company. They were elected as SML’s director in the last election of
directors as unopposed. The board appointed Anas as the chief executive of SML; however, due to Anas’s
unsatisfactory performance, the board has decided to remove him in the next board of directors meeting.
Anas will stand removed as chief executive if:
(a) directors having more than 50% shareholdings in SML’s share capital will vote against him
(b) directors having more than 75% shareholdings in SML’s share capital will vote against him
(c) any four directors will vote against him
(d) all the directors will vote against him

AT A GLANCE
02. Subsequent Chief Executive of a company is required to be appointed by the directors within
(a) 07 days of the election of Directors
(b) 14 days of the election of Directors
(c) 21 days of the election of Directors
(d) 30 days of the election of Directors

03. Which of the following statements is correct regarding chairman of a listed company?
(a) Chairman must be from amongst the non-executive directors

SPOTLIGHT
(b) Chairman can only be removed by passing a special resolution
(c) Chairman must be from amongst the independent director
(d) Chairman is appointed by the shareholders within fourteen days from the date of election of
directors

04. Which of the following officers are mandatorily required to be appointed to manage the affairs of a listed
company under the provisions of the Companies Act, 2017?
(a) Chairman, chief executive, company secretary, sole purchase agent
(b) Chairman, chief executive, company secretary, share registrar

STICKY NOTES
(c) Chairman, chief executive, company secretary, chief financial officer
(d) Chairman, chief executive, company secretary, chief financial officer, head of audit

05. Commission may specify the classes of companies for which the ______ and ________ shall not be the same
individual.
(a) Chief executive and Chief Financial Officer
(b) Chairman and Chief executive
(c) Chief Financial Officer and Company Secretary
(d) Chief executive and Company Secretary

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06. The chief executive reports to:

(a) Members in general meeting
(b) Board of Directors
(c) The Registrar
(d) The Commission

07. In case of a _______ company, a chief executive, his spouse and minor children are prohibited to engage in
a business which competes with the business of the company in which he is a chief executive or with the
business of any of its subsidiary company.
(a) Private Company
AT A GLANCE

(b) Public Company

(c) Listed Company
(d) Holding Company

08. A chief executive shall be a person who is vested with whole or substantially the whole, of the powers of
the management of the affairs of the company. Being a member of the board of directors, he reports to
(a) The chairman of the company
(b) The members of the company
(c) The board of directors of the company
SPOTLIGHT

(d) The company secretary of the company

09. A company is incorporated outside Pakistan and conducts major portion of its business in Pakistan. In
order to appoint a sole purchase, sale or distribution agent, it shall be required to obtain approval of :
(a) Special resolution
(b) Registrar
(c) Commission
(d) It does not need approval in these circumstances.
STICKY NOTES

10. A company is incorporated outside Pakistan and conducts major portion of its business outside Pakistan.
In order to appoint a sole purchase, sale or distribution agent, it shall be required to obtain approval of :
(a) Special resolution
(b) Registrar
(c) Commission
(d) It does not need approval in these circumstances.

11. In case of a __________, a chief executive, his spouse and minor children are prohibited to engage in a
business which competes with the business of the company in which he is the chief executive or with the
business of any of its subsidiary company.
(a) company incorporated under the Companies Act, 2017
(b) public company incorporated under the Companies Act, 2017

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(c) listed company incorporated under the Companies Act, 2017 only
(d) holding company incorporated in Pakistan

12. The Chief Executive Officer of a company shall be considered to be the ______________ of the company.
(a) Independent Director
(b) Executive Director
(c) Non-Executive Director
(d) Chairman

AT A GLANCE
13. The board of Jicama Limited (JL) comprises of twelve directors. A meeting of the board was called to
consider removal of Adnan from the position of JL’s Chief Executive. In the said board meeting, ten
directors were present.
Considering the situation, the resolution to remove Adnan has to be passed by:
(a) not less than 9 directors
(b) not less than 8 directors
(c) not less than 7 directors
(d) not less than 5 directors

SPOTLIGHT
14. Which of the following statements is correct with regard to the roles and responsibilities of the Chairman
of the board of directors of a company?
(a) The roles and responsibilities shall be clearly mentioned in the articles of association
(b) The roles and responsibilities shall be clearly defined in the memorandum of association
(c) The roles and responsibilities shall be clearly mentioned in his contract of appointment
(d) The roles and responsibilities shall be clearly defined by the board

STICKY NOTES

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ANSWERS
01. (c) Any four directors will vote against him
02. (b) Subsequent Chief Executive shall be appointed within 14 days of the elections of the directors.
03. (a) Chairman must be from amongst the non-executive directors
04. (c) Chairman, chief executive, company secretary, chief financial officer
05. (b) Chairman and Chief executive. [Section 192]
06. (b) Board of Directors [Section 188]
07. (b) Public Company [Section 191]
AT A GLANCE

08. (c) Although being part of the board of directors, he reports to the board of directors.
09. (c) Approval of Commission is required. [Section 196]
10. (d) No approval is required. [Section 196]
11. (b) public company incorporated under the Companies Act, 2017
12. (b) Executive Director
13. (a) not less than 9 directors
14. (d) The roles and responsibilities shall be clearly defined by the board
SPOTLIGHT
STICKY NOTES

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STICKY NOTES

Chief executive

1. Relevant definition: Chief executive

2. Restriction on appointment (same ineligibility as for directors)
3. Appointment of first chief executive (determined by subscribers to the
memorandum; term upto first AGM)
4. Appointment of subsequent chief executive (within 14 days of election of
directors or casual vacancy; term of office is maximum 3 years)

AT A GLANCE
5. Continue until successor is appointed
6. Nomination by Federal government (where majority of directors are
nominated by the Government)
7. Terms of appointment (determined by directors or general meeting as per
articles)
8. Reports to board and has status of a director in addition of being chief
executive
9. Removal (by special resolution; by 3/4th directors; Government or authority
holding 75% voting rights)

SPOTLIGHT
10. Not to engage in competing business and give disclosure of any such business
on appointment

Other officers

1. Chairman of a listed company (from non-executive director)

2. Public company required to have secretary
3. Listed company to have share registrar

STICKY NOTES
4. Bar on appointment of sole purchase, sales agents
(approval of Commission required in certain cases)

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AT A GLANCE
SPOTLIGHT
STICKY NOTES

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 CHAPTER 5

SHARE CAPITAL

AT A GLANCE
IN THIS CHAPTER:
Share means a share in the share capital of a company and is a
form of transferable moveable property carrying rights and

AT A GLANCE
AT A GLANCE
obligations.
SPOTLIGHT Authorised share capital is the maximum amount of share
capital a company is authorised to issue. Paid up share capital is
1. Share Capital the amount issued by the company and subscribed by the
shareholders. A company shall issue fully paid shares only.
2. Alteration of Share Capital
Nominal value is the face value or par value of the shares. Market
Clause in Memorandum
value, usually higher than nominal value, is the amount at which
share is sold in the market.
3. Objective Based Q&A
Shares may be of divided in to different classes but all shares
STICKY NOTES within a class will be of same value. A company may issue shares
of different kind or classes only if it is authorised to do so as per

SPOTLIGHT
memorandum and articles.
Shares may be ordinary or preference. Difference in ordinary
and preference share capital is that of dividend, voting rights
and right to repayment of capital in case of winding up.
Variation in shareholders right requires an alteration in articles
and will be through special resolution. Such variation can be
challenged by member having at least 10% voting rights of that
class and the court may declare variation invalid if satisfied.
A company may alter its share capital clause in memorandum if
authorized to do so by its articles so as to increase, consolidate,

STICKY NOTES
sub-divide or cancel its share capital. The copy of special
resolution and altered memorandum are required to be filed
with registrar.

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

1. SHARE CAPITAL
1.1 Nature of shares [Section 2(63) & 60 to 62]
“share” means a share in the share capital of a company.
Shares and share certificates have several characteristics:
 A share is a form of movable property, carrying rights and obligations, and is transferable from one
person to another in the manner provided by articles.
 A share must be paid for. It must be paid for in full when it is allotted to the shareholder.
 Every share in a company having a share capital shall be distinguished by its distinctive number.
 A certificate issued in physical form under signature of authorised officer of the company as may be
AT A GLANCE

specified or issued in book-entry form (i.e. electronic) shall be the main evidence of the title of the person
to such shares.
 The manner of issue of a certificate of shares, form of such certificate and other matters may be
specified in articles.
Issuance of shares is the first step of offering shares by the company, then people or promoters pay for the shares,
this is termed as subscription of shares and finally shares are allotted to respective names of applicants, this is
termed as paying up of the capital.

1.2 Authorised and paid up share capital

Definition: Authorised share capital [Section 2(5)]

“authorised capital” or “nominal capital” means such capital as is authorised by the memorandum of a company
SPOTLIGHT

to be the maximum amount of share capital of the company.

Issued and paid up share capital

The nominal value of shares that have been issued to shareholders. This amount may be equal to or less than
authorised share capital but cannot exceed it. This is also called allotted shares.

Publication of authorised and paid up capital [Section 25]

Where any notice, advertisement or other official publication of a company contains a statement of amount of
authorised capital of the company, such notice, advertisement or other official publication shall also contain a
statement in an equally prominent position and in equally conspicuous characters of amount of the paid up
STICKY NOTES

capital.
Any company which makes default in complying with the requirements of above and every officer of the company
who is party to the default shall be liable to a penalty not exceeding of level 1 on the standard scale.

Fully paid shares [Section 58]

A company having share capital shall issue only fully paid shares. Many years ago, it was allowed to issue partly
paid shares but now companies can only issue fully paid shares.
 Example 01:
ABC Limited, a public company has authorised share capital of 800,000 ordinary shares of Rs.10
each (Rs. 8,000,000 in total). The nominal value of the shares is Rs.10 per share. The issued share
capital is 400,000 ordinary shares. All of these, 400,000 shares are fully paid.
Authorised share capital is Rs. 8,000,000 (800,000 shares of Rs. 10). Issued share capital is
4,000,000 (400,000 shares of Rs. 10). The maximum liability of the shareholders for the unpaid
debts of the company, in the event of the company’s liquidation, is zero as all of the nominal value
is fully paid.

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Nominal value
This is face value of shares, also called par value and stated value.

Market value
This is the value at which share are traded at stock exchange or otherwise. This is usually higher than nominal
value.

1.3 Classes and kind of share capital [Section 58]

The share capital of a company may be divided into several different classes, or there may be just one class of
shares. Within each class of shares, all the shares must be of the same fixed nominal amount.
 Example 02:

AT A GLANCE
The ordinary shares in a company may be divided into 500,000 shares, all of Rs.10 each. Within
the same class, there cannot be shares for differing nominal amounts and all the shares carry
equal rights and privileges.

Requirement
A company having share capital shall issue only fully paid shares which may be of different kinds and classes as
provided by its memorandum and articles.
 Example 03:
A company limited by shares may have different kinds (ordinary and preference etc.) of share
capital and various classes (class A, class B etc.) under each kind.

SPOTLIGHT
Explanation
A company shall have more than one kind of share capital only if it has authorised capital (in memorandum) of
all those kinds.

Ordinary shares vs. preference shares

Ordinary shares Preference shares

Voting rights The ordinary shareholders are entitled to The preference shareholders are usually
vote at general meetings of the company. not entitled to vote at general meetings of
Usually, different class of ordinary shares the company or are entitled to vote for only
have different voting rights. on certain issues as mentioned in articles.

STICKY NOTES
Dividend rights They are entitled to residual profit after They are entitled to prior right (ahead of
payment of preference dividend. ordinary shares) to dividend which is
usually fixed and cumulative.
Winding up They are entitled to all surplus assets after They have prior right of return of nominal
return of nominal value to preference value, but no further participation in
shareholders. surplus.
Basis of different Ordinary shares may be of different Preference shares may be of different
classes classes on the basis of different voting classes on the basis of accumulation or
rights, rights disproportionate to paid up otherwise of the dividend on preference
shares, or different entitlements of shares, on the basis of redemption or
dividend, right issue and issue of bonus conversion of preference shares into
shares. ordinary shares etc.

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

1.4 Variation of shareholders’ rights [Section 38]

Special resolution
The variation in shareholders’ rights shall only be made by alteration of articles by passing a special resolution.

Restriction on alteration
If alteration affects the substantive rights or liabilities of members or of a class of members, it shall be carried
out only if a majority of at least 3/4th of the members or of the class of members affected by such alteration vote
for such alteration.

1.5 Right to challenge the variation in the court [Section 59]

Criteria for application to Court
AT A GLANCE

Any member or members of affected class representing at least 10% shareholding of that class who are aggrieved
by the variation of their rights may, within 30 days of the date of the resolution varying their rights, apply to the
Court for an order cancelling the resolution.
The application may be made on behalf of the shareholders entitled to make it by such one or more of their
number as they may authorise in writing in this behalf.

Basis of Court decision

The court has got the powers to declare the resolution null and void if it feels that either:
 the company withheld certain facts while getting the resolution passed, had the members been in
knowledge of those facts, they would not have passed the resolution varying the rights of a particular
SPOTLIGHT

class; or
 the variation is otherwise prejudicial to the interest of members.
Filing with registrar
The company is required to file a copy of the order of the court to the registrar within 15 days of receipt of the
order.
 Practice Question 01:
Saga Limited (SL), a listed company, has two classes of ordinary shares i.e. Class A and Class B. In
order to attract foreign investors, the directors intend to issue a new class of ordinary shares i.e.
Class C, with no voting rights. Currently SL’s memorandum and articles of association do not
contain such class of shares.
STICKY NOTES

Under the provisions of the Companies Act, 2017 briefly describe the steps which the directors
should take prior to issuance of Class C shares. (Procedure for issuance of shares is not required)
 Solution:
SL can issue new class C shares only if it is permitted by the memorandum and articles of
association. Since SL’s articles and memorandum lack any such classification, the directors are
first required to alter the provisions of SL’s articles of association and memorandum of
association by getting a special resolution passed by general meeting.
It should however be noted that where such alteration affects the substantive rights or liabilities
of members or of a class of members, it shall be carried out only if a majority of at least three-
fourths (3/4) of the members or of the class of members affected by such alteration, as the case
may be, exercise the option through vote either personally or through proxy.
An altered copy of the articles of association shall be filed with the registrar, within 30 days from
the date of passing of the resolution. The registrar shall register the same and then the alteration
shall be effective.

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 Practice Question 02:

The directors of Pioneer Shipping Limited have decided to issue Class B ordinary shares which
would have different rights and would be issued to a group of investors. The existing paid up
capital will be classified as Class A shares.
In the light of Companies Act, 2017 explain the following:
a) Validity of directors’ resolution regarding the issuance of Class B shares.
b) The nature of variation in the rights and privileges that may be attached to different
classes of shares.
Ahmed and Faraz holding 9% and 10% shareholdings respectively, do not agree with the
issuance of class B shares as in their opinion this would adversely affect their interest, though a
majority of the members are in favour of the resolution.

AT A GLANCE
c) In the light of the provisions of the Companies Act, 2017 advise the course of action
which Ahmed and Faraz should take in respect of the above.
 Solution:
Part (a)
The directors may issue more than one kind of share capital which may have different classes of
shares under each kind. However, the decision of the directors would only be valid if such
issuance is specifically provided in PSL’s memorandum and articles of association.
Part (b)
The variation in the rights and privileges attached to different classes of shares may be of the
following nature:

SPOTLIGHT
 different voting rights; voting rights disproportionate to the paid up value of share held;
voting rights for specific purposes only; or no voting rights at all;
 different rights for entitlement of dividend, right shares or bonus shares or entitlement
to receive the notices and to attend the general meetings; and
 rights and privileges for indefinite period, for a limited specified period.
Part (c)
Since Ahmed and Faraz hold more than 10% of the Class A shares, they can apply for cancellation
of resolution to the Court within 30 days of the date of resolution. However, in order to get a
favourable decision, they shall have to satisfy the Court that:


STICKY NOTES
some facts which would have had a bearing on the decision of the shareholders were
withheld by PSL in getting the aforesaid resolution passed; or
 having regard to all the circumstances of the case, the variation would unfairly prejudice
the Class A shareholders.
 Practice Question 03:
Paradise Limited, upon passing a special resolution on August 20, 20X3 made amendments in its
Articles of Association affecting substantial rights associated with class “B” shares of the
company. Few aggrieved shareholders having objection on the special resolution intend to file
an application in the Court, for the cancellation of the above resolution.
Discuss the relevant provisions of the Companies Act, 2017 specifying the following:
a) What is meant by variation of shareholders’ rights?
b) The conditions which the aggrieved shareholders will have to comply with, to be eligible
for filing an application in the court for the cancellation of the above resolution.
c) The matters which the Court would consider while making a decision on the above
application.

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 Solution:
Part (a)
Variation of shareholders’ rights means changing of the rights i.e. reducing, enhancing or
cancelling the rights of the shareholders.
Part (b)
The following conditions would have to be complied with by the aggrieved shareholders:
 Their holding should be at least ten percent of the total class ‘B’ shares.
 Application must be filed within 30 days of the date of passing of special resolution.
Part (c)
AT A GLANCE

The Court shall pass an order for cancellation of the resolution only if it is satisfied that some
facts having impact on the decision of the shareholders were withheld by the company in getting
the special resolution passed or, the variation in rights would unfairly prejudice the shareholders
of the class represented by the applicant.
 Practice Question 04:
In the 14th annual general meeting of Sapphire Limited, a special resolution has been passed to
increase the voting rights of shareholders of class A by 50%.
Faiza Ibrahim, a shareholder from class B, wants to get the said special resolution cancelled.
Under the Companies Act, 2017 discuss how Faiza Ibrahim can challenge the special resolution
and ask for its cancellation. Also determine the grounds on which the decision may be made in
her favour.
SPOTLIGHT

 Solution:
Faiza Ibrahim can challenge the special resolution by applying to the Court for an order cancelling
the resolution; if she holds 10% or more shares of class B either in her own name or collectively
with others who should authorize her in writing. The said application shall be filed within 30
days of the date of the said resolution.
Following are the grounds on which the decision may be made by the Court in her favour:
 If the applicant(s) had casted vote in favour of the resolution and some facts which
would have had a bearing on the decision of Faiza Ibrahim, were withheld by Sapphire
Limited in getting the aforesaid resolution passed.
STICKY NOTES

 If the applicant(s) had not casted vote in favour of the resolution, then it will have to be
proved by Faiza Ibrahim, that the variation would unfairly prejudice their rights.

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2. ALTERATION OF SHARE CAPITAL CLAUSE IN MEMORANDUM

2.1 Possible alterations [Section 85]
A company having share capital may, if so authorised by its articles, alter the authorised capital clause in
memorandum through a special resolution, so as to:
a) increase its authorised capital;
b) consolidate and divide its share capital into shares of larger amount than its existing shares;
c) sub-divide its shares, into shares of smaller amount than is fixed by the memorandum
d) cancel shares which have not been taken or agreed to be taken by any person, and diminish share capital
by the amount of the shares so cancelled.

AT A GLANCE
 Example 04:
ABC (Pvt) Limited has got an authorised and paid up share capital of Rs. 500 million divided into
5 million shares of Rs. 100 each. The company may alter this capital by special resolution and
declare that the authorised and paid up share capital of the company is Rs. 500 Million but now
it is divided into 50 million shares of Rs. 10 each. This is division of capital into shares of a smaller
amount than originally fixed by the memorandum. Every member possessing one share shall
now possess 10 shares but overall paid up value of shares will remain the same.
 Example 05:
ABC (Pvt) Limited has got an authorised ordinary share capital of Rs. 500 million divided into 50
million ordinary shares of Rs. 10 each, out of total authorised capital Rs. 200 million is already

SPOTLIGHT
paid up. The company if so resolve in the general meeting may subdivide the unissued authorised
capital into preference and ordinary shares by stating in the authorised capital clause of the
memorandum that the authorised capital of the company is Rs. 500 Million divided into 25
million ordinary shares for Rs. 10 each and 25 million preference shares of Rs. 10 each.

2.2 Filing with registrar [Section 85]

The company shall file resolution and altered copy of memorandum with the registrar within 15 days from the
date of passing the resolution.
 Example 06:
JKL Limited has authorised and paid up share capital of Rs. 500 million divided into 5 million

STICKY NOTES
shares of Rs. 100 each. In order to increase the marketability of the company’s shares, the board
of directors suggested the sub-division of shares into shares of smaller par value of Rs. 10 each
without changing the total paid up value of the share capital. A special resolution to this effect
was passed by the company in its annual general meeting held on 24 th October 2022.
JKL Limited must file the copy of such special resolution and altered copy of memorandum with
the registrar by 7th November 2022 (i.e. 15 days from the date of passing the resolution).

2.3 No effect on rights of shareholders [Section 85]

In the event of consolidation or sub-division of shares, the rights attaching to the new shares shall be strictly
proportional to the rights attached to the previous shares so consolidated or sub-divided.
Where any shares issued are of a class which is the same as that of shares previously issued, the rights attaching
to the new shares shall be the same as those attached to the shares previously held.

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

 Example 07:
ABC (Pvt) Limited has got an authorised and paid up share capital of Rs. 500 million divided into
5 million shares of Rs. 100 each. The company may alter this capital by special resolution and
declare that the authorised and paid up share capital of the company is Rs. 500 Million but now
it is divided into 50 million shares of Rs. 10 each. This is division of capital into shares of a smaller
amount than originally fixed by the memorandum. Every member possessing one share shall
now possess 10 shares but overall paid up value of shares will remain the same.
The rights attaching to the new shares shall be strictly proportional to the rights attached to the
previous shares i.e. sub-division of shares shall not affect the rights of shareholders.
 Practice Question 05:
The directors of Sherwani Limited wish to increase the authorized capital of the company from
AT A GLANCE

Rs 100 million to Rs 200 million. You are required to inform them about the relevant provisions
regarding increase in authorized capital, contained in the Companies Act, 2017.
 Solution:
The company, if allowed by its articles and by passing a special resolution can alter the capital
clause of its memorandum of association so as to increase its authorised capital whenever it
requires.
The company is required to file the resolution and the related documents i.e. altered copy of the
memorandum of association with the registrar within 15 days from passing the same, failing
which the resolution shall not be effective and shall ultimately lapse.
SPOTLIGHT
STICKY NOTES

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3. OBJECTIVE BASED Q&A

01. In a company limited by shares, the share capital represents capital introduced into the company by the
company’s
(a) Directors
(b) Guarantors
(c) Auditors
(d) Members

02. Issuance of shares is the first step of offering shares by the company, then people or promoters pay for
the shares this is termed as

AT A GLANCE
(a) Subscription of shares
(b) Transfer of shares
(c) Payment of shares
(d) Selling of shares

03. The issued share capital is the nominal value of the shares that have been issued to shareholders. The
issued share capital
(a) May be more than the authorized share capital
(b) Must be more than the authorized share capital

SPOTLIGHT
(c) May be less than the authorized share capital
(d) Must be equal to the authorized share capital

04. In Pakistan, all companies limited by shares are required to have an authorized share capital and the
amount of the authorized share capital can be increased but
(a) Only with the approval of the directors
(b) Only with the approval of the shareholders
(c) Only with the approval of the registrar

STICKY NOTES
(d) Only with the approval of the creditors

05. When the shares are issued, the shareholders must

(a) Give their consent in written form
(b) Appoint two persons as their proxy
(c) Pay for the shares in full
(d) Apply for special privileges

06. If the company goes into liquidation with unpaid debts, the shareholders will
(a) Be liable personally to contribute in the company’s debts
(b) Not be required to contribute in the company’s debts
(c) Be liable to contribute 50% of the unpaid debts
(d) Be liable to contribute 75% of the unpaid debts

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

07. Ordinary shares are also called

(a) Equity shares
(b) Bonus shares
(c) Founders shares
(d) deferred Shares

08. The ordinary shareholders are entitled to vote at general meetings of the company. Normally all ordinary
shareholders have
(a) Ten votes per share
AT A GLANCE

(b) One vote per ten shares

(c) One vote per share
(d) As mush vote as they wish

09. A preference share normally carries as prior right (ahead of ordinary shares) to
(a) Receive a salary which is normally a fixed amount each year
(b) Receive a repayment of capital in the event of winding up
(c) Vote in the general meeting
(d) None of the above
SPOTLIGHT

10. What type of resolution is required to alter the capital clause of memorandum of association
(a) Ordinary resolution
(b) Special resolution
(c) Ordinary resolution of 30 days’ notice
(d) Special resolution of 30 days’ notice

11. After the alteration in capital clause of MOA, the company is required to file the resolution and the related
documents i.e. altered copy of the MOA with the registrar within
STICKY NOTES

(a) 15 days
(b) 30 days
(c) 60 days
(d) 90 days

12. If the variation affects the substantive rights of any particular class of shareholders, it shall not be deemed
to have been carried out unless
(a) Two third majority of that particular class agree to the alterations.
(b) Fifty one percent majority of that particular class agree to the alterations.
(c) Three fourth majority of that particular class agree to the alterations
(d) Seventy percent majority of that class agree to the alterations

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CAF 7: COMPANY LAW CHAPTER 5: SHARE CAPITAL

13. Any member or members of the affected class representing at least 10 percent shareholding of that class
may apply for an order against the resolution varying their rights. They will apply to
(a) The registrar
(b) The Commission
(c) The board of directors
(d) The Court

14. In case of variation in shareholders’ rights of a particular class of members, 10% or more of the class of
shareholders who are aggrieved by the variation of their rights may apply to the court, for an order

AT A GLANCE
cancelling the variation within
(a) 14 days
(b) 21 days
(c) 30 days
(d) None of the above is correct

15. In case of variation in shareholders’ rights of a particular class of members, the court may give its decision
in favour or against the special resolution by the company. The company is required to forward a copy of
the court decision to the registrar within
(a) 14 days of receipt of the order

SPOTLIGHT
(b) 15 days of receipt of the order
(c) 30 days of receipt of the order
(d) None of the above is correct

16. Candid Oils Limited has class A and class B ordinary shares of Rs. 10 each, carrying voting right of one
and two votes per share respectively. A special resolution was passed to bring the voting rights of class
B shareholders equal to class A shareholders. However, two shareholders of class B are not satisfied with
this resolution and intends to apply for its cancellation. They can do so if:
(a) they hold more than 10% shares of class B and apply to the Court

STICKY NOTES
(b) they hold 10% or more shares of class B and apply to the Court
(c) they hold at least 10% shares of class B and apply to the Commission
(d) they hold at least 20% shares of class B and apply to the Commission

17. Which of the following instruments is considered to be the prima facie evidence of the title of a listed
company’s shares?
(a) Share purchase agreement
(b) Share subscription application
(c) Share certificates issued in book-entry form
(d) All of the above

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

18. Nominal share capital means the:

(a) amount of share capital fixed by the memorandum or articles of association which must be paid by
the subscribers in order to commence business
(b) face value of the shares issued by the company
(c) maximum amount of share capital as authorised by the memorandum of association
(d) amount of share capital against which shares have been allotted by the company

19. The shares held by a member of a public company shall be considered to be the movable property
transferable in the manner:
(a) provided by the memorandum of association of the company
AT A GLANCE

(b) provided by the articles of association of the company

(c) provided by the prospectus of the company
(d) considered appropriate by the board of directors
SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (d) The members are the shareholders of the company. They are also the owners of the company.

02. (a) When people or promoters pay for the shares, this is termed as subscription of shares then
finally shares are allotted to respective names of applicants.

03. (c) The issued share capital may be less than the authorized share capital, but cannot exceed it.

04. (b) The amount of the authorized share capital has to be specified in the company’s memorandum
of association and it can be increased only with the approval of the shareholders.

05. (c) When the shares are issued, they must be paid for in full.

AT A GLANCE
06. (b) If the company goes into liquidation with unpaid debts, the maximum amount they will lose is
the amount already contributed as share capital.

07. (a) The ordinary shareholders are the owners of their company and ordinary shares are often
called ‘equity shares’.

08. (c) Normally, all ordinary shareholders have one vote per share.

09. (b) A preference shareholder has a prior right to receive repayment of capital in the event of
winding up of the company.

SPOTLIGHT
10. (b) The company, if allowed by the articles and by passing a special resolution can alter the capital
clause of its memorandum.

11. (a) The company is required to file the amended copy of the MOA with the registrar within 15 days
from passing the resolution.

12. (c) Three fourth majority of that particular class must agree to the alteration, in order to make that
variation valid.

13. (d) Any member or members of the affected class may apply to the court for an order against the
resolution.

STICKY NOTES
14. (c) The person aggrieved by the change may file an application within 30 days of passing of the
resolution.

15. (b) The company is required to file a copy of the court to the registrar within 15 days of the receipt
of the order.

16. (b) they hold 10% or more shares of class B and apply to the Court

17. (c) Share certificates issued in book-entry form

18. (c) maximum amount of share capital as authorised by the memorandum of association

19. (b) provided by the articles of association of the company

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 CHAPTER 5: SHARE CAPITAL CAF 7: COMPANY LAW

STICKY NOTES

Share Capital
1. Characteristics: transferable movable property, carrying rights and
obligations.
2. Relevant definition: Authorised share capital
3. Issued and paid up share capital (may be equal to or less than authorised
capital)
4. Publication of authorised and paid up capital (equal prominence)
AT A GLANCE

5. Only fully paid shares to be issued

6. Nominal value and market value are usually different.
7. Different classes and kind of share capital (may be issued as provided in
memorandum and articles)
8. Ordinary shares vs. preference shares

Variation of shareholders’ rights

SPOTLIGHT

1. Special resolution (for alteration in artilces)

2. Restriction on alteration (3/4th of class affected)
3. Criteria for application to Court (10% shareholding of aggreived class)
4. Basis of Court decision (withholding of certain facts; prejudicial)
5. Filing with registrar (within 15 days of receipt of order)

Alteration of share capital clause in memorandum

STICKY NOTES

1. Possible alterations (increase, consolidate, sub-divide, cancel)

2. Filing with registrar (within 15 days)
3. No effect on rights of shareholders

128 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 6

PROSPECTUS AND
COMMENCEMENT OF BUSINESS

AT A GLANCE

AT A GLANCE
IN THIS CHAPTER:
Any document issued and described as prospectus or which
offers to public for investment in securities of a company or
AT A GLANCE
body corporate is called Prospectus. Prospectus is issued by a
company which wants to offer shares to public.
SPOTLIGHT
A shelf prospectus is a single offering document which allows a
1. Prospectus company to make multiple offers to public.
Company is required to file a copy of prospectus signed by every
2. Commencement of Business
director or proposed director to the registrar on or before date
of publication.
3. Objective Based Q&A
The prospectus must be approved by SECP before making any

SPOTLIGHT
STICKY NOTES public offer. A prospectus is valid for 60 days from date of
approval.
Where a public offer is made in Pakistan, prospectus shall be
published in one Urdu and English daily newspaper.
Prospectus may include statement from an independent expert
after obtaining the consent of such expert in prescribed manner.
A public company shall not exercise any business or borrowing
powers unless it is entitled to commencement of business by
registrar subject to compliance with certain requirements
including minimum subscription and issue of prospectus or
filing of statement in lieu of prospectus. If such company

STICKY NOTES
commences business otherwise, every office or responsible
person will be liable to penalties.

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1. PROSPECTUS
1.1 Introduction to prospectus

Definition: Prospectus [Section 2(xli) – Securities Act, 2015]

“prospectus” means any document described or issued as a prospectus and includes any document, notice,
circular, material, advertisement, offer for sale document, publication or other invitation offering to the public
(or any section of the public) or inviting offers from the public for the subscription or purchase of any securities
of a company, body corporate or entity, other than deposits invited by a bank and certificate of investments and
certificate of deposits issued by non-banking finance companies.

Purpose of prospectus
AT A GLANCE

If a company wants to issue securities to general public, it has to issue a prospectus. This prospectus provides
the public with relevant information to decide whether they should invest in the company or not.

Timing of prospectus
A company may issue a prospectus at any point of time in its life and a company may issue shares to public in the
future at any time(s). A company may issue shares to public before commencement of business. The existence of
prospectus ends after the purpose is fulfilled (it is not like memorandum or articles that are permanent
documents).

Shelf prospectus
A shelf-prospectus is a single offering document allowing companies to make multiple offerings as disclosed in
SPOTLIGHT

the offering document within a prescribed time and subject to prescribed conditions.

Supplement to shelf prospectus

A supplement to the prospectus invites the general public for subscription of the securities earlier offered to the
public through shelf-prospectus. The supplement to the prospectus for each offering contains updated
disclosures.

Filing with registrar before issue [Section 57 – Companies Act, 2017]

No prospectus shall be issued by or on behalf of a company unless on or before the date of its publication, a copy
thereof signed by every person who is named therein as a director or proposed director of the company has been
filed with the registrar.
STICKY NOTES

In case of any contravention, the company and every person who is a party to the issue, publication or circulation
of the prospectus shall be liable to a penalty not exceeding of level 2 on the standard scale.

Risk Factors
It is customary for the authorities to require the company to arrange and write the risk factors separately in
prospectus. All the factors that could be risky for investment in the company are written and readers of the
prospectus are specifically advised to read the same before making any investment decision.

Role of authorities
The prospectus must be approved by SECP who review it for compliance strictly. It does not however mean that
the authorities act just to discourage the company and its promoter but it is the duty of authorities to make sure
that accurate information is provided to the prospective shareholders or members.

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1.2 Offer of securities [Section 87 & 89 – Securities Act, 2015]

Approval from Commission

No person shall make a public offer of securities unless the issuer (i.e. a company) or offeror of the securities has
submitted for approval to the Commission, and the Commission has approved prospectus.

Content of prospectus
The Commission may approve a prospectus if it contains such information and reports as may be prescribed by
the regulations made by the Commission. The Commission has issued the Public Offering Regulations, 2017
which also include these contents.

Validity of approval

AT A GLANCE
A prospectus approved by the Commission shall be valid for a period of 60 days from the date of such approval.
The shelf prospectus shall be valid for such longer period as approved by Commission. The time period may be
extended by the Commission for reasons to be recorded in writing.
 Example 01:
ABC Limited, a listed company, has decided to issue shares to the general public. Let us consider
two scenarios:
a) The company has submitted a copy of prospectus to the Commission for its approval. At
the same time it is planning to publish and circulate the prospectus to inform the general
public.
b) The prospectus is approved by the Commission. Due to some unavoidable reasons the
company could not circulate the prospectus. After three months the company decides to

SPOTLIGHT
issue those shares based on the prospectus approved by the Commission.
In case of (a) the Securities Act, 2015 does not allow a company to circulate the prospectus unless
the Commission approves the prospectus.
In case of (b) a prospectus approved by the Commission is valid for 60 days from the date of
approval or such longer period as approved by the Commission. ABC limited shall have to apply
for grant of extension for the validity of the prospectus beyond 60 days if the Commission has
not approved it for a longer period.
No liability of SECP
The Commission shall not be liable to any action in damages suffered as a result of any prospectus approved by

STICKY NOTES
the Commission.
Offence
A person who, in connection with a public offer of securities, makes a false or fictitious application, commits an
offence.
Exception to Approval requirement
The above requirement of approval does not apply:
 to securities offered by the State Bank of Pakistan.
 where the securities are offered in connection with a private offering or private placement.
 issue of shares of a subsidiary to the members of a listed holding company by way of specie dividend
or any other distribution in the prescribed manner.
 where the securities are offered by the issuer to members or employees of the issuer or families of
such members and employees.
 the securities are shares and are offered as bonus shares to any or all of the members of the issuer.

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1.3 Approval, issue, circulation and publication [Section 88 – Securities Act, 2015]

Approval from Commission

No person shall issue, circulate and publish prospectus including a shelf-prospectus or supplement to the
prospectus until it has been approved by the Commission.

Filing for approval

The issuer or the offer or shall submit a copy to the Commission for approval not less than 21 days before the
proposed date of publication of the prospectus.

Publication in newspapers
Where a public offer is made in Pakistan the issuer or offeror shall publish the prospectus in full text or in such
AT A GLANCE

abridged form as may be prescribed, at least in one Urdu and one English daily newspaper.
The prospectus shall not be published in the newspapers less than 7 days or more than 30 days before the
commencement of the public subscription.
Availability of copies
The issuer or the offerer shall make available sufficient number of copies of the prospectus approved by the
Commission, free of charge, from the date of its publication in the newspapers till the closing of the subscription
at:
 the registered office of the issuer,
 all the securities exchanges of the country,
 all the bankers to the issue,
SPOTLIGHT

 the concerned share registrar,

 the concerned ballotter; and
 the concerned credit rating agency, if any.
Upload on website
The prospectus in full text and the shares subscription form shall be uploaded on the website of the issuer and
shall remain there from the date of its publication in the newspapers till the closing of the subscription.
Restriction
No person shall issue, circulate, publish, telecast or broadcast without the prior written approval of the
Commission, an advertisement, other than a prospectus, announcing a public offer of securities for which a
STICKY NOTES

prospectus is required unless a prospectus has been published and the advertisement gives an address in
Pakistan from which it can be obtained.
Terms not to be varied
The issuer or offeror, as the case may be, shall not, at any time, vary the terms of the clauses stipulated in its
prospectus except subject to the approval of the Commission.

1.4 Expert’s opinion

Definition: Expert [Section 2(xxii) – Securities Act, 2015]

“expert” includes banker, securities advisor, engineer, valuer, accountant, lawyer and any other person whose
profession gives authority to a statement made by him.

Expert to be independent [Section 90 – Securities Act, 2015]

A prospectus shall not contain a statement purporting to be made by an expert unless the expert is a person who
is not, and has not been, engaged or interested in the formation or promotion or management of the company.

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Consent of Expert [Section 91 – Securities Act, 2015]

A prospectus that contains a statement purporting to be made by an expert or to be based on a statement made
by an expert shall not be issued, circulated or published unless:
 The expert has given, his written consent to the issue of the prospectus with the statement in the form
and context in which it is included; and
 There appears in the prospectus a statement that the expert has given and has not withdrawn his
consent.

1.5 Criminal liability and compensation

Criminal liability for defective prospectus [Section 92 – Securities Act, 2015]

AT A GLANCE
A person commits an offence, who:
 makes a misleading, incorrect, untrue or deceptive statement in a prospectus; or
 omits information or a statement from a prospectus that is required to be included in the prospectus.

Compensation for false or misleading prospectus [Section 93 – Securities Act, 2015]

Every offeror, issuer, director of an offeror or issuer or any person who has signed the prospectus shall be liable
to pay compensation to any person who acquires any of the securities, in reliance upon the prospectus, to which
the prospectus relates and suffers loss in respect of them as a result of any incorrect, untrue or misleading
statement in the prospectus or the omission from it of any matter required to be included.
 Practice Question 01:
Under the provisions of the Securities Act, 2015 no person shall make a public offer of securities

SPOTLIGHT
unless the Commission has approved the prospectus submitted by the issuer or offeror of the
securities.
Discuss the exceptions to the above provision of the Securities Act, 2015.
 Solution:
The requirement of submission of prospectus for public offering of securities to the Commission
and its approval is not required in the following circumstances:
a) securities offered by the State Bank of Pakistan.
b) securities offered in connection with a private offering or private placement.
c) issue of shares of a subsidiary to the members of a listed holding company by way of

STICKY NOTES
specie dividend or any other distribution in the prescribed manner.
d) securities are offered by the issuer to:
 members or employees of the issuer; or
 members of the families of any such members or employees.
e) securities are shares and are offered as bonus shares to any or all of the members of the
issuer.
 Practice Question 02:
The Board of Directors of Tanveer Limited, a listed company, has decided to invite general public
for the subscription of its securities and therefore, intends to issue/publish a prospectus.
Under the provisions of the Securities Act, 2015 advise the directors about the time frame within
which approval for the issuance of prospectus may be obtained and the time for which the
prospectus may remain valid after approval.

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 Solution:
Time frame within which approval may be obtained:
TL must apply to the Commission for approval of the issuance of prospectus to the public, by
submitting a copy of the prospectus not less than 21 days before the proposed date of publication
of the prospectus.
Time for which the prospectus may remain valid after approval:
A prospectus approved by the Commission shall be valid for a period of 60 days from the date of
such approval. However, this time period may be extended by the Commission for reasons to be
recorded.
 Practice Question 03:
AT A GLANCE

Deo Limited (DL) has published a prospectus on March 1, 20X4. The subscription list is due to
open on April 5, 20X4.
Explain whether the company is in compliance with the provisions of the Securities Act, 2015
regarding the publication of its prospectus.
 Solution:
The advertisement of a prospectus is required to be published in a newspaper not less than 7
days and not more than 30 days before the subscription list, is due to open. Since, Deo Limited
published the prospectus on March 1, 20X4, which is more than 30 days before the subscription
list was due to open i.e. April 5, 20X4. The Company is in violation of the requirements of above
provision of Law.
 Practice Question 04:
SPOTLIGHT

On 25 February 2018 Badar Limited (BL), in a move to list its shares on Pakistan Stock Exchange,
received approval from the Commission for the publication of prospectus.
Under the provisions of the Securities Act, 2015 advise BL with regard to the publication of the
prospectus in the newspaper and its placement on the company’s website.
 Solution:
BL’s prospectus, approved by the Commission, shall be published within 60 days from the date
of Commission’s approval (25 February 2018) i.e., 25 April 2018 unless the period of 60 days has
been extended by the Commission by reasons to be recorded in writing.
BL Limited shall publish the prospectus in full text or in such abridged form as may be prescribed,
STICKY NOTES

at least in one Urdu and one English daily newspaper.

The prospectus shall be published in the newspaper not less than 7 days or not more than 30
days before the commencement of the public subscription.
The prospectus shall be uploaded on the website of the issuer and shall remain there from the
date of its publication in the newspapers till the closing of the subscription.
 Practice Question 05:
On 4 February 2020, the Commission approved the prospectus of Victory Limited (VL) for public
offer of its securities. The directors intend to publish the prospectus on 10 April 2020.
Under the provisions of the Securities Act, 2015 advise the directors with regard to the following:
i. The time frame within which the prospectus may be published.
ii. The requirements for publication of prospectus.

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 Solution:
Part (i)
Since a prospectus approved by the Commission shall be valid for a period of 60 days from the
date of such approval. Victory Limited must publish the prospectus by 3 April 2020. However, as
the directors intends to publish it on 10 April 2020 they must apply to the Commission for
extension in time limit. The application for extension must contain the reasons for extension in
time.
Part (ii) Publication of the prospectus
In Newspapers
The prospectus shall be published in full text or in such abridged form as may be prescribed, at
least in one Urdu and one English daily newspaper. The prospectus shall not be published in the

AT A GLANCE
newspapers less than 7 days or more than 30 days before the commencement of the public
subscription.
On Website
The prospectus in full text shall be uploaded on the website of the issuer and shall remain there
from the date of its publication in the newspapers till the closing of the subscription.
 Practice Question 06:
The Directors of Solar Limited (SL), want to arrange finances for their factory expansion project
and have decided to issue 1,000,000 ordinary shares to general public. The directors want the
public subscription to commence not later than 7 October 2018. Mobeen, who is the company
secretary, has proposed the following schedule for the purpose:
 On 12 September 2018, a copy of the prospectus shall be submitted to the Registrar Joint

SPOTLIGHT
Stock Companies for approval.
 For ease of access, the copies of the prospectus shall be available for members’
inspection at SL’s main showroom. The prospectus shall remain open for inspection
from 28 September 2018 till 4 October 2018 at a fee of Rs. 50.
 The prospectus would be published in a popular fortnightly Urdu magazine on 30
September 2018.
 Public subscription would commence on 5 October 2018.
Suggest appropriate revision in the above proposal to bring it in line with the provisions of the
Securities Act, 2015.
 Solution:

STICKY NOTES
The prospectus is required to be approved by the Commission and not by the Registrar Joint
Stock Companies.
A copy of the prospectus shall be submitted to the Commission for approval, not less than 21
days before the proposed date of its publication. Therefore, a copy shall be submitted to the
Commission on or before 9 September 2018 OR (8 September 2018) OR (7 September 2018) but
not afterwards.
The prospectus shall be published in at least one Urdu and one English daily newspaper and not
in an Urdu fortnightly magazine.
The date of newspaper publication of the prospectus shall not be less than 7 days before the
commencement of the public subscription. Therefore, public subscription shall not commence
any time before 7 October 2018 OR (6 October 2018) OR (5 October 2018).
Lastly, Sufficient number of copies of the prospectus shall be made available for inspection of
general public, free of charge, from the date of its publication i.e. 30 September 2018 OR (29
September 2018) OR (28 September 2018) till the closing of the subscription. i.e. 7 October 2018
OR (6 October 2018) OR (5 October 2018) at SL’s registered office and not at its showroom.

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Further, the copies shall also be made available with all the securities exchanges of the country,
with all the bankers to the issue, the concerned share registrar, the concerned ballotter and the
concerned credit rating agency, if any, and should also be uploaded on SL’s website.
 Practice Question 07:
Sepham Limited is in process of raising money through issuance of shares and intends to issue a
prospectus.
Advise the management as to who would be liable under the Securities Act, 2015 to compensate
the investors in case there is any deficiency in the prospectus and under what circumstances this
liability would arise.
 Solution:
Every issuer, director of an issuer or any person who has signed the prospectus shall be liable to
AT A GLANCE

pay compensation to any person who acquires any of the securities, in reliance upon the
prospectus, to which the prospectus relates and suffers loss in respect of them as a result of any
incorrect, untrue or misleading statement in the prospectus or the omission from it of any matter
required to be included under the Securities Act, 2015.
 Practice Question 08:
The directors of Jhelum Limited (JL) intends to make a public offer of its securities and are in the
process of preparing the prospectus. They wish to include a statement made by an expert in JL’s
prospectus.
Under the provisions of the Securities Act, 2015 advise the directors about:
a) the matters that must be considered before including the statement made by an expert
SPOTLIGHT

in JL’s prospectus.
b) the conditions that must be complied with before issuing, circulating or publishing JL’s
prospectus containing the expert’s statement.
 Solution:
Part (a)
Jhelum Limited must ensure that the expert is a person who has the power or authority to issue
a certificate in pursuance of any law for the time being in force and who is not and has not been
engaged or interested in the formation or promotion or in the management of the company.
Part (b)
STICKY NOTES

Before issuing, circulating or publishing prospectus containing expert’s statement, it must be

ensured that the following conditions have been complied with:
 the expert has given written consent to the issue of the prospectus with the statement
in the form and context in which it is included; and
 there appears in the prospectus a statement that the expert has given and has not
withdrawn his consent.
 Practice Question 09:
Under the Securities Act, 2015 an issuer or offeror of the securities intending to approach general
public for raising funds shall have to submit a prospectus with the Commission for its approval.
List any four exceptions to the above provision of the Securities Act, 2015.

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 Solution:
The requirement of submission of prospectus to the Commission for its approval is not required
by an issuer or offeror of the securities intending to approach general public for raising funds in
the following circumstances:
a) securities offered by the State Bank of Pakistan;
b) securities offered in connection with a private offering or private placement;
c) issue of shares of a subsidiary to the members of a listed holding company by way of
specie dividend or any other distribution in the prescribed manner;
d) securities offered by the issuer to:
 members or employees of the issuer; or

AT A GLANCE
 members of the families of any such members or employees.

SPOTLIGHT
STICKY NOTES

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2. COMMENCEMENT OF BUSINESS
2.1 Commencement of business [Section 19]

Minimum Subscription
Minimum subscription means the amount, if any, fixed by the memorandum or articles upon which the directors
may proceed to allotment. If no amount is fixed, the whole amount of share capital (other than that to be issued
not for cash) is minimum subscription.
 Example 02:
That minimum amount which is required to commence the business, for example, company
would need a building, machinery, equipment and working capital budget for starting the
AT A GLANCE

business, without sufficient funds for all this, company is not able to commence its business.

Conditions for commencement of business

A public company shall not start its operations or exercise any borrowing powers unless:
a) shares for cash have been allotted to an amount not less than the minimum subscription;
b) every director of the company has paid to the company full amount on each of the shares taken or
contracted to be taken by him and for which he is liable to pay in cash;
c) no money is or may become liable to be repaid to applicants for any shares which have been offered for
public subscription;
 Example 03:
SPOTLIGHT

Whenever the company issues shares or debentures to the general public, it is required to get
those shares or debentures listed on an exchange before allotment of shares. The procedure is as
follows:
 Company issues prospectus and fixes a date for payments from applicants against its
securities and simultaneously files an application for listing of securities to the exchange
 People deposit money into the banks as required by company
 Company waits for the listing from exchange and provides for any further information
or deficiencies as pointed out by the exchange.
 The company is given certificate of listing and it can now use the money of applicants
and allot them shares
STICKY NOTES

 If listing is refused, the money from applicants must be repaid forthwith.

Until such money is repaid, company shall not be allowed to commence business.
d) there has been filed with the registrar a duly verified declaration by the chief executive or one of the
directors and the secretary that the aforesaid conditions have been complied with; and
e) in the case of a company which has not issued a prospectus inviting the public to subscribe for its shares,
there has been filed with the registrar a statement in lieu of prospectus.

Exception
The above requirement does not apply to:
 to a company converted from private to a public;
 to a company limited by guarantee and not having a share capital.

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Acceptance and registration of documents by registrar

The registrar shall, after making such enquiries as he may deem fit to satisfy himself, accept and register all the
relevant documents. The acceptance and registration of documents shall be a conclusive evidence that the
company is entitled to start its operations and exercise any borrowing powers.

2.2 Consequences of non-compliance [Section 20]

Penalty
If any company starts its business operations or exercises borrowing powers in contravention of above
provisions, every officer or other person who is responsible for contravention shall without prejudice to other
liabilities be liable to a penalty not exceeding level 2 on the standard scale.

AT A GLANCE
Status of contracts by company
Any contract made by a company before the date at which it is entitled to commence business shall be provisional
only, and shall not be binding on the company until that date, and on that date it shall become binding.

2.3 Prospectus or statement in lieu of prospectus

Circumstances Relevant Document to be issued or filed

Inviting general public, or when company is listed on Prospectus

stock exchange

Not inviting the public to subscribe Statement in lieu of prospectus

SPOTLIGHT
Issued a prospectus but could not obtain listing on Repayment of all money on the basis of prospectus
stock exchange AND filing Statement in lieu of prospectus

 Practice Question 10:

Under the provisions of the Companies Act, 2017 briefly explain the exception(s) to the following
general rule:
“Companies can commence the business only after obtaining certificate of commencement of
business from the registrar”.
 Solution:

STICKY NOTES
Following companies can commence business without obtaining certificate of commencement of
business:
i. A private company
ii. A company converted from private to public
iii. A company limited by guarantee and not having a share capital

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3. OBJECTIVE BASED Q&A

01. A single offering document allowing companies to make multiple offerings as disclosed in the offering
document is known as
(a) Sale prospectus
(b) Shelf-prospectus
(c) Single Prospectus
(d) Multiple Prospectus

02. A supplement to the prospectus invites the general public for subscription of earlier offered security(ies).
The supplement to the prospectus contains
AT A GLANCE

(a) New prospectus

(b) Shelf-prospectus
(c) Updated disclosures
(d) None of the above

03. The prospectus is issued, published or circulated with the approval of

(a) The members
(b) The board of directors
SPOTLIGHT

(c) The Commission

(d) The Auditors

04. The prospectus in its full text or in such abridged form, shall be published at least in
(a) One Urdu magazine
(b) One Urdu or one English fortnight newspaper
(c) One Urdu and one English magazine
(d) One Urdu and one English daily newspaper
STICKY NOTES

05. Prospectus issued shall be made available, free of charge,

(a) At the registered office of the issuer
(b) With all the bankers to the issue
(c) With the concerned share registrar
(d) All the above

06. The prospectus along with the subscription form, from the date of its publication in the newspapers, till
the closing of the subscription, shall also be uploaded
(a) On the website of the securities exchange
(b) On the website of the SECP
(c) On the website of the Issuer
(d) On the website of the concerned Bank

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07. Prospectus means any document, notice, circular, material, publication or other invitation offering
(a) To the general public
(b) To the board of directors
(c) Only to the existing shareholders
(d) Only to the existing customers

08. Although approval from the Commission is required for issue, publication or circulation of prospectus,
there are instance where prior approval is not necessary such instances include
(a) Securities offered by the State Bank of Pakistan

AT A GLANCE
(b) Where securities are offered in connection with a private offering
(c) Where the securities are shares and are offered as bonus shares
(d) All of the above

09. A prospectus approved by the Commission shall be valid for a period of

(a) 30 days from the date of such approval
(b) 60 days from the date of such approval
(c) 90 days from the date of such approval
(d) 120 days from the date of such approval

SPOTLIGHT
10. A prospectus shall not contain a statement purporting to be made by an expert unless the expert is a
person
(a) Who is not or has not been engaged or interested in the formation of the company
(b) Who is or has been engaged or interested in the formation of the company
(c) Who is engaged or interested in the promotion of the company
(d) Who is engaged or interested in the management of the company

11. If a public company opts not to issue shares to the general public initially and start the business in such

STICKY NOTES
a case Company would be required to file with the registrar
(a) Statement of affairs
(b) Statement of capital
(c) Statement in lieu of prospectus
(d) Statement in lieu of advertisement

12. The prospectus is a formal document and needs

(a) Approval from the board and clearance from the auditors.
(b) Approval from the members and clearance from the creditors
(c) Approval from the Commission and clearance from the securities exchange
(d) Approval from the court and clearance from the registrar

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13. Once issued and securities allotted under a prospectus

(a) It shall be sent to the registrar
(b) It shall be sent to the securities exchange
(c) Its existence will end
(d) Its existence will continue till the next AGM

14. A prospectus is required to be submitted to the SECP for approval at least

(a) 14 days before the proposed date of publication in the newspapers
(b) 21 days before the proposed date of publication in the newspapers
AT A GLANCE

(c) 30 days before the proposed date of publication in the newspapers

(d) None of the above is correct

15. Minimum time gap between the date of publication of a prospectus and the date of subscription shall be
(a) 14 days
(b) 21 days
(c) 30 days
(d) 7 days
SPOTLIGHT

16. For obtaining the certificate of commencement of business a public company has to meet certain
requirements. Choose the incorrect one from following
(a) The company should have allotted shares against cash equal to the amount of minimum
subscription
(b) The directors should have paid in cash to the company full amount on each of the shares taken or
contracted to be taken
(c) The members should have paid in cash to the company full amount on each of the shares taken or
contracted to be taken
STICKY NOTES

(d) No money is or may become liable to be repaid to applicants for any shares

17. Before being permitted to trade, a public company must have:

(a) Obtained a certificate of incorporation only
(b) Been listed on the securities exchange
(c) Issued a prospectus
(d) Obtained a commencement of business certificate and certificate of incorporation

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18. Which of the following shall be considered conclusive evidence on the basis of which a public company
shall be entitled to start its operations?
(a) Received full amount from every director on each of the shares taken or contracted to be taken by
him and for which he is liable to pay in cash.
(b) Submitted the duly verified declaration along with other documents duly verified by CEO and the
registrar has accepted & registered the same.
(c) Allotted shares that were held subject to payment of whole amount thereof in cash equivalent to
minimum subscription.
(d) Repaid the money to the applicants for any shares which have been offered for public subscription.

AT A GLANCE
19. A prospectus is required to be duly signed by:
(a) the chief executive and a director
(b) every person who is named therein as a director or proposed director
(c) the chief executive, a director and the chief financial officer
(d) every director including the chief executive

20. Minimum subscription is:

(a) the total authorised share capital of a company as stated in the prospectus
(b) the whole amount of the share capital other than that issued or agreed to be issued as paid up
otherwise than in cash, if no amount of minimum subscription is so fixed

SPOTLIGHT
(c) the whole amount of the subscription received from applicants, if no amount of minimum
subscription is so fixed
(d) the amount to be generated from public for which prospectus is issued

21. The promoters of Blue Whale Limited (BWL) got the certificate of incorporation dated 3 September 2021.
They have decided that BWL shall never approach general public for raising fund and have further
decided to commence business from next month. BWL would be required to file with the registrar:
(a) revised memorandum of association
(b) revised articles of association

STICKY NOTES
(c) prospectus
(d) statement in lieu of prospectus

22. A prospectus issued by a company can only include a statement claimed to have been made by an expert
if such person:
(a) has not been engaged or interested in the management of the company
(b) has not received any remuneration from the company in preceding three years
(c) is not a close relative of any of the company’s employees
(d) is a promoter of the company

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ANSWERS
01. (b) A Shelf Prospectus is a single offering document allowing companies to make multiple offerings.
02. (c) The supplement to the prospectus contains updated disclosures and it also provides such
information as prescribed by the Commission.
03. (c) The approval of prospectus is given by the Commission and the Commission may also impose
further conditions or restrictions.
04. (d) The prospectus shall be published at least in one Urdu and one English daily newspaper.
05. (d) A sufficient number of copies of the prospectus as approved by the Commission, shall be made
available in six different places.
AT A GLANCE

06. (c) The prospectus along with subscription form shall be uploaded on the website of the issuer.
07. (a) The prospectus is a document issued for general public and invites offers for sales of company’s
securities.
08. (d) The Commission’s approval for the prospectus is a necessary requirement but there are certain
instances where Commission’s approval is not necessary.
09. (b) A prospectus shall be valid for a period of 60 days from a date of such approval
10. (a) The expert is to be independent and he must not be connected with the company as a promoter,
manager or an employee.
11. (c) If the company is not issuing shares to the general public initially then the company would be
required to file a statement in lieu of the prospectus with the registrar.
SPOTLIGHT

12. (c) The securities exchanges in addition to the Commission are also regulators who regulate the
issuance of prospectus.
13. (c) Prospectus is not like something the memorandum and article of association. Once issued and
securities allotted, its existence ends.
14. (b) The issuer, shall not less than 21 days before the proposed date of publication, submit a copy
to the Commission for approval.
15. (d) The prospectus shall not be published in the newspaper less than 7 days or more than 30 days
before the commencement of public subscription.
16. (c) Not the members but only the directors should have paid in cash to the company full amount
STICKY NOTES

on each of the shares taken or contracted to be taken

17. (d) A public company after obtaining certificate of incorporation is also required by law to obtain
certificate of commencement of business.
18. (b) Submitted the duly verified declaration along with other documents duly verified by CEO and
the registrar has accepted & registered the same.
19. (b) every person who is named therein as a director or proposed director
20. (b) the whole amount of the share capital other than that issued or agreed to be issued as paid up
otherwise than in cash, if no amount of minimum subscription is so fixed
21. (d) statement in lieu of prospectus
22. (a) has not been engaged or interested in the management of the company

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STICKY NOTES

Introduction to prospectus
1. Relevant definition: Prospectus
2. Purpose of prospectus (to enable investors make informed decisions)
3. Timing of prospectus (not a permanent document)
4. Shelf prospectus (for multiple offering)
5. Supplement to shelf prospectus (updated disclosure for each offering)

AT A GLANCE
6. Filing with registrar before issue (signed by directors/proposed directors)
7. Risk Factors (it is customary to be included)
8. Role of authorities (to make sure accurate information is provided)

Offer of securities
1. Approval from Commission is necessary
2. Content of prospectus (Public Offering Regulations, 2017)
3. Validity of approval (60 days)

SPOTLIGHT
4. No liability of SECP (for damages suffered as a result of any prospectus
approved by it)
5. Offence (making false or fictitious application)
6. Exception to Approval requirement (5 exceptions including bonus issue)

Approval, issue, circulation and publication

1. Approval from Commission is necessary

STICKY NOTES
2. Filing for approval (not less than 21 days before the proposed date of
publication)
3. Publication in newspapers (English & Urdu; full or abridged form)
4. Availability of copies (registered office, securities exchange, bankers to the
issue, share registrar, ballotter, credit rating agency)
5. Upload on website (from publication in newspaper to subscription closing)
6. Restriction (on issue, criculate, publish, telecast or broadcast an
advertisement)
7. Terms not to be varied (without approval of the Commission)

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Expert’s opinion
1. Relevant definition: Expert
2. Expert to be independent
3. Consent of Expert

Criminal liability and compensation

1. Criminal liability for defective prospectus
2. Compensation for false or misleading prospectus
AT A GLANCE

Commencement of business
1. Relevant concept: minimum subscription
2. Conditions for commencement of business
Prospectus: for issue to general public
Statement in lieu of prospectus: otherwise
3. Exception (converted to public; limited by guarantee not having share
capital)
4. Acceptance and registration of documents by registrar is conclusive evidence
SPOTLIGHT

5. Penalty (Level 2 on standard scale)

6. Status of contracts by company (provisional only, become binding when it is
entitled to commence business)
STICKY NOTES

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 CHAPTER 7

MORTGAGES AND CHARGES

AT A GLANCE
IN THIS CHAPTER:
The memorandum and articles of association deem to include
implied borrowing powers. The mode of exercising borrowing

AT A GLANCE
AT A GLANCE
power is stated in the articles. A public company cannot exercise
any borrowing power unless it is entitled to commence
SPOTLIGHT business. The borrowing powers impliedly include the power to
mortgage or pledge assets.
1. Introduction
If a company borrows money without or in excess of powers in
2. Registration memorandum such borrowing is ultra vires the company. If
directors exceed their borrowing powers then the borrowing is
3. Modification, Satisfaction and ultra vires the directors.
Rectification The borrowings may be made through issuing debentures,
borrowing from credit institutions or through other sources.
4. Records and Register The security against borrowing may be in the form of pledge,

SPOTLIGHT
mortgage or charge on assets.
5. Objective Based Q&A
The Act describes a list of mortgage and charges which are
STICKY NOTES required to be registered with the registrar. Any subsequent
change or satisfaction of such mortgage or charge shall also be
filed with registrar by company or by the lender. The registrar
may issue a show cause notice to lender if borrowing company
submits the required information for satisfaction of charge and
the lender fails to do so.
The company shall maintain at its registered office copies of
instruments creating or satisfying a charge. It shall also
maintain a register of mortgages and charges which shall be

STICKY NOTES
open to inspection.

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1. INTRODUCTION
1.1 Borrowing Powers

Borrowing powers to be part of memorandum [Section 30]

The memorandum and articles of a company is deemed to include (implied) power to enter into any arrangement
for obtaining loans, advances, finances or credit, and to issue other securities not based on interest for raising
resources from a scheduled bank, a financial institution or general public.

Restriction on borrowing powers [Section 19]

A public company shall not exercise any borrowing powers unless its documents have been accepted and
registered by the registrar for commencement of business.
AT A GLANCE

The Act does not prescribe any maximum amount that a company may borrow; however, articles may prescribe
such limits.

Power to pledge/mortgage/charge company’s assets as security

A company having borrowing powers has also the power to pledge or mortgage any of its property or create a
charge on its assets as security for the borrowing.

Manner of exercising borrowing powers

The articles may provide the manner in which a company can exercise its borrowing powers e.g. in general
meetings or power vested to the board of directors. Where borrowing powers are vested to the board, the articles
may fix the limit of the borrowings. The directors may also delegate such powers to a committee or to an officer
SPOTLIGHT

of the company.

Ultra vires borrowing

If a company borrows money without or in excess of the powers conferred on it by memorandum, the borrowing
is ultra vires the company. Any borrowing which is intra vires the company but beyond the limit prescribed by
articles for the board, the borrowing is ultra vires the directors.

1.2 Forms of borrowings

Borrowing by issuing debentures

STICKY NOTES

Effectively, any security issued by a company to raise capital, other than a share, is a debenture. A public company
may issue debentures to public or may issue debentures to any persons privately. Debentures may be secured
or unsecured.

Borrowing from credit institutions

Credit institutions include the commercial banks, investment banks, non-banking finance companies, modaraba
and all other business organisations providing facilities for loan against the interest or sometimes against
participation in profits of the company as per agreed terms. These loans too, usually are secured against the
assets of the company.

Borrowing from other sources

Other sources for obtaining loans may include the sponsors or controlling shareholders of the company. This
type of financing is usually unsecured, however, it may be secured against the assets of the company.

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1.3 Forms of Security

Pledge
The Contract Act, 1872 defines pledge as “a bailment of goods as security for the repayment of a debt or
performance of a promise”. The pledge relates to moveable assets whose physical possession is with the lender
as security.

Mortgage
The Transfer of Property Act, ,1882 defines mortgage as “the transfer of an interest in specific immoveable
property for the purpose of securing the payment of money advanced or to be advanced by way of loan, an
existing or future debt, or the performance of an engagement which may give rise to a pecuniary liability”. A
mortgage relates to immovable assets when there is transfer of title (an interest) to lender as security.

AT A GLANCE
Charge
According to the Transfer of Property Act, 1882 a charge is security for the payment of a debt or other obligation
that does not pass ‘title of the property’ or any right to its possession to the person to whom the charge is given.
A charge may relate to any asset that the lender has right to take possession in event of company’s default to pay
the loan.
The two broad categories of charge are:
 Fixed charge: The charge which is created on identified assets like specific land and building, specific
plant and machinery, etc.
 Floating charge: The charge is created over class of assets which changes over time like debtors, stock,
etc. or the entire undertaking of the company.

SPOTLIGHT
Definition: mortgage or charge [Section 2(42)]
“mortgage or charge” means an interest or lien created on the property or assets of a company or any of its
undertakings or both as security.

STICKY NOTES

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2. REGISTRATION
2.1 Requirement of registration [Section 100]

List of mortgage and charges to be registered

The Companies Act 2017 requires that the following charges (including mortgage and pledge) must be
registered:
a) a mortgage or charge on any immovable property wherever situate, or any interest therein; or
b) a mortgage or charge for the purposes of securing any issue of debentures;
c) a mortgage or charge on book debts of the company;
d) a floating charge on the undertaking or property of the company, including stock-in-trade; or
AT A GLANCE

e) a charge on a ship or aircraft, or any share in a ship or aircraft;

f) a charge on goodwill or on any intellectual property;
g) a mortgage or charge or pledge, on any movable property of the company;
h) a mortgage or charge or other interest, based on agreement for the issue of any instrument in the nature
of redeemable capital; or
i) a mortgage or charge or other interest, based on conditional sale agreement, namely, lease financing,
hire-purchase, sale and lease back, and retention of title, for acquisition of machinery, equipment or
other goods.

Negotiable Instruments not to be treated a mortgage or charge

Where a negotiable instrument has been given to secure the payment of any book debts of a company, the deposit
SPOTLIGHT

of the instrument for the purpose of securing an advance to the company shall not be treated as a mortgage or
charge on those book debts.

Particulars, manner and time limit for registration

A company (for mortgage or charges as mentioned in above list) must file the specified particulars of the
mortgage or charge, together with a copy of the instrument, if any, verified in the specified manner, by which the
mortgage or charge is created or evidenced, with the registrar for registration.
Such mortgage and charge shall be registered within period of 30 days beginning with the day after the date of
its creation.
However, any subsequent registration of a mortgage or charge shall not prejudice any right acquired in respect
STICKY NOTES

of any property before the mortgage or charge is actually registered.

 Example 01:
XYZ Limited obtained a loan of Rs. 200 million from ABC Bank and provided security by creating
a mortgage on its property on 26th February 2021. The mortgage must be registered by 28 th
March 2021.

If created outside Pakistan on property outside Pakistan

In the case of a mortgage or charge created out of Pakistan comprising solely property situated outside Pakistan,
it should be registered within a period of 30 days after the date on which the instrument or copy could have been
received in Pakistan in due course of post and if dispatched with due diligence.
 Example 02:
XYZ Limited obtained a loan of $40 million from ABC Bank and provided security by creating a
mortgage in New York on its property situated in New York on 26th February 2021. It takes 7
days to receive documents in Pakistan dispatched from New York, USA in due course of post. The
mortgage must be registered by 4th April 2021.

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If created in Pakistan on property outside Pakistan

In case the mortgage or charge is created in Pakistan but comprises property outside Pakistan, a copy of relevant
instrument may be filed for registration even when further proceedings may be necessary to make the mortgage
or charge valid or effectual according to the law of the country in which the property is situate.

Company acquiring property subject to a mortgage or charge

The above provisions relating to registration shall apply to a company acquiring any property subject to a
mortgage or charge.
 Example 03:
Jafer Limited acquired a property on 26th February 2021 from M/s Ali & Sons which is subject to
a charge. Jafer Limited shall get the charge registered by 28th March 2021.

AT A GLANCE
Certificate of registration
On registration of a mortgage or charge, the registrar shall issue a certificate of registration under his signatures
or authenticated by his official seal in such form and in such manner as may be specified.

Constructive notice
A person acquiring the company’s property shall be deemed to have constructive notice that the asset is subject
to mortgage or charge from the date of its registration.

Effect of non-registration
If the company or interested persons fails or neglects to register the mortgage or charge as aforesaid, the

SPOTLIGHT
mortgage or charge would become void and shall not be accepted as such by the liquidator or any creditor.
However, this shall not affect any contract or obligation for repayment of the money secured by such
unregistered mortgage or charge.

2.2 Duty/Right as to registration [Section 105]

Duty of company
It shall be the duty of a company to file with the registrar for registration the specified particulars of every
mortgage or charge created by the company.

Right of interested person

STICKY NOTES
The registration of any such mortgage or charge may be effected on the application of any person interested
therein (e.g. lender).
Where the registration is affected on the application of some person other than the company, that person shall
be entitled to recover from the company the amount of any fees properly paid by him to the registrar on the
registration.
 Example 04:
XYZ Limited obtained a loan of Rs. 200 million from ABC Bank and provided security by creating
a mortgage on its property on 26th February 2021. ABC Bank filed the documents for registration
of the mortgage with the registrar and paid the relevant fees. ABC Bank is entitled to recover the
amount of fees properly paid.

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3. MODIFICATION, SATISFACTION AND RECTIFICATION

3.1 Modification in the particulars of mortgage or charge [Section 106]

Meaning
It means the change in the terms or conditions or extent or operation of any mortgage or charge registered.

Duty of company
It shall be the duty of the company to send to the registrar the particulars of such modification together with a
copy of the instrument evidencing such modification verified in the specified manner.

Procedure
AT A GLANCE

The provisions as to registration of mortgage or charge shall apply to such modification of the mortgage or charge
as aforesaid.

3.2 Company to report satisfaction of charge [Section 109]

Duty of company to inform registrar

A company shall give intimation of the payment or satisfaction in full, of any mortgage or charge to the registrar
in the manner specified, within a period of 30 days from the date of such payment or satisfaction.

Show cause notice to lender

The registrar shall, on receipt of intimation of payment or satisfaction by company, cause a notice to be sent to
SPOTLIGHT

the holder of the mortgage or charge calling upon him to show cause within such time not exceeding 14 days, as
may be specified in such notice, as to why payment or satisfaction in full shall not be recorded as intimated to
the registrar.

If no cause is shown
If no cause is shown, by such holder of the mortgage or charge, the registrar shall accept the memorandum of
satisfaction and make an entry in the register of charges kept by him.

If any cause is shown

If any cause is shown, the registrar shall record a note to that effect in the register of charges and shall inform
STICKY NOTES

the company.
 Example 05:
XYZ Limited gave intimation to registrar that on 24th March 2021 it has repaid its loan to ABC
Bank and requested the recording of relevant satisfaction of charge. The registrar sent show
cause notice to ABC Bank. ABC Bank objected to satisfaction of charge on the ground that some
loan processing charges are still due. The registrar shall record the objection in register of
charges and shall inform the XYZ Limited.
When show cause notice is not required
The show cause notice referred as above shall not be required if a no objection certificate on behalf of the holder
of the mortgage or charge is furnished, along-with the intimation submitted for the payment or satisfaction.
Effect of delay
If a company fails to file the particulars of satisfaction of mortgage or charge within the 30 days’ period, the
required particulars may be submitted with the additional fee, as may be specified and imposing the penalty as
specified.

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3.3 Power of registrar [Section 110]

The registrar may enter in the register of charges and inform the parties concerned, on evidence being given to
his satisfaction with respect to any registered charge:
 that the debt for which the charge was given has been paid or satisfied in whole or in part; or
 that part of the property or undertaking charged has been released from the charge or has ceased to
form part of the company’s property or undertaking.
The registrar may do so despite the fact that no intimation has been received by him from the company.

3.4 Rectification of register of mortgages [Section 108]

Application to the Commission

AT A GLANCE
The company or any person interested may apply to the Commission to grant relief in following circumstances:
 the omission to file with the registrar the particulars of any mortgage or charge or any modification
therein within the time; or
 the omission or misstatement of any particular with respect to any such mortgage or charge.

Conditions for granting relief

The Commission shall grant relief on being satisfied that the above-mentioned omission or misstatement:
 was accidental or due to inadvertence or to some other sufficient cause; or
 is not of a nature to prejudice the position of creditors or shareholders of the company; or
 that on other grounds it is just and equitable.

SPOTLIGHT
Order by the Commission
The Commission, on such terms and conditions as seem to the Commission just and expedient, may order:
 that the time for filing the required particulars be extended; or
 that the omission or misstatement be rectified; and
 as to the costs of the application as it thinks fit.
A copy of the order passed for rectification of register of mortgages duly certified by the Commission or its
authorised officer shall be forwarded to the concerned registrar within 7 days from the date of the order.

STICKY NOTES
Prior rights not to be affected
Where the Commission extends the time for the registration of a mortgage or charge, the order shall not prejudice
any rights acquired in respect of the property concerned prior to the time when the mortgage or charge is actually
registered.

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4. RECORDS AND REGISTER

4.1 Copy of instrument creating mortgage or charge [Section 107]
Every company shall cause a copy of following instruments to be kept at the registered office of the company:
 every instrument creating any mortgage or charge requiring registration; and
 every instrument evidencing modification of the terms or conditions of any mortgage or charge.

4.2 Company’s register of mortgages and charges [Section 112]

Requirement
Every company shall maintain a register of mortgages and charges requiring registration in such form and in
AT A GLANCE

such manner as may be specified and any violation shall be an offence punishable under the Act.
An officer of the company, who authorises or permits the omission of any entry required to be made, shall be
liable to a penalty of level 1 on the standard scale.

Open to inspection
The register of charges maintained and the copies of instrument creating any mortgage and charge or
modification thereof shall be open to inspection of:
 any member or creditor of the company without fee; and
 any other person on payment of such fee as may be fixed by the company for each inspection.
The refusal of inspection of the said copies or the register shall be an offence and any person guilty of an offence
SPOTLIGHT

shall be liable to a penalty of level 1 on the standard scale, and every officer of the company who knowingly
authorises or permits the refusal shall incur the like penalty, and in addition to the above penalty, the registrar
may by order compel an immediate inspection of the copies or register.
 Example 06:
Afzal is creditor of XYZ Limited. He applied for inspection of register of mortgages and charges
but his request was declined by company secretary of XYZ Limited who insisted on payment of
fee which Afzal refused to pay. Afzal being creditor has right to inspect the register without fee
and he may complain to registrar. The registrar may by order compel an immediate inspection
and company secretary shall be liable to penalty of level 1.
 Example 07:
STICKY NOTES

Aslam, who is an employee of XYZ Limited but neither the member nor creditor, applied for
inspection of copy of instrument creating a mortgage but his request was declined by company
secretary of XYZ Limited who insisted on payment of fee as fixed by the company which Aslam
refused to pay. Aslam can insist on inspection only after payment of such fee as may be fixed by
the company for each inspection.
 Practice Question 01:
a) List any six mortgages and charges which are required to be registered under the provisions
of the Companies Act, 2017.
b) On 5 September 2022, Orange Limited (OL) has obtained a long term loan of Rs. 300 million
from Mango Bank Limited for expansion of its business, against mortgage of the following
properties:
 factory building situated in Quetta having value of Rs. 200 million.
 showroom situated in London, UK having value of Rs. 150 million.

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Under the provisions of the Companies Act, 2017:

i. discuss the duties of OL with regard to the registration of above mortgages and the
consequences of non-registration.
ii. state the requirements relating to the inspection of register of mortgages and charges.
 Solution:
Part (a)
The mortgages and charges which are required to be registered under the provisions of the
Companies Act, 2017 are as follows:
(i) a mortgage or charge on any immovable property wherever situated, or any interest
therein; or

AT A GLANCE
(ii) a mortgage or charge for the purposes of securing any issue of debentures;
(iii) a mortgage or charge on book debts of the company;
(iv) a floating charge on the undertaking or property of the company, including stock-in-
trade; or
(v) a charge on a ship or aircraft, or any share in a ship or aircraft;
(vi) a charge on goodwill or on any intellectual property;
Part (b) (i) Duties with regards to the registration of mortgages:
It shall be the duty of OL to get the said mortgages registered with the registrar. OL must file the
specified particulars of its properties together with a copy of the instrument, if any, verified in

SPOTLIGHT
the prescribed manner, by which the charge has been created or evidenced within a period of
thirty days as follows:
Property situated in Pakistan:
The factory building is situated in Quetta i.e. situated in Pakistan, hence, OL shall file the above
particulars for registration on or before 5 October 2022.
Property situated outside Pakistan:
The showroom is situated in London, UK i.e. situated outside Pakistan, hence, OL may file the
above particulars for registration, notwithstanding that further proceedings may be necessary
for OL to make the mortgage valid or effectual according to UK’s law.

STICKY NOTES
Consequences of non-registration:
The mortgage created by OL in favour of MBL shall not be taken into account by the liquidator or
any other creditor unless it is duly registered and a certificate of registration of such charge is
given by the registrar under the Companies Act, 2017.
In case OL failed to file the required particulars, then MBL being an interested person may file
the specified particulars of mortgages created by OL in MBL’s favour to get it affected, and OL
shall have to pay to MBL the amount of any fees properly paid by MBL to the registrar on the
registration.
Part (b) (ii) Inspection of register of mortgages and charges:
The register of mortgages and charges required to be maintained by OL under the Companies
Act, 2017 shall be open to inspection of:
 any member or creditor of OL without fee; and
 any other person on payment of such fee as may be fixed by OL for each inspection.

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5. OBJECTIVE BASED Q&A

01. The Companies Act 2017 requires certain charges (including mortgage and pledge) that must be
registered. Choose the one which is not required to be registered.
(a) a floating charge on the undertaking or property of the company, including stock-in-trade
(b) a mortgage or charge on book debts of the company
(c) promissory note given to secure the payment of any book debts of a company
(d) a charge on goodwill or on any intellectual property

02. A charge was created on the property of KLM Limited on 30 June 2021. What is the latest date by which
such charge must be registered?
AT A GLANCE

(a) 7 July 2021

(b) 30 July 2021
(c) 15 July 2021
(d) 31 July 2021

03. A charge was created in UAE on the property situated in UAE belonging to JKL Limited on 30 June 2021.
The documents posted from UAE to Pakistan take 3 days in ordinary course of post. What is the latest
date by which such charge must be registered?
(a) 30 July 2021
SPOTLIGHT

(b) 2 August 2021

(c) 8 August 2021
(d) 15 August 2021

04. If a charge is not registered:

(a) The relevant loan need not be repaid at all.
(b) The mortgage or charge would be void against the liquidator and creditors of the company.
(c) The mortgage or charge would be valid against the liquidator of the company.
STICKY NOTES

(d) The mortgage or charge would be valid against the creditors of the company.

05. Which of the following is correct with respect to duty or right as to registration of mortgages and charges?
(a) Only the borrowing company can file the mortgage or charge for registration and shall bear the cost
of registration.
(b) Only the charge-holder can file the mortgage or charge for registration and shall bear the cost of
registration.
(c) Either the borrowing company or the charge-holder can file the mortgage or charge for registration
and such company or charge-holder, as the case may be, shall bear the cost of registration.
(d) Either the borrowing company or the charge-holder can file the mortgage or charge for registration
and borrowing company shall bear the cost of registration.

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06. A company shall give intimation of the payment or satisfaction in full, of any mortgage or charge to the
registrar in the manner specified, within a period of:
(a) 15 days from the date of such payment or satisfaction.
(b) 30 days from the date of such payment or satisfaction.
(c) 30 days from the date of passing the special resolution.
(d) 15 days from the date of passing the special resolution.

07. Which of the following is incorrect in relation to satisfaction of mortgages and charges?
(a) The registrar may record the satisfaction of charge even when no intimation has been received by
him from the company.

AT A GLANCE
(b) The registrar shall send notice to charge-holder to show cause as to why the satisfaction of charge
may not be recorded as intimated to him regardless of whether a no-objection certificate on behalf
of holder is furnished by the company with the intimation.
(c) If no cause is shown by charge-holder of the mortgage or charge, the registrar shall accept the
memorandum of satisfaction and make an entry in the register of charges kept by him.
(d) If any cause is shown by charge-holder, the registrar shall record a note to that effect in the register
of charges and shall inform the company.

08. The Commission shall grant relief on being satisfied that the omission or misstatement in registration of
mortgages and charges:

SPOTLIGHT
(a) is not of a nature to prejudice the position of creditors or shareholders of the company.
(b) was accidental or due to inadvertence or to some other sufficient cause.
(c) on grounds it is just and equitable to do so.
(d) Any one or more of above.

09. In relation to rectification or registration of mortgages and charges, the Commission, on such terms and
conditions as seem to the Commission just and expedient, may order:
(a) that the omission or misstatement be rectified.
(b) that the time for filing the required particulars be extended.

STICKY NOTES
(c) as to the costs of the application as it thinks fit.
(d) Any one or more of above.

10. A company did not maintain proper register of mortgages and charges and a charge registered with the
registrar was omitted from the register maintained by the company. Which of the following is not a
consequence thereof:
(a) The charge shall become void against the liquidator and creditors of the company.
(b) Such violation shall be an offence punishable under the Act.
(c) Any officer in default shall be liable to penalty of level 1 on the standard scale.
(d) None of the above options is correct as all of above are consequences according to Companies Act,
2017.

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11. Charcoal Limited (CL) has purchased plant and machinery for Rs. 100 million from Fuchsia (Private)
Limited (FPL). Following information in this respect are available:
 50% payment will be made to FPL on 15 March 2022 by obtaining a bank loan. The loan will be
secured against mortgage of CL’s factory building.
 The balance will be paid in four equal quarterly instalments which will be secured through the
charge over CL’s inventory and pledge of CL’s ordinary shares of one of the directors.
Which of the following securities are required to be registered with the registrar?
(a) Mortgage over CL’s factory building and pledge of CL’s ordinary shares
(b) Mortgage over CL’s factory building and charge over CL’s inventory
(c) Mortgage over CL’s factory building only
AT A GLANCE

(d) Mortgage over CL’s factory building, pledge of CL’s ordinary shares and charge over CL’s inventory

12. Which of the following statements is correct regarding inspection of a company’s register of mortgages
and charges?
(a) Only a member or a creditor of the company can inspect without fee
(b) Any member of the company can inspect without fee and any other person including creditors can
inspect on payment of such fee as fixed by the company
(c) Anyone can inspect on payment of such fee as fixed by the company
(d) Any member or creditor of the company can inspect without fee and any other person can inspect
on payment of such fee as fixed by the company
SPOTLIGHT

13. The registrar has not received any intimation of satisfaction of charges from the company. He may still
enter in the register of mortgages and charges a memorandum of satisfaction with respect to the
registered charge only when:
(a) concerned bank informed to the registrar
(b) the final payment of debt has been made
(c) the registrar has the knowledge that the payment of debt has been made
(d) the registrar himself has the evidence that the debt has been paid
STICKY NOTES

14. Lavender Limited has granted long term loan of Rs. 10 million to its chief operating officer, against which
he has deposited a negotiable instrument as security.
Which of the following statements is correct regarding registration of above security under the
Companies Act, 2017?
(a) Negotiable instrument is not considered as a security for the purpose of mortgage or charge and
does not require registration
(b) Negotiable instrument above Rs. 10 million is required to be registered as mortgage or charge
(c) Negotiable instrument upto Rs. 10 million is not required to be registered as mortgage or charge
(d) Negotiable instrument is acceptable as security; hence, it is required to be registered as mortgage
or charge

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15. On 8 September 2022, Quince Limited (QL) paid the final instalment of long term loan obtained from
Coconut Bank Limited. Identify the last date by which QL shall intimate to the registrar about the payment
in full of the mortgage created and registered under the Companies Act, 2017.
(a) 23 September 2022
(b) 7 October 2022
(c) 23 October 2022
(d) 7 November 2022

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (c) Promissory note given to secure the payment of any book debts of a company is not required
to be registered. [Section 100]
02. (b) 30 July 2021 i.e. within 30 days after the date of creation of charge. [Section 100]
03. (b) 2 August 2021 i.e. within 30 days after the 3 days allowed for post to reach Pakistan. [Section
100]
04. (b) The mortgage or charge would be void against the liquidator and creditors of the company.
[Section 100]
05. (d) Either the borrowing company or the charge-holder can file the mortgage or charge for
registration and borrowing company shall bear the cost of registration. [Section 105]
AT A GLANCE

06. (b) 30 days from the date of such payment or satisfaction. [Section 109]
07. (b) The show cause notice shall not be required if a no objection certificate on behalf of the holder
of the mortgage or charge is furnished, along-with the intimation submitted for the payment
or satisfaction. [Section 109&110]
08. (d) Any one or more of above [Section 108]
09. (d) Any one or more of above [Section 108]
10. (a) Not maintaining proper record would not invalidate the mortgage or charge if it has been
properly registered with the registrar. However, it would still be violation resulting in the
penalty under the law. [Section 112]
SPOTLIGHT

11. (b) Mortgage over CL’s factory building and charge over CL’s inventory
12. (d) Any member or creditor of the company can inspect without fee and any other person can
inspect on payment of such fee as fixed by the company
13. (d) the registrar himself has the evidence that the debt has been paid
14. (a) Negotiable instrument is not considered as a security for the purpose of mortgage or charge
and does not require registration
15. (b) 7 October 2022
STICKY NOTES

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CAF 7: COMPANY LAW CHAPTER 7: MORTGAGES AND CHARGES

STICKY NOTES

Borrowing Powers
1. Borrowing powers to be part of memorandum (implied power)
2. Restriction on borrowing powers (commencement of business)
3. Power to pledge/mortgage/charge company’s assets as security
4. Manner of exercising borrowing powers (board of directors subject to
articles)
5. Ultra vires borrowing (borrowing exceeding the authority)

AT A GLANCE
Forms of borrowings
1. Borrowing by issuing debentures
2. Borrowing from credit institutions
3. Borrowing from other sources

Forms of Security

SPOTLIGHT
1. Pledge
2. Mortgage
3. Charge

Requirement of registration
1. List of mortgage and charges to be registered (9 items)
2. Negotiable Instruments not to be treated a mortgage or charge

STICKY NOTES
3. Particulars, manner and time limit for registration (30 days after creation)
4. If created outside Pakistan on property outside Pakistan (30 days after
ordinary post time)
5. If created in Pakistan on property outside Pakistan (insturmnet may be filed
for registration even when further proceedings may be necessary in other
country)
6. Company acquiring property subject to a mortgage or charge (same)
7. Certificate of registration (by registrar)
8. Constructive notice (to any one acquiring company’s property)
9. Effect of non-registration (would beccome void)

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Duty/Right as to registration
1. Duty of company (to get it registered)
2. Right of interested person (to be reimbursed for fees properly paid)

Modification in the particulars of mortgage or charge

1. Duty of company (to send to the registrar)
2. Procedure (same as registration)
AT A GLANCE

Satisfaction of charge
1. Duty of company to inform registrar (within 30 days)
2. Show cause notice to lender (within such time not exceeding 14 days)
3. If no cause is shown (registrar shall accept the memorandum of satisfaction)
4. If any cause is shown (registrar shall note and inform the company)
5. When show cause notice is not required (NOC filed along)
6. Effect of delay (additional fee and penalty)

The registrar may register satisfaction of charge even without intimation received
SPOTLIGHT

by him from the company.

Rectification of register of mortgages

1. Application to the Commission
2. Conditions for granting relief (accidental, just and equitable etc)
3. Order by the Commission (time extension, rectification, costs)
4. Prior rights not to be affected due to rectification
STICKY NOTES

Records and register

1. Copy of instrument creating mortgage or charge to be kept at registered
office
2. Requirement to maintain company’s register of mortgages and charges
3. Open to inspection (member and creditor without fee)

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 CHAPTER 8

MEETINGS AND RESOLUTIONS

AT A GLANCE
IN THIS CHAPTER: The meetings of directors include board meetings in which all
directors may attend and the meetings of committee of directors

AT A GLANCE
AT A GLANCE
in which selected directors participate.
SPOTLIGHT The meetings of members include general meetings (statutory
meeting, annual general meeting & extra ordinary general
1. Company Meetings meeting) in which all members are entitled to attend and class
meetings which only the members of specific class may attend.
2. Service of Documents and Only public companies are required to hold statutory meeting
Notices and a statutory report is presented and discussed therein.
3. Conduct of Meetings Every company (other than SMC) shall hold an annual general
meeting at least once in a calendar year.
4. Resolutions and Records In addition to the annual general meeting, extra ordinary

SPOTLIGHT
general meetings may be called by directors, or on requisition of
5. Objective Based Q&A members to discuss any matter.
STICKY NOTES In case of default by directors in holding a general meeting, the
Commission may call the meeting and the cost to conduct such
meeting shall be borne by the company or as directed by the
Commission.
Any notice to be served on company or any officer shall be
served at registered office. Any notice to be served on a member
at his registered address or address supplied with the company
by the member.

STICKY NOTES
Members are entitled to vote by show of hands or may demand
poll. Members may also appoint proxies. All resolutions and
minutes of meetings are recorded and kept by the company.

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1. COMPANY MEETINGS
1.1 Types of meetings

Meetings of directors
There are two types of meetings of directors, namely:
 board meetings which may be attended by all the directors; and
 meetings of committee of directors in which selected directors participate to decide for specific tasks
assigned to those committees. The committees of directors may include audit committee, human
resource and remuneration committee, nomination committee and risk management committee.
AT A GLANCE

Meetings of members
There are two general category es of meetings of members namely:
 General meetings in which all the members who are entitled to attend and vote at such meetings
according to articles may participate. There are three types of general meetings namely:
 statutory meeting;
 annual general meeting; and
 extra-ordinary general meeting.
 Class meetings (any specific class of members e.g. meeting of preference shareholders).
General meetings are chaired by the chairman of the board of directors, and other directors also attend. However,
SPOTLIGHT

the directors do not have a right to vote at a general meeting unless they are also a member of the company. They
can, then, vote at the meeting as a member.

1.2 Statutory meeting [Section 131]

Requirement
Every public company having a share capital shall hold a general meeting of the members of the company, to be
called the “statutory meeting”.
In case first annual general meeting of a company is decided to be held earlier, no statutory meeting shall be
required.
STICKY NOTES

The requirement shall not apply to a public company which converts itself from a private company after one year
of incorporation.

Time limit
The statutory meeting shall be held within earlier of:
 180 days from commencement of business; or
 9 months from the date of its incorporation.
 Example 01:
A public company was incorporated on 3 January 2021 and was allowed to commence business
from 25 April 2021. It should hold statutory meeting latest by 2 October 2021 being earlier of
180 days from commencement of business (i.e. 21 October 2021) and 9 months from
incorporation (i.e. 2 October 2021).

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 Example 02:
A public company was incorporated on 7 January 2021 and was allowed to commence business
from 22 February 2021. It should hold statutory meeting latest by 20 August 2021 being earlier
of 180 days from commencement of business (i.e. 20 August 2021) and 9 months from
incorporation (i.e. 6 October 2021).
Notice
The notice of a statutory meeting shall be sent to the members at least 21 days before the meeting along-with a
copy of statutory report.

Contents of statutory report

The statutory report shall state:

AT A GLANCE
a) the total number of shares allotted, distinguishing shares allotted other than in cash, and stating the
consideration for which they have been allotted;
b) the total amount of cash received against the shares allotted;
c) an abstract of receipts and payments made up to a date within 15 days of date of the report, under
distinctive headings:
 the receipts from shares, debentures and other sources;
 the payments made;
 the balance remaining in hand; and
 an account or estimate of the preliminary expenses of the company showing separately any
commission or discount paid or to be paid on issue of shares or debentures;

SPOTLIGHT
d) the names, addresses and occupations of the directors, chief executive, secretary, auditors and legal
advisers of the company and the changes, if any, since incorporation;
e) the particulars of any contract to modified for which approval of meeting is required, together with
proposed modification;
f) the extent to which underwriting contracts have been carried out together with the reasons for their not
having been carried out; and
g) any commission or brokerage paid / payable for the issue of shares to any director, chief executive,
secretary or officer or to a private company of which he is a director.
The statutory report shall also contain a brief account of the state of the company‘s affairs since its incorporation

STICKY NOTES
and the business plan, including any change or proposed change affecting the interest of shareholders and
business prospects of the company.

Report of the auditors

The statutory report shall, so far as it relates to the shares allotted by the company, the cash received in respect
of such shares and to the receipts and payments of the company, be accompanied by a report of the auditors of
the company as to the correctness of such allotment, receipt of cash, receipts and payments.

Certification / Authentication
The statutory report shall be certified by the chief executive and at least one director of the company, and in case
of a listed company also by the chief financial officer.

Filing with registrar

The directors shall cause a copy of the statutory report, along-with report of the auditors as aforesaid, to be
delivered to the registrar for registration forthwith after sending the report to the members of the company.

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List of members at meeting

The directors shall cause a list showing the names, occupations, nationality and addresses of the members of the
company, and the number of shares held by them respectively, to be produced at the commencement of the
meeting and to remain open and accessible to any member of the company during the continuance of the meeting.

Discussion at meeting
The members of the company present at the meeting shall be at liberty to discuss any matter relating to the
formation of the company or arising out of the statutory report, whether previous notice has been given or not,
but no resolution of which notice has not been given in accordance with the articles may be passed.

Adjournment
The meeting may adjourn from time to time, and at any adjourned meeting any resolution of which notice has
AT A GLANCE

been given in accordance with the articles, either before or after the original meeting, may be passed, and an
adjourned meeting shall have the same powers as an original meeting.

1.3 Annual general meeting (AGM) [Section 132]

Requirement and time limit
Every company (other than single member company) shall hold an AGM within 16 months from the date of its
incorporation and thereafter once in every calendar year within a period of 120 days following the close of its
financial year.
 Example 03:
Suppose ABC Limited is incorporated on 1st April 2020 and it opts for a financial year end of 30th
June every year. It would be required to hold its first annual general meeting in next sixteen
SPOTLIGHT

month time period. So it can opt to hold the first annual general meeting till 31st July 2021.
We assume that the company opted to hold the annual general meeting on 31st July 2021. From
this date onward company will be required to hold the annual general meeting within 120 days
of the close of financial year and at least once in a calendar year. Keeping all the above in view,
what shall be the latest time on which company can hold its AGM in 2022?
The next financial year will close on 30th June 2022, so till when would the company be required
to hold its AGM? It should be 28th October 2022 because it cannot wait for more than 120 days
from close of financial year.
 Example 04:
XYZ Limited, another company registered on 1st September 2020, Its financial year closes in 30th
STICKY NOTES

September each year. It held its first annual general meeting on 1st November 2021 which was
well within 16 months from the date of its incorporation.
What is the latest date by which company can hold its second AGM? It must be within 120 days
of close of financial year and at least one AGM must be held in each calendar year, so latest date
should be 31st December 2022.

Extension in time
In the case of a listed company, the Commission, and, in any other case, the registrar, may for any special reason
extend the time within which any AGM, shall be held by a period not exceeding 30 days.

Place of meeting
In case of listed company, AGM shall be held in the town in which the registered office of the company is situated
or in a nearest city.

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However, at least 7 days prior to the date of meeting, on the demand of members residing in a city who hold at
least 10% of the total paid up capital or such other percentage as may be specified, a listed company must provide
the facility of video–link to such members enabling them to participate in its AGM.
Notice: All companies
The notice of an AGM shall be sent to the members and every person who is entitled to receive notice of general
meetings at least 21 days before the date fixed for the meeting.
Notice: Listed company
In case of a listed company, such notice shall be sent to the Commission, in addition to its being dispatched in the
normal course to members and the notice shall also be published in English and Urdu languages at least in one
issue each of a daily newspaper of respective language having nationwide circulation.
Calling a meeting

AT A GLANCE
AGM is called on the order of directors and not of the members.

1.4 Extra-ordinary general meeting (EGM) [Section 133]

All general meetings of a company, other than the AGM and the statutory meeting, shall be called extra-ordinary
general meetings.
Calling EGM by the board
The board may at any time call an EGM to consider any matter which requires the approval of the company in a
general meeting.
Calling EGM by the board on requisition of members

SPOTLIGHT
The board shall forthwith proceed to call an EGM, at the requisition made by the members:
 in case of a company having share capital, representing not less than 1/10 th of the total voting power as
on the date of deposit of requisition; and
 in case of a company not having share capital, not less than 1/10th of the total members.
The requisition shall state the objects of the meeting, be signed by the requisitionists and deposited at the
registered office of the company.
Calling EGM by requisitionists themselves
If the board does not proceed within 21 days from the date of the requisition being so deposited to cause a
meeting to be called, the requisitionists, may themselves call the meeting, but in either case any meeting so called
shall be held within 90 days from the date of the deposit of the requisition.

STICKY NOTES
Any meeting called by the requisitionists shall be called in the same manner, as nearly as possible, as that in
which meetings are to be called by board.
Any reasonable expenses incurred by the requisitionists in calling a meeting shall be reimbursed to the
requisitionists by the company and the sums so paid shall be deducted from any fee or other remuneration
payable to such of the directors who were in default in calling the meeting.

Notice
The notice of EGM is required to be sent to the member’s at least 21 days before the date of the meeting similarly
as of the notice of AGM.
However, in case of unlisted company, if all the members entitled to attend and vote at any EGM so agree, a
meeting may be held at a shorter notice.

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 CHAPTER 8: MEETINGS AND RESOLUTIONS CAF 7: COMPANY LAW

1.5 Power of SECP to call meetings [Section 147 & 148]

Power to give directions

The Commission has power to call general meeting of the company in case of:
 There is default in conducting AGM or statutory meeting.
 The directors did not proceed to call an EGM on the requisition of members.
The Commission may give such directions in relation to the calling, holding and conducting of the meeting and
preparation of any document required with respect to the meeting as the Commission may think fit.

One member may be quorum

The above-mentioned directions may include a direction that one member of the company present in person or
AT A GLANCE

by proxy shall be deemed to constitute a meeting.

Cost of conducting the meeting

Any meeting so conducted shall, for all purposes, be deemed to be a meeting of the company duly called, held and
conducted, and all expenses incurred for such meeting shall be paid by the company unless the Commission
directs the same to be recovered from any officer of the company.

Penalty
If any person makes default in holding a meeting of the company called by the Commission or in complying with
any directions of the Commission, shall be liable to a penalty of level 3 on the standard scale.
 Practice Question 01:
SPOTLIGHT

Explain whether all limited companies are required to hold statutory meeting within 6 months
of incorporation.
 Solution:
The statement is incorrect because only public companies having share capital are required to
hold statutory meetings. Moreover, the statutory meeting is to be held within a period of 180
days, from the date at which the company is entitled to commence business or nine months from
the date of its incorporation whichever is earlier.
 Practice Question 02:
Joint Limited (JL) was incorporated as a public company on 1 February 2018 and was authorized
STICKY NOTES

by the registrar to commence business from 1 April 2018. The board of directors is divided on
the issue of holding first general meeting of its members.
Two directors are of the view that the meeting should be held on 30 September 2018 whereas
majority of the directors want to hold it on 30 October 2018.
In the light of the provisions of the Companies Act, 2017:
i. Explain whether you agree with the proposal of the majority of the directors or the other
two directors.
ii. What would be your opinion in (i) above if the directors want to hold first annual general
meeting on 25 September 2018?

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 Solution:
Part (i) Statutory meeting:
JL is required to hold its first general meeting (Statutory meeting) within a period of 180 days
from the date at which it was entitled to commence business or within nine months from the date
of its incorporation whichever is earlier.
Therefore, in view of the above, JL is required to hold its statutory meeting not later than 27
September 2018.
Part (ii)
If the directors decide to hold first AGM on 25 September 2018 than no statutory meeting shall
be required.
 Practice Question 03:

AT A GLANCE
Karachi Telecommunication (Private) Limited (KTL) was incorporated on 1st March 2019 under
the Companies Act 2017. Its directors have decided to hold the first Annual General Meeting
(AGM) of the company on August 10, 2020, for placing the first audited financial statements for
the period ended March 31, 2020, for approval.
Comment on the decision of the directors, in the light of provisions contained in the Companies
Act 2017.
 Solution:
The decision of the directors contravenes the Companies Act, 2017 since the first financial
statement must be laid within sixteen months after the date of incorporation of the company. The
latest date for first AGM must be 30th June 2020 and not afterwards.

SPOTLIGHT
 Practice Question 04:
Explain the exceptions to this provisions as specified under the Companies Act, 2017.
“Every company shall hold its annual general meeting within a period of 120 days following the
close of its financial year.”
 Solution:
In the case of a listed company, the Commission and in any other case, the registrar, may for any
special reason extend the time within which any annual general meeting, shall be held, by a
period not exceeding 30 days.
 Practice Question 05:

STICKY NOTES
Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017 and support your answer with reasons:
“Notice of an extraordinary general meeting should always be sent to the shareholders, at least
21 days before the date of the meeting.”
 Solution:
In the case of an unlisted company if all the members entitled to attend and vote at the meeting
so agree, the EGM may be held at a shorter notice.
 Practice Question 06:
Peach Panther Ltd (PPL) is planning to call an Extra-ordinary General Meeting (EGM) to transact
certain businesses due to an emergency faced by the company. You are required to answer the
following:
i. Which meetings are called EGM?
ii. What is the minimum notice period for calling an EGM? Can PPL hold such meeting on a
shorter notice?

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 Solution:
Part (i)
All general meetings of a company other than Annual General Meeting and Statutory Meeting
shall be called EGM.
Part (ii)
The minimum notice period for calling an EGM is 21 days. In case of emergency affecting the
business of a company other than a listed company, if all the members entitled to attend and vote
in the meeting agree, then an EGM can be held at such shorter notice.
 Practice Question 07:
Violet Limited (VL), a public unlisted company, received its certificate of incorporation on 1
AT A GLANCE

August 2021. VL’s management submitted duly verified declaration along with necessary
documents to the registrar related to commencement of business that were accepted and
registered by the registrar on 1 October 2021.
VL started its business operations with effect from 15 October 2021. However, it was revealed in
the very first month of its commercial production that the main product is not meeting the
specified standards. After engaging experts and making modification in the production process,
VL resumed its production activities on 25 November 2021.
VL closes its financial year on 30 September.
Under the provisions of the Companies Act, 2017 advise VL’s directors with regard to the
following:
a) The period within which VL is required to hold the statutory meeting.
SPOTLIGHT

b) The contents that need to be included in the statutory report with respect to share capital.
c) Can VL avoid holding of the statutory meeting due to any reason(s) including production
issues as faced by VL?
 Solution:
Part (a)
Violet Limited (VL) shall hold the statutory meeting at the earliest of the following two dates:
 within a period of 180 days from the date at which VL is entitled to commence business
i.e. the date when the registrar has accepted and registered the duly verified declaration
STICKY NOTES

filed by VL i.e. 1 October 2021. Hence 180 days will be on 29 March 2022. Or
 within 9 months from the date of its incorporation. VL received its certificate of
incorporation on 1 August 2021, hence nine months will be on 30 April 2022.
Therefore, VL is required to hold its statutory meeting not later than 29 March 2022.
Part (b)
Following are the contents that need to be included in VL’s statutory report with respect to share
capital:
 The total number of shares allotted by VL, distinguishing shares allotted other than in
cash, and stating the consideration for which they have been allotted;
 The total amount of cash received by VL in respect of all the shares allotted;
 In VL’s abstract of the receipts and the payments, exhibit the receipts from shares, and
show separately under the preliminary expenses any commission or discount paid or to
be paid on the issue or sale of shares;

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 The particulars of any commission or brokerage paid or to be paid in connection with

the issue or sale of shares to any of VL’s director, chief executive, secretary or officer or
to a private company of which he is a director;
 The statutory report shall be accompanied by a report of VL’s auditors, so far as it relates
to the shares allotted by it, the cash received in respect of such shares, as to the
correctness of such allotment and receipt of cash.
Part (c)
VL could avoid the requirement of holding its statutory meeting if it could hold its first annual
general meeting before 29 March 2022. However, the same could not be avoided on any other
reason including production issues as faced by VL.

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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2. SERVICE OF DOCUMENTS AND NOTICES

Service of document/notice means delivering the document/notice in the way prescribed or permitted by the
applicable laws.

2.1 Service of documents on company and its officers [Section 53]

A document or information may be served on the company or any of its officers at the registered office of the
company:
a) against an acknowledgement; or
b) by post or courier service; or
c) through electronic means; or
d) in any other manner as may be specified.
AT A GLANCE

2.2 Service of documents on Commission or the registrar [Section 54]

A document or information may be served on the Commission or the registrar:
a) against an acknowledgement; or
b) by post or courier service; or
c) through electronic means; or
d) in any other manner as may be specified.

2.3 Service of notice on a member [Section 55]

SPOTLIGHT

Address
A document or information may be served on a member:
a) at his registered address; or
b) if he has no registered address in Pakistan, at the address supplied by him to the company for the giving
of notice to him.

Manner of serving
A document or information may be served on a member
a) against an acknowledgement; or
STICKY NOTES

b) by post or courier service; or

c) through electronic means; or
d) in any other manner as may be specified.

When notice by post to be deemed effective

Where a notice is sent by post, service of the notice shall be deemed to be effected by properly addressing,
prepaying and posting a letter containing the notice and, unless the contrary is proved, to have been effected at
the time at which the letter will be delivered in the ordinary course of post.
 Example 05:
XYZ Limited posted letters containing the notice to its members by post on 2 nd February by
properly addressing, prepaying and positing for its AGM to be held on 27th February. One of the
letter addressed to Zahid was delayed by 15 days due to error by relevant postal staff. The letters
are usually delivered within 2 days but Zahid received it on 19 th February. Zahid has questioned
the validity of AGM on account of delay in delivery of notice which was received just 8 days (and
not at least 21 days) before AGM. In these circumstances, the notice shall be deemed effected and
Zahid’s claim is not valid.

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Notice in case of joint-holders

A notice may be given by the company to the joint-holders of a share by giving the notice to the joint-holder
named first in the register of members in respect of the share.
 Example 06:
Azam, Babar and Chand (names in accordance with sequence in register of members) are joint
shareholders of 5% shares in XYZ Limited. XYZ Limited sent notice for AGM only to Babar. Azam
and Chand claimed they should have received the notice instead. Azam’s claim is valid while
Chand’s claim is not valid.

Notice to legal representative

A notice may be given by the company to the person entitled to a share in consequence of death or insolvency of

AT A GLANCE
a member addressed to him by name or by the title or representatives of the deceased or assignees of the
insolvent or by any like description, at the address supplied for the purpose by the person claiming to be so
entitled.
 Example 07:
XYZ Limited received a notice from official assignee of Sajid’, one of its members, informing XYZ
Limited of insolvency of Sajid and his appointment as official assignee with relevant particulars
and documents. XYZ Limited is in process of calling an EGM, it may send the notice to official
assignee at address provided by him.

SPOTLIGHT
STICKY NOTES

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3. CONDUCT OF MEETINGS
3.1 Provisions as to meetings and votes [Section 134]
The following provisions shall apply to the general meetings of a company or meetings of a class of members of
the company.

Notice
Notice of meeting is a formal document sent to each member at his registered address or other communication
address provided in Pakistan.
The notice may be served to members against an acknowledgement or by post or courier service or through
electronic means or any other specified manner.
AT A GLANCE

Notice of the meeting specifying the place and the day and hour of the meeting alongwith a statement of the
business to be transacted at the meeting shall be given:
i. to every member or class of the members of the company as the case may be;
ii. to every director;
iii. to any person who is entitled to a share in consequence of the death or bankruptcy of a member, if the
company has been notified of his entitlement;
iv. to the auditors of the company.
The notice shall be sent in the manner in which notices are required to be served, but the accidental omission to
give notice to, or the non-receipt of notice by, any member shall not invalidate the proceedings at any meeting.

Facility of video-link
SPOTLIGHT

In case of a listed company, if certain members who hold 10% of the total paid up capital or such other percentage
as may be specified, reside in a city, it shall be mentioned in the notice that such members, may demand the
company to provide them the facility of video-link for attending the meeting.

Participation
Members of a company may participate in the meeting personally, through video-link or by proxy.

Ordinary business & Special business

In the case of an annual general meeting, all the businesses to be transacted shall be deemed special, other than:
STICKY NOTES

i. the consideration of financial statements and the reports of the board and auditors;
ii. the declaration of any dividend;
iii. the election and appointment of directors in place of those retiring;
iv. the appointment of the auditors and fixation of their remuneration.
Statement of material facts for special business
A statement setting out all material facts concerning special business shall be annexed to the notice of the
meeting.
In particular, the nature and extent of the interest (if any) of every director, whether directly or indirectly shall
be stated.
Where any item of business requires an approval to any document by the meeting, the time when and the place
where the document may be inspected, shall be specified in the statement.

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Presiding the meeting

The chairman of the board, if any, shall preside as chairman at every general meeting of the company.
If there is no such chairman, or if at any meeting he is not present within 15 minutes after the time appointed for
holding the meeting, or is unwilling to act as chairman, any one of the directors present may be elected to be
chairman.
If none of the directors is present or is unwilling to act as chairman, the members present shall choose one of
their member to be the chairman.

Number of votes
In the case of a company having a share capital, every member shall have votes proportionate to the paid-up
value of the shares or other securities carrying voting rights held by him according to the entitlement of the class

AT A GLANCE
of such shares or securities, as the case may be. However, at the time of voting, fractional votes shall not be taken
into account.
Note: please note carefully that we have used the word ‘proportionate to the paid up value of shares’ rather than
‘equal to the paid up value of shares’. This is because of the various classes of share capital in the company. If the
company has more than one class of shares then voting rights of one class may differ from other but whatever
the difference may be the voting rights shall have regard to the paid up value of shares.
In the case of a company limited by guarantee and having no share capital, every member shall have one vote.
On a poll, votes may be given either personally or through video-link or by proxy or through postal ballot.

Right to vote
A member holding shares or other securities carrying voting rights shall not be debarred from casting his vote,

SPOTLIGHT
nor shall anything contained in the articles have the effect of so debarring him.

Single member company

All the requirements of the Companies Act regarding calling of, holding and approval in general meeting, board
meeting and election of directors in case of a single member company, shall be deemed complied with; if the
decision is recorded in the relevant minutes book and signed by the sole member or sole director as the case may
be.

3.2 Voting by show of hands [Section 141 & 142]

Voting by show of hands

STICKY NOTES
At any general meeting, a resolution put to the vote of the meeting shall, unless a poll is demanded, be decided
on a show of hands.

Declaration by chairman
On a vote on a resolution at a meeting by a show of hands, a declaration by the chairman that the resolution:
 has or has not been passed; or
 passed unanimously or by a particular majority;
is conclusive evidence of that fact without proof of the number or proportion of the votes recorded in favour of
or against the resolution.
An entry in respect of such a declaration in minutes of the meeting recorded is also conclusive evidence of that
fact without such proof.

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3.3 Voting by poll [Section 143, 144 & 145]

Demand for poll
Before or on the declaration of the result of the voting on any resolution on a show of hands, a poll:
 may be ordered to be taken by the chairman of the meeting of his own motion; and
 shall be ordered to be taken by him on a demand made in that behalf by the members present in person
or through video-link or by proxy, where allowed, and having not less than 1/10th of the total voting
power.
The demand for a poll may be withdrawn at any time by the members who made the demand.

Poll through secret ballot

AT A GLANCE

When a poll is demanded on any resolution, it may be ordered to be taken by the chairman of the meeting by
secret ballot on his own motion, and shall be ordered to be taken by him on a demand made in that behalf by the
members present in person, through video-link or by proxy, where allowed, and having not less than 1/10th of
the total voting power.

Time of taking poll

A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith.
A poll demanded on any other question shall be taken at such time, not more than 14 days from the day on which
it is demanded, as the chairman of the meeting may direct.

Conduct and result of poll

SPOTLIGHT

When a poll is taken, the chairman or his nominee and a representative of the members demanding the poll shall
scrutinize the votes given on the poll and the result shall be announced by the chairman.
The chairman shall have power to regulate the manner in which a poll shall be taken.
The result of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was
taken.

3.4 Proxies [Section 137]

Right to appoint proxy
A member of a company entitled to attend and vote at a meeting of the company may appoint another person as
his proxy to exercise all or any of his rights to attend, speak and vote at a meeting.
STICKY NOTES

The appointment of proxy is not allowed in the case of a company not having a share capital unless the articles
provide otherwise.

More than one proxy for one meeting

A member shall not be entitled to appoint more than one proxy to attend any one meeting. If any member
appoints more than one proxy for any one meeting and more than one instruments of proxy are deposited with
the company, all such instruments of proxy shall be rendered invalid.

Who may be appointed as proxy?

A proxy must be a member unless the articles of the company permit appointment of a non-member as proxy.

Notice accompanied by proxy form

Every notice of a meeting of a company shall prominently set out the member‘s right to appoint a proxy and the
right of such proxy to attend, speak and vote in the place of the member at the meeting and every such notice
shall be accompanied by a proxy form.

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Proxy instrument
The instrument appointing a proxy shall:
 be in writing; and
 be signed by the appointer or his attorney duly authorised in writing, or if the appointer is a body
corporate, be signed by an officer or an attorney duly authorised by it.
An instrument appointing a proxy, if in the form set out in Table A in the First Schedule shall not be questioned
on the ground that it fails to comply with any special requirements specified for such instruments by the articles.

Time limit
The proxies must be lodged with the company not later than 48 hours before the time for holding a meeting and
any provision to the contrary in the company‘s articles shall be void.

AT A GLANCE
In calculating the period, no account shall be taken of any part of the day that is not a working day.

Rights of proxy
The members or their proxies shall be entitled to do any or all the following things in a general meeting, namely:
 demand a poll on any question; and
 on a question before the meeting in which poll is demanded, to abstain from voting or not to exercise
their full voting rights;
and any provision to the contrary in the articles shall be void.

Inspection of proxy forms

SPOTLIGHT
Every member entitled to vote at a meeting of the company shall be entitled to inspect during the business hours
of the company all proxies lodged with the company.
3.5 Representation of body corporate at meetings [Section 138]
Body corporate as a member
A body corporate or corporation which is a member of another company may, by resolution of its board or other
governing body authorise an individual to act as its representative at any meeting of that other company, and the
individual so authorised shall be entitled to exercise the same powers on behalf of the corporation which he
represents.
Body corporate as a creditor

STICKY NOTES
A body corporate or corporation which is a creditor of another company may, by resolution of its board or other
governing body authorise an individual to act as its representative at any meeting of the creditors of that other
company and the person so authorised shall be entitled to exercise the same powers on behalf of the corporation
which he represents.

3.6 Representation of government at meetings [Section 139]

Power to appoint
The Federal Government (through concerned Minister-in-Charge) or a Provincial Government, as a member of a
company, may appoint such individual as it thinks fit to act as its representative at any meeting of the company
or at any meeting of any class of members of the company.

Rights of appointed individual

An individual appointed to act as aforesaid shall, for the purpose of the Companies Act, be deemed to be a
member of such a company and shall be entitled to exercise the same rights and powers, including the right to
appoint proxy, as the Federal Government or Provincial Government may exercise as a member of the company.

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3.7 Quorum of general meeting [Section 135]

Meaning of quorum
Quorum means certain minimum number of members of a company as is fixed as competent to transact business
in a general meeting of members in the absence of the other members. Any business transacted in a meeting
without quorum shall be void.
Minimum quorum requirement

Listed company 10 members present personally or through video link

representing at least 25% voting power (own or proxy).

Other company having share capital 2 members present personally or through video link representing
at least 25% voting power (own or proxy).
AT A GLANCE

Company not having share capital As provided in the articles.

Larger Quorum
A company may fix quorum larger than the above-mentioned minimum quorum by its articles.

Absence of quorum
If the required quorum is not present at the meeting within half an hour from the time appointed for the meeting,
the meeting shall be:
 dissolved, if called upon the requisition of members; and
SPOTLIGHT

 adjourned to the same day in the next week at the same time and place, if called by the directors on their
own.

Quorum at adjourned meeting

If a quorum is not present within half an hour at adjourned meeting, the members present in the meeting (either
personally or through video link), not being less than two, shall be a quorum, unless the articles provide
otherwise.

3.8 Court declaring a general meeting invalid [Section 136]

Petition criteria
STICKY NOTES

Members having not less than 10% of the voting power in the company may file a petition that the proceedings
of a general meeting be declared invalid by reason of a material defect or omission in the notice or irregularity
in the proceedings of the meeting, which prevented members from using their rights effectively.

Time limit
The petition shall be made within 30 days of the impugned meeting.

Court order
The Court may declare such proceedings or part thereof invalid and direct holding of a fresh general meeting, if
satisfied.
 Practice Question 08:
Explain the term “special business” with reference to the Companies Act, 2017. Give at least two
examples

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 Solution:
All businesses transacted at annual general meeting, shall be treated as “special business” except
the following:
 declaration of dividend,
 consideration of the financial statements and the reports of the directors and auditors,
 election of directors,
 appointment and fixing of the remuneration of auditors.
Examples:
 Disposal of a significant business segment of company.
 Investment in associated undertaking.

AT A GLANCE
 Practice Question 09:
Unique Limited is due to hold its first annual general meeting on 20 April 2018. Under the
provisions of the Companies Act, 2017 advise the directors with regard to the types of businesses
which would be deemed to be special business and also discuss additional formalities which are
required to be complied with in respect of notice containing special business.
 Solution:
In case of an annual general meeting, all businesses to be transacted shall be deemed special
other than:
i. the consideration of financial statements and the reports of the board and auditors;
ii. the declaration of any dividend;

SPOTLIGHT
iii. the election and appointment of directors in place of those retiring; and
iv. the appointment of the auditors and fixation of their remuneration.
Where any special business is to be transacted at a general meeting, there shall be annexed to the
notice of the meeting a statement setting out all material facts concerning such business,
including, in particular, the nature and extent of the interest, if any, therein of every director,
whether directly or indirectly. Where any item of business consists of according of an approval
to any document by the meeting, the statement shall specify the time and the place for the
inspection of such document.
 Practice Question 10:
On declaration of the result of voting in the Annual General Meeting (AGM) by the chairman of

STICKY NOTES
AS Limited, a public company, few shareholders demanded a poll. The chairman refused to hold
the poll and declared the result of voting on show of hands.
In the light of Companies Act, 2017:
a) How would you assess whether or not the Chairman’s decision of not holding a poll was
valid?
b) Explain whether the Chairman can delay the holding of poll to a date subsequent to the
date of AGM.
 Solution:
Part (a)
The chairman is required to hold a poll in case the same is demanded by members present in
person or through video-link or by proxy, where allowed and having 10% or more of the total
voting power.
If the shareholder who demanded the poll meets the condition as mentioned above, the decision
of the Chairman of not holding the poll would be invalid.

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Part (b)
The Chairman can delay the poll up to 14 days from the day on which it is demanded for all
matters except the following:
 On the election of a chairman, the poll shall be taken forthwith.
 On a question of adjournment, the poll shall be taken forthwith.
 Practice Question 11:
Mr. Shakeel has significant shareholdings in various public and private companies. He is not
satisfied with some of the resolutions passed by such companies by show of hands. You are
required to advise him as regards the following:
a) What conditions would he need to satisfy if Mr. Shakeel wishes to request for a poll?
b) Explain whether a company is required to oblige him if he wishes to satisfy himself about
AT A GLANCE

the validity of the results of voting by poll.

 Solution:
Part (a)
If Mr. Shakeel intends to make a request for a poll, the chairman of the meeting would be required
to accept his request provided the request is supported by members having at least 10% of voting
power
Part (b)
When a poll is taken, the chairman or his nominee and a representative of the members
demanding the poll i.e. Mr. Shakeel and members requesting the poll, shall scrutinize the votes
given on the poll. However, the results of the poll shall be announced by the chairman of the
SPOTLIGHT

meeting.
 Practice Question 12:
Fancy Works Limited (FWL) is in process of finalizing the prerequisites of holding its first Annual
General Meeting (AGM) to be held on 31 October 2019.
i. Advise FWL about the matters relating to proxies which must be included in the notice
of AGM.
ii. Arbaz Limited (AL) is a member of FWL. How would AL represent itself in the AGM?
 Solution:
Part (i)
STICKY NOTES

The Notice of AGM of FWL shall prominently set out the member’s right to appoint a proxy and
the right of such proxy to attend, speak and vote in the place of the member at the meeting and
such notice shall be accompanied by a proxy form.
Part (ii)
AL may by resolution of its board authorize an individual to act as its representative at any
meeting of FWL. The instrument of proxy for such individual be signed by an officer or an
attorney duly authorized by AL in this behalf.
 Practice Question 13:
Green Leaf Limited, a listed company, has sent a notice of the forthcoming Annual General
Meeting, to the Company Secretary of Red Rose Limited which is also a listed company. Red Rose
Limited had recently acquired 100,000 shares in Green Leaf Limited and you are required to
advise its directors about the following, in the light of Companies Act, 2017:
a) Who can represent Red Rose Limited in the annual general meeting of Green Leaf
Limited?
b) What are the essential characteristics of an instrument of proxy to be submitted to Green
Leaf Limited and what is the deadline for its submission?

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 Solution:
Part (a)
A company which is a member of another company may by resolution of the board or other
governing body may authorize any of its officials or any other person to act as its representative
at the meeting of that other company.
Part (b)
The instrument appointing a proxy shall:
 be in writing and
 be signed by an officer or an attorney duly authorized.
The proxy shall be lodged with the company not later than forty-eight hours before the time of

AT A GLANCE
the meeting.
 Practice Question 14:
The Board of Directors of Classic Paints Limited, a public listed company, has called an
Extraordinary General Meeting on the requisition of the shareholders holding 10% of the voting
power of the company. Approximately twenty minutes before the commencement of the meeting,
the Chairman of the Board of Directors informed the Company Secretary of his inability to attend
the meeting due to the death of a close relative.
Required:
a) What would be the quorum of the above meeting?
b) Mention the latest time by which the quorum of the meeting should be present. What

SPOTLIGHT
would be the impact if quorum is not present within the prescribed time?
c) Who could chair the meeting in the above situation?
 Solution:
Part (a)
Being a public listed company, the quorum of the meeting is not less than 10 members present
personally or through video link who represent not less than 25% of the total voting power,
either of their own account or as proxies, unless the articles provide for a larger number.
Part (b)
The quorum of the meeting should be present within half an hour from the time for the meeting

STICKY NOTES
otherwise the meeting shall be dissolved as it has been called on the requisition of members.
Part (c)
Since chairman of the board of directors cannot attend the meeting therefore, anyone of the
directors present may be elected to be chairman. However, if none of the directors is present or
is unwilling to act as chairman, the members present shall choose one of the members to be the
chairman.
 Practice Question 15:
The annual general meeting of VX Limited, a listed company, was convened on 30 May 2012.
However, only four shareholders turned up to attend the meeting.
Explain how VX Limited should deal with the above situation in the light of Companies Act, 2017.

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 Solution:
Since VX Limited is a listed company, unless the articles provide for a larger number the quorum
of an annual general meeting shall not be less than ten members present personally or through
video-link, who represent not less than twenty-five percent of the total voting power, either of
their own account or as proxies.
In VX Limited only four shareholders turned up to attend the meeting and therefore the quorum
were not formed. If the quorum is not present within half an hour from the time appointed for
the meeting, the Chairman shall adjourn the meeting and the meeting shall stand adjourned to
the same day in the next week at the same time and place.
At the adjourned meeting if a quorum is not present within half an hour from the time appointed
for the meeting, the members present personally or through video-link, being not less than two,
shall be a quorum, unless the articles provide otherwise.
AT A GLANCE

 Practice Question 16:

An Extraordinary General Meeting of Mastermind Technologies Limited (MTL), a listed company,
was scheduled to be held on October 31, 2009. The directors adjourned the meeting for the next
week as the quorum was not present within fifteen minutes of the scheduled time.
Based on the provisions of the Companies Act, 2017, you are required to comment on the
following:
a) The decision of the directors to adjourn the meeting, assuming the meeting was called
upon the requisition of the members.
b) The decision of the directors to adjourn the meeting, assuming the meeting was called
by the directors.
SPOTLIGHT

c) The impact of the adjournment on the validity and rights of proxies which were
deposited with the company before adjournment.
 Solution:
Part (a)
The directors of the company should have waited for half an hour. If within half an hour from the
time appointed for the meeting the quorum is not present, the directors should direct to dissolve
the meeting, as the meeting is called upon the requisition of the member.
Part (b)
The directors of the company should have waited for half an hour. The directors of the company
STICKY NOTES

may adjourn the general meeting of the company if within half an hour from the time appointed
for the meeting the quorum is not present and shall adjourn the meeting to the same day in the
next week at the same time and place, as meeting is called by the directors.
Part (c)
The proxies deposited before adjournment of the meeting shall stand valid for the adjourned
meeting. A proxy shall be entitled to attend and vote instead of member appointing him and have
such rights in respect of speaking and voting at the adjourned meeting as are available to a
member.
 Practice Question 17:
The 21st annual general meeting (AGM) of Noke Jhoke Limited was held on 20 August 2015. Two
of the shareholders, Mateen and Ragib were not satisfied with the conduct of the meeting. One
week after the meeting, they submitted a complaint to the chairman of the board of directors,
requiring him to invalidate the proceedings of the 21st AGM.
In view of the provisions of the Companies Act, 2017 explain the circumstances in which Mateen
and Ragib would succeed in their contention.

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 Solution:
In the given scenario, Mateen and Ragib would not succeed in their contention as they have filed
the complaint with the chairman of the board of directors.
In order to succeed, Mateen and Ragib are required to file a petition in the Court and must have
10% or more of the voting power in the company.
The petition must be made within 30 days of the impugned meeting.
The Court may declare the proceedings of a general meeting or part thereof invalid and direct
holding of a fresh meeting on the following grounds:
 By reason of any material defect or omission in the notice; or
 Irregularity in the proceedings of the meeting which prevented Mateen and Ragib from

AT A GLANCE
using their rights.
 Practice Question 18:
The annual general meeting of Alpha Limited (AL), a listed company, is scheduled to be held in
March 2020 to transact several ordinary and special businesses such as election of directors.
Under the provisions of the Companies Act, 2017 list the information which must be included in
AL’s notice of annual general meeting to be published in the newspapers. Your answer should
cover all aspects which must either be included in or be annexed to notice of annual general
meeting.
 Solution:
Information to be included in the notice of general meeting

SPOTLIGHT
Notice of AL’s annual general meeting should:
For normal business
 specify the place, day and hour of the meeting;
 include a statement of the business to be transacted at the meeting;
 specify availability of an option of video-link facility to those members on demand who
hold 10% of the total paid up capital or such other percentage as may be specified, and
who reside in a city;
 prominently set out member’s right to appoint a proxy and the right of such proxy to
attend, speak and vote in the place of the member at the meeting;

STICKY NOTES
 be accompanied by a proxy form;
For special business
 the special resolution, shall be accompanied by the draft resolution;
 a statement shall be annexed to the notice of the meeting setting out all material facts
concerning such special business, including, in particular, the nature and extent of the
interest, if any, therein of every director, whether directly or indirectly, and where any
item of business consists of the according of an approval to any document by the
meeting, the time when and the place where the document may be inspected, shall be
specified in the statement;
In case of election of directors
 expressly state the number of directors fixed for election and names of the retiring
directors.

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 Practice Question 19:

The Annual General Meeting of Trade Limited was held at 11:25 a.m. on 10 November 2015.
Certain shareholders have lodged following complaints with the company secretary:
i. Notice of the annual general meeting was not received by them although they are
resident in Pakistan and their registered addresses have also been provided to the
company.
ii. Since the meeting could not commence at the scheduled time i.e. 11:00 a.m., it became
invalid and should be called again.
iii. A resolution passed in the meeting was approved by a show of hands. However, a poll
should have been carried out.
iv. Mr. Hamid who voted for a resolution was represented through a proxy which was
AT A GLANCE

deposited at 5:01 p.m. i.e. after office hours on 8 November 2015. Since 9 November
2015 was a public holiday, the condition of depositing the proxy at least 48 hours before
the commencement of the meeting, was not met.
v. Mr. Ghulam who holds 100,000 shares was represented by two proxies i.e. Mr. Cassim
(75,000 shares) & Mr. Danish (25,000 shares). Only proxy with 75,000 shares was
counted for the purpose of voting.
vi. JKM Limited holding 20,000 shares of the company was represented by Mr. Waheed,
who is neither a director nor an employee of JKM Limited.
In the light of the provisions of the Companies Act 2017 you are required to:
a) Comment on the validity of each of the above complaints.
b) Describe the circumstances under which a court may declare the resolution(s) passed in
SPOTLIGHT

the above meeting or the entire proceedings of the meeting as invalid.

 Solution:
Part (a)
i. The accidental omission to give notice to, or non-receipt of notice by any member shall
not invalidate the proceedings at any meeting. Therefore, if Trade Limited has sent a
notices properly and according to requirement of the law, the shareholders’ complaint
is not valid.
ii. As per the Act, if within half an hour from the time appointed for the meeting, a quorum
is not present, the meeting may either be dissolved or adjourned. Since the quorum was
present within 30 minutes, the meeting is valid.
STICKY NOTES

iii. As per the Act, at any general meeting, a resolution put to the vote of the meeting shall
be decided on show of hands, unless a poll is demanded. The concerned shareholders
should have demanded a poll on or before the declaration of the result of the voting by
show of hands and not after the meeting is concluded. Therefore, the shareholder’s
protest is not valid.
iv. Proxy is not valid as it was not deposited 48 hours before the meeting.
v. A member shall not be entitled to appoint more than one proxy to attend any one
meeting. In this case, Mr. Ghulam had appointed more than one proxy for the meeting
and more than one instrument of proxy was deposited with the company, therefore both
the instruments of proxy would be rendered invalid.
vi. A company which is a member of another company may, by resolution of the directors,
authorise an individual to act as its representative at any meeting of that other company.
Therefore, Mr. Waheed’s vote is valid.

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Part (b)
The court may, on a petition by members having not less than ten per cent of the voting power
in the company, that the proceedings of a general meeting be declared invalid by reason of any
material defect or omission in the notice or irregularity in the proceedings of the meeting which
prevented members from using effectively their rights, declare such proceedings or part thereof
invalid and direct holding of fresh general meeting:
However, the petition shall be made within 30 days of the impugned meeting.
 Practice Question 20:
Brown Enterprises Limited (BEL) was formed as a construction company with an issued and paid
up share capital of 500 million ordinary shares of Rs. 10 each. Orchid Limited (OL), Teal Limited
which is one of the subsidiary company of OL and Mauve (Private) Limited have subscribed 125

AT A GLANCE
million, 130 million and 245 million ordinary shares of BEL respectively.
The board of directors of BEL has decided to construct state-of-the-art five storey shopping mall
in a posh locality of Islamabad. BEL’s management found a lucrative piece of land in the said
locality which is owned by Zakir who is also a non-executive director of BEL and OL. After
negotiation, BEL and Zakir principally agreed that on completion of the shopping mall, fifth floor
of the shopping mall will be given to Zakir in exchange for the price of his said land.
Under the provisions of the Companies Act, 2017 discuss the conditions that must be complied
with in order to execute the above transaction.
 Solution:
Brown Enterprises Limited (BEL) intends to acquire land in exchange of fifth floor of the
proposed shopping mall i.e. intends to enter into a non-cash transaction with one of its directors.

SPOTLIGHT
Moreover, BEL is subsidiary company of Orchid Limited (OL), as OL controls more than one-half
voting shares of BEL as follows:
Direct shareholding 125/500×100 = 25%
Indirect shareholdings through Teal Limited 130/500×100 = 26%
Total shareholdings of OL together with its subsidiary in BEL 51%
In the light of above facts, in order to execute the said transaction following conditions must be
complied with:
i. A general meeting of BEL be called for obtaining shareholders’ prior approval through a
resolution.

STICKY NOTES
ii. Since Zakir is also a director of OL, a general meeting of OL shall also be called for obtaining
holding company shareholders’ prior approval through a resolution.
iii. The notice of general meeting to be called for approval of the resolution by BEL as well as
OL shall include:
 the particulars of the land to be purchased along-with the value of the land duly
calculated by a registered valuer.
 the particulars of fifth floor of the proposed shopping mall to be sold along-with its
value duly calculated by a registered valuer.
 among other matters, as required for notice of general meeting there shall be annexed
to the notice a statement setting out all material facts concerning the said transaction
including the nature and extent of Zakir’s interest as director.

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 Practice Question 21:

In the general meeting of Red Coral Limited (RCL), while discussing one of the agenda items, two
of the members, Yasmeen and Yameen wants to demand poll.
Under the provisions of the Companies Act, 2017 advise the chairman whether they are eligible
to demand the poll. Also discuss the procedure to be followed for taking the poll in the general
meeting.
 Solution:
If Yasmeen and Yameen together hold not less than 10% of the voting share of RCL, then they
will be eligible to demand poll.
Following procedures are to be followed for taking the poll in the general meeting subject to
fulfilment of the above conditions:
AT A GLANCE

 Upon demand of Yasmeen and Yameen, the chairman shall entertain their demand and
order to take poll within 14 days from the day of the demand.
 The chairman shall have power to regulate the manner in which a poll shall be taken.
 The chairman or his nominee and a representative of the Yasmeen and Yameen shall
scrutinize the votes given on the poll.
 The result shall be announced by the chairman.
 The result of the poll shall be deemed to be the decision of the meeting on the resolution
for which the poll was taken.
 Practice Question 22:
SPOTLIGHT

The extraordinary general meetings of Dolphin Limited, a public company listed on Pakistan
Stock Exchange Limited and its subsidiary Sardines (Guarantee) Limited, a public unlisted
company, have been scheduled to be held on the same day i.e. 13 September 2021 at 9:00 a.m.
and 2:00 p.m. respectively in Islamabad.
Under the provisions of the Companies Act, 2017 identify the quorum requirements for both the
companies in the above situation.
 Solution:
Quorum of DL’s EGM when meeting is requisitioned by directors/members
 10 members present personally or through video-link representing 25% of total voting
STICKY NOTES

power, either of their own account or as proxies, unless GL’s articles require a larger number.
Quorum of SGL’s EGM when meeting is requisitioned by directors/members
 Where SGL has share capital, 2 members present personally or through video-link
representing 25% of total voting power, either of their own account or as proxies, unless the
SGL’s articles require a larger number.
 Where SGL does not have share capital, then as provided in SGL’s articles of association.
Quorum of DL’s & SGL’s EGM(s) if meeting is requisitioned by the Commission
If the meetings are called on the direction of the Commission, then Commission may give such
ancillary / consequential directions as it thinks expedient in relation to the calling, holding and
conducting of the meeting. Accordingly, Commission may direct that one member present in
person or by proxy shall be deemed to constitute a meeting.

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4. RESOLUTIONS AND RECORDS

4.1 Notice of resolution [Section 140]

Resolutions to be stated in notice

The notice of a general meeting of a company shall state the general nature of each business proposed to be
considered and dealt with at a meeting, and in case of special resolution, accompanied by the draft resolution.

Resolution by members
The members having not less than 5% voting power in the company may give notice of a resolution and such
resolution together with the supporting statement, if any, which they propose to be considered at the meeting,
shall be forwarded so as to reach the company:

AT A GLANCE
 in the case of a meeting requisitioned by the members, together with the requisition for the meeting;
 in any other case, at least 10 days before the meeting; and the company shall forthwith circulate such
resolution to all the members.

4.2 Resolution passed at adjourned meeting [Section 146]

Where a resolution is passed at an adjourned meeting of:
 a company;
 the holders of any class of shares in a company;
 the board; or
 the creditors of a company;

SPOTLIGHT
the resolution shall, for all purposes, be treated as having been passed on the date on which it was in fact passed,
and shall not be deemed to have been passed on any earlier date.
 Example 08:
Maria Limited AGM was scheduled and conducted on 17th August 2020 in which a resolution for
change of registered office was among the other businesses to be transacted. However, the
meeting was adjourned to 31st August 2020 and then the resolution for change of registered
office was passed. The resolution shall be deemed to be passed on 31st August 2020 and not on
17th August 2020.

4.3 Passing of resolution by the members through circulation [Section 149]

STICKY NOTES
When resolution through circulation is allowed
Except for the ordinary businesses to be conducted in the annual general meeting, the members of a private
company or a public unlisted company (having not more than 50 members), may pass a resolution (ordinary or
special) by circulation signed by all the members for the time being entitled to receive notice of a meeting.

Rules regarding resolution passed through circulation

 Any resolution so passed shall be as valid and effectual as if it had been passed at a general meeting of
the company duly convened and held.
 A resolution shall not be deemed to have been duly passed, unless the resolution has been circulated,
together with the necessary papers, if any, to all the members.
 A members‘ agreement to a written resolution, passed by circulation, once signified, may not be revoked.
 A resolution so passed shall be noted at subsequent meeting of the members and made part of the
minutes of such meeting.

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4.4 Filing of resolution [Section 150]

Filing with registrar

Every special resolution passed by a company shall, within 15 days from the passing thereof, be filed with the
registrar duly authenticated by a director or secretary of the company.

Annexed to articles
Where articles have been registered, a copy of every special resolution for the time being in force shall be
embodied in or annexed to every copy of the articles issued after the date of the resolution.

Sent to member on request

A copy of every special resolution shall be forwarded to any member at his request on payment of such fee
AT A GLANCE

determined by the company.

4.5 Records of resolutions and meetings [Section 151]

Records to be kept
Every company shall keep records of:
 copies of all resolutions of members passed otherwise than at general meetings; and
 minutes of all proceedings of general meetings along with the names of participants, to be entered in
properly maintained books.

Authentication
SPOTLIGHT

Minutes recorded if purporting to be authenticated by the chairman of the meeting or by the chairman of the
next meeting, shall be the evidence of the proceedings at the meeting.

Minutes to be evidence
Until the contrary is proved, every general meeting of the company in respect of the proceedings whereof
minutes have been so made shall be deemed to have been duly called, held and conducted.

Place and time of record

The records must be kept at the registered office of the company from the date of the resolution, meeting or
decision simultaneously in physical and electronic form and it shall be preserved for at least twenty years in
STICKY NOTES

physical form and permanently in electronic form.

4.6 Inspection of records of resolutions and meetings [Section 152]

Open to inspection
The books containing the minutes of proceedings of the general meetings shall be open to inspection by members
without charge during business hours, subject to such reasonable restrictions as the company may by its articles
or in general meeting impose so that not less than two hours in each day be allowed for inspection.

Certified copy to member

Any member shall at any time after 7 days from the meeting be entitled to be furnished, within 7 days after he
has made a request in that behalf to the company, with a certified copy of the minutes of any general meeting at
such charge as may be fixed by the company.

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 Practice Question 23:

Mr. Dinshaw holding 13.5% shares in ABC Limited gave notice of a resolution to the company on
May 22, 20X4, proposing to appoint M & T Associates in place of the existing share registrar of
the company. The resolution was to be considered at the annual general meeting scheduled for
May 30, 20X4. The company could not circulate the proposed resolution among its members.
Evaluate the above situation in the light of the provisions of the Companies Act, 2017.
 Solution:
Any member having not less than 5% voting power in the company may give notice of a
resolution and such resolution together with the supporting statement, if any, is required to be
forwarded in such a way so as to reach the company at least 10 days before the meeting.
Mr. Dinshaw holds 13.5% shares in the company i.e. more than 5% hence he is entitled to submit

AT A GLANCE
the resolution to the company. However, since the notice given by Mr. Dinshaw did not reach the
company in the prescribed time, the company cannot be held liable for its failure to circulate the
resolution.
 Practice Question 24:
The board of directors of Majestic Limited (ML) intends to change the company’s name. They are
of the view that such a change would help in rebranding and rebuilding the image of the company.
In this regard, the board has directed the company secretary to call a general meeting on priority
basis in order to obtain members’ approval.
Considering the urgency of the matter, company secretary has advised the board that required
approval under the law may be taken from the members by getting the resolution passed through
circulation.

SPOTLIGHT
Under the provisions of Companies Act, 2017:
i. advise whether ML can get the resolution passed by its members through circulation;
ii. specify the pre and post-requisites which must be taken care of, in order to ensure that
the resolution passed through circulation by members of ML is valid.
 Solution:
Part (i)
The members of a private company or a public unlisted company, may pass a resolution
(ordinary or special) through circulation. Considering this provision of law, ML can obtain the
members’ approval through circulation if it is not a listed company.

STICKY NOTES
Part (ii)
Resolution shall be circulated, together with the necessary papers, if any, to all the members. It
shall be signed by all the members for the time being entitled to receive notice of a meeting.
Further, resolution shall be noted at subsequent meeting of the members and made part of the
minutes of such meeting.
 Practice Question 25:
On 26 September 2020, the board of directors of Duck Fertilizers Limited (DFL), a public unlisted
company, in its recent board meeting has approved a short term loan to Kitten Limited, one of
the associated companies, to meet its working capital requirement, for which shareholders’
approval is required. DFL’s annual general meeting is scheduled to be held in March 2021.
Under the provisions of the Companies Act, 2017:
a) briefly discuss the options available to DFL for obtaining shareholders’ approval.
b) state the procedure(s) to be followed for obtaining the approval in each option identified
in (a) above. (Ignore procedures relating to voting)

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 Solution:
Part (a)
Following options are available to DFL for obtaining shareholders’ approval:
Option (i): The board of directors of DFL may obtain approval of its shareholders by calling an
extraordinary general meeting (EGM). As the board is entitled to call EGM at any time to consider
any matter which requires shareholders’ approval.
Option (ii): Nonetheless, as the approval required for matter that is special business, and being
a public unlisted company, if DFL’s number of members are not more than fifty then DFL’s board
of directors has another option to get the shareholders’ approval by passing resolution by
circulation.
Part (b)
AT A GLANCE

The procedures to be followed for obtaining shareholders’ approval:

Option (i) Holding Extra Ordinary General Meeting
 Twenty-one days’ notice of the meeting shall be given to every member in the manner
required by the Act.
 However, DFL being a public unlisted company, if all the members entitled to attend and
vote at the said EGM so agree, a meeting may be held at a shorter notice.
 Notice of the meeting shall specify the place, the day and hour of the meeting along with
a statement of the business to be transacted at the meeting and a draft resolution.
 A statement shall be annexed to the notice of the meeting setting out all the material
SPOTLIGHT

facts concerning the short term loan, including the nature and extent of interest, if any,
of the directors.
 Members may participate in the meeting personally, through video-link or by proxy.
 Every member shall have votes proportionate to the paid-up value of the shares held by
him and no such member shall be debarred from casting his vote.
Option (ii) Passing of resolution by the members through circulation
 The resolution shall be circulated together with the necessary papers, if any, to all the
members.
 The resolution passed by circulation must be signed by all the members for the time
STICKY NOTES

being entitled to receive notice of a meeting.

 The said resolution shall be noted at the subsequent meeting of members and made part
of the minutes of such meeting.
 Practice Question 26:
Tripod Limited (TL), a listed company, intends to alter its articles to set a larger quorum
requirement for general meetings and it has obtained approval of the general meeting through
special resolution. The directors of TL are of the view that in order to be effective, the special
resolution should be filed with the Commission. However, the company secretary has advised to
keep the resolution at the registered office so that anyone who is interested may inspect it.
Briefly discuss the requirement(s) relating to filing/furnishing of special resolution.

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 Solution:
Every special resolution passed by a company shall, within 15 days from the passing thereof, be
filed with the registrar duly authenticated by a director or secretary of the company.
Where articles have been registered, a copy of every special resolution for the time being in force
shall be embodied in or annexed to every copy of the articles issued after the date of the
resolution.
A copy of every special resolution shall be forwarded to any member at his request on payment
of such fee not exceeding the amount as the company may determine.
 Practice Question 27:
Rapid Constructions Limited (RCL) is a listed company. Advise the Board of Directors of RCL on
the following matter, in the light of the provisions of the Companies Act, 2017:

AT A GLANCE
On 5 December 2020 an urgent request has been received from Farid, a member, for inspection
and supply of minutes of the company’s fifteenth extraordinary general meeting held on 2
December 2020.
 Solution:
Any member shall at any time after 7 days from the meeting, be entitled to be furnished with a
certified copy of the minutes of the general meeting. Therefore, Farid cannot request for
inspection or a copy of the minutes of the meeting before 9 December 2020 as the meeting was
held on 2 December 2020.
Further, RCL is required to furnish copy of the minutes of the meeting within 7 days from the
date of the request. If Farid makes the request on 9 December 2020, RCL may furnish a copy by
16 December 2020.

SPOTLIGHT
 Practice Question 28:
The details of ML’s share capital as at 30 June 2021 are as follows:
No. of Paid-up share
Class of ordinary Shares shares in capital Rs. in Voting rights
million million
Class A 50 500 1 vote per share
Class B 30 600 2 votes per share
Class C 20 600 3 votes per share
Saleem Hussain, one of ML’s shareholders, holding 50% shares in class A, has filed an application

STICKY NOTES
with the company requesting for an increase in voting rights of class A shares, without changing
their face value, so that each share of class A would carry 2 votes.
Under the provisions of the Companies Act, 2017:
a) advise ML’s management regarding Saleem Hussain’s eligibility to demand increase in
voting rights of class A shares and discuss the requisite approvals required to be sought
for getting such change approved.
b) discuss the course of action required to be taken by ML on Saleem Hussain’s application,
assuming that his eligibility to demand increase in voting rights is favourably established
in (a) above.
 Solution:
Part (a) Eligibility of Saleem Hussain to demand increase in voting rights of Class A
Since Saleem Hussain holds 14.71% [i.e. 25 (50 million shares × 50%) ÷ {170 (50×1) + (30×2) +
(20×3)}] of total voting power in ML which is more than one-tenth of the total voting power, he
is eligible to demand discussion of any agenda item proposed by him in accordance with the
Companies Act, 2017 at any general meeting of ML.

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Requisite approvals required to be sought for getting such change approved

Currently all class of shares in ML carry equal voting rights of 10% of the face value of each class
(i.e. face value of Rs. 10/-, Rs. 20/- and Rs. 30/- each of class A, B and C respectively). The request
to increase the voting rights of class A shares without changing their face value will be considered
as variation in shareholders’ rights that will affect the substantive rights of members of class B
and C, as it will give 20% voting rights to members of class A.
Accordingly, the requisite approvals required to be sought for getting such change approved will
be from at least three-fourths of the affected class of members i.e. class B and C.
Part (b)
Following actions are required to be taken by ML upon receipt of Saleem Hussain’s application
requesting variation in shareholders’ rights by increasing voting rights of class A shares:
AT A GLANCE

 The management shall call the board meeting forthwith to consider the requisition made
by Saleem Hussain.
 Shares of different classes are issued in accordance with the memorandum of association
(MOA) and articles of association (AOA) of the company. Accordingly, ML needs to alter
its MOA and AOA if requisite approval is in place. Hence, the board of ML shall proceed
to call an extraordinary general meeting (EGM) by sending notice of EGM to all the
members within 21 days from the date of Saleem Hussain’s requisition for discussing
the agenda item of change in voting rights. EGM shall be held within 90 days from the
date of the deposit of the said requisition.
 The alterations are considered as special business, hence, a statement shall be annexed
to the notice setting out all material facts concerning variation in shareholders’ right
SPOTLIGHT

including, in particular, the nature and extent of interest, if any, therein of every director.
 The alterations shall be subject to the provisions of the Companies Act, 2017 and to the
conditions contained in ML’s MOA that requires passing a special resolution.
 However, if any general meeting of ML is already scheduled to be held, and the said
request was sent by Saleem Hussain at least 10 days before the said meeting, then ML
shall forthwith circulate the notice of resolution together with draft resolution and
supporting statement, if any, as submitted by Saleem Hussain to all the members of ML.
 ML shall file duly authenticated special resolution with the registrar within 15 days from
passing of special resolution.
 ML shall file a copy of MOA and AOA as altered, with the registrar, within 30 days from
STICKY NOTES

the date of passing of special resolution.

 Practice Question 29:
Crimson Limited (CL) was incorporated on 1 July 2018 as a public unlisted company with the
following authorized and paid up capital:
Class A Class B
Authorized share capital [No. of shares (in million) 1,200 800
Paid up share capital [No. of shares (in million) 600 400
Face value per share (Rs.) 15 40
The board of directors in their latest meeting has planned to alter CL’s share capital in the
following manner:
(i) Cancel the authorized share capital of class B by 350 million shares
(ii) Consolidate two shares of class A into one share
(iii) Sub-divide one share of class B into two shares having equal face value

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Under the provisions of the Companies Act, 2017 discuss the following matters:
a) Impact of the board of directors’ plan on the authorized and the paid up share capital.
b) Procedures to be followed for implementation of the said plan.
 Solution:
Part (a)
Impact of the board of directors’ plan on CL’s authorized and the paid up share capital is as
follows:
Class A Class B
No. of No. of
Face Rs. in Face Rs. in
shares in shares in
value million value million
million million

AT A GLANCE
Authorized share capital:
Current position 1,200 15 18,000 800 40 32,000
(i) After cancellation of Class 450 40 18,000
B shares by 350 million (800–350)
(ii) After consolidation of two 600 30 18,000
shares of Class A into one (18,000÷30) (15+15)
share
(iii) After sub-division of one 900 20 18,000
share of Class B into two (450×2) (40÷2)
shares of equal face value

Paid up share capital:

SPOTLIGHT
Current position 600 15 9,000 400 40 16,000
(i) After cancellation of Class B No effect
shares by 350 million
(ii) After consolidation of two 300 30 9,000
shares of Class A into one (9,000÷30) (15+15)
share
(iii) After sub-division of one 800 20 16,000
share of Class B into two (16,000÷20) (40÷2)
shares of equal face value

Part (b)
Following are the procedures that need to be followed for implementation of the plan to alter

STICKY NOTES
CL’s share capital:
 Call general meeting for getting approval. For that purpose send notice to all the
members. Alternately being an unlisted company and if CL’s members are not more than
fifty, the said approval may be taken by circulation if the resolution is signed by all the
members for the time being entitled to receive notice of a meeting. As the proposed
business is a special business, the notice should be accompanied with a copy of the draft
resolution and a statement setting out all material facts concerning alteration.
 Pass a special resolution for getting the approval of alteration i.e. cancellation of the
authorized share capital of class B, consolidation of two shares of class A and sub-
division of one share of class B into two shares.
 Alter the authorized capital clause of the memorandum of association if it is authorized
by CL’s articles of association.
 File copy of special resolution duly authenticated by a director or secretary of CL
alongwith notice of the exercise of said power with the registrar within 15 days of
passing the resolution/exercise of power.

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 CHAPTER 8: MEETINGS AND RESOLUTIONS CAF 7: COMPANY LAW

5. OBJECTIVE BASED Q&A

01. A general meeting is a meeting of the shareholders of the company who are entitled by the company’s
articles to
(a) Borrow money on behalf of the company
(b) Appoint company secretary on behalf of the company
(c) Attend and vote at such meetings
(d) Call annual general meeting

02. Generally a private company is not required to hold a statutory meeting but it shall also be required to
hold a statutory meeting if
AT A GLANCE

(a) Such private company decides to liquidate the company

(b) Such private company is a subsidiary of a public company
(c) Such private company converts itself into a public company within one year of its incorporation.
(d) Such private company converts itself into a public company within 06 months of its incorporation.

03. The statutory meeting shall consider and approve report called statutory report which is sent to each
member, along with a notice of the statutory meeting
(a) At least 21 days before the date of statutory meeting
(b) At least 7 days before the date of statutory meeting
SPOTLIGHT

(c) At least 30 days before the date of statutory meeting

(d) At least 14 days before the date of statutory meeting

04. The first annual general meeting of a company shall be held

(a) After 16 months from the date of its incorporation
(b) Within 16 months from the date of its incorporation
(c) After 18 months from the date of its incorporation
(d) Within 12 months from the date of its incorporation
STICKY NOTES

05. The SECP, in the case of a listed company and the registrar, in the case of other companies may extend
the time for holding of subsequent annual general meeting
(a) Upto a maximum of 30 days
(b) Upto a minimum of 30 days
(c) For 21 days
(d) For 15 days

06. At least 21 days’ notice of annual general meeting shall be given to members and in case of a listed
company such notice shall also be published in
(a) An Urdu or an English daily newspaper having nationwide circulation
(b) An Urdu and an English daily newspaper having nationwide circulation
(c) An Urdu and an English fortnight newspaper
(d) Any local language and an English fortnight newspaper

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07. If members of a listed company, not resident in city where AGM is taking place required the company to
provide the facility of video link to attend AGM of the company, then they must fulfil the following
condition in order to make such request to be valid
(a) Holding at least 10% share capital
(b) The request must be in written form
(c) The request must be made at least 7 days before such meeting
(d) All of the above

08. If the directors do not proceed to call a meeting with in 21 days of filing of the requisition by the members,
the requisitionists may call a meeting and that meeting should be held and conducted

AT A GLANCE
(a) Within 21 days from the date of the deposit of the requisition
(b) Within 30 days from the date of the deposit of the requisition
(c) Within 90 days from the date of the deposit of the requisition
(d) Within 120 days from the date of the deposit of the requisition

09. When there are material defects or omission in the notice or the proceedings of the meeting is alleged to
be irregular then, following condition(s) must be fulfilled in order to declare such meeting invalid
(a) Members having 10% or more rights can apply
(b) Members can apply to the court
(c) Application must be made within 30 days of the meeting

SPOTLIGHT
(d) All of the above

10. If the required quorum is not present at the meeting within half an hour from the time appointed for the
meeting it shall be
(a) Dissolved in any case
(b) Adjourned in any case
(c) Held in any case
(d) Dissolved, if called upon the requisition of members

STICKY NOTES
11. In any company voting is done by show of hands unless a poll is ordered by chairman of the meeting. On
show of hands every member shall exercise
(a) 1 vote per 10 shares
(b) 10 votes per share
(c) 1 vote irrespective of number of shares
(d) 10 votes irrespective of number of shares

12. A member cannot appoint more than one proxy to attend any one meeting. If more than one proxy is
appointed for any one meeting
(a) All proxies possess same voting rights
(b) All proxies possess same right to speak
(c) All appointments of proxies shall be valid
(d) All appointment of proxies shall be invalid

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13. Members of the company can demand a certified copy of the minutes of general meeting, any time after
7 days from meeting, which the company shall provide to them
(a) Within 7 working days of receipt of his request
(b) Within 14 working days of receipt of his request
(c) Within 30 working days of receipt of his request
(d) Within 60 working days of receipt of his request

14. The records of all proceedings of the meetings must be kept at the registered office of the company in
physical and electronic form and it shall be preserved for
AT A GLANCE

(a) At least 10 years in physical form and permanently in electronic form

(b) At least 20 years in physical form and permanently in electronic form
(c) Permanently in physical form and in electronic form for 10 years
(d) Permanently in physical form and in electronic form for 20 years

15. Members of a private company or a public unlisted company, may pass a resolution by circulation signed
by all members except
(a) For special businesses of AGM
(b) For special businesses of Statutory meeting
SPOTLIGHT

(c) For ordinary businesses of AGM

(d) For ordinary businesses of Statutory meeting

16. Abid is the chairman of the board of directors of Innovative Technologies Limited (ITL) and is present in
ITL’s 25th Annual General Meeting (AGM). However, due to difference of opinion with ITL’s chief
executive on few agenda items, Abid is unwilling to chair the AGM. In such a situation:
(a) the chief executive shall have to preside the AGM as chairman
(b) the members present in the AGM shall choose one of the members to be the chairman
(c) the member holding highest number of shares and present shall preside the AGM as chairman
STICKY NOTES

(d) one of the directors present may be elected to be the chairman of the said AGM

17. Minutes of all general meetings of a company should be kept at the registered office of the company in
physical and electronic form for a period of:
(a) 10 years
(b) 10 years and permanently respectively
(c) 20 years
(d) 20 years and permanently respectively

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CAF 7: COMPANY LAW CHAPTER 8: MEETINGS AND RESOLUTIONS

18. With reference to the resolution passed by members through circulation, which of the following
statements is true?
(a) The resolution may be revoked if members holding 10% voting power withdraw their agreement
signified in writing
(b) The resolution may be revoked when the board of directors vote against the resolution
(c) The resolution may be revoked where decision taken by members is not effected within 120 days
of passing the same
(d) The resolution cannot be revoked once signified by members in writing

19. Which of the following businesses proposed to be presented in the upcoming annual general meeting of

AT A GLANCE
Neelam Limited shall be deemed as special business?
(a) Obtaining financial facility of Rs. 100 million
(b) Declaration of 300% dividend out of the current years’ profit
(c) Election of directors
(d) Approval of consolidated financial statements

20. The annual general meeting of Blue Amber Limited, a listed company having share capital of Rs.
500,000,000 of Rs. 10 each was scheduled to be held on 6 March 2021 at 8:30 AM for which the notice of
the meeting was sent on 12 February 2021. On the day of meeting at 9:00 AM, attendance of shareholders
was as follows:
Present in person 10 persons holding 10 million shares

SPOTLIGHT
Present through proxies 5 persons holding 2 million shares
Which of the following actions should be taken by the chairman?
(a) Commence the meeting as per the agenda circulated
(b) Adjourn the meeting to be held on 13 March 2021
(c) Dissolve the meeting and circulate fresh notice of meeting
(d) Either (a) or (b)

21. Notice of extraordinary general meeting of the company, called by the directors on the requisition of
members, is required to be sent to:

STICKY NOTES
(a) members, directors and the Commission
(b) directors, auditors and the Commission
(c) members, directors and auditors
(d) members, auditors and the Commission

22. The annual general meeting (AGM) of Trout Limited (TL) was held on 7 September 2021. Ali Kamal, one
of TL’s shareholders, wants a certified copy of AGM minutes for his record. On submission of his request
to TL, he shall be entitled to receive a certified copy of the minutes:
(a) within 7 days if he makes the request on 12 September 2021
(b) within 7 days if he makes the request on 21 September 2021
(c) within 15 days if he makes the request on 11 September 2021
(d) within 15 days if he makes the request on 15 September 2021

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23. Cod Limited (CL) is a public unlisted company having its registered office and branch office in Karachi
and Lahore respectively. CL is in the process of finalising the location of its upcoming annual general
meeting (AGM).
In this regard, which of the following statements is true?
(a) CL’s AGM has to be held in Karachi
(b) CL’s AGM can be held anywhere in the province of Sindh only
(c) CL’s AGM can be held anywhere in the province of Sindh or Punjab only
(d) CL’s AGM can be held anywhere in Pakistan

24. Ahmed holds 50,000 shares in Jellyfish Limited (JL). JL operates six days in a week from Monday to
AT A GLANCE

Saturday. Annual general meeting of JL is scheduled to be held on Monday i.e. 20 September 2021 at
11:00 a.m. in which Ahmed wants to appoint Naeem as proxy. In this regard, he must have the proxy form
delivered to JL by:
(a) Friday, 17 September 2021 at 11:00 a.m.
(b) Saturday, 18 September 2021 at 11:00 a.m.
(c) Sunday, 19 September 2021 at 11:00 a.m.
(d) Monday, 20 September 2021 at 11:00 a.m.

25. Sole Fish Limited (SFL) was incorporated on 12 August 2021 as public unlisted company. SFL’s year-end
is 30 September. The management shall have to present SFL’s financial statements before the company
SPOTLIGHT

in annual general meeting, without taking extension, latest by:

(a) 12 August 2022
(b) 12 December 2022
(c) 30 December 2022
(d) 28 January 2023

26. A special resolution which is passed by members in the annual general meeting and is required to be filed
with the registrar, has to be authenticated by:
(a) a director and chief financial officer
STICKY NOTES

(b) a director or company secretary

(c) chief executive officer and a director
(d) chairman or chief financial officer

27. The board of Grapes Limited (GL) has approved a loan for one of its associated undertakings. In order to
seek approval for the said loan, a notice of extraordinary general meeting is to be sent to all the members.
While reviewing the register of members, it was noted that 10,000 shares are jointly held by Zaid, Rohan
and Khalid. In this regard, which of the following statements is correct?
(a) The notice shall be given by GL to all the three joint shareholders
(b) The notice shall be given by GL to any two of the joint shareholders
(c) The notice may be given by GL to the joint holder named first in the register in this respect
(d) The notice may be given by GL to any one of the joint shareholders

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ANSWERS
01. (c) An AGM is a meeting of the members of the company and they have a right to vote at and
attend such meetings.
02. (c) When a private company converts itself into a public company within one year of its
incorporation it shall also be required to hold such meeting.
03. (a) Statutory report shall be send to the members at least 21 days before the date of statutory
meeting.
04. (b) The first AGM shall be held within 16 months from the date of its incorporation thereafter at
least once in a calendar year.
05. (a) The timing of AGM may be extended upto a maximum of 30 days.

AT A GLANCE
06. (b) The notice of an AGM shall be published in an Urdu and an English daily newspaper having
nationwide circulation.
07. (d) All the mentioned conditions must be fulfilled in order to request the company for video link
facility.
08. (c) The meeting should be held and conducted within 90 days of filing of the requisition.
09. (d) In order to declare meeting invalid, members having 10% or more voting rights can apply to
court within 30 days of the meeting.
10. (d) The meeting shall be dissolved if it was called on the request of the members.
11. (c) On show of hands every member shall exercise one vote per member.
12. (d) If more than one proxy is appointed for any one meeting, all appointment of proxies shall be
invalid.

SPOTLIGHT
13. (a) The company shall provide the members certified copied within 7 days of receipt of his
request
14. (b) The records must be kept for at least 20 years in physical form and permanently in electronic
form.
15. (c) Passing of resolution by the members through circulation is allowed except for the ordinary
businesses of AGM.
16. (d) one of the directors present may be elected to be the chairman of the said AGM
17. (d) 20 years and permanently respectively
18. (d) The resolution cannot be revoked once signified by members in writing

STICKY NOTES
19. (a) Obtaining financial facility of Rs. 100 million
20. (b) Adjourn the meeting to be held on 13 March 2021
21. (c) members, directors and auditors
22. (b) within 7 days if he makes the request on 21 September 2021
23. (d) CL’s AGM can be held anywhere in Pakistan
24. (a) Friday, 17 September 2021 at 11:00 a.m.
25. (b) 12 December 2022
26. (b) a director or company secretary
27. (c) The notice may be given by GL to the joint holder named first in the register in this respect

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 CHAPTER 8: MEETINGS AND RESOLUTIONS CAF 7: COMPANY LAW

STICKY NOTES

Types of meetings
1. Meetings of directors (board meetings & committee meetings)
2. Meetings of members (general meetings & class meetings)

Statutory meeting
1. Requirement (for public company except when converted from private
AT A GLANCE

company one year after incorporation; not required if AGM already held)
2. Time limit (earlier of 180 days of commencement of business and 9 months
of incorporation)
3. Notice (21 days before meeting with copy of statutory report)
4. Contents of statutory report
5. Report of the auditors (to accompany statutory report)
6. Certification / Authentication (CEO and one director, and in case of listed
company CFO too).
7. Filing with registrar (forthwith the dispatch to members)
SPOTLIGHT

8. List of members at meeting (remain open and accessible during meeting)

9. Discussion at meeting (any matter but no resolution without proper notice)
10. Adjournment (allowed; same power as original meeting)

Annual general meeting (AGM)

1. Requirement (other than SMC) and time limit (first: 16 months from
incorporation; subsequent: once in calendar year and within 120 days of
close of financial year)
STICKY NOTES

2. Extension in time (30 days; by Commission (listed company); by registrar

(other company)
3. Place of meeting (town of registered office or nearest city; members of listed
company may demand facility of video-link)
4. Notice: All companies (21 days)
5. Notice: Listed company (send to Commission and publish in English & Urdu
newspapers)
6. Calling a meeting (on order of directors)

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Extra-ordinary general meeting (EGM)

1. Calling EGM by the board (to obtain approval of members etc)
2. Calling EGM by the board on requisition of members (10% voting power)
3. Calling EGM by requisitionists themselves (within 90 days if not called by
directors within 21 days of the requisition)
4. Notice (21 days; if all members of unlisted company so agree, a shorter
notice is allowed)

Power of SECP to call meetings

AT A GLANCE
1. Power to give directions (in case of default in AGM or Statutory Meeting; or
when directors do not proceed to call EGM on requisition)
2. One member may be quorum (the Commission may give such direction)
3. Cost of conducting the meeting (as decided by the Commission)
4. Penalty (Level 3 on standard scale)

Service of documents and notices

1. against an acknowledgement; or

SPOTLIGHT
2. by post or courier service; or
3. through electronic means; or
4. in any other manner as may be specified.

Service of notice on a member – Additional points

1. Address (registered address or other address supplied)
2. When notice by post to be deemed effective (by properly addressing,
prepaying and posting)

STICKY NOTES
3. Giving notice to one joint-holder who is named first is enough.
4. Notice to legal representative (in case of death or insolvency)

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 CHAPTER 8: MEETINGS AND RESOLUTIONS CAF 7: COMPANY LAW

Provisions as to meetings and votes

1. Notice (specifying the place and day and hour of the meeting)
2. Facility of video-link (listed company)
3. Participation (personally, through video-link or by proxy)
4. Ordinary business (4 items) & Special business (all other)
5. Statement of material facts for special business (to be annexed with notice)
6. Presiding the meeting (order: chairman of board, any other director or any
other member)
7. Number of votes (proportionate to the paid up value of shares)
AT A GLANCE

8. Right to vote (articles cannot debar a member from casting a vote)

9. Single member company (record the decision in minute book and sign it)

Voting by show of hands

1. Voting by show of hands (unless a poll is demanded)
2. Declaration by chairman (declaration by chairman is conclusive evidence)

Voting by poll
SPOTLIGHT

1. Demand for poll (chairman or 10% voting power)

2. Poll through secret ballot (chairman or 10% voting power)
3. Time of taking poll (forthwith for election of chairman or on question of
adjournment; 14 days in other cases)
4. Conduct and result of poll (chairman can regulate the manner)

Proxies
STICKY NOTES

1. Right to appoint proxy (not allowed in company not having share capital
unless articles provide otherwise)
2. More than one proxy for one meeting (invalid)
3. Who may be appointed as proxy? (Member unless articles allow otherwise)
4. Notice accompanied by proxy form
5. Proxy instrument (be in writing and be signed by appointer)
6. Time limit (48 hours before meeting)
7. Rights of proxy (demand a poll, vote or abstain from voting)
8. Inspection of proxy forms (every voting member is entitled)

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Representation of body corporate at meetings

1. Body corporate as a member (by resolution of board)
2. Body corporate as a creditor (by resolution of board)

Representation of government at meetings

1. Power to appoint (Federal Government through minister-in-charge and
provincial government)
2. Rights of appointed individual (same as member including right to appoint
proxy)

AT A GLANCE
Quorum of general meeting
1. Minimum quorum requirement (listed company; other company having
share capital; other company not having share capital).
2. Larger Quorum (may be fixed by articles)
3. Absence of quorum (half an hour; dissolved or adjourn)
4. Quorum at adjourned meeting (half an hour; two or more persons are
quorum unless articles provide otherwise)

SPOTLIGHT
Court declaring a general meeting invalid
1. Petition criteria (10% voting power)
2. Time limit (30 days)

Resolutions
1. Resolutions to be stated in notice (draft special resolutions)

STICKY NOTES
2. Resolution by members (5% voting power)
3. Resolution passed at adjourned meeting deem to pass on actual date (not
earlier date)
4. Passing of resolution by the members through circulation is allowed for
private company and public unlisted company (having not more than 50
members)

Filing of resolution
1. Filing with registrar within 15 days (special resolution)
2. Annexed to articles
3. Sent to member on request (on payment of fee)

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 CHAPTER 8: MEETINGS AND RESOLUTIONS CAF 7: COMPANY LAW

Records of resolutions and meetings

1. Records to be kept (copies of resolutions; minutes of meetings)
2. Authentication (chairman of that meeting or next meeting)
3. Minutes to be evidence (until the contrary is proved)
4. Place and time of record (registered office; 20 years in physical form;
permanently in electronic form)

Inspection of records of resolutions and meetings

AT A GLANCE

1. Open to inspection (to members without charge)

2. Certified copy to member (member may request 7 days after meeting and on
payment of fee fixed by company within 7 days)
SPOTLIGHT
STICKY NOTES

204 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 9

DISTRIBUTION OF PROFITS

AT A GLANCE
IN THIS CHAPTER:
Dividends are payments made by a company to its members out
of distributable profits. Every company can utilize its profits to

AT A GLANCE
AT A GLANCE
pay dividends to its members with certain exceptions e.g.
association not for profits.
SPOTLIGHT
Amount of dividend is proposed by directors and approved in
1. Declaration of Dividend general meeting by the company. However the amount of
declared dividend cannot exceed the amount proposed by
2. Payment of Dividend directors.
Dividend may be in form of cash or in kind. Dividend in kind
3. Objective Based Q&A
shall be only in the form of shares of listed companies held by
the distributing company.
STICKY NOTES
Dividend shall be paid to the registered shareholders or their
order within the specified period. Listed companies shall pay

SPOTLIGHT
the dividend directly to the bank account of shareholders
through electronic transfer. Other companies give option to pay
through direct bank transfer or issue dividend warrants or
cross cheque.
Book closure refers to a period in which no share transfer
applications are processed by the company for identifying the
shareholders eligible for dividends, notice etc.
Payment of dividend is the responsibility of chief executive of
the company and the directors cannot defer or withhold the
payment. There are some exceptions to this rule where

STICKY NOTES
withholding is lawful.
Final dividend is deemed to be declared at the date of AGM and
interim dividend is deemed to be declared on the date of book
closure or the date of approval by director in case of no book
closure.

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 CHAPTER 9: DISTRIBUTION OF PROFITS CAF 7: COMPANY LAW

1. DECLARATION OF DIVIDEND
1.1 Implied power to declare dividend
Dividends are payments made to members by a company, out of its distributable profits.
Unless there are specific restrictions in the company’s memorandum and articles (e.g. association not for profit
prohibits the payment of dividend to its members), every company has an implied power to use its profits to pay
dividends to its shareholders.

1.2 Certain restrictions on declaration of dividend [Section 240]

Not to exceed amount recommended by directors

AT A GLANCE

The company in general meeting may declare dividends; but no dividend shall exceed the amount recommended
by the board.

Restriction on distribution of certain gains

No dividend shall be declared or paid by a company for any financial year out of the profits of the company made
from the sale or disposal of any immovable property or assets of a capital nature comprised in the undertaking
or any of the undertaking of the company, unless the business of the company consists, whether wholly or partly,
of selling and purchasing any such property or assets, except after such profits are set off or adjusted against
losses arising from the sale of any such immovable property or assets of a capital nature.
 Example 01:
ABC Limited has accumulated profits (retained earnings) of Rs. 520 million including net gain on
SPOTLIGHT

disposal of immovable properties amounting to Rs. 150 million. This net gain of Rs. 150 million
relates to two disposals, one resulting in a gain of Rs. 200 million and the other resulting in a loss
of Rs. 50 million. The company can use any of Rs. 520 million to declare and pay dividends.
The investment properties may be carried at fair value with unrealized gain recognised in profit or loss as per
IAS 40 Investment property, but Companies Act requires that no dividend shall be declared or paid out of
unrealized gain (i.e. gain related to unsold property) on investment property credited to profit and loss account.
 Example 02:
Kashif Limited (KL) bought a property for capital appreciation (i.e. an investment property) for
Rs. 50 million. At year end the property was revalued to Rs. 58 million using fair value model
under IAS 40 and a gain of Rs. 8 million was recognised in profit or loss. KL cannot pay dividend
STICKY NOTES

out of this gain of Rs. 8 million.

 Practice Question 01:
Under the provision of the Companies Act, 2017 briefly describe the restrictions, if any, with
regard to the declaration of final dividend by a company listed on stock exchange.
 Solution:
No dividend shall be declared by a company otherwise than out of profits of the company.
No dividend shall be declared by a company for any financial year out of the profits of the
company made from the sale or disposal of any immovable property or assets of a capital nature
or any of the undertaking of the company unless the business of the company consists, whether
wholly or partly, of selling and purchasing any such property or assets, and except after such
profits are set off or adjusted against losses arising from the sale of any immovable property or
assets of a capital nature.
No dividend shall be declared out of unrealized gain on investment property credited to profit
and loss account.

206 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

CAF 7: COMPANY LAW CHAPTER 9: DISTRIBUTION OF PROFITS

 Practice Question 02:

Explain whether or not the following statement is in accordance with the provisions of the
Companies Act, 2017. Support your answer with reasons.
“There is no restriction on the declaration of dividend and the chief executive may declare
dividend in the general meeting of the company out of any kind of profit.”
 Solution:
The statement is incorrect and contains the following errors.
The chief executive of the company does not declare the dividend. He informs the shareholders
about the percentage/amount of the dividend as recommended by the directors. The dividend is
approved by the members but the dividend so approved shall not exceed the amount as
recommended by the directors.

AT A GLANCE
No dividend shall be declared or paid by a company out of the profits of the company made from
the sale or disposal of any immovable property or assets of a capital nature comprised in the
undertaking(s), unless the business of the company consists, whether wholly or partly, of selling
and purchasing any such property or assets, except after such profits are set off or adjusted
against losses arising from the sale of any such immovable property or assets of a capital nature.
No dividend shall be declared out of unrealized gain on investment property credited to profit
and loss account.
 Practice Question 03:
Under the provisions of the Companies Act, 2017 state the restrictions imposed on a company
with regard to declaration of dividend.

SPOTLIGHT
 Solution:
The restrictions imposed under the provisions of the Companies Act, 2017 on a company with
regard to declaration of dividend are as follows:
 Dividend shall not be declared by a company otherwise than out of its profits.
 Dividend declared in general meeting shall not exceed the amount recommended by the
board.
 Dividend shall not be declared by a company for any financial year, out of the profits of
the company made from the sale or disposal of any immovable property or assets of a
capital nature comprised in the undertaking or any of the undertaking of the company,

STICKY NOTES
unless the business of the company consists, whether wholly or partly, of selling and
purchasing any such property or assets, except after such profits are set off or adjusted
against losses arising from the sale of any such immovable property or assets of a capital
nature.
 Dividend shall not be declared out of unrealized gain on investment property credited
to the profit or loss account.

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 CHAPTER 9: DISTRIBUTION OF PROFITS CAF 7: COMPANY LAW

2. PAYMENT OF DIVIDEND
2.1 Dividend to be paid only out of profits [Section 241]

Form of payment
Any dividend may be paid by a company either in cash or in kind only out of its profits.

Payment in kind
The payment of dividend in kind shall only be in the form of shares of listed company held by the distributing
company.

2.2 Provisions relating to payment

AT A GLANCE

To be paid only to registered shareholders [Section 242]

Any dividend declared by a company must be paid to its registered shareholders or to their order within such
period and in such manner as may be specified and in this regard the Commission has issued the Companies
(Distribution of Dividends) Regulations, 2017.

Period of payment [Regulation 3 & 2(viii)]

Except when it is allowed under the law to withhold the payment of dividend, the chief executive officer of every
company is responsible to make the payment of cash dividend within a period of 10 working days (any day on
which banks are open for business) from the date of:
a) its declaration in case of final dividend;
SPOTLIGHT

b) its declaration in case of interim dividend without announcement of book closure; or

c) start of book closure in case of interim dividend when book closure in announced.
Further, every listed company shall ensure that book closure must be started for determination of interim
dividend entitlement within 15 days of the date on which such dividend is approved by the board

Manner of payment – listed company [Section 242]

In case of a listed company, any dividend payable in cash shall only be paid through electronic mode directly into
the bank account designated by the entitled shareholders.

Manner of payment – other than listed company [Regulation 4]

A company, other than a listed company, shall obtain cash dividend distribution mandate at the time of becoming
STICKY NOTES

a shareholders of the company comprising of following three modes from their registered shareholders, namely:-
i. direct transfer into the designated bank account; or
ii. dividend warrant (a document that shows that a shareholder is entitled to a dividend, it functions like a
cross cheque); or
iii. cross cheque:
The shareholder can change the mandate at any time during the year through a written request containing all
requisite details to the company.

Manner of payment - General [Regulation 4 & 2(vi)]

A company may appoint a paying agent for distribution of dividend payable in cash.
“paying agent” means a bank or any entity including a share registrar and a central depository appointed by a
company and having relevant approval of SBP for making payment of cash dividend directly into the designated
bank account of entitled shareholder.
The banks may not be required to appoint a paying agent and may itself assume functions and responsibility of
paying agent themselves.

208 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

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2.3 Book closure [Section 125]

Purpose
The closure of register of members (or debenture-holders) means a time period during which a company will
not handle requests to transfer shares (or debentures). This is done to identify the cut-off date for determining
which members (or debenture-holders) on record will receive a notice of a meeting or dividend (or interest)
payment for that period.
 Example 03:
Listed companies usually comprise of large number of member possessing shares. These shares
are readily saleable in the stock exchange and the company cannot be sure of who are its
members at any given date unless transfers of shares are suspended for some days by giving a
prior notice to the members. This procedure is commonly known as ‘Book Closure’. All of the

AT A GLANCE
persons who possess the shares of the company as of the start of the book closure are considered
as members of the company and served notices of meetings and paid dividends etc. accordingly.

Power to close register [Section 125]

A company may, on giving not less than 7 days‘ previous notice close its register of members, or the part of it
relating to members holding shares of any class, for any period or periods not exceeding in the whole 30 days in
each year.
The Commission may, on the application of the company extend the 30 days’ period for a further period of 15
days.
The same provision shall also apply for the purpose of closure of register of debenture-holders of a company.

SPOTLIGHT
Additional requirement for listed company [Section 125]
In the case of listed company, notice for closure of the register, must be given by advertisement in English and
Urdu languages at least in one issue each of a daily newspaper of respective language having wide circulation.

Penalty [Section 125]

Any contravention or default in complying with above requirements shall be an offence liable to a penalty of level
2 on the standard scale.

2.4 Directors not to withhold declared dividend [Section 243]

STICKY NOTES
Requirement
When a dividend has been declared, it shall not be lawful for the directors of the company to withhold or defer
its payment and the chief executive of the company shall be responsible to make the payment within specified
period from the date of declaration.

Declaration of final dividend

The final dividend is proposed by directors and approved by members in AGM. Dividend shall be deemed to have
been declared on the date of the general meeting in case of a dividend declared/approved in the general meeting.

Declaration of interim dividend

The directors may propose and pay interim dividend before end of year. Interim dividend shall be deemed to
have been declared on:
 the date of commencement of closing of share transfer for purposes of determination of entitlement of
dividend;
 the date on which dividend is approved by the board (in case of no book closure).

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Consequences of delay in payment

Where a dividend has been declared by a company but is not paid within the period specified, the chief executive
of the company shall be punishable with imprisonment for a term which may extend to two years and with fine
which may extend to five million rupees.
Chief executive convicted shall from the day of the conviction cease to hold the office of chief executive of the
company and shall not, for a period of five years from that day, be eligible to be the chief executive or a director
of that company or any other company.
No offence deemed to be committed
No offence shall be deemed to have been committed in the following cases if the Commission has, on application
by company within 45 days from the date of declaration of the dividend, and after providing an opportunity to
the shareholder/other person, permitted the company to withhold or defer payment:
AT A GLANCE

 where the dividend could not be paid by reason of the operation of any law;
 where a shareholder has given directions to the company regarding the payment of the dividend and
those directions cannot be complied with;
 where there is a dispute regarding the right to receive the dividend;
 where the dividend has been lawfully adjusted by the company against any sum due to it from the
shareholder; or
 where, for any other reason, the failure to pay the dividend or to post the warrant within the period
aforesaid was not due to any default on the part of the company.
Lawful withholding
A company may withhold the payment of dividend of a member where the member has not provided the
SPOTLIGHT

complete information or documents as specified by the Commission (Approval of SECP is not required in this
case).
 Practice Question 04:
On 18 September 2018, the directors of Ashanti Limited (AL), a listed company, declared an
interim dividend of Rs. 5 per share and announced book closure from 28 September 2018 to 3
October 2018, both days inclusive.
Under the provisions of the Companies Act, 2017 briefly describe when AL should pay the above
dividend. Also state any four circumstances in which AL may not be considered to have
committed an offence for non-payment of dividend.
 Solution:
STICKY NOTES

An interim dividend must be paid within specified period of its declaration and in the given
scenario, the dividend shall be deemed to have been declared on 28 September 2018 i.e. the date
of commencement of closing of share transfer for determination of entitlement of dividend.
Hence, AL should pay dividend within 10 working days from 28 September 2018.
The circumstances in which non-payment of dividend by AL shall not constitute an offence are
as under:
i. where the dividend could not be paid by reason of the operation of any law;
ii. where a shareholder has given directions to the company regarding the payment of the
dividend and those directions cannot be complied with;
iii. where there is a dispute regarding the right to receive the dividend;
iv. where the dividend has been lawfully adjusted by the company against any sum due to
it from the shareholder; or
v. where, for any other reason, the failure to pay the dividend or to post the warrant within
the period aforesaid was not due to any default on the part of the company;
AL may also withhold the payment of dividend of a member where the member has not provided
the complete information or documents as specified by the Commission.

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 Practice Question 05:

The Board of Directors of Giant Industries Limited (GIL), a listed company, in their meeting held
on 25 February 2020 had approved 30% interim cash dividend for the shareholders.
Under the provisions of the Companies Act, 2017:
a) state when an interim dividend is deemed to have been declared and the responsibilities
of GIL regarding its payment.
b) identify the circumstances under which the directors may withhold/adjust the payment
of dividend.
 Solution:
Part (a) Declaration of interim dividend:

AT A GLANCE
Interim dividend is deemed to have been declared:
 on the date of commencement of closing of share transfer for purposes of determination
of entitlement of dividend; and
 where register of members is not closed for such purpose, on the date on which such
dividend is approved by the board.
Responsibilities of GIL for the payment of dividend:
The dividend shall only be paid out of the profits. The chief executive of GIL is responsible to
make the payment of dividend to registered shareholders or to their order within 10 working
days from the date of declaration. Moreover, since dividend is payable in cash, it shall only be
paid through electronic mode directly into the bank account designated by the entitled
shareholders. In case of book closure, GIL shall ensure that book closure must be started for
determination of interim dividend entitlement within 15 days of the date on which such dividend

SPOTLIGHT
is approved by the board.”
Part (b) Circumstances under which GIL may withhold the payment of dividend to certain
shareholders:
 where the dividend could not be paid by reason of the operation of any law;
 where a shareholder has given directions to GIL regarding the payment of the dividend
and those directions cannot be complied with;
 where there is a dispute regarding the right to receive the dividend;
 where the dividend has been lawfully adjusted by GIL against any sum due to it from the
shareholder; or

STICKY NOTES
 where, for any other reason, the failure to pay the dividend or to post the warrant within
the stipulated period was not due to any default on the part of GIL.
 where the member has not provided the complete information or documents, as
specified by the Commission.
 Practice Question 06:
Explain the exception to the following provisions as specified under the Companies Act, 2017.
Where a dividend is declared by a company but is not paid within the period specified in the
Companies Act, 2017, the chief executive of the company shall be punishable with imprisonment
for a term which may extend to two years and with fine which may extend to five million rupees.
 Solution:
The Chief Executive will not be punishable in the following cases:
 where the dividend could not be paid by reason of the operation of any law.
 where a shareholder has given directions to the company regarding the payment of the
dividend and those directions could not be complied with.

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 where there is a dispute regarding the right to receive the dividend.

 where the dividend has been lawfully adjusted by the company against any sum due to
it from the shareholder.
 where for any other reason the failure to pay the dividend or to post the warrant within
the period aforesaid was not due to any default on the part of the company.
And the Commission has allowed the company to withhold or defer the payment of dividend
against an application made by the company within 45 days from the date of declaration of
dividend.
Company may also withhold the payment of dividend of a member where the member has not
provided the complete information or documents as specified by the Commission.
 Practice Question 07:
AT A GLANCE

On 31 July 2015, the Directors of Clove Engineering Limited (CEL), a listed company, declared an
interim dividend of Rs. 5 per share. However, before making payment of the dividend, the
company suffered huge losses due to a massive fire in the factory. The CFO has informed the
board of directors about CEL’s inability to pay the dividend in time.
Under the provisions of the Companies Act, 2017 briefly describe:
a) When an interim dividend is deemed to have been declared by CEL.
b) The consequences of non-payment of dividend within the stipulated time.
 Solution:
(a) Declaration of interim dividend:
SPOTLIGHT

Interim dividend is deemed to have been declared:

 on the date of commencement of closing of share transfer for purposes of determination
of entitlement of dividend; and
 where register of members is not closed for such purpose, on the date on which such
dividend is approved by the directors.
(b) Consequences of non-payment of dividend:
Where a dividend has been declared by a company but is not paid within the stipulated time (i.e.
within 10 working days from the date of declaration i.e. 31 July 2015 in this case), the chief
executive of the company shall be punishable with imprisonment for a term which may extend
to two years and with fine which may extend to five million rupees.
STICKY NOTES

A chief executive convicted as above shall from the day of the conviction cease to hold the office
of chief executive of the company and shall not, for a period of 5 years from that day, be eligible
to be the chief executive or a director of that company or any other company.
 Practice Question 08:
The board of directors of Dinar Ltd, a listed company, had recommended a final dividend @ 100%
for the year ended June 30, 20X3. Just a week after the notice for AGM had been dispatched the
company suffered huge losses due to certain unanticipated events and incurred heavy liabilities.
The company is now considering the following options:
i. Reducing the dividend to 25%.
ii. Deferring the payment of 75% of the dividend, for six months.
Explain whether the company can exercise the above options, under the Companies Act, 2017.

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 Solution:
Option (i)
Once the dividend is recommended by the Board of Directors, it may be reduced by approval of
members, in the AGM.
Option (ii)
When a dividend has been declared, it shall not be lawful for the directors to defer its payment
beyond specified period. Hence the company cannot defer it for six months.
 Practice Question 09:
In the light of the Companies Act, 2017 briefly explain the purpose of closure of register of
members of a company. Also state the matters to be considered while issuing a notice to the

AT A GLANCE
members intimating about closure of register of members.
 Solution:
Purpose of closure of register of members:
The purpose of closure of register of members of a company is to identify the cut-off date for
determining which member will receive dividend payment or other entitlement for a particular
period.
Matters to be considered while issuing a notice about closure:
Under the provisions of the Companies Act, 2017 the matters to be considered while issuing a
notice to the members intimating about closure of register of members are as follows:
(i) Period:

SPOTLIGHT
Notice must be given not less than 7 days prior to the close of register of members.
The closure period of register of members of a company during the whole year at different
intervals shall not exceed 30 days in total.
In case the register of members of the company has been closed for 30 days in a year, then
make an application to the Commission allowing extension for a further period of 15 days.
(ii) Advertisement:
In the case of a listed company, the notice for closure of the register of members must be
advertised in English and Urdu languages at least in one issue each of a daily newspaper of
respective language having wide circulation.

STICKY NOTES
(iii) Service of notice:
Notice may be served on a member at his registered address or, if he has no registered
address in Pakistan, at the address supplied by him to the company for the giving of notices
to him against an acknowledgement or by post or courier service or through electronic
means or in any other manner as may be specified.
If a notice is to be sent by post, it should be properly addressed, prepaid and posted
containing the notice.
In case of joint-holders of a share, notice may also be given to the joint-holder named first
in the register in respect of the share.
In case of death or insolvency of a member, a notice may also be given to the person entitled
to a share in consequence of such death or insolvency of a member. It may be addressed to
him by name or by the title or representatives of the deceased or assignees of the insolvent
or by any like description, at the address supplied for the purpose by the person claiming
to be so entitled.

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 Practice Question 10:

Under the provisions of the Companies (Distribution of Dividends) Regulations, 2017 briefly
explain ‘Paying agent’, ‘Working day’ and ‘Manner of payment of cash dividend’.
 Solution:
‘Paying agent’ means a bank or any entity including a share registrar and a central depository
appointed by a company and having relevant approval of SBP for making payment of cash
dividend directly into the designated bank account of entitled shareholder.
‘Working day’ means any day on which banks are open for business.
Manner of payment of cash dividends:
A company may appoint its share registrar or a paying agent for distribution of dividend payable
AT A GLANCE

in cash.
The banks may not be required to appoint a paying agent and may itself assume functions and
responsibility of paying agent.
A company, other than a listed company, shall obtain cash dividend distribution mandate at the
time of becoming a shareholder of the company comprising of following three modes from their
registered shareholders, namely:
 direct transfer into the designated bank account; or
 dividend warrant; or
 cross cheque
The shareholder can change the mandate at any time during the year through a written request
SPOTLIGHT

containing all requisite details of the company.

STICKY NOTES

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3. OBJECTIVE BASED Q&A

01. The chief executive officer of every company is responsible to make the payment of final cash dividend
within a period of __________________ from the date of its declaration.
(a) 30 calendar days
(b) 30 working days
(c) 10 calendar days
(d) 10 working days

02. A company may, on giving not less than ________ previous notice close its register of members, for any
period or periods not exceeding in the whole ____________ in each year.

AT A GLANCE
(a) 7 days and 14 days
(b) 7 days and 30 days
(c) 15 days and 30 days
(d) 15 days and 45 days

03. The amount of final dividend is proposed by directors and approved by

(a) Members in AGM of the company
(b) Auditors in AGM of the company

SPOTLIGHT
(c) CEO in BOD meeting of the company
(d) Members in EGM of the company

04. Interim dividend may be proposed and paid before the end of the year by the
(a) Directors of the company
(b) Chairman of the company
(c) Chief Executive of the company
(d) None of the above

STICKY NOTES
05. The dividend is proposed by the directors. The members may
(a) Reduce the dividend
(b) Accept the dividend
(c) Reject the dividend
(d) All of the above

06. Dividend warrants are a type of a crossed cheque and can be credited in to bank account of
(a) Creditor of the company
(b) Auditor of the company
(c) Member of the company
(d) Director of the company

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 CHAPTER 9: DISTRIBUTION OF PROFITS CAF 7: COMPANY LAW

07. Who is responsible in case of default regarding payment of dividend to member?

(a) Director Finance of the company
(b) BOD of the company
(c) CEO of the company
(d) Chairman of the company

08. In any case, the members of the company cannot

(a) Reject the amount of dividend proposed by directors
(b) Accept the amount of dividend proposed by directors
AT A GLANCE

(c) Decrease the amount of dividend proposed by directors

(d) Increase the amount of dividend proposed by directors

09. In case of delay in payment of dividend, Chief executive of the company may be imprisoned for a term
not exceeding two years and he may be fined for an amount
(a) Upto Rs. 50 million
(b) Upto Rs. 5 million
(c) Minimum Rs. 5 million
(d) Minimum Rs. 50 million
SPOTLIGHT

10. In case of default regarding period of payment of dividend, Chief executive of the company will be fined
and imprisoned for a term which may extend to two years. He shall further be ineligible to become a
director or chief executive of
(a) Any company for the next five years
(b) Any company for the next ten years
(c) Any holding company for the next five years
(d) Any subsidiary company for the next ten years

11. Any dividend payable in cash by a listed company may be paid:

STICKY NOTES

(a) only through electronic mode directly into the bank account designated by the entitled
shareholders
(b) by cross cheques issued in the name of the entitled shareholders
(c) by dividend warrant at the registered address of entitled shareholders
(d) in any of the above manner at the discretion of the distributing company

12. Peach Limited’s board in its meeting held on 9 September 2022 has approved an interim cash dividend
of 20% i.e. Rs. 2 per share for the year ending 30 June 2023. The dividend shall be deemed to have been
declared on the date:
(a) of intimation to Pakistan Stock Exchange
(b) on which such dividend is approved by the board
(c) of the next general meeting
(d) on which announcement is made to the public

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13. Following information are available in respect of Pear Limited for the year ended 30 June 2022:
Rs. in million
Unappropriated profit brought forward 100
Profit from principal line of business for the year 300
Gain/(loss) on disposal of land(s) situated at:
Multan 150
Jhelum (350)
Following is the maximum amount of dividend the board could recommend to the members for the year
ended 30 June 2022:

AT A GLANCE
(a) Rs. 100 million
(b) Rs. 200 million
(c) Rs. 300 million
(d) Rs. 400 million

SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (d) Within 10 working days. [Regulation 3]

02. (b) A company may, on giving not less than 7 days’ previous notice close its register of members, for
any period or periods not exceeding in the whole 30 days in each year. [Section 125]

03. (a) The amount of final dividend will be approved by the members in Annual General Meeting of the
company

04. (a) The directors of the company may proposed and pay interim dividend before the end of the year

05. (d) The members may reduce, accept or reject the dividend as proposed by the director
AT A GLANCE

06. (c) Dividend warrants can be credited into the bank account of member of the company

07. (c) In case of default regarding payment of dividend, Chief Executive of the company may be fined

08. (d) Members cannot resolve to increase the amount of dividend as proposed by directors

09. (b) Chief executive of the company may be fined for an amount upto Rs. 5 Million along with
imprisonment for a term which may extent to two years

10. (a) Chief executive shall be ineligible to become a director or CEO of any company for the next five
years
SPOTLIGHT

11. (a) only through electronic mode directly into the bank account designated by the entitled
shareholders

12. (b) on which such dividend is approved by the board

13. (b) Rs. 200 million

STICKY NOTES

218 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

CAF 7: COMPANY LAW CHAPTER 9: DISTRIBUTION OF PROFITS

STICKY NOTES

Declaration of dividend
1. A company has implied power to declare and pay dividends out of its
distributable profits unless there is specific restriction in its memorandum or
articles (e.g. association not for profit).
2. Not to exceed amount recommended by directors
3. Restriction on distribution of gain on immovable property and gain on
investment property.

AT A GLANCE
Dividend to be paid only out of profits
1. Form of payment: Cash or in kind
2. Payment in kind: only in the form of shares of listed company held by the
distributing company.

Provisions relating to payment

1. To be paid only to registered shareholders

SPOTLIGHT
2. Period of payment (10 working days)
3. Manner of payment – listed company (electronic mode only)
4. Manner of payment – other than listed company (direct transfer, dividend
warrant or cross cheque)
5. Manner of payment - General (paying agent)

Book closure

STICKY NOTES
1. Purpose (to determine the entitled members for dividend or notice etc)
2. Power to close register (7 days previous notice; not exceeding 30 days in
total in each year, further 15 days may be extended by the Commission)
3. Additional requirement for listed company (English & Urdu newspaper)
4. Penalty (Level 2 on standard scale)

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 CHAPTER 9: DISTRIBUTION OF PROFITS CAF 7: COMPANY LAW

Directors not to withhold declared dividend

1. Requirement (CEO is responsible to make payment within specified period)
2. Declaration of final dividend (AGM)
3. Declaration of interim dividend (commencement of closing of register or date
of approval by the board)
4. Consequences of delay in payment (CEO imprisonment upto 2 years, fine upto
Rs. 5 million and ineligible for 5 years)
5. No offence deemed to be committed (certain situations; prior approval within
45 days of declaration)
6. Lawful withholding (when member does not provide complete information)
AT A GLANCE
SPOTLIGHT
STICKY NOTES

220 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 10

INVESTMENTS AND
DISCLOSURE OF INTEREST

AT A GLANCE

AT A GLANCE
IN THIS CHAPTER:
The term associated companies or associated undertaking
means two or more companies and/or undertakings
AT A GLANCE
interconnected with each other due to common directorship,
ownership, or certain other ways.
SPOTLIGHT
Investment includes equity, loan, advance or guarantee by
1. Investments by a Company whatever name called. Directors take the decision of
investments in their board meetings.
2. Disclosure of Interest
A company shall not make any investment in its associated
company except through a special resolution. A company can
3. Objective Based Q&A
invest in associated company by loan or advance subject to
agreement approved under such special resolution.

SPOTLIGHT
STICKY NOTES
Subject to certain exceptions, all investments of a company shall
be at its own name.
A company shall maintain a register of investments not held in
its own name at its registered office open for inspection of
members with no charge. Others may inspect the register by
paying fixed fee and in defined hours.
Directors are agents of the company and maintain a fiduciary
relationship and hence are required to disclose their interest in
any transaction to be entered in to by the company. Interested
directors shall not be entitled to take part in the decision.

STICKY NOTES
A company may enter in to any transaction with related party
subject to the policy approved by the board. Where majority of
directors are interested in the transaction the matter will be
decided in the general meeting.
The Commission may specify the record to be maintained by
company in relation to the related party transactions.

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 CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST CAF 7: COMPANY LAW

1. INVESTMENTS BY A COMPANY
1.1 Definition of associated companies and undertakings [Section 2(4)]
“associated companies” and “associated undertakings” mean any two or more companies or undertakings, or a
company and an undertaking, interconnected with each other in the following manner, namely:
 if a person who is the owner or a partner or director of a company or undertaking, or who, directly or
indirectly (through his spouse or minor children), holds or controls shares carrying not less than twenty
per cent of the voting power in such company or undertaking, is also the owner or partner or director of
another company or undertaking, or directly or indirectly, holds or controls shares carrying not less than
twenty per cent of the voting power in that company or undertaking; or
 if the companies or undertakings are under common management or control or one is the subsidiary of
AT A GLANCE

another; or
 if the undertaking is a modaraba managed by the company;
(Modaraba is an Islamic financing activity, a set up created in order to ensure interest free financing. Modaraba
Management Company is established as a public company which is licensed to float Modarabas which are
separate legal entities).
However, following directorships or shareholdings shall not be considered while ascertaining the status of
companies to be associated:
 directorship of a person by virtue of nomination by the Concerned Minister of the Federal Government
or a Provincial Government or a financial institution directly or indirectly owned or controlled by such
Government; or
 directorship of a person appointed as “Independent Director”
SPOTLIGHT

 shares owned by the National Investment Trust or a financial institution directly or indirectly owned or
controlled by the Federal Government or a Provincial Government; or
 shares registered in the name of a central depository where such shares are not beneficially owned by
the central depository.
 Example 01:
Azam is a director in ABC Limited, a public company limited by shares, if he is also a director in
DEF Limited then both ABC Limited & DEF Limited shall be considered as associated companies
of each other due to presence of a common director (Azam) among both the companies.
Azam is also a partner in a partnership firm named GHI Enterprises, then all the above named
three businesses (‘the undertakings’) shall be considered as associated undertakings of each
STICKY NOTES

other. The point to note here is that they are known as associated undertakings rather than
associated companies because all the three business involved in the relationship are not
companies under the Companies Act 2017.
 Example 02:
Babar is director in ABC Limited and he is also owner of more than 20% shares of JKL (Private)
Limited. ABC Limited and JKL (Private) Limited shall be considered associated companies.
 Example 03:
ABC Limited is holding company of DEF Limited and KLM Limited.
 ABC Limited and DEF Limited shall be considered associated companies as the latter is
subsidiary of the former.
 ABC Limited and KLM Limited shall be considered associated companies as the latter is
subsidiary of the former.
 DEF Limited and KLM Limited shall be considered associated companies being under
common control of ABC Limited.

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 Example 04:
National investment Trust owns 25% shares in ABC Limited and 30% shares in XYZ Limited. ABC
Limited and XYZ Limited shall not be considered associated companies.
 Example 05:
Saima is director in ABC Limited and she is also independent director appointed in XYZ Limited.
ABC Limited and XYZ Limited shall not be considered associated companies.

1.2 Investment in associated companies [Section 199]

Definition: Investment
The term “investment” shall include equity, loans, advances, guarantees, by whatever name called, except for the

AT A GLANCE
amount due as normal trade credit, where the terms and conditions of trade transaction(s) carried out on arms-
length and in accordance with the trade policy of the company.

Power to make investments in general

The investment decisions are within the power of directors exercised through their board meetings.

Restriction on investment in associated company

A company shall not make any investment in any of its associated companies except under the authority of a
special resolution which shall indicate:
 the nature;
 period;

SPOTLIGHT
 amount of investment; and
 terms and conditions attached thereto.
An increase in the amount or any change in the nature of investment or the terms and conditions attached thereto
shall be made only under the authority of a special resolution.

Condition: agreement for loan

The company shall invest in its associated company by way of loans or advances in accordance with an agreement
in writing and such agreement shall inter-alia include:
 nature of loan;

STICKY NOTES
 purpose of loan;
 period of the loan;
 rate of return;
 fees or commission;
 repayment schedule for principal and return;
 penalty clause in case of default or late repayments; and
 security, if any, for the loan
in accordance with the approval of the members in the general meeting.

Condition: return on investment

The return on such investment shall not be less than the borrowing cost of the investing company or the rate as
may be specified by the Commission whichever is higher and shall be recovered on regular basis in accordance
with the terms of the agreement, failing which the directors shall be personally liable to make the payment

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 CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST CAF 7: COMPANY LAW

Condition: due diligence

The directors of the investing company shall certify that the investment is made after due diligence and financial
health of the borrowing company is such that it has the ability to repay the loan as per the agreement.

Exemptions and regulations

The Commission may specify certain classes of companies on which requirement of passing a special resolution
etc. shall not be applicable. The Commission has also made regulations for imposing conditions and restrictions
on making investments in associated companies.

Records
Every company shall maintain and keep at its registered office a register of investments in associated companies
and undertakings containing such particulars as may be specified.
AT A GLANCE

1.3 Investments of company to be held in its own name [Section 200]

Requirement
All investments made by a company on its own behalf shall be made and held by it in its own name.

Exceptions
 The company may hold any shares in its subsidiary company in the name of any nominee of the company,
if it is necessary to do so, to ensure that the number of members of the subsidiary company is not
reduced below the statutory limit.
 Where the company has a right to appoint or get elected any person as a director of any other company
SPOTLIGHT

and a nominee of the company in exercise of such right has been so appointed or elected, the shares in
such other company of an amount not exceeding the nominal value of the qualification shares which are
required to be held by a director thereof, may be registered or held by such company jointly in its own
name and in the name of such person or nominee, or in the name of such person or nominee alone.
 Company may also place its investment in securities in the name of central depository company if it so
desires and the securities are allowed to be kept in central depository system.
 Example 06:
ABC Limited has wholly owned subsidiary (100% shareholding) i.e. XYZ Limited. XYZ Limited is
public unlisted company and it must have at least three members. ABC Limited is allowed to hold
some of its investment in XYZ Limited in the name of two other persons (rather than in its own
STICKY NOTES

name).
 Example 07:
ABC Limited has invested in 15% shares of XYZ Limited and want to nominate Mr. Afzal as
director. As per articles of XYZ Limited, only a person who holds at least 10,000 shares
(qualification shares) may become the director of the company. ABC Limited is allowed to
transfer 10,000 shares in XYZ Limited either jointly in its own name and in the name of Mr. Afzal,
or in the name of Mr. Afzal alone.
 Example 08:
The shares can be transferred in the name of central depository company (CDC) and in such a
case the shares get registered in the name of central depository company as a trustee. However,
beneficial ownership remains in the name of actual owner of shares. So if company puts its
invested shares or securities in central depository it would not be in non-compliance of the
Companies Act.

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1.4 Register for investments not held in own name [Section 200]

Contents of the register

Where, due to exceptions discussed above, any shares or securities in which investments have been made by a
company are not held by it in its own name, the company shall forthwith enter in a register maintained by it for
the purpose at its registered office the nature, value and such other particulars as may be necessary fully to
identify such shares or securities.

Open for inspection

The register shall be open to the inspection of members without charge, and to any other person on payment of
fees fixed by company during business hours, subject to such reasonable restrictions, as the company may
impose, so that not less than two hours in each day be allowed.

AT A GLANCE
Certified copies
Any member may require a certified copy of register or any part thereof, on payment of such fee as may be fixed
by the company. The certified copies requested shall be issued within a period of 7 days. A member seeking to
exercise the rights must make a request to the company to that effect.

Order by registrar for allowing inspection

In case of contravention, the registrar may by an order compel an immediate inspection of the register or direct
that copies required shall be sent to the persons requiring them.
 Practice Question 01:
Kalaam Limited (KL) is considering the following options to invest its excess funds:

SPOTLIGHT
i. Acquire 8% shareholdings in Lighter Oil Limited (LOL) for Rs. 120 million. LOL is a
growing company and is expected to fetch higher returns in futures.
ii. Grant a loan of Rs. 100 million to Monsoon (Private) Limited (MPL) for launching a new
product. The loan would carry interest at the rate prevailing in the market. KL currently
holds 25% of MPL’s paid-up capital and has two directors in common.
Under the provisions of the Companies Act, 2017 specify the condition(s) which KL must fulfil
before opting for any of the above investment options.
 Solution:
Part (i)

STICKY NOTES
The directors can make investment in its shares by passing a resolution in their meeting.
Part (ii)
MPL is an associated undertaking of KL due to common directorship. Therefore, KL can make
investment in MPL only under the authority of a special resolution passed by the members in the
general meeting. The special resolution shall be supported by an agreement in writing which
shall include the terms and conditions specifying the nature, purpose, period of loan, rate of
return, fees or commission, repayment schedule for principal and return, penalty clause in case
of default or late repayments and security, if any, for the loan in accordance with the approval of
the members in the general meeting.
The rate of return on such investment shall not be less than the borrowing cost of KL (investing
company) or the rate as may be specified by the Commission whichever is higher and shall be
recovered on regular basis in accordance with the terms of agreement, failing which the directors
shall be personally liable to make the payment.
Further, the directors of KL (investing company) shall certify that investment is made after due
diligence and that the borrower has the ability to repay the loan as per the agreement.

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 Practice Question 02:

Ironside Limited (IL) owns 51% voting shares in Snow Storm Limited (SSL) and 52% voting
shares in Flipper (Pvt) Limited (FPL). SSL intends to make an investment of Rs. 200 million in
FPL.
Under the provisions of the Companies Act, 2017:
i. State the type of relationship, if any, which exists between SSL and FPL.
ii. Describe the conditions which SSL must fulfil before making any investment in FPL.
 Solution:
Part (i)
SSL and FPL are associated companies as both of them are under common control of IL.
Part (ii)
AT A GLANCE

SSL shall not make any investment in its associated company:

 except under the authority of a special resolution which shall indicate the nature, period
and amount of investment and terms and conditions attached thereto.
 provided that the return on investment in `the form of loan shall not be less than the
higher of borrowing cost of investing company (SSL) or such other rate as the
Commission may specify.
 the directors of the investing company shall certify that the investment is made after due
diligence and financial health of the borrowing company is such that it has the ability to
repay the loan as per the agreement
 Practice Question 03:
Naseer, a non-executive director of Oliver Travels Limited (OTL), while reviewing details of
SPOTLIGHT

investments made by OTL, has shown his concerns on the following shares that are not held in
the name of OTL:
i. 500 shares in Pak Travels (Private) Limited (PTPL) are held in the name of Rahim who
is an employee of OTL. PTPL is a wholly owned subsidiary of OTL.
ii. 5,000 shares of Tours & Tours (Private) Limited (TTPL) are held in the name of Sami,
who is a non-executive director in TTPL by virtue of OTL’s nomination. OTL owns 30%
voting shares in TTPL.
Under the provisions of the Companies Act, 2017 briefly explain the possible reasons for holding
investment of OTL in the name of Rahim and Sami.
 Solution:
STICKY NOTES

Part (i)
PTPL is wholly owned subsidiary company of OTL means it has one shareholder. Whereas, PTPL
being a private company must have at least two members, hence OTL may hold any shares in the
name of any of its nominee to ensure that the number of members of PTPL is not reduced below
the statutory limit.
Part (ii)
OTL has nominated Sami as non-executive director by virtue of its investment in TTPL. It means
OTL have right to appoint or get elected any person as director of TTPL, therefore, in the light of
the provisions of Companies Act, 2017 OTL have the right to transfer TTPL’s shares in the name
of Sami up to an amount not exceeding the nominal value of the qualification shares which are
required to be held by TTPL’s director. Such shares may be registered or held by OTL jointly with
Sami or in the name of Sami alone.

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 Practice Question 04:

In February 2021, Silver Topaz Limited (STL) acquired 18% voting shares in Jade Limited (JL).
After acquisition, STL nominated one of its directors on JL’s board.
STL’s board is planning to acquire further 10% voting shares in JL in May 2021.
Under the Companies Act, 2017 discuss the condition(s) which STL must fulfil before making any
further acquisition of shares in JL.
 Solution:
As STL has nominated one of its directors on JL’s board, both the companies became associated
companies due to common directorship. Therefore, STL’s plan of further investment would be
considered as investment in associated company.
Accordingly, STL can make further investment in JL only under the authority of a special

AT A GLANCE
resolution which shall indicate the nature, period, amount of investment and terms and
conditions attached thereto.
 Practice Question 05:
Blush Pakistan Limited (BPL) is a public unlisted company, managed by Ivory (Private) Limited
(IPL). BPL has been using a specialised raw material for production of its main products.
In order to meet its future raw material requirements, BPL is considering to grant an interest
free loan for a period of two years to its sole supplier Jade Packaging Limited (JPL) for expansion
of its manufacturing facilities. JPL is also managed by IPL.
Discuss the provisions of the Companies Act, 2017 that are required to be complied with by BPL
with respect to the above loan.

SPOTLIGHT
 Solution:
Blush Pakistan Limited (BPL) and Jade Packaging Limited (JPL) are managed by Ivory (Private)
Limited, hence according to the provision of the Companies Act, 2017 both BPL and JPL are
associated companies. Hence, the said loan falls under the definition of investments in associated
companies.
Following are the requirement that need to be complied with by BPL prior to granting of loan to
JPL:
 Call general meeting for getting approval, for that purpose send notice to all the members.
 Pass a special resolution which shall indicate the nature, period, amount of investment and
terms and conditions attached thereto.

STICKY NOTES
 Grant the loan against an agreement in writing and such agreement shall inter-alia include
the terms and conditions specifying the nature, purpose, period of the loan, rate of return,
fees or commission, repayment schedule for principal and return, penalty clause in case of
default or late repayments and security, if any, for the loan.
 Ensure that:
o the return on such investment shall not be less than BPL’s borrowing cost or the rate as
may be specified by the Commission whichever is higher.
o The directors of BPL has certified that the investment is made after due diligence and
that the financial health of JPL is such that it has the ability to repay the loan as per the
agreement.
 File the special resolution with the registrar within fifteen days from the passing thereof,
duly authenticated by a director or secretary of BPL.
 If BPL’s articles of association (AOA) have been registered, embody or annex a copy of the
aforesaid special resolution till such time it will be in force to every copy of AOA issued after
the date of the resolution.
 Maintain and keep a register of investments in associated companies and undertakings
containing such particulars as may be specified at its registered office.

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2. DISCLOSURE OF INTEREST
2.1 Disclosure of interest by director [Section 205]
Why to disclose interest or concern
The directors are agents of the members of the company and they are in a fiduciary relationship with all the
members of the company. So they are required to make all contracts and all transaction in good faith and in the
best interest of the company. Hence if they make any transaction or enter into any contract on behalf of the
company in which they are themselves interested by any means, they should give a complete disclosure of the
fact so that their integrity is not questioned. There must not be any conflict of interest between the company and
the directors.
 Example 09:
AT A GLANCE

A listed company has to purchase a specific property and that property relates to the spouse of a
director; he shall be required to make a disclosure of his interest to other directors. As a director
of the company he shall be working for the company and should try to bargain at lowest possible
price, but on the other hand his spouse is owner of the property, he should also be naturally
interested that his spouse gets highest possible price for that property. You can see that conflict
of interest arises, so whenever there is such a situation, a complete disclosure from the director
must be given to the other directors and then after disclosing, interested director may not be part
of the directors’ meetings in which such contract or transaction is to be discussed.
Prohibited transactions are not validated by disclosure
If directors are forbidden to make certain transactions with the company by provisions of any law, those
provisions shall prevail, and disclosure of those transactions cannot justify the contravention of law. Even for
SPOTLIGHT

transactions which are not prohibited, disclosure of interest must be made and certain transactions may carry
additional approval requirement.
Requirement
Every director of a company who is concerned or interested in any contract or arrangement entered into, or to
be entered into, by the company shall disclose the nature of his concern or interest at a meeting of the board.
A director shall be deemed also to be interested or concerned if any of his relatives (spouse, children including
step children and parents), is so interested or concerned.
Timing of disclosure
The director should give the notice of his interest in transactions or arrangements:
STICKY NOTES

 in first board meeting, in which such transaction or arrangement is discussed, if such transaction
requires directors’ approval;
 if he was not interested at the time of first discussion, in first board meeting held after he becomes so
interested, if such transaction requires directors’ approval;
 in first meeting held after the transaction or arrangements is entered into, if such transaction does not
require directors’ approval.

General notice
Instead of making a disclosure at separate intervals on each transaction, the director may give a general notice
regarding his directorships or memberships in other body corporate or partnership in firms so that he may be
considered as interested in any transaction, contract or arrangement entered into with these businesses.
Such notice should be given at the directors' meeting or the concerned director may take reasonable steps to
ensure that it is brought up and read at the first meeting of the board after it is given.
This general notice shall expire at the end of the financial year in which it is given and may be replaced by fresh
notice to be given in last month of financial year.

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2.2 Interested director not to participate or vote [Section 207]

Not to participate or vote
A director shall not, as a director, take any part in the discussion of, or vote on, any contract or arrangement
entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or
indirectly, concerned or interested in the contract or arrangement, nor shall his presence count for the purpose
of forming a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.
Not to be present
A director of a listed company who has a material personal interest in a matter that is being considered at a board
meeting shall not be present while that matter is being considered.
Approval from members

AT A GLANCE
If majority of the directors are interested in, any contract or arrangement entered into, or to be entered into, by
or on behalf of the company, the matter shall be laid before the general meeting for approval.
Exception
The above provisions shall not be applicable under the following circumstances:
 If the person is a director of a private company which is neither a subsidiary nor a holding company of
a public company;
 when the director has acted as surety of the company and the resolution under consideration relates to
the indemnification or insurance coverage of the surety director against any loss incurred by the director
for becoming surety of the company.

2.3 Disclosure of interest by officers other than directors [Section 206]

SPOTLIGHT
Other officer of a company who is directly or indirectly concerned or interested in any proposed contract or
arrangement with the company shall not enter into any such contract or arrangement unless he discloses the
nature and extent of his interest in the transaction and obtains the prior approval of the board.

2.4 Related party transactions [Section 208]

Expression: related party

The expression “related party” includes:
i. a director or his relative:
ii. a key managerial personnel or his relative;

STICKY NOTES
iii. a firm, in which a director, manager or his relative is a partner;
iv. a private company in which a director or manager is a member or director;
v. a public company in which a director or manager is a director or holds along with his relatives, any
shares of its paid up share capital;
vi. any body-corporate whose chief executive or manager is accustomed to act in accordance with the
advice, directions or instructions of a director or manager (exception: advice, directions or instructions
given in a professional capacity);
vii. any person on whose advice, directions or instructions a director or manager is accustomed to act
(exception: advice, directions or instructions given in a professional capacity);
viii. any company which is:
 a holding, subsidiary or an associated company of such company; or
 a subsidiary of a holding company to which it is also a subsidiary;
ix. such other person as may be specified.
Here, the term “relative” means spouse, siblings and lineal ascendants and descendants of a person.

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 Example 10:
XYZ Limited is considering an arrangement with ABC firm in which Azam, Babar and Chand are
partners. Azam is spouse of Naheed, one of the directors in XYZ Limited. In relation to XYZ
Limited, Naheed is related party being a director, Azam is a related party being relative of a
director and ABC firm is related party being a firm in which relative of a director is a partner.
 Example 11:
KLM Limited often obtains investment consultancy from Adeel. Adeel practices as business
advisor and provides the consultancy to KLM Limited purely in professional capacity. Adeel is
not a related party in relation to XYZ Limited as advice is given in a professional capacity.

Expression: office of profit

AT A GLANCE

The expression “office of profit” means any office:

i. where such office is held by a director, if the director holding it receives from the company anything by
way of remuneration over and above the remuneration to which he is entitled as director, by way of
salary, fee, commission, perquisites, any rent-free accommodation, or otherwise;
ii. where such office is held by an individual other than a director or by any firm, private company or other
body corporate, if the individual, firm, private company or body corporate holding it receives from the
company anything by way of remuneration, salary, fee, commission, perquisites, any rent-free
accommodation, or otherwise.
 Example 12:
Fareed is a non-executive director in Multan Pharma Limited (MPL), a listed company. He only
receives meeting fee from MPL for attending board meetings and meetings of audit committee.
SPOTLIGHT

Fareed does not hold office of profit in MPL.

 Example 13:
Naveed is a director in Multan Pharma Limited (MPL), a listed company. He receives only meeting
fee from MPL for attending board meetings and meetings of risk management committee. Naveed
also supervises the production on routine basis and lives in a rent free accommodation provided
by MPL near its production site. Naveed does not receive any monthly or annual salary from MPL.
Naveed holds office of profit in MPL.

Requirement of approved policy for related party transactions

A company may enter into any contract or arrangement with a related party only in accordance with the policy
STICKY NOTES

approved by the board, subject to such conditions as may be specified, with respect to:
a) sale, purchase or supply of any goods or materials;
b) selling or otherwise disposing of, or buying, property of any kind;
c) leasing of property of any kind;
d) availing or rendering of any services;
e) appointment of any agent for purchase or sale of goods, materials, services or property; and
f) such related party’s appointment to any office or place of profit in the company, its subsidiary company
or associated company.

Requirement of special resolution

Where majority of the directors are interested in any of the above transactions, the matter shall be placed before
the general meeting for approval as special resolution.

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Exception: certain transactions

The above requirements of approved policy or special resolution do not apply to any transactions entered into
by the company in its ordinary course of business on an arm’s length basis.
The expression “arm’s length transaction” means a transaction which is subject to such terms and conditions as
may be specified.
 Example 14:
Majeed is a director in Multan Electronics Limited (MEL), a listed company. His brother bought
two air conditioners from main showroom of MEL at the same retail price as is offered to any
other customer. The transaction entered into by MEL is in its ordinary course of business and on
an arm’s length basis, therefore, requirements of section 208 are not applicable.

Requirement to refer and justify in directors’ report

AT A GLANCE
Every contract or arrangement entered into with related party shall be referred to in the board’s report to the
shareholders along-with the justification for entering into such contract or arrangement.

Requirement to maintain records

The Commission may specify the record to be maintained by the company with regards to transactions
undertaken with the related party.

Status of contracts in contravention by director or employee

Where any contract or arrangement is entered into by a director or any other employee, without obtaining the
consent of the board or approval by a special resolution in the general meeting as required and if it is not ratified
by the board or, as the case may be, by the shareholders at a meeting within 90 days from the date on which such

SPOTLIGHT
contract or arrangement was entered into, such contract or arrangement shall be voidable at the option of the
board and if the contract or arrangement is with a related party to any director, or is authorised by any other
director, the directors concerned shall indemnify the company against any loss incurred by it.
Regardless of the above provision, it shall be open to the company to proceed against a director or any employee
who had entered into such contract or arrangement in contravention of the provisions relating to related party
transactions for recovery of any loss sustained by it as a result of such contract or arrangement.

Penalty
Any director or any other employee of a company, who had entered into or authorised the contract or
arrangement in violation of the above provisions shall be liable:

STICKY NOTES
a) in case of listed company, be punishable with imprisonment for a term which may extend to three years
or with fine which shall not be less than five million rupees, or with both; and
b) in case of any other company, to a penalty of level 2 on the standard scale.
 Practice Question 06:
What is the procedure for filing a general notice of interest by a director and what would such a
general notice include?
 Solution:
Instead of making a disclosure at separate intervals on transaction by transaction basis, the
director may give a general notice regarding his directorships in other body corporate or
partnership in firms so that he may be considered as interested in any transaction, contract or
arrangement entered into with these businesses.
Such notice should be given at the directors' meeting or the concerned director may take
reasonable steps to ensure that the notice is read by the other directors.
This general notice shall expire at the end of the financial year in which it is given and may be
replaced by fresh notice to be given in last month of financial year.

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 Practice Question 07:

The director of a company shall not take any part in the discussion of, or vote on, any contract or
arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any
way, whether directly or indirectly, concerned or interested in such contract or arrangement.
Under the provisions of the Companies Act, 2017 briefly describe the exceptions to the above
rule, if any.
 Solution:
The above rule shall not be applicable under the following circumstances:
 If the person is a director of a private company which is neither a subsidiary nor a
holding company of a public company;
 when the director has acted as surety of the company and the resolution under
AT A GLANCE

consideration relates to the indemnification or insurance coverage of the surety director

against any loss incurred by the director for becoming surety of the company.
 Practice Question 08:
Faraz Limited (FL) is considering to enter into a contract with Bari Limited (BL) for the
construction of its new manufacturing facility. The Board of Directors of FL has authorized Hasan
Ali, an executive director, to negotiate the final price with BL.
Sara Ali, who is a chief executive in BL, is the spouse of Hasan Ali.
In view of the provisions of the Companies Act, 2017 briefly explain the responsibilities of Hasan
Ali towards FL under the above circumstances.
 Solution:
SPOTLIGHT

Being a director, Hassan Ali is an agent of the shareholders of the company and stands in a
fiduciary relationship with them so he is required to make all contracts and all transactions in
good faith and in best interest of the company. In this case, Hassan Ali is deemed to be indirectly
interested in the transaction as his wife is the chief executive in BL.
Therefore, Hassan Ali should give a general notice to the effect to all other directors that he
should be regarded as concerned or interested in the transaction to be entered into with BL and
such notice shall be given at the meeting of the directors at which the question of entering into
the contract or arrangement is first to be taken into consideration.
After disclosing his interest in the transaction, Hassan Ali should not be part of the directors’
meeting in which such contract or transaction is to be discussed.
STICKY NOTES

 Practice Question 09:

Fida Rehman has been the executive director of Golden Industries Limited (GIL), a listed
company. On 9 November 2021, on behalf of GIL’s management, Fida Rehman entered into a two
year contract with Carol (Private) Limited (CPL) for the supply of raw material on 15 days credit.
On 7 March 2022, Fida Rehman’s father acquired 12% shares in CPL.
Under the provisions of the Companies Act, 2017 briefly explain the responsibilities of Fida
Rehman in respect of the above, for the entire term of the contract.
 Solution:
According to the provisions of the Companies Act, 2017, Fida Rehman is deemed to be interested
in the contract with Carol (Private) Limited (CPL) on 7 March 2022 when his father acquired
shares in CPL. Under the Companies Act, 2017, parents falls under the definition of director’s
relatives. Therefore, Fida Rehman shall be deemed to be interested.

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Accordingly, Fida Rehman’s responsibilities in respect of CPL’s contract are as follows:

 Fida Rehman shall disclose the nature of his interest by giving a general notice at the
first meeting of GIL’s board meeting held after 7 March 2022 that he is concerned or
interested in the contract with CPL effective 7 March 2022.
 As GIL entered into a two year contract with CPL, the said notice shall expire at the end
of GIL’s financial year and may be renewed for further period of one financial year by a
fresh notice given in the last month of the financial year in which it would otherwise
expire.
 In order to make the said notice effective, it must be given in a meeting of the board of
GIL or Fida Rehman himself takes reasonable steps to ensure that it is brought up and
read at the first meeting of the board of GIL after it is given.

AT A GLANCE
 Practice Question 10:
Discuss the provisions of the Companies Act, 2017 relating to the proceedings of the meeting of
the board of directors of a company.
 Solution:
Following provisions are available in the Companies Act, 2017, with regards to the proceedings
of the board of directors of a company:
Requirement as to quorum in case of a listed company:
The quorum for a meeting of board of a listed company shall not be less than one-third of number
of directors or four, whichever is greater and the participation of the directors by video
conferencing or by other audio visual means shall also be counted for the purposes of quorum.

SPOTLIGHT
However, if at any time, there are not enough directors to form a quorum to fill a casual vacancy,
all the remaining directors shall be deemed to constitute a quorum for this limited purpose.
Requirement as to quorum in case of company other than listed company:
The quorum for a meeting of the board of other than listed company shall be as provided in the
articles of association of the company.
Frequency of board meeting and participation of interested director of a company:
The board of a public company shall meet at least once in each quarter of a year.
A director of a public company or a private company which is either holding or subsidiary of a
public company shall not, as a director, take any part in the discussion of, or vote on any

STICKY NOTES
arrangement by or on behalf of a company, if he is so interested.
Passing of resolution by the directors through circulation:
A resolution in writing signed by all the directors for the time being entitled to receive notice of
a meeting of the directors shall be as valid and effectual as if it had been passed at a meeting of
the directors duly convened and held.
Circular resolution once approved shall be noted at a subsequent meetings of the board and made
part of the minutes of such meeting.
Records of resolutions and meetings of board:
Every company shall keep records comprising:
 all resolutions of the board passed by circulation; and
 minutes of all proceedings of board meetings along with the names of participants, to be
entered in properly maintained books

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Authentication of minutes:
The above minutes recorded, if purporting to be authenticated by the chairman of the meeting
or by the chairman of the next meeting, shall be the evidence of the proceedings at the meeting.
Until the contrary is proved, every meeting of board in respect of the proceedings whereof
minutes have been so made shall be deemed to have been duly called, held and conducted.
Furnishing and keeping minutes:
A copy of the draft minutes of meeting of board shall be furnished to every director within 14
days of the date of meeting.
The records must be kept at the registered office of the company from the date of the resolution,
meeting or decision simultaneously in physical and electronic form and it shall be preserved for
at least ten years in physical form and permanently in electronic form.
AT A GLANCE

Consequences of holding in the absence of quorum or not holding meeting:

If a meeting of the board is conducted in the absence of a quorum or a meeting of board is not
held as mentioned above, the chairman of the directors and the directors shall be held liable and
penalized.
 Practice Question 11:
Cherry Limited (CL) is engaged in the business of manufacturing and selling of air conditioners.
On 15 August 2022, Aslam, one of the directors, with the consent of the chief executive, has
entered into a contract on behalf of CL, with Tamarind Limited (TL) as a distributor for the supply
of air conditioners in Punjab.
The spouse of Aslam holds 5% shares in TL.
SPOTLIGHT

Under the provisions of the Companies Act, 2017 advise on the enforceability of contract entered
into between CL and TL and the consequences which may arise due to the non-compliance of the
said contract.
 Solution:
Enforceability of the contract: In order to establish the enforceability of the contract, first need
to establish the relationship of CL with TL.
Since Aslam’s spouse holds 5% shares in TL, TL shall be considered as related party of CL as
under the provisions of the Companies Act, 2017 a public company shall be considered as related
party if a director along with his relative holds any shares of its paid up share capital. Accordingly,
STICKY NOTES

Aslam will be considered interested in the contract entered into with TL.
Hence, the said contract may be entered only in accordance with the policy approved by the
board. If CL’s management has not followed the said policy, the contract between CL and TL is
voidable at the option of CL’s board.
The said contract may be enforced if the board ratified it within 90 days from the date on which
the contract was entered into i.e. on or before 13 November 2022.
Consequences due to non-compliance: In the case of any non-compliance with regard to the
said contract, Aslam along with chief executive shall be held liable to indemnify CL against any
loss incurred in respect of the said contract.
CL also has a right to proceed against Aslam for recovery of any loss sustained by it, as Aslam
being director has entered into the said contract in contravention of the provisions of the
Companies Act, 2017.

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CAF 7: COMPANY LAW CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST

3. OBJECTIVE BASED Q&A

01. Under the provisions of the Companies Act 2017, the power to make investments in a company rests
with the
(a) CEO of the company
(b) Directors of the company
(c) Members of the company
(d) Chairman of the company

02. Investment in associated company cannot be made by the directors themselves. They will have to get its

AT A GLANCE
approval from
(a) Members in a class meeting through special resolution
(b) Members in a general meeting through ordinary resolution
(c) Members in a general meeting through special resolution
(d) Members in a BOD meeting through ordinary resolution

03. Being a separate legal person, a company can make investments in any other company or security. But
all the investments of the company must be made and held
(a) In the name of controlling shareholders

SPOTLIGHT
(b) In the name of Sponsors of the company
(c) In the name of chairman of the company
(d) In the name of Company itself

04. The company shall not make an increase in amount or any variation in the nature and terms of any
investment in associated companies without passing
(a) An ordinary resolution in the general meeting.
(b) A special resolution in the general meeting

STICKY NOTES
(c) A resolution in the Board meeting
(d) A resolution in creditors meeting

05. The register for investments of company not held in its own name is open to inspection for the members
of the company,
(a) Free of cost for at least two hours daily
(b) Free of cost for at least five hours daily
(c) At a payment of charge for at least two hours daily
(d) At a payment of charge for at least five hours daily

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 CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST CAF 7: COMPANY LAW

06. Any member may require a certified copy of register of investment not held in the company’s name, on
fee fixed by the company. Certified copies requested shall be issued
(a) After 7 days
(b) Within 7 days
(c) After 14 days
(d) Within 14 days

07. The term “investment” shall include

(a) Loans
(b) Advances
AT A GLANCE

(c) Equity
(d) All of the above

08. Anas, Asadullah, Ameen and Arqam are founder partners of Fast Movers Forwarders (FMF). In January
2020, all partners had purchased shares of Quality Tiles Limited (QTL), a listed company. In June 2020,
they contested the election of directors of QTL and got elected as directors out of seven positions. Being
majority directors of QTL, they cancelled the contract of existing logistics service provider and awarded
the contract to FMF.
Whether the aforesaid contract is valid?
(a) Yes, because it is approved by the majority of the directors and the board is fully empowered to
SPOTLIGHT

manage the affairs of the company

(b) No, the contract need to be approved by majority of such directors who are not interested in the
said contract
(c) No, the contract must be laid before the general meeting for approval
(d) No, the contract must be approved by the general meeting as well as by the Commission

09. Under which of the following situations a person may, as a director, take part in the discussion of any
contract to be entered into on behalf of the company, even if he is in anyway concerned or interested in
the contract?
If he is the director of a private company which is:
STICKY NOTES

(a) subsidiary of a public company.

(b) holding company of a public company.
(c) associated undertaking of a public company.
(d) neither a subsidiary nor a holding company of a public company.

10. KLM Limited in considering a related party transaction in which majority of directors are interested.
Which of the following is correct?
(a) If the transaction is in accordance with policy approved by the board of KLM Limited, it need not
be approved in a general meeting.
(b) The matter must be placed before the general meeting for approval as special resolution.
(c) The matter must be placed before the general meeting for approval as ordinary resolution.
(d) Such transactions are absolutely prohibited under the Companies Act and all interested directors
shall be liable to penalty in case such transaction is carried out whether with or without approval.

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CAF 7: COMPANY LAW CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST

11. Akram is the chief financial officer of Snapper House Limited (SHL). As part of its expansion plan, SHL is
in the process of acquiring an office building, owned by Najma who is Akram’s wife, on rent in a
commercial area. SHL asked Najma to provide terms and conditions of the rent agreement for
consideration and necessary approval.
Which of the following statements is correct?
(a) Akram will have to disclose his interest and obtain prior approval of SHL’s board before signing
the rent agreement
(b) SHL can sign the rent agreement and Akram will give an update to SHL’s board in the immediately
next board meeting
(c) SHL can sign rent agreement with prior approval of the chief executive
(d) No approval is needed; however, Akram cannot be involved in the transaction

AT A GLANCE
12. Kingfish Limited (KL) holds 5 million shares in Moonfish Limited (ML) and wants to acquire further 3
million shares in ML. The issued, subscribed and paid-up share capital of ML as at 9 September 2021 is
50 million shares. There is no common director on the boards of both companies.
In this regard, which of the following statements is correct?
(a) KL needs to obtain approval of its members in general meeting before making further investment
in ML
(b) KL needs to obtain approval of its members in general meeting through special resolution before
making further investment in ML

SPOTLIGHT
(c) KL can make further investment in ML if board’s approval is in place
(d) KL does not require any approval before making further investment in ML

13. Purple Limited (PL) is wholly owned subsidiary of Byzantium Limited (BL). BL has transferred ten shares
of PL each in the name of its directors Kashif and Zahid, in order to ensure that:
(a) they could attend PL’s general meeting
(b) they could look after PL’s affairs to protect BL’s interest
(c) the number of PL’s members shall be in accordance with the statutory limit

STICKY NOTES
(d) both (a) and (b)

14. Where a director has entered into a contract with the company for supply of raw material without
obtaining the required approval, the contract shall be voidable at the option of the board, unless within
90 days from the date at which such contract was entered into, it is ratified:
(a) by the directors and shareholders in their respective meetings
(b) either by the directors in their meeting or by the shareholders in their meeting
(c) by the directors only, in their meeting
(d) by the shareholders only, in their meeting

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 CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST CAF 7: COMPANY LAW

ANSWERS
01. (b) Directors of the company can make an investment or disinvestment decision.
02. (c) Directors will have to get its approval from members in a general meeting through a special
resolution.
03. (d) All the investments of the company must be made and held in the name of the company itself
and not in the name of any other person.
04. (b) The company cannot change or vary the terms of investments without passing a special
resolution in the general meeting
05. (a) The register is open to inspection of the members free of cost for at least two hours daily
AT A GLANCE

06. (b) Certified copies of register requested shall be issued within 7 days
07. (d) The expression investment shall include loans, advances, equity, guarantees by whatever name
called or any amount which is not in the nature of normal trade credit
08. (c) No, the contract must be laid before the general meeting for approval as majority of directors
are interested in the contract.
09. (d) The restrictions do not apply to director of a private company which is neither a subsidiary nor
a holding company of a public company.
10. (b) The matter must be placed before the general meeting for approval as special resolution.
[Section 208]
11. (a) Akram will have to disclose his interest and obtain prior approval of SHL’s board before signing
SPOTLIGHT

the rent agreement

12. (c) KL can make further investment in ML if board’s approval is in place
13. (c) the number of PL’s members shall be in accordance with the statutory limit
14. (b) either by the directors in their meeting or by the shareholders in their meeting
STICKY NOTES

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CAF 7: COMPANY LAW CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST

STICKY NOTES

Relevant definitions
1. Associated companies and undertakings
2. Investment

Investment in associated companies

1. Power to make investments in general: Directors

AT A GLANCE
2. Restriction on investment in associated company: Special resolution
3. Condition: agreement for loan (in writing and certain contents)
4. Condition: return on investment (not less than borrowing cost of the
investing company and the rate specified by the Commission, whichever is
higher)
5. Condition: due diligence (of borrowing company)
6. Exemptions and regulations (power of the Commission)

SPOTLIGHT
Investments of company to be held in its own name
1. Requirement: to be held in company’s own name
2. Exception: to ensure minimum number of members in a subsidiary
3. Exception: qualification shares to nominate a person as director
4. Exception: in the name of CDC
5. Ccertain particulars to be maintained in the register of such investments
6. Open for inspection (members without charge; others on payment of fee)
7. Certified copies (on payment of fee; within 7 days)

STICKY NOTES
8. Order by registrar for allowing inspection (in case of contravention)

Disclosure of interest by director

1. Why to disclose interest or concern (fiduciary relationship / duty to act in
the best interest of the company)
2. Prohibited transactions are not validated by disclosure
3. Requirement (to disclose in board meetings when he or relative is
interested)
4. Timing of disclosure (depends on whether transaction needs approval of the
board)
5. General notice (shall expire at the end of finanical year)

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 CHAPTER 10: INVESTMENTS AND DISCLOSURE OF INTEREST CAF 7: COMPANY LAW

Interested director not to participate or vote

1. Not to participate or vote (if he votes, his vote shall be void)
2. Not to be present (listed company)
3. Approval from members (if majority of directors are interested)
4. Exception (private company, neither subsidiary nor holding of public
company & director acting as surety for the company).

Disclosure of interest by officers other than directors

1. Obtain prior approval of the board
AT A GLANCE

Related party transactions

1. Expression: related party
2. Expression: office of profit
3. Requirement of approved policy for related party transactions
4. Requirement of special resolution (where majority of directors are
interested)
5. Exception: transactions in ordinary course of business on an arm’s length
SPOTLIGHT

basis
6. Requirement to refer and justify in directors’ report
7. Requirement to maintain records
8. Status of contracts in contravention by director or employee (voidable)
9. Penalty (Listed company: imprisonment upto 3 years or fine upto Rs. 5
million; other companies: Level 2 on standard scale)
STICKY NOTES

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 CHAPTER 11

ACCOUNTS AND ANNUAL RETURN

AT A GLANCE
IN THIS CHAPTER: Every company shall prepare and keep at its registered office,
books of accounts and other relevant books. It shall also prepare

AT A GLANCE
AT A GLANCE financial statements for every financial year which shall give
true and fair view of company’s affairs. Financial year means the
SPOTLIGHT period for which an entity prepares financial statements
whether the said period is a year or not.
1. Books of Accounts
Directors have right to inspect the books of accounts during
2. Financial Statements business hours but members do not have such right but may be
authorized by the Act, directors or company in general meeting.
3. Group Financial Statements Financial statements must be approved by board of company.
Audited financial statement shall be filed with the registrar once
4. Directors’ Report and the company has approved the same in general meeting.
Statement of Compliance
Listed companies are also required to prepare and file quarterly

SPOTLIGHT
5. Annual Return financial statements.
Consolidated financial statements of group are also prepared
6. Objective Based Q&A and attached with the financial statements of a holding
company.
STICKY NOTES
A directors report is also prepared by board of director of every
company except in case of a private company which is not a
subsidiary of public company and has a paid up share capital for
less than Rs. 3 million.
Annual return of a company provides information about its
company, its officers and members and share capital at the date

STICKY NOTES
of AGM or last day of calendar year if no AGM is held or
concluded.

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 CHAPTER 11: ACCOUNTS AND ANNUAL RETURN CAF 7: COMPANY LAW

1. BOOKS OF ACCOUNTS
1.1 Relevant definitions
Definition: Books and paper [Section 2(10)]
“book and paper” and “book or paper” includes books of account, cost accounting records, deeds, vouchers,
writings, documents, minutes and registers maintained on paper or in electronic form.
Definition: Books of account [Section 2(11)]
“books of account” include records maintained in respect of:
a) all sums of money received and expended by a company and matters in relation to which the receipts
and expenditure take place;
AT A GLANCE

b) all sales and purchases of goods and services by the company;

c) all assets and liabilities of the company; and
d) items of cost in respect of production, processing, manufacturing or mining activities.
Definition: Financial year [Section 2(34)]
“financial year” in relation to a company or any other body corporate, means the period in respect of which any
financial statement of the company or the body corporate, as the case may be, laid before it in general meeting,
is made up, whether that period is a year or not.

1.2 Books of accounts to be kept by a company [Section 220]

Requirement
SPOTLIGHT

Every company shall prepare and keep at its registered office books of account and other relevant books and
papers and financial statements for every financial year which give a true and fair view of the state of the affairs
of the company, including that of its branch offices, if any.
Cost accounts
In the case of a company engaged in production, processing, manufacturing or mining activities, such particulars
relating to utilisation of material or labour or the other inputs or items of cost as may be specified, shall also be
maintained.
Keeping books at place other than registered office
All or any of the books of account aforesaid and other relevant papers may be kept at such other place in Pakistan
as the board may decide and where such a decision is taken, the company shall file with the registrar a notice in
STICKY NOTES

writing giving the full address of that other place within 7 days of the decision.

Records of branch offices

Where a company has a branch office in Pakistan or outside Pakistan, it shall be deemed to have complied with
the requirement, if proper books of account relating to the transactions effected at the branch office are kept at
that office and proper summarized returns are sent periodically by the branch office to the company at its
registered office or the other place where books of accounts are kept.

Inspection by directors
The books of account and other books and papers maintained by the company within Pakistan shall be open for
inspection by any director during business hours, and in the case of financial information, if any, maintained
outside the country, copies of such financial information shall be maintained and produced for inspection by any
director.
Where such inspection is made, the officers and other employees of the company shall give to the director making
such inspection all assistance in connection with the inspection which the company is reasonably expected to
give.

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Inspection by members
Members do not have absolute right to inspect books of accounts. However, the Companies Act, or the directors
or the general meeting may authorize member(s) to inspect books of accounts.

Time period
The books of account of every company relating to a period of not less than 10 financial years immediately
preceding a financial year together with the vouchers relevant to any entry in such books of account shall be kept
in good order.
 Example 01:
Extravagant Hotels Limited (EHL) was incorporated in the year 2000. EHL’s financial year ends
on 30 June. EHL has kept its books of accounts in professional, systematic and organized manner

AT A GLANCE
since incorporation. On 15 March 2022, due to shortage of space, the board of directors has
approved that the books of accounts should only be kept up to the period prescribed by the
Companies Act, 2017. EHL can dispose of such books of accounts up to the financial year 2011.

Requirement for liquidator

The liquidator of the company appointed for winding up of the company is also required to maintain the above
stated books of accounts for the company during its winding up.
 Practice Question 01:
SQL Plastics Limited is a wholly owned subsidiary of a foreign company and has its registered
office in Karachi.
a) List the books of account the company is required to maintain.

SPOTLIGHT
b) State the conditions which the directors shall be required to comply with if they want to
keep the books of account at SQL’s factory located in Peshawar.
 Solution:
a) SQL Plastic Limited must keep proper books of account and other relevant books and
papers and financial statements for every financial year which give a true and fair view
of the state of the affairs of the company. in the case of a company engaged in production,
processing, manufacturing or mining activities, such particulars relating to utilisation of
material or labour or the other inputs or items of cost shall also be maintained.
b) As the directors of SQL Plastic Limited intend to keep the books of account at a place
other than the registered office, SQL Plastic Limited must file with the registrar a notice

STICKY NOTES
in writing within 7 days of the decision, giving the full address of the other place.

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 CHAPTER 11: ACCOUNTS AND ANNUAL RETURN CAF 7: COMPANY LAW

2. FINANCIAL STATEMENTS
2.1 Relevant definitions

Definition: Financial statements [Section 2(33)]

“financial statements” in relation to a company, includes:
a) a statement of financial position as at the end of the period;
b) a statement of profit or loss and other comprehensive income or in the case of a company carrying on
any activity not for profit, an income and expenditure statement for the period;
c) a statement of changes in equity for the period;
d) a statement of cash flows for the period;
AT A GLANCE

e) notes, comprising a summary of significant accounting policies and other explanatory information;
f) comparative information in respect of the preceding period; and
g) any other statement as may be prescribed.

Definition: Chief financial officer (CFO) [Section 2(15)]

“chief financial officer” means an individual appointed to perform such functions and duties as are customarily
performed by a chief financial officer.

2.2 Financial statements [Section 223]

Requirement
SPOTLIGHT

The board of every company must lay before the company in AGM its financial statements for the period, in the
case of first such statements since the incorporation of the company and in any other case since the preceding
financial statements, made up to the date of close of financial year adopted by the company.

Time limit
The first financial statement must be laid at some date not later than sixteen months after the date of
incorporation of the company and subsequently once at least in every calendar year.
The financial statements must be laid within a period of 120 days following the close of financial year. However,
in the case of a listed company the Commission, and in any other case the registrar, may, for any special reason,
extend the period for a term not exceeding 30 days.
STICKY NOTES

Duration of financial year

The period to which the statements aforesaid relate, not being the first, shall not exceed one year except where
special permission of the registrar has been obtained.

Audit
The financial statement shall be audited by the auditor of the company, and the auditor’s report shall be attached
thereto.
The requirement of audit shall not apply to a private company having the paid up capital not exceeding Rs. 1
million or such higher amount of paid up capital as may be notified by the Commission.

Dispatch to members
Every company shall send audited financial statements together with the auditor’s report, directors’ report and
in the case of a listed company the chairman’s review report to every member of the company and every person
who is entitled to receive notice of general meeting, either by post or electronically at least 21 days before the
date of meeting at which it is to be laid before the members of the company.

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Copy at registered office

The company shall keep a copy of financial statements together with the said report at the registered office of
the company for the inspection of the members.

Filing to Authorities by Listed company

A listed company shall, simultaneously with the dispatch to members, send by post three copies and
electronically a copy of such financial statements together with said reports to each of the Commission, registrar
and the securities exchange and shall also post the same on the company’s website.
The reports shall be made available on the website of the company for a time period as may be specified.

2.3 Approval and authentication of financial statements [Section 232]

AT A GLANCE
Manner of authentication
The financial statements must be approved by the board of the company and signed on behalf of the board by
the chief executive and at least one director of the company, and in case of a listed company also by the chief
financial officer.
Chief executive not in Pakistan
When the chief executive is for the time being not available in Pakistan, then the financial statements may be
signed by at least two directors.

Affidavit by certain private companies

In case of a private company having a paid up capital not exceeding Rs. 1 million, the financial statements shall
also be accompanied by an affidavit executed by those who signed the financial statements, that the financial

SPOTLIGHT
statements have been approved by the board.

Single member company

The financial statements of a single member company shall be signed by one director.

2.4 Filing of financial statements with registrar (after AGM) [Section 233]

Requirement
After the audited financial statements have been laid before the company at the AGM and duly adopted, a copy
of such financial statements together with reports and documents required and, duly signed (by CEO/directors),

STICKY NOTES
shall be filed by the company with the registrar.

Time limit
Above financial statements shall be filed within 30 days from the date of such meeting in case of a listed company
and within 15 days in case of any other company.

When members do not adopt financial statements

If the general meeting before which the financial statement is laid does not adopt the same or defers
consideration thereof or is adjourned, a statement of that fact and of the reasons therefor shall be annexed to the
said financial statements required to be filed with the registrar.

Not applicable to
This filing requirement shall not apply to a private company having paid up capital not exceeding Rs. 10 million
or such higher amount as may be notified by the Commission.

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 CHAPTER 11: ACCOUNTS AND ANNUAL RETURN CAF 7: COMPANY LAW

2.5 Quarterly financial statement of listed companies [Section 237]

Time period
Every listed company shall prepare the quarterly financial statements within the period of:
 30 days of the close of first and third quarters of its year of accounts; and
 60 days of the close of its second quarter of its year of accounts.

Additional requirement for second quarter

Additional requirements for second quarter accounts:
a) the cumulative figures for the half year i.e. six months be presented
b) it shall be subjected to a limited scope review by the statutory auditors of the company
AT A GLANCE

c) limited scope review shall be in such manner and according to such terms and conditions as may be
determined by ICAP and approved by the Commission.
 Example 02:
Adeel Limited is a listed company with financial year from 1 July to 30 June. It shall prepare
following financial statements for the year 2019 – 2020.

Financial statements Date / Time limit

For the quarter ending 30 September 2019 30th October 2019 (within 30 days)
For the quarter ending 31 December 2019 29th February 2020 (within 60 days)
For the half year ending 31 December 2019 29th February 2020 (within 60 days)
SPOTLIGHT

For the quarter ending 31 March 2020 30th April 2020 (within 30 days)
For the year ending 30 June 2020 28th October 2020 (within 120 days)

Posted on website and electronic filing

The quarterly financial statements shall be posted on the company’s website for the information of its members.
Moreover, it shall also be transmitted electronically within the period specified above:
 to the Comm ission,
 to the securities exchange; and
 with the registrar.
The Commission may specify the time period for which the quarterly financial statements shall be made available
STICKY NOTES

on the website of the company.

Extension in time for first quarter

However, if the company was allowed extension for annual financial statements; the company may apply to the
Commission for extension for filing accounts of first quarter and the Commission may extend the period of filing
for a period not exceeding 30 days.
 Example 03:
The board of Relax Furniture Limited (RFL) a listed company, couldn’t lay before the company in
annual general meeting its annual financial statements for the year ended 30th June 2019 that
was required to be laid on or before 28th October 2019; accordingly applied to the Commission
for extension. Commission extended the period up to 27th November 2019.
RFL was required to file its accounts for first quarter on or before 30th October 2019 i.e. Within
30 days of the close of first quarter of its year of accounts. Hence also applied to the Commission
to extend the period of filing the same due to the fact that the time period for its annual financial
statements for the year ended 30th June 2019 were also extended by the Commission.

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Dispatch to member on request

A copy of the quarterly financial statements shall be dispatched in physical form if so requested by any member
without any fee.

Authentication
The approval and authentication requirements of the quarterly financial statements are same as those of annual
financial statements.
 Practice Question 02:
Under the provision of the Companies Act, 2017 briefly describe the requirements of a private
limited company for presenting its first financial statements in the annual general meeting and
whether the financial statements are required to be audited.

AT A GLANCE
 Solution:
The first financial statements of a private limited company must be laid before the general
meeting not later than sixteen months after the date of incorporation of the company.
In addition to above, the financial statements must be laid within a period of 120 days following
the close of the financial year. However, for any special reason, the registrar may extend the
period for a term not exceeding 30 days.
The first financial statements of a private limited company shall be audited by its auditor and
auditor’s report shall be attached thereto. However, if the paid up capital of the private company
does not exceed one million the audit is not mandatory.
 Practice Question 03:
The chief executive of Raza Enterprises Limited (REL), a listed company, is out of the country at

SPOTLIGHT
the time of finalization of annual accounts. Explain the provisions related to signing and
authentication of the annual accounts as contained in the Companies Act, 2017 which REL would
have to comply with, in the above situation.
 Solution:
When the chief executive is for the time being not in Pakistan, then the financial statements of
the company shall be signed by not less than two directors for the time being in Pakistan, and
since it is a listed company the financial statements shall also be signed by the CFO.
 Practice Question 04:
The annual general meeting of a company was held on October 24, 2019 but on account of certain
disagreements, the members did not adopt the audited financial statements for the year ended

STICKY NOTES
June 30, 2019. In the above situation how would the company comply with the provisions of the
Companies Act, 2017 related to the filing of copies of annual accounts with the registrar of
companies?
 Solution:
Even if the financial statements are not approved by the shareholders, the company would still
be required to file the financial statements with the registrar within 30 days of the annual general
meeting. However, in such a situation a statement of the fact that the financial statements have
not been adopted giving reasons thereof shall have to be attached while filing the financial
statements.
 Practice Question 05:
Under the provisions of the Companies Act, 2017 briefly discuss:
i. the time frame within which quarterly financial statements should be prepared and the
requirement, if any, for its review
ii. the filing requirement of the quarterly financial statements.

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 CHAPTER 11: ACCOUNTS AND ANNUAL RETURN CAF 7: COMPANY LAW

 Solution:
Part (i) Time frame for preparation of quarterly financial statements
Every listed company shall prepare the quarterly financial statements within the period of:
 thirty days of the close of first and third quarters of its year of accounts; and
 sixty days of the close of its second quarter of its year of accounts.
Requirement of review of second quarter financial statements
The cumulative figures for the half year presented in the second quarter accounts shall be
subjected to a limited scope review by the statutory auditors of the company in such manner and
according to such terms and conditions as may be determined by the Institute of Chartered
Accountants of Pakistan and approved by the Commission.
AT A GLANCE

Part (ii) Filing of quarterly financial statements

The quarterly financial statements must be transmitted electronically to the Commission,
Securities Exchange and with the Registrar within the period as specified above.
However, upon an application by the company, the Commission may, extend the period of filing
in case of accounts of the first quarter for a period not exceeding thirty days, if the company was
allowed extension in respect of its previous financial statements.
 Practice Question 06:
Annual general meeting of Opal Limited (OL), a listed company, for the year ended 31 December
2020 was held on 1 March 2021. All the presented agenda items were approved at the meeting
except for the adoption of annual financial statements.
SPOTLIGHT

In the light of the Companies Act, 2017 discuss the requirements OL must comply with for filing
its financial statements.
 Solution:
Since OL’s financial statements have not been adopted in the annual general meeting, a statement
of that fact and its reasons shall be annexed to the said financial statements required to be filed
with the registrar within thirty days from the date of the meeting i.e. 30 March 2021.
 Practice Question 07:
Red Limited (RL) is listed on Pakistan Stock Exchange. The audit of RL’s financial statements for
the year ended 30 November 2021 is in process and will be concluded on 28 March 2022. The
STICKY NOTES

management has informed that the financial statements for quarter ended 28 February 2022 will
be prepared two weeks after the conclusion of year end’s audit.
Under the provisions of the Companies Act, 2017 advise all the statutory compliances to be made
by RL in respect of aforesaid financial statements including transmission/dispatch requirements,
if any.
 Solution:
Statutory compliance for the financial statements for year ended 30 November 2021:
Red Limited (RL) is required to lay its duly audited financial statements for the year ended 30
November 2021 within 120 days following the close of its financial year i.e. by 30 March 2022.
Since the audit will be concluded on 28 March 2022, RL would not be able to send the financial
statements twenty-one days before the date of meeting, i.e. on or before 8 March 2022.
Accordingly, RL is required to make an application to the Commission requesting an extension
for filing the financial statements giving special reason. It is also advisable to get the extension
for annual general meeting (AGM).

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After getting the aforesaid extension, RL shall send the financial statements for the year ended
30 November 2021 together with the auditors’ report, directors’ report and chairman‘s review
report to every member and every person who is entitled to receive notice of general meeting,
either by post or electronically at least twenty-one days before the date of the meeting at which
it is to be laid before RL’s members, and shall keep a copy at it registered office for the inspection
of the members.
RL shall, simultaneously with the dispatch of the financial statements as above, send by post
three copies and electronically a copy of the financial statements together with said reports to
the Commission, registrar and the securities exchange and shall also post on the RL’s website.
After the financial statements have been laid before the company at either the AGM or in an extra
ordinary general meeting to be held maximum by 29 April 2022 if extension of 30 days has been
granted by the Commission, a copy of such financial statements shall be filed with the registrar

AT A GLANCE
within thirty days from the date of general meeting i.e. by 29 May 2022.
If the general meeting before which the financial statements are laid does not adopt the same or
defers consideration thereof or is adjourned, a statement of that fact and of the reasons therefor
shall be annexed to the said financial statements required to be filed with the registrar.
Statutory compliance for first quarterly financial statements for the quarter ended 28
February 2022
RL is required to prepare its quarterly financial statements within 30 days of the close of first
quarter i.e. 30 March 2022. Since it is established that the quarterly financial statements will be
prepared 2 weeks after 28 March 2022 i.e. 12 April 2022, therefore, RL should make an
application to the Commission requesting extension in the period for filing its first quarterly
financial statements; if the Commission has allowed extension for laying the financial statement

SPOTLIGHT
for the year ended 30 November 2021 as discussed earlier.
Quarterly financial statements shall be posted on RL’s website for the information of its members
and also be transmitted electronically to the Commission, securities exchange and with the
registrar maximum by 29 April 2022 if that extension of 30 days has been received from the
Commission.
 Practice Question 08:
Under the provisions of the Companies Act, 2017 briefly explain the provisions relating to the
quarterly financial statements of a listed company. Your answer should cover the following:
a) Time frame within which quarterly financial statements should be prepared and the
requirement for its review

STICKY NOTES
b) Requirement for the approval and authentication
c) Requirement for its publication and transmission
 Solution:
Part (a) Time frame for preparation:
Every listed company shall prepare the quarterly financial statements within the period of:
 thirty days of the close of first and third quarters of its year of accounts; and
 sixty days of the close of its second quarter of its year of accounts.
Requirement of review:
 First and third quarter financial statements: It is not mandatory for a listed company
to get the first and third quarterly financial statements reviewed.

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 Second quarter financial statements: The cumulative figures for the half year,
presented in the second quarter financial statements shall be subjected to a limited
scope review by the statutory auditors of the company in such manner and according to
such terms and conditions as may be determined by the Institute of Chartered
Accountants of Pakistan and approved by the Commission.
Part (b) Requirement for approval and authentication:
The quarterly financial statements must be approved by the board of the company and signed on
behalf of the board by the chief executive and at least one director of the company and also by
the chief financial officer.
If the chief executive is for the time being not available in Pakistan, then it may be signed by at
least two directors.
AT A GLANCE

Part (c) Publication and transmission:

The quarterly financial statements shall be posted on the company’s website for the information
of its members and also be transmitted electronically to the Commission, securities exchange and
the registrar within the period specified in (a) above.
The Commission may, upon an application by the company, extend the period of filing in case of
financial statements of first quarter for a period not exceeding thirty days, as per relevant
provisions of the Companies Act, 2017.
A copy of the quarterly financial statements shall be dispatched in physical form, if so requested
by any member without any fee.
The Commission may specify the time period for which the quarterly financial statements shall
be made available on the website of the company.
SPOTLIGHT

 Practice Question 09:

Dates Ceramics Limited (DCL) was incorporated on 1 July 2021 as an unlisted company and all
the seven subscribers were appointed as DCL’s directors.
On 8 September 2022, an urgent meeting of DCL’s board was held to discuss the fire occurred in
the office building. Among other matters, the chief executive also informed the board that:
 all the financial records were lost and the data from the backup server have not yet been
restored. He further informed that IT team is confident that they will restore the data by next
week.
 the audit of DCL’s financial statements for the year ended 30 June 2022 is yet to be completed
STICKY NOTES

and due to this fire incident, it is not possible to complete it before 15 December 2022.
Consequently, DCL’s annual general meeting would not be held on 22 October 2022 as
planned.
Under the provisions of the Companies Act, 2017 state the responsibilities of DCL’s directors in
the given scenario.
 Solution:
Since it will be DCL’s first annual general meeting (AGM) after its incorporation, DCL’s directors
shall be responsible for the following in the given scenario:
i. AGM and financial statements:
To hold AGM and lay DCL’s financial statements within sixteen months from the date of its
incorporation i.e. by 31 October 2022.
To make an application to the registrar for the grant of extension in the time for holding AGM
and laying before the AGM DCL’s financial statements.
To ensure that AGM should not be delayed for more than 30 days i.e. beyond 30 November
2022 as may be allowed by the registrar.

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ii. Election of directors:

To hold election of directors in DCL’s AGM, since DCL’s first directors shall stand retired from
office of the directors.
To continue to perform their functions until their successors are elected, if DCL’s first AGM
could not be held on its due date.
To take immediate steps to hold the election of directors and in case of any impediment
should report such circumstances to the registrar within 45 days before the due date of AGM
in which elections are to be held i.e. on or before 15 September 2022.
To ensure that the first AGM should not be delayed for more than 90 days from the due date
of the meeting i.e. beyond 29 January 2023 or such extended time as may be allowed by the
registrar.

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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3. GROUP FINANCIAL STATEMENTS

3.1 Consolidated financial statements [Section 228]

Requirement
There shall be attached to the financial statements of a holding company having a subsidiary or subsidiaries, at
the end of the financial year at which the holding company’s financial statements are made out, consolidated
financial statements of the group presented as those of a single enterprise and such consolidated financial
statements shall comply with the disclosure requirements of the relevant Schedule and financial reporting
standards notified by the Commission.

Exception
AT A GLANCE

The above requirement shall not apply to a private company and its subsidiary, where none of the holding and
subsidiary company has the paid up capital exceeding Rs. 1 million.

Additional interim financial statements

Where the financial year of a subsidiary precedes the day on which the holding company’s financial year ends by
more than 90 days, such subsidiary shall make an interim closing, on the day on which the holding company’s
financial year ends, and prepare financial statements for consolidation purposes.
 Example 04:
On January 1, 2020 River Pakistan Limited (RPL) became the holding company of Green Pakistan
Limited (GPL) by acquiring 51% shares. The financial year-end of RPL is 30th June and that of
GPL is 31st December. GPL shall be required to make an interim closing on 30 th June 2020 to
SPOTLIGHT

prepare financial statements from 1 July 2019 to 30 June 2020 for consolidation purposes. These
financial statements shall be in addition to those prepared from 1 January to 31 December by
GPL.
Audit
Every auditor of a holding company appointed (to audit its individual financial statements) shall also report, in
the specified form, on consolidated financial statements and exercise all such rights and duties as are vested in
him under the law.

Disclosure of certain material information

There shall also be disclosed in consolidated financial statements any note or explanation on a qualification
STICKY NOTES

(relating to a subsidiary) which is material from viewpoint of members of holding company but have not been
covered in the financial statements of holding company.

Authentication
Every consolidated financial statement shall be signed by the same persons by whom the individual financial
statements of the holding company are required to be signed.

Application of other sections

The all provisions of sections 223, 233, 234, 235 and 236 shall apply to a holding company required to prepare
consolidated financial statements as if for the word “company” appearing in these sections, the words “holding
company” were substituted.

Relaxation by the Commission

The Commission may, on an application of a holding company, direct that the above provisions shall not apply to
such extent as may be specified in the direction.

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Penalty
Any contravention or default in complying with above requirements shall be an offence liable to a penalty of level
2 on the standard scale.

3.2 Financial year of holding company and subsidiary [Section 229]

Financial year to coincide
The board of a holding company shall ensure that its financial year and each of its subsidiaries coincides, except
where in their opinion there are good reasons against it.
Facilitation by the Commission
For the above purposes, the Commission may facilitate a holding company or a subsidiary by extending the
financial year of any such company, on an application by such company.

AT A GLANCE
 Example 05:
On October 1, 2021 Food Festival Limited (FFL) became the holding company of Oregano Limited
(OL) by acquiring 60% shares. The financial year-end of FFL is 31st December and that of OL is
31st October. OL applied for extension of its financial year so that its financial year coincides with
that of FFL (its holding company). The Commission may allow the extension.

Other related relaxations

While granting any extension as mentioned above, the Commission may grant such other relaxations as may be
incidental or ancillary thereto.
 Example 06:

SPOTLIGHT
On October 1, 2021 Food Festival Limited (FFL) became the holding company of Oregano Limited
(OL) by acquiring 60% shares. The financial year-end of FFL is 31st December and that of OL is
31st October. OL applied for extension of its financial year so that its financial year coincides with
that of FFL (its holding company). The Commission may allow the extension. The Commission
may also allow other relaxations e.g. holding of AGM and other filing requirements.
 Practice Question 10:
Muskmelon Investment Limited’s Research Manager has provided you the break-up of
shareholding of the following companies:

*Paid-up Shareholders
share

STICKY NOTES
Name of companies capital AL BPL CPL DL EL Others

--------------------------------- Rs. in '000 ---------------------------------

Apricot Ltd. (AL) 10,000 - - 3,000 3,500 3,500 -

Berry (Pvt) Ltd. (BPL) 20,000 10,200 - 2,000 3,800 4,000 -

Cherry (Pvt) Ltd. (CPL) 300,000 - - - - - 300,000

Damson Ltd. (DL) 400,000 - - 288,000 - - 112,000

Elderberry Ltd. (EL) 50,000 - - 20,000 30,000 - -

* Each share carries one voting right.

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Using the information above, under the provisions of the Companies Act, 2017:
a) prepare a summary to determine the relationship that exists between the following
companies (Ignore the relationship of associated companies):
i. DL and BPL
ii. CPL and AL
b) identify the companies as covered in (a) above that are required to prepare consolidated
financial statements.
 Solution:
Part (a) (i) Relationship between DL and BPL:
BPL shall be deemed to be a subsidiary of DL because DL controls itself, together with its
AT A GLANCE

subsidiaries more than one-half of voting securities in the following manner:

DL itself holds [(3,800÷20,000)×100] 19.00%

Through subsidiaries:
EL 60% (W-1) [(4,000÷20,000)×100] 20.00%
AL 70% (W-2) [(10,200÷20,000)×100] 51.00%
Total voting securities of BPL, controlled by DL 90.00%

W-1: 30,000÷50,000×100 = 60%

W-2: [35%(3,500÷10,000×100) DL itself + 35%(3,500÷10,000×100) through EL]=70%
SPOTLIGHT

Part (a) (ii) Relationship between CPL and AL:

AL shall be deemed to be a subsidiary of CPL because CPL controls itself or together with its
subsidiaries more than one-half of voting securities in the following manner:

CPL itself holds [(3,000÷10,000)×100 30.00%

Through subsidiaries:
DL 72% (W-1) [(3,500÷10,000)×100 35.00%
EL (Note-1) [(3,500÷10,000)×100 35.00%
Total voting securities of AL, controlled by CPL 100.00%
STICKY NOTES

W-1: 288,000÷400,000×100 = 72%

Note-1: EL is subsidiary of DL as established in (i) above, hence it shall be deemed to be the
subsidiary of CPL as well.
Related party relationship:
CPL being holding company of AL, BPL and DL as established in (i) and (ii) above, shall be
considered as related parties of each other under the provisions of the Companies Act, 2017.
Part (b)
According to the provisions of the Companies Act, 2017 AL, CPL and DL being the holding
companies as established in (a) above shall be required to prepare consolidated financial
statements at the end of each financial year at which their financial statements are made out.

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4. DIRECTORS’ REPORT AND STATEMENT OF COMPLIANCE

4.1 Duty to prepare directors’ report and statement of compliance [Section 226]
Directors’ report
The board shall prepare a directors’ report for each financial year of the company other than a private company,
not being a subsidiary of public company, having the paid up capital not exceeding Rs. 3 million.
Statement of compliance
The Commission may by general or special order, direct such class or classes of companies to prepare a statement
of compliance. The board shall make out and attach to the financial statement such statement of compliance as
may be specified.

AT A GLANCE
4.2 Contents of directors’ report [Section 227]
Minimum contents of directors’ report
The directors shall make out and attach to the financial statements, a report with respect to:
 the state of the company’s affairs and a fair review of its business;
 the amount (if any), that the directors recommend as dividend; and
 the amount (if any), they propose to carry to the Reserve Fund, General Reserve or Reserve Account.
 Example 07:
The state of the affairs may be summarised by the directors in one broad paragraph or it may be
discussed by them at length, depending upon the quality of information available to share with

SPOTLIGHT
the members of the company.
Additional contents of directors’ report for certain companies
There are additional contents are required for following companies:
 Public company
 Private company, which is a subsidiary of public company
The additional contents are:
 the names of the persons who, at any time during the financial year, were directors of the company;
 the principal activities and the development and performance of the company’s business during the
financial year;
 a description of the principal risks and uncertainties facing the company;

STICKY NOTES
 any changes that have occurred during the financial year concerning the nature of the business of the
company or of its subsidiaries, or any other company in which the company has interest;
 the information and explanation in regard to any contents of modification in the auditor’s report;
 information about the pattern of holding of the shares in the form specified;
 the name and country of origin of the holding company, if such company is a foreign company;
 the earning per share;
 the reasons for loss if incurred during the year and future prospects of profit, if any;
 information about defaults in payment of any debts and reasons thereof;
 comments in respect of adequacy of internal financial controls;
 any material changes and commitments affecting the financial position of the company which have
occurred between the end of the financial year of the company to which the financial statement relates
and the date of the report;
 disclosure with respect to remuneration package of each of the directors and chief executive including
but not limited to salary, benefits, bonuses, stock options, pension and other incentives; and
 any other information as may be specified.

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 Example 08:
Auditor’s report of the company is addressed to the members of the company, if the auditor has
pointed out any observation or has in any way modified his opinion, the directors should address
the matter and provide the members with their version of situation so that the members can
better assess the situation as highlighted by the auditor’s report.
 Example 09:
Say, the year-end date of company is 30th June 2012 and directors’ report is dated for 01st
October 2012. On 3rd September company has entered into a major joint venture with a foreign
company. This joint venture is a matter that needs to be discussed in the directors’ report;
similarly, if government has imposed certain additional taxation on the company between the
end of financial year and the date of directors’ report, directors’ report would have addressed
this matter as well.
AT A GLANCE

Authentication
The directors’ report and statement of compliance must be approved by the board and signed by the chief
executive and a director of the company.

4.3 Business review section of directors’ report [Section 227]

Business review of listed company

In the case of a listed company, the business review must, to the extent necessary for understanding the
development, performance or position of the company’s business, include:
 the main trends and factors likely to affect the future development, performance and position of the
SPOTLIGHT

company’s business;
 the impact of the company’s business on the environment;
 the activities undertaken by the company with regard to corporate social responsibility during the year;
 directors’ responsibility in respect of adequacy of internal financial controls as may be specified; and
 the legitimate reasons for not declaring dividend despite earning profits and future prospects of
dividend, if any.
 Practice Question 11:
Under the provisions of Companies Act, 2017 it is the responsibility of the board to prepare
directors’ report for each financial year. The Act has further prescribed the minimum contents of
STICKY NOTES

such report.
In the above context, list the matters which are required to be included in the business review
section of the directors’ report of a listed company.
 Solution:
In the case of a listed company, the business review section must, to the extent necessary for
understanding the development, performance or position of the company’s business, include:
 the main trends and factors likely to affect the future development, performance and
position of the company’s business;
 the impact of the company’s business on the environment;
 the activities undertaken by the company with regard to corporate social responsibility
during the year;
 directors’ responsibility in respect of adequacy of internal financial controls as may be
specified; and
 the legitimate reasons for not declaring dividend despite earning profits and future
prospects of dividend, if any.

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 Practice Question 12:

The annual general meeting of Iqra Industries Limited (IQL), a listed company, is to be held on
October 25, 20X3. In addition to the normal businesses, the company is planning to discuss a
strategic business plan for the approval of the shareholders.
Explain the requirements of Companies Act, 2017 as regards the circulation of information/
documents to various stake holders, prior to the above meeting.
 Solution:
Following information/ documents are required to be circulated to various stake holders at least
21 days prior to the meeting.
Notice of meeting specifying the place and the day and hour of the meeting along with a statement
of the business to be transacted at the meeting and in respect of the special business, statement

AT A GLANCE
setting out all material facts concerning the business, including, in particular the nature and
extent of the interest therein, if any, of every director.
Every notice of a meeting of a company shall be accompanied by a proxy form.
The notice shall be sent to the following:
 All the members;
 All the directors;
 Any person entitled to a share in consequence of death of a member if the interest of
such person is known to the company;
 The auditor or auditors of the company.

SPOTLIGHT
Copies of draft resolutions, which are proposed for consideration in the meeting. There shall be
annexed to the notice of the meeting all material facts concerning that strategic business plan.
Every company shall also send:
 copy of audited financial statements
 copy of auditors’ report
 Directors report
 Chairman’s report, in case of listed companies
The above, in case of a listed company, should be sent to the following:
 the registered address of every member of the company
 Securities & Exchange Commission

STICKY NOTES
 Stock exchange
 Registrar
The above shall also be uploaded on the company’s website.
 Practice Question 13:
Under the provisions of the Companies Act, 2017 list the matters which are required to be
included in the business review section of the directors’ report of a listed company.
 Solution:
Following matters are required to be included in the business review section of the directors’
report of a listed company to the extent necessary for understanding the development,
performance or position of the company’s business:
i. main trends and factors likely to affect the future development, performance and
position of the company’s business;
ii. impact of the company’s business on the environment;

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iii. activities undertaken by the company during the year with regards to corporate social
responsibility; and
iv. directors’ responsibility in respect of adequacy of internal financial controls as may be
specified.
 Practice Question 14:
List any ten contents of the directors’ report of a public unlisted company as prescribed under
the Companies Act, 2017.
 Solution:
Following are the contents of the directors’ report of a public unlisted company:
i. the state of the company’s affairs;
AT A GLANCE

ii. a fair review of company’s business;

iii. the amount, if any, that the directors recommend should be paid by way of dividend;
iv. the amount, if any, that directors propose to carry to Reserve Fund, General Reserve or
Reserve Account;
v. the names of the persons who, at any time during the financial year, were directors of
the company;
vi. the principal activities and the development and performance of the company’s business
during the financial year;
vii. a description of the principal risks and uncertainties facing the company;
SPOTLIGHT

viii. any changes that have occurred during the financial year concerning the nature of the
business of the company or of its subsidiaries, or any other company in which the
company has interest;
ix. the information and explanation in regard to any contents of modification in the
auditor’s report;
x. information about the pattern of holding of the shares;
STICKY NOTES

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5. ANNUAL RETURN
5.1 Requirements as to annual return [Section 130]
It is a snapshot of general information about a company as on a specific date, giving details of its chief executive,
directors, chief financial officer, secretary, legal adviser and auditors, registered office address, members and
share capital.
Date of annual return
The annual return is prepared as on the date of the annual general meeting or, where no such meeting is held or
if held is not concluded, on the last day of the calendar year.
 Example 10:
ABC Limited recent financial year ended on 30th June 2021 and AGM was held on 24 th October

AT A GLANCE
2021. The particulars of annual return shall be prepared as on 24th October 2021.
 Example 11:
DEF Limited recent financial year ended on 30th June 2021 and AGM was not held in
contravention of Companies Act, 2017. The particulars of annual return must be prepared as on
31st December 2021. Failure to file such annual return shall be another contravention of the law.
Requirement and specified form
Every company in each year prepare and file with the registrar an annual return containing the particulars in a
specified form as on the date of annual return.
The annual return shall contain the particulars as given in following specified forms:
 Form A – Company having share capital
 Form B – Company not having share capital

SPOTLIGHT
Time limit
The annual return shall be filed with the registrar within 30 days from the date of annual return. However, in the
case of a listed company, the registrar may for special reasons extend the period of filing of such return by a
period not exceeding 15 days.
 Example 12:
ABC Limited recent financial year ended on 30th June 2021 and AGM was held on 24th October
2021. The particulars of annual return shall be prepared as on 24 th October 2021. The annual
return must be filed with the registrar by 22nd November.
 Example 13:

STICKY NOTES
DEF Limited financial year ended on 30th June 2021, however, its AGM was not held, and hence
it shall be a contravention of the provisions of the Companies Act, 2017. Even if AGM was not
held the particulars of annual return must be prepared by DEF Limited as on 31st December 2021
and must be filed with the registrar. Failure to file such annual return by 29th January 2022 shall
be another contravention of the law.
Record in registers
All the particulars required to be submitted in the annual return shall have been previously entered in one or
more registers kept by the company for the purpose.
No change of particulars since the last return
The above provisions shall not apply to following companies, in case there is no change of particulars in the last
annual return filed with the registrar:
 A single member company.
 A private company having paid up capital of not more than Rs. 3 million.
All other companies shall inform the registrar in a specified manner (Form C) that there is no change of
particulars in the last annual return filed with the registrar.

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 Example 14:
ABC Limited recent financial year ended on 30 th June 2022 and AGM was held on 24th October
2022. There is no change since in any particulars of annual return since the last date of annual
return. ABC Limited must inform the registrar on Form C by 22nd November 2022 that there is
no change of particulars in the last annual return filed with the registrar.

Penalty
Any contravention or default in complying with above requirements shall be an offence liable:
a) in case of a listed company, to a penalty of level 2 on the standard scale; and
b) in case of any other company, to a penalty of level 1 on the standard scale.
AT A GLANCE
SPOTLIGHT
STICKY NOTES

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6. OBJECTIVE BASED Q&A

01. Books of accounts must be preserved in good order under the requirement of Companies Act, 2017 for a
period of
(a) At least 10 years
(b) At least 15 years
(c) Maximum 20 years
(d) Maximum 10 years

02. Books of accounts must be kept at the registered office of the company, however, these books may be
kept at some other place by the decision of:

AT A GLANCE
(a) The members of the company
(b) The directors of the company
(c) The creditors of the company
(d) The Auditors of the company

03. The books of accounts may be inspected by the

(a) Directors of the company during business hours
(b) Members of the company during business hours

SPOTLIGHT
(c) Creditors of the company during business hours
(d) Promotors of the company during business hours

04. In case of first financial statements of the company, it shall be presented before the meeting within
(a) 12 months from the date of incorporation of the company
(b) 14 months from the date of incorporation of the company
(c) 16 months from the date of incorporation of the company
(d) 24 months from the date of incorporation of the company

STICKY NOTES
05. As a token of approval of financial statements, the chief executive and at least one director of the company
put their signatures on the financial statements and in case of a listed company also by the
(a) Company secretary
(b) Auditors of the company
(c) Chief financial officer
(d) Chief operating officer

06. The financial statements of a single member company shall be signed by

(a) Chief executive
(b) One director
(c) Chief executive and one director
(d) Chief executive and two director

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07. The requirement of filing of accounts shall not apply to a private company having paid up capital not
exceeding
(a) RS 10 million or such higher amount as notified by the Commission
(b) RS 05 million or such higher amount as notified by the Commission
(c) RS 03 million or such higher amount as notified by the Commission
(d) RS 01 million or such higher amount as notified by the Commission

08. Financial statements shall be audited by the auditor of the company but this requirement of audit is not
applicable to a private company having paid up capital not exceeding
(a) Rs. 01 million or such higher amount as may be notified by the Commission
AT A GLANCE

(b) Rs. 05 million or such higher amount as may be notified by the Commission
(c) Rs. 10 million or such higher amount as may be notified by the Commission
(d) Rs. 15 million or such higher amount as may be notified by the Commission

09. Directors of every company shall make out and attach to the accounts, a report containing following
particulars
(a) Statements regarding the state of the affairs of the company
(b) Particulars of any amount recommended as dividend
(c) Particulars of any amount transferred or proposed to be transferred to any reserve account
SPOTLIGHT

(d) All of the above

10. The requirement of preparing a director’s report is not applicable a private company, not being a
subsidiary of public company, have the paid up capital not exceeding
(a) Rs. 1 million
(b) Rs. 03 million
(c) Rs. 05 million
(d) Rs. 10 million
STICKY NOTES

11. The directors report of a public company shall address all the material changes occurred during the
financial year which affect
(a) The business of the company
(b) Any other company in which the company has interest
(c) Any of its subsidiaries
(d) All of the above

12. Directors report and the statements of compliance must be approved by the board and signed by the
(a) CEO
(b) Director of the company
(c) CEO and CFO of the company
(d) CEO and a director of the company

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13. The quarterly financial statements of a listed company shall be transmitted electronically within the
specified period to
(a) The Commission
(b) The Securities exchange
(c) The Registrar
(d) All of the above

14. The directors of a company have decided to keep the books of account at a place other than the registered
office of the company. In this case, they are required to file a notice to the registrar of the full address of
that place within

AT A GLANCE
(a) 14 days of such decision.
(b) 21 days of such decision.
(c) 30 days of such decision.
(d) 7 days of such decision

15. Copy of audited financial statements, auditors’ report and directors’ report shall be sent to every member
at his registered address at least
(a) 14 days before the meeting
(b) 21 days before the meeting

SPOTLIGHT
(c) 30 days before the meeting
(d) None of the above is correct

16. ABC Limited is a listed company and prepares its annual financial statements every year on 30 th June. It
is required to file the quarterly financial statements for the quarter ending 31 st December 2021 by:
(a) 30 January 2022
(b) 31 January 2022
(c) 28 February 2022
(d) 1 March 2022

STICKY NOTES
17. Where the financial year of a subsidiary precedes the day on which the holding company’s financial year
ends by more than _________, such subsidiary shall make an interim closing, on the day on which the
holding company’s financial year ends, and prepare financial statements for consolidation purposes.
(a) Three months
(b) Four months
(c) 90 days
(d) 120 days

18. ABC Limited is holding company of XYZ Limited and their financial years do not coincide. In order to
request extension of financial year the application to the Commission may be made by:
(a) ABC Limited
(b) XYZ Limited

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(c) Either ABC Limited or XYZ Limited

(d) Both ABC Limited and XYZ Limited, together

19. XYZ Limited financial year ended on 30th June 2019 and AGM was planned on 28 th October 2019 but was
not held. The particulars of annual return must be prepared as on ___________ and it shall be filed with the
registrar by___________.
(a) 28 October 2019 & 29 January 2020
(b) 28 October 2019 & 27 November 2019
(c) 31 October 2019 & 29 November 2019
(d) 31 December 2019 & 29 January 2020
AT A GLANCE

20. XYZ (Private) Limited has paid up capital of Rs. 2 million only. Which of the following is correct if there
is no change in particulars of annual returns last filed with the registrar:
(a) It should file the annual return as usual repeating the same particulars.
(b) It should file the annual return as usual repeating the same particulars and additionally intimate
the registrar that there is no change in the particulars.
(c) It need not file annual return or any other form.
(d) It need not file annual return but must inform the registrar that there is no change in particulars in
specified manner (Form C)
SPOTLIGHT

21. Which of the following is entitled to inspect the books of accounts?

(a) Directors at any time
(b) Shareholders having more than 10% shares at any time
(c) Directors during business hours
(d) Shareholders having more than 10% shares during business hours

22. In the case of listed company, statement of compliance is required to be signed by:
(a) the chairman and a director
STICKY NOTES

(b) at least two directors

(c) the chairman and the chief executive
(d) the chief executive and a director

23. Aquamarine (Pvt) Limited (APL) was incorporated on 1 January 2020 with an authorized share capital
of Rs. 500,000.
APL is required to accompany an affidavit with its annual financial statements confirming that the
financial statements:
(a) give a true and fair view of the company’s affairs
(b) have been approved by the Board
(c) are prepared in accordance with the requirements of the Companies Act, 2017
(d) are free from material misstatements

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24. Which of the following companies are required to maintain particulars relating to utilisation of labour?
(a) Any company engaged in manufacturing or supplying
(b) Any company engaged in production or distribution
(c) Any company engaged in processing or mining
(d) Any company engaged in service or hospitality

25. All the payment vouchers are required to be maintained by a company:

(a) for at least 10 years
(b) for at least 15 years

AT A GLANCE
(c) for at least 20 years
(d) permanently

26. When the chief executive officer of a public unlisted company is not present in Pakistan, then the annual
financial statements of such company shall be signed at least by:
(a) any two directors along with chief financial officer
(b) a director and chief financial officer
(c) any two directors
(d) chairman of the board or a director

SPOTLIGHT
27. The annual financial statements of a public unlisted company shall be authenticated on behalf of the
board by:
(a) at least one director and the CEO
(b) any director or the CEO
(c) at least one director and the CFO
(d) the CEO and the CFO

28. Indigo Limited (IL) is a public company which holds 60% shares in Neon Limited (NL). The financial year

STICKY NOTES
of IL and NL ends on 30 June and 31 December respectively.
Which of the following statements is NOT correct?
(a) Board of NL shall ensure that financial year of IL and NL coincides, except where in its opinion there
are valid reasons against it
(b) Board of IL shall ensure that financial year of IL and NL coincides, except where in its opinion there
are valid reasons against it
(c) The Commission may, on receiving application from IL, extend its financial year to 31 December
(d) The Commission may, on receiving application from NL, extend its financial year to 30 June

29. Crimson Limited (CL) is listed on Pakistan Stock Exchange. CL’s financial year ends on 30 June each year.
Financial statements of CL for the quarter ended 31 March 2022 are:
(a) required to be submitted with the registrar on or before 15 April 2022
(b) required to be submitted with the registrar on or before 30 April 2022

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(c) required to be submitted with the registrar on or before 30 May 2022

(d) not required to be submitted with the registrar

30. On 8 September 2022, Lychee Limited (LL), a listed company, has uploaded its quarterly financial
statements for the period ended 31 July 2022 on its website for the information of its members. Under
the provisions of the Companies Act, 2017, LL is also required to transmit the said financial statements
to:
(a) Registrar, Auditor and Securities Exchange
(b) Commission, Securities Exchange and Auditor
(c) Commission, Registrar and Auditors
AT A GLANCE

(d) Commission, Registrar and Securities Exchange

SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (a) Books of accounts for a period of at least 10 years immediately preceding a financial year
must be preserved in good order.
02. (b) The directors of the company may opt to keep these books at some place other than
registered office of the company.
03. (a) The directors are entitled to inspect the books of the accounts during business hours.
04. (c) The first financial statements of the company shall be presented before the meeting within 16
months from the date of incorporation.
05. (c) In case of a listed company, the financial statements shall also be signed by the chief financial
officer of the company.

AT A GLANCE
06. (b) The financial statements of a single member company shall be signed by one director.
07. (a) The requirement of filing of accounts shall not apply to a private company having paid up
capital not exceeding Rs. 10 million.
08. (a) The requirement of audit is not applicable to a private company having paid up capital not
exceeding Rs. 1 million.
09. (d) Director shall make a report containing statements regarding the state of the affairs of the
company, any amount recommended as dividend and any amount transferred to any reserve
account.
10. (b) The requirement of preparing a directors’ report is not applicable a private company having
the paid up capital not exceeding Rs. 3 million.

SPOTLIGHT
11. (d) The directors’ report of a public company shall address all the material changes occurred
during the financial year which affect the business of the company, any of its subsidiaries or
any company in which the company has interest
12. (d) Director’s report and the statements of compliance must be approved by the board and
signed by the chief executive officer and a director of the company.
13. (d) The quarterly financial statements shall be transmitted electronically within the specified
period to the Commission, Securities exchanges and Registrar.
14. (d) The directors are required to file a notice to the registrar within 7 days of passing the
resolution in their meeting.

STICKY NOTES
15. (b) Copy of audited financial statements, auditors’ report and directors’ report shall be sent to
every member at his registered address at least 21 days before the meeting.
16. (d) The time limit for second quarter is 60 days. [Section 237]
17. (c) 90 days [Section 228]
18. (c) Any of the company [Section 229]
19. (d) 31 December 2019 & 29 January 2020 [Section 130]
20. (c) It need not file annual return or any other form. [Section 130]
21. (c) Directors during business hours
22. (d) the chief executive and a director
23. (b) have been approved by the Board
24. (c) Any company engaged in processing or mining

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25. (a) for at least 10 years

26. (c) any two directors
27. (a) at least one director and the CEO
28. (a) Board of NL shall ensure that financial year of IL and NL coincides, except where in its opinion
there are valid reasons against it
29. (b) required to be submitted with the registrar on or before 30 April 2022
30. (d) Commission, Registrar and Securities Exchange
AT A GLANCE
SPOTLIGHT
STICKY NOTES

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STICKY NOTES

Books of accounts to be kept by a company

Relevant definitions: books and paper; books of account; financial year.
1. Requirement (to be kept at registered office, giving a true and fair view)
2. Cost accounts (if company is engaged in production, processing,
manufacturing or mining activities)
3. Keeping books at place other than registered office (inform the registrar
within 7 days of board’s decision)

AT A GLANCE
4. Records of branch offices (may be kept at branch and proper summarised
return to be sent periodically to registered office or other place).
5. Inspection by directors (during business hours)
6. Inspection by members (no absolute right; the Act, directors or general
meeting amy auhtorise)
7. Time period (10 financial years immediately preceding a finanical year)
8. Requirement for liquidator (same requirements apply)

Financial statements

SPOTLIGHT
Relevant definitions: financial statements; chief financial officer
1. Requirement (first: since incorporation; subsequent: since preceding FS)
2. Time limit (first: 16 months; Subsequent: once at least in every calendar year)
Within 120 days following close of financial year (30 days’ extension may be
allowed by Commission (listed company) or registrar (other company))
3. Duration of financial year (shall not exceed on year except with permission of
registrar)
4. Audit (not applicable to private company having paid up capital not
exceeding 1 million rupees).

STICKY NOTES
5. Dispatch to members (with other reports at least 21 days before meeting)
6. Copy at registered office (for inspection of members)
7. Filing to Authorities by Listed company (also made available on website)

Approval and authentication of financial statements

1. Manner of authentication (approved by board, signed by CEO and one
director, and in case of listed company also by CFO)
2. Chief executive not in Pakistan (signed by at least two directors)
3. Affidavit by certain private companies (paid up capital not exceeding Rs. 1
million)
4. Single member company (signed by one director)

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Filing of financial statements with registrar (after AGM)

1. Requirement (file with registrar)
2. Time limit (30 days for listed company; 15 days other companies)
3. When members do not adopt financial statements (statement of that fact or
the reasons therefor to be annexed)
4. Not applicable to (private company having paid up capital not exceeding Rs
10 million)

Quarterly financial statement of listed companies

AT A GLANCE

1. Time period (30 days: 1st and 3rd Quarter & 60 days: 2nd Quarter)
2. Additional requirement for second quarter (half yearly & subject to limited
scope review)
3. Posted on website and electronic filing with SECP, PSX and the registrar
4. Extension in time for first quarter (by the Commission upto 30 days with
preceding annual financial statements)
5. Dispatch to member on request (without any fee)
6. Authentication (same as annual FS)
SPOTLIGHT

Consolidated financial statements

1. Requirement (to be attached to FS of holding company)
2. Exception (private company and its subsidiary where none has capital
exceeding Rs. 1 million)
3. Additional interim financial statements (financial year difference of more
than 90 days)
4. Audit (by the auditor of holding company)
5. Disclosure of certain material information
STICKY NOTES

6. Authentication (same as annual FS)

7. Application of other sections (same application to holding company)
8. Relaxation by the Commission (on application by holding company)
9. Penalty (level 2 on standard scale)

Financial year of holding company and subsidiary

1. Financial year to coincide (except for good reasons against it)
2. Facilitation by the Commission (in extension of financial year)
3. Other related relaxations (as may be incidental or ancillary)

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Duty to prepare directors’ report and statement of compliance

1. Directors’ report (Exception: Private company not being subsidiary of public
company and paid up capital not exceeding Rs. 3 million)
2. Statement of compliance (to be attached with FS)

Contents of directors’ report

1. Minimum contents (state of affairs, dividend, transfer to reserve)
2. Additional contents (for public companies or its subsidiaries)

AT A GLANCE
3. Authentication (approved by board, signed by CEO and a director)
4. Business review section (listed company) to include certain particulars

Requirements as to annual return

1. Date of annual return (AGM or last day of calendar year if no AGM held or
concluded)
2. Requirement and specified form (Form A for company having share capital
and Form B for company not having share capital)

SPOTLIGHT
3. Time limit (30 days, further extension by registrar of 15 days)
4. Record in registers to be maintained as well
5. No change of particulars since the last return (no filing for SMC or private
company having paid up capital not exceeding Rs. 3 million; others
companies to inform registrar on Form C)
6. Penalty (Level 2: listed company; Level 1: other company)

STICKY NOTES

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AT A GLANCE
SPOTLIGHT
STICKY NOTES

272 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

 CHAPTER 12

INTRODUCTION TO WINDING UP

AT A GLANCE
IN THIS CHAPTER:
Winding up is the process of dissolving a company in which a
company ceases to do business as usual. Its sole purpose is to

AT A GLANCE
AT A GLANCE
sell off assets, pay off creditors, and distribute any remaining
assets to members.
SPOTLIGHT
The three modes of winding up are voluntary (by passing a
1. Winding up resolution in general meeting), subject to supervision of court
and compulsory by court. The law specifies the grounds for
2. Liquidator petition for winding up by the court including when a company
is unable to pay its debts. A voluntary winding up or winding
3. Objective Based Q&A up subject to supervision of court may be converted into
winding up by the court.
STICKY NOTES
The petition of winding up may be filed by the company,
contributories, creditors, registrar, the Commission or person

SPOTLIGHT
authorised by the Commission subject to certain conditions.
An official liquidator is appointed to carry out the winding up
process by the court mostly from the panel maintained by the
Commission. The directors and officers of company prepare
and submit a statement of affairs to the official liquidator within
15 days of winding up order and a report is submitted by him
to the court and registrar within 60 days from the date of
winding up order.

STICKY NOTES

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 CHAPTER 12: INTRODUCTION TO WINDING UP CAF 7: COMPANY LAW

1. WINDING UP
The term ‘winding up’ of a company may be defined as the proceedings by which a company is dissolved (i.e. the
life of a company is put to an end). The winding up of the company is also called the ‘liquidation’ of the company.
During this process, the assets of the company are disposed of, the debts of the company are paid off out of the
realized assets or from the contributories and if any surplus is left, it is distributed among the members in
proportion to their shareholding in the company.
The process of winding up begins after the Court passes the order for winding up or a resolution is passed for
voluntary winding up.
The company is dissolved after completion of the winding up proceedings. On the dissolution, the company
ceases to exist.
AT A GLANCE

1.1 Modes of winding up [Section 293]

The winding up of a company may be either:
a) by the Court; or
b) voluntary; or
c) subject to the supervision of the Court.
The provisions of the Companies Act, 2017 relating to winding up shall be applicable to all modes of winding up
unless expressly provided otherwise.

1.2 Circumstances in which a company may be wound up by Court [Section 301]

SPOTLIGHT

Circumstances
A company may be wound up by the Court:
a) if the company has, by special resolution, resolved that the company be wound up by the Court; or
b) if default is made in delivering the statutory report to the registrar or in holding the statutory meeting;
or
c) if default is made in holding any two consecutive annual general meetings; or
d) if the company has made a default in filing with the registrar its financial statements or annual returns
for immediately preceding two consecutive financial years; or
e) if the number of members is reduced, in the case of public company, below three and in the case of a
private company below two; or
STICKY NOTES

f) if the company is unable to pay its debts; or

g) if the company is:
i. conceived or brought forth for, or is or has been carrying on, unlawful or fraudulent activities;
or
ii. carrying on business prohibited by any law for the time being in force in Pakistan; or restricted
by any law, rules or regulations for the time being in force in Pakistan; or
iii. conducting its business in a manner oppressive to the minority members (members together
holding not less than 10% of equity share capital) or persons concerned with the formation or
promotion of the company; or
iv. run and managed by persons who fail to maintain proper and true accounts, or commit fraud,
misfeasance or malfeasance in relation to the company; or
v. managed by persons who refuse to act according to the requirements of the memorandum or
articles or the provisions of the Act or failed to carry out the directions or decisions of the
Commission or the registrar given in the exercise of powers under the Act; or
h) if, being a listed company, it ceases to be such company; or
i) if the Court is of opinion that it is just and equitable that the company should be wound up; or

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j) if a company ceases to have a member; or

k) if the sole business of the company is the licensed activity and it ceases to operate consequent upon
revocation of a licence granted by the Commission or any other licencing authority; or
l) if a licence granted for association not for profit to a company has been revoked or such a company has
failed to comply with any of the provisions of section 43 or where a company licenced under section 42
is being wound up voluntarily and its liquidator has failed to complete the winding up proceedings
within a period of one year from the date of commencement of its winding up; or
m) if a listed company suspends its business for a whole year.
 Example 01:
Two sole traders merged their businesses and got it registered as a company of which they were
the only directors and shareholders. They quarrelled bitterly and one sued the other for fraud.
Meanwhile they refused to speak to each other and conducted board meetings by passing notes

AT A GLANCE
through the hands of the secretary. The defendant in the fraud action petitioned for winding up
by the Court. The Court decided that in substance these two persons are really partners' and by
analogy with the law of partnership (which permits dissolution if the partners are really unable
to work together) it was just and equitable to order liquidation.
 Example 02:
Ebrahimi and Nazar carried on business together for 25 years, originally as partners and for the
last 10 years through a company in which each originally had 500 shares. Ebrahimi and Nazar
were the first directors and shared the profits as directors' remuneration; no dividends were
paid. Later, Nazar's son George joined the business and became a third director and Ebrahimi
and Nazar each transferred 100 shares to George. Eventually there were disputes. Nazar and
George used their voting control in general meeting (600 votes against 400) to remove Ebrahimi

SPOTLIGHT
from his directorship. The Court decided that the company should be wound up. Nazar and
George were within their legal rights in removing Ebrahimi from his directorship, but the past
relationship made it 'unjust or inequitable' to insist on legal rights and the court could intervene
on equitable principles to order liquidation.
Unlawful activity
The promotion or the carrying on of any scheme or business, howsoever described, shall be deemed to be an
unlawful activity:
a) whereby, in return for a deposit or contribution, whether periodically or otherwise, of a sum of money
in cash or by means of coupons, certificates, tickets or other documents, payment, at future date or dates
of money or grant of property, right or benefit, directly or indirectly, and whether with or without any
other right or benefit, determined by chance or lottery or any other like manner, is assured or promised;

STICKY NOTES
or
b) raising un-authorised deposits from the general public, indulging in referral marketing, multi-level
marketing (MLM), Pyramid and Ponzi Schemes, locally or internationally, directly or indirectly; or
c) any other business activity notified by the Commission to be against public policy or a moral hazard.

 Example 03:
In a classic “pyramid” scheme, participants make money solely by recruiting new participants
into the program. The hallmark of these schemes is the promise of sky-high returns in a short
period of time for doing nothing other than handing over your money to the scheme and getting
others to do the same. As soon as these pyramid schemes reach a certain size when there is no
substantial inflow of new members the whole structure collapses. At this point the schemes get
too big, and the promoters cannot raise enough money from new investors to pay earlier
investors. For example, an MLM scheme offers membership on paying Rs. 1,000 and when a
member brings in 5 more members, he gets Rs. 3,000 cash back. If each subsequent member
brings 5 members and this goes on for just 15 levels, the total membership would be more than
30 billion (exceeding the world population).

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 Example 04:
Many ongoing multilevel marketing schemes are also built-in pyramids selling products through
a network of distributing salespeople. The pioneers of these schemes go to great lengths to make
the program look like a marketing program for a group of products. They are neither
manufacturer of any products nor dealers or distributors of any manufacturing concern. These
businesses simply use the money coming in from new recruits to pay off early stage investors.

1.3 Company when deemed unable to pay its debts [Section 302]
A company shall be deemed to be unable to pay its debts:
a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding Rs.
100,000, then due, has served on the company, by causing the same to be delivered by registered post
or otherwise, at its registered office, a demand under his hand (deemed to duly given if it is signed by an
AT A GLANCE

agent or legal adviser duly authorised on behalf of creditor) requiring the company to pay the sum so
due and the company has for 30 days thereafter neglected to pay the sum, or to secure or compound for
it to the reasonable satisfaction of the creditor; or
b) if execution or other process issued on a decree or order of any Court or any other competent authority
in favour of a creditor of the company is returned unsatisfied in whole or in part; or
c) if it is proved to the satisfaction of the Court that the company is unable to pay its debts, and, in
determining whether a company is unable to pay its debts, the Court shall take into account the
contingent and prospective liabilities of the company.

1.4 Application for winding up [Section 304]

Who may present the petition
SPOTLIGHT

An application to the Court for the winding up of a company shall be by petition presented, either:
a) by the company; or
b) by any creditor or creditors (including any contingent or prospective creditor or creditors); or
c) by any contributory or contributories; or
d) by all or any of the aforesaid parties, together or separately; or
e) by the registrar; or
f) by the Commission; or
g) by a person authorised by the Commission in that behalf.
The term “contributory” means a person liable to contribute towards the assets of the company on the event of
its being wound up.
STICKY NOTES

Condition for petition by the company

The Court shall not give a hearing to a petition for winding up a company by the company until the company has
furnished with its petition, in the prescribed manner, the particulars of its assets and liabilities and business
operations and the suits or proceedings pending against it.

Condition for petition by the creditor(s)

The Court shall not give a hearing to a petition for winding up a company by a contingent or prospective creditor
until such security for costs has been given as the Court thinks reasonable and until a prima facie case for winding
up has been established to the satisfaction of the Court.

Condition for petition by the Contributory

A contributory shall not be entitled to present a petition for winding up a company unless:
a) either the number of members is reduced, in the case of a private company, below two, or, in the case of
public company, below three; and

276 THE INSTITUTE OF CHARTERED ACCOUNTANTS OF PAKISTAN

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b) the shares in respect of which he is a contributory or some of them either were originally allotted to him
or have been held by him, and registered in his name, for at least 180 days during the 18 months before
the commencement of the winding up, or have or devolved on him through the death of a former holder.

Condition for petition by the registrar

The registrar shall not be entitled to present a petition for the winding up of a company unless the previous
sanction of the Commission has been obtained to the presentation of the petition and no such sanction shall be
given unless the company has first been afforded an opportunity of making a representation and of being heard.

Condition for petition by the Commission or authorised person

The Commission or a person authorised by the Commission in that behalf shall not be entitled to present a
petition for the winding up of a company unless an investigation into the affairs of the company has revealed

AT A GLANCE
that:
a) it was formed for any fraudulent or unlawful purpose; or
b) it is carrying on a business not authorised by its memorandum; or
c) its business is being conducted in a manner oppressive to any of its members or persons concerned in
the formation of the company; or
d) that its management has been guilty of fraud, misfeasance or other misconduct towards the company or
towards any of its members.
Such petition shall not be presented or authorised to be presented by the Commission unless the company has
been afforded an opportunity of making a representation and of being heard.
However, if sole business of the company is the licensed activity and that licence is revoked, no investigation into
the affairs of the company shall be required to present the petition for winding up of the company.

SPOTLIGHT
1.5 Commencement of winding up by Court [Section 306]
A winding up of a company by the Court shall be deemed to commence at the time of the presentation of the
petition for the winding up.
 Example 05:
A creditor filed petition for winding up of XYZ Limited to the Court on 24 February 2021. The
Court appointed a provisional manager and continued with hearing of the petition. On 30 th March
2021, the court ordered winding up of the company and appointed official liquidator. The
winding up shall be deemed to commence on 24th February.

STICKY NOTES
1.6 Voluntary winding up [Section 347]
A company may be wound up voluntarily when it passes a resolution for voluntary winding up in any of the
following ways:
a) if the company in general meeting passes a resolution requiring the company to be wound up voluntarily
as a result of the expiry of the period for its duration, if any, fixed by its articles or on the occurrence of
any event in respect of which the articles provide that the company should be dissolved; or
b) if the company passes a special resolution that the company be wound up voluntarily.

1.7 Winding up subject to supervision of the Court [Section 381]

When a company has passed a resolution for voluntary winding up, the Court may of its own motion or on the
application of any person entitled to apply to the Court for winding up a company, make an order that the
voluntary winding up shall continue, but subject to such supervision of the Court, and with such liberty for
creditors, contributories or others to apply to the Court, and generally on such terms and conditions, as the Court
thinks just.

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1.8 Effect of petition for winding up subject to supervision [Section 382]

A petition for the continuance of a voluntary winding up subject to the supervision of the Court shall, for the
purpose of giving jurisdiction to the Court over suits and another legal proceeding, be deemed to be a petition
for winding up by the Court.

1.9 Petition to convert other modes to winding up by Court [Section 305]

Right to present petition

Where a company is being wound up voluntarily or subject to the supervision of the Court, a petition for its
winding up by the Court may be presented by any person authorised to present petition of winding up by the
Court (under Section 304).
AT A GLANCE

Winding up order on such petition

The Court shall not make a winding up order on a petition presented to it as above unless it is satisfied that the
voluntary winding up or winding up subject to the supervision of the Court cannot be continued with due regard
to the interests of the creditors or contributories or both or it is in the public interest so to do.
 Example 06:
XYZ Limited passed a special resolution that the company be wound up voluntarily and
appointed a liquidator to carry on the process of winding up. One of the major creditor is not
satisfied with the liquidation process and filed a petition that winding up to be converted to
winding up by the Court and an official liquidator be appointed accordingly. The Court may make
such order if satisfied that the voluntary winding up cannot be continued with due regard to the
interests of the creditors or contributories or both or it is in the public interest so to do.
SPOTLIGHT

 Practice Question 01:

For the last three months, ANF Limited (ANFL) has been experiencing liquidity crisis and is
unable to meet its financial obligations within the due date. In the light of Companies Act, 2017
narrate the circumstances under which ANFL would be deemed to be unable to pay its debts.
 Solution:
Under the following circumstances, ANF Limited would be deemed unable to pay its debts:
i. if a creditor, by assignment or otherwise, to whom the company is to pay a sum
exceeding one hundred thousand rupees then due, has served a demand under his hand,
delivered by registered post or otherwise, at ANFL’s registered office, requiring ANFL to
pay the sum and the company has for 30 days thereafter neglected to pay the sum, or to
STICKY NOTES

secure or compound for it to the reasonable satisfaction of the creditor.

ii. if a decree or order of any court or any other competent authority in favour of a creditor
of the company is returned unsatisfied in whole or in part.
iii. if it is proved to the satisfaction of the Court that the company is unable to pay its debts,
and while determining this fact, the Court shall take into account the contingent and
prospective liabilities of the company.
 Practice Question 02:
Under the provisions of the Companies Act, 2017 state who may file a petition for winding up in
the Court.
 Solution:
The petition may be presented by any one of the following:
i. The company may itself by passing a special resolution
ii. Any creditor or creditors (including any contingent or prospective creditor or creditors)
iii. Any contributory or contributories

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By all or any of the aforesaid parties, together or separately.

iv. The Registrar of Companies
v. Securities and Exchange Commission of Pakistan; or
vi. A person authorised by the Commission (SECP).
 Practice Question 03:
Carrot Limited (CL) was formed for a period of three years. The period of three years is due to
complete on 31 December 2021. However, the project which the company had undertaken is still
in progress. Advise the directors of CL regarding the legal status of CL on completion of three
years while work on the project is not yet complete.
 Solution:

AT A GLANCE
Though CL was formed for a period of three years a winding up would not commence unless a
resolution in this regard has been passed. Therefore, it would be necessary for the directors of
CL to have a resolution passed in the general meeting of the company.
In view of the above provision of law, CL may continue its activities even after commencement of
winding up so far as it is necessary for completing the project.
However, it would not be advisable to commence winding up before the completion of the project
as it may not be possible for the company to sell its assets and pay off its liabilities prior to
completion of the project.
Therefore, director of CL should extend the period fixed for the duration of the company by
making necessary amendments in the article of association of the company.
 Practice Question 04:

SPOTLIGHT
State the situations under which a company may be wound-up voluntarily.
 Solution:
A company may be wound up voluntarily when:
i. if the company in general meeting passes a resolution requiring the company to be
wound up voluntarily as a result of the expiry of the period for its duration, if any, fixed
by its articles or on the occurrence of any event in respect of which the articles provide
that the company should be dissolved; or
ii. When the company resolves by special resolution that the company be wound up
voluntarily.

STICKY NOTES
 Practice Question 05:
Pear Limited (PL) is a public unlisted company having paid up share capital of Rs. 9 million. PL’s
management has not yet been able to prepare its financial statements for the years ended 30 June
2020 and 2021.
You are a corporate consultant and have been approached by Zainab Saleem and Aurangzeb
Mirza, on the following matters:
a) Zainab Saleem is a member of PL and wants to file a petition in the Court for its winding
up. Advise Zainab Saleem regarding her eligibility to make an application to the
Court for winding up the affairs of PL.
b) Aurangzeb Mirza has been authorised by the Commission to present the winding up
petition of PL to the Court. Advise Aurangzeb Mirza regarding the conditions which
must be fulfilled entitling him to present an application to the Court for winding
up the affairs of PL.

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 Solution:
Part (a)
Zainab Saleem being contributory shall not be entitled to present a petition for winding up PL
unless PL’s number of members is reduced below three; and some of the shares in respect of
which she is a contributory were originally allotted to her or have been held by her, and
registered in her name, for at least 180 days during the 18 months before the commencement of
the winding up, or have or devolved on her through the death of a former holder.
Part (b)
Aurangzeb Mirza, who has been authorised by the Commission in that behalf shall not be entitled
to present a petition for the winding up of PL unless an investigation into the affairs of PL has
revealed that:
AT A GLANCE

i. it was formed for any fraudulent or unlawful purpose;

ii. it is carrying on a business not authorised by its memorandum;
iii. its business is being conducted in a manner oppressive to any of its members or
persons concerned in formation of PL;
iv. its management has been guilty of fraud, misfeasance or other misconduct towards PL
or any of its members.
and PL has been afforded an opportunity of making a representation and of being heard.
However, if the sole business of PL is the licensed activity and that licence is revoked, no
investigation into the affairs of PL shall be required to present the petition for winding up.
SPOTLIGHT

 Practice Question 06:

Under the provisions of the Companies Act, 2017 state any eight circumstances under which a
company may be wound up by the Court.
 Solution:
Following are the circumstances in which a company may be wound up by the Court:
i. if the company has, by special resolution, resolved that the company be wound up by
the Court; or
ii. if default is made in delivering the statutory report to the registrar or in holding the
statutory meeting; or
STICKY NOTES

iii. if default is made in holding any two consecutive annual general meetings; or
iv. if the company has made a default in filing with the registrar its financial statements or
annual returns for immediately preceding two consecutive financial years; or
v. if the number of members is reduced, in the case of public company, below three and
in the case of a private company below two; or
vi. if the company is unable to pay its debts; or
vii. if the company is conceived or brought forth for, or is or has been carrying on, unlawful
or fraudulent activities; or
viii. if the company is carrying on business prohibited by any law for the time being in force
in Pakistan; or restricted by any law, rules or regulations for the time being in force in
Pakistan.

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 Practice Question 07:

Ali, Sabra, Ubaid and Amir were the subscribers of Nance Limited (NL) which was incorporated
on 1 January 2020 to carry on the business of trading of leather jackets. In the first annual general
meeting, they were elected as NL’s directors.
On 1 March 2022, Ali and Sabra had a road accident and both of them died on spot. After their
death, Amir and Ubaid were the only members remained in the company.
Under the provisions of the Companies Act, 2017:
a) discuss the duties of Ubaid and Amir in the above situation.
b) state the consequences on NL and its members if Ubaid and Amir fail to fulfil their duties as
discussed in (a) above.

AT A GLANCE
 Solution:
Part (a) Duties of Ubaid and Amir:
Since NL is a public unlisted company, the minimum number of members and directors should
not be less than three. However, after the death of Ali and Sabra, NL’s total number of members
and directors have been reduced to two.
Considering the situation, Ubaid and Amir were obliged with respect to:
 Minimum number of members: To induct at least one member so that NL’s minimum
number of members should reach to minimum limit. This action shall have to be taken
by Ubaid and Amir within a period of 180 days of Ali and Sabra’s death i.e. on or before
28 August 2022.

SPOTLIGHT
 Minimum number of directors: To fill the casual vacancy in the office of the directors
at the earliest, however, the Companies Act, 2017 has not specified any time limit for
other than listed companies.
Part (b)
Consequences on NL:
The Court may order NL’s winding up due to the reduction in number of its members from
statutory limit i.e. below three.
Consequences on NL’s members:
Ubaid and Amir shall be severally liable for the payment of the whole debts of the company

STICKY NOTES
contracted after the said 180 days discussed in (a) above, if they are cognizant of the fact that
NL’s business is carried on with less than three members. They may also be sued without joinder
in the suit of any other member.
 Practice Question 08:
Kino Limited (KL) was incorporated on 9 September 2017 with a paid-up capital of Rs. 2 million
divided into 200,000 ordinary shares of Rs. 10 each.
KL’s directors have called an extraordinary general meeting (EOGM) to be held on 10 September
2022 at 10 AM to approve the resolution to wind up KL.
Following is the list of KL’s shareholders along with the number of shares held by them:
Shareholders No. of shares held
Anas 20,000
Baber 30,000
Dilawar 40,000
Essa 50,000
Fiza 60,000

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It is expected that Anas, Dilawar and Essa would not be able to attend the EOGM. However, on 8
September 2022 at 11 AM, Essa has deposited a proxy with KL’s company secretary in favour of
Baber. Essa and Baber would cast vote against the resolution.
Under the provisions of the Companies Act, 2017, explain the effect of the above expected matters
on the EOGM and resolution to be passed assuming that KL’s articles of association:
a) states that it shall operate only for five years.
b) is silent with regard to its duration of operation.
 Solution:
Part (a)
Effect on the EOGM: Since KL is a public unlisted company, its extraordinary general meeting
AT A GLANCE

(EOGM) would still be considered valid if two members present personally who represents more
than 25% of the total voting power, unless KL’s articles provide for a larger number. Considering
this, the EOGM proceeding would be valid as two members namely Baber and Fiza would attend
it, who holds 45% shares of KL’s total voting power [i.e. (30,000+60,000) ÷ 200,000].
The non-presence of Anas, Dilawar and Essa will have no effect.
Effect on the resolution: If KL was formed to operate only for a period of five years, then under
the provisions of the Companies Act, 2017, it may be wound up voluntarily by passing an
ordinary resolution i.e. to be passed by a simple majority of members entitled to vote as are
present, in person or by proxy, in the said EOGM.
The proxy deposited by Essa in favour of Baber at 11 AM, on 8 September 2022 shall not be
considered valid as it has been deposited less than 48 hours before the said EOGM, hence Baber
SPOTLIGHT

would not be able to exercise Essa’s voting power as proxy holder in the said EOGM.
It means in the EOGM, only Baber and Fiza would be entitled to exercise their voting rights. Fiza
has 67% (60,000 ÷ 90,000 [60,000 + 30,000]) voting power in the EOGM. If she favours the
resolution, the resolution would be considered passed by simple majority, even if Baber would
cast his vote against the resolution.
Part (b)
Effect on the EOGM: KL’s EOGM would be considered as valid subject to the compliance of
requirements as established in (a) above.
Effect on the resolution: If KL’s articles of association is silent about its duration then it would
be wound up voluntarily if special resolution is passed in the said EOGM as required under the
STICKY NOTES

provisions of the Companies Act, 2017.

A special resolution is considered to have been passed if a majority of not less than three-fourth
of such members as are present in the general meeting, in person or by proxy, vote in favour of
the said resolution.
Since only Fiza would cast vote in favour of the resolution who have 67% voting power in the
EOGM as established in (a) above, special resolution would not be considered as passed and KL
shall continue as a company.

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2. LIQUIDATOR
A person appointed to carry out the winding up of a company is called liquidator. If the winding up is through
Court, the term used for such person is official liquidator. The duties of liquidator include to get in and realise
the property of the company, to pay its debts, and to distribute the surplus (if any) among the members. The
official liquidator acts under the supervision of the Court, through a recognized reporting system.
The Court may appoint a provisional manager of the company till the making of a winding up order. The main
function of a provisional manager is the preservation and control of the affairs and assets of the company pending
the hearing of the winding up application.

2.1 Appointment of official liquidator [Section 315]

Appointment to be made from panel of persons

AT A GLANCE
For the purpose of the winding up of companies by the Court, the Commission shall maintain a panel of persons
from whom the Court shall appoint a provisional manager or official liquidator of a company ordered to be
wound up.
The Commission may of its own, remove the name of any person from the above panel on the grounds of
misconduct, fraud, misfeasance, breach of duties or professional incompetence after giving him a reasonable
opportunity of being heard.

Experience and compliance requirement

The panel shall consist of persons having at least 10 years’ experience in the field of accounting, finance or law
and as may be specified by the Commission such other persons, having at least 10 years’ professional experience.

SPOTLIGHT
The person appointed on the panel shall be subject to such code of conduct and comply with the requirement of
any professional accreditation programs as may be specified by the Commission.

Restriction on appointment
A person shall not be appointed as provisional manager or official liquidator of more than 3 companies at one
point of time.

Restriction on powers of provisional manager

Where a provisional manager is appointed by the Court, the Court may limit and restrict his powers by the order
appointing him or by a subsequent order, but otherwise he shall have the same powers as a liquidator.

STICKY NOTES
 Example 07:
Yasir was appointed provisional manager till the winding up order or otherwise of XYZ Limited
is decided by the Court. The Court did not mention any restrictions or limitations on his power
in the order. Yasir shall have same powers as a liquidator.

Declaration to be filed and security by the liquidator

On appointment as provisional manager or official liquidator, as the case may be, such liquidator shall file a
declaration within 7 days from the date of appointment in the specified form disclosing conflict of interest or lack
of independence in respect of his appointment, if any, with the Court and such obligation shall continue
throughout the term of his appointment.
The Court may determine whether any, and what, security is to be given by any official liquidator on his
appointment.

Provisional manager may be appointed as official liquidator

While passing a winding up order, the Court may appoint a provisional manager, if any, as the official liquidator
for the conduct of the proceedings for the winding up of the company.

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More than one liquidators

If more than one persons are appointed to the office of official liquidator, the Court shall declare whether any act
by the Act required or authorised to be done by the official liquidator is to be done by all or any one or more of
such persons.
In case of any dispute or any varying stance amongst the liquidators, the matter shall be referred to the Court for
an appropriate order in chambers in the presence of the parties concerned.

Appointment of person not named in the panel

The Court may, on the application of creditors to whom amounts not less than 60% of the issued share-capital of
the company being wound up are due, after notice to the registrar, appoint a person whose name does not appear
on the panel maintained for the purpose, to be the official liquidator.
AT A GLANCE

 Example 08:
The creditors of XYZ Limited filed a petition for winding up. They requested Zameer to be
appointed as official liquidator but his name is not on the panel of provisional managers and
liquidators maintained by the Commission. The Court may appoint Zameer as official liquidator
if creditors are owed 60% or more of the amount of issued share capital of XYZ Limited.

Quit/resign and casual vacancy

An official liquidator shall not resign or quit his office before conclusion of the liquidation proceedings except for
reasons of personal disability to the satisfaction of the Court.
Any casual vacancy in the office of an official liquidator occurred due to his death, removal or resignation, shall
be filled up by the Court by the appointment of another person from the panel maintained.
SPOTLIGHT

However, in case of resignation, the outgoing official liquidator shall, unless the Court directs otherwise, continue
to act until the person appointed in his place takes charge.

2.2 Statement of affairs to be made to official liquidator [Section 320]

Requirement
Where the Court has appointed a provisional manager or made a winding up order and appointed an official
liquidator, there shall be made out and submitted to the provisional manager or official liquidator, a statement
as to the affairs of the company in the prescribed form, verified by an affidavit, and containing the following
particulars, namely:
STICKY NOTES

a) particulars of the company’s assets, debts and liabilities;

b) the detail of cash balance in hand and at the bank;
c) the names and addresses of the company’s creditors stating separately the amount of secured debts and
unsecured debts, and, in the case of secured debts, particulars of the securities given, their value and the
dates when they were given.
d) the names, residential addresses and occupations of the persons from whom debts of the company are
due and the amount likely to be realised therefrom;
e) where any property of the company is not in its custody or possession, the place where and the person
in whose custody or possession such property is;
f) full address of the places where the business of the company was conducted during the 180 days
preceding the relevant date and the names and particulars of the persons-in-charge of the same;
g) details of any pending suits or proceedings in which the company is a party; and
h) such other particulars as may be prescribed or as the Court may order or the provisional manager or
official liquidator may require in writing, including any information relating to secret reserves and
personal assets of directors.

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Relevant date and time limit

The “relevant date” means, in a case where a provisional manager is appointed, the date of his appointment, and,
in a case where no such appointment is made, the date of the winding up order.
The statement of affairs shall be submitted within 15 days from the relevant date, or within such extended time
not exceeding 45 days from that date as the official liquidator or provisional manager or the Court may, for
special reasons, appoint.

Obligation to submit and verify

The statement of affairs shall be submitted and verified by persons who are at the relevant date the directors,
chief executive, chief financial officer and secretary of the company.
The provisional manager or official liquidator, subject to the direction of the Court, may also require to make and

AT A GLANCE
submit to him a statement in the prescribed form as to the affairs of the company by some or all of the persons:
a) who have been directors, chief executives, chief financial officer, secretary or other officers of the
company within one year from the relevant date;
b) who have taken part in the formation of the company at any time within one year before the relevant
date;
c) who are in the employment of the company, or have been in the employment of the company within the
said year, and are in the opinion of the official liquidator or provisional manager capable of giving the
information required and to whom the statement relates.
Any person making the required statement of affairs shall be entitled to and be paid by the official liquidator or
the provisional manager, as the case may be, the reasonable expenses incurred in preparation of such statement.
 Example 09:

SPOTLIGHT
On 15th March 2021, the Court ordered winding up XYZ Limited and appointed Naveed as official
liquidator. Subject to direction of the Court, Naveed may require Hamid (former CFO of XYZ
Limited who had resigned six months before the date of winding up order) to prepare and submit
a statement of affairs. Hamid shall be entitled to the reasonable expenses incurred in preparation
of such statement to be paid by Naveed as official liquidator.

Penalty
Any contravention or default in complying with above requirements shall be an offence liable to a daily penalty
of level 2 on the standard scale.
Without prejudice to the operation of any provisions imposing penalties in respect of any such default as

STICKY NOTES
aforesaid, the Court which makes the winding up order or appoints a provisional manager may take cognizance
of an offence and try the offence itself in accordance with the procedure laid down in the Code of Criminal
Procedure, 1898, for the trial of cases by Magistrates and further direct the persons concerned to comply with
the above provisions within such times as may be specified by it.

Right to inspection, copy or extracts

Any person stating himself in writing to be a creditor or contributory of the company shall be entitled, by himself
or by his agent, at all reasonable times, on payment of the prescribed fee, to inspect the statement of affairs
submitted, and to a copy thereof or extract therefrom.
Any person untruthfully so stating himself to be a creditor or contributory shall be guilty of an offence under
section 182 (Giving false information to a public servant in order to cause him to use his lawful power to the
injury or annoyance of any person) of the Pakistan Penal Code, 1860, and shall, on the application of the official
liquidator or provisional manager, be punishable accordingly.

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2.3 Report by official liquidator [Section 321]

Requirement
Where the Court has made a winding up order and appointed an official liquidator, such liquidator is required to
submit a report to the Court containing the following particulars:
a) the nature and details of the assets of the company including their location and current value duly
ascertained by a registered valuer;
b) the cash balance in hand and in the bank, if any, and the negotiable securities, if any, held by the
company;
c) the amount of authorised and paid up capital;
d) the existing and contingent liabilities of the company indicating particulars of the creditors, stating
AT A GLANCE

separately the amount of secured and unsecured debts, and in the case of secured debts, particulars of
the securities given;
e) the debts due to the company and the names, addresses and occupations of the persons from whom they
are due and the amount likely to be realised on account thereof;
f) debts due from contributories;
g) details of trademarks and intellectual properties, if any, owned by the company;
h) details of subsisting contracts, joint ventures and collaborations, if any;
i) details of holding and subsidiary companies, if any;
j) details of legal cases filed by or against the company;
k) any other information which the Court may direct or the official liquidator may consider necessary to
include.
SPOTLIGHT

The official liquidator shall also include in his report the manner in which the company was promoted or formed
and whether in his opinion any fraud has been committed by any person in its promotion or formation, or by any
director or other officer of the company in relation to the company since its formation.
The official liquidator shall also make a report on the viability of the business of the company or the steps which,
in his opinion, are necessary for maximising the value of the assets of the company.
The official liquidator may also, if he thinks fit or upon directions of the Court, make any further report or reports.

Time limit
The official liquidator shall, as soon as practicable after receipt of the statement of affairs and not later than 60
days, from the date of the winding up order submit the above report to the Court.
STICKY NOTES

A certified copy of the reports aforesaid shall also be sent to the registrar simultaneously with their submission
to the Court.
 Practice Question 09:
Zahid was appointed as liquidator for the purpose of winding-up of Multi Sources Limited (MSL).
Zahid wants to resign as the liquidator, because of the difficulties being faced by him in the
performance of his responsibilities. He has discussed the matter with some of the directors who
have assured him that his request would be considered in their meeting to be held soon.
Comment on the issue in the light of the provisions of Companies Act, 2017.
 Solution:
The liquidator shall not resign or quit his office as liquidator before conclusion of the winding up
proceedings except for reasons of personal disability to the satisfaction of the Court.
Therefore, Zahid cannot resign.
The power of accepting or rejecting the resignation of liquidator before completion of winding
up proceeding rests with the Court and not with the management/directors of the company.

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 Practice Question 10:

Under the provisions of the Companies Act, 2017 identify the responsibilities of a person,
appointed by the order of the Court, as an official liquidator of a public company.
 Solution:
Responsibilities of a person appointed by the order of the Court as an official liquidator of a public
company are as follows:
i. File a declaration within seven days from the date of appointment in the specified form
disclosing conflict of interest or lack of independence in respect of his appointment, if
any, with the Court.
ii. Pay security as the Court may determine.

AT A GLANCE
iii. Not resign or quit his office before conclusion of liquidation proceedings of the
company except for reasons of personal disability to the satisfaction of the Court.
iv. If resign then continue to act until the person appointed in his place takes the charge,
unless the Court directs otherwise.
v. Follow such code of conduct and comply with the requirement of any professional
accreditation programs as may be specified by the Commission.
vi. Where more than one official liquidator is appointed then do only those acts as directed
by the Court.
vii. As soon as practicable after receipt of the statement of affairs of the company and not
later than sixty days, from the date of the winding up order, submit a report to the Court
which should contain the prescribed particulars.

SPOTLIGHT
viii. Make a report on the viability of the business of the company or the steps which, in his
opinion, are necessary for maximizing the value of the company’s assets.
ix. Make any further report(s) upon directions of the Court.
x. Send certified copy of the aforesaid reports to the registrar simultaneously with their
submission to the Court.

STICKY NOTES

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3. OBJECTIVE BASED Q&A

01. The winding up of a company may be:
(a) Voluntary
(b) Voluntary subject to the supervision of the Court
(c) Compulsory by the Court
(d) Any of the above

02. A company may be wound up by the Court if the company has made a default in filing with the registrar:
(a) its financial statements and annual returns for immediately preceding two consecutive financial
AT A GLANCE

years.
(b) its financial statements or annual returns for immediately preceding two consecutive financial
years.
(c) its financial statements or annual returns for three consecutive financial years.
(d) its financial statements or annual returns for immediately preceding three consecutive financial
years.

03. The promotion or the carrying on of any scheme or business shall not be deemed to be an unlawful
activity:
(a) The scheme involves raising un-authorised deposits from the general public indulging in referral
SPOTLIGHT

marketing, multi-level marketing (MLM), Pyramid and Ponzi Schemes.

(b) The scheme involves raising deposits from the general public against issue of securities of a body
corporate to the public after due approval of the prospectus.
(c) A scheme whereby, in return for a deposit of a sum of money in cash or by means of coupons, any
right or benefit, determined by chance, is assured or promised.
(d) A scheme or any other business activity notified by the Commission to be against public policy or
a moral hazard.

04. In which of the following situations, a company shall be deemed to be unable to pay its debts:
STICKY NOTES

(a) if a creditor of Rs. 5 million duly made a demand requiring the company to pay the sum so due
and the company has for 21 days thereafter neglected to pay/secure/compound the sum.
(b) if a creditor of Rs. 5 million duly made a demand requiring the company to pay the sum so due
and the company has for 30 days thereafter neglected to pay/secure/compound the sum.
(c) if a creditor of Rs. 75,000 duly made a demand requiring the company to pay the sum so due and
the company has for 21 days thereafter neglected to pay/secure/compound the sum.
(d) if a creditor of Rs. 75,000 duly made a demand requiring the company to pay the sum so due and
the company has for 30 days thereafter neglected to pay/secure/compound the sum.

05. In which of the following situations, a contributory shall be entitled to present a petition for winding up
a public company:
(i) the number of members is reduced below three.
(ii) the shares in respect of which he is a contributory have devolved on him through the
death of a former holder.

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(a) (i) only

(b) (ii) only
(c) Neither (i) nor (ii)
(d) Both (i) and (ii)

06. The Commission shall be entitled to present a petition for the winding up of a company without an
investigation into the affairs of the company:
(a) If the company is carrying on a business not authorised by its memorandum.
(b) If sole business of the company is the licensed activity and that licence is revoked.

AT A GLANCE
(c) If the business of company is being conducted in a manner oppressive to any of its members or
persons concerned in the formation of the company
(d) The management of the company might be guilty of fraud, misfeasance or other misconduct
towards the company or towards any of its members

07. A winding up of a company by the Court shall be deemed to commence:

(a) on the date of winding up order by the Court and not earlier.
(b) after a period of 7 days from the date of winding up order.
(c) after a period of 30 days from the date of winding up order.
(d) at the time of the presentation of the petition for the winding up.

SPOTLIGHT
08. The articles of association of PQR Limited state that the company should be dissolved after completion
of a metro transportation project and handing it over to relevant authorities. The project has recently
been completed, became operational and relevant authorities have taken control of it and issued a
certificate in this regard. In order to effect voluntary winding up of PQR Limited:
(a) The board of directors need to pass a resolution in board meeting.
(b) An ordinary resolution in the general meeting is required.
(c) A special resolution in the general meeting is required.
(d) Approval from the Commission is required.

STICKY NOTES
09. Which of the following statement is correct in relation to appointment of official liquidator?
(a) A person shall not be appointed as provisional manager or official liquidator of more than five
companies at one point of time.
(b) For the purpose of the winding up of companies by the Court, the Commission shall maintain a
panel of persons from whom the Court shall appoint a provisional manager or official liquidator
of a company ordered to be wound up.
(c) Where a provisional manager is appointed by the Court, he shall always have the same powers as
a liquidator.
(d) An official liquidator may resign or quit his office before conclusion of the liquidation proceedings
by giving 30 days’ notice to the Court.

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10. A provisional manager was appointed on 24th October 2021 and winding up order was issued by the
Court on 3 January 2022, from whom he cannot require the statement (of affairs) in prescribed form?
(a) General Manager (operations) whose last day of employment with the company was 26 December
2020.
(b) Chief Operating Officer whose last day of employment with the company was 12 January 2021.
(c) Senior Manager (logistics) whose last day of employment with the company was 18 February
2021.
(d) Chief Financial Officer whose last day of employment with the company was 30 September 2020.

11. Creditors of Taupe Limited (TL) have filed a suit in the Court for winding up of TL on grounds of
AT A GLANCE

insolvency. The Court while determining whether TL is unable to pay its debts or not, shall take into
account the following:
(a) current and contingent liabilities of TL only
(b) non-current and prospective liabilities of TL only
(c) contingent and prospective liabilities of TL only
(d) current, non-current, contingent and prospective liabilities of TL

12. A public company may be wound up by the Court if:

(a) it is conducting business in a manner oppressive to its minority members
SPOTLIGHT

(b) it has made a default in filing any statutory return with the registrar
(c) the number of its directors is reduced below three
(d) it has made a default in making payment of taxes under any law applicable in Pakistan

13. The Court made a winding up order against Cranberry Limited and appointed Asadullah as an official
liquidator. Asadullah is required to submit a report to the Court containing prescribed information.
Which of the following information is NOT required to be included in the said report?
(a) The amount of authorized and paid-up capital
STICKY NOTES

(b) Debts due from contributories

(c) Details of business plan and forecast
(d) Details of subsisting contracts, joint ventures and collaborations

14. A person can be appointed as an official liquidator at one point of time, for a maximum of:
(a) two companies
(b) three companies
(c) four companies
(d) five companies

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15. The Court made a winding up order on 9 September 2022 against Watermelon (Guarantee) Limited and
appointed Ameen Khan as an official liquidator. Ameen Khan has to submit a report to the Court not
later than:
(a) 5 October 2022
(b) 6 October 2022
(c) 7 November 2022
(d) 8 November 2022

AT A GLANCE
SPOTLIGHT
STICKY NOTES

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ANSWERS
01. (d) All three are modes of winding up as stated in the Act. [Section 293]
02. (b) Its financial statements or annual returns for immediately preceding two consecutive financial
years. [Section 301]
03. (b) All other options are deemed unlawful activity. [Section 301]
04. (b) If a creditor of Rs. 5 million duly made a demand requiring the company to pay the sum so due
and the company has for 30 days thereafter neglected to pay/secure/compound the sum.
[Section 302]
05. (d) Both situations independently entitle a contributory to present the petition for winding up.
[Section 304]
AT A GLANCE

06. (b) If sole business of the company is the licensed activity and that licence is revoked, no
investigation into the affairs of the company shall be required to present the petition for
winding up of the company. [Section 304]
07. (d) A winding up of a company by the Court shall be deemed to commence at the time of the
presentation of the petition for the winding up. [Section 306]
08. (b) A company may be wound up voluntarily, if the company in general meeting passes a resolution
requiring the company to be wound up voluntarily on the occurrence of any event in respect of
which the articles provide that the company should be dissolved. [Section 347]
09. (b) A person cannot be appointed in more than 3 companies at a point in time. The powers of
provisional manager may be restricted by the Court. The official liquidator is not allowed to
SPOTLIGHT

resign or quit except in case of disability. [Section 315]

10. (d) The “relevant date” means, in a case where a provisional manager is appointed, the date of his
appointment, and, in a case where no such appointment is made, the date of the winding up
order. The statement cannot be required from those who left more than one year before the
relevant date. [Section 320]
11. (d) current, non-current, contingent and prospective liabilities of TL
12. (a) it is conducting business in a manner oppressive to its minority members
13. (c) Details of business plan and forecast
14. (b) three companies
STICKY NOTES

15. (c) 7 November 2022

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STICKY NOTES

Modes of winding up
1. Voluntary
2. Subject to supervision of court
3. By the Court

Circumstances in which a company may be wound up by Court

AT A GLANCE
1. There are 13 circumstances mentioned in the Act
2. Unlawful activity (including pyramid, MLM and ponzi schemes)

Company when deemed unable to pay its debts

1. Rs. 100,000 or more due for more than 30 days after due demand
2. Execution or other process issued on a decree and returned unsatisfied
3. Proven to the satisifaction of court (taking into account contingent and
prospective liabilities)

SPOTLIGHT
Application for winding up
1. By the company (particulars of assets, liabilities, operations and
suits/proceedings to be furnished)
2. By the creditor(s) (security for costs and prima facie case for winding up
required)
3. By the contributory (number of members reduced below minimum or
contibutory holds shares for certain period of time)
By all or any of above (together or seperately)

STICKY NOTES
4. By registrar (prior sanction of the Commission)
5. By Commission or authorised person (after investigation except in case of
sole licensing activity is revoked)
Commencement of winding up by Court is deemed to commence at the time of
presentation of the petition for winding up.

Voluntary winding up
1. Ordinary resolution: Expirty of time or occurence of event provided in the
articles.
2. Special resolution: in other cases.
A voluntary winding up or winding up subject to supervision of the Court may be
converted into winding up by the Court.

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Appointment of official liquidator

1. Appointment to be made by Court from panel of persons maintained by the
Commission
2. Experience (10 years’) and compliance (code of conduct and professional
accredition programs) requirement
3. Restriction on appointment (not more than 3 companies at one point of time)
4. Restriction on powers of provisional manager (Court may restrict, otherwise
powers are same as a liquidator)
5. Declaration (conflict of interest or lack of indepence) to be filed within 7 days
of appointment and security to be given by the liquidator
AT A GLANCE

6. Provisional manager may be appointed as official liquidator

7. More than one liquidators (Court shall declare and settle authority and
decsion issues)
8. Appointment of person not named in the panel (on application by creditors
representing at least 60% of issued share capital)
9. Quit/resign (not allowed except disability) and casual vacancy to be filled in
by the Court

Statement of affairs to be made to official liquidator

SPOTLIGHT

1. Requirement (certain particulars in prescribed form, verified by an affidavit)

2. Relevant date (date of appointment of provisional manager (if appointed)
otherwise the date of winding up order) and time limit is within 15 days
(may be extended upto 45 days) from the relevant date.
3. Obligation to submit and verify (Directors, CEO, CFO and secretary). Other
connected person in one year before relevant date may also be required to
submit.
4. Penalty (daily penalty level 2 + Court may try the offence itself)
5. Right to inspection, copy or extracts (to creditor or contributory)
STICKY NOTES

Report by official liquidator

1. Requirement is to sumbit certain details to the Court
2. Time limit (not later than 60 days from the date of winding up order)
3. Certified copy to be submitted to the registrar simultaneously.

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