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CA Pakistan
CAF 3: Business Law

Company Law Section

Companies Act, 2017
Securities Act, 2015

Complete Notes with Sorted Past Exams

Updated for Autumn 2020

by Kashif Adeel

Download free of cost from

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 Business Law: Company Law by Kashif Adeel

Chapter # CONTENTS Page#

1 Types & Process of Incorporation 1

2 Memorandum & Articles 13

ii|
3 Directors & Officers 25

4 Shares, Prospectus & Dividend 43

5 Meetings & Resolutions 55

6 Accounts and Investments 67

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 CAF 3 – Types & Process of Incorporation

Types & Process of

Companies Act,
2017
Incorporation 01
UNDERSTANDING “COMPANY” |1

COMPANY AS ARTIFICIAL LEGAL PERSON

Unlike sole traders and Partnerships, a company is a legal person, separate from its owners.
This is called doctrine of corporate personality.

The law recognises a company as a person, with legal rights and obligations similar to
those of ordinary individuals.

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
Because it is a person, a company can enter into contracts with other persons –
individuals or companies.

 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
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.
Three main 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.

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 CAF 3 – Types & Process of Incorporation

TRANSFER OF OWNERSHIP AND PERPETUAL SUCCESSION

The capital of a company is represented by shares, and the shareholders
Share capital (members) are its owners.
and members The term “member” and “shareholder” are used interchangeably,
however, there are few differences.
2| Any legal person can own shares in a company. This includes other
Who can own
companies. It is very common in practice for some companies to own some
shares?
or all of the shares of other companies.
The shares can be transferred easily (by sale, gift, and inheritance)
Transfer of
without seeking any approval from other owners (as opposed to
ownership
partnership).
When shares are transferred, the rights associated with the shares,
Share such as the right to receive a portion of any dividend paid by the company
Transfer or the right to attend and vote at general meetings of the company, are
transferred to the new owner.
Perpetual
The change in ownership or even the death or bankruptcy of owners does
succession /
not affect the existence of company (as opposed to partnership).
existence

UNDERSTANDING “LIMITED LIABILITY”

Limited liability applies to the shareholders of a company. It does not apply
Liability of to the company itself. A company is fully liable for all its debts and other
company liabilities; just as any other person is fully liable for the debts that he or she
incurs.
The directors and other officers of a company act on behalf of the
Liability of company (as an agent), and provided that they act within their powers and
directors in accordance with the law, they will not be personally liable for debts of
the company.
The concept of limited liability applies to the owners (shareholders) of a
Liability of
company. The liability of the owners of a company for the debts of the
Members
company is limited to the amount of their investment in the company.
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. For example,
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
Exception (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.
The word ‘limited’ in the name of the company draws the fact of limited
liability to the attention of anyone dealing with it.
How
 This is why private limited companies in the country are required to
creditors are
include the word “(Private) Limited” in their name.
warned?
 It is also why public companies in the country are required to
include the words “Limited” in their name.

LAW AND GOVERNANCE OF A COMPANY

Relevant law Companies are created by a process established by Companies Act 2017.
A company must also have a written constitution. The constitutional
Memorandum
document that focuses on external stakeholders is called Memorandum.
The bye-laws which focuses on internal procedures of a company are
Articles
called Articles.

Latest update: April 2020

 CAF 3 – Types & Process of Incorporation

DEFINITION AND TYPES OF COMPANY

BASIC DEFINITIONS [2 (9) (17) (18)]
01. “company” means a company formed and registered under this Act or the company
law;
02. “company law” means the repealed Companies Act, 1913, Companies Ordinance,
1984, Companies Ordinance, 2016 and also includes this Act unless the context |3
provides otherwise;
03. “body corporate” or “corporation” includes—
(a) a company incorporated under this Act or company law; or
(b) a company incorporated outside Pakistan, or
(c) 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 this 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;

TYPES OF COMPANIES [2(19) (20) (71)]

01. “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;
02. “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;

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.

The liability of members of company limited by guarantee having share capital is

restricted to the amount of guarantee + unpaid amount on shares, if any.
03. “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.

SINGLE MEMBER, PRIVATE AND PUBLIC COMPANIES [2 (38) (49) (52) (65)]
01. “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.
02. “private company” means a company which, by its articles-
(a) restricts the right to transfer its shares;
(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:
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;

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 CAF 3 – Types & Process of Incorporation

03. “public company” means a company which is not a private company;

A public company may (or may not) apply for listing on stock exchange.

“listed company” means a public company, body corporate or any other entity whose
securities are listed on securities exchange;
4|
HOLDING AND SUBSIDIARY COMPANY [2 (37) (68)]
“holding company”, means a company which is another company‘s holding company if,
but only if, that other company is its subsidiary;
“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:

Provided that such class or classes of holding companies shall not have layers of
subsidiaries beyond such numbers, as may be notified.

QUESTION S18
Under the provisions of the Companies Act, 2017 explain the term ‘body corporate or
corporation’. (04)

ANSWER
“body corporate” or “corporation” includes—
(a) a company incorporated under this Act or company law; or
(b) a company incorporated outside Pakistan, or
(c) 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 this 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;

QUESTION S19
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.
(04)
ANSWER
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.

Latest update: April 2020

 CAF 3 – Types & Process of Incorporation

AUTHORITIES, OFFICIALS, MEMBERS AND RESOLUTIONS

THE COMMISSION (SECP)
The “Commission” means the Securities and Exchange Commission of
Definition Pakistan constituted under Section 3 of Securities and Exchange
Commission of Pakistan Act, 1997.
SECP established under the Securities and Exchange Commission of |5
Pakistan Act 1997 was operationalized on 1st January 1999. SECP
Organization replaced Corporate Law Authority, the former corporate regulatory body. It
has been vested with adequate operational, administrative and financial
autonomy.
The SECP’s head office is at the Federal Capital, Islamabad and it has
eight regional offices (Company Registration Offices), one at Federal
Offices
Capital, four at provincial capitals and three in other major cities i.e. Multan,
Faisalabad and Sukkur.
The Commission shall exercise such powers and perform such functions as
are conferred on it by or under this Act.
Powers and
Functions
The powers and functions of the Commission under this Act shall be in
[7]
addition to the powers and 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 and
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.

REGISTRAR (AN SECP OFFICIAL)

“Registrar” means a registrar, an additional registrar, an additional joint
Definition registrar, a joint registrar, a deputy registrar, an assistant registrar or such
[2(57)] other officer as may be designated by the Commission, performing
duties and functions under this Act
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 the Act.

Power and He keeps the record of mortgages and charges also keeps track of
Duties company routine documents besides his powers to call the officers of the
company including directors for information and explanations and 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.

OFFICERS OF A COMPANY [2 (8) (45)]

“officer” includes any director, chief executive, chief financial officer, company secretary
or other authorised officer of a company;
“board”, in relation to a company, means board of directors of the company;

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 CAF 3 – Types & Process of Incorporation

MEMBERS OF A COMPANY [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
6| to become a member of the company;
and whose names are entered; in the register of members, are members of the
company.

TYPE OF RESOLUTIONS [2 (46) (66)]

The decisions of company are made in meetings through resolutions. The meeting of
directors is called board meetings; the meetings of shareholders is called general meeting.
“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;
“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 twenty-one 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 twenty-one days’ notice has been given;

QUESTION A19
Under the provisions of the Companies Act, 2017 discuss how a person may become a
member of the company. (03)

ANSWER 03
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.
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; become the member of the company 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.

QUESTION A18
Under the provisions of the Companies Act, 2017 briefly describe the term ‘Special
resolution’. (04)
ANSWER 04
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 twenty-one 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 twenty-one days’ notice has been given.

Latest update: April 2020

 CAF 3 – Types & Process of Incorporation

ASSOCIATION NOT FOR PROFIT

LICENCING OF ASSOCIATIONS WITH NOT FOR PROFIT OBJECTS [42]
People working for useful objects of the society sometimes need protection
of limited liability for such work. Companies Act allows the registration of
Concept
companies as associations not for profit if they satisfy certain conditions to
SECP. |7
Where it is proved to the satisfaction of the Commission that an
association is to be formed as a limited company—
(a) for promoting commerce, art, science, religion, health, education,
research, sports, protection of environment, social welfare, charity or
any other useful object;
(b) such company—
(i) intends to apply the company‘s profits and other income in
promoting its objects; and
Criteria for (ii) prohibits the payment of dividends to the company‘s
licence members; and
(c) 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,

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 expression “(Guarantee) Limited”, to its
name.
The licence may be granted on such conditions and subject to such
Conditions
regulations as the Commission thinks fit and those conditions shall be
and
inserted in and deemed part of the memorandum and articles, or in
regulations
one of those documents.
Form of Memorandum and articles of association of a company, licenced under this
memorandum section, shall be in accordance with the form set out in Table F in the First
and articles Schedule and approved by the Commission.
Privileges
The association on registration under this section shall enjoy all the
and
privileges and be subject to all the obligations of a limited company.
obligations

REVOCATION OF LICENCE [42]

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 regulations made under this section 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
(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

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 CAF 3 – Types & Process of Incorporation

(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 this Act or failed to carry
out the directions or decisions of the Commission or the registrar given in
exercise of the powers conferred by this Act; or
8| (v) not carrying on its business or is not in operation for one year; or
(h) it is just and equitable that the licence should be revoked:

Provided that 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.

EFFECT OF REVOCATION OF LICENCE [43]

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
(c) all the assets of the company after satisfaction of all debts and
Requirements liabilities shall be transferred to another (not-for-profit) company,
on revocation preferably having similar or identical objects to those of the
company, within ninety 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.
After compliance of the requirements mentioned above, the board of the
Report to
company shall file within fifteen days from the date of such compliance, a
Registrar
report to the registrar containing relevant information and documents.
Within thirty days of acceptance of the report by the registrar, submitted
Proceedings by the company, the board shall initiate necessary proceedings for
for winding winding up of the company voluntarily or where it has no assets and
up liabilities make an application to the registrar for striking the name of
the company off the register.
Appointment In case of default, the Commission may appoint an administrator to
of manage affairs of the company and initiate necessary proceedings for
Administrator winding up of the company.
Where any assets of the company are transferred, in consequence of
Restriction revocation of licence, to another (not-for-profit) company, the members and
on members officers of the first mentioned company or any of their family members
and officers shall not be eligible to hold any office in the later company for a period of
five years from the date of transfer of such assets.

Latest update: April 2020

 CAF 3 – Types & Process of Incorporation

Illustration: Transfer of assets in case of revocation of NFP licence –

The management of M/s 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 8th April 2020. |9

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 ie. by 2nd April 2025.

QUESTION S20
The licence of Cancer Research Association (CRA), issued under section 42 of the
Companies Act, 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. (05)

ANSWER 05
<Assignment>

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 CAF 3 – Types & Process of Incorporation

INCORPORATION (REGISTRATION) OF A COMPANY

PROCESS OF INCORPORATION
01. Getting availability of suitable name from the registrar of companies
Preparing and filing Memorandum, Articles and other documents for incorporation to
02.
registrar.
10| 03. Registrar shall issue the certificate of incorporation of company
REGISTRATION OF MEMORANDUM AND ARTICLES [16]
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 the Act
in respect of registration;
Filing with
(b) memorandum of association of the proposed company signed by
Registrar
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.
Where the registrar is of the opinion that any document or information
Revised contains any matter contrary to law or does not otherwise comply with
documents / the requirements or is not complete owing to any defect, error or
Removal of omission or is not properly authenticated, the registrar may either
defects require the company to file a revised document or remove the defects or
deficiencies within the specified period.
Where the applicant fails to remove the deficiencies conveyed within
Refusal to
the specified period, the registrar may refuse registration of the
register
company.
The subscribers of the memorandum or any one of them authorised by
them in writing may, within thirty days of the order of refusal, prefer an
Appeal to appeal to the Commission.
Commission
An order of the Commission shall be final and shall not be called in
question before any court or other authority.
If the registrar is satisfied that all the requirements of this Act and the rules
Criteria for
or regulations made thereunder have been complied with, he shall
registration
register the memorandum and other documents delivered to him.
On registration, the registrar shall issue a certificate of incorporation that
shall state—
(a) the name and registration number of the company;
Certificate of (b) the date of its incorporation;
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.
The certificate shall be signed by the registrar or authenticated by the
registrar‘s official seal.
Certificate to
be Conclusive
The certificate shall be conclusive evidence that the requirements of this
evidence
Act as to registration have been complied with and that the company is
duly registered under this Act.

Latest update: April 2020

 CAF 3 – Types & Process of Incorporation

EFFECT OF REGISTRATION [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;
(b) the body corporate is capable of exercising all the functions of an incorporated | 11
company, having perpetual succession and a common seal;
(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.

QUESTION A19
The Registrar, after registering the memorandum and articles of association, has issued the
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. (05)

ANSWER
Effects of registration:
The registration of Shahbaz Limited has the following effects as from the date of
incorporation:
(i) 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;
(ii) The body corporate is capable of exercising all the functions of an incorporated
company having perpetual succession and a common seal;
(iii) The status and registered office of the company are as stated in, or in connection
with, the application for registration;
(iv) The subscribers to the memorandum become holders of the initial shares;
(v) The persons named in the articles of association as proposed directors, are deemed
to have been appointed to that office.

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 CAF 3 – Types & Process of Incorporation

12|

Latest update: April 2020

 CAF 3 – Memorandum & Articles

Memorandum &
Companies Act,
2017
Articles 02
MEMORANDUM OF ASSOCIATION | 13

CLAUSES OF MEMORANDUM [26, 27, 28, 29]

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"
Name clause Private Company "(Private) Limited"
Single Member Company “(SMC-Private) Limited”
Guarantee Limited Company (Guarantee) Limited"
Unlimited Company “Unlimited”
.
This clause shall state the Province or the part of Pakistan not forming
Registered
part of a Province, as the case may be, in which the registered office of
office clause
the company is to be situate.
“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.
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
Principal line memorandum of association of the company which shall always
of business commensurate with name of the company.
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 has been obtained or
compliance with any other condition has been made:

The existing companies may continue with their existing memorandum

and the object clause be treated as the principal line of business.
In case of a company limited by shares and limited by guarantee, the
liability clause states that ‘the liability of the members is limited’.

Liability In case of an unlimited company, the liability clause states that ‘the
clause 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.
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
Authorised amount. This is the maximum number of shares that can be subscribed.
capital clause
(only for
In the same clause, every subscriber of the memorandum is required to
companies
having share
agree at least one share in the share capital of the company.
capital)
Each subscriber is required to write opposite to his name the number of
shares he has agreed to take in the share capital of the company.

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 CAF 3 – Memorandum & Articles

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
Undertaking of the memorandum, they are the first members of the company, they write
/Subscription as follows:
14| clause 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.

BORROWING POWERS TO BE PART OF MEMORANDUM [30]

Notwithstanding anything contained in this Act or in any other law for the time being in
force or the memorandum and articles, the memorandum and articles of a company shall
be deemed to include (implied) and always to have included the power to enter into any
arrangement for obtaining loans, advances, finances or credit, as defined in the Banking
Companies Ordinance, 1962 and to issue other securities not based on interest for raising
resources from a scheduled bank, a financial institution or general public.

MEMORANDUM TO BE PRINTED, SIGNED AND DATED [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
and father‘s name or, in the case of a married woman or widow, her husband‘s or
deceased husband‘s name in full, his 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.

Latest update: April 2020

 CAF 3 – Memorandum & Articles

NAME OF COMPANY
PROHIBITION OF CERTAIN NAMES [10]
No company shall 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 | 15
Prohibited
(b) inappropriate; or
names
(c) undesirable; or
(d) deceptive; or
(e) designed to exploit or offend religious susceptibilities of people; or
(f) any other ground as may be specified.
Except with prior approval in writing of the Commission, no company
shall be registered by a name which contains any word suggesting or
calculated to suggest—
(a) the patronage of any past or present Pakistani or foreign head of
state;
(b) any connection with the Federal Government or a Provincial
Names
Government or any department or authority or statutory body of any
requiring
such Government;
prior approval
(c) any connection with any corporation set up by or under any Federal
of SECP
or Provincial law;
(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.
Decision of Whenever a question arises as to whether or not the name of a
Commission company is in violation of the above provisions, decision of the
is final Commission shall be final.
A person may make an application to the registrar for reservation of a
name set out in the application for a period not exceeding sixty 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
Reservation name. The person making application shall be liable to a penalty.
of name
If the name applied for is refused by the registrar, the aggrieved person
may within thirty 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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 CAF 3 – Memorandum & Articles

RECTIFICATION OF NAME OF A COMPANY [11]

A company which, through inadvertence or otherwise, is registered by a
name in contravention of the Act or the name was obtained by furnishing
false or incorrect information—
Company on (a) may, with approval of the registrar, change its name; and
its own & on (b) shall, if the registrar so directs, within thirty days of receipt of
16| direction by such direction, change its name with approval of the registrar:
registrar
Provided that the registrar shall, before issuing a direction for change of
the name, afford the company an opportunity to make representation
against the proposed direction.
If the company fails to report compliance with the direction issued within
Failure to the specified period, the registrar may enter on the register a new
comply with name for the company selected by him, being a name under which the
direction company may be registered under this Act and issue a certificate of
incorporation on change of name.
If a company makes default in complying with the direction issued by the
Penalty registrar or continue using previous name after the name has been
changed by the registrar, shall be liable to a penalty.

CHANGE OF NAME BY A COMPANY [12]

A company may, by special resolution and with approval of the
Procedure
registrar signified in writing, change its name.
The permission of the registrar shall not be required if the only change is
Approval not the addition or deletion of the word and parenthesis ‘(Private)’ or (SMC-
required Private) or (Limited) or (Guarantee Limited) or (Unlimited) as the case
may be upon the change in the status of a company.

REGISTRATION OF CHANGE OF NAME AND EFFECT THEREOF [13]

Where a company changes its name the registrar shall enter the new
New name on the register in place of the former name, and shall issue a
certificate of certificate of incorporation altered to meet the circumstances of the case
incorporation and, on the issue of such a certificate, the change of name shall be
complete.
Where a company changes its name it shall, for a period of ninety days
Mentioning from the date of issue of a certificate by the registrar, continue to
old name with mention its former name along with its new name on the outside of every
new name office or place in which its business is carried on and in every
document or notice.
The change of name shall not affect any rights or obligations of the
No effect on company, or render defective any legal proceedings by or against the
legal company and any legal proceedings that might have been continued or
proceedings commenced against the company by its former name may be continued by
or commenced against the company by its new name.

Latest update: April 2020

 CAF 3 – Memorandum & Articles

PUBLICATION OF NAME BY A COMPANY AND PENALTY [22, 24]

Every company shall display in a conspicuous position, in letters easily
Name on
legible in English or Urdu characters its name and incorporation
business
number outside the registered office and every office or the place in
places
which its business is carried on.
Certificate of Every company shall display a certified copy of certificate of
incorporation incorporation at every place of business of the company. | 17
Every company shall have its name mentioned in legible English or Urdu
characters, in all bills of exchange, promissory notes, endorsements,
Name on
cheques and orders for money or goods purporting to be signed by or on
documents
behalf of the company and in all bills of parcels, invoices, receipts and
letters of credit of the company.
Every company shall get its name, address of its registered office,
Name and
telephone number, fax number, e-mail and website addresses, if any,
particulars on
printed on letter-head and all its documents, notices and other official
documents
publications.
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 this Act.
Penalties 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.

QUESTION S18
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.
(05)

ANSWER
Change of name by a company
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 ninety 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.

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 CAF 3 – Memorandum & Articles

REGISTERED OFFICE AND PRINCIPAL LINE OF BUSINESS

REGISTERED OFFICE OF A COMPANY [21]
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
Purpose
head office of the company. There may be more than one office for
18| business of the company but registered office shall be only one.
A company shall have a registered office to which all communications and
Notify to
notices shall be addressed and within a period of thirty days of its
registrar
incorporation, notify to the registrar.
Notice of any change in situation of the registered office shall be given to
the registrar within a period of fifteen days after the date of change:
Notice of
change and Provided that the change of registered office of a company from—
special (a) one city in a Province to another; or
resolution (b) a city to another in any part of Pakistan not forming part of a
Province;
shall require approval of general meeting through special resolution.

ALTERATION OF REGISTERED OFFICE CLAUSE IN MEMORANDUM [32, 33 34]

A company may by special resolution alter the provisions of its
memorandum so as to change the place of its registered office from.—
(i) one Province to another Province or Islamabad Capital Territory
Alteration
and vice versa; or
(ii) one Province or Islamabad Capital Territory to a part of Pakistan
not forming part of a Province and vice versa;
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
Confirmation proper.
from SECP
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.
A copy of the order confirming the alteration duly certified by an authorised
Copy of order
officer of the Commission shall be forwarded to the company and to the
to registrar
registrar within seven days from the date of the order.
An altered copy of the memorandum shall within thirty days from the date
Conclusive of the order be filed by the company with the registrar, who shall register
evidence of the same and issue a certificate which shall be conclusive evidence that
alteration all the requirements of the alteration and the confirmation thereof have
been complied with.
The Commission may by order, at any time on an application by the
Extension in
company, on sufficient cause shown extend the time for the filing of
time limit
memorandum with the registrar.
Where the alteration involves a transfer of registered office from the
jurisdiction of one company registration office to another, physical record
Transfer of
of the company shall be transferred to the registrar concerned of the
record
company registration office in whose jurisdiction the registered office of the
company has been shifted.

Latest update: April 2020

 CAF 3 – Memorandum & Articles

ALTERATION OF PRINCIPAL LINE OF BUSINESS CLAUSE [26, 32]

A company may by special resolution alter the provisions of its
memorandum:
Alteration (a) change its principal line of business; or
(b) adopt any business activity or any change therein which is subject
to licence, registration, permission or approval under any law.
Approval from | 19
An alteration so as to change its principal line of business shall not
Commission
require confirmation by the Commission.
not required
Filing of Where the alteration involves change in principal line of business, the
amended company shall file the amended memorandum of association with the
memorandum registrar within thirty days, which shall be recorded.
Any change in the principal line of business shall be reported to the
Change of
registrar within thirty days from the date of change, on the form as
name may be
may be specified and registrar may give direction of change of name if
directed
change does not commensurate with name of the company.

QUESTION S19
Describe the provisions contained in the Companies Act, 2017 relating to ‘principal line of
business’ of a company. (05)

ANSWER
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 thirty
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.

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 CAF 3 – Memorandum & Articles

ARTICLES OF ASSOCIATION
REGISTRATION OF ARTICLES [36]
The byelaws of the company, subordinate to the constitution of the company and further
subordinate to the Act. The articles may be stricter than the Act but not vice versa.
The articles of association signed by the subscribers to the memorandum
20| and setting out regulations for the company may/shall be registered with the
Registration memorandum.
of articles
Optional for  Company limited by shares
Compulsory for  Company limited by guarantee or unlimited company
Adopting Articles of association of a company limited by shares may adopt all or any
Table A of the regulations contained in Table A in the First Schedule to this Act.
Amount of In the case of an unlimited company or a company limited by guarantee, the
share articles, if the company has a share capital, shall state the amount of
capital share capital with which the company proposes to be registered.
In the case of an unlimited company or a company limited by guarantee, if
Number of
the company has no share capital, the articles shall state the number of
members
members with which the company proposes to be registered.
 Table A is applicable in full, if articles are not registered.
 Table A is applicable to the extent not modified or excluded by articles
Applicability
filed by a company.
of Table A
 Table A not applicable at all, if specifically excluded by articles filed by a
company.
Clarity and The articles of every company shall be explicit and without ambiguity and
voting shall list and enumerate the voting and other rights attached to the
rights different classes of shares and other securities.
If a company contravenes the provisions of its articles of association, the
Penalty
company and every officer of the company shall be liable to a penalty.

CONTENTS OF ARTICLES [Table A]

The Examination would be limited to only enlisting of the areas covered in the Table “A”,
such as:
 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
 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
 Dividends and Reserve
 Accounts
 Notices
 Winding Up
 Indemnity

Latest update: April 2020

 CAF 3 – Memorandum & Articles

ARTICLES TO BE PRINTED, SIGNED AND DATED [37]

The articles 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
and father‘s name or, in the case of a married woman or widow, her husband‘s or
deceased husband‘s name in full, his nationality and his usual residential address | 21
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.

ALTERATION OF ARTICLES [38]

Subject to the provisions of the Act and to the conditions contained in its
Alteration
memorandum, a company may, by special resolution, alter its articles and
by special
any alteration so made shall be as valid as if originally contained in the
resolution
articles and be subject in like manner to alteration by special resolution.
Provided that, where such alteration affects the substantive rights or
Restriction liabilities of members or of a class of members, it shall be carried out
on only if a majority of at least three-fourths of the members or of the class
alteration of members affected by such alteration, as the case may be, exercise the
option through vote personally or through proxy vote for such alteration.
A copy of the articles of association as altered shall, within thirty days from
Filing to the date of passing of the resolution, be filed by the company with the
registrar registrar and he shall register the same and thenceforth the articles so filed
shall be the articles of the company.

QUESTION S20
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 the following matters:

Registration and signing of articles of association. (03)

Advise the team of engineers in respect of the above matters in the light of the Companies
Act, 2017.

ANSWER
<Class assignment>

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 CAF 3 – Memorandum & Articles

GENERAL PROVISIONS AS TO MEMORANDUM AND ARTICLES

COPIES OF MEMORANDUM AND ARTICLES TO BE GIVEN TO MEMBERS [39]
Each company shall send to every member, at his request and within fourteen days
thereof, on payment of such sum, as the company may fix, a copy of the memorandum
and the articles, if any.
22|
EFFECT OF MEMORANDUM AND ARTICLES [17]
The memorandum and articles, when registered, bind the company and
Binding on
the members of the company as if they had been signed by the
Company
members and, his heirs and legal representatives that they shall observe
and
and be bound by the memorandum and articles, unless in conflict with the
members
Act.
All moneys payable by a subscriber against the shares subscribed in
Money
pursuance of his undertaking in the memorandum of association shall be a
payable to
debt due from him and be payable in cash within thirty days from the
be debt
date of incorporation of the company.
In case the share money is not deposited within the prescribed time, the
Share
shares shall be deemed to be cancelled and the name of that
cancellation
subscriber shall be removed from the register and the registrar shall give
in case of
such direction to the company in each case as deemed appropriate for
default
compliance with the provisions of the company law.
The receipt of subscription money from the subscribers shall be reported
Report on by the company to the registrar within forty-five days from the date of
subscription incorporation of the company, accompanied by a certificate by a practicing
money chartered accountant or a cost and management accountant verifying
receipt of the money so subscribed.
Violation of above requirements will be considered as offence and a penalty
Penalty
of level 1 on the standard scale shall be applicable.

Illustration: Time period of payment by subscriber – Effect of Memorandum & Articles

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.

As per the provisions of Companies Act, 2017 they have to deposit Rs. 100,000/- each on or
before 30th March 2020.

Illustration: Effect of non-payment by a subscriber – Effect of Memorandum & Articles

Ahmed, Ahmer and Akber 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. As per
the provisions of Companies Act, 2017 they have to deposit Rs. 100,000/- each on or before
30th March 2020.

Ahmed and Ahmer deposited Rs. 100,000/- each on 5th March 2020 and 29th March 2020
respectively; however, Akber couldn’t managed to deposit the amount till 30th March 2020
due to some domestic issues.

In light of the provisions of Companies Act, 2017 Akber’s 10,000 shares shall be deemed to
be cancelled and his name shall also be removed from the register of members. Moreover,
the company shall have to follow the directions given by the registrar in this respect.

Latest update: April 2020

 CAF 3 – Memorandum & Articles

Illustration: Intimation to the registrar – Effect of Memorandum & Articles

Ahmed, Ahmer and Akbar being the founder members of M/s Excellent (Pvt) Limited (EPL)
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. Ahmed
and Ahmer deposited Rs. 100,000/- each on 5th March 2020 and 29th March 2020
respectively.
| 23
EPL approached Brilliant & Co. Chartered Accountants (BC) for verification of receipt of the
money so subscribed by its subscribers ie. Ahmed and Ahmer. The said certificate was
issued by BC on 2nd April 2020.

EPL shall have to report to the registrar about receipt of subscription money from the
subscriber ie. Ahmed and Ahmer along will BC certificate on or before 14th April 2020 i.e.
within 45 days from the date of incorporation of EPL.

EFFECT OF ALTERATION IN MEMORANDUM OR ARTICLES [35]

Notwithstanding anything contained in the memorandum or articles of a company, no
member of the company shall be bound by an alteration made in the memorandum or
articles after the date on which he became a member if and so far as the alteration
requires him to take or subscribe for more shares than the number held by him at the
date on which the alteration is made or in any way increases his liability as at that date
to contribute to the share capital of or otherwise to pay money to the company:

However, this shall not apply in any case where the member agrees in writing either
before or after the alteration is made to be bound thereby.

ALTERATION OF MEMORANDUM OR ARTICLES TO BE NOTED IN EVERY COPY [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.

FORM OF MEMORANDUM AND ARTICLES [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
Articles Table A
Company limited by shares
Memorandum Table B
Articles
Company limited by guarantee and not having a share capital Table C
Memorandum
Articles
Company limited by guarantee and having a share capital Table D
Memorandum
Articles
Unlimited company having a share capital Table E
Memorandum

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 CAF 3 – Memorandum & Articles

24|

Latest update: April 2020

 CAF 3 – Directors & Officers

Companies Act,
2017 Directors & Officers 03
| 25
APPOINTMENT, ELIGIBILITY, ELECTION AND REMOVAL ETC.
INTRODUCTION
“Director” includes any person occupying the position of a director, by whatever name called.
Only natural persons shall be directors of a company. A company or body
Natural
corporate (even if it is subscriber to the memorandum) shall not be a
person [154]
director of another company.
A director cannot claim to be variable representative of the company. It
Not to be means that a director cannot claim relief from his responsibility as a
variable director on the basis that he is not concerned with any particular area of
representative the company’s business. When he is a director, he is a director in
entirety.
Directors must be member of the company except where law specifically
allows the non-members as directors. In the board of directors meeting,
To be member 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.
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
Authority 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.
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.
Fiduciary
relationship 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.
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
Consent to
such appointment or nomination.
act as director
[167]
The company shall file such consent with the registrar within 15 days of
appointment or nomination.
No person shall hold office as a director, including as an alternate director
Number of
at the same time in more than such number of companies as may be
directorships
specified, however, this limit shall not include the directorships in a
[155]
listed subsidiary.

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 CAF 3 – Directors & Officers

A company may require a larger number by its articles.

Minimum Type of company Minimum number of directors
number of Single member company One
directors Other private company Two
[154] Public unlisted company Three
Public listed company Seven
26| .

ELIGIBILITY / INELIGIBILITY OF CERTAIN PERSONS TO BECOME DIRECTOR [153]

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.
No person shall be appointed as a director of a company if he:
 is a minor;
 is of unsound mind;
 has applied to be adjudicated as an insolvent and his application is
pending;
 is an undischarged insolvent;
 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.);
 has been debarred from holding such office under Companies Act;
 is lacking fiduciary behaviour and a declaration to this effect has
been made by the Court at any time during the preceding 5 years;
 does not hold National Tax Number. The Commission may grant
Ineligibility exemption from this requirement;
 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.
Further for listed companies only, a person shall not be appointed as a
director if he:
 has been declared by a court as defaulter in repayment of loan to a
financial institution;
 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 If any person being an undischarged insolvent acts as chief executive or
bankrupt director of a company, he shall be liable to imprisonment for a term not
[177] exceeding two years or to a fine, or to both.

FIRST DIRECTORS AND THEIR TERM [157]

The names and number of first directors shall be decided by the
At
subscribers of memorandum, and their specified particulars shall be
incorporation
submitted along with the documents for incorporation.
Additional Number of first directors may be increased by appointing additional
directors directors in general meeting.
The first directors shall hold office until the election of directors in the first
Retirement
annual general meeting of the company.

Latest update: April 2020

 CAF 3 – Directors & Officers

PROCEDURE FOR ELECTION OF SUBSEQUENT DIRECTORS [159]

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
Fixing the such meeting. Such number once fixed shall not be changed except with
number of the prior approval of the general meeting in which election is to be held.
directors
The notice of the meeting shall expressly state, among other matters, the | 27
number of directors fixed as above and the names of retiring directors.
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.
Notice of
contesting the
The company shall transmit such notices (of intention to contest the
election
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.
If the number of persons offering themselves to be elected as director is
Elected
not more than the number of directors fixed for election by the
unopposed
directors, the directors shall stand elected unopposed.
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
Number of securities held and the number of directors to be elected.
votes
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.
The candidate getting the highest number of votes shall be declared
Result of elected as a director then the candidate who gets the next highest
polling number of votes shall be so declared and so on until the total number of
directors to be elected has been so elected.
After election as a director, every director shall have equal authority and
All directors
they shall not be superior or inferior on the basis of number of votes they
are equal
got in election or on any other grounds.
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.

TERM OF OFFICE OF DIRECTORS [158 & 161]

An elected director shall hold office for a period of three years unless he
earlier resigns or otherwise ceases to hold office.
Term of office
of subsequent
However, the term of office of directors of a company limited by
directors
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.

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 CAF 3 – Directors & Officers

NOMINEE DIRECTORS [164 & 165]

In addition to directors elected, a company may have directors
Nominated by
nominated by the company’s creditors or other special interests by virtue of
creditors
contractual arrangements.
The directors may be nominated by a body corporate or a company or
Federal Government or Provincial Government if they have made
28| investment in the company. Such person shall be considered to be an
elected director termed as ‘deemed to have been elected director’ and
Nominated by shall be considered for the calculation of minimum number of directors
Government required for any company. Such nominated director shall hold office
or body during the pleasure of the nominating body.
corporate
The number of votes as are proportionate to the number of votes required
to elect the director if they had offered themselves for election, shall stand
excluded from the total number of votes available to the nominating
body at an election of director.

FRESH ELECTION OF DIRECTORS [162]

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
Criteria
hold fresh election. However, the number of directors fixed in the
preceding election shall not be decreased.
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
Time limit and
the company. A listed company for the purpose of fresh election of
procedure
directors shall follow such procedure as may be specified by the
Commission.

POWERS OF THE COURT TO DECLARE ELECTION INVALID [160]

Members holding at least 10% of the voting power in the company may
Appeal
apply to the court to declare the election of all directors or any one or more
criteria
of them invalid.
Time limit Such appeal may be made within 30 days from the date of election.
The court shall declare the elections invalid if it is satisfied that there has
Decision of
been material irregularity in the holding of the elections and incidental or
court
relating matters.

VALIDITY OF ACTS OF DIRECTORS [168]

Validity of The acts of a person acting as a director are valid even if it is afterwards
acts already discovered that there was a defect in his appointment; or he was
done disqualified from holding office; or he had ceased to hold such office.
When defect However, as soon as any such defect has come to notice, the director shall
is noticed not exercise the right of his office till the defect has been removed.

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 CAF 3 – Directors & Officers

CASUAL VACANCY [161 & 155]

Any casual vacancy occurring among the directors may be filled up by the
Term of office directors and the person so appointed shall hold office for the remainder
of the term of the director in whose place he is appointed.
If the number of directors of the company is equal or above the minimum
Appointment number of directors required for that company, even after the casual
not necessary vacancy, such directors may not fill in the casual vacancy and complete | 29
the term without filling such vacancy.
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
Time limit
vacancy. There is no time limit specified in Companies Act for other
companies.

REMOVAL OF DIRECTORS [163]

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:
Director Votes against removal equal to or exceed
Minimum number of votes which were enough to qualify a person as
Elected director
a director in the last election of directors.
Elected unopposed Average votes i.e.
First directors ℎ × ℎ
=
Casual vacancy ℎ

VACATION OF OFFICE BY THE DIRECTORS [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 .
A company may include additional grounds for vacation of office in its articles.

QUESTION S18
Under the provisions of the Companies Act, 2017 comment on each of the following
independent situations:
(i) 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. (02)

(ii) 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. (02)

ANSWER
Part (i)
Zafar will become 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.

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 CAF 3 – Directors & Officers

Part (ii)
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.

QUESTION A18
Baalbek Limited is an unlisted public company and has eight directors. Its paid-up capital is
30| 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. (02)

ANSWER
Removal of a director:
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.

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 CAF 3 – Directors & Officers

POWERS, DUTIES AND PROCEEDINGS OF DIRECTORS

POWERS OF BOARD [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.
The board shall exercise the following powers by ‘passing a resolution’ | 31
in board meetings:
 to issue shares, debentures or other redeemable capital or to
otherwise borrow money or invest the funds of the company;
 to make loans. This 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
Power to be
company for making sale, purchase or supply of goods or rendering
exercised by
services with the company:
passing a
 a director;
board
 the firm of which a director is a partner or any partner of
resolution
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.
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;
Authorisation  remit, give any relief or give extension of time for the repayment of
of general any debt outstanding against any director of the company or of its
meeting 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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DUTIES OF DIRECTORS [204]

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
32| 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
Duties may have a direct or indirect interest 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.
Any breach of duty, default or negligence by a director in contravention of
Breach and the articles of the company or any of its policy or decision of the board
ratification may be ratified by the company through a special resolution and the
Commission may impose any restriction as may be specified.

COMPLIANCE WITH THE CODE OF CORPORATE GOVERNANCE [156]

The Commission may provide for framework to ensure good corporate
Power of
governance practices, compliance and matters incidental and auxiliary for
Commission
companies or class of companies in a manner as may be specified.
Duty of The above would require duty of directors to act in line with good
directors corporate governance practices.

LIABILITIES OF DIRECTORS AND OFFICERS [180]

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.

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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 CAF 3 – Directors & Officers

Illustration: Indemnification not allowed [180]

Mr. Aaqil was appointed as Chief Executive of Chalaak Limited (CL) at the time of
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 Aaqil not
to pay from this year. Aaqil 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 | 33
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.

Adil proposed Aaqil to sign a contract with CL in which it will be clearly indicated that Aaqil
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 Aaqil.

In light of the provisions of the Companies Act, 2017 the aforesaid contract between CL and
Aaqil shall be void.

Illustration: Indemnification allowed in few cases [180]

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 of Rs. 10million. 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.

In the light of the provisions of Companies Act, 2017 SSL may indemnify Bilal.

PROTECTION TO INDEPENDENT AND NON-EXECUTIVE DIRECTORS [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
Liable for 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.
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;
Non-executive  does not undertake to devote his whole working time to the
directors 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.

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PROCEEDINGS OF THE BOARD [176]

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
Quorum of the participation of the directors by video conferencing or by other audio-
listed visual means shall also be counted for the purposes of quorum.
company
34| Quorum for other than listed company shall be as provided in the
articles.
Casual If there are not enough directors to form a quorum to fill a casual vacancy,
vacancy all the remaining directors shall be deemed to constitute a quorum for
situation this limited purpose.
Frequency of The board of a public company shall meet at least once in each quarter
meetings of a year.

PASSING OF RESOLUTION THROUGH CIRCULATION [179]

A resolution in writing signed by all the directors/committee of
directors for the time being entitled to receive notice of a meeting shall be
Validity
as valid and effectual as if it had been passed at a meeting of
directors/committee of directors duly convened and held.
Before passing it, the resolution should be circulated with necessary
Manner of papers to all directors. Such resolution shall be noted at a subsequent
circulation meeting of board/committee of directors and made part of the minutes of
such meeting.
Revocation A directors’ agreement to a written resolution, passed by circulation, once
not allowed signified, may not be revoked.

RECORDS OF RESOLUTIONS AND MEETINGS OF BOARD [178]

Every company shall keep records comprising:
 all resolutions of the board passed by circulation; and
Record to be
 minutes of all proceedings of board meetings or committee of
kept
directors along with the names of participants, to be entered in
properly maintained books.
Minutes recorded as above if purporting to be authenticated by the
Authentication chairman of the meeting or by the chairman of the next meeting, shall
be the evidence of the proceedings at the meeting.
Copy to A copy of the draft minutes of meeting of board shall be furnished to every
directors director within 14 days of the date of meeting.
The records must be kept at the registered office of the company from
Place and the date of the resolution, meeting or decision simultaneously in physical
time duration and electronic form and it shall be preserved for at least ten years in
physical form and permanently in electronic form.

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 CAF 3 – Directors & Officers

RESTRICTIONS, PROHIBITIONS AND LIMITATIONS

RESTRICTIONS ON DIRECTOR’S REMUNERATION [170]
The remuneration to be paid to any director for attending the meetings of
Remuneration
the directors or a committee of directors shall not exceed the scale
for attending
approved by the company or the board of directors, as the case may
meetings
be, in accordance with the provisions of the articles. | 35
The remuneration of a director for performing extra services, including the
Remuneration
holding of the office of chairman, is determined by the board of
for extra
directors or the company in general meeting in accordance with the
services
provisions in the company's articles.

PROHIBITION ON ASSIGNMENT OF OFFICE BY DIRECTORS [174]

A director of any company shall not assign his office to any other person
Prohibited
and any such appointment shall be void ab-initio.
The appointment by a director, of an alternate or substitute director to
Appointment act for him during his absence from Pakistan of not less than 90 days,
of alternate will not be deemed to be an assignment of office.
director is
allowed The alternate director so appointed vacates office when the director
appointing him returns to Pakistan.

RESTRICTION ON TRANSACTIONS INVOLVING DIRECTORS [211]

Cash The company shall ensure that all cash transactions with its directors are
transactions conducted only through banking channels.
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
Non-cash or a person connected with him acquires or is to acquire assets for
transactions 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.

LOAN TO DIRECTORS [182]

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
Restriction
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.
Listed Additionally, approval of the Commission is also required in case of a
company listed company, for such loans.
The above restrictions do not apply to a company which in the ordinary
Exception course of its business provides loans or gives guarantees or securities
for the due repayment of any loan.

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PROHIBITION REGARDING MAKING OF POLITICAL CONTRIBUTION [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.

PROHIBITION REGARDING DISTRIBUTION OF GIFTS [185]

36| A company is prohibited to distribute gifts in any form to its members in its meeting.

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 transactions which are not prohibited, disclosure of
interest must be made and certain transactions may carry additional approval
requirement.

DISCLOSURE OF INTEREST BY DIRECTOR [205]

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
When a
disclose the nature of his concern or interest at a meeting of the board.
director is
concerned or
A director shall be deemed also to be interested or concerned if any of his
interested?
relatives (spouse, children including step children and parents), is so
interested or concerned.
The director should give the notice of his interest in transactions or
arrangements:
 in first board meeting, in which such transaction or arrangement is
Timing of discussed, if such transaction etc requires directors’ approval;
disclosure  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.
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.
General
Such notice should be given at the directors' meeting or the concerned
notice
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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 CAF 3 – Directors & Officers

INTERESTED DIRECTOR NOT TO PARTICIPATE OR VOTE [207]

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
Not to
on behalf of the company, if he is in any way, whether directly or indirectly,
participate or
concerned or interested in the contract or arrangement, nor shall his
vote
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. | 37
A director of a listed company who has a material personal interest in a
Not to be
matter that is being considered at a board meeting shall not be present
present
while that matter is being considered.
If majority of the directors are interested in, any contract or
Approval from arrangement entered into, or to be entered into, by or on behalf of the
members company, the matter shall be laid before the general meeting for
approval.
The above provisions shall not apply to a private company which is
Exception
neither a subsidiary nor a holding company of a public company.

DISCLOSURE OF INTEREST BY OFFICERS OTHER THAN DIRECTORS [206]

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.

QUESTION A18
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. (03)

ANSWER
Interested director not to participate or vote in proceedings of board:
The above rule shall not be applicable under the following circumstances:
(i) If the person is a director of a private company which is neither a subsidiary nor a
holding company of a public company;
(ii) 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.

QUESTION A19
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. (05)

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 CAF 3 – Directors & Officers

ANSWER
Disclosure of directors’ interest
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.

38| 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.

QUESTION A19
Discuss the provisions relating to the payment of remuneration to any of the directors for
attending the board meeting and performing extra services. (03)

ANSWER
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.

Latest update: April 2020

 CAF 3 – Directors & Officers

CHIEF EXECUTIVE AND OTHER OFFICERS

DEFINITION
"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 | 39
name called, and whether under a contract of service or otherwise.
APPOINTMENT OF FIRST CHIEF EXECUTIVE [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.
APPOINTMENT OF SUBSEQUENT CHIEF EXECUTIVE [187]
The subsequent chief executive shall be appointed within 14 days of the
Appointment
election of the directors themselves or occurring of casual vacancy in
time limit
the office of chief executive.
The subsequent chief executive shall be appointed for a maximum period
of three years.
Term of office
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.
Retiring chief executive shall continue to perform his services until his
Continue until
successor is appointed unless:
successor is
 his office was expressly terminated; or
appointed
 non-appointment of his successor is due to any fault on his part.
Nomination The Government shall have the power to nominate chief executive of a
by Federal company, where majority of directors are nominated by the
government Government.
TERMS OF APPOINTMENT [188]
The terms and conditions of appointment of a chief executive are
Terms and
determined by the directors or the company in general meeting in
conditions
accordance with the provisions in the articles.
Reports to He reports to board and he cannot exceed his authority which has been
board granted by board of directors.
The chief executive, if not already a director, shall be deemed to be a
Status of a director in addition to his being a chief executive of the company. He shall
director be entitled to all the rights and privileges, and subject to all liabilities, of
being a director.
RESTRICTION ON APPOINTMENT (INELIGIBILITY) [189]
A person who is ineligible to become a director of a company shall not be appointed or
continue as the chief executive of any company.
REMOVAL OF CHIEF EXECUTIVE [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
 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.

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NOT TO ENGAGE IN COMPETING BUSINESS [191]

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
Restriction
business of the company in which he is a chief executive or with the
business of any of its subsidiary company.
Every person who is appointed as chief executive is required to disclose
Disclosure on
40| to the company in writing the nature of such business and his interest
appointment
therein.

OTHER OFFICERS
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 of a
chairman on the overall performance of board and effectiveness of
listed
role played by board in achieving the objectives.
company
[192] 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 Commission may specify the
classes of companies for which the chairman and chief executive shall not
be the same individual.
A “company secretary” means any individual appointed to perform
Public secretarial and other duties customarily performed by a company secretary
company and declared as such, having such qualifications and experience, as may
required to be specified. [2(21)] The company secretary is responsible for advising the
have board on compliance of corporate laws and for maintenance of relevant
secretary records and registers.
[194] A public company must have a company secretary, possessing such
qualification as may be specified.
Listed companies are further required to appoint independent share
Listed registrar to handle the transfer of shares and all other obligations of the
company to company as an issuer towards shareholder. In case of listed companies all
have share applications for transfer of shares are directed to the share registrar
registrar [195] instead of company. The name of share registrar of the company is
mentioned in the notice of general meetings as well.
No company (incorporated in Pakistan or outside) which is carrying on
business in Pakistan shall, without the approval of the Commission,
Bar on
appoint any sole purchase, sale or distribution agent.
appointment
of sole
Exception to this rule:
purchase,
Company incorporated outside Pakistan are not required to obtain the
sales agents
approval of the Commission for such appointment (unless the major
[196]
portion of business of such company or person is conducted in
Pakistan).

Latest update: April 2020

 CAF 3 – Directors & Officers

QUESTION A18
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 officer (CEO) 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
and 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 | 41
technical assistance to Sultan without any charge.

Under the provisions of the Companies Act, 2017 explain whether FL can appoint Gul Maher
as the CEO of the company. (04)

ANSWER
Appointment of chief executive:
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 CEO 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.

Similarly, 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 CEO.

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, FL is not a listed company and Sultan is not a minor son of Gul Maher.
Therefore, both the above conditions are not applicable and Gul Maher is eligible to be
appointed as the CEO of FL.

QUESTION S19
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)

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. (06)

ANSWER
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 fourteen 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 leadership of the board and ensure that the board plays an effective role in
fulfilling its responsibilities.

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 CAF 3 – Directors & Officers

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.

QUESTION A19
The Board of Directors of Hassam Textiles Limited (HTL) is not satisfied with the
42| 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.
(02)

ANSWER
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 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.

QUESTION S20
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. (07)

Advise the team of engineers in respect of the above matters in the light of the Companies
Act, 2017.

ANSWER
<Assignment>

Latest update: April 2020

 CAF 3 – Shares, Prospectus & Dividend

Companies Act,
Shares, Prospectus &
2017 &
Securities Act,
2015 Dividend 04
| 43
SHARE CAPITAL
NATURE OF SHARES [60, 61, 62]
“share” means a share in the share capital of a company [2(63)].
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 common seal of the company 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.
AUTHORISED AND PAID UP SHARE CAPITAL
Authorised “authorised capital” or “nominal capital” means such capital as is
share capital authorised by the memorandum of a company to be the maximum amount
[2(5)] of share capital of the company.
Issued and The nominal value of shares that have been issued to shareholders. This
paid up amount may be equal to or less than authorised share capital but cannot
share capital exceed it. This is also called allotted shares.
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
Publication
statement in an equally prominent position and in equally conspicuous
of authorised
characters of amount of the paid up capital.
and paid up
capital [25]
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
A company having share capital shall issue only fully paid shares.
shares [58]
Nominal
This is face value of shares, also called par value and stated value.
value
This is the value at which share are traded at stock exchange or
Market value
otherwise. This is usually higher than nominal value.

CLASSES AND KIND OF SHARE CAPITAL [58]

A company having share capital shall issue only fully paid shares which
Requirement may be of different kinds and classes as provided by its memorandum
and articles.
A company limited by shares may have different kinds (ordinary and
Example preference etc.) of share capital and various classes (class A, class B
etc.) under each kind.
A company shall have more than one kind of share capital only if it has
Explanation
authorised capital (in memorandum) of all those kinds.

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 CAF 3 – Shares, Prospectus & Dividend

Ordinary shares Preference shares

Voting rights Full None or restricted
Fully participating (not fixed), after
Dividend Prior fixed right to dividend which is
payment of dividend on preference
rights usually cumulative
shares
Entitled to all surplus assets after
Prior return of nominal value, but no
44| Winding up return of nominal value to preference
further participation in surplus
shareholders
Redemption Always irredeemable May be redeemable or irredeemable
 Different voting rights, rights
Basis of disproportionate to paid up  Cumulative / non-cumulative
different shares, no voting rights  Redeemable / Irredeemable
classes  Different entitlements of  Convertible / non-convertible
dividend/rights/bonus shares

VARIATION OF SHAREHOLDERS’ RIGHTS [38]

Special The variation in shareholders’ rights shall only be made by alteration of
resolution articles by passing a special resolution.
If alteration affects the substantive rights or liabilities of members or of a
Restriction class of members, it shall be carried out only if a majority of at least 3/4th of
on alteration the members or of the class of members affected by such alteration
vote for such alteration.

RIGHT TO CHALLENGE THE VARIATION IN THE COURT [59]

Not less than 10% of the class of shareholders 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
Criteria for
resolution.
application to
Court
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.
The court has got the powers to declare the resolution null and void if it
feels that either:
Basis of  the company withheld certain facts while getting the resolution
Court passed, had the members been in knowledge of those facts, they
decision would not have passed the resolution varying the rights of a
particular class; or
 the variation is otherwise prejudicial to the interest of members.
Filing with The company is required to file a copy of the order of the court to the
registrar registrar within 15 days of receipt of the order.

ALTERATION OF SHARE CAPITAL CLAUSE IN MEMORANDUM [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
Possible
amount than its existing shares;
alterations
(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.

Latest update: April 2020

 CAF 3 – Shares, Prospectus & Dividend

Filing with The company shall file resolution and altered copy of Memorandum to
registrar registrar within 15 days of passing the resolution.
In the event of consolidation or sub-division of shares, the rights
attaching to the new shares shall be strictly proportional to the rights
No effect on attached to the previous shares so consolidated or sub-divided.
rights of
shareholders Where any shares issued are of a class which is the same as that of | 45
shares previously issued, the rights attaching to the new shares shall
be the same as those attached to the shares previously held.

QUESTION A18
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.

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) (06)

ANSWER
Issue of Class C shares:
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 passing a special resolution.

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 thirty days
from the date of passing of the resolution. The registrar shall register the same and
thenceforth the alteration shall be effective.

© kashifadeel.com
 CAF 3 – Shares, Prospectus & Dividend

PROSPECTUS
CONCEPT AND REQUIREMENT
“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
Definition section of the public) or inviting offers from the public
46| [2(41)]
Securities for the subscription or purchase of any securities of a company, body
Act, 2015 corporate or entity,
other than deposits invited by a bank and certificate of investments and
certificate of deposits issued by non-banking finance companies.
A shelf-prospectus is a single offering document allowing companies to
Shelf
make multiple offerings as disclosed in the offering document within a
prospectus
prescribed time and subject to prescribed conditions.
A supplement to the prospectus invites the general public for subscription of
Supplement
the securities earlier offered to the public through shelf-prospectus. The
to shelf
supplement to the prospectus for each offering contains updated
prospectus
disclosures.
If a company wants to issue securities to general public, it has to issue a
Purpose of
prospectus. This prospectus provides the public with relevant information
prospectus
to decide whether they should invest or not.
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).
Timing of A company may issue shares to public before commencement of
prospectus business.
Existence of prospectus ends after the purpose is fulfilled (it is not like
memorandum or articles that are permanent documents).
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
File with who is named therein as a director or proposed director of the company has
registrar been filed with the registrar.
before issue
[57] 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.
It is customary for the authorities to require the company to arrange and
write the risk factors separately.
Risk Factors 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.
It does not however mean that the authorities act just to discourage the
Role of company and its promoter but it is the duty of authorities to make sure the
authorities provision of accurate information to the prospective shareholders or
members.
OFFER OF SECURITIES [87 Securities Act, 2015]
Approval No person shall make a public offer of securities unless the issuer or offeror
from of the securities has submitted for approval to the Commission, and the
Commission Commission has approved prospectus.
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
Validity of for such longer period as approved by Commission.
approval
The time period may be extended by the Commission for reasons to be
recorded in writing.

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 CAF 3 – Shares, Prospectus & Dividend

Liability of The Commission shall not be liable to any action in damages suffered as
SECP a result of any prospectus approved by the Commission.
A person who, in connection with a public offer of securities, makes a false
Offence
or fictitious application, commits an offence.
However, the requirement of approval does not apply:
(a) to securities offered by the State Bank of Pakistan;
(b) where the securities are offered in connection with a private offering | 47
or private placement; and
(c) issue of shares of a subsidiary to the members of a listed holding
Exception to
company by way of specie dividend or any other distribution in the
Approval
prescribed manner.
requirement
(d) where the securities are offered by the issuer to members or
employees of the issuer or families of such members and
employees.
(e) the securities are shares and are offered as bonus shares to any or
all of the members of the issuer.

APPROVAL, ISSUE, CIRCULATION AND PUBLICATION [88 Securities Act, 2015]

Approval No person shall issue, circulate and publish prospectus including a shelf-
from prospectus or supplement to the prospectus until it has been approved by
Commission the Commission.
The issuer or the offeror shall submit a copy to the Commission for approval
Filing for
not less than 21 days before the proposed date of publication of the
approval
prospectus.
Where a public offer is made in Pakistan the issuer or offeror shall publish
Publication the prospectus in full text or in such abridged form as may be prescribed, at
in least in one Urdu and one English daily newspaper.
newspapers 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.
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:
Availability  the registered office of the issuer,
of copies  all the securities exchanges of the country,
 all the bankers to the issue,
 the concerned share registrar,
 the concerned ballotter; and
 the concerned credit rating agency, if any.
The prospectus in full text and the shares subscription form shall be
Uploaded on
uploaded on the website of the issuer and shall remain there from the date
website
of its publication in the newspapers till the closing of the subscription.
No person shall issue, circulate, publish, telecast or broadcast without the
prior written approval of the Commission, an advertisement, other than a
Restriction prospectus, announcing a public offer of securities for which a prospectus is
required unless a prospectus has been published and the advertisement
gives an address in Pakistan from which it can be obtained.
The issuer or offeror, as the case may be, shall not, at any time, vary the
Terms not to
terms of the clauses stipulated in its prospectus except subject to the
be varied
approval of the Commission.

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 CAF 3 – Shares, Prospectus & Dividend

EXPERT’S OPINION [90, 91 Securities Act, 2015]

“expert” includes an engineer, a valuer, an actuary, a CA or a CMA and any
Definition
other person who has the power or authority to issue a certificate or any
[2(30)]
other person notified by the Commission.
A prospectus shall not contain a statement purporting to be made by an
Expert to be
expert unless the expert is a person who is not, and has not been, engaged
independent
48| or interested in the formation or promotion or management of the company.
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:
Consent of
 The expert has given, his written consent to the issue of the prospectus
Expert
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.
CRIMINAL LIABILITY AND COMPENSATION [92, 93 Securities Act, 2015]
A person commits an offence, who:
Criminal
(a) makes a misleading, incorrect, untrue or deceptive statement in a
liability for
prospectus; or
defective
(b) omits information or a statement from a prospectus that is required
prospectus
to be included in the prospectus
Every offeror, issuer, director of an offeror or issuer or any person who has
Compensation signed the prospectus shall be liable to pay compensation to any
for false or person who acquires any of the securities, in reliance upon the
misleading prospectus, to which the prospectus relates and suffers loss in respect of
prospectus 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.

COMMENCEMENT OF BUSINESS [19 & 20]

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 business, without sufficient funds
Minimum for all this, company is not able to commence its business.
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.
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
Conditions for him and for which he is liable to pay in cash;
commencement (c) no money is or may become liable to be repaid to applicants
of business for any shares which have been offered for public subscription;
(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.
The above requirement does not apply to:
Not applicable (a) to a company converted from private to a public;
to (b) to a company limited by guarantee and not having a share
capital.

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 CAF 3 – Shares, Prospectus & Dividend

The registrar shall, after making such enquiries as he may deem fit to
Acceptance satisfy himself, accept and register all the relevant documents.
and registration
of documents The acceptance and registration of documents shall be a conclusive
by registrar evidence that the company is entitled to start its operations and exercise
any borrowing powers.
If any company starts its business operations or exercises borrowing | 49
powers in contravention of above, every officer or other person who is
Penalty
responsible for contravention shall without prejudice to other liabilities be
liable to a penalty not exceeding level 2 on the standard scale.
Any contract made by a company before the date at which it is entitled to
Status of
commence business shall be provisional only, and shall not be binding
contracts by
on the company until that date, and on that date it shall become
company
binding.

PROSPECTUS VS. STATEMENT IN LIEU OF PROSPECTUS

Circumstances Relevant Document
Inviting general public, or when
Prospectus
company is listed on stock exchange
Not inviting the public to subscribe Statement in lieu of prospectus
Issued a prospectus but could not Repayment of all money on the basis of prospectus
obtain listing on stock exchange AND filing Statement in lieu of prospectus
.

Illustration: Repayment against Prospectus

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
 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.

QUESTION S18
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, 2017 advise BL with regard to the publication of the
prospectus in the newspaper and its placement on the company’s website. (06)
ANSWER
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., 26 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, at least in one Urdu and one English daily newspaper.
The prospectus shall be published in the newspaper not less than seven days or not more
than thirty 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 or the subscription.

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 CAF 3 – Shares, Prospectus & Dividend

QUESTION A18
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:
(i) On 12 September 2018, a copy of the prospectus shall be submitted to the
50| Registrar Joint Stock Companies for approval.
(ii) 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.
(iii) The prospectus would be published in a popular fortnightly Urdu magazine on 30
September 2018.
(iv) 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. (05)

ANSWER
Approval and publication of prospectus:
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.

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.

QUESTION S19
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. (04)

Latest update: April 2020

 CAF 3 – Shares, Prospectus & Dividend

ANSWER
Every issuer, director of an 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 under the Securities Act, 2015.
| 51
QUESTION A19
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. (02)

ANSWER
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

QUESTION S20
Under the provisions of the Securities Act, 2015 no person shall make a public offer of
securities 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. (04)

ANSWER
<Assignment>

QUESTION S20
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. (02)
(ii) The requirements for publication of prospectus. (03)

ANSWER
<Assignment>

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 CAF 3 – Shares, Prospectus & Dividend

DIVIDEND
Dividends are payments made to shareholders by a company, out of its distributable profits.
Unless there are specific restrictions in the company’s memorandum and
Implied
articles (e.g. association not for profit), every company has an implied
power
power to use its profits to pay dividends to its shareholders.
52|
CERTAIN RESTRICTIONS ON DECLARATION OF DIVIDEND [240]
Restriction The company in general meeting may declare dividends; but no dividend
on amount shall exceed the amount recommended by the board.
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
Restriction any such property or assets, except after such profits are set off or
on gains adjusted against losses arising from the sale of any such immovable
property or assets of a capital nature.

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.

DIVIDEND TO BE PAID ONLY OUT OF PROFITS [241]

Form of Any dividend may be paid by a company either in cash or in kind only out
payment of its profits.
Payment in The payment of dividend in kind shall only be in the form of shares of
kind listed company held by the distributing company.

DIVIDEND NOT TO BE PAID EXCEPT TO REGISTERED SHAREHOLDERS [242]

Any dividend declared by a company must be paid to its registered
Period and
shareholders or to their order within such period and in such manner as
manner
may be specified.
Any dividend payable in cash may be paid by cheque or warrant (a type of
crossed cheque) or in any electronic mode to the shareholders entitled to
the payment of the dividend, as per their direction.
Mode of
payments
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.

DIRECTORS NOT TO WITHHOLD DECLARED DIVIDEND [243]

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
Requirement
the company shall be responsible to make the payment within such period
as may be specified from the date of declaration.
The final dividend is proposed by directors and approved by members
in AGM.
Declaration of
final dividend 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.

Latest update: April 2020

 CAF 3 – Shares, Prospectus & Dividend

The directors may propose and pay interim dividend before end of year.
Interim dividend shall be deemed to have been declared on:
Declaration of
interim  the date of commencement of closing of share transfer for
dividend purposes of determination of entitlement of dividend;
 the date on which dividend is approved by the board (in case of no
book closure). | 53
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
Consequences and with fine which may extend to five million rupees:
of delay in
payment 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 shall be deemed to have been committed within the meaning
of the foregoing provisions in the following cases, namely:
(a) where the dividend could not be paid by reason of the operation of
any law;
(b) where a shareholder has given directions to the company
regarding the payment of the dividend and those directions cannot
be complied with;
No offence (c) where there is a dispute regarding the right to receive the dividend;
deemed to be (d) where the dividend has been lawfully adjusted by the company
committed against any sum due to it from the shareholder; or
(e) 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, 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.
A company may withhold the payment of dividend of a member where the
Lawful member has not provided the complete information or documents as
withholding specified by the Commission (Approval of SECP is not required in this
case).

QUESTION S18
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. (05)

ANSWER
Restrictions imposed with regard to the declaration of dividend:
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.

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 CAF 3 – Shares, Prospectus & Dividend

QUESTION A18
On 8 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
54| above dividend. Also state any four circumstances in which AL may not be considered to
have committed an offence for non-payment of dividend. (07)

ANSWER
Payment of interim dividend:
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 specified period of declaration.

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
(iv) 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.

QUESTION S20
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.
While approving the dividend payment, the board had authorised to adjust dividend payable
to one of the shareholders, Kamran Ahmed, against the amount due from him.

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. (04)
(b) identify the circumstances under which the directors may withhold/adjust the
payment of dividend.
(02)
(c) list the steps which GIL would be required to take, for adjustment of dividend payable
to Kamran Ahmed against the amount due from him. (02)

ANSWER
<Assignment>

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

Meetings &
Companies Act,
2017
Resolutions 05
| 55
TYPES OF MEETINGS
Directors’ Board meetings (All the directors)
meetings Committee meetings (selected directors for specific tasks)
General meetings (all the
 Statutory Meeting
members who are entitled to
Members’  Annual General Meeting (AGM)
attend and vote at such
meetings  Extra-ordinary General Meeting (EGM)
meetings according to articles)
Class meetings (any specific class of members)
General meetings are chaired by the chairman of the board of directors, and other directors
also attend. However, 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.

STATUTORY MEETING [131]

Every public company having a share capital shall hold a general
meeting of the members of the company, to be called the “statutory
meeting”.
Requirement In case first annual general meeting of a company is decided to be held
earlier, no statutory meeting shall be required.
The requirement shall not apply to a public company which converts
itself from a private company after one year of incorporation.
The statutory meeting shall be held within earlier of:
Time limit  180 days from commencement of business; or
 9 months from the date of its incorporation.
The notice of a statutory meeting shall be sent to the members at least 21
Notice
days before the meeting along-with a copy of statutory report.
The statutory report shall state—
(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
Contents company showing separately any commission or discount paid
or to be paid on issue of shares or debentures;
(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.

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 CAF 3 – Meetings & Resolutions

The statutory report shall also contain a brief account of the state of the
company‘s affairs since its incorporation and the business plan,
including any change or proposed change affecting the interest of
shareholders and business prospects of the company.
The statutory report shall, so far as it relates to the shares allotted by the
56| company, the cash received in respect of such shares and to the receipts
Report of the
and payments of the company, be accompanied by a report of the
auditors
auditors of the company as to the correctness of such allotment, receipt
of cash, receipts and payments.
The statutory report shall be certified by the chief executive and at least
Certification /
one director of the company, and in case of a listed company also by
Authentication
the chief financial officer.
The directors shall cause a copy of the statutory report, along-with report
Filing with
of the auditors as aforesaid, to be delivered to the registrar for registration
registrar
forthwith after sending the report to the members of the company.
The directors shall cause a list showing the names, occupations,
List of nationality and addresses of the members of the company, and the
members at number of shares held by them respectively, to be produced at the
meeting commencement of the meeting and to remain open and accessible to
any member of the company during the continuance of the 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
Discussion at
of the statutory report, whether previous notice has been given or not, but
meeting
no resolution of which notice has not been given in accordance with the
articles may be passed.
The meeting may adjourn from time to time, and at any adjourned meeting
any resolution of which notice has been given in accordance with the
Adjournment
articles, either before or after the original meeting, may be passed, and an
adjourned meeting shall have the same powers as an original meeting.

ANNUAL GENERAL MEETING (AGM) [132]

Every company (other than single member company) shall hold an AGM
Requirement
within 16 months from the date of its incorporation and thereafter once in
and time
every calendar year within a period of 120 days following the close of its
limit
financial year.
In the case of a listed company, the Commission, and, in any other case,
Extension in
the registrar, may for any special reason extend the time within which any
time
AGM, shall be held by a period not exceeding 30 days.
In case of listed company, AGM shall be held in the town in which the
registered office of the company is situate or in a nearest city.

Place of However, at least 7 days prior to the date of meeting, on the demand of
meeting 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.
The notice of an AGM shall be sent to the members and every person who
Notice: All
is entitled to receive notice of general meetings at least 21 days before the
companies
date fixed for the meeting.
In case of a listed company, such notice shall be sent to the Commission,
Notice: in addition to its being dispatched in the normal course to members and the
Listed notice shall also be published in English and Urdu languages at least in
company one issue each of a daily newspaper of respective language having
nationwide circulation.
Calling a
AGM is called on the order of directors and not of the members.
meeting

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

EXTRA-ORDINARY GENERAL MEETING (EGM) [133]

All general meetings of a company, other than the AGM and the statutory
Definition
meeting, shall be called extra-ordinary general meetings.
Calling EGM The board may at any time call an EGM to consider any matter which
by the board requires the approval of the company in a general meeting.
The board shall, at the requisition made by the members:
| 57
(a) in case of a company having share capital, representing not less
than 1/10th of the total voting power as on the date of deposit of
Calling EGM requisition; and
by the board (b) in case of a company not having share capital, not less than 1/10th
on requisition of the total members;
of members forthwith proceed to call an EGM.

The requisition shall state the objects of the meeting, be signed by the
requisitionists and deposited at the registered office of the company.
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.
Calling EGM
by Any meeting called by the requisitionists shall be called in the same
requisitionists manner, as nearly as possible, as that in which meetings are to be called
themselves 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.
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.
Notice However, in case of unlisted companies, if all the members entitled to
attend and vote at any EGM so agree, a meeting may be held at a shorter
notice.

POWER OF SECP TO CALL MEETINGS [147]

If default is made in holding the general meeting, the Commission may, either
of its own motion or on the application of any director or member of the
Power to
company, call, or direct the calling of, the said meeting of the company and
give
give such directions in relation to the calling, holding and conducting of the
directions
meeting and preparation of any document required with respect to the
meeting.
One
The directions may include a direction that one member of the company
member is
present in person or by proxy shall be deemed to constitute a meeting.
quorum
Any meeting so conducted shall, for all purposes, be deemed to be a meeting
Cost of of the company duly called, held and conducted, and all expenses incurred in
conducting connection thereto shall be paid by the company unless the Commission
the meeting directs the same to be recovered from any officer of the company which he is
hereby authorised to do

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 CAF 3 – Meetings & Resolutions

QUESTION A18
Joint Limited (JL) was incorporated as a public company on 1 February 2018 and was
authorized 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
58| 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. (03)
(ii) What would be your opinion in (i) above if the directors want to hold first annual
general meeting on 25 September 2018? (01)

ANSWER
(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 its first AGM on 25 September 2018 than no statutory meeting
shall be required.

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

CONDUCT OF MEETINGS
PROVISIONS AS TO MEETINGS AND VOTES [134]
The following provisions shall apply to the general meetings of a company or meetings of a
class of members of the company.
Notice of meeting is a formal document sent to each member at his
registered address or other communication address provided in Pakistan. | 59

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.

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:
Notice (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;
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.
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
Facility of
in a city, it shall be mentioned in the notice that such members, may
video-link
demand the company to provide them the facility of video-link for
attending the meeting.
Members of a company may participate in the meeting personally,
Participation
through video-link or by proxy.
In the case of an annual general meeting, all the businesses to be
transacted shall be deemed special, other than:
Ordinary
(a) the consideration of financial statements and the reports of the
business &
board and auditors;
Special
(b) the declaration of any dividend;
business
(c) the election and appointment of directors in place of those retiring;
(d) the appointment of the auditors and fixation of their remuneration.
A statement setting out all material facts concerning special business shall
be annexed to the notice of the meeting.
Statement of
In particular, the nature and extent of the interest (if any) of every director,
material facts
whether directly or indirectly shall be stated.
for special
business 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.
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
Presiding the 15 minutes after the time appointed for holding the meeting, or is unwilling
meeting 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.

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 CAF 3 – Meetings & Resolutions

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 of such shares or securities, as the case may be. Provided that,
at the time of voting, fractional votes shall not be taken into account.
Number of
votes
60| In the case of a company limited by guarantee and having no share
capital, every member thereof shall have one vote.

On a poll, votes may be given either personally or through video-link or

by proxy or through postal ballot.
A member holding shares or other securities carrying voting rights shall
Right to vote not be debarred from casting his vote, nor shall anything contained in
the articles have the effect of so debarring him.
All the requirements of this Act regarding calling of, holding and approval in
Single general meeting, board meeting and election of directors in case of a
member single member company, shall be deemed complied with; if the decision is
company recorded in the relevant minutes book and signed by the sole member or
sole director as the case may be.

VOTING BY SHOW OF HANDS [141 & 142]

First At any general meeting, a resolution put to the vote of the meeting shall,
instance unless a poll is demanded, be decided on a show of hands.
On a vote on a resolution at a meeting on a show of hands, a declaration by
the chairman that the resolution:
(a) has or has not been passed; or
(b) passed unanimously or by a particular majority;
Declaration
is conclusive evidence of that fact without proof of the number or
by chairman
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.

VOTING BY POLL [143, 144 & 145]

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
Demand for
by the members present in person or through video-link or by proxy,
poll
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.
When a poll is demanded on any resolution, it may be ordered to be taken
by the chairman of the meeting by secret ballot of his own motion, and
Poll through
shall be ordered to be taken by him on a demand made in that behalf by
secret ballot
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.
A poll demanded on the election of a chairman or on a question of
adjournment shall be taken forthwith.
Time of
taking poll 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.

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

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.
Conduct and
The chairman shall have power to regulate the manner in which a poll
result of poll
shall be taken.
| 61
The result of the poll shall be deemed to be the decision of the meeting on
the resolution on which the poll was taken.

PROXIES [137]
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
Right to any of his rights to attend, speak and vote at a meeting.
appoint proxy
The appointment of proxy is not allowed in the case of a company not
having a share capital unless the articles provide otherwise.
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
Proxy rules more than one instruments of proxy are deposited with the company, all
such instruments of proxy shall be rendered invalid.

A proxy must be a member unless the articles of the company permit

appointment of a non-member as proxy.
Every notice of a meeting of a company shall prominently set out the
Notice
member‘s right to appoint a proxy and the right of such proxy to attend,
accompanied
speak and vote in the place of the member at the meeting and every such
by proxy form
notice shall be accompanied by a proxy form.
The instrument appointing a proxy shall:
(a) be in writing; and
(b) be signed by the appointer or his attorney duly authorised in
writing, or if the appointer is a body corporate, be under its seal or
Proxy be signed by an officer or an attorney duly authorised by it.
instrument
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.
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.
Time limit
In calculating the period, no account shall be taken of any part of the day
that is not a working day.
The members or their proxies shall be entitled to do any or all the following
things in a general meeting, namely—
Rights of (a) demand a poll on any question; and
proxy (b) 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.
Every member entitled to vote at a meeting of the company shall be
Inspection of
entitled to inspect during the business hours of the company all proxies
proxy forms
lodged with the company.

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 CAF 3 – Meetings & Resolutions

REPRESENTATION OF BODY CORPORATE AT MEETINGS [138]

A body corporate or corporation which is a member of another company
Body may, by resolution of its board or other governing body authorise an
corporate as individual to act as its representative at any meeting of that other company,
a member and the individual so authorised shall be entitled to exercise the same
powers on behalf of the corporation which he represents.
62| A body corporate or corporation which is a creditor of another company may,
Body by resolution of its board or other governing body authorise an individual
corporate as to act as its representative at any meeting of the creditors of that other
a creditor company and the person so authorised shall be entitled to exercise the
same powers on behalf of the corporation which he represents.

REPRESENTATION OF GOVERNMENT AT MEETINGS [139]

The concerned Minister-in-Charge of the Federal Government, or as the
case may be, a Provincial Government, as the case may be, if a member
Power to
of a company, may appoint such individual as it thinks fit to act as its
appoint
representative at any meeting of the company or at any meeting of any class
of members of the company.
An individual appointed to act as aforesaid shall, for the purpose of this Act,
be deemed to be a member of such a company and shall be entitled to
Rights of
exercise the same rights and powers, including the right to appoint
appointed
proxy, as the concerned Minister-in-Charge of the Federal Government or
individual
as the case may be, the Provincial Government, as the case may be, may
exercise as a member of the company.

QUORUM OF GENERAL MEETING [135]

Quorum means certain minimum number of members of a company as is
fixed as competent to transact business in a general meeting of
Meaning
members in the absence of the other members. Any business transacted in
a meeting without quorum shall be void.
10 members present personally or through video link
Listed
representing at least 25% voting power
company
(own or proxy).
Minimum Other company 2 members present personally or through video link
Quorum having share representing at least 25% voting power
requirement capital (own or proxy).
Company not
having share As provided in the articles.
capital
.
Larger A company may fix quorum larger than the above-mentioned minimum
Quorum quorum by its articles.
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:
Absence of
 dissolved, if called upon the requisition of members; and
quorum
 adjourned to the same day in the next week at the same time and
place, if called by the directors on their own.
If a quorum is not present within half an hour at adjourned meeting, the
Quorum at
members present in the meeting (either personally or through video link),
adjourned
not being less than two, shall be a quorum, unless the articles provide
meeting
otherwise.

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

COURT DECLARING A GENERAL MEETING INVALID [136]

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
Petition 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
effectively their rights.
Time limit The petition shall be made within 30 days of the impugned meeting | 63
The Court may declare such proceedings or part thereof invalid and direct
Court order
holding of a fresh general meeting, if satisfied.

QUESTION S18
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. (06)

ANSWER
Special Business:
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;
(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.

QUESTION A19
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. (02)
(ii) Arbaz Limited (AL) is a member of FWL. How would AL represent itself in the AGM?
(02)

ANSWER
Part (i)
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 under AL’s seal or be signed
by an officer or an attorney duly authorized by AL in this behalf.

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 CAF 3 – Meetings & Resolutions

QUESTION S20
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 including independent directors.

Under the provisions of the Companies Act, 2017 list the information which must be included
64| 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. (10)

ANSWER
<Assignment>

Latest update: April 2020

 CAF 3 – Meetings & Resolutions

RESOLUTIONS AND RECORDS

NOTICE OF RESOLUTION [140]
The notice of a general meeting of a company shall state the general
Resolution
nature of each business proposed to be considered and dealt with at a
stated in
meeting, and in case of special resolution, accompanied by the draft | 65
notice
resolution.
The members having not less than 10% 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:
Resolution
(a) in the case of a meeting requisitioned by the members, together with
by members
the requisition for the meeting;
(b) in any other case, at least 10 days before the meeting; and the
company shall forthwith circulate such resolution to all the
members.
RESOLUTION PASSED AT ADJOURNED MEETING [146]
Where a resolution is passed at an adjourned meeting of:
(a) a company;
(b) the holders of any class of shares in a company;
(c) the board; or
(d) the creditors of a company;
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.

PASSING OF RESOLUTION BY THE MEMBERS THROUGH CIRCULATION [149]

Except for the ordinary businesses to be conducted in the annual general
meeting, the members of a private company or a public unlisted company
When
(having not more than 50 members), may pass a resolution (ordinary or
Allowed?
special) by circulation signed by all the members for the time being entitled to
receive notice of a meeting.
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,
Rules 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.

FILING OF RESOLUTION [150]

Every special resolution passed by a company shall, within 15 days from
Filing with
the passing thereof, be filed with the registrar duly authenticated by a
registrar
director or secretary of the company.
Where articles have been registered, a copy of every special resolution for
Annexed to
the time being in force shall be embodied in or annexed to every copy of
articles
the articles issued after the date of the resolution.
Sent to
A copy of every special resolution shall be forwarded to any member at his
member on
request on payment of such fee determined by the company.
request

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 CAF 3 – Meetings & Resolutions

RECORDS OF RESOLUTIONS AND MEETINGS [151]

Every company shall keep records of—:
(a) copies of all resolutions of members passed otherwise than at
Records to
general meetings; and
keep
(b) minutes of all proceedings of general meetings along with the
names of participants, to be entered in properly maintained books.
66| Minutes recorded if purporting to be authenticated by the chairman of
Authentication 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 general meeting of the company in
Minutes to be
respect of the proceedings whereof minutes have been so made shall be
evidence
deemed to have been duly called, held and conducted.
The records must be kept at the registered office of the company from
Place and the date of the resolution, meeting or decision simultaneously in physical
time of record and electronic form and it shall be preserved for at least twenty years in
physical form and permanently in electronic form.

INSPECTION OF RECORDS OF RESOLUTIONS AND MEETINGS [152]

The books containing the minutes of proceedings of the general meetings
shall be open to inspection by members without charge during
Open to
business hours, subject to such reasonable restrictions as the company
inspection
may by its articles or in general meeting impose so that not less than two
hours in each day be allowed for inspection.
Any member shall at any time after 7 days from the meeting be entitled
Certified copy to be furnished, within 7 days after he has made a request in that behalf
to member to the company, with a certified copy of the minutes of any general
meeting at such charge as may be fixed by the company.

Latest update: April 2020

 CAF 3 – Accounts & Investments

Accounts &
Companies Act,
2017
Investments 06
| 67
ACCOUNTS OF COMPANIES
RELEVANT DEFINITIONS
“book and paper” and “book or paper” includes books of account, cost
Book and
accounting records, deeds, vouchers, writings, documents, minutes and
paper
registers maintained on paper or in electronic form; [2(10)]
“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;
Books of
(b) all sales and purchases of goods and services by the company;
account
(c) all assets and liabilities of the company; and
(d) items of cost in respect of production, processing, manufacturing or
mining activities; [2(11)]
“chief financial officer” means an individual appointed to perform such
CFO functions and duties as are customarily performed by a chief financial officer.
[2(15)]
“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;
Financial
(c) a statement of changes in equity for the period;
statements
(d) a statement of cash flows for the period;
(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; [2(33)]
“financial year” in relation to a company or any other body corporate,
Financial means the period in respect of which any financial statement of the company
year 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; [2(34)]
“financial period” in relation to a company or any other body corporate,
Financial
means the period (other than financial year) in respect of which any financial
period
statements thereof are required to be made pursuant to this Act; [2(32)]

BOOKS OF ACCOUNTS, TO BE KEPT BY A COMPANY [220]

Every company shall prepare and keep at its registered office books of
account and other relevant books and papers and financial statements for
Requirement
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.
In the case of a company engaged in production, processing, manufacturing
Cost or mining activities, such particulars relating to utilisation of material or
accounts labour or the other inputs or items of cost as may be specified, shall also be
maintained.
All or any of the books of account aforesaid and other relevant papers may
Keeping
be kept at such other place in Pakistan as the board may decide and
books at
where such a decision is taken, the company shall file with the registrar a
other place
notice in writing giving the full address of that other place within 7 days.

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 CAF 3 – Accounts & Investments

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
Records of
of account relating to the transactions effected at the branch office are kept
branch
at that office and proper summarized returns are sent periodically by the
offices
branch office to the company at its registered office or the other place where
books of accounts are kept.
68| 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
Inspection maintained and produced for inspection by any director.
by directors
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.
Members do not have absolute right to inspect books of accounts.
Inspection
However, the Act or the directors or the general meeting may authorize
by members
member(s) to inspect books of accounts.
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
Time period
the vouchers relevant to any entry in such books of account shall be kept
in good order.
Requirement The liquidator of the company appointed for winding up of the company is
for also required to maintain the above stated books of accounts for the
liquidator company during its winding up.

FINANCIAL STATEMENTS [223]

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
Requirement 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.
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.
Time limit
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.
The period to which the statements aforesaid relate, not being the first,
Financial
shall not exceed one year except where special permission of the registrar
year
has been obtained.
The financial statement shall be audited by the auditor of the company,
and the auditor‘s report shall be attached thereto.
Audit
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.
Every company shall send audited financial statements together with the
auditors‘ report, directors‘ report and in the case of a listed company the
Dispatch to chairman‘s review report to every member of the company and every person
members 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.

Latest update: April 2020

 CAF 3 – Accounts & Investments

Copy at
The company shall keep a copy at the registered office of the company for
registered
the inspection of the members.
office
A listed company shall, simultaneously with the dispatch to members, send
by post three copies and electronically a copy of such financial
Filing to statements together with said reports to each of the Commission, registrar
Authorities and the securities exchange and shall also post on the company‘s | 69
by Listed website.
company
The reports shall be made available on the website of the Company for a
time period as may be specified.

APPROVAL AND AUTHENTICATION OF FINANCIAL STATEMENTS [232]

The financial statements must be approved by the board of the company
Manner of and signed on behalf of the board by the chief executive and at least one
authentication director of the company, and in case of a listed company also by the
chief financial officer.
Chief
When the chief executive is for the time being not available in Pakistan,
executive not
then the financial statements may be signed by at least two directors.
in Pakistan
Affidavit by In case of a private company having a paid up capital not exceeding Rs.
certain 1 million, the financial statements shall also be accompanied by an
private affidavit executed by those who signed the financial statements, that the
companies financial statements have been approved by the board.
Single
The financial statements of a single member company shall be signed by
member
one director.
company

FILING OF FINANCIAL STATEMENTS WITH REGISTRAR (AFTER AGM) [233]

After the audited financial statements have been laid before the company at
the AGM and duly adopted, a copy of such financial statements together
Requirement
with reports and documents required and, duly signed (by CEO/directors),
shall be filed by the company with the registrar.
Above financial statements shall be filed within 30 days from the date of
Time limit such meeting in case of a listed company and within 15 days in case of
any other company.
If members If the general meeting before which the financial statement is laid does not
do not adopt adopt the same or defers consideration thereof or is adjourned, a
financial statement of that fact and of the reasons therefor shall be annexed to
statements the said financial statements required to be filed with the registrar.
This filing requirement shall not apply to a private company having paid
Not
up capital not exceeding Rs. 10 million or such higher amount as may be
applicable to
notified by the SECP.
QUARTERLY FINANCIAL STATEMENT OF LISTED COMPANIES [237]
Every listed company shall prepare the quarterly financial statements
within the period of:
(a) 30 days of the close of first and third quarters of its year of
Time period
accounts; and
(b) 60 days of the close of its second quarter of its year of
accounts.
However, if the company was allowed extension for annual financial
Extension of
statements; the company may apply to the Commission for extension for
for first
filing accounts of first quarter and the Commission may extend the period
quarter
of filing for a period not exceeding 30 days.

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 CAF 3 – Accounts & Investments

Additional requirements for second quarter accounts:

 the cumulative figures for the half year i.e. six months be presented
 it shall be subjected to a limited scope review by the statutory
Requirement
auditors of the company
for second
 limited scope review shall be in such manner and according to such
quarter
terms and conditions as may be:
70|  determined by ICAP; and
 approved by the Commission.
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:
Posted on  to the Commission,
website and  to the securities exchange; and
electronic  with the registrar.
filing
The Commission may specify the time period for which the quarterly
financial statements shall be made available on the website of the
company.
Dispatch to
A copy of the quarterly financial statements shall be dispatched in physical
member on
form if so requested by any member without any fee.
request
The approval and authentication requirements of the quarterly financial
Authentication
statements are same as those of annual financial statements.

Illustration: Extension of filing accounts of first quarter

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.

QUESTION S18
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. (05)

ANSWER
Financial statements:
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 one hundred
and twenty days following the close of the financial year. However, for any special reason,
the registrar may extend the period for a term not exceeding thirty 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.

Latest update: April 2020

 CAF 3 – Accounts & Investments

DIRECTORS’ REPORT & STATEMENT OF COMPLIANCE

DUTY TO PREPARE [226]
The board shall prepare a directors’ report for each financial year of the
Directors’
company other than a private company, not being a subsidiary of public
report
company, having the paid up capital not exceeding Rs. 3 million.
The Commission may by general or special order, direct such class or | 71
classes of companies to prepare a statement of compliance.
Statement of
compliance
The board shall make out and attach to the financial statement such
statement of compliance as may be specified.
CONTENTS [227]
The directors shall make out and attach to the financial statements, a
Minimum report with respect to:
contents of  the state of the company‘s affairs and a fair review of its business;
directors’  the amount (if any), that the directors recommend as dividend; and
report  the amount (if any), they propose to carry to the Reserve Fund,
General Reserve or Reserve Account.
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;
 any changes that have occurred during the financial year concerning
the nature of the business of the company or of its subsidiaries, or any
Additional other company in which the company has interest,;
contents of  the information and explanation in regard to any contents of
directors’ modification in the auditor‘s report;
report for  information about the pattern of holding of the shares in the form
certain specified;
companies  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 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; and
 any other information as may be specified.
The directors‘ report and statement of compliance must be approved by
Authentication the board and signed by the chief executive and a director of the
company.

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 CAF 3 – Accounts & Investments

BUSINESS REVIEW SECTION OF DIRECTORS’ REPORT [227]

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:
Business  the main trends and factors likely to affect the future development,
review of performance and position of the company‘s business;
72| listed  the impact of the company‘s business on the environment;
company  the activities undertaken by the company with regard to corporate
social responsibility during the year; and
 directors‘ responsibility in respect of adequacy of internal financial
controls as may be specified.

QUESTION S19
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 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. (04)

ANSWER
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:
(i) the main trends and factors likely to affect the future development, performance and
position of the company’s business;
(ii) the impact of the company’s business on the environment;
(iii) the activities undertaken by the company with regard to corporate social
responsibility during the year; and
(iv) directors’ responsibility in respect of adequacy of internal financial controls as may be
specified.

Latest update: April 2020

 CAF 3 – Accounts & Investments

INVESTMENTS
DEFINITION OF ASSOCIATED COMPANIES / UNDERTAKINGS
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 is | 73
Owner / partner / director / holds or Owner / partner / director / holds or
AND
controls 20% or more voting power controls 20% or more voting power
IS
(directly or indirectly) (directly or indirectly)
ALSO
In a company / undertaking In other company / undertaking
 if the companies or undertakings are under common management or control; or
 one is the subsidiary of 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 Modaraba which are separate legal entities)

“Indirectly” implies being held or controlled by spouse or minor child.

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 Federal Government or a Provincial Government or a financial
Exclusions

institution directly or indirectly owned or controlled by such Government; or

 directorship of a person appointed as “independent director”.
 shares owned by the National Investment Trust or the Investment
Corporation of Pakistan 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.

INVESTMENT IN ASSOCIATED COMPANIES [199]

The term “investment” shall include equity, loans, advances,
guarantees, by whatever name called, except for the amount due as
Definition 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
The investment decisions are within the power of directors exercised
investments in
through their board meetings.
general
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;
Restriction on
 period;
investment in
 amount of investment; and
associated
 terms and conditions attached thereto.
company
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.

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 CAF 3 – Accounts & Investments

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;
 purpose of loan;
Condition:
 period of the loan;
agreement for
74|  rate of return;
loan
 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 return on such investment shall not be less than the borrowing
Condition: cost of the investing company or the rate as may be specified by the
return on Commission whichever is higher and shall be recovered on regular
investment basis in accordance with the terms of the agreement, failing which the
directors shall be personally liable to make the payment
The directors of the investing company shall certify that the
Condition: due investment is made after due diligence and financial health of the
diligence borrowing company is such that it has the ability to repay the loan as
per the agreement.
The SECP may specify certain classes of companies on which
requirement of passing a special resolution etc. shall not be
Exemptions applicable.
and regulations
The Commission has also made regulations for imposing conditions and
restrictions on making investments in associated companies.
INVESTMENTS OF COMPANY TO BE HELD IN ITS OWN NAME [200]
All investments made by a company on its own behalf shall be made and held by it in its own
name.
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 and a nominee of the company in exercise
of such right has been so appointed or elected, the shares in such other
Exceptions 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.

Latest update: April 2020

 CAF 3 – Accounts & Investments

REGISTER FOR INVESTMENTS NOT HELD IN OWN NAME [200]

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
Contents 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.
The register shall be open to the inspection of members without charge, | 75
Open for and to any other person on payment of fees fixed by company during
inspection business hours, subject to such reasonable restrictions, as the company
may impose, so that not less than two hours in each day be allowed.
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.
Certified
The certified copies requested shall be issued within a period of 07 days.
copies
A member seeking to exercise the rights must make a request to the
company to that effect.
In case of contravention, the registrar may by an order compel an
Order by
immediate inspection of the register or direct that copies required shall be
registrar
sent to the persons requiring them.

QUESTION A19
Kalaam Limited (KL) is considering the following options to invest its excess funds:
(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.

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. (07)

ANSWER
Part (i)
The directors can make investment in its shares by passing a resolution in their meeting.

Part (ii)
MPL is an associated undertaking of KL as it holds 25% shareholdings in MPL. 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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