The Companies Ordinance 1984 --With dictionary meanings

CORPORATE LAW THE COMPANIES ORDINANCE 1984

WITH DICTIONARY MEANINGS & TECHNIQUE TO SOLVE PRACTICAL SITUATIONS

By

Rehan Aziz Shervani LL.M.

Visiting Professor of Law; Consultant Tax, Intellectual Property, Banking & Corporate Laws. (Advocate High Court) LLM:LLB:M.A Economics; M.A Political Science; DCMA; DTL;B.Com. PUBLISHED By

R & R RESEARCH & PUBLISHING COMPANY. (“Pioneer in Publishing Self-Explanatory Books”) Office 01, M-Garden-Industrial Area, Opposite Descon Engineering, 18,Km, Ferozpur Road, Lahore. Cell: 0333-4324961 Email:[email protected] http://rehanshervanilaw.blogspot.com/ Face Book: Rehan Shervani

Availability: ILMI Book Depot Urdu Bazar, Lahore Muneeb Law Book depot Fane Road, Lahore

Features of Self-Explanatory Book:

It provides dictionary meanings of every difficult word; gives technique for solving scenario based questions; minimizes need of a teacher; written in simple language & lay out; expressed in logical sequence on the frequency of lecture as is delivered by a teacher in a classroom; invents natural teaching rhythm & understanding; unnecessary details avoided; to the point; develops passionate learning habit; provides 100% facilitation paraphernalia of learning; makes the subject interesting; develops friendship equation between the subject and the learner; makes a student expert in the subject; written in dialogue form & is examoriented.

Other Self-Explanatory Books by the Author:

“99 Lectures On Business Law: „The Board of Studies‘ of ‗Institute of Chartered Accountants of Pakistan‘ has recommended the book as ‗suggested reading‘ for the paper ‗Mercantile Law‘ Module ‗B‘, C.A. Foundation; appreciated and commented: ―the book is written in lecture form and will be very beneficial for the students‖. The book is also an accredited book of ICMAP for the subject: Commercial Law & Business Ethics & ‗Virtual University‘ of Pakistan for the subject: ‗Business & Labor Laws‘.

“29 Lectures on English Jurisprudence”: English jurisprudence is‘ mother of all laws; taught in LLB Part I; has philosophical lay out; contains 700 dictionary meanings and is exam oriented. 44 Exam Focused Lectures On „Corporate & Business Law‟ (English) Paper F4 (CL ENG) ACCA

All Rights reserved with the author. No part of the book can be reproduced or distributed in any form or by any mean, or stored in a data base or a retrieval system without the prior permission of the author.

Disclaimer: No responsibility is taken for any error or omission.

e

Table of Contents Topic Understanding Punctuation Marks Used in the Companies Ordinance 1984. What is Meant by Section, Sub-Section, Clause etc. Capacity Building Terms. The Companies Ordinance1984. Part-I Preliminary General Kinds of Definition. Part-III, Corporate Law Authority Part-IV, Incorporation of Companies and Matters Incidental Thereto Articles of Association Companies Limited by Guarantee Service and Authonication of Documents Allotment Variation of Shareholder Rights Receivers & Managers Directors Accounts Audit Part-VIII, Non-Banking Finance Companies Part-IX, Arbitration, Arrangements and Reconstruction Part-X, Prevention of Oppression & Mismanagement Part-XI, Winding Up Voluntary Winding Up Provinions Applicable to Creditor‘s Voluntary Winding Up Offences Antecedent to or in Course of Winding Up Court Rules Part-XIII, Winding Up of Unregistered Company Part-XIV, Companies Established Outside Pakistan Provisions as to Establishment of Places of Business in Pakistan.. Prospectus Part-XVI, General Legal Proceedings, Offences etc. First Schedule Second Schedule Third Schedule Fourth Schedule Fifth Schedule Sixth Schedule Seventh Schedule Eighth Schedule Introduction to Law Legal Status of Company Difference Between Partnership, Public Limited Company and Private Limited Company Terminologies Used by the Examiner in Asking the Questions Formula of Solving Scenario Based Question Clauses of Memorandum of Association Types of Companies Conversion of Public Company into Private Company Difference Between Civil and Criminal Law Drafting Notices – Secretatial Practices

Page Number 7 7 7-8 9 10 10 20 21 25 31 33 43 65 79 93 111 119 131 136 140 144 159 171 175 183 186 189 193 206 224 236 238 252 261 263 263 265 266 269 277 277 279 279 283 287 291

Understanding Punctuation Marks Used in the Companies Ordinance 1984:

Before studying the Companies Ordinance 1984, the reader is required to understand the sense of the following punctuation marks: Comma [(,) used to separate the items in a list or to show where there is a slight pause in sentence] Semi colon [the mark (;) used to separate the parts of a complicated sentence or items in a detailed list, showing a pause that is longer than a comma but shorter than a full stop. Colon [the mark(: ) used to introduce a list, a summary, an explanation etc. Inverted commas [ (―‖) used to show that you think a particular word, description etc.] Apostrophe [ the mark (‘) used before or after the letter to show that something belongs to some body] Full stop [the mark(.) used at the end of a sentence]

What is meant by Section, Sub Section, Clause, Sub Clause and Schedule in the Companies Ordinance 1984? The ordinance is divided into different parts, schedules and sections; part is a separate area dealing particular topic; Section is division of a statute; sub section is division of a section; clause is division of sub section and sub clause is division of a clause. Schedule is a written list or detail showing of the matters referred to in the section. ---------------------------------------------------------------------------------------------------------------Capacity Building Terms: Thereafter (=afterward) Thereat (=at that place or time) Thereby (=by that means ) Therein (= in that place or time) Thereof (= of that) Theretofore (= until that time) Thereto (=to that place or thing) There under (= under that or them)

Debenture stock (= stock that is issued under a contract providing for periodic, fixed payments) Stock (=a proportional part of a company‘s capital represented by the number of equal units) Bonds (=an obligation; a promise; a promise that is defeasible upon a condition subsequent--- example of bond is bid bond-----bid bond is a bond filed in public construction projects to ensure that the bidding contractor will enter in to the contract.) Defeasible (= of an act, right, agreement, or position capable of being annulled or avoided) Term finance certificate (=finance certificates that lasts for a certain period of time) Securities (=an instrument that evidences holder‘s interest in a company) Charge (=a lien; claim) rting from that time) Henceforth (= starting from a particular time and all times in the future) Provided (= the term: ‗provided‘ is known as ‗proviso‘ which denotes an ‗addition‘ or ‗condition‘ or ‗exception‘ to whatever is said earlier) Save (=except; apart from) Aforesaid (=above said) Either (=each of two) Directly (= in a direct manner) Indirectly (= not in a direct manner) Commission (= payment; fee) Discount (= money off; reduce; mark down) Allowance (= a payment for doing some certain assignment or work) Subscribing (= giving consent to take share or debenture) Agreeing to subscribe (= promising to give consent to take share or debenture) Whether (= used to show choice between the two things) Absolutely (= without giving any condition) Conditionally (= with the same offered condition) Procuring (= to obtain something)

Agreeing to procure (= promising to obtain someone else who will give consent to take shares or debentures) Subscription (= a written contract to purchase newly issued shares) Shares in or debentures of the company (=shares in the company or debentures of the company) Nominal purchase money (= ostensible; titular purchase money) Contract price (= price as per contract) Otherwise (= or else) Summons (= a notice requiring a person to appear before the court) Notice (= legal notification required by law or agreement) Requisition (=an authoritative formal demand; a government seizure of property) Seizure (=forfeiting) Order (= a written command or order given by court) Voucher (=a receipt) Notwithstanding (=without taking in to notice or consideration) Disposed of (= to get rid of something) Judgment pronounced (= final judgment recoded in writing announced formally) Expeditiously (=working well without wasting time) Petition Subject to the provisions of this Ordinance (=under the provisions of this Ordinance) Economically (= in a way that uses no more of something than is necessary) Efficiently (=quality of doing something well with no waste) Means (=a system by which a result is achieved) Conveniently (= easy to do) Advantageously (=useful in a particular situation) Abandon (=to leave some body or something) Undertaking of the company(= business of the company) Application (=a formal written request presented to court or an authority) Intimation (= the act of stating something)

Transmission (=the act of passing something from one person to another) Operation of law (= the means by which a right or a liability is created for a party regardless of the party‘s actual intent) Preferred (=filed ) Reasonable (= logical in a given situation) Incidental (=accompanying; supplementary) Consequential (=far reaching)

For Details see book or write to us at [email protected] Cell: 0333-4324961 --------------------------------------------------------------------------------------------------------------

COMMISSION, DISCOUNT, PREMIUM AND REDEEMABLE PREFERENCE SHARES

82. Power to pay certain commission, and prohibition of payment of other commissions, discounts, etc.(1)

It shall be lawful for a company to pay a commission to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in or debentures of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in or debentures of the company if—

Person (=individual or company) Consideration [=something such as an act, a forbearance, or a return promise bargained for and received by a promisor from a promise] Forbearance (=restraint) Subscribing (= giving consent to take share or debenture)

Agreeing to subscribe (= promising to give consent to take share or debenture) Whether (= used to show choice between the two things) Absolutely (= without giving any condition) Conditionally (= with the same offered condition) Procuring (= to obtain something) Agreeing to procure (= promising to obtain someone else who will give consent to take shares or debentures) Subscription (= a written contract to purchase newly issued shares) Shares in or debentures of the company (=shares in the company or debentures of the company) If (= used to say that something can be done depending on another thing happening)

Thus it shall be lawful for a company to pay a commission to any individual or a company in return of his act of purchasing newly issued shares of a company or agreeing to purchase newly issued shares of a company, whether without giving any condition or upon the same offered condition, for any shares in or debentures of the company, or obtaining or agreeing to obtain a contract from some one else, whether with or without some condition, for the purchase of new shares in or debenture of the company. (a)

the payment of the commission is authorized by the articles;

(b)

the commission paid or agreed to be paid does not exceed such rate percent of amount as may generally or in a particular case be fixed by the Commission; and Articles (=articles of associat

ion of the company)

Rate(= a fixed amount of money that is charged for something Percent (=one part in every hundred) (c)

the amount or rate per cent of the commission paid or agreed to be paid is-(i)

in the case of shares or debentures offered to the public for subscription, disclosed in the prospectus; or Disclosed (=made known)

(ii)

in the case of shares or debentures not offered to the public for subscription, disclosed in the statement in lieu of prospectus, or in a statement in the prescribed form signed in like manner as a statement in lieu of prospectus and delivered before the payment of the commission to the registrar for registration

and, where a circular or notice, not being a prospectus, inviting subscription for the shares or debentures, is issued, also disclosed in that circular or notice; and Statement in lieu of prospectus (=statement in the place of prospectus) (d)

(2)

the number of shares or debentures which persons have agreed for a commission to subscribe absolutely is disclosed in the manner aforesaid.

Save as aforesaid and save as provided in section 84, no company shall allot any of its shares or debentures, or apply any of its moneys, either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in or debentures of the company, or procuring or agreeing to procure subscriptions, whether absolute or conditional, for any shares in or debentures of the company, whether the shares, debentures or money be so allotted or applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

Save (=except; apart from) Aforesaid (=above said) Either (=each of two) Directly (= in a direct manner) Indirectly (= not in a direct manner) Commission (= payment; fee) Discount (= money off; reduce; mark down) Allowance (= a payment for doing some certain assignment or work) Subscribing (= giving consent to take share or debenture) Agreeing to subscribe (= promising to give consent to take share or debenture) Whether (= used to show choice between the two things) Absolutely (= without giving any condition) Conditionally (= with the same offered condition) Procuring (= to obtain something) Agreeing to procure (= promising to obtain someone else who will give consent to take shares or debentures)

Subscription (= a written contract to purchase newly issued shares) Shares in or debentures of the company (=shares in the company or debentures of the company) Nominal purchase money (= ostensible; titular purchase money) Contract price (= price as per contract) Otherwise (= or else)

Thus it shall be lawful for a company to pay a commission to any individual or a company in return of his act of purchasing newly issued shares of a company or agreeing to purchase newly issued shares of a company, whether without giving any condition or upon the same offered condition, for any shares in or debentures of the company, or obtaining or agreeing to obtain a contract from some one else, whether with or without some condition, for the purchase of new shares in or debenture of the company. And under section 84 it shall also be lawful for a company to issue shares in the company at a discount but no company shall allot any of its shares or debentures, or apply any of its moneys, either directly or indirectly, in payment of any commission, discount or allowance, to any person in consideration of his subscribing or agreeing to subscribe, whether absolutely or conditionally, for any shares in or debentures of the company, or procuring or agreeing to procure subscriptions, whether absolutely or conditional, for any shares in or debentures of the company, whether the shares, debentures or money be so allotted or applied by being added to the purchase money of any property acquired by the company or to the contract price of any work to be executed for the company, or the money be paid out of the nominal purchase money or contract price, or otherwise.

(3)

Nothing in this section shall affect the power of any company to pay such brokerage as it has heretofore been lawful for a company to pay, but brokerage shall not in any case exceed one per cent of the price at which shares or debentures issued have been actually and not merely sold through the broker or shall be paid at not more than such other rate per cent as may from time to time be specified by the Commission, generally or in a particular case.

Nothing (=not anything) Brokerage (= amount of money charged by a broker) Broker (= a person engaged in the business of conducting securities transactions for the accounts of others) Heretofore (=up to now)

(4)

A vendor, promoter, or other person who receives payment in shares, debentures or money from a company shall have and shall be deemed always to have had power to apply any part of the shares, debentures or money so received in payment of any commission the payment of which, if made directly by the company, would have been legal under this section.

Vendor (=a person who sells things) Promoter (= a person who officially takes part in forming a company and set it going) Deemed (=treated) Had (=got)

(5)

If default is made in complying with the provisions of this section, the company and every officer of the company who knowingly and willfully is in default shall(a)

for non-compliance with the provisions of clause (b) a sub-section (1), be liable to a fine not exceeding two thousand rupees;

(b)

for non-compliance with the provisions of clause (c) or clause (d) of that sub-section, be liable to a fine not exceeding one thousand rupees; and

(c)

for non-compliance with any other provision of this section, be liable to a fine not exceeding five hundred rupees. Default (= to fail to perform obligation) Comply (=meet the terms; abide by) Knowingly (=having awareness; well informed) Willfully (= voluntarily and intentionally)

Questions: (1) Whether a company can pay commission on shares and what are the requirements for payment of commission, if any, allowed by the Ordinance? [ICAP Spring 2004] (2) State the legal requirements relating to payment of underwriting commission { ICAP2006} (3) Discuss the provision of the Companies Ordinance 1984 regarding issue of shares at premium. 83. Application of premium received on issue of shares.(1)

Where a company issues shares at a premium, whether in cash or otherwise, a sum equal to the aggregate amount or the value of the premiums on those shares shall be transferred to an account, to be called "the share premium account"; and the provisions of this Ordinance relating to the reduction of the share capital of a company shall, except as provided in this section, apply as if the share premium account were paid-up capital of the company.

Premium (= the amount by which a security‘s market value exceeds its face value) Aggregate (= total; cumulative) (2)

(3)

The share premium account may, notwithstanding anything contained in sub-section (1), be applied by the company-(a)

in writing off the preliminary expenses of the company;

(b)

in writing off the expenses of, or the commission paid or discount allowed on, any issue of shares or debentures of the company;

(c)

in providing for the premium payable on the redemption of any redeemable preference shares or debentures of the company; or

(d)

in paying up un-issued shares of the company to be issued to members of the company as fully paid bonus shares.

Where a company has before the commencement of this Ordinance, issued any shares at a premium, this section shall apply as if the shares had been issued after such commencement: Notwithstanding (= without taking in to consideration) Writing off (=act of canceling a debt) Preliminary (=beginning) Redemption (= the act of regaining by paying a specific price) Redeemable (=returnable) Preference shares (= a share that carries preferential rights on dividend and corporate assets upon liquidation but usually carries no voting rights)

Provided that any part of the premium which has been so applied that it does not at the commencement of this Ordinance form an identifiable part of the company's reserves within the meaning of the Fourth Schedule or the Fifth Schedule shall be disregarded in determining the sum to be included in the share premium account.

Provided that (= it is a proviso that introduces addition or condition or exception to whatever is said earlier)

For Details see book or write to us at [email protected]

Cell: 0333-4324961