Company law is the legislation under which the formation or incorporation, registration, governance and dissolution of an entity is administered and controlled. Company is a legal entity formed by a group of individuals for the purpose of operating a business or undertaking, which has a legal and corporate personality separate from that of its members.
Company law has been reformed with the objective of facilitating corporatisation by way of promotion and development of corporate sector, encouraging the use of technology by electronic means in conducting business and regulation thereof. Regulation of companies for protecting interests of shareholders, creditors, stakeholders and general public, inculcating the principles of corporate governance, safeguarding minority interests in companies, providing an alternate mechanism for expeditious resolution of company disputes, and matters arising out of or connected therewith.
ZA-LLP has a strong and broadly based international company law practice. We have a team of lawyers who specialise in companies incorporation and related work. The company law team has a particular focus on the way in which corporate services are brought to commercial market and promoted and has considerable expertise in the fields of company promotions and sponsorship.
The Corporate Law Authority (CLA) was regulatory authority of corporate sector in Pakistan. A restructuring plan was initiated under the Capital Market Development of Asian Development Bank in 1997. In December 1997, the Parliament of the country promulgated Securities & Exchange Commission of Pakistan (SECP) Act, 1997. In pursuance of this Act, SECP became operational with effect from January 1, 1999. SECP as an apex regulator of corporate sector and capital market, actively pursuing its mandate for developing a progressive corporate sector, decided to replace the Ordinance with new corporate laws that meet the demand of the present complex corporate structuring.
Eventually, the journey to frame a new company law was commenced from December 2015 when the first draft on Companies Bill was issued for stakeholders comments, and it was promulgated on November 11, 2016 as Companies Ordinance, 2016 and eventually the Companies Act, 2017 was promulgated on May 30, 2017.
A company may be formed by charter, by special Act of Parliament or by registration under the Company Act. The liability of members is usually (but not always) limited by the charter, Act of Parliament or memorandum of association. A company may be a public limited company, in which event its shares may be transferred freely among, and owned by, members of the public. All limited liability companies that are not public limited companies are private companies, denoted by the term (Pvt) Ltd. While companies are owned by their members (i.e. shareholders), they are managed by a board of directors. A company may be limited by shares, or by guarantee or an unlimited company.
APPLICABILITY & SCOPE OF WORK
Sec. 1 of The Companies Act, 2017
The Companies Act, 2017 extends to the territory of Pakistan as defined in the Constitution of Islamic Republic of Pakistan. Accordingly provinces of Punjab, Sindh, Khyber Pakhtunkhwa, Balochistan and Islamabad Capital Territory are part of Pakistan and the Act extends to these Provinces and territory.
CHARACTERISTIC FEATURES OF COMPANIES ACT, 2017
The Companies Act, 2017 (“Act”) has replaced the 33 year old Companies Ordinance, 1984 (“Ord”). The Act contains 515 (five hundred and fifteen) sections and 8 (eight) schedules. Many facets of the Act have been explained in the rules, which the Government of Pakistan has prescribed. The most significant legal reforms to bring the Company Law in Pakistan in accordance with current international standards are highlighted below:
Sec. 30 of The Companies Act, 2017
The memorandum & articles of a company empower it to enter into any arrangement for obtaining loans, advances, finances or credit. Previously, the companies were not entitled to borrow money because their object clause did not contain any borrowing power.
BUY BACK OF OWN SHARES
Sec. 88 of The Companies Act, 2017
Now, all companies can buy back their own shares, previously, only listed Companies were allowed to buy back their shares. The shares purchased by an unlisted public company or a private company shall be canceled. Such cancellation of shares shall not be treated as a reduction in share capital u/Sec. 89. Such shares shall be canceled in such form and manner as may be specified. Listed Company shall buyback through securities exchange and tender mode of buyback is no more permissible.
GENERAL MEETING THROUGH VIDEO LINK
Sec. 132(2) of The Companies Act, 2017
At least seven days prior to the date of meeting, on the demand of members residing in a city who hold at least ten percent 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 annual general meeting. Previously, this facility wasn’t available to the shareholders.
NATIONAL TAX NUMBER (NTN) OF DIRECTORS
Sec. 153(h) of The Companies Act, 2017
A person would not be eligible for appointment as a director of a company unless he holds National Tax Number (NTN) as per provisions of the Income Tax Ordinance, 2001. On 8 June 2017, Circular No. 15/2017 was issued by the Securities & Exchange Commission of Pakistan (SECP), providing for general exemption for two years to all Small Sized Companies (SCCs) inclusive of Agriculture Promotion Companies from the requirement of NTN. To qualify for a company to be an SCC, its paid-up capital must not be greater than PKR 10 million; its turnover not exceeding PKR 100 million; and its number of employee should not be more than 250.
WOMEN (FEMALE) REPRESENTATION IN COMPANY
Sec. 154(d) of The Companies Act, 2017
In a major break-through for gender diversity in corporate boards in Pakistan, the Securities & Exchange Commission of Pakistan (SECP) has required listed companies to have at least one woman director. As per provision of Sec. 154(d), public interest companies shall be required to have female representation on their board as may be specified by the Commission. This change is being implemented through the revised Code of Corporate Governance under the new Companies Act 2017, which specifies that public interest companies shall have such representation of women directors as specified by the SECP. As a result, the proportion of women directors on listed companies, which are a subset of public interest companies, is expected to jump from 6.4 percent to at least 14.3 percent.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Sec. 227(3)(c) of The Companies Act, 2017
Sec. 35 of The Code of Corporate Governance Regulations, 2019
Corporate Social Responsibility (CSR) is a concept that encourages companies to integrate social and environmental concerns in their business operations. The private sector of industry invests a lot in CSR these days, thanks to the high importance placed upon it by the customers. Through socio-economic perspective, CSR activities in Pakistan are pivotal to the turnaround that the country needs badly. The role of the corporate sector in alleviating the issues in Pakistan holds key importance. This is the prime reason why we have seen a recent surge in CSR activities in Pakistan.
DISPUTE RESOLUTION THROUGH MEDIATION / CONCILIATION
Sec. 276 of The Companies Act, 2017
Under the Act, any company, its management or its members or its creditors may refer a dispute between them to the Mediation and Conciliation Panel set up by the SECP for resolution. It is new provision inserted in the Companies Law, albeit previously Arbitration Act, 1940 was applicable vide Sec. 283 of the Companies Ordinance, 1984.
MERGERS & ACQUISITIONS
Sec. 282 of The Companies Act, 2017
Previously, mergers between two or more companies, de-mergers and approvals of scheme of arrangements were to be approved by the High Court. The schemes take a long time for approval due to overwork in the High Courts. Under the Act, no formal approval is required from the High Court or the SECP for mergers between holding company and its wholly-owned company and companies owned by the same person. The merger of two companies can be effected after approval from the board only. For other mergers, it is the SECP not the High Court that is the sanctioning authority for all mergers, de-mergers and schemes of arrangements.
Sec. 424 of The Companies Act, 2017
Any company that is inactive / non-operational or that has no significant accounting transaction, may apply to the registrar to obtain the formal status of an inactive company.
EASY EXIT FOR DEFUNCT COMPANY
Sec. 426 of The Companies Act, 2017
The Act provides an easy exit to a defunct company. On receiving application for dissolution from a defunct company, the registrar will dissolve that company by striking its name off the register of companies after 90 days of publication of notice in the Official Gazette, as per provisions of Section 426.
SHARIAH COMPLIANT COMPANIES & SECURITIES
Sec. 451 of The Companies Act, 2017
No company will be entitled as a Shariah compliant company or security, listed or unlisted, unless it has been authenticated / declared Shariah compliant by the SECP pursuant to Section 451. The companies will not be allowed to appoint or engage any person for Shariah compliance, Shariah advisory or Shariah audit unless that person meets the fit and proper criteria laid down by Companies Act, 2017.
GLOBAL REGISTER OF BENEFICIAL OWNERSHIP
Sec. 452 of The Companies Act, 2017
Every substantial shareholder or officer of a Pakistani company will have to report to his company any of his shareholding in a foreign company or body corporate. Subsequently, the company will have to report such information to the registrar along with annual return. The Securities & Exchange Commission of Pakistan (SECP) will keep record of the beneficial ownership of the shareholders and officers in the Companies’ Global Register of Beneficial Owners and will provide copies of the records to the Federal Board of Revenue (FBR) or any other agency pursuant to Sec. 452(8).
PREVENTION OF MONEY LAUNDERING
Sec. 453 of The Companies Act, 2017
The officials of all companies will be bound to check commission of fraud, money-laundering, including predicated offences, under the Anti-Money Laundering Act, 2010 pursuant to Section 453. The SECP will conduct joint investigation in serious cases like fraud, as per Section 258. The SECP may revoke the license of the companies registered with charitable and not-for-profit object, if found to be run and managed by persons involved in terrorist-financing or money-laundering in accordance with Section 42(5).
REAL ESTATE REGULATIONS
Sec. 457 of The Companies Act, 2017
All companies that launch any real estate projects and that invite advances from public for such projects will have to obtain approval and permission of the SECP at different stages of development of the projects, including: (a) before announcement of any real estate project; (b) before making any publication or advertisement of real estate projects; (c) before accepting any advances or deposits against any booking; (d) before inviting persons to purchase any land, apartment or building; and (e) before accepting a sum against purchase of the apartment, plot or building.
QUOTA FOR PERSONS WITH DISABILITIES
Sec. 459 of The Companies Act, 2017
It is mandatory for the large public interest companies to reserve 2% special quota for employment of disabled persons pursuant to Sec. 459. No parallel provision existed in the repealed Companies Ordinance, 1984.
SPECIAL RETURN TO RECTIFY THE DATA
Sec. 465 of The Companies Act, 2017
All companies have to inform the SECP about any change of more than 25% in their shareholding, pursuant to Sec. 465.
Sec. 478 – 479 of The Companies Act, 2017
The Act provides three slabs of penalties for each day of default of non-compliance or non-filing: PKR 500, PKR 1,000 and PKR 500,000 with the aggregate penalty in each case of default stated to be a maximum of PKR 25,000, PKR 500,000 and PKR 1,000,000 respectively as per provisions of Sec. 479.
SPECIALISED COMPANIES & SETUP PROCEDURE
Find more information and setup procedure, please click on any of the specialised company mentioned below:
Table: Specialised Companies
Our expertise in company law also gives our clients a significant advantage in more complex companies’ transactions and de-mergers as, increasingly, there is a need for advice on strategic business contracts in the context of a corporate deal, for example to deal with transitional services issues or on-going supply arrangements. Specialist company law expertise combined with sectoral experience results in an in-depth understanding of the key business issues which need to be managed from a legal perspective which can be particularly helpful to private equity houses and investment banks.
The company law counseling group provides a complete range of company law services to ZA-LLPs’ local, national and international clients. The group handles a variety of complex transactions, including mergers, asset acquisitions and sales, joint ventures, leasing transactions and financing, bankruptcy related transactions, and business startups, as well as the preparation of contracts of all types. In addition, because company law is often selected as the governing law for major national and international transactions, the Group works with both in-house and regular outside counsel in the structuring and documenting of such transactions and provides legal opinions required at closing.
We represent nationally and locally prominent commercial banks, finance companies, insurance companies and other lenders, as well as borrowers in connection with all aspects of secured and unsecured financing arrangements of all sizes. Those arrangements include:
|Company Formation||Company Negligence|
|Choice of Entity||Company Dissolution or Liquidation|
|Tax Advice||Commercial Collections|
|Drafting Contracts||Insurance Subrogation|
|Buy-Sell Agreements||Partnership Disputes|
|Shareholder Agreements||Contract Disputes|
|Employment Contracts||Purchase of Commercial Real Estate|
|Commercial Financing||Collection Matters|
Table: Company Law Practice
Our focus on strategic issues and our familiarity with various industries allows us to assist our clients in negotiating terms that protect them throughout the lending relationship.