PAKLINKS BANNER EXCHANGE
Generally there are no restrictions on thc types of businesses that may be undertaken but certain specialized businesses such as Banking, Investment Banking. Housing Finance. Leasing, Modarabas, Mutual funds, and insurance require permission/1icences from the Government.
Business activities may he carried on througl1 a company, branch. Partnership or sole proprietorship. Companies incorporated in Pakistan and branches of foreign companies are regulated by the Companies Ordinance, 1984. Companies Ordinance. I984 is administered by Corporate Law Authority (Registrar of Companies operates under the Corporate Law Authority).
Apart from (Companies Ordinance, I984. there are a host of other Corporate Legislation's in force regulating different aspects of corporate entities. These are enumerated below:
Monopolies and Restrictive Trade Practices (Control and Prevention) Ordinance, 1970
The Ordinance provides measures against "concentration of economic power", growth of unreasonable monopoly power" and "unreasonable restrictive trade practices", which arc injurious to economic well being, growth and development of the country.
A Company is required to get itself registered with the Monopoly Control Authority, under specified conditions as given in the Ordinance.
Insurance Act, 1938
No Insurance business can be carried out by any persons other them
Every insurer, having his principal place of business or domicile outside Pakistan who establishes a place of business within Pakistan, or appoints a representative in Pakistan to carry on insurance bush1ess is required to file certain documents and information with the Controller of Insurance.
Banking Companies Ordinance, 1962
The main law governing banks in Pakistan is the Banking Companies Ordinance, 1962 which regulates and governs the establishment and running of banking companies in Pakistan.
In addition to banks, other financial institutions such as Modarabas, Leasing Companies, Housing Finance Companies and Investment Banks have also been allowed to be formed. details of which are discussed later.
Modaraba Companies and Modarabas (Floatation and Control) Ordinance. 1980
No modaraba can be floated unless an authorization is obtained by the registered modaraba companies under the provisions of Modaraba Companies and Modarabas (Floatation and Control) Ordinance. 1980. The significant provisions of the Ordinance have been discussed elsewhere in the booklet.
Securities and Exchange Ordinance, 1969
The main law relating to the Stock Exchanges. Brokerage houses. Mutual funds. Central Depository and Credit Rating Agencies in Pakistan is the Securities and Exchange Ordinance.1996 which regulates and governs the establishment and running of these entities in Pakistan.
The Companies Ordinancc.1984 provides for various types of company structures but the most common are companies limited by shares where the personal liability of the shareholders is limited to the amount (if any) unpaid on their shares. Effectively the shareholder’s liability does not exceed the amount he is committed to when taking up the shares in the company. The law also allows for an unlimited company to be formed.
From a practical point of view. The limited liability Company with a share capital would be the type of company contemplated by a non-resident, interested in investing in Pakistan.
A company incorporated in Pakistan limited by shares may either be a "Public" company or a "Private" company.
A public company is generally the one which eventually may desire to raise capital from the public and this type of company includes all those whose shares are listed on the stock exchange in Pakistan.
A private company is generally the one which has no need to obtain capital from public, in fact, it is prohibited from so obtaining. This type of company by its constitution (Articles of Association) restricts the rights of its member to transfer shares, limit its membership to fifty and prohibits any innovation to the public to subscribe for shares or to invite deposits from public.
The Companies Ordinance and rules framed thereunder prescribes various formalities to be complied with for the formation of limited liability company. The formalities relates to:
The number of members of a private company shall not exceed fifty. There is no such restriction for a "Public" company.
Previously the offer to general public, the issue of capital by certain class of companies and issues exceeding certain limits were subject to the Consent of the Controller of Capital Issues under the Capital Issues (Continuance of Control) Act. 1947 and Capital Issues (Exemption ) Order 1971. The Act was an overriding legislation which prevailed over certain provisions of the Companies Ordinance. 1984 and was deemed to be a limitation for the growth of the companies in general and the capital markets in particular. The Fiancée Act. 1995 repealed the Act and liberalized the issue of capital. with the powers to the Corporate Law Authority (CLA) to make Rules to provide guidelines to be followed for the issue of capital. The CLA has issued rules for compliance by the companies offering capital to the general public and listed companies. The Stock Exchanges have been entrusted the function of monitoring compliance. The rules prescribes various conditions to be complied with by the issuers under the following categories.
The management of companies are vested in the Board of directors and they may exercise such powers as are specified in the Articles of Association and the Companies Ordinance, 1984. The Ordinance has vested in members certain powers which can not be exercised by the directors. The first directors are appointed by the subscribers to the Memorandum and thereafter, by the members for a period of three years, from the date of first Annual General Meeting.
First Annual General Meeting of the members (shareholders) is required to be held not later than eighteen months from the date of incorporation and subsequent1y once in every calendar year at intervals of not more than fifteen months from the preceding annual general meeting but not later than six months from the end of financial year.
The shareholders or directors many also call for convening of extra ordinary general meeting of shareholders.
The Companies Ordinance 1984 requires specified notices to be given to shareholders of all the general meeting.
Every company is required to have a register office to which all notices may be addressed and at which various documents book are required to be maintained as prescribed under the companies Ordinance, 1984.
The Companies Ordinance, 1984 requires companies incorporated in Pakistan to file various statutory returns relation to meetings of members issue and allotment of shares, appointment and change in directors and chief executive, annual audited accounts, annual list of members etc. with the Registrar within thc prescribed time Limits.
Some of the important provisions of Companies Ordinance, 1984 relating to Accounts and Audit are summarized as follows:
A company may under certain conditions be wound up voluntarily by a special resolution of its member. A liquidator will then be appointed by the members to realize the company's assets, discharge its liabilities and to distribute any surplus assets to the shareholders. A company may also be involuntarily wound up by the court, if it is unable to pay its debts on statutory demand by a creditor.
A company which seeks to offer its shares to the public and wishes to apply for a listing on the Stock Exchanges must comply with the listing requirements of the Exchanges in addition to compliance with the provisions of the Companies Ordinance, I984.
The requirement of the Exchange relate to management and company procedures, disclosures, provisions concerning the issue of prospectus for the issue of shares to the public, distribution of financial Statements and other matters to keep the public and the Exchange adequately informed on al aspects of the affairs of the company which may affect the market value of its shares.
A foreign company which intends to carry on business activities in Pakistan. But which does not wish to incorporate a company may register a branch under the Ordinance with the prior approval of the Board of investment (BOI).
A foreign company which intends to establish a permanent place of business in Pakistan but does not wish to undertake any revenue generating activity, may register a Liaison office under the Ordinance. with the prior approval of BOI.
Every Foreign company within 30 days of establishment of place of business in Pakistan is required to file with the registrar a copy of its Charter or Memorandum and Articles of Association, particulars of directors and principal officer, and address of principal office, etc.
The requirements relating to preparation of accounts, audit and submission of accounts to Registrar Joint Stock Companies are also applicable to the branch/liaison office of a foreign company. The accounts will have to comply with the disclosure requirements as contained in the Fifth Schedule to the Companies Ordinance. 1984.
A branch/liaison office of a foreign company is not only required to file annual audited accounts of Pakistan Branch but the foreign company must also lodge its global audited accounts within 40 days of submission of accounts to the Registrar of Country of incorporation or within 6 months of the end of accounting year, whichever is earlier.