Frequently Asked Questions (FAQs) about Company Law in Pakistan.
Q. What is meant by Private Company?
A. According to Companies Ordinance, 1984 private company means a company, which, by its articles, restricts the right to transfer its shares, if any. Limits the number of its members to fifty not including persons who are in the employment of the company and prohibits any invitation to the public to subscribe for the shares, if any, or debentures of the company.
Q. Which law is applicable for incorporation of companies?
A. Relevant laws are Companies Ordinance, 1984, Companies (General Provisions and Forms) Rules, 1985, Single Member Companies Rules, 2003 and Code of Corporate Governance for limited companies.
Q. How many types of Companies are there?
A. Companies Ordinance, 1984 mentions three types of companies i.e. company limited by shares, company limited by guarantee and unlimited company. Companies which may be registered in the mentioned categories in Pakistan are a single member company, a private limited company, a public limited company; which may be listed or unlisted and a foreign company.
Q. What is Minimum number of members for forming a company?
A. A public unlisted company must have at least three members/directors whereas the company listed at stock exchange must have at least seven members/directors. A private company may have only two members/directors and a single member company can be formed with one chief executive and a company secretary.
Q. According to Company Law what is Special Resolution?
A. According to Companies Ordinance, 1984 Special Resolution means a resolution which has been passed by a majority of not less than three-fourths of such members entitled to vote as are present in person or by proxy 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.
Q .What is Memorandum of Association of a company?
A. Memorandum of Association primarily specifies the framework of company’s objectives and capital boundaries. It is the constitution of a company, and is its main document. A company cannot incorporate without a memorandum of association. It provides information about a company, its financial structure, and its functions. Memorandum of Association governs a company’s business operations by highlighting clauses of what a company can do and what it cannot. It includes Name clause, Registered Office Clause, Object Clause, Liabilities Clause, and Authorized Capital Clause. The object clauses cannot be changed or enlarged without the approval of Securities and Exchange Commission of Pakistan.
Q. What is Articles of Association?
A. Articles of Association highlight internal regulations for the management of the company. It states the roles and functions of the company’s management. Articles of Association govern company management’s operations they transcribes rules for conducting its daily business in accordance with applicable laws e.g. transfer and transmission of shares, mode of alteration in capital, holding of meetings, voting, powers and duties of directors and chief executive, distribution of dividends, capitalization of profits and reserves, preparation of accounts, winding up, etc.
Q .Can Articles of Association be altered after incorporation?
A. Yes, a company can alter its articles of association anytime after passing of a special resolution by the shareholders.
Q. Can I convert my sole proprietor business into a company?
A. Yes, sole proprietor business can be converted into sole proprietor company or a private limited company.
Q. To start a small business which forms should I adopt?
A. You can adopt any one option that is; by becoming a sole proprietor, by forming a single member company, by forming a partnership and you can also form a private limited company.
Q. Can a foreigner be a director in a Pakistani Company?
A. Yes, foreigner can be a director of a Pakistani Company after compliance with the Foreign Exchange Regulations.
Q. How does a director resign from a Private Limited Company?
A. A director can resign anytime subject to the clearance of any liability against him.
Q. What is the minimum paid-up capital of a Private Limited Company?
A. The minimum paid up capital at the time of incorporation of a private limited company has to be Pakistani Rupees 1, 00,000. There is no upper limit on having the authorized capital and the paid up capital. Capital can be increased any time.
Q. What is the difference between authorized capital and paid up capital?
A. The authorized capital is the limit up to which the directors are competent to issue shares. Paid up and subscribe capital means the capital actually issued in favor of the directors/shareholders within the limits of authorized capital.
Q. In future I am thinking to increase paid-up capital of my company is it possible?
A Yes, you can increase but subject to the compliance of the requirement of the Companies Ordinance, 1984.
Q. What are the requirements for a foreign company opening a branch in Pakistan?
A. Foreign company can establish a principal place of business in Pakistan after complying with the legal requirements laid down under section 452 to 460 of the Companies Ordinance, 1984.
Q. Can I change my company name after incorporation?
A. Yes, a company name can be changed any time after the incorporation, by passing a special resolution by the members and certificate of change of name is issued by the Securities and Exchange Commission of Pakistan in whose jurisdiction the registered office of the company is situated.
Q. I do not live in Pakistan Can I still set up a new company?
A. Yes, you can set up a company. If a Chief Executive/director resides outside Pakistan for more than three months then he can appoint an alternative director in his place.
Q. Can I choose any name I want for my new company?
A. You can choose any name but subject to the approval of the Securities & Exchange Commission of Pakistan.
Q. What are non-profit companies?
A. Non-profit companies are generally formed with the objective of promoting art, science, social services, etc. and the members are prohibited from receiving any dividend. Such companies are exempted from the requirements of using the word “limited” at the end of the name and are authorized to operate under a license issued by the regulator.
Q. Are there any restrictions on foreigners who wish to do business in Pakistan?
A. There is no restriction on foreigners to do business in Pakistan.
Q. Do foreigners need a Pakistani national to form a company?
A. Foreigner can form a company with 100% equity subject to the approval of Board of Investment, Government of Pakistan otherwise they must have someone from Pakistan to be a director.
Q. Does a company needs separate National Tax Number?
A. Yes, every company is assigned a national tax number without it a company cannot file its return. Documents which company requires for national tax number are photocopies of computer national identity card of all the directors or passport (in case of foreigner), incorporation certificate and application for national tax number by individual director in case they do not have national tax number.
Q. What are taxation rates for companies in the Pakistan?
A. The income tax payable by the companies in Pakistan is approximately 35% of the net profit of the company.
Q. Is it necessary to form a company or a partnership firm to start a business in Pakistan?
A. No, it is not necessary to form a company or a partnership firm to start a business in Pakistan.
Q. Can anyone be a Director in a company?
A. Yes anyone can be a company director provided he holds Computer National Identity Card and he or she is not debarred from any competent court of law to become a director.
Q. What does Limited Liability mean?
A. Limited liability means, that if a company is put into liquidation, the people who own the company will only be required to pay what they have already paid or agreed to pay towards settling its debts. Limited liability gives the owners of the company protection if the company fails. Liability of directors/members is limited to the extent of shares held by them in the company.
Q. What if I no longer need my company in Pakistan?
A. If you decide that you do not need a company that you have set up, you should consider putting it into voluntary liquidation if the company is solvent and is in a position to pay its liabilities within twelve months from the date of winding up, if the company cannot afford this and is insolvent then you may apply for its compulsory liquidation through court or to apply for it to be “struck off the register” if the company has no assets and liabilities.
Q. What are modes of Winding up a Company in Pakistan?
A. According to Companies Ordinance, 1984 modes of winding up of a company are by the Court, voluntary winding up or winding up subject to the supervision of Court and creditors winding-up.
Q. What is meant by Registered Office?
A Registered office is the official address of your company where the correspondence can be exchanged between the company and his clients.
Q. Can I change my registered office address from Karachi to Lahore?
A. A company can change the place of its registered office from province to province and from place to place in the same province.
When a company intends to shift its registered office from one province to another it must pass a special resolution, obtain confirmation of the change from the Securities and Exchange Commission of Pakistan, file a certified copy of authority’s order together with the altered memorandum with the registrar of both the provinces, notice of new location shall also be given to the registrar and every copy of memorandum and articles of association shall be amended accordingly.
The office of a company may be removed from one place to another within the same province by a special resolution and a notice to the registrar.
Q. What is meaning by unregistered company?
A. Unregistered company means a company, which is not incorporated under the Companies Ordinance, 1984.
Q. Can a Private Limited Company be converted into Public Limited Company?
A. Yes, a private company may convert its status into public limited company by altering its Articles of Association.
Q. Can a Public Limited Company be converted into Private Limited Company?
A. Yes a public limited company can be converted into private limited company subject to the approval of the Securities and Exchange Commission of Pakistan.
Q. Can I convert my Private Limited Company into Single Member Company?
A. Yes, a private company can be converted into a single member company by passing a special resolution for change of its status and make necessary alteration in its articles of association and obtain approval of the Securities and Exchange Commission of Pakistan.
Q. Can Single Member Company be converted into Private Limited Company?
A. Yes, single member company can be converted into private limited company.
Q. Can minor be a director in Private Limited Company?
A. No, minor cannot become a director in private or public limited company.
Q. Can director of a company hold government post?
A. No, director cannot hold any office of profit.
Q. What are the requirements after establishment of place of business by foreign companies in Islamic Republic of Pakistan?
A. As per Companies Ordinance, 1984 Foreign Company incorporated outside Pakistan, is required to file the following documents to the registrar securities and exchange commission of Pakistan concerned within 30 days from the establishment of its place of business in Pakistan;
A certified copy of the charter, statute or Memorandum and Articles of the company accompanied by Form 38. The certification is to be given by:- (a) the public officer in the country where the company is incorporated to whose custody the original is committed or (b) a notary public of the country where the company is incorporated; or (c) an affidavit of a responsible officer of the company in the country where the company is incorporated. The signature or seal of the person so certifying shall be authenticated by a Pakistani diplomatic consular or consulate officer. If the document is not in English, duly certified translation in English or Urdu language is provided
– Address of registered office or principal office of the company, on Form 39;
– Particulars of directors, Chief Executive and secretary (if any) of the company, on Form 40;
– Particulars of principal officer of the company in Pakistan, on Form 41;
– Particulars of person(s) resident in Pakistan authorized to accept service on behalf of the foreign company, on Form 42 along with the certified copy of the appointment order, authority letter of board of directors’ resolution and consent of the principle officer;
– Address of principal place of business in Pakistan of the foreign company, on Form 43.
– Permission letter from the Board of Investment with a specific validity period for opening and maintaining of a branch/liaison office by a foreign company.
– Any change or alteration in particulars stated in the documents and returns filed at the time of registration is required to be filed on form 44 with the registrar concerned within 30 days of such change or alteration. Foreign company is required to file annually with the registrar concerned annual accounts in respect of its operations within Pakistan as well as its global accounts together with the list of Pakistani members and debenture holders and of places of business of the company in Pakistan within the prescribed period. Foreign company is required to submit the renewal/extension of the permission to open/maintain a branch/liaison office from the Board of Investment on the expiry of the validity period of the permission, originally granted. Foreign company is required to give notice on form 46 to the registrar concerned at least 30 days before it intends to cease to have a place of business in Pakistan and to publish a notice of such intention at least in two daily newspapers circulating in the Province or Provinces in which such place or places of business are situated.
Q. What are Additional Directors?
A. Additional directors are those directors who are not required to acquire a share qualification of a director, as they are the nominees of the financial institution who extended the credit facilities to the companies.
Q. Can a body corporate be appointed as a director of a company?
A. No. A body corporate, association or firm cannot be appointed as a director of a company, and only an individual can be appointed as a director of a company as nominee.
Q. How Chief Executive is appointed in a company?
A. All companies are required to appoint a Chief Executive Officer except for a company managed by a managing agent. The first Chief Executive Officer is appointed by the directors of the company at the date of commencement of business or within 15 days from the date of incorporation, whichever is earlier and thereafter within 14 days of the date of election of directors.
Q. What happens if accounts and annual returns of a company not filed in time?
A. Failure to deliver documents on time is an offence under the Companies Ordinance, 1984. On this failure, directors could be prosecuted and penalized.
Q. Can share holders in a Private Limited Company removes a director?
A. Yes, shares holders can remove a director by passing a resolution in a general meeting.
Q. Are shares in a company are transferable?
A. Shares in a company are freely transferable, subject to certain conditions, such that no shareholder is permanently or necessarily wedded to a company. When a member transfers his shares to another person, the transferee steps into the shoes of the transferor and acquires all the rights of the transferor in respect of those shares.
Q. Can a company delegate his powers to any person?
A. Yes. A company may by writing under its common seal, empower any person either generally or in respect of any specified matters as its attorney, to execute deeds on its behalf in any place either in or outside Pakistan and every deeds signed by such attorney on behalf of company and under his seal, where sealing is required shall bind the company and have the same effect as if it were under its common seal.
Disclaimer: The information available above is not intended to be comprehensive, and many details which may be relevant to particular circumstances have been omitted. Accordingly, it should not be regarded as being complete source of company law information, and web users are advised to seek independent professional advice before acting on anything contained herein. AMLAW will not take any kind of responsibility for the consequences of errors or omissions.