RECAP
•
•
•
•
•
Transfer of shares
Transmission of shares
Refusal of transfer of shares
Appeal against refusal for registration of transfer
Transfer to nominee of a deceased member
BORROWING POWRES OF A
COMPANY
MODES OF BORROWING
A. SHORT TERM BORROWING
B. LONG TERM BORROWING
3
SHORT TERM BORROWING
1.
2.
3.
4.
5.
6.
7.
RUNNING FINANCE
BANK OVERDRAFT
CASH CREDIT
LOAN AGAINST PLEDGE
HYPOTHECATION OR MORTAGE
DISCOUNTING COMMERCIAL PAPERS
PUBLIC DEPOSITS
4
MODES OF BORROWING
Short Terms
Running Finance:
•It is an unsecured financing product issued by a
financial institution to its customers on daily basis in
order to meet their daily needs.
•It is a finance offerings by financial institutions against
mortgages and a credit facility established for a specific
time limit at variable interest rates.
MODES OF BORROWING
Short Terms
Running Finance:
Running finance is nothing but the finance offerings by financial
institutions against mortgages.
•It works under the working capital finance. Specifically, the running
finance is a credit facility established for a specific time limit at variable
interest rates.
•Housing Price Index (HPI) is a contributory agent for successful operation
of the running finance scheme. The running finance is implemented by
means of allowing the over draft facility and the corresponding amount is
determined by the repaying capacity of the borrower.
Running finance is more economical….
• If an individual requires small amounts of money during
different periods of time, a running finance facility is more
economical than a personal loan.
• It reduces the mark-up burden and gives the option of early
repayments.
– Currently three banks are aggressively marketing their running finance
facilities for consumers;
– Faysal Bank Balance Transfer Facility, Silk bank ReadyLine and Standard
Chartered Revolving Credit Facility etc
7
BANK OVERDRAFT
• An overdraft is a loan arrangement between the borrower
and the bank whereby the bank extends the credit to a
maximum amount against which the customer can write
cheque or make withdrawals.
• It is the amount of money borrowed that exceeds the
deposits.
• An overdraft occurs when money is withdrawn from a bank
account and the available balance goes below zero. So, such
facility offered by a bank is called bank overdraft.
BANK OVERDRAFT
• Overdraft is one sort of offering credit by the account providers, in that
withdrawals are permitted exceeding available balance of the bank account.
It is nothing but an over-drawing leading to a negative balance.
– The situation is more common with the credit card offerings by the
banks.
• For enjoying overdraft facility, there should be some agreement or approval
in advance with the account provider. Generally, the over-draft facility is
offered by the banks for some maximum amount and the same is required
to be returned to them (in the respective account) within some specified
time limit.
9
PENALTY ON NON COMPIANCE
Non-compliance of these guidelines may impose heavy penalty
on the account holders.
• In any case, drawing an overdraft necessitates paying interest.
• Fees charged for providing the overdraft facility and in case of
going into unauthorized limits may vary from bank to bank,
but the principle remains the same.
10
CASH CREDIT
•
It is a short term cash loan to a company. A bank provides this
type of funding but only after the required security is given to
secure the loan.
• Once the security has been given, the business that receives
the loan can continuously drawn from the bank upto a certain
specified amount.
LOAN AGAINST PLEDGE
•A delivery of personal property to a creditor as security for
a debt or for the performance of an act.
•Pledge is also called as pawn or security interest, is a
piece of property used to secure financing.
•It is any physical thing with liquid value. Thus the loan
taken against pledge is called as loan against pledge.
Example: A lender extending a loan to a borrower for the
purchase of a home will require the home as a pledge.
LOAN AGAINST PLEDGE
• Cash deposit or placing of owned property by a debtor (the
pledger) to a creditor (the pledgee) as a security for a loan or
obligation.
• The pledgee has an implied right to confiscate and/or sell the
pledged property to satisfy his or her claim in case of a default.
13
PLEDGE
• A Bailment or delivery of Personal Property to a creditor as
security for a debt or for the performance of an act.
• Sometimes called bailment, pledges are a form of security
to assure that a person will repay a debt or perform an act
under contract. In a pledge one person temporarily gives
possession of property to another party. Pledges are
typically used in securing loans, pawning property for cash,
and guaranteeing that contracted work will be done.
• Every pledge has three parts: two separate parties, a debt
or obligation, and a contract of pledge.
14
PLEDGE and SALES
• Pledges are different from sales. In a sale both possession
and ownership of property are permanently transferred to
the buyer.
• In a pledge only possession passes to a second party. The
first party retains ownership of the property in question,
while the second party takes possession of the property
until the terms of the contract are satisfied. The second
party must also have a lien—or legal claim—upon the
property in question. If the terms are not met, the second
party can sell the property to satisfy the debt.
15
LOAN AGAINST HYPOTHECATION
The established practice of a borrower pledging an asset
as collateral for a loan, while retaining ownership of the
assets and enjoying the benefits. With hypothecation,
the lender has the right to seize the asset, if the
borrower cannot service the loan as stipulated by the
terms in the loan agreement.
Example: mortgages are the most common example of
hypothecation.
HYPOTHECATOION
• Hypothecation means the pledge of a property as security or
collateral for a debt.
• Generally physical transfer or transfer of titles does not take place
in hypothecation.
• Collateralizing arrangement in which neither the possession nor
the title but only the right to sell an asset or property passes on to
the creditor or lender (called a grantee). Arrangement where the
grantee has the possession and right to sell, but not the title, is
called pledging.
17
MORTGAGE
•It is a transfer of interest in specific immovable property.
•It is a type of charge related to immovable property.
•A security interest in a piece of real property, in exchange for
the extension of loan.
MORTGAGE
• A loan to finance the purchase of real estate, usually with specified
payment periods and interest rates. The borrower (mortgagor) gives the
lender (mortgagee) a lien on the property as collateral for the loan.
• A debt instrument, secured by the security of specified real estate
property, that the borrower is obliged to pay back with a
predetermined set of payments.
• Mortgages are used by individuals and businesses to make large real
estate purchases without paying the entire value of the purchase up
front.
• Over a period of many years, the borrower repays the loan, plus
interest, until he/she eventually owns the property free and clear.
19
DISCOUNTING COMMECIAL PAPERS
•An unsecured short-term debt instrument issued by a
corporation, typically for the financing of account receivable,
inventories and meeting short-term liabilities.
•Maturities on commercial paper rarely range any longer than 270
days. The debt is usually issued at discount, reflecting prevailing
market interest rates.
Discounting Commercial papers
A major benefit of commercial paper is that it does not need to
be registered with the Securities and Exchange Commission (SEC)
as long as it matures before nine months (270 days), making it a
very cost-effective means of financing. The proceeds from this
type of financing can only be used on current assets (inventories)
and are not allowed to be used on fixed assets, such as a new
plant, without SEC involvement.
PUBLIC DEPOSITS
• It refers to the deposits that are attained by the numerous
large and small firms from the public.
• It is a source of fund for private and non-banking companies.
The interest on these deposits is more than the interest given
by banks. “Public Deposit” refers to the money received by a
company through deposit or loan collected from public,
excluding the money received in the form of shares and
debentures.
LONG TERM AND MEDIUM TERM
Loan against Mortgage
It is a transfer of interest in specific immovable property.
It is a type of charge related to immovable property. A
security interest in apiece of real property, in exchange
for the extension of loan. Loan against such property is
called as loan against mortgage.
LOAN FROM DFI
DFI stands for “Development Finance Institution”.
•It occupy the space between public and private
investment.
•The are financial institution which provide finance to
the private sector for investment that promote
development.
•They are owned by the Governments of one or more
developed countries.
DFI,s
• Dfi,s provide a broad range of financial services in developing
countries, such as loans or guarantees to investors and
entrepreneurs, equity participation in firms or investment funds
and financing for public infrastructure projects. DFIs will initiate or
develop projects in industrial fields or in countries where
commercial banks are reticent about investing without some form
of official collateral.
• DFIs are also active in financing small and medium size enterprises,
supporting micro loans to companies, often viewed as too risky by
private sources of financing . A benefit of this approach is that DFIs
often find themselves with first mover advantage in markets with
strong growth potential.
LOAN FROM NBFC’s
NBFC’s stands for “Non-banking Financial Company”.
• These are financial institutions that provide banking services,
but do not hold a banking license.
• They are not allowed to take deposits from the public.
Nonetheless, all operations of these institutions are still
covered under banking regulations.
REDEEMABLE CAPITAL
Redeemable capital includes “ any other security or obligation
not based on the interest other than an ordinary share of the
company”.
REDEEMABLE CAPITAL
A company may by public offer or upon terms and conditions
contained in an agreement in writing,
issue to one or more scheduled banks, financial institutions or such
other persons either severally, jointly or through their syndicate, any
instrument in the nature of redeemable capital in any or several
forms in consideration of any funds, moneys or accommodations
received or to be received by the company, whether in cash or
against any promise, guarantee, undertaking or indemnity issued to
or in favour of or for the benefit of the company.
REDEEMABLE CAPITAL
redeemable capital may provide for adopt or include in addition to others,
(a) mode and basis of repayment by the company of the amount invested in
redeemable capital within a certain period of time;
(b) arrangement for sharing of profit and loss;
(c) creation of a special reserve called the "participation reserve by the
company in the manner provided in the agreement for the issue of
participatory redeemable capital in which all providers of such capital shall
participate for interim and final adjustment on the maturity date in accordance
with the terms and conditions of such agreement.
DEBENTURE
It is a document issued by a company as an evidence of its
debt. It is a security issued or allotted to the investor under
the seal of the company. It contains a contract for the
repayment of a debt and the interest thereon at a specified
rate.
TFC’s
TFC’s stands for “Term finance Certificate”. It is a corporate
debt instrument issued by companies to generate long and
medium terms fund. Corporate TFC’s offer institutional
investors, in particular provident funds, pension funds and
insurance companies, with a viable high yield alternative to
the bank deposits, They are also an essential complement to
risk free, lower yielding Government bonds.
IMPLIED STATUTORY POWERS AND
RESTRICTIONS ON BORROWINGS
1. Power to borrow
Every company has an implied power to borrow irrespective of
any contrary provisions contained in the Companies
ordinance, MOA, AOA or any other law enforced in Pakistan.
2. Articles provide the manner of borrowing power
Articles usually provide the manner in which a company can
exercise its borrowing power i.e. whether in general meeting
or it is to be vested to Board of directors.
CONT’D
3.If powers are vested
to board of directors then article
may fix the limit of borrowing
4.Director may delegate
their such power to sub
committee or to a manager
34
CONT’D
5.Money borrowed beyond limits may given under MOA
without the approval of the company in general meeting is ultra
vires (i.e. cant be recovered)
6. Restriction for a Public Company
The amount of borrowing of the company shall not, at any time,
without the sanction of the company in general meeting ,
exceed the paid-up capital of the company.
35
CONT’D
7. Restriction for a Public Company
A public company cannot borrow money before obtaining the
certificate of commencement of business.
8. Penalty
If a company borrows money before obtaining certificate of
commencement of business then every officer and person
who is responsible shall be liable to a fine of Rs. 1,000/- per
day during which the default continues
FINE ON BORROWING
If a company borrows money before obtaini8ng certificate of
commencement of business then every officer and person
who is responsible shall be liable to a fine of Rs 1000 per day
during which the default continues.
ULTRA-VIRES BORROWING
If a company borrows money without or in excess of the
powers conferred on it by the memorandum of association,
the borrowing is Ultra-Vires the company.
BORROWING ULTRA-VIRES THE DIRECTORS
• Any borrowing which is intra vires the company but beyond
the authority of directors is Ultra Vires the directors.
Unlimited liability of members
and directors
Unlimited Liability of Members
• Section 15(2) of the companies ordinance,1984
allows the incorporation of companies with
unlimited liability of its members, such companies
may or may not have share capital
• Section 109 of the ordinance allows the reregistration of a limited liability company into an
unlimited liability company and vice versa
• If an unlimited company is re-registered into a
limited company, the re-registration shall not affect
the rights, debts, liabilities, obligations or contracts
acquired, incurred or entered into by, to, with or on
behalf of the company before registration
• Section 101 provides that on re-registration of
an unlimited company as limited company ,if it
has a share capital, it may pass a resolution to
increment the nominal amount of the share
capital by increasing the nominal amount of
each of its shares
• The amount so increased can be called up only
in the event of winding up of that company
Unlimited Liability of Directors
• If provided in the memorandum of a company, the
liability of the directors or of any director may be
unlimited [section 111(2)]
• If a person is proposed to be appointed as a director
with unlimited liability, then that person should be
given a notice of that fact by the directors and
members proposing him for election as director
• Selected person should be given a notice in writing of
that fact by the promoters and officers of the
company, or by any one of them before he accepts
the office of director with unlimited liability
[section111(2)]
• If a company has power, under its articles, to alter its
memorandum, it may then, by passing a special
resolution, alter its memorandum to make limited
liabilities of its directors
• Such alteration would be as valid as if it had been
originally contained in the memorandum
• Liability of any existing director shall not be limited
without his consent on passing the resolution
• It shall remain limited till the expiry of the term of
office for which he was elected as
director[section112]
• Limited company may have directors with
unlimited liability
• 112 Special resolution of limited company
making liability of directors unlimited
UPCOMING
•
•
•
•
DEBENTURES
Kinds of debentures
Register of debenture holders
Trust, Trust deed and Trustees