Section 58
This section talks about the types of share capital that a company can have. Let’s break it down in simple terms:
1.
A company with share capital:
o
2.
Only fully paid shares:
o
3.
4.
If a company has share capital, it means it issues shares to investors. These shares represent
ownership in the company.
The company is only allowed to issue fully paid shares, meaning shareholders must pay the full
price of the shares they purchase. There are no unpaid or partly paid shares.
Different kinds and classes of shares:
o
A company can issue different types (kinds) and categories (classes) of shares, as mentioned in its
Memorandum and Articles of Association (official documents that define how the company
operates).
o
For example, a company may issue:
▪
Ordinary shares (regular ownership with voting rights)
▪
Preference shares (priority in receiving dividends but limited voting rights)
▪
Redeemable shares (shares the company can buy back after some time)
Rights and privileges:
o
Different types of shares can have different rights, such as voting power, dividend entitlement, and
repayment priority in case of liquidation.
o
However, these rights must be assigned in a legally specified manner—meaning the company must
follow the rules and regulations set by law when giving different rights to different share classes.
In summary:
A company can issue only fully paid shares, and it can offer different types of shares (like ordinary or preference
shares) based on its internal rules. Each type of share can have different rights and privileges, but these must be
assigned according to legal requirements.
Section 82: Power to Issue Shares at a Discount
This section explains when and how a company can issue shares at a price lower than their face (par) value.
Normally, companies sell shares at their face value or higher, but in some cases, they are allowed to sell them at a
discount. However, strict conditions must be followed.
Key Points
1. A company can issue shares at a discount, but only under certain conditions:
•
The company must pass a special resolution in a general meeting, meaning shareholders must agree to the
discount.
•
The resolution must specify:
o
The number of shares to be issued at a discount.
o
The discount rate (which cannot exceed the legal limit).
o
The final price per share after applying the discount.
2. Additional rules for listed companies:
•
A listed company (a company whose shares trade on a stock exchange) can only issue discounted shares if
the market price of its shares has been lower than the face value for at least the last 90 trading days.
•
Approval from the Securities & Exchange Commission (SECP) is required unless:
o
•
•
The discounted price is at least 90% of the face value (par value).
The discount issue price cannot be:
o
Less than 90% of the weighted average closing price over the past 90 days (for listed companies).
o
Less than the breakup value (net assets per share) or discounted cash flow valuation (for
private/unlisted companies).
These calculations must be verified by the company’s statutory auditor.
3. Directors and sponsors (major shareholders) of a listed company must buy their shares at market price:
•
They cannot buy discounted shares; they must buy at the 90-day average market price before the discount
issue was announced.
4. The company must be at least 3 years old:
•
At least 3 years must have passed since the company was allowed to start its business before issuing
discounted shares.
5. The discounted shares must be issued within 60 days:
•
Once the Commission approves the discount issue, the company has 60 days to issue the shares, unless an
extension is granted.
6. Discounted shares do not count as capital reduction:
•
Even though the company is selling shares at a lower price, this does not mean it is reducing its capital.
7. Disclosure Requirements:
•
Any company issuing shares at a discount must clearly mention the discount in:
o
Its prospectus (document for potential investors).
o
Its financial statements (such as the balance sheet).
8. Legal Consequences for Violations:
•
If a company does not follow these rules, it will be penalized under Level 3 of the standard penalty scale
(the exact penalty depends on the legal framework).
Simplified Example
Imagine a company has shares with a face value of $10. Due to financial difficulties or low demand, its shares have
been trading at $8 in the stock market for the past three months.
To attract investors, the company wants to issue new shares at $7 (a discount of $3 per share).
To legally issue discounted shares, the company must:
1.
Get approval from shareholders through a special resolution.
2.
Ensure the discount does not go below the legal limit (e.g., at least 90% of the average market price).
3.
Get SECP approval (if required).
4.
Issue the shares within 60 days of approval.
5.
Disclose the discount in financial statements.
If the company skips any step, it can face legal penalties.
In Summary:
A company can sell shares at a discount, but only under strict conditions, especially for listed companies. It needs
shareholder approval, must follow legal limits on discounts, and disclose the details properly. If rules are not
followed, penalties apply.
Section 83: Further Issue of Capital
This section explains the process a company must follow when issuing new shares to increase its share capital. It
ensures fairness, especially for existing shareholders, and sets rules for how new shares can be offered.
Key Points
1. How a Company Can Issue More Shares
If a company's board of directors decides to issue more shares, they must follow these rules:
A. First, Offer Shares to Existing Shareholders (Rights Issue)
•
Existing shareholders must get the first chance to buy new shares (this is called a rights issue).
•
The shares must be offered in proportion to the number of shares they already own.
•
A letter of offer must be sent to shareholders with details, including:
•
o
How many shares they can buy
o
The price per share
o
A time limit (between 15 to 30 days) to accept the offer
If the shareholder does not respond within the given time, it is assumed that they are not interested.
Special Rules for Listed Companies:
•
Shareholders in listed companies (companies on the stock exchange) can transfer their right to buy shares
to someone else before the offer expires.
•
If some shares are not bought by shareholders, the company can sell them to others as they see fit (within
30 days or an approved extension of another 30 days).
•
Public companies can reserve a percentage of shares for employees under an Employees Stock Option
Scheme, but this must be approved by the Securities & Exchange Commission (SECP).
B. Issuing Shares to New Investors
•
A public company can issue shares to anyone (not just existing shareholders).
•
This must be approved by the SECP and a special resolution must be passed.
•
Shares can be issued for cash or non-cash assets (like intellectual property or services).
•
If shares are issued for non-cash assets, the value must be determined by a registered valuer (approved by
the SECP).
2. How the Offer is Communicated
•
The letter of offer must be signed by at least two directors and sent via registered post, courier, or
electronic means.
•
It must reach shareholders before the offer period starts.
•
A copy of the letter must also be sent to the registrar.
3. When the Government Can Convert Loans into Shares
•
If a public sector company (a company owned by the government) has taken a government loan, the
government can convert the loan into shares.
•
This can happen even if the original loan agreement did not include this option.
•
When setting the conversion terms, the government must consider factors like the company’s financial
position and interest rates.
4. Automatic Increase in Authorized Capital
•
If a company's authorized capital (the maximum number of shares it can issue) is fully used or not enough,
it is automatically increased to issue shares to the government, banks, or financial institutions.
•
This ensures the company can fulfill its financial obligations.
•
The company must file a notice of the increase with the registrar and pay the required fee.
•
If the company does not do this, the government, bank, or financial institution that received the shares can
file the notice on behalf of the company and recover the fee from the company later.
5. Penalty for Violations
•
If a company does not follow these rules, it will face a Level 2 penalty according to the legal penalty scale.
Simplified Example
Example 1: Rights Issue
Imagine a company, XYZ Ltd., has 1,000,000 shares and wants to issue 200,000 new shares.
•
Existing shareholders get the first chance to buy them.
•
If a shareholder owns 10,000 shares, they can buy 2,000 more (keeping the same proportion).
•
The company sends them a letter of offer, giving them 15-30 days to decide.
•
If they don’t accept, the company can sell the leftover shares to others.
Example 2: Issuing Shares to New Investors
If XYZ Ltd. wants to issue shares to new investors, it must:
•
Get SECP approval.
•
Pass a special resolution.
•
If issuing shares for assets or services, a valuer must confirm the asset’s value.
Example 3: Government Loan Conversion
A government-owned company takes a loan from the government. Later, the government decides to convert the
loan into shares.
•
Even if the loan agreement did not mention this, the government can do it if it benefits the public.
•
The terms must be fair based on the company’s financial situation.
In Summary:
•
When a company issues new shares, existing shareholders get the first chance to buy them.
•
If they don’t buy, the company can sell them to others.
•
A public company can issue shares to new investors but needs SECP approval.
•
If a government loan was given to a public company, the government can convert it into shares.
•
If a company does not have enough authorized capital, it is automatically increased to meet obligations.
•
Violating these rules results in penalties.
Service and Authentication of Documents (Sections 53-56)
These sections explain how documents, notices, and information should be delivered (served) to a company, its
members, and the regulatory authorities. They also clarify who can sign (authenticate) official documents on behalf
of a company.
1. How to Send Documents to a Company (Section 53)
If you need to send a document or information to a company or its officers, you can do it in the following ways:
Deliver it in person at the company’s registered office (with an acknowledgment).
Send it by post or courier service.
Use electronic means (such as email).
Any other method approved by law.
Example:
If you want to send a legal notice to a company, you can send it via email or courier to its official address. The
company must confirm receipt (acknowledgment).
2. How to Send Documents to the SECP or Registrar (Section 54)
If you need to submit documents or information to the Securities & Exchange Commission of Pakistan (SECP)
or the company registrar, the same rules apply:
Deliver it in person (with an acknowledgment).
Send it via post, courier, or electronic means.
Use any other legally approved method.
Example:
If a company needs to submit its annual report to SECP, it can send it by courier or email, and SECP must
confirm receipt.
3. How to Send Notices to Shareholders (Section 55)
A company must send notices to its members (shareholders) in a proper way. The notice should be sent:
To the registered address of the shareholder.
If the shareholder lives outside Pakistan, the notice should be sent to the address they provided.
The company can send notices via post, courier, or electronic means.
Special Rules for Sending Notices
If the notice is sent by post, it is considered delivered at the normal delivery time, unless proven otherwise.
For joint shareholders (multiple owners of a share), the notice is sent to the first person named in the
register.
If a shareholder dies or becomes insolvent, the notice must be sent to their legal representatives or assignees
at their provided address.
Example:
If a company is calling for a general meeting, it must send an invitation notice to all shareholders via email,
courier, or post.
4. Who Can Sign Official Documents? (Section 56 - Authentication of Documents)
For a document or official proceeding to be considered valid, it must be signed by an authorized person.
The document can be signed by the Chief Executive Officer (CEO), a director, the company secretary, or
another authorized officer.
It does not need the company’s official seal, unless the law specifically requires it.
Example:
If a company signs a contract with another business, the document is valid if it is signed by the CEO or a
director. The company does not need to stamp it with a seal, unless required by law.
Summary
Sending Documents to a Company: Deliver in person, by post, courier, email, or another approved method.
Sending Documents to SECP/Registrar: Same as above, with an acknowledgment of receipt.
Sending Notices to Shareholders: Must be sent to their registered address, through post, courier, or email.
Who Can Sign Official Documents?: The CEO, a director, secretary, or another authorized officer—without
needing a company seal.
Prevention of Oppression and Mismanagement (Section 286)
This section protects shareholders, creditors, and the public from companies being mismanaged or operating
unfairly. It allows people to complain to the Court if they believe the company's affairs are being conducted
unlawfully or fraudulently.
1. Who Can File a Complaint?
A complaint can be made by:
Shareholders who own at least 10% of the company's issued share capital.
Creditors whose total interest is at least 10% of the company’s paid-up capital.
The Commission (SECP) or the Registrar if they suspect wrongdoing.
What Can They Complain About?
If the company is being run illegally or fraudulently.
If the company is acting against its own Memorandum and Articles of Association.
If shareholders or creditors are being oppressed or treated unfairly.
If the company’s actions are harmful to the public interest.
Example:
A group of shareholders believes the company’s CEO is misusing funds and making decisions without board
approval. They can file a complaint with the Court.
2. What Can the Court Do?
If the Court believes that:
(a) The company is being mismanaged or will likely be mismanaged in the future.
(b) Shutting down the company (winding up) would hurt shareholders or creditors.
Then, the Court will not shut down the company but instead take other actions to fix the situation.
The Court can:
Change how the company is managed in the future.
Order one or more shareholders to buy out others to remove the conflict.
Order the company to buy back shares from affected shareholders.
Reduce the company's share capital if necessary.
Example:
If a majority shareholder is making unfair decisions that harm minority shareholders, the Court may order the
majority shareholder to buy their shares at a fair price to settle the issue.
3. Can the Company Change Its Rules After a Court Order?
If the Court changes the Memorandum or Articles of Association, the company cannot change them again
without Court approval.
These changes are treated as if they were made by the company's own members.
Example:
The Court orders a rule change in the company’s Articles to ensure fair voting rights for all shareholders. The
company cannot reverse this decision unless the Court allows it.
4. What Happens After a Court Order?
The company must send a copy of the Court’s order to the Registrar within 14 days.
If the company fails to do so, it will face a penalty (Level 1 on the standard scale).
5. Other Legal Rights
This section does not stop anyone from using other legal remedies. If a person has another way to protect their
rights, they can still take legal action separately.
Summary
Who Can Complain? Shareholders (10%+), creditors (10%+), SECP, or Registrar.
When Can They Complain? If the company is being mismanaged, acting illegally, or unfairly harming
shareholders, creditors, or the public.
What Can the Court Do? Regulate management, order buyouts, or reduce share capital—but not shut down
the company unless necessary.
What Happens After a Court Order? The company must register the order and cannot change its rules
without permission.
Other Legal Remedies Still Apply.
Section 287 – Powers of the Court under Section 286
This section explains the specific actions the Court can take if a company is being mismanaged or operating
unfairly, as described in Section 286.
The Court has broad powers to protect shareholders, creditors, and the public and can issue orders to correct the
situation.
1. What Can the Court Do?
Under Section 287, the Court can take three main actions:
(a) Cancel, Modify, or End Unfair Agreements
The Court can:
Cancel, change, or end any agreement between the company and its directors, including the CEO or any
officer, if it is unfair or harmful.
Example:
A CEO signs a five-year contract with a high salary and bonuses, even though the company is losing money. If this
is harming the company, the Court can reduce the salary, change the contract, or cancel it entirely.
(b) Reverse Fraudulent Transactions
The Court can:
Cancel any unfair transactions made within the last three months before a complaint was filed, if they seem
like an attempt to cheat creditors.
Example:
A company is about to go bankrupt. To protect his money, the CEO transfers company assets to his personal
account or sells them cheaply to a friend.
The Court can reverse these transactions and return the assets to the company.
(c) Make Other Necessary Changes
The Court can:
Make any other changes, including changing the company’s management, if it is fair and necessary for
justice.
Example:
If the company's directors are corrupt and harming the business, the Court can remove them and appoint new
management.
Summary
If a company is being mismanaged or operating unfairly, the Court can:
End or modify unfair agreements with directors or officers.
Reverse fraudulent transactions made within the last three months.
Change management or take any other action necessary for fairness.
Section 254 – Power of Registrar to Call for Information
This section gives the Registrar (a government officer responsible for overseeing companies) the power to ask
for information, explanations, or documents from a company and its officers if something seems unclear,
suspicious, or incorrect in the company's records.
1. When Can the Registrar Ask for Information?
The Registrar can demand information in the following cases:
When checking a document submitted by a company (e.g., financial statements).
When receiving a complaint or information about the company.
When seeing a suspicious advertisement, notice, or public communication related to the company.
2. Who Must Provide Information?
The company itself.
Current and past directors, officers, or auditors (but only if they left within the last 6 years).
3. What Happens If the Company Does Not Respond?
If the company does not provide the requested information within the given time or provides insufficient
information, the Registrar can:
Order the company to show its books and records for inspection.
Force directors, officers, or auditors to present necessary documents.
4. What Are the Penalties for Non-Compliance?
If the company ignores the request or refuses to provide information:
The company will be fined (Level 2 penalty).
Responsible officers (e.g., directors) can face:
•
Up to 2 years in jail
•
A fine of up to 1 million rupees
•
A court order to provide the requested documents
5. What Happens After the Registrar Gets the Information?
The Registrar attaches the new information to the company’s official records.
If the information reveals fraud or wrongdoing, the Registrar reports it to the Commission for further
action.
Summary
The Registrar has the power to request information from companies, directors, and auditors.
Companies must cooperate and provide the requested documents.
If they refuse, they face fines, jail time, or legal action.
If wrongdoing is found, the Registrar reports it to the authorities for further action.
This section ensures companies remain transparent and accountable to the public and government.
Seizure of Documents by the Registrar, Inspector, or Investigation Officer (Section 255)
This section gives the Registrar, Inspector, or Investigation Officer the power to search, seize, and retain
documents, books, or other materials if they suspect that a company or its officers are involved in illegal activities.
Key Points Explained Simply
1. When Can a Search Happen?
•
If there is a reason to believe that important company documents (or assets) might be hidden, altered,
destroyed, or falsified, the Registrar or an Investigation Officer can take action.
•
They must first get permission from the Securities and Exchange Commission of Pakistan (SECP) before
carrying out the search.
2. How Can They Conduct a Search?
•
The Registrar (or someone authorized by them) can enter a company’s office (or any relevant place) to
search and seize documents, assets, or any material needed for an investigation.
•
They do not need a warrant in some cases if they have SECP approval.
•
However, if they believe the search might face resistance or obstruction, they can obtain a search warrant
from a Magistrate for assistance.
3. What Happens to the Seized Items?
•
The seized documents and materials must be returned within 30 days unless SECP gives permission to
keep them longer.
•
Before returning, they can make copies or take extracts of the documents.
•
If the seized items are related to criminal activity, they can be retained for legal proceedings.
4. Freezing of Bank Accounts & Assets
•
If SECP believes that the company’s assets or bank accounts are linked to a crime, they can freeze them
for up to 30 days.
•
If a person thinks their assets were wrongly frozen, they can go to the High Court to challenge it.
5. Legal Process for Challenging Seizure or Freezing
•
If someone believes their assets or documents were wrongfully taken, they can file a case in the High
Court after 30 days.
•
The court may order the release of seized assets if it finds no evidence of wrongdoing.
Summary
•
The Registrar, Inspector, or Investigation Officer can search and seize company documents, books, or
assets if they suspect fraud or illegal activity.
•
They must get SECP approval before conducting a search (except in urgent cases).
•
If needed, they can get a search warrant from a Magistrate.
•
Seized documents must be returned within 30 days (unless SECP allows an extension).
•
SECP can freeze bank accounts or assets for up to 30 days if linked to a crime.
•
Anyone affected by a seizure or freezing can challenge it in the High Court.
Investigation into the Affairs of a Company (Section 256)
This section explains when and how the Securities and Exchange Commission of Pakistan (SECP) can order an
investigation into a company’s activities.
1. When Can an Investigation Be Ordered?
The SECP can order an investigation if it believes it is necessary. This can happen in the following cases:
1.
2.
Request by Shareholders
o
If the company has share capital, shareholders owning at least 10% of the voting power can
request an investigation.
o
If the company does NOT have share capital, at least 10% of the total members can request it.
Report from Other Authorities
o
If the SECP receives a report from an auditor (under Section 221(5)) or from the Registrar (under
Section 254(6)), indicating possible issues, it can decide to investigate.
2. How Does the Investigation Work?
•
The SECP appoints inspectors to investigate the company’s affairs.
•
The investigation will follow specific instructions from the SECP. This may include:
•
o
What aspects of the company’s affairs should be investigated.
o
The time period to be covered in the investigation.
o
Any other important details needed for the inquiry.
Before ordering an investigation, the company is given a chance to explain itself.
3. What Are the Requirements for Shareholders Requesting an Investigation?
•
Shareholders who request an investigation must provide evidence to show there is a valid reason for it.
•
The SECP may also ask them to provide security (money deposit) to cover investigation costs. This is to
prevent false or unnecessary investigations.
Summary
•
The SECP can investigate a company if:
o
Shareholders (10% or more) request it.
o
An official report from an auditor or registrar suggests problems.
•
The SECP appoints inspectors and defines the scope, duration, and focus of the investigation.
•
The company is given a chance to respond before an investigation starts.
•
Shareholders must provide evidence and may be asked to cover costs if they request an investigation.
Investigation of a Company's Affairs in Other Cases (Section 257)
This section explains other situations in which the Securities and Exchange Commission of Pakistan (SECP) can
order an investigation into a company's activities.
1. When Must the SECP Investigate?
The SECP is required to investigate when:
•
The company itself passes a special resolution requesting an investigation.
•
A court orders that the company's affairs must be investigated.
In these cases, the SECP must appoint inspectors to investigate and report on the company's affairs.
2. When Can the SECP Decide to Investigate?
The SECP may investigate a company if it suspects any of the following:
1.
2.
3.
4.
Fraudulent or Unlawful Business Activities
o
If the company is or has been cheating its creditors, shareholders, or others.
o
If the company was created for an illegal or fraudulent purpose.
Misconduct by Management
o
If company directors or managers have committed fraud, breach of trust, or other misconduct.
o
If the company is operating without authorization.
Unfair Treatment of Shareholders
o
If shareholders are not receiving fair financial returns.
o
If the company is hiding important financial information from shareholders.
Unfair or Suspicious Share Allocation
o
5.
If the company has issued shares without proper value or fair pricing.
Poor Management Practices
o
If the company is not being managed according to good business principles.
o
If bad management decisions are endangering the company's financial health or leading to
possible bankruptcy.
Before starting an investigation, the SECP must give the company a chance to respond.
3. How Does the Investigation Work?
•
The SECP appoints inspectors to investigate the company.
•
The SECP sets the scope of the investigation, including:
o
Which issues will be investigated.
o
The time period covered by the investigation.
Summary
•
The SECP must investigate if the company requests it via a special resolution or if a court orders it.
•
The SECP may choose to investigate if it suspects fraud, misconduct, shareholder oppression, unfair
business practices, or financial mismanagement.
•
The company is given a chance to explain itself before an investigation begins.
•
The SECP decides the scope and duration of the investigation.
Serious Fraud Investigation (Section 258)
This section outlines how the Securities and Exchange Commission of Pakistan (SECP) handles serious fraud
cases involving companies. It gives SECP the authority to appoint special investigators and even request a Joint
Investigation Team (JIT) for high-profile cases.
1. Who Investigates Serious Fraud?
The SECP can authorize officers or hire professionals (such as accountants, forensic auditors, tax experts, IT
specialists, bankers, or lawyers) to investigate serious corporate fraud.
These investigators:
Have the same powers as a criminal investigation officer.
Must report their findings to SECP as directed.
2. What If There’s No Specific Investigation Procedure?
If the investigation procedure isn’t clearly mentioned in the Companies Act or SECP Act, the investigator must
follow the Criminal Procedure Code (CrPC), 1898.
3. When Can the SECP Request a Joint Investigation Team (JIT)?
If SECP believes a case is very important for the public or national interest, it can request the Federal
Government Minister-in-Charge to form a Joint Investigation Team (JIT).
Who is in the JIT?
•
A senior SECP officer (at least an Additional Director).
•
Professionals like auditors, forensic experts, or lawyers.
•
Officers from Federal law enforcement agencies (such as FIA, NAB, or police).
What happens if someone refuses to follow the JIT's orders?
•
They can be jailed for 1 month or fined up to PKR 100,000.
4. What Happens After the Investigation?
•
The JIT submits its final report to the Special Public Prosecutor, who then presents it in court.
•
This report can be used as evidence in court, even if it doesn’t follow normal evidence rules (like the
Qanun-e-Shahadat Order, 1984).
5. Can the Court Punish for Other Offenses Found During Trial?
Yes! If, during the trial:
The court finds that the accused committed another crime under a different law, it can punish them for that
crime as well.
If the crime falls under a special court (e.g., anti-corruption or money laundering court), all charges will be
tried together in that special court.
Summary
•
SECP can appoint special investigators for serious corporate fraud cases.
•
If needed, a Joint Investigation Team (JIT) can be formed with law enforcement agencies.
•
Refusing JIT orders can lead to jail or fines.
•
Investigation reports can be used as legal evidence in court.
•
Courts can punish the accused for other crimes found during the trial
Register of Directors and Officers (Sections 197 & 198)
These sections of the Companies Act explain the rules about maintaining a register of directors and officers of a
company and the right of people to inspect it.
Section 197: Register of Directors and Officers
1. What is the Register of Directors and Officers?
Every company must maintain a register at its registered office, which contains details about its key people,
including:
Directors
Chief Executive Officer (CEO)
Company Secretary
Chief Financial Officer (CFO)
Auditors
Legal Adviser
2. When Should the Register Be Updated?
When someone is appointed or their details change, they must inform the company within 10 days.
The company must inform the Registrar within 15 days (except for first-time appointments during
incorporation).
3. What Happens If the Company Fails to Maintain or Update the Register?
If the company does not maintain or update the register, it will be fined as per Level 1 on the standard scale.
4. What If Someone’s Name Is Fraudulently Added or Removed?
If a person’s name is wrongly included or removed from the register, they (or the company) can apply to the
court for correction.
The court can order the company to correct the register and may also impose a fine or other penalties.
5. What Is the Punishment for Fraudulently Adding or Removing a Name?
If someone fraudulently adds or removes a name from the register:
They can be jailed for up to 3 years OR
Fined up to PKR 1 million OR
Both
6. What Happens After the Court Orders a Correction?
The court sends a copy of the order to the company.
The company must notify the Registrar within 15 days about the correction.
Section 198: Right to Inspect the Register
1. Who Can Inspect the Register?
Company members (shareholders)
Other people, but only if they provide valid reasons
2. When Can the Register Be Inspected?
During business hours
The company must allow at least 2 hours per day for inspection.
3. Is There a Fee for Inspection?
For company members: Free
For other people: The company may charge a small fee
4. How to Request Inspection?
A person must submit a request with:
Their name and address
The organization’s name and address (if applicable)
Reason for wanting the information
5. What If the Company Refuses to Allow Inspection?
If the company denies inspection, the Registrar can order the company to allow immediate inspection.
6. What If the Company Fails to Comply?
The company will be fined as per Level 1 on the standard scale.
Summary
Companies must keep a register of directors and key officers.
Changes must be reported within 10 days (to the company) and 15 days (to the Registrar).
Fraudulent changes can lead to jail (up to 3 years) or fines (up to PKR 1 million).
Members can inspect the register for free, while outsiders may have to pay a fee.
If inspection is denied, the Registrar can force the company to allow it.
Section 223: Financial Statements
This section explains the rules about financial statements that every company must follow. Financial statements
show a company’s financial health and must be presented to its members every year.
1. What Are Financial Statements?
Financial statements include reports like:
Balance Sheet (shows assets & liabilities)
Profit & Loss Statement (shows income & expenses)
Cash Flow Statement (shows cash movement)
Statement of Changes in Equity (shows changes in shareholders' equity)
2. When Should Financial Statements Be Presented?
The Board of Directors must present financial statements at the Annual General Meeting (AGM).
The statements must cover the period since the last financial statement or since incorporation (if it’s the first
report).
3. Deadlines for Submitting Financial Statements
Financial statements must be presented within 4 months after the financial year ends.
Exception: If the company cannot meet this deadline, it can request an extension:
•
Listed companies → SECP (Securities and Exchange Commission of Pakistan) can allow up to 30 extra
days.
•
Other companies → The Registrar can allow up to 30 extra days.
4. First Financial Statement
If it’s the first time a company is preparing financial statements, they must be presented within 16 months of
incorporation.
After that, financial statements must be presented once every year.
5. Maximum Reporting Period
Financial statements should cover 12 months (1 year).
Exception: If a company wants to report for more than 12 months, it must get special permission from the
Registrar.
6. Auditing of Financial Statements
Financial statements must be audited by a company’s auditor before they are presented.
Exception: If a private company has a paid-up capital of less than PKR 1 million, it does not need an audit
(unless SECP changes this limit).
7. Sending Financial Statements to Members
Every company must send the audited financial statements, auditor’s report, and directors’ report to:
All shareholders (members)
Anyone entitled to attend the AGM
These must be sent at least 21 days before the AGM via post or email.
A copy must also be kept at the company’s registered office for members to inspect.
8. Special Requirements for Listed Companies
Listed companies (companies trading on the stock exchange) must also:
Send 3 copies by post and 1 electronic copy to:
•
SECP (Securities & Exchange Commission of Pakistan)
•
Registrar
•
Stock Exchange
Upload financial statements on the company’s website (for a period specified by SECP).
9. Penalty for Non-Compliance
If a company fails to follow these rules, the people responsible (like directors or officers) can be penalized as
per Section 220(6).
10. Exception for Single Member Companies (SMCs)
Single Member Companies (SMCs) do not have to follow this rule except for the audit requirement
mentioned in point 6.
Summary
Companies must present financial statements at the AGM every year.
Statements must be prepared within 4 months after the financial year ends (or within 16 months for firsttime reporting).
Listed companies have extra reporting and publication requirements.
Financial statements must be audited (except for private companies with paid-up capital under PKR 1
million).
Failure to comply may lead to penalties.
Section 228: Consolidated Financial Statements
This section explains the rules for consolidated financial statements that holding companies must follow.
1. What Are Consolidated Financial Statements?
Consolidated financial statements show the combined financial position of a holding company and its
subsidiaries as if they were one single company.
For example:
Holding Company (Parent Company) → Owns
Subsidiary 1 &
Subsidiary 2
Instead of preparing separate financial statements for each company, they prepare one single financial report
for the whole group.
2. Who Must Prepare Consolidated Financial Statements?
Holding companies (companies that own subsidiaries) must attach consolidated financial statements along with
their own financial statements.
Exception: Private companies and their subsidiaries do not have to prepare consolidated financial statements
if neither of them has paid-up capital above PKR 1 million.
3. What If a Subsidiary Has a Different Financial Year?
If a subsidiary's financial year ends more than 3 months before the holding company’s financial year, the
subsidiary must prepare an interim financial report so that all financial statements match the same date.
4. Auditing of Consolidated Financial Statements
The auditor of the holding company (appointed under Section 246) must also audit the consolidated financial
statements.
The auditor’s rights and duties under Sections 248 and 249 apply to both individual and consolidated
reports.
5. Disclosure Requirements
The consolidated financial statements must include notes that highlight:
Any important matters that would normally require a qualification in the audit report.
Any issues not covered in the holding company’s individual financial statements but are important for
shareholders to know.
6. Who Signs the Consolidated Financial Statements?
The same people who sign the holding company’s individual financial statements (as per Section 232) must
also sign the consolidated financial statements.
7. Other Related Sections That Apply
The rules of Sections 223, 233, 234, 235, and 236 (which deal with financial reporting, audits, and disclosures)
also apply to consolidated financial statements.
Wherever the word "company" appears in these sections, it should be read as "holding company" when
referring to consolidated reports.
8. Exemptions
The SECP (Securities and Exchange Commission of Pakistan) can grant exemptions from this requirement
if a holding company applies for it.
The SECP can specify how much of the requirements do not apply to a particular company.
9. Penalties for Non-Compliance
If a company fails to comply with this section, it will be guilty of an offence and will face a Level 2 penalty
on the standard scale.
Summary
Holding companies must prepare consolidated financial statements to present a single financial view of the
entire group.
Private companies are exempt if their paid-up capital is less than PKR 1 million.
If a subsidiary's financial year ends more than 3 months earlier, it must prepare an interim report to align
with the holding company’s year-end.
The holding company’s auditor must audit the consolidated financial statements.
The same directors/officers who sign the company’s financial statements must sign the consolidated ones.
SECP can grant exemptions if requested by the company.
Failure to comply results in a Level 2 penalty.