THE COMPANIES ACT, 2017

ISLAMABAD, WEDNESDAY, MAY 31, 2017

PART I
Acts, Ordinances, President’s Orders and Regulations
NATIONAL ASSEMBLY SECRETARIAT
Islamabad, the 30th May, 2017
No. F. 22(40)/2016-Legis.—The following Act of Majlis-e-Shoora
(Parliament) received the assent of the President on the 30th May, 2017 is hereby
published for general information:—

ACT No. XIX OF 2017

AN

ACT

to reform and re-enact the law relating to companies and for matters connected
therewith

WHEREAS it is expedient to reform company law with the objective of

facilitating corporatization and promoting development of corporate sector,
encouraging use of technology and electronic means in conduct of business and
regulation thereof, regulating corporate entities for protecting interests of
shareholders, creditors, other stakeholders and general public, inculcatingprinciples
of good governance and safeguarding minority interests in corporate entities and
providing an alternate mechanism for expeditious resolution of corporate disputes
and matters arising out of or connected therewith;

It is hereby enacted as follows:—

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 PART I
PRELIMINARY

1.Short title, extent and commencement.— (1) This Act may be called the Companies
Act, 2017.

(2) It extends to the whole of Pakistan.

(3) This Act shall come into force at once, except section 456 which shall
come into force on such date as the Federal Government or an authority or person
authorized by it may, by notification in the official Gazette, appoint.

2. Definitions.—(1) In this Act, unless there is anything repugnant in the subject or context,—

(1) “advocate” shall have the same meaning as assigned to it in section

2 of the Legal Practitioners and Bar Councils Act, 1973 (XXXV of
1973);

(2) “alter” or “alteration” includes making of additions or omissions

without substituting or destroying main scheme of the document;

(3) “articles” mean the articles of association of a company framed in

accordance with the company law or this Act;

(4) “associated companies” and “associated undertakings” mean any

two or more companies or undertakings, or a company and an
undertaking, interconnected with each other in the following
manner, namely:—

(a) if a person who is owner or a partner or director of a company

or undertaking, or who, directly or indirectly, holds or controls
shares carrying not less than twenty percent of the voting
power in such company or undertaking, is also the owner or
partner or director of another company or undertaking, or
directly or indirectly, holds or controls shares carrying not
less than twenty percent of the voting power in that company
or undertaking; or

(b) if the companies or undertakings are under common

management or control or one is the subsidiary of another;
or

(c) if the undertaking is a modaraba managed by the company;

and a person who is the owner of or a partner or director in a company

or undertaking or, who so holds or controls shares carrying
not less than ten percent of the voting powe in a company or
undertaking, shall be deemed to be an "associated person" of every
such other person and of the person who is the owner of or a partner

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 or director in such other company or undertaking, or who so holds
or controls such shares in such company or undertaking:

Provided that—

(i) shares shall be deemed to be owned, held or controlled by a

person if they are owned, held or controlled by that person
or by the spouse or minor children of the person;

(ii) directorship of a person or persons by virtue of nomination

by concerned Minister-in-Charge of the Federal Government
or as the case may be, a Provincial Governmentor a financial
institution directly or indirectly owned orcontrolled by such
Government or National Investment Trust; or

(iii) directorship of a person appointed as an “independent

director”; or

(iv) shares owned by the National Investment Trust or a financial

institution directly or indirectly owned or controlled by the
Federal Government or a Provincial Government; or shares
registered in the name of a central depository, where such
shares are not beneficially owned by the central depository;

shall not be taken into account for determining the status of a

company, undertaking or person as an associated company,
associated undertaking or associated person;

(5) “authorised capital” or “nominal capital” means such capital as is

authorised by the memorandum of a company to be the maximum
amount of share capital of the company;

(6) “banking company” means a banking company as defined in clause

(c) of section 5 of the Banking Companies Ordinance, 1962 (LVII
of 1962);

(7) “beneficial ownership of shareholders or officer of a company”

means ownership of securities beneficially owned, held orcontrolled
by any officer or substantial shareholder directly orindirectly, either
by—

(a) him or her;

(b) the wife or husband of an officer of a company, not being

herself or himself an officer of the company;

(c) the minor son or daughter of an officer where “son” includes

step-son and “daughter” includes step-daughter; and
“minor” means a person under the age of eighteen years;

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 (d) in case of a company, where such officer or substantial
shareholder is a shareholder, but to the extent of his
proportionate shareholding in the company:

Provided that “control” in relation to securities

means the power to exercise a controlling influence over the
voting power attached thereto:

Provided further that in case the substantial

shareholder is a non-natural person, only those securities
will be treated beneficially owned by it, which are held in its
name.

Explanation.—For the purpose of this Act

“substantial shareholder”, in relation to a company, means
a person who has an interest in shares of a company-

(a) the nominal value of which is equal to or more than

ten per cent of the issued share capital of the
company; or

(b) which enables the person to exercise or control the

exercise of ten per cent or more of the voting power
at a general meeting of the company;

(8) “board”, in relation to a company, means board of directors of the

company;

(9) “body corporate” or "corporation" includes—

(a) a company incorporated under this Act or company law; or

(b) a company incorporated outside Pakistan, or

(c) a statutory body declared as body corporate in the relevant

statute, but does not include—

(i) a co-operative society registered under any law

relating to cooperative societies; or

(ii) any other entity, not being a company as defined in

this Act or any other law for the time being which the
concerned Minister-in-Charge of the Federal
Government may, by notification, specify in this
behalf;

(10) “book and paper” and “book or paper” includes books of account,
cost accounting records, deeds, vouchers, writings, documents,
minutes and registers maintained on paper or in electronic form;

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(11) “books of account” include records maintained in respect of—

(a) all sums of money received and expended by a company and

matters in relation to which the receipts and expenditure take
place;

(b) all sales and purchases of goods and services by the

company;

(c) all assets and liabilities of the company; and

(d) items of cost in respect of production, processing,

manufacturing or mining activities;

(12) “central depository” shall have the same meaning as assigned to it

under the Securities Act, 2015 (III of 2015);

(13) “chartered accountant” shall have the same meaning as assigned

to it under the Chartered Accountants Ordinance, 1961 (X of 1961);

(14) “chief executive”, in relation to a company means an individual

who, subject to control and directions of the board, is entrusted with
whole, or substantially whole, of the powers of management of
affairs of the company and includes a director or any other person
occupying the position of a chief executive, by whatever name
called, and whether under a contract of service or otherwise;

(15) “chief financial officer” means an individual appointed to perform

such functions and duties as are customarily performed by a chief
financial officer;

(16) “Commission” shall have the same meaning as assigned to it under

the Securities and Exchange Commission of Pakistan Act, 1997
(XLII of 1997);

(17) “company” means a company formed and registered under this Act
or the company law;

(18) “company law” means the repealed Companies Act, 1913 (VII of
1913), Companies Ordinance, 1984(XLVII of 1984), Companies
Ordinance, 2016 (VI of 2016) and also includes this Act unless the
context provides otherwise;

(19) “company limited by guarantee” means a company having the

liability of its members limited by the memorandum to such amount
as the members may respectively thereby undertake to contribute to
the assets of the company in the event of its being wound up;

(20) “company limited by shares” means a company; having the

liability of its members limited by the memorandum to the extent of
amount, if any, remaining unpaid on the shares respectively held by

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 them;

(21) “company secretary” means any individual appointed to perform

secretarial and other duties customarily performed by a company
secretary and declared as such, having such qualifications and
experience, as may be specified;

(22) “cost and management accountant” shall have the same meaning
as assigned to it under the Cost and Management Accountants Act,
1966 (XIV of 1966);

(23) “Court” means a Company Bench of a High Court having

jurisdiction under this Act;

(24) “debenture” includes debenture stock, bonds, term finance

certificate or any other instrument of a company evidencing a debt,
whether constituting a mortgage or charge on the assets of the
company or not;

(25) “director” includes any person occupying the position of a director,

by whatever name called;

(26) “document” includes any information or data recorded in any

legible form or through use of modern electronic devices or
techniques whatsoever, including books and papers, returns,
requisitions, notices, certificates, deeds, forms, registers,
prospectus, communications, financial statements or statement of
accounts or records maintained by financial institutions in respect of
its customers;

(27) “e-service” means any service or means provided by the

Commission for the lodging or filing of electronic documents;

(28) “electronic document” includes documents in any electronic form

and scanned images of physical documents;

(29) “employees’ stock option” means the option given to the directors,
officers or employees of a company or of its holding company or
subsidiary company or companies, if any, which gives such
directors, officers or employees, the right to purchase or to subscribe
for shares of the company at a price to be determined in the manner
as may be specified;

(30) “expert” includes an engineer, a valuer, an actuary, a chartered

accountant or a cost and management accountant and any other
person who has the power or authority to issue a certificate in
pursuance of any law for the time being in force or any other person
notified as such by the Commission;

(31) “financial institution” includes—

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 (a) any company whether incorporated within or outside
Pakistan which transacts the business of banking or any
associated or ancillary business in Pakistan through its
branches within or outside Pakistan and includes a
government savings bank, but excludes the State Bank of
Pakistan;

(b) a modaraba or modaraba management company, leasing

company, investment bank, venture capital company,
financing company, asset management company and credit
or investment institution, corporation or company; and

(c) any company authorised by law to carry on any similar

business, as the concerned Minister-in-Charge of the Federal
Government may by notification in the official Gazette,
specify;

(32) “financial period” in relation to a company or any other body

corporate, means the period (other than financial year) in respect of
which any financial statements thereof are required to be made
pursuant to this Act;

(33) “financial statements” in relation to a company, includes—

(a) a statement of financial position as at the end of the period;

(b) a statement of profit or loss and other comprehensive income

or in the case of a company carrying on any activity not for
profit, an income and expenditure statement for the period;

(c) a statement of changes in equity for the period;

(d) a statement of cash flows for the period;

(e) notes, comprising a summary of significant accounting

policies and other explanatory information;

(f) comparative information in respect of the preceding period;

and

(g) any other statement as may be prescribed;

(34) “financial year” in relation to a company or any other body

corporate, means the period in respect of which any financial
statement of the company or the body corporate, as the case may be,
laid before it in general meeting, is made up, whether that period is
a year or not;

(35) “foreign company” means any company or body corporate

incorporated outside Pakistan, which—

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 (a) has a place of business or liaison office in Pakistan whether
by itself or through an agent, physically or through electronic
mode; or

(b) conducts any business activity in Pakistan in any other

manner as may be specified;

(36) “Government” includes Federal Government or, as the case may

be, Provincial governments unless otherwise expressly provided in
this Act;

(37) “holding company”, means a company which is another company’s

holding company if, but only if, that other company is its subsidiary;

(38) “listed company” means a public company, body corporate or any

other entity whose securities are listed on securities exchange;

(39) “listed securities” means securities listed on the securities

exchange;

(40) “memorandum” means the memorandum of association of a

company as originally framed or as altered from time to time in
pursuance of company law or of this Act;

(41) “modaraba" and "modaraba company” shall have the same

meaning as assigned to it in the Modaraba Companies and Modaraba
(Floatation and Control) Ordinance, 1980 (XXXI of 1980);

(42) “mortgage or charge” means an interest or lien created on the

property or assets of a company or any of its undertakings or both
as security;

(43) “net worth” means the amount by which total assets exceed total
liabilities;

(44) “notification” means a notification published in the official Gazette

and the expression “notify” shall be construed accordingly;

(45) "officer" includes any director, chief executive, chief financial

officer, company secretary or other authorised officer of a company;

(46) “ordinary resolution” means a resolution passed by a simple

majority of such members of the company entitled to vote as are
present in person or by proxy or exercise the option to vote through
postal ballot, as provided in the articles or as may be specified, at a
general meeting;

(47) “postal ballot” means voting by post or through any electronic

mode:

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 Provided that voting through postal ballot shall be subject to
the provision in the articles of association of a company, save as
otherwise provided in this Act;
(48) “prescribed” means prescribed by rules made by the Federal
Government under this Act;

(49) “private company” means a company which, by its articles-

(a) restricts the right to transfer its shares1[, save as otherwise

provided under this Act];

(b) limits the number of its members to fifty not including

persons who are in the employment of the company; and

(c) prohibits any invitation to the public to subscribe for the

shares, if any, or debentures or redeemable capital of the
company:

Provided that, where two or more persons hold one

or more shares in a company jointly, they shall, for the
purposes of this definition, be treated as a single member;
(50) “promoter” means a person—

(a) who is named as a subscriber to the memorandum of

association of a company; or

(b) who has been named as such in a prospectus; or

(c) who has control over affairs of the company, directly or

indirectly whether as a shareholder, director or otherwise; or

(d) in accordance with whose advice, directions or instructions

the board of the company is accustomed to act:

Provided that—
(i) nothing in sub-clause (d) shall apply to a person who
is acting merely in a professional capacity; and

(ii) nothing contained in sub-clause (d) shall apply to the

Commission, registrar or any authorised officer by
virtue of enforcement or regulation of the provisions
of this Act or any rules, regulations, instructions,
directions, orders thereof;
(51) “prospectus” shall have the same meaning as assigned to it under
the Securities Act, 2015 (III of 2015);

1
Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.

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(52) “public company” means a company which is not a private
company;

(53) “public interest company” means a company which falls under the
criteria as laid down in the Third Schedule to this Act or deemed to
be such company under section 216;

(54) “public sector company” means a company, whether public or

private, which is directly or indirectly controlled, beneficially
owned or not less than fifty-one percent of the voting securities or
voting power of which are held by the Government or any agency
of the Government or a statutory body, or in respect of which the
Government or any agency of the Government or a statutory body,
has otherwise power to elect, nominate or appoint majority of its
directors and includes a public sector association not for profit,
licenced under section 42:

Provided that nomination of directors by the Commission on

the board of the securities exchange or any other entity or operation
of any other law shall not make it a public sector company;

(55) “redeemable capital” includes sukuk and other forms of finances

obtained on the basis of participation term certificate (PTC),
musharika certificate, term finance certificate (TFC) or any other
security or obligation not based on interest, representing an
instrument or a certificate of specified denomination, called the face
value or nominal value, evidencing investment of the holder in the
capital of the company other than share capital, on terms and
conditions of the agreement for the issue of such instrument or
certificate or such other certificate or instrument as the concerned
Minister-in-Charge of the Federal Government may, by notification
in the official Gazette, specify for the purpose.

Explanation.- “sukuk” represents redeemable investment in

certificates of equal nominal value representing undivided shares in
ownership of tangible assets of a particular project or specific
investment activity, usufruct and services;
(56) “register of companies” means the register of companies
maintained by the registrar on paper or in any electronic form under
this Act;

(57) “registrar” means registrar, an additional registrar, an additional

joint registrar, a joint registrar, a deputy registrar, an assistant
registrar or such other officer as may be designated by the
Commission, performing duties and functions under this Act;

(58) “regulations” means the regulations made by the Commissionunder

this Act;

(59) “rules” means rules made by the Federal Government under this
Act;

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 (60) “scheduled bank” shall have the same meaning as assigned to it
under the State Bank of Pakistan Act, 1956 (XXXIII of 1956);

(61) “securities” include the securities as provided in sub-clauses (a) to

(i) of clause (lii) of section 2 of the Securities Act, 2015 (III of 2015)
whether listed or not;

(62) “securities exchange” means a public company licenced by the

Commission as a securities exchange under the Securities Act, 2015
(III of 2015);

(63) “share” means a share in the share capital of a company;

(64) “Shariah compliant company” means a company which is

conducting its business according to the principles of Shariah;

(65) “single member company” means a company which has only one
member;

(66) “special resolution” means a resolution which has been passed by

a majority of not less than three-fourths of such members of the
company entitled to vote as are present in person or by proxy or vote
through postal ballot 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;

(67) “specified” means specified through regulations made under this

Act;
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[(67A) “startup company” means a company that—

(a) is in existence for not more than ten years from the date of
its incorporation or such other period or periods as may be
specified;

(b) has a turnover for any of the financial years since

incorporation that is not greater than five hundred million
rupees or such other amount or amounts as may be specified;

(c) is working towards the innovation, development or

improvement of products or processes or services or is a
scalable business model with a high potential of employment
generation or wealth creation or for such other purposes as
may be specified; or

2
Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.

10
 (d) such other companies or classes of companies as may be
notified by the Commission:

Provided that a company formed by the splitting up

or re-construction of an existing company shall not be
considered as a startup company;]

(68) “subsidiary company” or “subsidiary”, in relation to any other

company (that is to say the holding company), means a company in
which the holding company-

(a) controls the composition of the board; or

(b) exercises or controls more than one-half of its voting

securities either by itself or together with one or more of its
subsidiary companies:

Provided that such class or classes of holding companies

shall not have layers of subsidiaries beyond such numbers, as may
be notified,

Explanation.- For the purposes of this clause-

(i) a company shall be deemed to be a subsidiary company of
the holding company even if the control referred to in sub-
clause (a) or sub-clause (b) is of another subsidiary company
of the holding company;

(ii) the composition of a company’s board shall be deemed to be

controlled by another company if that other company by
exercise of power exercisable by it at its discretion can
appoint or remove all or a majority of the directors;

(iii) the expression “company” includes any body corporate;

(iv) “layer” in relation to a holding company means its

subsidiary or subsidiaries;

(69) “Table” means Table in a Schedule to this Act;

(70) “turnover” means the aggregate value of sale, supply or distribution

of goods or on account of services rendered, or both, net of
discounts, if any, held by the company during a financial year;

(71) “unlimited company” means a company not having any limit on

the liability of its members;

(72) “valuer” means a valuer registered with the Commission;

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 (73) “voting right” means the right of a member of a company to vote
on any matter in a meeting of the company either present in person
or through video-link or by proxy or by means of postal ballot:

Provided that attending of meeting through video-link shall

be subject to such facility arranged by the company and in the
manner as may be specified, save as otherwise provided in this Act;
and

(74) “wholly owned subsidiary” a company shall be deemed to be a

wholly owned subsidiary of another company or the statutory body
if all its shares are owned by that other company or the statutory
body.

(2) The words and expressions used and not defined in this Act but defined
in the Securities Act, 2015 (III of 2015) or the Securities and Exchange Commission
of Pakistan Act, 1997(XLII of 1997) or the Central Depositories Act, 1997 (XIX of
1997) shall have the meanings respectively assigned to them in thoseActs.

4.Act to override.—Save as otherwise expressly provided herein—

(a) the provisions of this Act shall have effect notwithstanding anything
contained in any other law or the memorandum or articles of a
company or in any contract or agreement executed by it or in any
resolution passed by the company in general meeting or by its
directors, whether the same be registered, executed or passed, as the
case may be, before or after the coming into force of the said
provisions; and

(b) any provision contained in the memorandum, articles, contract,

agreement, arrangement or resolution aforesaid shall, to the extent
to which it is repugnant to the aforesaid provisions of this Act,
become, or be, void, as the case may be.
PART III
POWERS AND FUNCTIONS OF THE SECURITIES AND EXCHANGE
COMMISSION OF PAKISTAN

7.Powers and functions of the Commission.— (1) The Commissionshall exercise such
powers and perform such functions as are conferred on it by or under this Act.

(2) The powers and functions of the Commission under this Act shall be
in addition to and not in derogation to the powers and functions of the Commission
under the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of
1997).

PROVISIONS WITH RESPECT TO NAMES OF COMPANIES

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10.Prohibition of certain names.—(1) No company shall beregistered by a name which
contains such word or expression, as may be notified by the Commission or in the opinion
of the registrar is—

(a) identical with or resemble or similar to the name of a company; or

(b) inappropriate; or

(c) undesirable; or

(d) deceptive; or

(e) designed to exploit or offend religious susceptibilities of the people;

or

(f) any other ground as may be specified.

(2) Except with prior approval in writing of the Commission, no

company shall be registered by a name which contains any word suggesting or
calculated to suggest—
(a) the patronage of any past or present Pakistani or foreign head of
state;

(b) any connection with the Federal Government or a Provincial

Government or any department or authority or statutory body of any
such Government;

(c) any connection with any corporation set up by or under any Federal
or Provincial law;

(d) the patronage of, or any connection with, any foreign Government
or any international organisation;

(e) establishing a modaraba management company or to float a

modaraba; or

(f) any other business requiring licence from the Commission.

(3) Whenever a question arises as to whether or not the name of a

company is in violation of the foregoing provisions of this section, decision of the
Commission shall be final.
(4) A person may make an application, in such form and manner and
accompanied by such fee as may be specified, to the registrar for reservation of a
name set out in the application for a period not exceeding sixty days.

(5) Where it is found that a name was reserved under sub-section (4),
by furnishing false or incorrect information, such reservation shall be cancelled and
in case the company has been incorporated, it shall be directed to change its name.
The person making application under sub-section (4) shall be liable to a penalty not
exceeding level 1 on the standard scale.

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 (6) If the name applied for under sub-section (4) is refused by the
registrar, the aggrieved person may within thirty days of the order of refusal prefer
an appeal to the Commission.

(7) An order of the Commission under sub-section (6) shall be final and
shall not be called in question before any court or other authority.

11.Rectification of name of a company.—(1) A company which, through inadvertence or

otherwise, is registered by a name in contravention of the provisions of section 10 or the
name was obtained by furnishing false or incorrect information—

(a) may, with approval of the registrar, change its name; and

(b) shall, if the registrar so directs, within thirty days of receipt of such
direction, change its name with approval of the registrar:

Provided that the registrar shall, before issuing a direction for change of the
name, afford the company an opportunity to make representation against the
proposed direction.

(2) If the company fails to report compliance with the direction issued
under sub-section (1) within the specified period, the registrar may enter on the
register a new name for the company selected by him, being a name under which
the company may be registered under this Act and issue a certificate of
incorporation on change of name for the purpose of section 13.

(3) If a company makes default in complying with the direction issued

by the registrar under sub-section (1) or continue using previous name after the
name has been changed by the registrar under sub-section (2), shall be liable to a
penalty of level 1 on the standard scale.

12.Change of name by a company.—A company may, by special resolution and with

approval of the registrar signified in writing, change its name:

Provided that no approval under this section shall be required where the
change in the name of a company is only the addition thereto, or the omission
therefrom, of the expression “(Private)” or “(SMC-Private)” or “(Guarantee)
Limited” or “Limited” or “Unlimited”, as the case may be, consequent upon the
conversion of the status of a company in accordance with the provisions of sections
46 to 49.

13.Registration of change of name and effect thereof.—(1) Where acompany changes its
name the registrar shall enter the new name on the register in place of the former name, and
shall issue a certificate of incorporation altered to meet the circumstances of the case and, on
the issue of such a certificate, the changeof name shall be complete.

(2) Where a company changes its name it shall, for a period of ninety
days from the date of issue of a certificate by the registrar under sub-section (1),

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 continue to mention its former name along with its new name on the outside of
every office or place in which its business is carried on and in every document or
notice referred to in section 22.

(3) The change of name shall not affect any rights or obligations of the
company, or render defective any legal proceedings by or against the company and
any legal proceedings that might have been continued or commenced against the
company by its former name may be continued by or commenced against the
company by its new name.

14.Mode of forming a company.— (1) Any—

(a) three or more persons associated for any lawful purpose may, by
subscribing their names to a memorandum of association and
complying with the requirements of this Act in respect of
registration, form a public company; or

(b) two or more persons so associated may in the like manner form a
private company; or

(c) one person may form a single member company by complying with
the requirements in respect of registration of a private company and
such other requirement as may be specified. The subscriber to the
memorandum shall nominate a person who in the event of death of
the sole member shall be responsible to-

(i) transfer the shares to the legal heirs of the deceased subject
to succession to be determined under the Islamic law of
inheritance and in case of a non-Muslim members, as per
their respective law; and

(ii) manage the affairs of the company as a trustee, till such time
the title of shares are transferred:

Provided that where transfer by virtue of this sub-section is made to more

than one legal heir, the company shall cease to be a single member company and
comply with the provisions of section 47.

(2) A company formed under this section may be a company with or

without limited liability, that is to say—

(a) a company limited by shares; or

(b) a company limited by guarantee; or

(c) an unlimited company.

15.Liability for carrying on business with less than three or, in the case of a private
company, two members.—If at any time the number of membersof a company is reduced,
in the case of a private company other than a single member company, below two or in the
case of any other company, below three and

15
 the company carries on business for more than one hundred and eighty days while
the number is so reduced, every person who is a member of the company during
the time that it so carries on business after those one hundred and eighty days and
is cognizant of the fact that it is carrying on business with fewer than two members
or three members, as the case may be, shall be severally liable for payment of whole
debts of the company contracted during that time and may be sued therefor without
joinder in the suit of any other member.
GENERAL PROVISIONS WITH RESPECT TO REGISTRATION OF
MEMORANDUM AND ARTICLES

16.Registration of memorandum and articles.—(1) There shall be filed with the registrar
an application on the specified form containing the followinginformation and documents for
incorporation of a company, namely:—

(a) a declaration on the specified form, by an authorized intermediary

or by a person named in the articles as a director, of compliance with
all or any of the requirements of this Act and the rules and
regulations made thereunder in respect of registration and matters
precedent or incidental thereto;

(b) memorandum of association of the proposed company signed by all

subscribers, duly witnessed and dated;

(c) there may, in the case of a company limited by shares and there shall,
in the case of a company limited by guarantee or an unlimited
company, be the articles of association signed by the subscribers
duly witnessed and dated; and

(d) an address for correspondence till its registered office is established

and notified.

(2) Where the registrar is of the opinion that any document or

information filed with him in connection with the incorporation of the company
contains any matter contrary to law or does not otherwise comply with the
requirements of law or is not complete owing to any defect, error or omission or is
not properly authenticated, the registrar may either require the company to file a
revised document or remove the defects or deficiencies within the specified period.
(3) Where the applicant fails under sub-section (2) to remove the
deficiencies conveyed within the specified period, the registrar may refuse
registration of the company.

(4) If the registrar is satisfied that all the requirements of this Act and
the rules or regulations made thereunder have been complied with, he shall register
the memorandum and other documents delivered to him.

(5) On registration of the memorandum of a company, the registrar shall

issue a certificate that the company is incorporated.

(6) The certificate of incorporation shall state—

16
 (a) the name and registration number of the company;

(b) the date of its incorporation;

(c) whether it is a private or a public company;

(d) whether it is a limited or unlimited company; and

(e) if it is limited, whether it is limited by shares or limited by guarantee.

(7) The certificate under sub-section (5) shall be signed by the registrar
or authenticated by the registrar’s official seal.
(8) The certificate under sub-section (5) shall be conclusive evidence
that the requirements of this Act as to registration have been complied with and that
the company is duly registered under this Act.
(9) If registration of the memorandum is refused, the subscribers of the
memorandum or any one of them authorised by them in writing may, within thirty
days of the order of refusal, prefer an appeal to the Commission.

(10) An order of the Commission under sub-section (9) shall be final and
shall not be called in question before any court or other authority.

17.Effect of memorandum and articles.—(1) The memorandum andarticles shall, when

registered, bind the company and the members thereof to the same extent as if they
respectively had been signed by each member and containeda covenant on the part of each
member, his heirs and legal representatives, to observe and be bound by all the provisions
of the memorandum and of the articles,subject to the provisions of this Act.

(2) 4[All moneys payable by a subscriber in pursuance of his undertaking

in the memorandum of association against the shares subscribed shall be a debt due
from him and be payable in such time, manner and condition as may be notified by
the Commission.]

(3) 5
[…]

4
Substituted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021. The substituted
sub-section (2) was read as under:
“(2) All moneys payable by a subscriber in pursuance of his undertaking in the
memorandum of association against the shares subscribed shall be a debt due from him
and be payable in cash within thirty days from the date of incorporation of the company:
Provided that in case the share money is not deposited within the prescribed time,
the shares shall be deemed to be cancelled and the name of that subscriber shall be
removed from the register and the registrar shall give such direction to the company in
each case as deemed appropriate for compliance with the provisions of the company law.”
5
Omitted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021. The omitted sub-
section (3) was read as under:
“(3) The receipt of subscription money from the subscribers shall be reported by the
company to the registrar on a specified form within forty-five days from the date of
incorporation of the company, accompanied by a certificate by a practicing chartered

17
 (4) Any violation of this section 6[direction given by the registrar] shall
be an offence liable to a penalty of level 1 on the standard scale.

18.Effect of registration.—The registration of the company has thefollowing effects, as

from the date of incorporation—

(a) the subscribers to the memorandum, together with such other

persons as may from time to time become members of the company,
are a body corporate by the name stated in the certificate of
incorporation;

(b) the body corporate is capable of exercising all the functions of an

incorporated 7[company and having perpetual succession];

(c) the status and registered office of the company are as stated in, or in
connection with, the application for registration;

(d) in case of a company having share capital, the subscribers to the

memorandum become holders of the initial shares; and

(e) the persons named in the articles of association as proposed directors,

are deemed to have been appointed to that office.

COMMENCEMENT OF BUSINESS BY A PUBLIC COMPANY

19.Commencement of business by a public company.—(1) A publiccompany shall not

start its operations or exercise any borrowing powers unless—

(a) shares held subject to payment of the whole amount thereof in cash
have been allotted to an amount not less in the whole than the
minimum subscription and the money has been received by the
company;

(b) every director of the company has paid to the company full amount
on each of the shares taken or contracted to be taken by him and for
which he is liable to pay in cash;

(c) no money is or may become liable to be repaid to applicants for any

shares which have been offered for public subscription;

(d) there has been filed with the registrar a duly verified declaration by
the chief executive or one of the directors and the secretary in the

accountant or a cost and management accountant verifying receipt of the money so

subscribed.”
6
Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
7
Substituted the words “company, having perpetual succession and a common seal” vide the
Companies (Amendment) Act, 2021 dated 1st December, 2021.

18
 specified form that the aforesaid conditions have been complied
with; and

(e) in the case of a company which has not issued a prospectus inviting
the public to subscribe for its shares, there has been filed with the
registrar a statement in lieu of prospectus as per the Second Schedule
annexed to this Act.

Explanation.—“minimum subscription” means the amount, if any, fixed

by the memorandum or articles of association as minimum subscription upon which
the directors may proceed to allotment or if no amount is so fixed and specified, the
whole amount of the share capital other than that issued or agreed to be issued as
paid up otherwise than in cash.

(2) The registrar shall, on filing of a duly verified declaration in

accordance with the provisions of sub-section (l) and after making such enquiries
as he may deem fit to satisfy himself that all the requirements of this Act have been
complied with in respect of the commencement of business and matters precedent
and incidental thereto, accept and register all the relevant documents.

(3) The acceptance and registration of documents under sub-section (2)

shall be a conclusive evidence that the company is entitled to start its operations
and exercise any borrowing powers.

(4) Nothing in this section shall apply—

(a) to a company converted from private to a public;

(b) to a company limited by guarantee and not having a share capital.

MEMORANDUM AND ARTICLES OF ASSOCIATION

27.Memorandum of company limited by shares.—In the case of acompany limited by

shares-

(A) the memorandum shall state—

(i) the name of the company with the word “Limited” as last
word of the name in the case of a public limited company,
the parenthesis and words “(Private) Limited” as last words
of the name in the case of a private limited company, and the
parenthesis and words “(SMC-Private) Limited” as last
words of the name in the case of a single member company;

(ii) the Province or the part of Pakistan not forming part of a

Province, as the case may be, in which the registered office
of the company is to be situate;

(iii) principal line of business:

19
 Provided that—

(a) the existing companies shall continue with their

existing memorandum of association and the object
stated at serial number 1 of the object clause shall be
treated as the principal line of business;

(b) if the object stated at serial number 1 of the object

clause is not the principal line of business of the
company, it shall be required to intimate to the
registrar their principal line of business within such
time from commencement of this Act and in the form
as may be specified. A revised copy of the
memorandum of association indicating therein its
principal business at serial number 1 of the object
clause shall also be furnished to the registrar; and

(c) the existing companies or the companies to be

formed to carry on or engage in any business which
is subject to a licence or registration, permission or
approval shall mention the businesses as required
under the respective law and the rules and regulations
made thereunder;
(iv) an undertaking as may be specified;

(v) that the liability of the members is limited; and

(vi) the amount of share capital with which the company

proposes to be registered and the division thereof into shares
of a fixed amount;

(B) no subscriber of the memorandum shall take less than one share; and

(C) each subscriber of the memorandum shall write opposite to his name
the number of shares he agrees to take.

28.Memorandum of company limited by guarantee.—(1) In the caseof a company limited

by guarantee the memorandum shall state—

(a) the name of the company with the parenthesis and words
"(Guarantee) Limited" as last words of its name;

(b) the Province or the part of Pakistan not forming part of a Province,
as the case may be, in which the registered office of the company is
to be situate;

(c) principal line of business:

Provided that—

(i) the existing companies shall continue with their existing

memorandum of association and the object stated at serial
20
 number 1 of the object clause shall be treated as the principal
line of business;

(ii) if the object stated at serial number 1 of the object clause is

not the principal line of business of the company, it shall be
required to intimate to the registrar their principal line of
business within such time from the commencement of this
Act and in the form as may be specified. A revised copy of
the memorandum of association indicating therein its
principal business at serial number 1 of the object clause
shall also be furnished to the registrar; and

(iii) the existing companies or the companies to be formed to

carry on or engage in any business which is subject to a
licence or registration, permission or approval shall mention
the businesses as required under the respective law;

(d) an undertaking as may be specified;

(e) that the liability of the members is limited; and

(f) such amount as may be required, not exceeding a specified amount
that each member undertakes to contribute to the assets of the
company in the event of its being wound up while he is a member
or within one year afterwards for payment of the debts and liabilities
of the company contracted before he ceases to be a member and of
the costs, charges and expenses of winding up and for adjustment of
rights of the contributories among themselves.

(2) If the company has a share capital, the memorandum shall also statethe
amount of share capital with which the company proposes to be registered and the
division thereof into shares of a fixed amount and the number of shares taken by
each subscriber.
29.Memorandum of unlimited company.—In the case of an unlimited company the
memorandum shall state—

(a) the name of the company with the word “Unlimited” as last words
of its name;

(b) the Province or the part of Pakistan not forming part of a Province,
as the case may be, in which registered office of the company is to
be situate;

(c) principal line of business:

Provided that—

(i) the existing companies shall continue with their existing

memorandum of association and the object stated at serial number 1
of the object clause shall be treated as the principal line of business;

(ii) if the object stated at serial number 1 of the object clause is not the
principal line of business of the company, it shall be required to
21
 intimate to the registrar their principal line of business within such
time from the commencement of this Act and in the form as may be
specified. A revised copy of the memorandum of association
indicating therein its principal business at serial number 1 of the
object clause shall also be furnished to the registrar; and

(iii) the existing companies or the companies to be formed to carry on or

engage in any business which is subject to a licence or registration,
permission or approval shall mention the businesses as required
under the respective law; and

(d) an undertaking as may be specified;

(e) that the liability of the members is unlimited.

(2) If the company has a share capital, the memorandum shall also statethe
amount of share capital with which the company proposes to be registered and the
number of shares taken by each subscriber.

30.Borrowing powers to be part of memorandum.—Notwithstanding anything contained in

this Act or in any other law for the time being in force or the memorandum and articles, the
memorandum and articles of acompany shall be deemed to include and always to have included
the power to enterinto any arrangement for obtaining loans, advances, finances or credit, as
defined in the Banking Companies Ordinance, 1962 (LVII of 1962) and to issue other securities
not based on interest for raising resources from a scheduled bank, a financial institution or
general public.

31.Memorandum to be printed, signed and dated.—Thememorandum shall be—

(a) printed in the manner generally acceptable;

(b) divided into paragraphs numbered consecutively;

(c) signed by each subscriber, who shall add his present name in full, his
occupation9[, nationality,] usual residential address and such other
particulars as may be specified, in the presence of a witness who shall
attest the signature and shall likewise add his particulars; and

(d) dated.

32.Alteration of memorandum.—(1) Subject to the provisions of thisAct, a company may by

special resolution alter the provisions of its memorandum so as to—

(a) change the place of its registered office from.—

(i) one Province to another Province or Islamabad Capital

Territory and vice versa; or

(ii) one Province or Islamabad Capital Territory to a part of

Pakistan not forming part of a Province and vice versa;
or

22
 (b) change its principal line of business; or

(c) adopt any business activity or any change therein which is subject
to licence, registration, permission or approval under any law.

(2) The alteration shall not take effect until and except in so far as it is
confirmed by the Commission on petition:

Provided that an alteration so as to change its principal line of business shall

not require confirmation by the Commission.

(3) A copy of the order confirming the alteration duly certified by an

authorised officer of the Commission shall be forwarded to the company and to the
registrar within seven days from the date of the order.

(4) A copy of the memorandum of association as altered pursuant to the

order under this section shall within thirty days from the date of the order be filed
by the company with the registrar, who shall register the same and issue a certificate
which shall be conclusive evidence that all the requirements of this Act with respect
to the alteration and the confirmation thereof have been complied with and
thenceforth the memorandum so filed shall be the memorandum of the company:

Provided that the Commission may by order, at any time on an application

by the company, on sufficient cause shown extend the time for the filing of
memorandum with the registrar under this section for such period as it thinks
proper.
(5) Where the alteration involves a transfer of registered office from the
jurisdiction of one company registration office to another, physical record of the
company shall be transferred to the registrar concerned of the company registration
office in whose jurisdiction the registered office of the company has been shifted.
(6) Where the alteration involves change in principal line of business,
the company shall file the amended memorandum of association with the registrar
within thirty days, which shall be recorded for the purposes of this Act.

33.Powers of Commission when confirming alteration.—TheCommission may make an

order confirming the alteration on such terms and conditions as it thinks fit and make such
order as to costs as it thinks proper.

34.Exercise of discretion by Commission.—The Commission shall inexercising its discretion

under sections 32 and 33 have regard to the rights and interests of the members of the company
or of any class of them, as well as to the rights and interests of the creditors and may, if it thinks
fit, give such directions and make such orders as it may think expedient for facilitating or
carrying into effect any such arrangement.

35.Effect of alteration in memorandum or articles.—Not withstanding anything contained

in the memorandum or articles of a company, no member of the company shall be bound by an
alteration made in the memorandumor articles after the date on which he became a member if
and so far as the alterationrequires him to take or subscribe for more shares than the number
held by him at the date on which the alteration is made or in any way increases his liability as
at that date to contribute to the share capital of or otherwise to pay money to the company:

23
 Provided that this section shall not apply in any case where the member
agrees in writing either before or after the alteration is made to be bound thereby.
ARTICLES OF ASSOCIATION
36.Registration of articles.—(1) There may, in the case of company limited by shares and
there shall, in the case of a company limited by guarantee or an unlimited company, be registered
with the memorandum, articles of associationsigned by the subscribers to the memorandum and
setting out regulations for the company.

(2) Articles of association of a company limited by shares may adopt all

or any of the regulations contained in Table A in the First Schedule to this Act.

(3) In the case of an unlimited company or a company limited by

guarantee, the articles, if the company has a share capital, shall state the amount of
share capital with which the company proposes to be registered.

(4) In the case of an unlimited company or a company limited by

guarantee, if the company has no share capital, the articles shall state the number
of members with which the company proposes to be registered.

(5) In the case of a company limited by shares and registered after the
commencement of this Act, if articles are not registered, or, if articles are registered,
in so far as the articles do not exclude or modify the regulations in Table A in the
First Schedule to this Act, those regulations shall, so far as applicable, be the
regulations of the company in the same manner and to the same extent as if they
were contained in duly registered articles.

(6) The articles of every company shall be explicit and without

ambiguity and, without prejudice to the generality of the foregoing, shall list and
enumerate the voting and other rights attached to the different classes of shares and
other securities, if any, issued or to be issued by it.
(7) If a company contravenes the provisions of its articles of
association, the company and every officer of the company shall be liable to a
penalty not exceeding of level 1 on the standard scale.

37.Articles to be printed, signed and dated.—The articles shall be—

(a) printed in the manner generally acceptable;

(b) divided into paragraphs numbered consecutively;

(c) signed by each subscriber, who shall add his present name in full,
his occupation10[, nationality,] usual residential address and such
other particulars as may be specified, in the presence of a witness
who shall attest the signature and shall likewise add his particulars;
and

(d) dated.

38.Alteration of articles.—(1) Subject to the provisions of this Act and

24
 to the conditions contained in its memorandum, a company may, by special resolution,
alter its articles and any alteration so made shall be as valid as if originally contained
in the articles and be subject in like manner to alteration by special resolution:

Provided that, where such alteration affects the substantive rights or

liabilities of members or of a class of members, it shall be carried out only if a
majority of at least three-fourths of the members or of the class of members affected
by such alteration, as the case may be, exercise the option through vote personally
or through proxy vote for such alteration.

(2) A copy of the articles of association as altered shall, within thirty days
from the date of passing of the resolution, be filed by the company with the registrar
and he shall register the same and thenceforth the articles so filed shall bethe articles
of the company.

39.Copies of memorandum and articles to be given to members.—

(1) Each company shall send to every member, at his request and within fourteen
days thereof, on payment of such sum, as the company may fix, a copy of the
memorandum and the articles, if any.

(2) If a company makes default in complying with the requirements of

sub-section (1), it shall be liable to a penalty not exceeding of level 1 on the standard
scale.

40.Alteration of memorandum or articles to be noted in every copy.—(1) Where an

alteration is made in the memorandum or articles of a company, every copy of the memorandum
or articles issued after the date of the alteration shall conform to the memorandum or articles as
so altered.

(2) If, where any such alteration has been made, the company at any time
after the date of the alteration issues any copies of the memorandum or articleswhich
do not conform to the memorandum or articles as so altered it shall be liableto a
penalty not exceeding of level 1on the standard scale for each copy so issued and
every officer of the company who is in default shall be liable to the like penalty.

41.Form of memorandum and articles.—The form of—

(a) memorandum of association of a company limited by shares;

(b) memorandum and articles of association of a company limited by

guarantee and not having a share capital;

(c) memorandum and articles of association of a company limited by

guarantee and having a share capital; and

(d) memorandum and articles of association of an unlimited company

having a share capital,

shall be respectively in accordance with the forms set out in Tables B, C, D and E
in the First Schedule or as near thereto as circumstances admit.
42.Licencing of associations with charitable and not for profit objects.—(1) Where it is
proved to the satisfaction of the Commission that an association is to be formed as a limited
25
company—

(a) for promoting commerce, art, science, religion, health, education,

research, sports, protection of environment, social welfare, charity
or any other useful object;

(b) such company—

(i) intends to apply the company’s profits and other income in

promoting its objects; and

(ii) prohibits the payment of dividends to the company’s

members; and

(c) such company’s objects and activities are not and shall not, at any
time, be against the laws, public order, security, sovereignty and
national interests of Pakistan,

the Commission may, by licence for a period to be specified, permit the association
to be registered as a public limited company, without addition of the word
“Limited” or the expression “(Guarantee) Limited”, to its name.

(2) A licence under sub-section (1) may be granted on such conditions

and subject to such regulations as the Commission thinks fit and those conditions
shall be inserted in and deemed part of the memorandum and articles, or in one of
those documents.

(3) Memorandum and articles of association of a company, licenced

under this section, shall be in accordance with the form set out in Table F in the
First Schedule or as near thereto as circumstances admit and approved by the
Commission.

(4) The association on registration under this section shall enjoy all the
privileges and be subject to all the obligations of a limited company.

(5) The Commission may at any time by order in writing, revoke a

licence granted under sub-section (1), with such directions as it may deem fit, on
being satisfied that—

(a) the company or its management has failed to comply with any of the
terms or conditions subject to which a licence is granted; or

(b) any of the requirements specified in sub-section (1) or any

regulations made under this section are not met or complied with; or

(c) affairs of the company are conducted in a manner prejudicial to

public interest; or

26
 (d) the company has made a default in filing with the registrar its
financial statements or annual returns for immediately preceding
two consecutive financial years; or

(e) the company has acted against the interest, sovereignty and integrity
of Pakistan, the security of the State and friendly relations with
foreign States; or

(f) the number of members is reduced, below three; or

(g) the company is—

(i) conceived or brought forth for, or is or has been carrying on,

unlawful or fraudulent activities; or

(ii) run and managed by persons who fail to maintain proper and
true accounts or they commit fraud, misfeasance or
malfeasance in relation to the company; or

(iii) run and managed by persons who are involved in terrorist

financing or money laundering; or

(iv) managed by persons who refuse to act according to the

requirements of the memorandum or articles or the
provisions of this Act or failed to carry out the directions or
decisions of the Commission or the registrar given in
exercise of the powers conferred by this Act; or

(v) not carrying on its business or is not in operation for one

year; or

(h) it is just and equitable that the licence should be revoked:

Provided that before a licence is so revoked, the Commission shall give to

the company a notice, in writing of its intention to do so, and shall afford the
company an opportunity to be heard.

(6) Notwithstanding anything contained in this Act or any other law, no

association shall be registered as a company with the objects as mentioned in clause
(a) and the conditions provided in clause (b) of sub-section (1) without a licence
granted in pursuance of this section.

43.Effect of revocation of licence.— (1) On revocation of licence ofa company under

section 42, by the Commission—

(a) the company shall stop all its activities except the recovery of money
owed to it, if any;

(b) the company shall not solicit or receive donations from any source;
and

27
 (c) all the assets of the company after satisfaction of all debts and
liabilities shall, in the manner as may be specified, be transferred to
another company licenced under section 42, preferably having
similar or identical objects to those of the company, within ninety
days from the revocation of the licence or such extended period as
may be allowed by the Commission:

Provided that a reasonable amount to meet the expenses of voluntary

winding up or making an application to the registrar for striking the name
of the company off the register in terms of sub-section (3), may be retained
by the company.

(2) After compliance of the requirements mentioned in sub-section (1),

the board of the company shall file within fifteen days from the date of such
compliance, a report to the registrar containing such information and supported
with such documents as may be specified.

(3) Within thirty days of acceptance of the report by the registrar,

submitted by the company under sub-section (2), the board shall initiate necessary
proceedings for winding up of the company voluntarily or where it has no assets
and liabilities make an application to the registrar for striking the name of the
company off the register.

(4) If the company fails to comply with any of the requirements of this
section within the period specified or such extended period as may be allowed by
the Commission, the Commission may, without prejudice to any other action under
the law, appoint an administrator to manage affairs of the company subject to such
terms and conditions as may be specified in the order and initiate necessary
proceedings for winding up of the company.

(5) The provisions of section 291, except those of sub-section (1)

thereof, shall apply mutatis mutandis to the administrator appointed under this
section.

(6) Where any assets of the company are transferred, in consequence of

revocation of licence, to another company licenced under section 42, the members
and officers of the first mentioned company or any of their family members shall
not be eligible to hold any office in the later company for a period of five years
from the date of transfer of such assets.

(7) Where the licence of a company has been revoked before the
commencement of this Act and such company is not in the process of winding up,
this section shall apply as if the licence was revoked immediately after the
commencement of this Act.

44.Penalty.—If a company licenced under section 42 or any of its officers makes default in
complying with any of the requirements of sections 42 and 43 or the rules or regulations or the
terms or conditions to which the licence is subject or any directions contained in a revocation
order, it shall without prejudiceto any other action be punishable by a penalty not exceeding
of level 2 on the

28
 standard scale.

45.Provision as to companies limited by guarantee.—(1) A companylimited by guarantee may

have share capital.
(2) In the case of a company limited by guarantee and not having a share
capital, every provision in the memorandum or articles or in any resolution of the
company purporting to give any person a right to participate in the divisible profits
of the company otherwise than as a member shall be void.

(3) For the purpose of the provisions of this Act relating to the
memorandum of a company limited by guarantee and of sub-section (2), every
provision in the memorandum or articles, or in any resolution, of a company limited
by guarantee purporting to divide the undertaking of the company into shares or
interests shall be treated as a provision for a share capital, notwithstanding that the
nominal amount or number of the shares or interests is not mentioned thereby.

PART V
PROSPECTUS, ALLOTMENT, ISSUE AND TRANSFER OF SHARES
AND OTHER SECURITIES

57.Prospectus.—(1) No prospectus shall be issued by or on behalf ofa company unless on or

before the date of its publication, a copy thereof signed by every person who is named therein
as a director or proposed director of the company has been filed with the registrar.
(2) In case of any contravention of this section, the company and every
person who is a party to the issue, publication or circulation of the prospectus shall
be liable to a penalty not exceeding of level 2 on the standard scale.

58.Classes and kinds of share capital.—A company having share capital shall issue only fully
paid shares which may be of different kinds and classes as provided by its memorandum and
articles:

Provided that different rights and privileges in relation to the different kinds
and classes of shares may only be conferred in such manner as may be specified.

59.Variation of shareholders’ rights.—(1) The variation of the right of shareholders of any

class shall be effected only in the manner laid down in section 38.

(2) Not less than ten percent of the class of shareholders who are
aggrieved by the variation of their rights under sub-section (1) may, within thirty
days of the date of the resolution varying their rights, apply to the Court for an order
cancelling the resolution:

Provided that the Court shall not pass such an order unless it is shown to its
satisfaction that some facts which would have had a bearing on the decision of the
shareholders were withheld by the company in getting the aforesaid resolution
passed or, having regard to all the circumstances of the case, that the variation
would unfairly prejudice the shareholders of the class represented by the applicant.

29
 (3) An application under sub-section (2) may be made on behalf of the
shareholders entitled to make it by such one or more of their number as they may
authorise in writing in this behalf.

(4) The company shall, within fifteen days of the service on the
company of any order made on any such application, forward a copy of the order
to the registrar and, if default is made in complying with this provision, the person
making the default shall be guilty of an offence under this section and be liable to
a penalty not exceeding of level 1 on the standard scale.

(5) The expression “variation” under this section includes abrogation,

revocation or enhancement.

24. Further issue of capital.—(1) Where the directors decide to

increase share capital of the company by issue of 13[further shares], such shares
shall be offered:

(a) to persons who, at the date of the offer, are members of thecompany
in proportion to the existing shares held by 14[such members
through] sending a letter of offer subject to the followingconditions,
namely—

(i) the shares so offered shall be strictly in proportion to the

shares already held in respective kinds and classes;

(ii) the letter of offer shall state the number of shares offered
and limiting a time not being less than fifteen days and not
exceeding thirty days from the date of the offer within
which the offer, if not accepted, shall be deemed to have
been declined;

(iii) in the case of a listed company any member, not interested

to subscribe, may exercise the right to renounce the shares
offered to him in favour of any other person, before the date
of expiry stated in the letter of offer; and

if the whole or any part of the shares offered under this section is declined or is not subscribed,
the directors may allot such shares in such manner as they may deem fit within a period of
thirty days from the close of the offer as provided under sub-clause (ii) above or within such
extended time not exceeding thirty day with the approval of the Commission15[;]
16
[…]
17
(b) [in case of public company and subject to approval of the
Commission, to any person on the basis of a special resolution
either for cash or for consideration other than cash:

Provided that the value of any non-cash asset, net worth of

undertaking, service, benefit or intellectual property shall be
30
 determined by a valuer.]
18
[(c) in case of a private company and subject to its articles and special
resolution, to any person, either for cash or for consideration other
than cash on such conditions and requirements as may be notified.]

(2) The letter of offer referred to in sub-clause (ii) of clause (a) of sub-
section (1) 19[shall be] duly signed by at least two directors 20[and] dispatched
through registered post or courier or through electronic mode to all the existing
members, ensuring that it reaches the members before the commencement of
period for the acceptance of offer.
21
(3) [The letter of offer, referred to in sub-section (2), shall be
accompanied by a circular duly signed by all directors or an officer of the company
authorized by them in this behalf on such form as may be specified containing
material information about the affairs of the company, latest statement of the
accounts and the necessity for issue of further capital:
Provided that a copy of such circular shall also be filed with the registrar
simultaneously at the time it is dispatched to the shareholders.]
(4) Notwithstanding anything contained in this section, where 22[any
loan or finances have] been obtained from any Government by a public sector
company, and if that Government considers it necessary in the public interest so
to do, it may, by order, direct that such loan or 23[finances or] any part thereof shall
be converted into shares in that company, on such terms and conditions as appear
to the Government to be just and reasonable in the circumstances of the case even
if the terms of such loan 24[or finances] do not include the option for such
conversion.

(5) In determining the terms and conditions of conversion under sub-

section (4), the Government shall have due regard to the financial position of the
public sector company, the terms of the rate of interest 25[or profit] payable thereon
and such other matters as it may consider necessary.

(6) Notwithstanding anything contained in this Act or any other law

for the time being in force or the memorandum and articles, where the authorised
capital of a company is fully subscribed, or the un-subscribed capital is
insufficient, the same shall be deemed to have been increased to the extent
necessary for issue of shares to the Government, a scheduled bank or financial
institution in pursuance of any obligation of the company to issue shares to such
scheduled bank or financial institution.

(7) In case shares are allotted in terms of sub-section (6), the company
shall be required to file the notice of increase in share capital along with the fee
prescribed for such increase with the registrar within the period prescribed under
this Act:

Provided that where default is made by a company in complying with the

requirement of filing a notice of increase in the authorised capital under this Act as
well as the fee to be deposited on the authorised capital as deemed to have been
increased, the Government, scheduled bank or the financial institution to whom
31
 shares have been issued may file notice of such increase with the registrar and such
notice shall be deemed to have been filed by the company itself and the
Government, scheduled bank or financial institution shall be entitled to recover
from the company the amount of any fee paid by it to the registrar in respect of such
increase.

(8) Any violation of this section shall be an offence liable to a penalty

of level 2 on the standard scale.

130.Annual return.—(1) Every company having a share capital shall, once in each year,
prepare and file with the registrar an annual return containing theparticulars in a specified form
as on the date of the annual general meeting or, whereno such meeting is held or if held is not
concluded, on the last day of the calendar year.
(2) A company not having a share capital shall in each year prepare and
file with the registrar a return containing the particulars in a specified form as on
the date of the annual general meeting or, where no such meeting is held or if held
is not concluded, on the last day of the calendar year.

(3) The return referred to in sub-section (1) or sub-section (2) shall be

filed with the registrar within thirty days from the date of the annual general
meeting held in the year or, when no such meeting is held or if held is not
concluded, from the last day of the calendar year to which it relates:
Provided that, in the case of a listed company, the registrar may for special
reasons extend the period of filing of such return by a period not exceeding fifteen
days.

(4) All the particulars required to be submitted under sub-section (1)

and sub-section (2) shall have been previously entered in one or more registers kept
by the company for the purpose.

(5) Nothing in this section shall apply to a company, in case there is no

change of particulars in the last annual return filed with the registrar:
Provided that a company, other than a single member company or a private
company having paid up capital of not more than three million rupees, shall inform
the registrar in a specified manner that there is no change of particulars in the last
annual return filed with the registrar.

(6) Any contravention or default in complying with requirement of this

section shall be an offence liable—
(a) in case of a listed company, to a penalty of level 2 on the standard
scale; and

(b) in case of any other company, to a penalty of level 1 on the standard

scale.

MEETINGS AND PROCEEDINGS

131.Statutory meeting of company.—(1) Every public company having a share capital shall,

32
within a period of one hundred and eighty days from the date at which the company is entitled
to commence business or within nine months from the date of its incorporation whichever is
earlier, hold a general meeting of the members of the company, to be called the “statutory
meeting”:

Provided that in case first annual general meeting of a company is decided

to be held earlier, no statutory meeting shall be required.

(2) The notice of a statutory meeting shall be sent to the members at

least twenty-one days before the date fixed for the meeting along with a copy of
statutory report.

(3) The statutory report shall state—

(a) the total number of shares allotted, distinguishing shares allotted
other than in cash, and stating the consideration for which they have
been allotted;

(b) the total amount of cash received by the company in respect of all
the shares allotted;

(c) an abstract of the receipts of the company and of the payments made
there out up to a date within fifteen days of the date of the report,
exhibiting under distinctive headings the receipts of the company
from shares and debentures and other sources, the payments made
there out, and particulars concerning the balance remaining in hand,
and an account or estimate of the preliminary expenses of the
company showing separately any commission or discount paid or to
be paid on the issue or sale of shares or debentures;

(d) the names, addresses and occupations of the directors, chief

executive, secretary, auditors and legal advisers of the company and
the changes, if any, which have occurred since the date of the
incorporation;

(e) the particulars of any contract the modification of which is to be

submitted to the meeting for its approval, together with the
particulars of the modification or proposed modification;

(f) the extent to which underwriting contracts, if any, have been carried
out and the extent to which such contracts have not been carried out,
together with the reasons for their not having been carried out; and

(g) the particulars of any commission or brokerage paid or to be paid in

connection with the issue or sale of shares to any director, chief
executive, secretary or officer or to a private company of which he
is a director;

33
 and certified by the chief executive and at least one director of the company, and in
case of a listed company also by the chief financial officer.
(4) The statutory report shall also contain a brief account of the state of
the company's affairs since its incorporation and the business plan, including any
change or proposed change affecting the interest of shareholders and business
prospects of the company.

(5) The statutory report shall, so far as it relates to the shares allotted by
the company, the cash received in respect of such shares and to the receipts and
payments of the company, be accompanied by a report of the auditors of the
company as to the correctness of such allotment, receipt of cash, receipts and
payments.
(6) The directors shall cause a copy of the statutory report, along with
report of the auditors as aforesaid, to be delivered to the registrar for registration
forthwith after sending the report to the members of the company.
(7) The directors shall cause a list showing the names, occupations,
nationality and addresses of the members of the company, and the number of shares
held by them respectively, to be produced at the commencement of the meeting and
to remain open and accessible to any member of the company during the
continuance of the meeting.
(8) The members of the company present at the meeting shall be at
liberty to discuss any matter relating to the formation of the company or arising out
of the statutory report, whether previous notice has been given or not, but no
resolution of which notice has not been given in accordance with the articles may
be passed.

(9) The meeting may adjourn from time to time, and at any adjourned
meeting any resolution of which notice has been given in accordance with the
articles, either before or after the original meeting, may be passed, and an adjourned
meeting shall have the same powers as an original meeting.
(10) The provisions of this section shall not apply to a public company
which converts itself from a private company after one year of incorporation.
(11) Any contravention or default in complying with requirement of this
section shall be an offence liable—

(a) in case of a listed company, to a penalty of level 2 on the standard

scale; and

(b) in case of any other company, to a penalty of level 1 on the standard

scale.

132.Annual general meeting.—(1) Every company, shall hold, an annual general meeting
within sixteen months from the date of its incorporation and thereafter once in every calendar
year within a period of one hundred and twenty days following the close of its financial year:

34
 Provided that, in the case of a listed company, the Commission, and, in any
other case, the registrar, may for any special reason extend the time within which
any annual general meeting, shall be held by a period not exceeding thirty days.

(2) An annual general meeting shall, in the case of a listed company, be

held in the town in which the registered office of the company is situate or in a
nearest city:

Provided that 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.

(3) The notice of an annual general meeting shall be sent to the members
and every person who is entitled to receive notice of general meetings at least
twenty-one days before the date fixed for the meeting:

Provided that in case of a listed company, such notice shall be sent to the
Commission, in addition to its being dispatched in the normal course to members
and the notice shall also be published in English and Urdu languages at least in
one issue each of a daily newspaper of respective language having nationwide
circulation.

(4) Nothing in this section shall apply to a single member company.

(5) Any contravention or default in complying with requirement of this
section shall be an offence liable—

(a) in case of a listed company, to a penalty of level 2 on the standard

scale; and

(b) in case of any other company, to a penalty of level 1 on the standard

scale.

133.Calling of extra-ordinary general meeting.—(1) All general meetings of a company,

other than the annual general meeting referred to in section 132 and the statutory meeting
mentioned in section 131, shall be called extra- ordinary general meetings.

(2) The board may at any time call an extra-ordinary general meeting of
the company to consider any matter which requires the approval of the company in
a general meeting.

(3) The board shall, at the requisition made by the members—

(a) in case of a company having share capital, representing not less than
one-tenth of the total voting power as on the date of deposit of
requisition; and

35
 (b) in case of a company not having share capital, not less than one-
tenth of the total members;

forthwith proceed to call an extraordinary general meeting.

(4) The requisition shall state the objects of the meeting, be signed by
the requisitionists and deposited at the registered office of the company.

(5) If the board does not proceed within twenty-one days from the date
of the requisition being so deposited to cause a meeting to be called, the
requisitionists, may themselves call the meeting, but in either case any meeting so
called shall be held within ninety days from the date of the deposit of the
requisition.

(6) Any meeting called under sub-section (5) by the requisitionists shall
be called in the same manner, as nearly as possible, as that in which meetings are
to be called by board.

(7) Any reasonable expenses incurred by the requisitionists in calling a

meeting under sub-section (5) shall be re-imbursed to the requisitionists by the
company and the sums so paid shall be deducted from any fee or other remuneration
payable to such of the directors who were in default in calling the meeting.

(8) Notice of an extra-ordinary general meeting shall be served to the

members in the manner provided for in section 55:

Provided that in case of a company other than listed, if all the members
entitled to attend and vote at any extraordinary general meeting so agree, a meeting
may be held at a shorter notice.

(9) Any contravention or default in complying with requirement of this

section shall be an offence liable—
(a) in case of a listed company, to a penalty of level 2 on the standard scale;
and

(b) in case of any other company, to a penalty of level 1 on the standard

scale.

134.Provisions as to meetings and votes.—(1) The following provisions shall apply to the
general meetings of a company or meetings of a class of members of the company, namely:

(a) notice of the meeting specifying the place and the day and hour of
the meeting alongwith a statement of the business to be transacted
at the meeting shall be given—

(i) to every member or class of the members of the company as

the case may be;

(ii) to every director;

36
 (iii) to any person who is entitled to a share in consequence of
the death or bankruptcy of a member, if the company has
been notified of his entitlement;

(iv) to the auditors of the company;

in the manner in which notices are required to be served by section

55, but the accidental omission to give notice to, or the non-receipt
of notice by, any member shall not invalidate the proceedings at any
meeting;

(b) in case of a listed company, if certain members who hold ten percent
of the total paid up capital or such other percentage as may be
specified, reside in a city, it shall be mentioned in the notice that such
members, may demand the company to provide them the facility of
video-link for attending the meeting.

(2) For the purposes of sub-section (1), in the case of an annual general
meeting, all the businesses to be transacted shall be deemed special, other than-

(a) the consideration of financial statements and the reports of the board
and auditors;

(b) the declaration of any dividend;

(c) the election and appointment of directors in place of those retiring;

and

(d) the appointment of the auditors and fixation of their remuneration.

(3) Where any special business is to be transacted at a general meeting,

there shall be annexed to the notice of the meeting a statement setting out all
material facts concerning such business, including, in particular, the nature and
extent of the interest, if any, therein of every director, whether directly or indirectly,
and, where any item of business consists of the according of an approval to any
document by the meeting, the time when and the place where the document may be
inspected, shall be specified in the statement.

(4) Members of a company may participate in the meeting personally,

through video-link or by proxy.

(5) The chairman of the board, if any, shall preside as chairman at every
general meeting of the company, but if there is no such chairman, or if at any
meeting he is not present within fifteen minutes after the time appointed for holding
the meeting, or is unwilling to act as chairman, any one of the directors present may
be elected to be chairman, and if none of the directors is present or is unwilling to
act as chairman the members present shall choose one of their member to be the
chairman.

37
 (6) In the case of a company having a share capital, every member shall
have votes proportionate to the paid-up value of the shares or other securities
carrying voting rights held by him according to the entitlement of the class of such
shares or securities, as the case may be:

Provided that, at the time of voting, fractional votes shall not be taken into
account.

(7) No member holding shares or other securities carrying voting rights

shall be debarred from casting his vote, nor shall anything contained in the articles
have the effect of so debarring him.

(8) In the case of a company limited by guarantee and having no share

capital, every member thereof shall have one vote.

(9) On a poll, votes may be given either personally or through video-

link or by proxy or through postal ballot in a manner and subject to the conditions
as may be specified.

(10) Notwithstanding anything contained in this Act, the Commission

shall have the power to notify any business requiring the approval of the members
shall only be transacted through postal ballot for any company or class of
companies.

(11) All the requirements of this Act regarding calling of, holding and
approval in general meeting, board meeting and election of directors in case of a
single member company, shall be deemed complied with; if the decision is recorded
in the relevant minutes book and signed by the sole member or sole director as the
case may be.

(12) Any contravention or default in complying with requirement of this

section shall be an offence liable—
(a) in case of a listed company, to a penalty of level 3 on the standard
scale; and

(b) in case of any other company, to a penalty of level 2 on the standard

scale.

135.Quorum of general meeting.—(1) The quorum of a general meeting shall be—

(a) in the case of a public listed company, unless the articles provide for
a larger number, not less than ten members present personally, or
through video-link who represent not less than twenty-five percent
of the total voting power, either of their own account or as proxies;

(b) in the case of any other company having share capital, unless the
articles provide for a larger number, two members present
personally, or through video-link who represent not less than

38
 twenty-five percent of the total voting power, either of their own
account or as proxies;

(c) in the case of a company not having share capital, as provided in the
articles:

Provided that, if within half an hour from the time appointed for the meeting
a quorum is not present, the meeting, if called upon the requisition of members,
shall be dissolved; in any other case, it shall stand adjourned to the same day in the
next week at the same time and place, and, if at the adjourned meeting a quorum is
not present within half an hour from the time appointed for the meeting, the
members present personally or through video-link being not less than two shall be
a quorum, unless the articles provide otherwise.

(2) Any contravention or default in complying with requirement of this

section shall be an offence liable—
(a) in case of a listed company, to a penalty of level 2 on the standard
scale; and

(b) in case of any other company, to a penalty of level 1 on the standard

scale.

APPOINTMENT AND REMOVAL OF DIRECTORS

153.Ineligibility of certain persons to become director.—A personshall not be eligible

for appointment as a director of a company, if he —

(a) is a minor;

(b) is of unsound mind;

(c) has applied to be adjudicated as an insolvent and his application is

pending;

(d) is an undischarged insolvent;

(e) has been convicted by a court of law for an offence involving moral
turpitude;

(f) has been debarred from holding such office under any provision of
this Act;

(g) is lacking fiduciary behaviour and a declaration to this effect has

been made by the Court under section 212 at any time during the
preceding five years;

(h) does not hold National Tax Number as per the provisions of Income
Tax Ordinance, 2001 (XLIX of 2001):

39
 Provided that the Commission may grant exemption from
the requirement of this clause as may be notified;

(i) is not a member:

Provided that clause (i) shall not apply in the case of,—

(i) a person representing a member which is not a natural

person;

(ii) a whole-time director who is an employee of the company;

(iii) a chief executive; or

(iv) a person representing a creditor or other special interests by

virtue of contractual arrangements;

(j) has been declared by a court of competent jurisdiction as defaulter

in repayment of loan to a financial institution;

(k) is engaged in the business of brokerage, or is a spouse of such person

or is a sponsor, director or officer of a corporate brokerage house:

Provided that clauses (j) and (k) shall be applicable only in

case of listed companies.

154.Minimum number of directors of a company.—(1)Notwithstanding anything contained in

any other law for the time being in force,

(a) a single member company shall have at least one director;

(b) every other private company shall have not less than two directors;

(c) a public company other than a listed company shall have not less
than three directors; and
(d) a listed company shall have not less than seven directors:

Provided that public interest companies shall be

required to have female representation on their board as may
be specified by the Commission.

(2) Only a natural person shall be a director.

155.Number of directorships.—(1) No person shall, after the commencement of this Act, hold
office as a director, including as an alternate director at the same time, in more than such number
of companies as may be specified:

Provided that this limit shall not include the directorships in a listed
subsidiary.

(2) A person holding the position of director in more than seven

40
 companies on the commencement of this Act shall ensure the compliance of this
section within one year of such commencement.

(3) Any casual vacancy on the board of a listed company shall be filled
up by the directors at the earliest but not later than ninety days from the date, the
vacancy occurred.

156.Compliance with the Code of Corporate Governance.—TheCommission may provide

for framework to ensure good corporate governance practices, compliance and matters
incidental and axillary for companies or class ofcompanies in a manner as may be specified.

157.First directors and their term.—(1) The number of directors and the names of the first
directors shall be determined by the subscribers of the memorandum and their particulars
specified under section 197 shall be submitted along with the documents for the incorporation
of the company.

(2) The number of first directors may be increased by appointing additional directors by the
members in a general meeting. The first directors shall hold office until the election of directors
in the first annual general meeting of the company.

158.Retirement of first and subsequent directors.—(1) All directors of the company—

(a) on the date of first annual general meeting; or

(b) in case of subsequent directors on expiry of term of office of

directors mentioned in section 161,

shall stand retired from office and the directors so retiring shall continue to perform
their functions until their successors are elected.

The directors so continuing to perform their functions shall take immediate steps
to hold the election of directors and in case of any impediment report such
circumstances to the registrar within forty-five days before the due dateof the
annual general meeting or extra ordinary general meeting, as the case may be, in
which elections are to be held:
Provided that the holding of annual general meeting or extra ordinary
general meeting, as the case may be, shall not be delayed for more than ninety days
from the due date of the meeting or such extended time as may be allowed by the
registrar, for reasons to be recorded, only in case of exceptional circumstances
beyond the control of the directors, or in compliance of any order of the court.
(2) The registrar, may on expiry of period as provided in sub-section
(2), either—
(a) on its own motion; or
(b) on the representation of the members holding not less than one tenth
of the total voting powers in a company having share capital; or
(c) on the representation of the members holding not less than one tenth
of the total members of the company not having share capital of the
company,
41
 directs the company to hold annual general meeting or extra ordinary general
meeting for the election of directors on such date and time as may be specified in
the order.
(3) Any officer of the company or any other person who fails to comply
with the direction given under sub-section (3) shall be guilty of an offence liable to
a fine of level 2 on the standard scale.
159.Procedure for election of directors.—(1) Subject to the provision of section 154, the
existing directors of a company shall fix the number of directors to be elected in the general
meeting, not later than thirty-five days before conveningof such meeting and the number of
directors so fixed shall not be changed except with the prior approval of the general meeting in
which election is to be held.

(2) The notice of the meeting at which directors are proposed to be

elected shall among other matters, expressly state—

(a) the number of directors fixed under sub-section (1); and

(b) the names of the retiring directors.

(3) Any member who seeks to contest an election to the office of

director shall, whether he is a retiring director or otherwise, file with the company,
not later than fourteen days before the date of the meeting at which elections are to
be held, a notice of his intention to offer himself for election as a director:

Provided that any such person may, at any time before the holding of
election, withdraw such notice.

(4) All notices received by the company in pursuance of sub-section (3)

shall be transmitted to the members not later than seven days before the date of the
meeting, in the same manner as provided under this Act for sending of a notice of
general meeting. In the case of a listed company such notice shall be published in
English and Urdu languages at least in one issue each of a daily newspaper of
respective language having wide circulation.

(5) The directors of a company having a share capital shall, unless the
number of persons who offer themselves to be elected is not more than the number
of directors fixed under sub-section (1), be elected by the members of the company
in general meeting in the following manner, namely—

(a) a member shall have such number of votes as is equal to the product
of the number of voting shares or securities held by him and the
number of directors to be elected;

(b) a member may give all his votes to a single candidate or divide them
between more than one of the candidates in such manner as he may
choose; and

(c) the candidate who gets the highest number of votes shall be declared
elected as director and then the candidate who gets the next highest
number of votes shall be so declared and so on until the total number
42
 of directors to be elected has been so elected.

(6) The directors of a company limited by guarantee and not having

share capital shall be elected by members of the company in general meeting in the
manner as provided in articles of association of the company.

160.Powers of the Court to declare election of directors invalid.— The Court may, on the
application of members holding ten percent of the voting power in the company, made within
thirty days of the date of election, declare election of all directors or any one or more of them
invalid if it is satisfied that therehas been material irregularity in the holding of the elections and
matters incidentalor relating thereto.

161.Term of office of directors.—(1) A director elected under sections159 or 162 shall hold
office for a period of three years unless he earlier resigns, vacates office due to fresh election
required under section 162 as the case may be,becomes disqualified from being a director or
otherwise ceases to hold office:

Provided that the term of office of directors of a company limited by

guarantee and not having share capital may be a period of less than three years as
provided in the articles of association of a company.

(2) Any casual vacancy occurring among the directors may be filled up by
the directors and the person so appointed shall hold office for the remainder of the
term of the director in whose place he is appointed.

162.Fresh election of directors.—(1) Notwithstanding anything contained in this Act, a

member having acquired, after the election of directors, therequisite shareholding to get him
elected as a director on the board of a company, may require the company to hold fresh election
of directors in accordance with the procedure laid down in section 159:

Provided that the number of directors fixed in the preceding election shall
not be decreased;

Provided further that a listed company for the purpose of fresh election
of directors under this section shall follow such procedure as may be specified
by the Commission.

(2) The board shall upon receipt of requisition under sub-section (1), assoon
as practicable but not later than thirty days from the receipt of such requisition,
proceed to hold fresh election of directors of the company.

163.Removal of directors.—A company may by resolution in general meeting remove a

director appointed under sections 157, 161 or section 162 or elected in the manner provided for
in section 159:

Provided that a resolution for removing a director shall not be deemed to

have been passed if the number of votes cast against it is equal to, or exceeds—

(a) the total number of votes for the time being computed in the manner
laid down in sub-section (5) of section 159 divided by the number
of directors for the time being, if the resolution relates to removal of
a director appointed under sections 157, 161 or section 162 or where
43
 the directors were elected unopposed; or

(b) the minimum number of votes that were cast for the election of a
director at the immediately preceding election of directors, if the
resolution relates to removal of a director elected in the manner
provided in sub-section (5) of section 159.

164.Nominee directors.—(1) In addition to the directors elected or deemed to have been

elected by shareholders, a company may have directors nominated by the company's creditors
or other special interests by virtue ofcontractual arrangements.

(2) A body corporate or corporation owned or controlled by the Federal

Government or as the case may be, a Provincial Government may also have
directors nominated on the board to whom such corporation or company has
extended credit facilities.
165.Certain provisions not to apply to directors representing specialinterests.—(1) Nothing
in sections 158, 159,161, 162 or 163 shall apply to—

(a) directors nominated by a body corporate or company or any other

entity owned or controlled, whether directly or indirectly, by the
Federal Government or as the case may be, a Provincial Government
on the board of the company in which such body corporate or
company or entity has made investment;

(b) directors nominated by virtue of investment made by the Federal

Government or as the case may be, a Provincial Government or the
Commission on the board; or

(c) directors nominated by foreign equity holders on the board or any

other body corporate set up under a regional co-operation or other
co-operation arrangement approved by the Federal Government.

(2) For the purpose of nominating directors referred to in clause (a), (b)
and (c), the number of votes computed in the manner laid down in sub-section (5)
of section 159 as are proportionate to the number of votes required to elect the
director if they had offered themselves for election, shall stand excluded from the
total number of votes available to the nominating body at an election of directors,
which may be proportionate to their voting power required to elect directors at an
election of directors of a company.

(3) A director nominated under sub-section (1) shall hold office during
the pleasure of the nominating body.

183.Powers of board.—(1) The business of a company shall be managed by the board, who
may exercise all such powers of the company as are not by this Act, or by the articles, or by a
special resolution, required to be exercisedby the company in general meeting.

(2) The board shall exercise the following powers on behalf of the
company, and shall do so by means of a resolution passed at their meeting,
namely—
44
 (a) to issue shares;

(b) to issue debentures or any instrument in the nature of redeemable

capital;

(c) to borrow moneys otherwise than on debentures;

(d) to invest the funds of the company;

(e) to make loans;

(f) to authorise a director or the firm of which he is a partner or any

partner of such firm or a private company of which he is a member
or director to enter into any contract with the company for making
sale, purchase or supply of goods or rendering services with the
company;

(g) to approve financial statements;

(h) to approve bonus to employees;

(i) to incur capital expenditure on any single item or dispose of a fixed

asset in accordance with the limits as may be specified:
Provided that the acceptance by a banking company in the ordinary course
of its business of deposit of money from the public repayable on demand or
otherwise and withdrawable by cheque, draft, order or otherwise, or placing of
moneys on deposit by a banking company with another banking company such
conditions as the board may prescribe, shall not be deemed to be a borrowing of
money or, as the case may be, a making of loan by a banking company with the
meaning of this section;

(j) to undertake obligations under leasing contracts exceeding such

amount as may be notified;

(k) to declare interim dividend; and

(l) having regard to such amount as may be determined to be material

(as construed in Generally Accepted Accounting Principles) by the
board—

(i) to write off bad debts, advances and receivables;

(ii) to write off inventories and other assets of the company; and

(iii) to determine the terms of and the circumstances in which a

law suit may be compromised and a claim or right in favour
of a company may be released, extinguished or relinquished.

(m) to take over a company or acquire a controlling or substantial stake

in another company;
45
 (n) any other matter which may be specified.

(3) The board of a company shall not except with the consent of the
general meeting either specifically or by way of an authorisation, do any of the
following things, namely.—

(a) sell, lease or otherwise dispose of the undertakings or a sizeable part

thereof unless the main business of the company comprises of such
selling or leasing; and

Explanation.—For the purposes of this clause-

(i) “undertaking” shall mean an undertaking in which the

investment of the company exceeds twenty percent of its net
worth as per the audited financial statements of the
preceding financial year or an undertaking which generates
twenty percent of the total income of the company during the
previous financial year;
(ii) the expression “sizeable part” in any financial year shall
mean twenty five percent or more of the value of the assets
in that class as per the audited financial statements of the
preceding financial year;
(b) sell or otherwise dispose of the subsidiary of the company;

(c) remit, give any relief or give extension of time for the repayment of
any debt outstanding against any person specified in sub-section (1)
of section 182.

(4) Nothing contained in sub-section (3) shall entitle a listed company

to sell or otherwise dispose of the undertaking, which results in or may lead to
closure of business operation or winding up of the company, without there being a
viable alternate business plan duly authenticated by the board.

(5) Any resolution passed under sub-section (3) if not implemented

within one year from the date of passing shall stand lapsed.

(6) Any contravention or default in complying with requirement of this

section shall be an offence liable to a penalty of level 2 on the standard scale and
shall be individually and severally liable for losses or damages arising out of such
action.

CHIEF EXECUTIVE

186.Appointment of first chief executive.—(1) Every company shall have a chief executive
appointed in the manner provided in this section and section187.
(2) The name of first chief executive shall be determined by the
46
 subscribers of the memorandum and his particulars specified under section 197
shall be submitted along with the documents for the incorporation of the company.

(3) The first chief executive shall, unless he earlier resigns or otherwise
ceases to hold office, hold office up to the first annual general meeting of the
company or, if a shorter period is fixed by the subscribers at the time of his
appointment, for such period.

(4) Notwithstanding anything contained in this section, the Government

shall have the power to nominate chief executive of a public sector company in
such manner as may be specified.

187.Appointment of subsequent chief executive.—(1) Within fourteendays from the date of

election of directors under section 159 or the office of the chief executive falling vacant, as the
case may be, the board shall appoint any person, including an elected director, to be the chief
executive, but such appointment shall not be for a period exceeding three years from the date
of appointment:

Provided that the chief executive appointed against a casual vacancy shall
hold office till the directors elected in the next election appoint a chief executive.

(2) On the expiry of his term of office under section 186 or sub-section
(1) of this section, a chief executive shall be eligible for reappointment.

(3) The chief executive retiring under section 186 or this section shall
continue to perform his functions until his successor is appointed, unless non-
appointment of his successor is due to any fault on his part or his office is expressly
terminated.

(4) Notwithstanding anything contained in this section, the Government

shall have the power to nominate chief executive of a company where majority of
directors is nominated by the Government, in such manner as may be specified.

188.Terms of appointment of chief executive.—(1) Save as provided in sub-section (2), the

terms and conditions of appointment of a chief executive shall be determined by the board or
the company in general meeting in accordancewith the provisions in the company's articles.

(2) The terms and conditions of appointment of a chief executive

nominated under section 186 or 187 shall be determined by the Government, in
such manner as may be specified.

(3) The chief executive shall if he is not already a director of the

company, be deemed to be its director and be entitled to all the rights and privileges,
and subject to all the liabilities, of that office.

189.Restriction on appointment of chief executive.—No person who is ineligible to become

a director of a company under section 153 or disqualified

47
 under sections 171 or 172 shall be appointed or continue as the chief executive of
any company.

190.Removal of chief executive.—(1) The board by resolution passed by not less than three-
fourths of the total number of directors for the time being, orthe company by a special resolution,
may remove a chief executive before the expiration of his term of office notwithstanding
anything contained in the articles or in any agreement between the company and such chief
executive.

(2) Notwithstanding anything contained in this section, the Governmentor

an authority or a person authorized by it shall have the power to remove chief
executive of a company where more than seventy-five percent of the voting rights
are held by the Government.

MISCELLANEOUS PROVISIONS REGARDING INVESTMENTS,

CONTRACTS OFFICERS AND SHAREHOLDINGS, TRADING AND
INTERESTS

199.Investments in associated companies and undertaking.—(1) A company shall not make

any investment in any of its associated companies or associated undertakings except under the
authority of a special resolution which shall indicate the nature, period, amount of investment
and terms and conditions attached thereto.

Explanation: The term ‘investment’ shall include equity, loans, advances,

guarantees, by whatever name called, except for the amount due as normal trade
credit, where the terms and conditions of trade transaction(s) carried out on arms-
length and in accordance with the trade policy of the company.

(2) The company shall not invest in its associated company or

associated undertaking by way of loans or advances except in accordance with an
agreement in writing and such agreement shall inter-alia include the terms and
conditions specifying the nature, purpose, period of the loan, rate of return, fees or
commission, repayment schedule for principal and return, penalty clause in case of
default or late repayments and security, if any, for the loan in accordance with the
approval of the members in the general meeting:

Provided that the return on such investment shall not be less than the
borrowing cost of the investing company or the rate as may be specified by the
Commission whichever is higher and shall be recovered on regular basis in
accordance with the terms of the agreement, failing which the directors shall be
personally liable to make the payment:

Provided further that the directors of the investing company shall certify
that the investment is made after due diligence and financial health of the borrowing
company is such that it has the ability to repay the loan as per the agreement.

(3) The Commission may—

(a) by notification in the official Gazette, specify the class of companies

or undertakings to which the restriction provided in sub-section (1)
shall not apply; and
48
 (b) through regulations, specify such disclosure requirements,
conditions and restrictions on the nature, period, amount of
investment and terms and conditions attached thereto, and other
ancillary matters.

(4) An increase in the amount or any change in the nature of investment

or the terms and conditions attached thereto shall be made only under the authority
of a special resolution.

(5) Every company shall maintain and keep at its registered office a
register of investments in associated companies and undertakings containing such
particulars as may be specified.
(6) Any contravention or default in complying with requirements of this
section shall be an offence liable to a penalty of level 3 on the standard scale and in
addition, shall jointly and severally reimburse to the company any loss sustained
by the company in consequence of an investment which was made without
complying with the requirements of this section.

204.Duties of directors.—(1) Subject to the provisions of this Act, a director of a company

shall act in accordance with the articles of the company.

(2) A director of a company shall act in good faith in order to promote

the objects of the company for the benefit of its members as a whole, and in the best
interests of the company, its employees the shareholders the community and for the
protection of environment.
(3) A director of a company shall discharge his duties with due and
reasonable care, skill and diligence and shall exercise independent judgment.
(4) A director of a company shall not involve in a situation in which he
may have a direct or indirect interest that conflicts, or possibly may conflict, with
the interest of the company.
(5) A director of a company shall not achieve or attempt to achieve any
undue gain or advantage either to himself or to his relatives, partners, or associates
and if such director is found guilty of making any undue gain, he shall be liable to

40
Substituted words “must be a facsimile of the company’s common seal, with the addition on its
face of” vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
41
Omitted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021. The omitted sub-
section (3) was read as under:
“(3) The official seal when duly affixed to a document has the same effect as the
company’s common seal.”
42
Omitted expression “, by writing under its common seal,” vide the Companies (Amendment)
Act, 2021 dated 1st December, 2021.
43
Omitted expression “as if it had been sealed with the common seal of the company” vide the
Companies (Amendment) Act, 2021 dated 1st December, 2021.

49
 pay an amount equal to that gain to the company.
(6) A director of a company shall not assign his office and any
assignment so made shall be void.

(7) In addition to the preceding sub-sections, the Commission may

provide for the extent of duties and the role of directors as may be specified.
(8) Any breach of duty, default or negligence by a director in
contravention of the articles of the company or any of its policy or decision of
the board may be ratified by the company through a special resolution and the
Commission may impose any restriction as may be specified.

(9) Without prejudice to any other action that may be taken under this
Act or any other law, any contravention or default in complying with requirements
of this section shall be an offence liable to a penalty of level 1 on the standard scale.
205.Disclosure of interest by director.—(1) Every director of a company who is in any way,
whether directly or indirectly, concerned or interestedin any contract or arrangement entered
into, or to be entered into, by or on behalf of the company shall disclose the nature of his concern
or interest at a meeting of the board:

Provided that a director shall be deemed also to be interested or concerned

if any of his relatives, is so interested or concerned.

Explanation.— For the purpose of this section “director’s relatives”,

are—

(a) the director’s spouse;

(b) the director’s children, including the step children;

(c) the director’s parents;

(2) The disclosure required to be made by a director under sub-section

(1) shall be made—
(a) in the case of a contract or arrangement to be entered into, at the
meeting of the board at which the question of entering into the
contract or arrangement is first taken into consideration or, if the
director was not, on the date of that meeting, concerned or interested
in the contract or arrangement, at the first meeting of the board held
after he becomes so concerned or interested; and

(b) in the case of any other contract or arrangement, at the first meeting
of the board held after the director becomes concerned or interested
in the contract or arrangement.

(3) For the purposes of sub-sections (1) and (2), a general notice given
to the board to the effect that a director is a director or a member of a specified body
corporate or a partner of a specified firm and is to be regarded as concerned or
interested in any contract or arrangement which may, after the date of the notice,

50
 be entered into with that body corporate or firm, shall be deemed to be a sufficient
disclosure of concern or interest in relation to any contract or arrangement so made.
(4) Any such general notice shall expire at the end of the financial year
in which it is given, but may be renewed for further period of one financial year at
a time, by a fresh notice given in the last month of the financial year in which it
would otherwise expire.
(5) No such general notice, and no renewal thereof, shall be of effect
unless either it is given at a meeting of the board, or the director concerned takes
reasonable steps to ensure that it is brought up and read at the first meeting of the
board after it is given.
(6) Any contravention or default in complying with requirements of
sub-sections (1) or (2), shall be an offence liable to a penalty of level 1 on the
standard scale.

206.Interest of officers.− (1) Save as provided in section 205 in respectof directors, no other
officer of a company who is in any way, directly or indirectly,concerned or interested in any
proposed contract or arrangement with the companyshall, unless he discloses the nature and
extent of his interest in the transaction andobtains the prior approval of the board, enter into any
such contract or arrangement.

(2) Any contravention or default in complying with requirement under

this section shall be an offence liable to a penalty of level 1 on the standard scale.

207.Interested director not to participate or vote in proceedings of board.− (1) No director

of a company shall, as a director, take any part in the discussion of, or vote on, any contract or
arrangement entered into, or to be enteredinto, by or on behalf of the company, if he is in any
way, whether directly or indirectly, concerned or interested in the contract or arrangement, nor
shall his presence count for the purpose of forming a quorum at the time of any such discussion
or vote; and if he does vote, his vote shall be void:

Provided that a director of a listed company who has a material personal

interest in a matter that is being considered at a board meeting shall not be present
while that matter is being considered.

(2) If majority of the directors are interested in, any contract or

arrangement entered into, or to be entered into, by or on behalf of the company, the
matter shall be laid before the general meeting for approval.
(3) Sub-section (1) shall not apply to—
(a) a private company which is neither a subsidiary nor a holding
company of a public company;

(b) any contract of indemnity or insurance coverage executed by the

company in favour of interested director against any loss which he
may suffer or incur by reason of becoming or being a surety for the
company or while undertaking any transaction on behalf of the
company:

51
 Provided that for the purpose of clause (b), a company shall
only insure the liability of interested director where such liability
arises out of a transaction validly approved by the board or the
members of the company as the case may be:

(4) Any contravention or default in complying with requirements under

this section shall be an offence liable to a penalty of level 1 on the standard scale.

208.Related party transactions.− (1) A company may enter into any contract or arrangement
with a related party only in accordance with the policy approved by the board, subject to such
conditions as may be specified, with respectto—

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials,

services or property; and

(f) such related party's appointment to any office or place of profit in

the company, its subsidiary company or associated company:

Provided that where majority of the directors are interested

in any of the above transactions, the matter shall be placed before
the general meeting for approval as special resolution:

Provided also that nothing in this sub-section shall apply to

any transactions entered into by the company in its ordinary course
of business on an arm’s length basis.

Explanation.— In this sub-section—

(a) the expression “office of profit” means any office—

(i) where such office is held by a director, if the director holding

it receives from the company anything by way of
remuneration over and above the remuneration to which he
is entitled as director, by way of salary, fee, commission,
perquisites, any rent-free accommodation, or otherwise;

(ii) where such office is held by an individual other than a

director or by any firm, private company or other body
corporate, if the individual, firm, private company or body
corporate holding it receives from the company anything by
way of remuneration, salary, fee, commission, perquisites,
any rent-free accommodation, or otherwise;

52
 (b) the expression “arm’s length transaction” means a transaction
which is subject to such terms and conditions as may be specified.

(c) the expression “related party” includes—

(i) a director or his relative:

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a

partner;

(iv) a private company in which a director or manager is a

member or director;

(v) a public company in which a director or manager is a director

or holds alongwith his relatives, any shares of its paid up
share capital;

(vi) any body corporate whose chief executive or manager is

accustomed to act in accordance with the advice, directions
or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a

director or manager is accustomed to act:

Provided that nothing in sub-clauses (vi) and (vii) shall

apply to the advice, directions or instructions given in a
professional capacity;
(viii) any company which is—
(A) a holding, subsidiary or an associated company of
such company; or
(B) a subsidiary of a holding company to which it is also
a subsidiary;
(xi) such other person as may be specified;
Explanation.—For the purpose of this section “relative” means spouse,
siblings and lineal ascendants and descendants of a person.

(2) Every contract or arrangement entered into under sub-section (1)

shall be referred to in the board’s report to the shareholders along-with the
justification for entering into such contract or arrangement.

(3) The Commission may specify the record to be maintained by the

company with regards to transactions undertaken with the related party.

(4) Where any contract or arrangement is entered into by a director or

any other employee, without obtaining the consent of the board or approval by a
special resolution in the general meeting under sub-section (1) and if it is not

53
 ratified by the board or, as the case may be, by the shareholders at a meeting within
ninety days from the date on which such contract or arrangement was entered into,
such contract or arrangement shall be voidable at the option of the board and if the
contract or arrangement is with a related party to any director, or is authorised by
any other director, the directors concerned shall indemnify the company against any
loss incurred by it.

(5) Without prejudice to anything contained in sub-section (4), it shall

be open to the company to proceed against a director or any employee who had
entered into such contract or arrangement in contravention of the provisions of this
section for recovery of any loss sustained by it as a result of such contract or
arrangement.

(6) Any director or any other employee of a company, who had entered
into or authorised the contract or arrangement in violation of the provisions of this
section shall be liable—

(a) in case of listed company, be punishable with imprisonment for a

term which may extend to three years or with fine which shall not
be less than five million rupees, or with both; and

(b) in case of any other company, to a penalty of level 2 on the standard

scale.

ACCOUNTS OF COMPANIES

220.Books of account, to be kept by company.− (1) Every company shall prepare and keep at
its registered office books of account and other relevant books and papers and financial
statements for every financial year which give a true and fair view of the state of the affairs of
the company, including that of its branchoffice or offices, if any:

Provided that in the case of a company engaged in production, processing,

manufacturing or mining activities, such particulars relating to utilisation of
material or labour or the other inputs or items of cost as may be specified, shall also
be maintained:

Provided further that all or any of the books of account aforesaid and other
relevant papers may be kept at such other place in Pakistan as the board may decide
and where such a decision is taken, the company shall, within seven days thereof,
file with the registrar a notice in writing giving the full address of that other place.

(2) Where a company has a branch office in Pakistan or outside

Pakistan, it shall be deemed to have complied with the provisions of sub-section
(1), if proper books of account relating to the transactions effected at the branch
office are kept at that office and proper summarized returns are sent periodically by
the branch office to the company at its registered office or the other place referred
to in sub-section (1).

(3) The books of account and other books and papers maintained by the
company within Pakistan shall be open for inspection at the registered office of the
company or at such other place in Pakistan by any director during business hours,
and in the case of financial information, if any, maintained outside the country,
54
 copies of such financial information shall be maintained and produced for
inspection by any director.

(4) Where an inspection is made under sub-section (3), the officers and
other employees of the company shall give to the director making such inspection
all assistance in connection with the inspection which the company is reasonably
expected to give.

(5) The books of account of every company relating to a period of not

less than ten financial years immediately preceding a financial year, or where the
company had been in existence for a period less than ten years, in respect of all the
preceding years together with the vouchers relevant to any entry in such books of
account shall be kept in good order.
(6) If a company fails to comply with any of the requirements of this
section, every director, including chief executive and chief financial officer, of the
company who has by his act or omission been the cause of such default shall—
(a) in respect of a listed company, be punishable with imprisonment for
a term which may extend to two year and with fine which shall not
be less than five hundred thousand rupees nor more than five million
rupees, and with a further fine which may extend to ten thousand
rupees for every day after the first during which the default
continues; and

(b) in respect of any other company, be punishable with imprisonment

for a term which may extend to one year and with fine which may
extend to one hundred thousand rupees.

(7) The provisions of this section except those of sub-section (5), shall
apply mutatis mutandis to the books of account which a liquidator is required to
maintain and keep.
221.Inspection of books of account by the Commission.—(1) The books of account and
books and papers of every company shall be open to inspection by any officer authorised by the
Commission in this behalf if, for reasons to be recorded in writing, the Commission considers it
necessary so to do.

(2) It shall be the duty of every director, officer or other employee of

the company to produce to the person making inspection under sub-section (1) all
such books of account and books and papers of the company in his custody or under
his control, and to furnish him with any such statement, information or explanation
relating to the affairs of the company, as the said person may require of him within
such time and at such place as he may specify.

(3) It shall also be the duty of every director, officer or other employee
of the company to give to the person making inspection under this section all
assistance and facilitation in connection with the inspection which the company
may be reasonably expected to give.

(4) The officer making the inspection under this section may, during the
course of inspection—
(a) make or cause to be made copies of books of account and other

55
 books and papers; or

(b) place or cause to be placed by marks of identification thereon in

token of the inspection having been made;

(c) take possession of such documents and retain them for thirty days
if there are reasonable grounds for believing that they are evidence
of the commission of an offence.

(5) Where an inspection of the books of account and books and papers
of the company has been conducted under this section, by an officer authorised by
the Commission, such officer shall make a report to the Commission.
(6) Any officer authorised to make an inspection under this section shall
have all the powers that the Commission has under this Act in relation to the making
of inquiries.

222.Default in compliance with provisions of section 221.—(1) If default is made in

complying with the provisions of section 221, every person whois in default shall be punishable
with imprisonment for a term which may extend toone hundred and eighty days and with fine
which may extend to one hundred thousand rupees.
(2) Where a director or any other officer of a company has beenconvicted
of an offence under this section, he shall, on and from the date on whichhe is so
convicted, be deemed to have vacated his office as such and, on such vacation of
office, shall be disqualified for holding such office in any company, fora period of
three years.
223.Financial Statements.—(1) The board of every company must lay before the company in
annual general meeting its financial statements for the period, in the case of first such statements
since the incorporation of the company and in any other case since the preceding financial
statements, made up to the dateof close of financial year adopted by the company.

(2) The financial statements must be laid within a period of one

hundred and twenty days following the close of financial year of a company:
Provided that, in the case of a listed company the Commission, and in any
other case the registrar, may, for any special reason, extend the period for a term
not exceeding thirty days.
(3) Subject to the provision of sub-section (2), the first financial
statement must be laid at some date not later than sixteen months after the date of
incorporation of the company and subsequently once at least in every calendar year.

(4) The period to which the statements aforesaid relate, not being the
first, shall not exceed one year except where special permission of the registrar has
been obtained.
(5) The financial statement shall be audited by the auditor of the
company, in the manner hereinafter provided, and the auditor’s report shall be
attached thereto:

Provided that nothing in this sub-section shall apply to a private company

having the paid up capital not exceeding one million rupees or such higher amount
of paid up capital as may be notified by the Commission.

56
 (6) Every company shall send in the form and manner specified audited
financial statements together with the auditors’ report, directors’ report and in the
case of a listed company the chairman’s review report to every member of the
company and every person who is entitled to receive notice of general meeting,
either by post or electronically at least twenty-one days before the date of meeting
at which it is to be laid before the members of the company, and shall keep a copy
at the registered office of the company for the inspection of the members.
(7) A listed company shall, simultaneously with the dispatch of the
financial statements together with the reports referred to in sub-section (6), send by
post three copies and electronically a copy of such financial statements together with said
reports to each of the Commission, registrar and the securities exchange and shall also post
on the company’s website:

Provided that the reports shall be made available on the website of the
Company for a time period as may be specified.
(8) The provisions of sub-section (6) of section 220 shall apply to any
person who is a party to the default in complying with any of the provisions of this
section.

(9) This section shall not apply to a single member company except to
the extent as provided in sub-section (5).
224.Classification of Companies.—For the purpose of this Act, the companies may be
classified in such categories as may be specified in the Third Schedule.

225.Contents of Financial Statements.—(1) The financial statements shall give a true and fair
view of the state of affairs of the company, comply with the financial reporting standards
notified by the Commission and shall be preparedin accordance with the requirements contained
in the Third Schedule for different class or classes of companies:

Provided that for the purpose of preparation of financial statements and

related accounting treatment of associated companies shall be in accordance with
financial reporting standards or such other standards as may be notified by the
Commission:
Provided further that, except to the extent, otherwise notified in the official
Gazette by the Commission, this sub-section shall not apply to an insurance or
banking company or to any other class of companies for which the requirements of
financial statements are specified in the law regulating such class of companies.
(2) The Commission may, of its own motion or upon application by a
company, modify, in relation to that company, the requirements of the relevant
Schedule for the purpose of adapting it to the circumstances of a company.
(3) The Commission shall have power from time to time to grant
exemption to any company or any class of companies if it is in the public interest
so to do, from compliance with all or any of the requirements of the relevant
Schedule.
(4) Notwithstanding anything in this Act any company that intends to
make unreserved compliance of IFRS issued by the IASB shall be permitted to do
so.

Explanation.—The expression “IFRS” means International Financial

57
 Reporting Standards and the expression “IASB” means International Accounting
Standards Board.

(5) The provisions of sub-section (6) of section 220 shall apply to any
person who is a party to the default in complying with any of the provisions of this
section.
226.Duty to prepare directors’ report and statement ofcompliance.—(1) The board shall
prepare a directors’ report for each financial yearof the company:

Provided that nothing in this sub-section shall apply to a private company,

not being a subsidiary of public company, having the paid up capital not exceeding
three million rupees.

(2) The Commission may by general or special order, direct such class
or classes of companies to prepare a statement of compliance.

(3) The board of a holding company, required to prepare consolidated

financial statements under section 228, shall in its report to the members as
provided in section 227, include information on matters specified in sub-section (2)
of section 227 with respect to the consolidated financial statements.

(4) The directors in their report shall give greater emphasis to the
matters that are significant to the undertakings included in the consolidation.
(5) Any contravention or default in complying with requirements of this
section shall be an offence liable to a penalty of level 1 on the standard scale.

227.Contents of directors’ report and statement of compliance.—(1) The directors shall

make out and attach to the financial statements, a report with respect to the state of the
company’s affairs and a fair review of its business, the amount (if any), that the directors
recommend should be paid by way of dividend and the amount (if any), they propose to carry to
the Reserve Fund, General Reserveor Reserve Account.

(2) In the case of a public company or a private company which is a

subsidiary of a public company, the directors report, in addition to the matters
specified in sub-section (1) must state—

(a) the names of the persons who, at any time during the financial year,
were directors of the company;

(b) the principal activities and the development and performance of the
company’s business during the financial year;

(c) a description of the principal risks and uncertainties facing the

company;

(d) any changes that have occurred during the financial year concerning
the nature of the business of the company or of its subsidiaries, or
any other company in which the company has interest;

(e) the information and explanation in regard to any contents of

modification in the auditor’s report;
58
 (f) information about the pattern of holding of the shares in the form
specified;

(g) the name and country of origin of the holding company, if such
company is a foreign company;

(h) the earning per share;

(i) the reasons for loss if incurred during the year and future prospects
of profit, if any;

(j) information about defaults in payment of any debts and reasons

thereof;

(k) comments in respect of adequacy 44[of] internal financial controls;

(l) any material changes and commitments affecting the financial

position of the company which have occurred between the end of
the financial year of the company to which the financial statement
relates and the date of the report; 45[…]
46
[(la) disclosure with respect to remuneration package of each of the directors
and chief executive including but not limited to salary, benefits,
bonuses, stock options, pension and other incentives; and]

(m) any other information as may be specified.

(3) In the case of a listed company, the business review must, to the
extent necessary for understanding the development, performance or position of the
company’s business, include—

(a) the main trends and factors likely to affect the future development,
performance and position of the company’s business;

(b) the impact of the company’s business on the environment;

(c) the activities undertaken by the company with regard to corporate

social responsibility during the year; 47[…]

(d) directors’ responsibility in respect of adequacy of internal financial

controls as may be specified48[; and]

44
Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
45
Omitted word “and” vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
46
Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
47
Omitted word “and” vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
48
Substituted “.” vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.

59
 49
[(e) the legitimate reasons for not declaring dividend under section 240
despite earning profits and future prospects of dividend, if any.]

(4) The board shall make out and attach to the financial statement such
statement of compliance as may be specified.

(5) The directors’ report and statement of compliance must be approved

by the board and signed by the chief executive and a director of the company.
50
[(6) Whoever contravenes any of the provisions of this section shall—

(a) in respect of a listed company, be punishable with a penalty of level

2 on the standard scale; and

(b) in respect of any other company, be punishable with a penalty of

level 1 on the standard scale.]

228.Consolidated financial statements.—(1) There shall be attached tothe financial statements

of a holding company having a subsidiary or subsidiaries, at the end of the financial year at
which the holding company’s financial statements are made out, consolidated financial
statements of the group presented as those of a single enterprise and such consolidated financial
statements shall comply with thedisclosure requirements of the relevant Schedule and financial
reporting standards notified by the Commission:

Provided that nothing in this sub-section shall apply to a private company

and its subsidiary, where none of the holding and subsidiary company has the paid
up capital exceeding one million rupees.

(2) Where the financial year of a subsidiary precedes the day on which
the holding company’s financial year ends by more than ninety days, such
subsidiary shall make an interim closing, on the day on which the holding
company’s financial year ends, and prepare financial statements for consolidation
purposes.

(3) Every auditor of a holding company appointed under section 246

shall also report, in the specified form, on consolidated financial statements and

49 Inserted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021.
50
Substituted vide the Companies (Amendment) Act, 2021 dated 1st December, 2021. The substituted
sub-section (6) was read as under:
(6) Whoever contravenes any of the provisions of this section shall—
(a) in respect of a listed company, be punishable with imprisonment for a term which
may extend to two years and with fine may extend to five hundred thousand rupees
and with a further fine which may extend to ten thousand rupees for every day
after the first during which the default continues; and
(b) in respect of any other company, be punishable with imprisonment for a term
which may extend to one year and with fine which may extend to one hundred
thousand rupees.

60
 exercise all such rights and duties as are vested in him under sections 248 and 249
respectively.
(4) There shall be disclosed in the consolidated financial statements any
note or saving contained in such accounts to call attention to a matter which, apart
from the note or saving, would properly have been referred to in such a
qualification, in so far the matter which is the subject of the qualification or note is
not covered by the holding company’s own accounts and is material from the point
of view of its members.

(5) Every consolidated financial statement shall be signed by the same

persons by whom the individual financial statements of the holding company are
required to be signed, under section 232.
(6) All provisions of sections 223, 233, 234, 235 and 236 shall apply to
a holding company required to prepare consolidated financial statements under this
section as if for the word “company” appearing in these sections, the words
“holding company” were substituted.
(7) The Commission may, on an application of a holding company,
direct that the provisions of this section shall not apply to such extent as may be
specified in the direction.
Any contravention or default in complying with requirements of thissection shall be an offence liable
to a penalty of level 2 on the standard scale.

AUDIT

246.Appointment, removal and fee of auditors.—(1) The first auditor or auditors of a

company shall be appointed by the board within ninety days of the date of incorporation of the
company; and the auditor or auditors so appointed shallretire on the conclusion of the first annual
general meeting.

(2) Subject to the provisions of sub-section (3), the subsequent auditor

or auditors shall be appointed by the company in the annual general meeting on the
recommendation of the board after obtaining consent of the proposed auditors, a
notice shall be given to the members with the notice of general meeting. The auditor
or auditors so appointed shall retire on the conclusion of the next annual general
meeting.
(3) A member or members having not less than ten percent shareholding
of the company shall also be entitled to propose any auditor or auditors for
appointment whose consent has been obtained by him and a notice in this regard has
been given to the company not less than seven days before the date of the annual
general meeting. The company shall forthwith send a copy of such notice to the
retiring auditor and shall also be posted on its website.
(4) Where an auditor, other than the retiring auditor is proposed to be
appointed, the retiring auditor shall have a right to make a representation in writing
to the company at least two days before the date of general meeting. Such
representation shall be read out at the meeting before taking up the agenda for
appointment of the auditor:

Provided that where such representation is made, it shall be mandatory for

the auditor or a person authorized by him in writing to attend the general meeting

61
 in person.
(5) The auditor or auditors appointed by the board or the members in an
annual general meeting may be removed through a special resolution.
(6) Any casual vacancy of an auditor shall be filled by the board within
thirty days from the date thereof. Any auditor appointed to fill in any casual vacancy
shall hold office until the conclusion of the next annual general meeting:
Provided that where the auditors are removed during their tenure, the board
shall appoint the auditors with prior approval of the Commission.
(7) If the company, fails to appoint—
(a) the first auditors within a period of ninety days of the date of
incorporation of the company;

(b) the auditors at an annual general meeting; or

(c) an auditor in the office to fill up a casual vacancy within thirty days
after the occurrence of the vacancy; and

(d) if the appointed auditors are unwilling to act as auditors of the

company;

the Commission may, of its own motion or on an application made to it by the

company or any of its members direct to make good the default within such time as
may be specified in the order. In case the company fails to report compliance within
the period so specified, the Commission shall appoint auditors of the company who
shall hold office till conclusion of the next annual general meeting:

(8) The remuneration of the auditors of a company shall be fixed—

(a) by the company in the general meeting;

(b) by the board or by the Commission, if the auditors are appointed by

the board or the Commission, as the case may be.

(9) Every company shall, within fourteen days from the date of any
appointment of an auditor, send to the registrar intimation thereof, together with the
consent in writing of the auditor concerned.

247.Qualification and disqualification of auditors.—(1) A person shall not be qualified for

appointment as an auditor—

(a) in the case of a public company or a private company which is

subsidiary of a public company or a private company having paid
up capital of three million rupees or more unless such person is a
chartered accountant having valid certificate of practice from the
Institute of Chartered Accountants of Pakistan or a firm of chartered
accountants; and

(b) in the case of a company other than specified in clause (a), unless
such person, is a chartered accountant or cost and management
accountant having valid certificate of practice from the respective
institute or a firm of chartered accountants or cost and management
62
 accountants, having such criteria as may be specified:

Provided that for the purpose of clause (a) and (b), a firm
whereof majority of practicing partners are qualified for
appointment shall be appointed by its firm name to be auditors of
the company.

INVESTIGATION AND RELATED MATTERS

256.Investigation into affairs of company.—(1) Where theCommission is of the opinion,

that it is necessary to investigate into the affairs of acompany—

(a) on the application of the members holding not less than one tenth of
the total voting power in a company having share capital;

(b) on the application of not less than one tenth of the total members of
a company not having share capital;

(c) on the receipt of a report under sub-section (5) of section 221 or on

the report by the registrar under sub-section (6) of section 254;

it may order an investigation into the affairs of the company and appoint one or
more persons as inspectors to investigate into the affairs of the company and to
report thereon in such manner as the Commission may direct:

Provided that before making an order of investigation, the Commission

shall give the company an opportunity of being heard.
(2) While appointing an inspector under sub-section (1), the
Commission may define the scope of the investigation, the period to which it is to
extend or any other matter connected or incidental to the investigation.

(3) An application by members of a company under clause (a) or (b) of

sub-section (1) shall be supported by such evidence as the Commission may require
for the purpose of showing that the applicants have good reason for requiring the
investigation.

(4) The Commission may, before appointing an inspector, require the

applicants to give such security for payment of the costs of the investigation as the
Commission may specify.

257.Investigation of company’s affairs in other cases.—(1) Without prejudice to its power

under section 256, the Commission—

(a) shall appoint one or more competent persons as inspectors to

investigate the affairs of a company and to report thereon in such
manner as the Commission may direct, if—

(i) the company, by a special resolution, or

(ii) the Court, by order,

declares that the affairs of the company ought to be investigated; and

63
 (b) may appoint one or more competent persons as inspectors to
investigate the affairs of a company and to report thereon in such
manner as the Commission may direct if in its opinion there are
circumstances suggesting—

(i) that the business of the company is being or has been

conducted with intent to defraud its creditors, members or
any other person or for a fraudulent or unlawful purpose, or
in a manner oppressive of any of its members or that the
company was formed for any fraudulent or unlawful
purpose; or

(ii) that persons concerned in the formation of the company or

the management of its affairs have in connection therewith
been guilty of fraud, misfeasance, breach of trust or other
misconduct towards the company or towards any of its
members or have been carrying on unauthorised business; or

(iii) that the affairs of the company have been so conducted or

managed as to deprive the members thereof of a reasonable
return; or

(iv) that the members of the company have not been given all the
information with respect to its affairs which they might
reasonably expect; or

(v) that any shares of the company have been allotted for
inadequate consideration; or

(vi) that the affairs or the company are not being managed in
accordance with sound business principles or prudent
commercial practices; or

(vii) that the financial position of the company is such as to

endanger its solvency:

Provided that, before making an order under clause

(b), the Commission shall give the company an opportunity
of being heard.
(2) While appointing an inspector under sub-section (1), the Commission
may define the scope of the investigation, whether as respects the matters or the
period to which it is to extend or otherwise.
258.Serious Fraud Investigation.—(1) Notwithstanding anything contained in sections 256
and 257, the Commission may authorize any one or moreof its officers or appoint such number
of professionals from amongst the persons ofability, integrity and having experience in the fields
of corporate affairs, accountancy, taxation, forensic audit, capital market, banking, information
technology, law or such other fields as may be notified, as an inspector or investigation officer
to investigate such serious nature of offences relating to a company as provided in Sixth
Schedule.

(2) The persons appointed as inspectors or investigation officer under

sub-section (1) shall have all powers of investigation officer under this Act, the
64
 Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997) and
Code of Criminal Procedure, 1898 (Act V of 1898), mutatis mutandis and shall
report in such manner as the Commission may direct.
(3) Where no procedure is provided in this Act or Securities and
Exchange Commission of Pakistan Act, 1997 (XLII of 1997) the investigation
officer shall comply with the relevant provisions of Code of Criminal Procedure,
1898 (Act V of 1898).
(4) Notwithstanding anything contained in this Act or any other law, the
Commission may, if it is satisfied that the matter is of public importance or it is in
the interest of public at large, request the concerned Minister-in-Charge of the
Federal Government to form a Joint Investigation Team to be headed by a senior
level officer of the Commission, not below the rank of additional director, and may
include any person mentioned in sub section (1) alongwith Gazetted officer of any
Federal law enforcement agency, bureau or authority for providing assistance in
investigating the offence under this section and the direction of the concerned
Minister-in-Charge of the Federal Government under this section shall be binding
and any person who fails to comply with such directions, shall be guilty of an
offence punishable with simple imprisonment of thirty days or fine up to one
hundred thousand rupees by the Court:

Provided that nothing in this section shall be in derogation to or affect any

proceedings under powers of the Commission to send reference under section 41B
of the Securities and Exchange Commission of Pakistan Act, 1997 (XLII of 1997).

(5) Upon completion of investigation, the Joint Investigation Team

shall, through the Special Public Prosecutor, submit a report before the Court as
mentioned in section 483 of this Act:

Provided that notwithstanding anything contained in the Qanun-e-Shahadat

(Order), 1984 (P.O. No. X of 1984) or any other law, such report shall be admissible
as an evidence in the Court.

(6) While trying any offence under this Act, the Court may also try any
other offence, in which an accused may be charged under any other law, at the same
trial if the offence is connected with such other offence.

(7) Where, in the course of any trial under this Act, it is found that the
accused person has committed any other offence in addition to any offences
connected with the scheduled offences, the Court may convict an accused for such
other offence and pass any sentence under this Act or any other law:

Provided that where such offence is tried by any special court having
jurisdiction, higher or equal to the Court of Session, joint trial will be conducted by
such special court of all the offences and convict an accused accordingly under the
process provided in the special law.

259.Inspector to be a Court for certain purposes.—(1) Notwithstanding anything

contained in any other law for the time being in force, the Commission may either on its
own motion or on the basis of any information received, is of the view that any offence has
been committed under this Act or any

65
person is engaged in any fraud, misfeasance, misconduct or any other activity
prejudice to the public interest shall have all the powers as provided under
the Securities and Exchange Commission of Pakistan Act, 1997(XLII of
1997).

(2) A person appointed as inspector under sections 256, 257 and

258 shall, for the purposes of his investigation, have the same powers as are
vested in aCourt under the Code of Civil Procedure, 1908 (Act V of 1908),
while trying a suit,in respect of the following matters, namely—

(a) enforcing the attendance of persons and examining them on

oath oraffirmation;

(b) compelling the discovery and production of books and

papers andany material objects; and

(c) issuing commissions for the examination of witnesses;

and every proceeding before such person shall be deemed to be “judicial

proceeding” within the meaning of sections 193 and 228 of the Pakistan
Penal Code, 1860 (Act XLV of 1860).
(3) Any contravention of or non-compliance with any orders,
directionsor requirement of the inspector exercising powers of a Court under
sub-section (1)shall, in all respects, entail the same liabilities, consequences
and penalties as are provided for such contravention, non-compliance or
default under the Code of CivilProcedure, 1908 (Act V of 1908) and Pakistan
Penal Code, 1860 (Act XLV of 1860).
(2) Where a partnership firm is appointed as auditor of a company,
onlythe partners who meet the qualification requirements as provided in sub-
section (1),shall be authorized to act and sign on behalf of the firm.
(3) None of the following persons shall be appointed as auditor
of a company, namely—

(a) a person who is, or at any time during the preceding three years
was,a director, other officer or employee of the company;

(b) a person who is a partner of, or in the employment of, a

director, officer or employee of the company;

(c) the spouse of a director of the company;

(d) a person who is indebted to the company other than in the

ordinary course of business of such entities;

(e) a person who has given a guarantee or provided any security

in connection with the indebtedness of any third person to the
companyother than in the ordinary course of business of such
entities;
66
 (f) a person or a firm who, whether directly or indirectly, has
business relationship with the company other than in the
ordinary course of business of such entities;

(g) a person who has been convicted by a court of an offence

involvingfraud and a period of ten years has not elapsed from
the date of suchconviction;

(h) a body corporate;

(i) a person who is not eligible to act as auditor under the code of
ethicsas adopted by the Institute of Chartered Accountants of
Pakistan and the Institute of Cost and Management
Accountants of Pakistan; and

(j) a person or his spouse or minor children, or in case of a firm,

all partners of such firm who hold any shares of an audit client
or any of its associated companies:

Provided that if such a person holds shares prior to his

appointment as auditor, whether as an individual or a partner
in a firm the fact shall be disclosed on his appointment as
auditor and such person shall disinvest such shares within
ninety days of such appointment.
Explanation.—Reference in this section to an “officer” or
“employee”shall be construed as not including reference to an auditor.

(4) For the purposes of clause (d) of sub-section (3) a person who
owes—
(a) a sum of money not exceeding one million rupees to a credit
card issuer; or

(b) a sum to a utility company in the form of unpaid dues for a

period not exceeding ninety days;

shall not be deemed to be indebted to the company.

(5) A person shall also not be qualified for appointment as auditor
of a company if he is, by virtue of the provisions of sub-section (3),
disqualified for appointment as auditor of any other company which is that
company’s subsidiary or holding company or a subsidiary of that holding
company.
(6) If, after his appointment, an auditor becomes subject to any of
the disqualifications specified in this section, he shall be deemed to have
vacated his office as auditor with effect from the date on which he becomes
so disqualified.
(7) A person who, not being qualified to be an auditor of a
company, orbeing or having become subject to any disqualification to act as
67
such, acts as auditorof a company shall be liable to a penalty of level 2 on the
standard scale.
(8) The appointment as auditor of a company of an unqualified
person,or of a person who is subject to any disqualifications to act as such,
shall be void, and, where such an appointment is made by a company, the
Commission may appoint a qualified person in place of the auditor appointed
by the company.

68