12/14/2018 JOINT STOCK

COMPANY
Introduction to Business

Submitted to: MA’AM FAIZA DAR

Submitted by: ZUNAIRA TAUQEER
BBA-1(HONS)
 CONTENTS
 What is a Joint Stock Company?
 Characteristics of Joint Stock Company
 Merits of Joint Stock Company
 Demerits of Joint Stock Company
 Classification of Companies
 Private Limited Company
 Conversion of Private Company Into Public Company
 Promoters
 Types of Promoters
 Formation of Joint Stock Market
 Basic Legal Documents Issued By A Company
 Statement In Lieu of Prospectus
 Kinds of Capital
 Shares
 Transfer And Transmission of Shares
 Debentures
 Distinction Between Shares And Debentures
 Underwriting of Shares
 Managing Agents
 Ploughing Back of Profits
 Dividend
 Winding up of Joint Stock Company
 Major Forms of Business Organizations(Summarized)
 WHAT IS A JOINT STOCK COMPANY?
“A voluntary organization which is an artificial person
created by law, having limited liabilities of its
members and a perpetual succession with its capital
divided into transferable shares and which has a
common seal”.

CHARACTERISTICS OF JOINT STOCK

COMPANY
1.Separate Legal Entity:
 Joint Stock Company is an artificial person and has
separate legal entity from its shareholders. In this capacity,
a company can sue or can be sued by other parties.
Everybody knows only the name of company and its
address. Nobody knows about the shareholders of the
company.
2.Common Seal:
A Joint Stock Company is an artificial person, so it cannot
sign business agreement and document itself.
3.Limited Liability:
The most distinguished feature of Joint Stock Company as
compared to sole proprietorship and partnership is that the
liability of shareholders is limited to the extent of shares
purchased by them. It means the private property of
shareholders cannot be used to compensate the debts or
burden of loss of company.
4.Number of Members:
In case of multi-members private limited company
minimum number of members should be two and
maximum fifty whilst in listed public limited company
minimum members should be seven but there is no limit of
maximum number of members.
5.Large Scale Business:
Because of more members, a company has a larger capital
as compared to sole trader ship and partnership, which
helps in doing the business on larger scale.
6.Transfer of Shares:
The shareholders of public company can transfer or sell
their shares to the other persons at stock exchange without
the consent of other shareholders and management of the
company.
7.Determination of Objects:
The objects of a company are set out in its memorandum of
association and these objects can only be altered with the
permission of court and in accordance with the relevant
provisions of Companies Act.
8.Financial Resources:
A joint stock company collects a larger portion of its
finance by issuing shares. For this purpose a public
company can issue its prospectus to general public who
buys shares of the company whilst private company cannot
issue the shares to general public.
9.Distribution of Profits:
The first and foremost aim of a company is to earn profit.
The company does not distribute the whole profit among
the shareholders. Some portion of the profit is transferred to
reserve fund whilst the remaining portion is distributed as
dividend according to the shares of shareholders.
10.Long Life:
A company has a long life as compared to the other
business organizations. The business of a company
continues until it is legally wound up. If any shareholder or
director dies or retires or become insane or declared
insolvent or withdraws his share capital, there is no effect
on the continuity of the company’s business.

MERITS OF JOINT STOCK COMPANY

Followings are the advantages if J.S.C.
1. Larger Capital:
A joint stock company has huge amount of capital to run
the business because of its large number of members as
compared to sole proprietorship and partnership.
2. Expansion of Business:
A joint stock company sells the shares, bonds and
debentures to collect a large amount of finance, which
helps to expand the business easily.
3. Growth of Investment:
The capital of Joint Stock Company is divided into the
shares of small value, so person with less income and
saving can easily make investment by purchasing the
shares.
4. Higher Profits:
In Joint Stock Company because of larger capital,
economies of large-scale production and technical skills, a
company’s cost of production reduces and rate of profit
increases.
5. Experts Services:
A joint stock company has sound financial position, so it
may not only hire the services of qualified and technical
experts, but also establish the research centers for quality
product.
6. Increase in Govt.’s Income:
 A company pays different types of taxes to government like
income tax, sales tax, excise and import duty etc., which
increases the government income.
7. Better Management:
The elected directors administer such organization. These
directors are generally experienced and qualified in the
business field. So, the efficiency of company improves due
to such experienced and qualified people.
8. Less Chances of Corruption:
The government audits the various statement regarding the
incomes and expenses of a company from time to time, so
the managing authorities get less chances of corruption.
9. Low Cost of Production:
Availability of huge amount of finance, government
incentives, modern techniques of production and vast
market make possible for a joint stock company to produce
goods on large scale at a competitive lower cost. Low cost
production causes to increase the profit of company.
10. Public Confidence:
Joint stock Company is created by law and performed its
functions according to the provisions of government.
Moreover the company has to publish its performance and
accounts. So it can easily win the public confidence.

DMERITS OF JOINT STOCK COMPANY

 There are following disadvantages of a joint stock
company.
1. Monopoly:
Due to large size and more resources, a joint stock
company can create monopoly by getting control over
market. Sometimes, few companies make agreement to
have monopoly for exploiting the consumers and small
businessmen.
2. Nepotism:
In joint stock Company, the directors of company often
employ their inefficient and incapable relatives on key jobs
of the company. As a result of this, the cost of production
increases and company faces loss.
3. Late Decisions:
In a company, the decision making process is time
consuming because a meeting is necessary to solve the
business problems ant matters. Sometimes delay in
decisions may cause loss to business.
4. Change in Business Objects:
The company’s objects are clearly stated in memorandum
before its incorporation and these objects cannot be
changed without the permission of government. So, a
company has to do the decided business only.

5. Lack of Secrecy:
 A joint stock company cannot maintain its secrecy because
it has not only to submit various reports to registrar but also
publish required accounts and statements from time to time.
6. Personal Satisfaction:
A company produces goods on large scale. So, the personal
likeness and satisfaction of consumers cannot be kept in
view. The avoidance of personal likeness of customers may
hinder the success of company.
7. Labour Disputes:
In this form of organization, there is no close contact
between the workers and owners due to large number of
employees. The paid managers of the company do not give
proper attention to the problems of labour. So negative
impression develops in labourers against the company
management, which may result in business loss.
8. Lack of Team Spirit:
In joint stock Company, there is large number of
shareholders and they change their status frequently.
Therefore, there is always lack of team spirit in this
organization and every shareholder only takes into
consideration his own interest.

9. Unnecessary Expenditures:
 Due to limited liability of shareholders, the directors of the
company make unnecessary expenditures not only on their
personal use but also on other unrelated business matters
and distribute small profit to the shareholders.
10. Complicated Procedure:
The formation of a joint stock company is complicated
procedure as compared to other forms of organization
because the founders of company have to observe many
legal formalities. So a lot of time and money is wasted.
 CLASSIFICATION OF COMPANIES

According to Chartered Company

Incorporatio Statutory Company
n Registered Comapny

Public Company
Private Company
According to Govt's Company
Ownership Holding Company
Subsidiary Company

Limited By Shares
According to Limited By Guarantee
Liability Unlimited Company
Association Not For Profit

Modaraba Company

According to Pakistani Company

Nationality Foreign Company

According to Incorporation
 i. Chartered Company:
o These companies are formed by the royal order or charter.
o The word “limited” is not used with the name of
company.
o Management of company is run according to the provision
of charter.
o The members are not liable for the debts of company.
(e.g.) Chartered Bank of England, Royal Bank of Scotland
and East India Company etc.
ii.Statutory Company:
o These companies are formed by the order of president or
by the special act of parliament.
o The main purpose of these companies is the welfare of
public and profit is not so important.
o It is not essential for these companies to use word limited.
o These companies have monopoly in their respective
fields.
o The liability of shares holders is limited to the value of
shares purchased e.g. state bank of Pakistan (SBP), Zarai
Taraqiati bank limited (ZTBL) and WAPDA etc.
iii.Registered Company:
o Registered company is formed under
o Companies’ act 2017. It also includes an existing
company define in section 2(17) of said act.
 o These companies are allowed to various industrial,
agricultural and trading business.
o The rules regarding companies’ formation, management
and winding up are stated in companies ordinance e.g.
Adam Ji Industries, Wazir Ali industries etc.

According to Ownership
i. Public Company:
o In listed company, minimum number of members is
seven but there is no restriction for maximum.
o The word limited is used after the name of company.
o Minimum number of directors are seven.
o Share of company can easily be sold and transferred.
o The liability of shareholders is limited.
o The audit of companies’ personal account is compulsory
every year.
o It is compulsory for the company to call statutory
meeting within three to six months of its commencement.
o For example PTCL, PEL and SNGPL etc.
ii. Private Company:
Private company may be of following two types:
o Single Member Private Company
» There is only one member or shareholder in this
company.
 » The company uses the word (S.M.C Private Ltd.) after
its name.
» The shares of company are non-transferable.
» The liability of the owner is limited.
» The company has a separate legal entity.
» For example, pearl consultancy (SMC-Pvt Ltd.),
Islamabad.
o Multi Member Private Company
» In this company, minimum number of members is two
and maximum is fifty.
» The company uses the word “private” with its name.
» Minimum number of directors is two.
» The shares of company are not-transferable.
» The liability of the shareholders is limited.
» The audit of the company is not compulsory.
» This company can start its business after getting the
certificate of incorporation.
» For example, Tapal (Pvt.) Ltd. And HKB (Pvt.) Ltd.
iii. Govt. Company:
o These companies are owned by the federal government.
o The company’s all or more than 50% shares are held by the
government or the government has power to nominate
more than 50% of its directors.
o This company may be register as public or private.
 o The government is responsible for profit and loss of the
company.
o For example, Punjab Seed Corporation and Pakistan
Television Cooperation etc.
iv. Holding Company:
o It is a company which holds more than 50% shares of
another company.
o The company may have the powers to appoint more than
50% of directors of another company.
o For example, Nishat Mills Limited is the holding company
of Nishat Power Limited.
v. Subsidiary Company:
o It is company whose more than 50% shares are held by
another company (Holding Company).
o Its more than 50% directors may be selected by the holding
company.
o For example, PICIC growth fund is the subsidiary of PSO
in Pakistan.

According to Liability
i.Limited by Shares:
o It is a company which collects its capital by selling
shares.
o The liability of shareholders is limited up to the value
of purchased shares.
 o It may be public of private limited.
o It is essential for such company to use the word
‘limited’ at the end of its name.
o Packages Limited, Lahore etc.

ii.Limited by Guarantee:
o In this company, every member gives guarantee to
contribute a specified amount of money at the time of
winding up of company.
o The liability of members is limited up to the
guaranteed amount.
o It may be formed with or without share capital.
o The main object of the company is not to earn profit.
o The company uses the word “Guarantee Limited” with
its name.
o For example, The Pakistan Mutual Insurance
Company (Guarantee Limited) etc.
iii.Unlimited Company:
o In this company, the liability of shareholders is
unlimited.
o The private property of the members is also liable to
pay company’s debts.
o The shares of this company can be transferable.
o For example, American Express Company USA etc.
iv.Association not for profit:
 o In this organization, the word limited is not used with
its name.
o It enjoys all the privileges of a limited company.
o It requires license from Federal Government for its
formation as a company.
o It is established to promote commerce, art, science or
religious activities.
o For example, Pakistan Institute of Corporate
Governance, Khushal Pakistan Fund etc.

PRIVATE LIMITED COMPANY

A private limited company is a company which can be started
and registered by two members.
Advantages:
The main advantages of a private limited company are as under:
o It is a concern of family members who are very well
known to each other. The control is generally in the
hands of owners of capital.
o There is greater flexibility in regard to management
and conduct of business.
o It is not required to hold a statuary meeting or file a
statuary report.
 o A private limited company is not required to have
more than two directors.
o A private company can commence business
immediately after its incorporation.

Disadvantage:
The restrictions imposed under Sections 2 (25) of the
Ordinance are regarded disadvantages of private company
as compared with a public company. The disadvantages
are:-
o It restricts the rights to transfer shares by its articles.
o The number of members in a private company cannot
exceed 50 in any case.
o A private company cannot issue prospectus to public
nor can file a statement in lieu of prospectus.
o The shares cannot be quoted on stock exchange.
CONVERSION OF PRIVATE COMPANY
INTO PUBLIC COMPANY
The process of conversion of private company into public
company is as under:
1. The private company should alter the following provisions in
its articles of association.
i. Share-holders may transfer their shares.
ii. They may invite the public for subscription of shares
and debentures.
iii. Restriction on maximum number of shareholders
should be removed.
2. Following necessary documents must be filed to the
Registrar’s office within 15 days along with altered articles of
association.
i. List of persons containing their names, addresses and
other particular who have agreed to act as directors of
the company.
ii. Consent of the directors.
iii. Declaration of the directors, to take up their
qualification shares.
iv. Declaration of the directors that they have paid for
their qualification shares.
v. Prospectus or statements in lieu of prospectus.
vi. Declaration from the directors or secretary or advocate
that all the provisions of the Companies Act have been
fulfilled.
3. The numbers of numbers must be increased to seven (7) in
case listed company if they are less than seven (7).
 After the submission of above documents to the registrar’s
office, a private company may be converted into public
company.
On the application for change in status of a company, if the
commission is satisfied that the company is entitled for
conversion then such conversion shall be allowed by an order in
writing. A copy of order, duly certified by an authorized officer
of the commission, shall be forwarded to the company and to the
registrar within seven days from the date of such order.

PROMOTERS
The promoter is a business term. It is used to describe the person
or persons who initially take all necessary steps to form a
company with reference to a given object and set it going. So,
the promoters give birth to a business unit and nourish it until it
stands on its own feet. Therefore, a promoter serves both as a
mother and mid-wife.
Definition:
Promoters are persons engaged in the formation of a
company. They take the initiative of starting a business and
bring a business enterprise into exercise.

FUNCTIONS OF PROMOTERS
The promoters play an indispensable role in business by
performing following functions:
1.Conceive a business opportunity or the idea of starting a
new business;
2.Conduct a primary analysis of the idea to determine its
profitability and feasibility;
3.Carry out a detailed investigation on order to determine the
nature, scope and requirements of the proposition;
4.Consult various persons and encourage them to join in the
proposed business as directors;
5.Appoint brokers, underwriters, solicitors bankers for the
company;
6.Get the necessary documents prepared and filed for
incorporation;
 7.Get the prospectus prepared, issued and filled;
8.Make contracts for the purchase of assets;
9.Make discussions for purchase of existing business; and
10.Make portion of securities (shares).

LIABILITIES OF THE PROMOTERS

The detailed of the liabilities of the promoters is given below:
1.To disclose full details of the nature and the extent of
money taken by them in the process of promotion;
2.To deposit all money received on the behalf of the company
in the company’s bank account;
3.To refrain from selling their own property to the company
at unreasonably high prices;
4.To exercise due care and intelligence in the work of
promotion;
5.To act without dishonesty, misfeasance or breach of trust
towards the company;
6.To surrender any secret profits made to the company;
7.To be personally liable for introductory contracts till the
company approves these contracts;
8.To pay compensation to those who have invested money in
the company on the basis of untrue statements or
misrepresentation on the prospectus;
9.To be liable for failure to conform with the legal
formalities; and
 10.To make good any loss caused to the company on account
of negligence or breach of trust.

TYPES OF PROMOTERS
Promoters can be of the following types:
1.Professional Promoters:
Large-scale enterprises are generally promoted by
experts. These experts possess the necessary skills and
knowledge in promotion. They promote a business as a
going concern and they hand over its management and
control to other. These promoters are interested only in
looking out for business opportunities and converting
them into business units in return for handsome payment.

2.Occasional Promoters:
This type of promoters promotes a business once in a
while rather than a regular basis. Promotion is not their
main job and after promoting a company they go back to
their original occupation. For example, an engineer or
technical expert may promote a business to
commercially exploit a patent or invention discovered by
him.
3.Financial Promoters:
Banks and other financial institutions also perform the
work of promotion. Investment banks become active in
the field of promotion when the securities market is able
to absorb new issues of equity shares. In Pakistan, the
Industrial Development Bank of Pakistan and other
financial institutions
Carry out the work of promoting industrial concerns.
 FORMATION OF JOINT STOCK
MARKET

“Formation means organizing and developing

something.”
Following are the important stages or steps for the
formation of company:

Formation of
Joint Stock
Company

Promotion Incorporation Certificate of

 1)PROMOTION STAGE
It is a stage when concerned people (promoters) take
following steps to form a company;
i. Idea:
Before starting the business, promoters have to think about
the nature of company’s business.
ii. Preliminary Investigation:
After deciding the nature of business, promoters conduct
preliminary investigation and make out plans as regard to
the availability of capital, means of transportation, labour,
electricity, gas and water etc.
iii. Assembling of Resources:
If the promoters find preliminary investigation satisfactory
then they try to accumulate different factors of production.
For this, they also take help of several specialist persons
and enter into agreements with them.
iv. Estimation of Preliminary Expenses:
The promoters also work out the estimated preliminary
expenses, which are necessary to start and run the business.
 v. Financial Sources:
The promoters also decide the financial sources of the
company. The public company can raise its finance by
issuing shares and debentures or by making agreement with
underwriters.

vi. Name of the Company:

The promoters also decide the name of the company. The
name of the company should be such which can indicate its
functions and the name is easy to remember. For the name,
the permission of the Registrar should be received in
advance.
vii. Sanction for Capital Issues:
For the maximum issue of shares capital or debentures,
promoters have to take permission from central government
in advance.
viii. Preparation of Essential Documents:
In addition to above discussed matters, the promoters also
prepare following essential documents for the formation of
company:
a) Memorandum of company.
b) Articles of company.
c) Prospectus of company.

2)INCORPORATION STAGE
i.Filing of Documents:
Following documents have to be submitted by the
promoters in the office of the Registrar of the area in which
the company is to be established.

a)Memorandum of Association:
This document indicates the name of the company
along with the address of its registered office and
name of state. It also indicates the authorized or
registered capital of the company.
b)Articles of Association:
This document contains byelaw for internal control
and management but it cannot go out of the objects
mentioned in Memorandum of Association.
c) List of Directors:
Promoters have to send a list of the names of
directors, occupation and address along with their
declaration to the registrar that they are ready to take
the qualification shares.
d)Written Consent of Directors:
All the directors whose names are in the list have to
give their written consent that they are ready to act as
directors of the company.
e) Declaration of Qualifying Shares:
 Directors have to submit a declaration certificate to
the registrar that they have taken up qualifying shares
and paid up the money or would pay it in near future.
f) Prospectus:
Promoters have to fill a prospectus or statement in
lieu of prospectus with the registrar. This is not
necessary in the case of a private company.
g)Statutory Declaration:
At the end, promoters have to send a statutory declaration
to the registrar that all legal formalities have been
completed and fulfilled.
ii.Payment of Registration Fee:
For the registration of company, the registration fee is
also paid to registrar, which can be divided into
following three parts:
 Application and Document filing fee.
 Registration fee (varies with the amount of
authorized capital of the company)
 Stamp fee on memorandum and articles.
iii.Certificate of Incorporation:
If the registrar finds all the documents right and think
that all the formalities have been done then it issues
the certificate of incorporation to promoters. After
this, the private company can start its business.

3) CERTIFICATE OF COMMENCEMENT
 After getting certificate of incorporation, every public
company has to obtain the certificate of commencement to
start the business activities, which requires the fulfillment
of following conditions.

i.Arrangement of capital:
The next stage is to make arrangement for raising capital.
For any kind of business, the company raises its capital
through following sources:
o By issuing shares
o By issuing debentures
o By savings
ii.Issuance of prospectus:
The company issues prospectus for selling shares to the
public. The interested investors apply for shares through
nominated banks by depositing the required amount.
iii.Minimum subscription:
After receiving the application from the people purchasing
shares, it is also certified that the amount of shares have
been received and the amount is not less than the minimum
subscription.
iv.Allotment of shares:
 The bank allots the share according to the provisions of
memorandum and the decision to allot share is
communicated to applicants through the letters.

BASIC LEGAL DOCUMENTS ISSUED BY

A COMPANY

1.Memorandum of association
“It is a document, which determines the rights, powers and
objects of company. It is the most important legal document,
which must be submitted to the registrar before the
establishment of company”.

Contents
 Name clause:
The name of the company should be selected carefully and
it should not be similar to the name of other companies. If
the shareholders have limited liability then the word limited
should be written with the name of the company and the
word private in case of private company.
 Head office:
The company should have registered head office in the
state or province where they have to start the business. The
company cannot start its business without the head office
and in case of any change it is required to inform the
registrar within 28 days.

 Capital clause:
It is also mentioned in the memorandum that what will be
the amount of total capital its division in shares and the
value of each share.
 Object clause:
It is an important object of the memorandum. In this clause
it is always written that what type of business the company
will do.
 Liability clause:
It is clearly written in the memorandum that whether the
liability of the shareholders is limited or unlimited.
 Association clause:
This clause includes an agreement among all the promoters
in which they give their consent to
(a) Form a particular company
(b) Purchase allotted shares
(c) Work for better prospects.
 The names, address and other relevant information of the
shareholders are also included.
2.Articles of Association
“It is the second most important document of the company,
which includes the rules and regulations necessary to run the
company and to govern the internal organization.

Contents
o Capital and its division into shares.
o Different types of shares.
o Value of shares and their transfer.
o Method for change in capital.
o Rights of shareholders.
o Conversion of shares into stock.
o Name and number of directors.
o Powers and duties of directors.
o Method to call the meetings.
o Voting power of shareholders.
o Appointment of shareholders.
o Accounts and their audits etc.
3.Prospectus
“Prospectus is a document advertised by a company for
raising the capital.in the general public is invited to
purchase the shares.”
 Contents
o All points of memorandum.
o Name and address of the company.
o Name and address of the directors.
o Conditions on which the share to be issued.
o Rights of shareholders attached to shares.
o Estimated preliminary expenses.
o Detail of property purchased by the company.
o Balance sheet of company.
o Amount payable on application.
o Name of underwriters and their commission.
o Duties and remuneration of directors.
o Business contracts.

STATEMENT IN LIEU OF PROSPECTUS

According to section 19(1)(E) of companies act 2017, if a
public company is not in a position to submit the prospectus
at the time of registration or the promoters want to want to
raise necessary capital through private contacts the another
statement containing all the necessary information. This
statement is known as “Statement in Lieu of Prospectus”.
Contents:
o Name of the company.
o Corporate universal identification No. (CUIN)
 o Registered offices, telephone number, fax no, website
address and email address.
o Particulars of chief executive, directors, company
secretary, chief accountant and managing agent etc. of
the company.
o Number and amount of shares to be issued, including
those agreed to be taken by virtue of memorandum of
association for cash.
o Number and amount of debentures agreed to be issued
for cash and otherwise than in cash.
o Commission agreed to be paid for arranging the
subscribers of shares and debentures.
o Details of preliminary expenses.
o Minimum subscription and its proposed utilization.
o Signatures of the directors or their authorized agents.

KINDS OF CAPITAL

Kinds of company capital

Authorized capital Reserve capital

Unissued Issued
capital capital

Unsubscribe Subscribed
d capital / Registered capital
1. Authorized Capital:
It is the maximum amount of capital, which a company is
authorized to raise,
2. Issued Capital:
It is that part of issued capital, which has been issued or offered
to public for subscription.
3. Un-Issued Capital:
It is that part of authorized capital, which is not issued or offered
to public for subscription.
4. Subscribed Capital:
Subscribed capital is that portion of issued capital, which has
been subscribed or taken up by the people through shares.
 5. Un subscribed capital:
Unsubscribed capital is that portion of issued capital, which has
not been subscribed or taken up by the people through shares.
6. Reserve Capital:
Reserve capital is that part of capital, which the company has
decided by special resolution, shall not be called up unless there
is particular event or the company being wound up.

SHARES
“The total authorized capital of the company is divided
into small units and each unit is individually called as
shares.”

KINDS OF SHARES
1. Preference Shares:
These are the shares whose holders have preferential rights
in respect of the payment of dividend and repayment of
capital in the event of winding up. The rate of dividend on
these shares is fixed.
Further are the two types of preference share:
 Cumulative Preference Share:
 If the profit of the company is not enough to pay dividend
on any kind of shares at the end of financial year then the
right of dividend on these shares accumulates until all
arrears of unpaid dividend have been paid.
 Non-Cumulative Preference Share:
Non-cumulative preference shares are the shares on which
if dividend is not paid out of current year’s profit in any
year then it is never paid.

2. Ordinary Shares:
Ordinary shares are the shares on which dividend is not
paid at fixed rate. Ordinary shareholders receive the
dividend proportionally out of profit earned by the
company after the payment of fixed dividend on preference
share.
3. Deferred Shares:
The shares issued to promoters of the company are called
“Deferred or Founders share”. The dividend on these
shares is paid after the payment of dividend on all other
kinds of shares.
 TRANSFER AND TRANSMISSION OF
SHARE

 Transfer of Shares:
The shares of a public company are movable property. They are
transferable in the manner provided by the Articles of the
company. An application for the transfer of shares has to be
made either by the transferor or by the transferee. The company
shall not register a transfer unless the instrument of transfer is
duly stamped and properly executed.

 Transmission of Shares:
In case of the death, insolvency or lunacy of a shareholder, the
title or property in share is transferred to the legal successor of
the deceased shareholder by the operation of law.
The process of transfer of shares to legal successor by operation
of law is termed as transmission of shares.
 TRANSFER AND TRANSMISSION OF
SHARES DISTINGUISHED
Transfer of shares Transmission of shares
1. Deliberate act. The transfer 1. It involves the passing of the
of share is voluntary. It is title’s share by operation of
deliberate act of the law.
shareholder.

2. It is voluntary passing of 2. In case of transmission of

shares either by sale or gift shares, it happens on the death,
during the lifetime of insolvency or lunacy of the
transferee. shareholder.

3. In case of transfer the title 3. In case of transmission the

of the share passes on to the title as well as the right to
transferee. transfer passes on to the
executor or nominee of the
deceased or the guardian of the
lunatic.
4. In case of transfer of shares, 4. In case of transmission of
a duly stamped and executed shares, a succession certificate
instrument signed by both the or courts order is to be
parties is too given to the produced by the legal
company for registration. representative.
 DEBENTURES
“If a public limited company is empowered by its
memorandum of association to borrow a fixed amount of
money for meeting the long term needs of the business, the
company invites applications from interested persons to lend
money for a specified period and acknowledges the receipt of
this loan through a certificate. The document or certificate,
which the company issues as receipt of the borrowed money
to the lender, is known as Debenture.”

KINDS OF DEBENTURES
Following are the major kinds of debentures:
1. Ordinary Debentures:
The debentures issued without any security of repayment (loan
and interest) are known as ordinary debentures.
2. Mortgage Debentures:
A mortgage debenture is the one, which is secured by a
mortgage of total or portion of the property of company.
3. Registered Debentures:
If the name and addresses of the debenture holders are recorded
in the register of the company then the debentures are
considered as registered debentures.
 4. Bearer Debentures:
In case of bearer (unregistered) debentures, the names and
addresses of debenture holders are not written in the books of
company.
5. Redeemable Debentures:
These are the debentures which are repayable at a specified time
in future are known as “Redeemable debentures”.
6. Irredeemable Debentures:
The debentures, which are not payable during the life of issuing
company and only repayable at the time of winding up of
company is known as “Irredeemable debentures.”
7. Convertible Debentures:
These are the debentures, which allow the debenture holders to
convert their debentures into ordinary or preference shares of the
company.
 DISTINCTION BETWEEN SHARE AND
DEBENTURE

Share Debenture
Owned capital: Loan:
The company’s ordinance defines A debenture is a certificate of
share as a share in share capital of the indebtedness issued under the
company. seal of the company.
Management: Management:
The shareholders manage the affairs The debenture holders are not
of the company through the elected entitled to interfere in the
representatives called Board of management and administration
Directors. of the company as they are not
the owners of the company.
Right: Right:
The shareholders receive dividend The right of debenture holders is
when the company earns profit. They to receive money at a fixed rate of
suffer financially when it suffers interest.
losses.
Returns of capital: Returns of capital:
The shareholder are allowed to sell The company gives an
their shares at will to other persons undertaking to pay back the
but they are not paid back the capital, capital along with interest at a
if they so desire, by the company started time to the debenture
until it is legally dissolved. holders.
Payment at the time of Payment at the time of
winding up: winding up:
In case the company is wound up, the On winding up the company, the
shareholders have a secondary claim first priority is to pay back the
of the return of money on the money to the debenture holders.
purchased shares.
Voting: Voting:
A shareholder is entitled to vote at A debenture holder has no right
the company’s general meeting. of voting at any meeting of the
company.

Owners of the company: Owners of the company:

The shareholders except the Debenture holders are creditors of
preference shareholders are the the company and as such they
owners of the company. have to claim on the ownership of
the company.
Profit and loss appropriation Profit and loss
amount: appropriation amount:
Dividend on shares is a charge Interest on debentures is a charge
against profit and loss appropriation against profit and loss account.
account.
Islamic spirit: Interest:
The dividend paid to the shareholders The company is to pay fixed rate
depends upon the profit of the of interest to the bond holders
company. There is no fixed rate of whether the company makes any
returns on the shares of the company. profit or suffers loss which is
As such they are Islamic in character. basically against tenants of Islam.

UNDERWRITING OF SHARES
What is underwriting?
Underwriting may be defined “as a contract made by the
promoters with persons like brokers, or institutions like
banks, insurance companies, syndicates or security dealers
who are willing to take the whole or portion of such of the
offered shares as may not be subscribed for by the public.
The underwriters make the payment of subscribed shares in
full to the company and sell them on to the general public.
Importance of underwriting:
o The underwriters stand guarantee and help the promoters in
undertaking the risk of starting or enlarging a project.
o When the issue is underwritten, the company is confident
of the required capital.
o If the underwriters are men of honour, it raises the status of
the company.
o If securities are sold in the market, the underwriting
organization can also be dissolved.

MANAGING AGENTS
Definition:
According to section 206 of Companies Ordinance, a
company is not authorized to appoint managing agents by
whatever name called. However, if a company is owned or
controlled by the Federal Government, the restriction of
appointment of managing agent is waived off there.
Importance of Managing Agents:
o The managing agents are a very useful agency for
promoting, financing and managing the affairs of a
company.
o Major portion of the capital is raised through their personal
interests.
o They supply the fixed and working capital, attract funds in
the form of debentures, perform the functions of
underwriters and furnish the necessary capital by using all
available resources.

PLOUGHING BACK OF PROFITS

“If a company retains a portion of profit to serve as a source
of finance to the company, it is termed as ploughing back of
profit.”

DIVIDENDS
 “Dividends are profits of trading company distributed
amongst members in proportion to their shares.”
Legal Rules as Regard to Payment of Dividend
 A company subject to the provision of articles should
pay dividend to the shareholder out of profit in
proportion to the shares.
 A dividend becomes liability from the date, it is
declared by the company and should be paid within 45
days of the date of declaration.
 Dividend should be paid out of the profits of the
company and not out of the capital.
 It is not necessary to divide the whole of profits among
the shareholders.
 Dividend must be paid in cash unless there is an express
authority to pay them in shares or debentures.
 Dividend payable on ordinary shares may vary
according to the profits made by the company every
year.
 Directors who are a party to the payment of dividend on
capital of the company are jointly responsible to repay
the amount.
 WINDING UP OF JOINT STOCK
COMPANY
“Winding up means when the legal existence of the
company comes to an end then it is called winding up of
a company”.
1. Winding up by court:
According to section 301 and 302 of companies Ordinance
1984, the court in following circumstances may wind up a
company:
 By special resolution:
If a special resolution has been passed by the company for
the winding up.
 Statuary meeting:
If a company fails to submit statuary report to registrar or
fails to hold statuary meeting within the specified period.
 Start of business:
If a company fails to start its business within one year from
the date of incorporation or postpones its business for one
year.
 Number of members:
If the number of members falls below than seven in case of
listed public company and in case of private company
below than two.
 Non-payment of loans:
If the company is unable to pay business debts.
  Satisfaction of court:
If the court is not satisfied with the working, management
and business affairs of the company.
 Unlisted:
If a company is declared unlisted due to any reason.
2.Voluntary winding up:
Under sections 348 of the Act, a joint stock company may
be wound up voluntarily by passing ordinary or special
resolution in following two ways:
(Member’s voluntary winding up)
According to section 352 of companies Act, the members
can wind up the company voluntarily by the following
process:
 Statuary declaration:
If the majority of the directors make a statuary declaration
to registrar that the company will be able to pay its debts in
full within one year.
 Special or ordinary resolution:
After submitting the statuary declaration to the registrar,
the company in general meeting passes on ordinary or
special resolution to wind up the company.
 Appointment of liquidators:
In general meeting, the company appoints liquidators to
wind up the company’s affairs and to distribute the assets
of the company. Within ten days of appointment of
liquidators, the notice regarding the appointment must be
sent to registrar.
 Final meeting:
If the process of liquidation continues for more than one
year, the liquidator has to call a general meeting within two
months from the close of first year after the commencement
of winding up. After this liquidators call a final general
meeting of the shareholders. In this the liquidator must
submit the final accounts of company’s affairs to the
members and its copy to the registrar. At the end of three
months of the report, the company shall be dissolved and
its name will be struck off from the books of registrar of
Joint Stock Company.
(Creditor’s voluntary winding up)
 Statuary declaration:
In case of creditors’ voluntary winding up, it is not
necessary for the company to make a statuary declaration
regarding its solvency.
 General meeting:
A general meeting of a company’s shareholders is called to
pass on extra ordinary resolution for the dissolution of
company because it cannot continue its business due to
heavy liabilities.
 Creditors meeting:
It is obligatory for a company to call a meeting of the
creditors of the company on the same day or on the day
following the meeting of shareholders in which the
resolution for winding up is proposed for this purpose. A
notice of creditors meeting should be sent to every creditor.
 Statement of company’s affairs:
In the creditors meeting the directors must submit a
statement of affairs of the company together with a list of
creditors of the company and estimated amount of their
claims.
 Intimation to registrar:
The information regarding the notice passed resolution
must be sent to the registrar within ten days after the date of
creditors meetings.
 Appointment of liquidator:
The creditors and shareholders will nominate the persons to
act as liquidators. The opinion of the creditors is
performed.
 Inspection committee:
The creditors and shareholders may appoint the inspection
committee consisting of five persons in each case.
 Duties of the liquidators:
The inspection committee also sanctions the duties and
powers of the liquidators. If there is no committee then
duties and powers will be sanctioned by the creditors.
 (Under the supervision of court)
According to the companies Act 2017 a voluntary winding
up of a company can also be carried out under the
supervision of court.
Following are the common grounds on which the court
issues the “Supervision Order”.
o The liquidator performs his duties in a partial manner.
o The liquidator does not strictly observe the rules for
winding up the company.
o The winding up resolution is obtained by fraud.
o If the liquidator is not taking required interest in
performing its duties.
o The liquidator does not take keen interest in realizing
the assets of the company.
 MAJOR FORMS OF BUSINESS
ORGANIZATIONS
(SUMMARIZED)
SOLE PARTNERSHIP JOINT STOCK
PROPRIETOSHIP COMPANY
Formation: Sole Partnership is mostly A joint stock
proprietorship is formed formed by a written company can be
with greatest ease and agreement among the formed by fulfilling
minimum cost. partners (Minimum the conditions of (1)
2, maximum 20) for Promotion and (2)
carrying on a lawful Incorporation (3)
economic activity. Commencement as
laid down under the
Companies
Ordinance.
Financing: sole trading Partnership is A joint stock
business is mostly financially stronger company raises a
financed from the than sole specified amount of
savings of the proprietor proprietorship. The capital by issuing of
called owned capital. partners generally ordinary paid up
contribute capital in shares. It also obtains
varying proportions. loans from financial
institutions.
Members Liability: The liability of each The liability of the
The liability of the sole partner unless limited shareholder is limited
proprietor is unlimited. by agreement is only to the value of
The business assets as unlimited. the shares held by
well as the private him. The
property of the owner shareholders thus
may be used pay off the have a limited
obligations of the liability.
business.
Control: The sole The control in the The shareholders
proprietor is his own partnership is shared. who are the owners
boss. He has full All major decisions usually exercise
freedom in making are taken with the indirect control over
business decisions in this unanimous consent affairs of the
form of organization. of all the partners. company. The board
of directors who are
elected by
shareholders make
basic decisions.
Management: The sole In a partnership, the The shareholders
trader relies upon his managerial functions elect the board of
own skill and judgment are shared among the directors and entrust
for managing the affairs partners according to the management of
of the business. their talents, skill and company to them.
ability. The board of
directors appoint
experts and make
them incharge of
production.
Taxation: The If a firm is registered, Many tax incentives
proprietor is taxed as an with the Income Tax and tax holidays for
individual unit. No Authority, the profit industries are
difference is made of the firm will be available only to
between the personal divided among companies. The
and business income of partners. Each company is subject to
the proprietor. partner will be double taxation.
assessed to income
tax separately.
Dissolution: The sole The partnership will A joint stock
proprietor has full run smoothly so long company is an
freedom in making the partners have artificial being. Its
business decisions. If he mutual respect of one life is perpetual
does not find the sole another. If partners unless dissolved
trade business profitable, lose confidence and according to the law.
it will be wound up being to mistrust the The company can be
quickly. co-partners, it will dissolved (1) by
soon come to an end. court order (2) by
approval of the
owners of the
majority of shares (3)
by the expiration of
the corporate charter
(4) by the state for
misuse and non use
of its powers.