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Memorandum of Association

M. SAQIB BHATTI
Advocate High Court saqibalibhatti@yahoo.com 03335193933

Definition
The memorandum of association of a company, often simply called the memorandum is the document that governs the relationship between the company and the outside world Memorandum of Association is the constitution of the Company and considered to be the main document without which no company exists.

Importance
Constitution of the company The incorporation of the company, is in fact the registration of its Memorandum, as it contains conditions upon which alone the company is granted certificate of incorporation. Main document which is required for forming a company. Nature of a contract between the company and outside world.

Why MOA?
It is basically a statement that
the subscribers wish to form a company; have agreed to become members.

CONTENTS/CLAUSES
1. 2. 3. 4. 5. 6. NAME CLAUSE TYPE OF THE COMPANY OBJECTIVE CLAUSE REGISTERD OFFICE AUTHORIS SHARE CAPITAL SUBSCRIBERS

1.NAME OF THE COMPANY

y Every name is allowed for a company except the following;
Identical name Deceptive Inappropriate name Names designed to exploit religious feelings.

www.secp.gov.pk (Source for searching the name)

2.TYPES OF THE COMPANY

Public limited company Private limited company Guarantee limited company Unlimited company

Public limited company

In this type of company the liability of the members is limited to the extent of their shares. The company can invite public subscription. Transfer of shares is not restricted. The minimum number of members is seven, however no upper limit. The company has to obtain certificate for commencement of business before starting the business.

Private limited company

In this type of company the liability of the members is limited to the extent of their shares. The company cannot invite public subscription. Transfer of shares is restricted. The minimum number of members is two, however upper limit is fifty. The company has not obtain certificate for commencement of business before starting the business.

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Company limited by Guarantee

This type of company may have share capital or may not have share capital If the company having share capital then the liability is limited to the extent of their shares if the company don't have any share capital then the liability is limited to the extent the members have undertaken to contribute at the time of winding up.

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Unlimited company
In this type of company the liability of the members is unlimited.

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NGOs
If the company is to be a non-profit making company, the articles will contain a statement saying that the profits shall not be distributed to the members.

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3.Objective/statement of intention
Importance of objectives
Main Object Single Object Multiple Objects Incidental Objects

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y Company's objective clause limit its capacity to act; y Objects clause had to be widely drafted so as not to restrict the board of directors in their day to day trading. y Companies Act 1989 the term "General Commercial Company" was introduced which meant "any lawful or legal trade or business." y The Companies Act 2006 relaxed the rules even further, removing the need for an objects clause at all. y Since 1 October 2009, The memorandum no longer restricts what a company is permitted to do.

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Why Objective clause?

Objective clause and Doctrine of Ultra Vires. Directors powers to act on behalf of the company; Ultra vires means beyond powers i.e. any act done by the company beyond its legal powers and authority; Any act done by the company which is neither authorized by its object nor by the Companies act that acts is called ultra vires the powers and authority of the company An act which is ultra vires the the company is void and cannot bind the company Since the act is void it cannot be ratified by the shareholders either.

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4.REGISTERD OFFICE
The province or the part of Pakistan not forming the part of a province, where the registered office of the Company is to be situated.

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5.AUTHORIS SHARE CAPITAL

The amount of share capital with which the company proposes to be registered, and division of shares into fixed amount.

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6. SUBSCRIBERS
Subscribers are the persons who subscribe to the Memorandum and Articles of Association.

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Registration of MOA
Procedure provided for the registration of MOA in Companies Ordinance 1984.
MOA to be filled with the registrar along with an undertaking of Compliance of the Ordinance by a Director or authorized person. Right of appeal where the registration is refused. (sec 30)

Effect of registration.
The MOA when registered it bind the company and all of its members as if they have signed it. (section 31 of Ordinance, 1984)

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Alteration of Memorandum
For alteration of Memorandum a special resolution (passed by members) is required.

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Procedure of Alteration
Step 1.the alteration is to be discussed in BOD and approved through a resolution. Step 2.21 days notice along with the copy of proposed special resolution is to be sent to the members. Step 3. resolution is passed in general meeting supported by majority. Step 4. copy of the resolution is to be filled with the registrar within 15 days. Step 5. NOCs are obtained from the creditors amount exceeding 50,000/ Step 6. Approval is accorded from the registrar. And therafter the registrar concern issues filing certificate.

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Approval of alteration
According to Ordinance it is necessary to obtain approval of the Commission of any alteration made in the MOA.
Upon receiving an application for confirmation the commission will send a notice to;
x Every debenture Holder x Everyone whose interest will suffer x To the creditor

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Articles of Association

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Definition of AOA
The Articles of association of a company, often simply called the Articles is the document that governs the relationship between the company and its employees Articles of Association is a statutory document which effectively governs company's relations with the insiders.

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Importance of AOA
Constitution of the company The incorporation of the company, is infact the registration of its Memorandum, and its Articles and the certificate of incorporation is granted on the basis of these two documents. Main document which is required for forming a company. Nature of a contract between the company and its employees.

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CONTENTS/CLAUSES OF MOA
The articles of Association of a company sets out the regulations of the company, therefore it may adopt all or any of the regulations contained in Table A of the First Schedule. The Table A of the first schedule has the regulations covering the following areas: 1. Business clause as to when the business is going to start, 2. The transfer of shares, 3. Alteration in share capital 4. Rules regarding General meetings

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6. 7. 8. 9.

Procedure for voting Powers and duties of directors Proceedings of directors The qualification and dis-qualification of directors 10. Accounts 11. Winding up

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Registration of AOA
Procedure provided for the registration of AOA in Companies Ordinance 1984.

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OTHER REQUIRMENTS
The AOA shall be:
Printed Divided into paragraphs, It must be numbered Signed by each subscriber

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Effects of AOA
The AOA have certain legal effects to the member and the company: Binding on members in relation to the company. Binding on company in relation to members. Binding on members inter se(in their relation to one another). Not binding on company in relation to outsider.

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Alteration of AOA
The AOA of a company may be altered but subject to the provisions of:
Companies Ordinance Conditions contained in the MOA

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Procedure of Alteration
Step 1.the alteration is to be discussed in BOD and approved through a resolution. Step 2.days notice along with the copy of proposed special resolution is to be sent to the members. Step 3. resolution is passed in general meeting supported by majority. Step 4. copy of the resolution is to be filled with the registrar within 15 days. Step 5. Approval is accorded from the registrar. And thereafter the registrar concern issues filing certificate.

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Approval of alteration
According to Ordinance it is necessary to obtain approval of the Commission of any alteration made in the AOA.
Upon receiving an application for confirmation the commission will send a notice to;
x Every class of members who are effected by such alteration.

Securities and Exchange Commission of Pakistan

Establishment of SECP
The Securities and Exchange Commission of Pakistan (SECP) was set up in pursuance of the Securities and Exchange Commission of Pakistan Act, 1997. This Act institutionalized certain policy decisions relating to the constitution and structure, powers, and functions of the SECP, thereby giving it administrative authority and financial independence in carrying out its regulatory and statutory responsibilities. The SECP became operational in January 1999.

Mission of the SECP

To develop a fair, efficient and transparent regulatory framework, based on international legal standards and best practices, for the protection of investors and mitigation of systemic risk aimed at fostering growth of a robust corporate sector and broad based capital market in Pakistan.

Scope of SECP
It was initially concerned with the regulation of corporate sector and capital market. Over time, its mandate has expanded to include supervision and regulation of insurance companies, non-banking finance companies and private pensions. The SECP has also been entrusted with oversight of various external service providers to the corporate and financial sectors, including chartered accountants, credit rating agencies, corporate secretaries, brokers, surveyors etc. The challenge for the SECP has amplified manifold with its increased mandate.

Organization/Division
In accordance with the approved plan, the work of the Commission has been distributed amongst its six divisions, each of which divided into Departments and Wings for effective administration. The Departments are headed by Executive Directors, with oversight by commissioners. Presently the Commission comprises of the following Divisons.

SECURITIES MARKET DIVISION COMPANY LAW DIVISION SPECIALIZED COMPANIES DIVISION FINANCE & ADMIN DIVISION HR & TRAINING DIVISION INSURANCE DIVISION

COMPANY LAW DIVISION

The Company Law Division (CLD) is entrusted with wide array of responsibilities that encompass regulation, monitoring and enforcement of laws. It also undertakes strict monitoring and vigilance of the corporate sector with a view to promoting transparency, accountability and good corporate governance practices, thereby protecting the interests of investors.

SECURITIES MARKET DIVISION

The Securities Market Division (SMD) is responsible for monitoring, regulating and developing the securities market. The SMD regulates the primary and secondary markets as well as market intermediaries through registration, surveillance, investigation, enforcement and rule making, with the objective of protecting investor interest. The SMD also processes and grants approvals to prospectuses for public offering of both debt and equity securities.

SPECIALIZED COMPANY DIVISION

The Specialized Companies Division (SCD) is primarily responsible for regulating and monitoring insurance companies, NBFCs, modarabas. The core objective of the Division is to provide a conducive regulatory environment to foster growth in the system and protect the interests of shareholders, depositors and policyholders under the relevant laws.

FINANCE & ADMIN DIVISION

It is responsible for directing and controlling the areas of accounting, facilitating overall operations of the SECP and ensuring its smooth functioning.

HR & TRAINING DIVISION

It is responsible for various activities that include manpower planning, recruitment, selection and capacity building of the SECPs employees.

INSURANCE DIVISION
The Insurance Division (ID) regulates and monitors the insurance sector and administers the relevant insurance laws.

LEGAL DEPARTMENT
It operates under the direct guidance of the Chairman and is mandated to manage the legal affairs of SECP and provide impartial legal advice to each operational.

Services provided by the SECP

LAWS & POLICIES CORPORATE LAWS POLICIES NOTIFICATIONS CIRCULARS REGISTRATION MONITORING & COMPLIANCE ENFORCEMENT WINDING UP

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Prospectus

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Definition
Prospectus is a document, containing the advertisement for invitation of subscription from the public. It is a legal document that institution and business use to describe the securities they are offering for participants and buyers.

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Importance of Prospectus
It provides the investor with material information about mutual funds, stocks of the company, bond issued by the company and other investments made by the company. It also tells the investor about the financial position of the company, the biography of the officers, directors, the CEO and other key information which an investor required before making the investment.

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Matters to be stated in Prospectus

Following matters and reports are to be set out in a prospectus:The contents of MOA and AOA The name, addresses, description and occupation of the signatories to the MOA and number of shares subscribed by them. The number and values of shares. Description of business to be undertaken.

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Any provision in the AOA as to remuneration of directors. The names, occupation and description of directors. The time and date of the opening of subscription. The financial statement of the company. The profit and loss statement of the company.

Approval, issue and registration of Prospectus

The prospectus of every company shall not be issued, circulated, or published unless prior approval of SECP, and for the purposes of obtaining permission from SECP the company must required to submit the prospectus sixty days prior to subscription.

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Penalty for wrongly issuance of Prospectus

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If a prospectus is issued in contravention of the Ordinance, the company and every person, shall be punishable with fine which may be extended to five thousand rupees.

Terms in prospectus cannot be changed

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A company shall not, very the terms of the contract specified in the prospectus, except prior approval form the SECP.

Civil Liability for mis-statement in prospectus

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If a prospectus invites persons to subscribe for shares or debentures of a company, and the persons purchase such shares or debentures while relying on the faith of the prospectus, thereafter he sustain loss or damage then following persons are liable for the loss:
Every person who is director of the company when the prospectus was issued Every person who is named in the prospectus Every person who is a promoter of the company Every person who has given consent in the issuance of the prospectus

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Exemption from civil-liability

Following persons are exempted from the Civil Liability:Any person who is a director and he withdrew his consent before the issue of the prospectus, The prospectus was issued without his authority and consent The prospectus was issued without his knowledge and consent That after the issue of prospectus, but before the allotment he withdrew his consent.

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Criminal liability for misstatement

If a prospectus includes any untrue statement every person who signed or authorized the issue of the prospectus shall be punishable:
With imprisonment for a term of two years With fine which may extent to ten thousand With both

Newspaper advertisement of Prospectus

Every prospectus for the public subscription shall be published in the newspaper advertisement.

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Contents of Prospectus
Name of the company Address of Registered office Main business Capital of the company Existing paid up share capital New paid up share capital Capital to be raised Sponsors and directors

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Associate and Subsidiary/ Holding Companies Financial information and operational results Management i.e. Chief Executive, Directors, Company Secretary, Chief Accountant etc. Feasibility Report Plans and Future prospects.

Detailed process of Public Subscription

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Approval by BOD Application for obtaining permission for Public Subscription from SECP. When the permission is granted by the SECP the stock exchange concerned is contacted for providing the date for subscription and the bankers are contracted for the purpose. The approval remain valid for 60 days. After the above process the Prospectus is published in at least two dailies one English and other Urdu newspaper, circulated in the province in which the stock exchange is listed, exists.