::Private Limited and Public Limited Companies

The Companies Ordinance, 1984 provides for two types of limited liability entities:

1. Private Limited and

2. Public Limited – (which may be Unlisted or Listed)

Both are required to be registered under the said Ordinance. Under Section 15, any seven or more persons associated for any lawful purpose may by subscribing their names to a Memorandum of Association and complying with the requirements of the Ordinance in respect of registration, form a public company and any two or more persons so associated, may form a private one.

The Securities and Exchange Corporation of Pakistan (SECP) is the regulatory authority for all corporate entities including Non-Banking Finance Companies & Notified Entities, 2008 (NBFC & NE, 2008). For Banking Companies the Regulator is the State Bank of Pakistan (SBP).

A Memorandum of Association, stating the object clause of the entity, along with an Articles of Association, setting out the regulations of the same, is required to be filed with the Registrar of Companies in the Province in which the entity is to be incorporated.

Following the registration of the Memorandum of Association of an organization with the Registrar of Companies, the said Registrar issues a Certificate of Incorporation under Section 32.

In the case of a public company, however, further requirements have to be fulfilled under the Ordinance. Under Section 146, such an entity cannot commence any business or exercise any borrowing powers unless:

(a) Shares held subject to the payment of the whole amount thereof in cash have been allotted to an amount equivalent or more than the minimum subscription;

(b) Every director of the company has paid the 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 or debentures which have been offered for public subscription by reason of any failure to apply for or to obtain permission for the shares or debentures to be dealt in on any stock exchange;

(d) A duly verified declaration has been filed, with the Registrar, by the chief executive or one of the directors and the secretary in the prescribed form that the aforesaid conditions have been complied with and the Registrar has issued a Certificate of Commencement of Business; and

(e) In the case of an organization which has not issued a prospectus inviting the public to subscribe for its shares, in lieu of the prospectus, a statement has been filed with the above mentioned Registrar.

On the filing of a duly verified declaration in respect of the above by the chief executive or one of the directors and the secretary in the prescribed form, the Registrar as stated in (d) above, issues a “Certificate of Commencement of Business” to the public company.

To conclude, such an entity must obtain a “certificate for commencement of business” from the Registrar in order to be eligible for commencing business. This requirement does not apply to a private company, as such; a private entity is authorized to commence business immediately after incorporation.

Apart from being required to fulfil the requirements of the Ordinance, a public company wishing to have its shares listed on one the three stock exchanges of Pakistan (located in Karachi, Lahore and Islamabad) has to obtain permission for such dealing in accordance with the Listing Regulations of the relevant stock exchange.

In Pakistan, a company is either a public listed or unlisted. In the case of the latter, the company’s shares are not quoted on a stock exchange in Pakistan, whilst in the case of public listed enterprise, such a company’s shares can be quoted on and traded on the ‘Karachi Stock Exchange‘, the ‘Lahore Stock Exchange‘ or the ‘Islamabad Stock Exchange‘, subject to fulfilling the requirements and obtaining permission from the relevant stock exchange.

Requirements for disclosure and compliances increase considerably once it is listed. A complete ‘Code of Corporate Governance’ is provided by the SECP wherein guidelines are provided for adherence to the required procedures.

 

13 comments on “::Private Limited and Public Limited Companies

  1. what will happen if number of directors in public ltd reduces to less than seven,will it become pvt ltd,will this type of company will open account as a private ltd or not
    similarly what will happen if number of directors in private ltd reduces to one.

    Like

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