Corporate Governance Q&A

Cheatsheet Content

### AGM Timing and Extension - **When to hold:** - Within 480 days of incorporation, then once every calendar year within 120 days of the financial year close. - Listed companies: In the town of registered office or nearest city. - Other places: With commission approval. - **Extension:** - Commission (listed company) or Registrar (other cases) can extend by up to 30 days for special reasons. - **Penalty for default:** Level 2 (listed company), Level 1 (other than listed). ### Notice of Meeting - **Sent to:** - Every member or class of members. - Every director. - Every auditor. - Any person entitled to a share due to death or bankruptcy of a member. - **How sent:** Post, courier, electronic means, or any specified manner to their registered address. - **Content:** Place, day, hour, and statement of business to be transacted. - **Mistakes:** Accidental mistake or non-receipt of notice does not invalidate proceedings. ### Court Powers on AGM - **Invalidation:** Court can declare proceedings of a general meeting invalid if petitioned by members holding at least 10% voting power. - **Direction:** Can direct the company to hold a fresh general meeting. - **Petition:** Must be made within 30 days of the impugned meeting. - **Proof:** Petitioners must prove they were prevented from using their rights or that omission/irregularity occurred. ### Quorum of General Meeting (AGM/EOGM) - **Listed Company:** - At least 10 members. - Present personally or through video-link. - Represent at least 25% of total voting power (unless articles specify higher). - **Other than Listed Company (with share capital):** - At least 2 members. - Present personally or through video-link. - Represent at least 25% of total voting power (unless articles specify higher). - **Company Not Having Share Capital:** As provided in the articles. - **Adjournment/Dissolution:** - If no quorum within half an hour, dissolved (if called by members' request) or adjourned to same day/time next week. - If still no quorum at adjourned meeting within half an hour, at least 2 members (personally or video-link) constitute a quorum (unless articles specify otherwise). ### Chairman in General Meeting - **Default:** Chairman of the board presides. - **Absence/Unwillingness (within 15 min):** Any director may be elected. - **No Director Present/Unwilling:** Members can choose one of their members. ### EOGM Definition and Call - **Definition:** All general meetings other than statutory and annual general meetings. - **Called by Board:** - At any time for matters requiring general meeting approval. - On request of members: - At least 1/10th of total members (if no share capital). - At least 1/10th of total voting power (if share capital). ### Director Conflict on AGM Date - **Scenario:** Company incorporated Feb 1, 2018, commencement April 1, 2018. One director wants AGM Sept 30, 2018, another Oct 30, 2018. - **Compliance:** If statutory meeting held, AGM can be after Oct 30, 2018. If not, the director wanting Sept 30, 2018 is correct. - **Reason:** Companies Act, 2017: Meeting must be held within 270 days of incorporation (Oct 28, 2018) or 180 days of business commencement (Sept 27, 2018), whichever is earlier. Extension of 30 days still makes Oct 27, 2018 the deadline. ### Board Meeting Alternatives (Dawood Limited Case) - **Quorum:** Higher of 1/3rd of total directors or at least 4 directors. - **Alternatives if quorum not met:** 1. **Video Link Facility:** Directors can participate via video link. 2. **Alternate Director:** Directors can assign their office to any person with BOD approval if out of country for < 90 days. Appointed person acts as director. - **Limited Purpose:** If still not enough directors, present directors can form a quorum for this specific meeting. ### Ordinary Resolution Business - **Special Business:** All business transacted at a general meeting is deemed special, EXCEPT: - Consideration of financial statements, board, and auditor reports. - Declaration of dividend. - Election and appointment of directors in place of retired ones. - Appointment of auditors and fixation of their remuneration. - **Note:** All ordinary businesses require an ordinary resolution, except director election (Sec 159). ### Special Business Requirements - **Notice of Meeting must include:** - Statement of all material facts about the business. - Nature of direct or indirect interest of any director. - Time and place where documents requiring approval can be inspected. - **Resolution Notice:** Members with at least 10% voting power can give notice of a resolution. ### Filing Special Resolution - **Filing:** Every special resolution must be filed with the Registrar on Form 26, authenticated by a director or secretary, within 15 days of passing. - **Annexure:** A copy of every special resolution must be annexed to every copy of articles issued after the resolution and registered. - **Request for Copy:** If a member requests a copy, the company must forward it for a determined fee. - **Penalty:** Level 1 on the standard scale for contravention. ### Company Secretary Not Filing Special Resolution - **User Question:** Company secretary suggests not filing a special resolution, but keeping it at the registered office for inspection. What do you think? - **Answer:** This is incorrect. As per **Section: Special Resolution Filing**, every special resolution *must* be filed with the Registrar on Form 26 within 15 days of passing and annexed to all article copies. Keeping it only at the registered office is a contravention. ### Representation of Body Corporate and Creditor at Meetings (Sec 138) - **Authorization:** A body corporate or corporation (member/creditor) can authorize an individual to represent it at another company's meeting. - **Rights:** Such representative can exercise the same rights and powers on behalf of the corporation. ### Penalty for Default in Statutory Meeting - **Liability:** If a company defaults in holding or complying with statutory meeting requirements: - Level 2 penalty (listed company). - Level 1 penalty (any other company). ### Associated Undertakings Investment (AEL, SSL, RPL Case) - **Relationship:** SSL and RPL are associated undertakings because AEL holds >20% shareholding in both. - **Conditions for SSL investing 200M in RPL:** - SSL must pass a special resolution specifying nature, period, amount, and terms & conditions. - SSL must make a written agreement if investment is a loan/advance. - ROI must not be less than borrowing cost or SECP specified rate (whichever is higher). - SSL director must certify investment is made with due diligence and RPL's financial health is sufficient to repay. - SSL must keep investment registers at its registered office. - **Penalty:** Level 3 for not keeping registers. ### Effect of Incorporation - **Body Corporate:** Subscribers and future members become a body corporate with the name in the certificate. - **Functions:** Body corporate can exercise all functions of an incorporated company with perpetual succession. - **Status/Office:** Company's status and registered office are as per the registration application. - **Shares:** Subscribers automatically hold initial shares (for companies with share capital). - **Directors:** Persons in articles of association as proposed directors are deemed appointed. ### Documents for Incorporation - Declaration on specified form, confirming legal compliance, by authorized intermediary or director. - Signed memorandum of association by all subscribers, witnessed and dated. - Signed articles of association by all subscribers, witnessed and dated (for companies limited by shares). - Address for correspondence until registered office established. ### How are SMC, Pvt. and Public Company Formed? - **Public Company:** - 3+ persons associate for lawful purpose. - Subscribe to memorandum. - Comply with registration requirements. - **Private Company:** - 2+ persons associate for lawful purpose. - Subscribe to memorandum. - Comply with registration requirements. - **Single Member Company (SMC):** - 1 person subscribes to memorandum. - Meets private company registration requirements. - Sole member nominates a person to manage affairs and transfer shares upon death. ### Pakistan and China Doing Business: Documents for Incorporation - **User Question:** Pakistan and China are doing business. What documents are required for incorporation? - **Answer:** The documents required for incorporation are the same as listed in **Section: Documents for Incorporation**: - A declaration on a specified form, confirming compliance with legal requirements, by an authorized intermediary or a person mentioned as a director in the articles. - A signed memorandum of association by all subscribers, duly witnessed and dated. - For companies limited by shares, signed articles of association, duly witnessed and dated. For guarantee or unlimited companies, it's a mandatory requirement. - Provide an address for correspondence until the registered office is established and notified. ### Conversion of Public to Private Company and Vice Versa (Sec 47) - **Pvt. to Pub. / SMC to Pvt. / Ltd. by shares to Ltd. by guarantee / limited to unlimited:** - Pass special resolution. - Alter articles to remove provisions required for private/SMC/guarantee company. - Takes effect from alteration date. - File altered MOA/AOA and special resolution with Registrar. - **Pub. to Pvt. / Pvt. to SMC / Ltd. by guarantee to Ltd. by shares or unlimited to limited:** - Prior approval of Commission. - Pass special resolution. - Alter memorandum and articles to include provisions required for private/SMC/guarantee/limited company. - Commission allows by written order if satisfied. - Certified order copy forwarded to company within 7 days. - Company files altered MOA/AOA within 15 days with Registrar for registration. - **Penalty:** Level 2 for default in complying with provisions. ### Listed Company Conversion to Private: Commission Steps - **Notice:** Commission gives notice of application to securities exchange and considers their representation. - **Order:** If satisfied, allows by written order. - **Forwarding Order:** Authorized officer forwards certified order copy to company within 7 days. - **Filing:** Company files altered MOA/AOA within 15 days with Registrar for registration. ### SMC Share Transfer to Son - **Scenario:** Sole member of SMC wants to convert part of shares to son. - **Procedure:** The sole member cannot transfer part of his shares to two or more persons unless the company *changes its status* from SMC Private to Private Company and alters its articles. - **Advice:** The company must convert itself from a Single Member Private Company to a Private Company in accordance with Section 47 provisions (**Section: Conversion of Public to Private Company and Vice Versa**). This involves passing a special resolution, altering articles, obtaining Commission approval, and filing documents with the Registrar. Only after this conversion can shares be transferred to multiple individuals. ### SMC Secretary Responsibilities after Incorporation - **Appointment:** Every SMC appoints a secretary within 15 days of incorporation or conversion. - **Duties:** - Attend meetings and ensure fair, accurate summary of minutes. - Properly record minutes, including names of directors. ### Registrar: Remove Deficiencies and Discrepancies (Registration) - **Documents:** - Online application (e-service Form II) with: - Automatically generated memorandum. - Articles. - Valid NIC/NICOP copies of subscribers/directors/CEO. - Valid passport copies (foreigners). - Valid NIC copy of witness (if physical filing, now obsolete). - **Removal of Deficiencies:** - **Communication:** Registrar communicates deficiencies to applicant in writing. - **Resolution:** Applicant must resolve discrepancies and provide information within 7 days. - **Reminders:** - First reminder if no response within 7 days. - Final reminder if no response within 7 more days. - **Refusal:** Registration may be refused if final reminder is not responded to or discrepancies are not resolved. ### Court Power on Hearing Petition - **Orders (within 90 days):** - Dismiss with/without costs. - Make interim (temporary) order. - Appoint a provisional manager until winding up order or other order, after giving representation opportunity. - Make winding up order with/without costs. - Any other order. - **Refusal:** Court will not refuse winding up if company's assets are mortgaged for an equal/greater amount, or if it has no assets. ### Cases Court Not Eligible to Order Winding Up - **User Question:** In which cases court is not eligible to order for winding up of a company? - **Answer:** The provided text does not explicitly list cases where the court is *not* eligible to order winding up. It only states when the court *will not refuse* a winding up order (if assets are mortgaged for an equal or greater amount than its assets, or if it has no assets). This implies that if these conditions are met, the court can proceed with winding up. ### When Court Deems Company Unable to Pay (Financial Difficulty) - **Conditions:** - A creditor demands a sum > PKR 100,000, and the company neglects to pay or secure/compound within 30 days. - It is proven to the court that the company is unable to pay its debts. - Court or competent authority orders in favor of a creditor. - **Consideration:** Court considers prospective and contingent liabilities to determine inability to pay. ### Responsibilities of Legal Representative of Contributory After Death - **Liability:** Legal representatives are liable to contribute to company assets to discharge the deceased's liability. - **Default:** If they default in paying money, proceedings can be initiated to administer deceased's assets and recover payment. ### Requirements for Removal of CEO - **Methods:** - Special resolution of the company. - Resolution of Board of Directors (3/4th of total directors). - **Government Held Shares:** If >75% shares held by government, the government, an authority, or authorized person can remove the CEO. ### Mr. Ayyub CEO Eligibility Scenario - **Scenario:** GM with 1M loan (unpaid) suggested as CEO. Requests 10M loan. Is he eligible? - **Eligibility:** - **Yes, if:** Providing loans/guarantees is the company's ordinary course of business, and the transaction is at arm's length. - **Otherwise, only if:** The 1M existing loan and the 10M requested loan are approved by a resolution of the members of the company AND approval from SECP is taken. ### Shahood's Request for Fresh Meeting (AYUB Ltd.) - **Scenario:** AYUB Ltd. capital 10M, Shahood acquires 2.5M (25% voting power). - **Right to Request:** Yes, Shahood can request a fresh meeting. - **Procedure:** - Holds 25% of total voting power, exceeding the 1/10th requirement for requisitioning a meeting. - Can request the chairman to conduct a fresh meeting within 21 days. - If the board does not proceed within 21 days, Shahood can call the meeting himself within 90 days from requisition deposit. ### Conversion of Unlisted Company to Listed / How to List Securities - **Application:** Unlisted company wanting to list applies in prescribed form. - **SECP:** Sends application to SECP. - **PSX Listing:** Stock Exchange (PSX) lists name after receiving application and necessary inquiry. - **SECP Direction:** If PSX refuses, SECP can direct PSX to list (on its own or applicant's petition). - **Post-Listing Findings:** If SECP finds deficiencies, failure to follow conditions, or not in public interest, it orders compliance or revokes listing. ### Companies Which Cannot Offer Securities to Public - **Prohibition:** Cannot make public offer if the company, its directors, sponsors, or substantial shareholders: - Declared defaulter by securities exchange. - Trading Right Entitlement Certificate cancelled. - De-listed by securities exchange due to non-compliance. ### IPO and Publication of Prospectus - **IPO:** First time offer of securities to the general public. - **Approval:** Company must submit shelf prospectus/supplement for approval at least 20 days before publication/issuance. - **Publication:** Publish in at least one English and one Urdu newspaper between 7-30 days before subscription commencement. - **Distribution:** Send copies to SECP, PSX, banks, registrar, ballotter, credit rating agency, and publish on website. ### ABC Company Prospectus Compliance - **Scenario:** ABC company issues prospectus April 1, 2008, subscription list due May 5, 2008. - **Compliance:** - The prospectus must be published between 7 and 30 days before subscription commencement. - April 1, 2008 (issue) to May 5, 2008 (due date) is 34 days, which exceeds the 30-day limit. - Therefore, it is **not in compliance** with the act. ### How Received Money as Securities and Deposits Should Be Utilized - **Restriction:** No company, officer, or agent can receive/utilize money as securities/deposits unless in accordance with a written contract. - **Account:** Must be kept in a special account with a scheduled bank. - **Exemption:** This section does not apply to advance payments for goods to be delivered or sold. ### Dividend Declaration from Profit / Restrictions - **Source:** A company can only pay dividend out of *ordinary profit* earned from core business operations. - **Restrictions:** Cannot pay dividend out of: - Profits from sale/disposal of immovable property or capital assets (unless in ordinary course of business). - Unrealized gain on investment property credited to profit and loss account. - **Consequences of Violation:** Can lead to financial risk, misleading investors, violation of regulatory requirements, and capital reduction. ### Imprisonment if Chief Executive Withhold Dividend - **Penalty:** If dividend declared but not paid within specified period, CEO is punishable with imprisonment up to 2 years and fine up to PKR 5 million. - **Consequence:** CEO's office terminates upon conviction, ineligible to be CEO/director for next 5 years. ### Conditions for Withholding Dividend Payment - **Allowed if:** - Payment cannot be made due to law/court operation. - Dispute regarding the right to receive dividend between legal representatives. - Member has not provided complete information/documents. - Dividend has been adjusted with any due amount on the shareholder. - Shareholder provided incorrect guidelines for payment. - For any other reason where mistake was not by company. ### Dividend Announcement, Fire, and Financial Condition - **Scenario:** Directors announced dividend, fire broke out, financial condition poor. - **Directors' Action:** Directors only *propose* dividends; they are finalized in the meeting. They should inform members. - **Members' Options:** 1. **Reject Resolution:** Members can reject if not in company's best interest. 2. **Accept with Lesser Consideration:** Members can accept with reduced payout due to changed financial situation. - **Interim Dividend:** If an interim dividend was already paid, shareholders may regard it as final settlement. ### Handling Unpaid Dividend - **Deposit:** Company deposits unclaimed/unpaid dividend in a separate profit-bearing account in a scheduled bank. - **Statement:** Within 90 days of deposit, company prepares and publishes a statement on its website: names, last known addresses, number of shares, unpaid amount, and other particulars. - **Claim:** Any person claiming unpaid dividend applies to the company, which pays within 30 days after satisfaction. - **Profit Utilization:** Profit generated on the account is used for Corporate Social Responsibility purposes. ### Alteration of MOA and AOA / Change of Registered Office - **Alterable MOA Items:** 1. Place of registered office. 2. Principle line of business (does not require commission confirmation). 3. Adopting any activity requiring license/permission/approval. - **Steps for MOA Alteration:** - Pass special resolution. - File petition with Commission (alteration effective upon confirmation). - SECP's authorized officer forwards confirmed alteration copy to company and Registrar within 7 days. - Company files altered MOA with Registrar within 30 days. - Registrar registers and issues certificate as conclusive evidence. - **Change in Registered Office:** Physical record transferred from previous to new Registrar. - **Steps for AOA Alteration:** - Pass special resolution. - If alteration affects majority members' rights/liabilities, requires 3/4th member vote. - Send copy to Registrar within 30 days. ### Who Will Sign MOA and AOA (Non-Natural Person) - **Signing Authority:** A natural person signs on behalf of the non-natural person. - **Manner:** - **Body Corporate:** Duly authorized by a resolution of the board of directors. - **Limited Liability Partnership:** Designated partner empowered to act, with copy of instrument. - **Any Other Case:** Authorized representative duly authorized to sign. ### When Power Shifts to SECP to Appoint Auditor - **SECP Appointment (on its own motion or company/member application) if:** - Company fails to appoint 1st auditor within 90 days of incorporation. - Auditor not appointed at an AGM. - Casual vacancy not filled within 30 days. - Appointed auditors are unwilling to act. ### Appointment of External Auditor (Corporate Governance) - **Mandatory Requirements:** - Satisfactory report in Quality Control Review program. - Follows IFA code of ethics. - Not performing management functions or decisions in the company. - Not relatives of any director/officer/employee of the company. - **Reporting:** External auditor furnishes management letter to board within 45 days of audit report. ### Eligibility/Ineligibility to Become Auditor - **Ineligible Persons:** - Person who is/was (within 3 years) a director/officer/employee of the company. - Partner or employee of a director/officer/employee of the company. - Indebted to the company (other than ordinary course of business). - Given guarantee or security for a third person. - Direct/indirect business relationship (other than ordinary course). - Body corporate. - Spouse of any director. - Against ICAP or ICMAP code of ethics. - Firm/person whose spouse or minor children hold shares of the company or its associated companies. ### Rotation of Auditor - **Financial Sector Listed Companies (banks, NBFCs, modarabas, takaful):** Must change external auditors every 5 years. - Interrelated companies providing financial services can appoint the same audit firm. - **Other Listed Companies:** Must rotate engagement partner every 5 years. - If sole proprietorship, change the firm after 5 years. ### Audit Committee Focus on Financial Statements - **Review:** Audit committee reviews annual and interim financial statements approved by the Board, focusing on: - Major judgmental areas. - Significant adjustments from audit. - Going concern assumption. - Changes in accounting policies and practices. - Compliance with applicable accounting standards. - Related party transactions. ### Mandatory Terms of Reference of Audit Committee - Determine appropriate measures to safeguard company assets. - Review annual/interim financial statements (judgmental areas, going concern, accounting policy changes). - Review management letter from external auditor and management responses. - Ensure coordination between external and internal auditors. - Consider major findings from internal investigations (fraud, corruption, abuse of power). ### Mandatory Terms of Reference of HRM Committee - Formal evaluation process for Board and committees annually. - Recommend human resource management policies to the Board. - Recommend evaluation, development, selection, and compensation of CEO, CFO, secretary, and head of internal audit. ### Duties of Secretary and CFO Regarding Attendance in Meeting (COCG) - **Attendance:** CFO and company secretary, or their nominee, must attend all Board meetings. - **Exceptions:** Do not attend if the agenda item relates to their performance, terms & conditions, or if their presence might impair company discipline/harmony (in board's opinion). ### Books Managed by Secretary - Minutes - Proxy - Members and index thereof - Debenture-holders - Directors and other officers - Directors' shareholdings and debentures - Pakistani members, directors, and officers (for foreign companies) - Beneficial ownership - Transfer of shares - Buy-backed shares - Mortgages & charges - Contracts - Deposits ### Members and Functions of NEC - **Members:** - Finance Minister/Advisor to PM (Chairman). - Director General of FMU (Secretary). - Ministers of foreign affairs, law and justice, interior. - Governor SBP. - Chairman SECP. - Other Federal Government nominees. - **Functions (meetings at least twice a year):** - Recommend policies for combating money laundering and terrorism financing. - Approve, review, and oversee national strategy against money laundering/terrorism financing. - Seek reports (STRs, CTRs) and statistics from competent authorities. - Discuss national importance issues related to money laundering/terrorism financing. - Perform other assigned functions. ### Composition and Responsibility of General Committee - **Composition/Members:** - Secretary finance (chairman). - Director General of FMU, FIA, Anti-Narcotics. - Secretaries of foreign affairs, law and justice, interior. - Deputy SBP. - Commissioner SECP. - Chairman NAB, FBR. - Other Federal Government nominees. - **Responsibilities:** - Develop national strategy against money laundering and terrorism financing. - Seek reports (STRs, CTRs) and statistics from competent authorities. - Issue necessary directions to investigating/prosecuting agencies. - Perform other assigned functions. - Undertake functions assigned by NEC. ### FMU and Its Functions - **Location:** Housed in SBP or other place determined by federal government. - **Authority:** Independent decision-making on day-to-day matters. - **Head:** Director General (financial sector specialist). - **Functions:** - Receive STRs & CTRs from financial/non-financial institutions. - Analyze STRs & CTRs, call for records. - Disseminate necessary information to investigating agencies confidentially. - Cooperate with financial intelligence units in other countries for information sharing. - Represent Pakistan in international/regional organizations addressing AML, CFT. ### Composition of Audit and HRM Committee - **Audit Committee:** - At least 3 members, including non-executive directors. - At least 1 independent director (chairman, not Board chairman). - 1 member must be financially literate. - Appoint secretary (company secretary or head of internal audit). - CEO and CFO cannot be members but can attend by invitation. - Meet external auditors without CFO/head of internal audit once a year. - Meet internal audit function without CFO/external auditors once a year. - **HRM Committee:** - At least 3 members, including majority of non-executive directors. - At least 1 independent director (chairman, not Board chairman). - Appoint secretary (person appointed by Board or head of HR department). - CEO and HR can be members, or attend by invitation. - Meet once or more a year. - Member does not participate if agenda relates to their performance, review, or terms/conditions. ### Condition for Appointment of Nominee Director - **User Question:** Condition for appointment of nominee director? - **Answer:** The provided text does not explicitly detail the conditions for the appointment of a nominee director. ### Employee Stock Option and Its Conditions - **Definition:** Option offered to directors, officers, employees of a company (or holding/subsidiary) to buy/subscribe company shares at a specified price. - **Conditions:** - Company's articles of association must explicitly permit the scheme. - Board establishes Compensation Committee (chairman is independent director). - Board considers and resolves to offer scheme, provides required information. - Special resolution authorization needed. - Separate resolutions required for options >1% of issued capital (for subsidiary/holding company employees). - Share issuance at discount requires shareholder and commission approval. - Executive directors/senior management cannot allocate their own options. - Terms can be changed by special resolution. ### Eligibility Criteria and Required Documents for Registration of Modaraba Company - **Eligibility:** - Registered under Companies Act, 2017 or relevant law. - Dedicated to flotation & management of Modaraba: Paid-up capital at least 2.5M. - Other than flotation & management: Paid-up capital at least 7.5M (2.5M set aside free from encumbrances). - No directors/officers convicted of fraud, adjudged insolvent, suspended, or compounded payment of creditors. - **Documents (application in Form IX, authenticated by directors):** - 5 copies of MOA and AOA. - 5 copies of COI. - 5 copies of latest audited accounts (for existing company). - Receipt of treasury challan for application fees. - Precise description of business being done. - (Company may need to change MOA & AOA as required by Registrar). - **Result:** Registrar issues certificate of registration on Form X upon satisfaction. ### Condition Applicable to Modaraba - **Allotment:** Certificates cannot be allotted unless approved prospectus issued and minimum amount subscribed. - **Funds:** All received amounts for certificates deposited in a separate bank account until refunded or certified by Registrar as allotted. - **Refund:** If minimum subscription not received, total amount refunded to applicants within 15 days. - **Issuance:** Modaraba company issues certificate within 30 days of allotment. - **Business:** Cannot do the same business as its own modaraba. - **Loans:** No directors, officers, or relatives can obtain loans from modaraba funds or security. ### Religious Board - **Formation:** Federal Government forms a Religious Board with 3 members. - **Composition:** 2 religious scholars and a chairman (qualified High Court Judge). - **Term:** Hold office for 3 years (unless resign/removed). - **Vacancies:** Casual vacancies filled by the government for the remaining period. - **Meetings:** - Consider applications for flotation of modaraba. - Called by the chairman. - Held at least once every two months, even if no business. - Can request clarification and hear from modaraba companies. - Decisions provided within 30 days, sealed with official seal. - Recorded and signed by chairman/authorized person. - Typically in Islamabad, but can be elsewhere. - **Remuneration:** Members (other than chairman) receive fixed daily fee (PKR 500) + travel/daily allowances (similar to Grade 20 officers). ### Financial Statements, Accounts, and Reports of Modaraba Company - **Circulation:** Modaraba company circulates to certificate holders within 6 months of accounting year-end: - Annual balance sheet and Profit & Loss statement. - Auditor's report. - Modaraba company's report on state of affairs, activities, business prospects, and distributable profits. - **Submission:** Modaraba company submits 5 copies of accounts, statements, and reports to the Registrar simultaneously with circulation. ### Winding Up of Modaraba - **Voluntary Winding Up:** Can voluntarily wind up on: - Expiry of fixed period. - Accomplishment of specific purpose, with conditions: - All directors declare by affidavit that Modaraba can settle all liabilities (including certificate holders) within 12 months from expiry. - Declarations supported by audit report and approved by Registrar within 90 days. - **Tribunal Winding Up:** Modaraba wound up by tribunal if: - Expiry of fixed period. - Accomplishment of specific purpose. - Declarations not filed within specified time. - Modaraba unable to discharge liabilities. - Losses exceed 50% of subscribed amount. - Business conducted for a fraudulent purpose. ### Consequences of Non-Compliance (Modaraba Rules) - **Registrar's Order:** If Registrar believes Modaraba company failed to comply, order in writing for public interest to: - Cancel registration of modaraba company. - Remove modaraba company from management of the modaraba floated by it (after hearing opportunity). - **Consequences for Modaraba Company:** - Will not receive any compensation or damages. - Cannot establish another Modaraba. - **Appeal:** If Modaraba Company disagrees with Registrar's decision, can appeal to Commission within 30 days. ### When Administration of Modaraba is Changed? Consequences on Management Company - **Registrar's Order:** If Registrar believes Modaraba company harms interests, acts fraudulently, breaks laws, or violates regulations, orders (with SECP approval) to: - Appoint administrator to take over modaraba for specified period. - Require modaraba company to change management. - Appoint another modaraba company to control business. - **Consequences for Modaraba Company:** - Will not receive any compensation or damages. - Cannot establish another Modaraba. - **Appeal:** If Modaraba Company disagrees with Registrar's decision, can appeal to Commission within 30 days. ### Statements Treated as "Financial Statements" Under Companies Act, 2017 - Statement of financial position at period end. - Statement of profit or loss and other comprehensive income (or income and expenditure). - Statement of changes in equity. - Statement of cash flows. - Notes to the financial statement. - Other statements as prescribed. ### Companies with Respect to Liabilities - **Company Limited by Shares:** Liability of members limited to unpaid amount on shares. - **Company Limited by Guarantee:** Liability of members limited to amount they agree to contribute to company assets if wound up. - **Unlimited Company:** No limit on members' liability; members personally responsible for all company debts/obligations. ### Companies with Respect to Transferability of Shares - **Single Member Company (SMC):** Private company with only one member, registered under SMC Rules 2003. - **Private Company:** - Limits members to 50 (excluding employees). - Restricts share transfer rights. - Prohibits inviting public to subscribe for shares, debentures, or redeemable capital. - **Public Company:** - Not a private company. - Does not limit maximum members, restrict share transfer rights, or prohibit public subscription. ### Companies with Respect to Incorporation - **Royal Chartered Company:** Incorporated under charter (King/Queen order) (e.g., East India Company). - **Statutory Company:** Formed under special statute/ordinance, governed by that act (e.g., ICMAP, SECP, FBR). - **Registered Company:** Formed and registered under Companies Act 2017 (or repealed Companies Act 1913/Ordinance 1984). - **Foreign Company:** Body corporate incorporated outside Pakistan, with: - Business/liaison office in Pakistan (physical or electronic, by itself or agent). - Engages in business activity in Pakistan as specified by law. ### Companies with Respect to Control - **Holding Company:** Acquires >50% shares of another company. - **Subsidiary Company:** Holding company controls its board composition or >50% voting securities (by itself or with other subsidiaries). - **Sub-subsidiary:** Subsidiary of a holding company's subsidiary. - **Wholly Owned Subsidiary:** All shares owned by another company or statutory body. - **Associated Company:** Another company holds significant influence (20-50% shares). - **Public Sector Company:** Government/agencies own >51% voting power or can appoint majority of directors. ### Capital Definitions - **Authorized Capital:** Maximum capital a company can issue according to its memorandum. - **Issued Capital:** Portion of authorized capital offered for subscription. - **Subscribed Capital:** Part of issued capital individuals have acquired. - **Paid Up Capital:** Part of subscribed capital for which money has been received. ### Promoter Definition - **Promoter:** A person who: - Is listed as a subscriber to the company's memorandum. - Is named in a prospectus. - Has control over the company's affairs (directly/indirectly, as shareholder, director, or other means). - Acts on whose advice, directions, or instructions the board is accustomed to act. ### Common Seal - **Definition:** Official stamp or embossing device used by a company to authenticate and legally validate documents (contracts, deeds, instruments). ### Substantial Shareholder - **Definition:** A person who owns shares with nominal value >= 10% of total issued share capital. - **Control:** Enables the person to exercise or control >= 10% of voting power at a general meeting. ### Associated Company/Undertaking - **Definition:** If a person (owner, director, partner) directly/indirectly holds control through >= 20% shareholding in a company AND also in another company/undertaking, then the two are associated. - **OR:** Companies/undertakings under common management control (same KMPs) or subsidiary of other. ### Associated Persons - **Definition:** A person (owner, director, partner) directly/indirectly holding control of >= 10% voting power in a company/undertaking is considered an associated person of every other person who holds such shares in that company/undertaking. ### Financial Literate - **Definition:** A person who: - Is a member of a recognized body of professional accountants. - Has a postgraduate degree in finance from a recognized university in Pakistan or abroad. - Has at least 10 years of experience as an audit committee member. - Has at least 20 years of senior management experience overseeing financial and audit-related matters. ### Financial Institution - **Includes:** - Local/foreign companies in banking/related activities (excluding State Bank of Pakistan). - Entities like modarabas, leasing companies, investment banks, venture capital firms, financing companies, asset management companies, credit/investment institutions. - Any company authorized by law for similar financial activities, as specified by Federal Government Minister. ### Redeemable Capital - **Definition:** Type of company capital that can be repurchased by the company later, as specified in T&C/governing documents. - **Includes:** Sukuk, PTC, musharika certificate, TFC, or any other non-interest bearing security/obligation. ### Closed End & Open Ended Scheme - **Open-End Scheme:** - No specific redemption period. - Continuously offers units for sale. - Holders have right to request proportional share of scheme's net assets (less charges). - **Closed-End Scheme:** - Definite or indefinite maturity period. - Doesn't continuously offer shares for sale/resale. - Holders don't have right to request proportional share of scheme's net assets. ### Bid & Bid Amount - **Bid:** Expressed intention to purchase specific number of shares (at specified price) or debt securities (at particular profit rate/spread). - **Bid Amount/Bid Money:** Result of multiplying number of shares/debt securities bid for by bid price/face value. ### Contributories - **Definition:** Any person who must contribute to company assets on winding up, including fully paid-up shareholders. - **Contribution Limited to:** - Unpaid amount on partly paid shares (for companies with share capital). - Guaranteed amount (for companies limited by guarantee). - Guaranteed amount plus any unpaid share amount (for companies limited by guarantee with share capital). ### Independent Director - **Definition:** A director who: - Is neither connected nor has financial/other relationship with the company, its associated companies, subsidiaries, holding company, or directors. - Can use independent business judgment without influence from conflicts of interest. ### Ineligibility of Independent Directors - **Not Independent if:** - Employee of the company, its subsidiary, or holding company in last 3 years (2 years for Public Sector Company). - CEO of the company, its subsidiary, associated company, undertaking, or holding company in last 3 years (2 years for Public Sector Company). - Received remuneration in last 3 years before appointment. - Close relative of company's promoters, directors, or major shareholders. ### Two Methods of Public Offer of Shares - **Fixed Price Method:** Issuer sets offer price in consultation with the consultant. - **Book Building Method:** Price discovery through bids from participants within a price band. - **Dutch Auction:** Bids arranged in descending order, strike price determined within SECP limits. - **Reverse Dutch Auction:** Cutoff price determined. ### Connected Person in Relation to NBFC - **Definition:** A "connected person" in relation to an NBFC or notified entity means: - Person/trust owning >= 10% of NBFC's/notified entity's capital. - Person with ability to control >= 10% of total voting power. - Notified entity managed by the NBFC. - NBFC managing a notified entity. - Trustee or custodian of the notified entity. ### Qualification/Experiences for CEO, Director, and CFO - **CFO Qualification:** - 3 years managerial experience in audit/accounting or financial/corporate functions + ICAP/ICMAP member. - 5 years managerial experience in audit/accounting or financial/corporate functions + member of professional body (postgraduate degree HEC approved or postgraduate finance degree Pak approved). - 7 years experience in audit/accounting or corporate functions + graduate degree HEC approved or graduate finance degree Pak approved. - Exemption: 15 years experience in same position for listed company. - **Director Qualification:** The provided text does not explicitly detail the qualifications for a Director, but general ineligibility criteria are listed in **Section: Ineligibility to become Director**. - **CEO Qualification:** The provided text does not explicitly detail the qualifications for a CEO. ### Ineligibility to Become Director - **Not eligible if person is/has:** - Minor. - Mentally unsound. - Insolvent. - Convicted of a serious crime. - Debarred by law. - Lacking fiduciary behavior. - No National Tax Number (unless SECP grant permission). - Not a member. - Declared defaulter in loan repayment (listed companies only). - Engaged in brokerage business (listed companies only). ### Person Not a Member but Eligible to Become Director - **Non-member can be appointed director if:** - Represents a member who is not a natural person. - Is a whole-time director. - Is a Chief Executive. ### Director Election Procedure - **Fixing Number:** Existing directors fix number of directors to be elected (unchangeable without member approval) at least 35 days before next meeting. - **Notice:** Notice states fixed number and names of retiring directors. - **Intention to Contest:** Retiring directors/members wanting to be elected submit form of intention (withdrawable) at least 14 days before meeting. - **Publication:** All notices received transmitted to members at least 7 days before meeting and published in English and Urdu newspapers. - **Companies with Share Capital:** - **Unopposed:** If intentions = fixed number, considered elected without election. - **Contested:** If intentions > fixed number, election conducted: - Votes per member = (shares held) x (fixed number of directors). - Member can give all votes to one or divide them. - Candidates with highest votes elected until all selected. - **Companies without Share Capital:** As specified in Articles. ### Registrar Action if BOD Not Elected at Extended AGM/EOGM - **Registrar's Action (on own motion, or request of members with >= 1/10th voting power/membership):** - Directs company to hold AGM/EGM for director election on specified date/time. - **Penalty:** Level 2 for failure to comply. ### Removal of Director - **Method:** Resolution. - **Restriction:** Resolution cannot pass if votes against it are equal to or more than: - Average votes (= total votes / current directors) for appointed/unopposed directors. - Minimum votes by which last director was elected in preceding meeting for elected directors. ### Directors' Report with Financial Statement (Public Company) - **Report must state:** - Names of all directors during financial year. - Principle activities and business performance. - Principle risks and uncertainties. - Changes in nature of business/subsidiaries. - Explanation of auditor's report modifications. - Shareholding pattern. - Details of holding company (if foreign). - Earnings per share. - Reason for losses and future prospects. - Report on debt payment defaults. - Comments on internal financial controls. - Significant changes/commitments affecting financial position. - Any specified information. ### Director Training - **Mandatory DTP:** Encouraged for directors to acquire DTP from SECP-approved institutions. - **New Directors:** Recommended to acquire DTP within 1 year of appointment. - **Exemptions:** Directors with minimum 14 years education and 15 years experience. - **Company Encouragement:** Companies encouraged to provide DTP training to at least one female executive and one head of department. ### Power and Responsibilities of Director - **Powers (Board exercises on behalf of company):** - Issue shares. - Issue debentures or other instruments. - Invest funds. - Approve financial statements. - Approve bonus to employees. - Declare interim dividend. ### Director Remuneration Policy - **Extra Services:** Board decides remuneration for extra services (e.g., chairman of meeting during AGM) as per articles. - **Meeting Attendance:** Remuneration for attending meetings/serving on committees must not exceed limits set by company/BOD. - **Self-Decision:** Directors cannot decide their own remuneration. - **Principles:** Remuneration should be: - Appropriate with responsibilities and expertise. - Attract and retain competent directors. - Not compromise independence. ### Officer Proposing Contract and Agreement (Non-Director) - **User Question:** In what cases can any officer other than director propose a contract and make agreement? In case of non-compliance what level of penalty? - **Answer:** The provided text does not specify cases where an officer *other than* a director can propose a contract and make an agreement. It focuses on the powers and responsibilities of directors and penalties for non-compliance by the CEO regarding dividends. ### Liability of Directors with Unlimited Liability (Winding Up) - **Liability:** In addition to ordinary member liability, they are liable to contribute to winding up of a limited company. - **Cessation:** Not liable for liability contracted after ceasing to be a director. - **Exemption:** Past directors may be exempt if they ceased office at least one year before winding up start. - **Court Discretion:** Required to contribute only if court deems it necessary. ### Liability of Member Who Become Non-Member Before Winding Up - **User Question:** Liability of member who become non-member before winding up. - **Answer:** Current and past members are liable for debts and liabilities in winding up, but: - **Past members not liable if:** Ceased to be members >= 1 year before winding up commenced. - **Past members not liable for:** Debts/liabilities incurred after they ceased to be members. - **Past members not liable unless:** Court determines current members cannot fulfill required contributions. ### Conditions for Appointment of Official Liquidator - **Panel:** SECP maintains a panel of experienced individuals. - **Experience:** Panel members must have >= 10 years experience in Accounting, Finance, Law, or specified professions. - **Limitations:** Individual cannot serve as liquidator/manager for >3 companies simultaneously. - **Multiple Appointments:** If multiple persons appointed, court specifies powers/responsibilities. - **Powers:** Court may limit provisional manager's powers or grant full liquidator powers later. - **Conflict of Interest:** Liquidators/provisional managers must declare conflicts/lack of independence. - **Creditor Application:** Creditors with >= 60% of issued share capital can apply to court to appoint a liquidator not from the panel. - **Resignation:** Cannot resign without valid reasons approved by court. - **Vacancies:** Casual vacancies (death, resignation, removal) filled by court from panel. ### How and When Liquidator is Removed? And Its Liability (Disqualification) - **Removal Grounds (by court):** - Misconduct. - Fraud or misfeasance. - Professional incompetence or failure to exercise due care/diligence. - Inability to perform duties. - Conflict of interest during appointment term. - **Liability:** If responsible for loss/damage to company, court can recover loss from provisional manager/official liquidator and issue orders. ### Restriction on Remuneration of Liquidator - **Fixation:** Remuneration fixed by court based on experience, qualification, task, and company size. - **Monthly Allowance:** Receives monthly allowance for up to 12 months from winding up date. - **Percentage:** Also entitled to percentage remuneration of amount realized from disposal of fixed assets. - **Changes:** Fixed remuneration cannot be increased but may be reduced. - **No Remuneration:** Not entitled if resigns or removed; must refund if received any. ### Loan or Guarantee from Company: Punishment and Liability - **Penalty:** If a person obtains loan/guarantee from company (other than ordinary course of business) without member resolution and SECP approval (listed company), punishable with: - Fine up to PKR 1 million. - Simple imprisonment up to 1 year. ### Who Can Obtain Loan from Company and Under Which Conditions? - **Directors/Relatives:** Directors of the company, its holding company, or their relatives (minor children/spouse) can obtain loan/guarantee if: - Approved by special resolution of company members. - Approved by commission (if listed company). - Obtained in the ordinary course of business. - **Penalty:** Any person involved in contravention of this section is punishable with imprisonment up to 1 year or fine up to PKR 1 million. ### Private Company Default in LRP Provisions (Sec 2) - **Consequences:** If a private company defaults in including Section 2 provisions (Limited Liability Partnership), it will be liable to: - Penalty not exceeding Level 1 on the standard scale. - Personally liable for all incurred liabilities. ### Private Company Share Transfer Conditions (Restriction) - **Procedure:** If a private company/member wants to sell shares: 1. **Notification:** Notify BOD. 2. **Offer to Existing Members:** Board offers shares to existing members (proportionally) via offer letter within 10 days. 3. **Offer Letter Details:** Specifies number of shares, price, and acceptance/declined time limit. 4. **Declined Shares:** If whole/part declined, board offers to other members (proportionally). 5. **Leftover Shares:** If any shares remain, board sells to any person determined by original holder, ensuring number of persons to whom sold does not exceed prescribed private company member limit. ### Further Issue of Shares - **Methods:** - **Right Shares:** New shares offered first to existing shareholders based on current ownership. - **Other Than Right Shares:** New shares offered to others for purchase. - **Bonus Shares:** Additional shares given for free to existing shareholders. - **Employee Stock Option Schemes:** Programs allowing employees to buy company shares as part of their compensation. - **Shares with Different Rights:** Shares with special rights (e.g., priority in dividends/assets, preference shares). ### Information to Be Sent to Members with Letter of Right - **Board sends following information:** - Quantum of issue (percentage of existing paid-up capital). - Size of issue. - Price of issue. - Purpose of issue. - Utilization of proceeds. - Benefits to company and shareholders. - Associated risks. - Justification for issue at premium or discount. ### Right Issue Progress Report - **Requirement:** Listed company must submit quarterly progress reports to the commission. - **Content:** - Item-wise breakdown of proceeds utilization (amount, percentage, comparison to disclosed plan). - Deviations from original purpose with justifications. - **Duration:** Reports continue until full utilization of proceeds or achievement of intended purpose. ### Conditions for Holding Treasury Shares - **Limit:** Treasury shares must not exceed 20% of paid-up capital (or 20% of each class if different classes). - **Holding:** Held in company's name in CDS blocked account (freeze form). - **Use:** Cannot be used as collateral (directly or indirectly). - **Voting Rights:** Voting rights suspended. - **Dividends:** No dividends paid. - **Bonus Shares:** Can be allotted as fully paid bonus shares. - **Redeeming:** Payment of any payable amount on redeeming treasury shares is not prevented. ### Obligation of Purchasing Company - **Communication:** Company communicates buy-back/purchase decision to commission and securities exchange on same day. - **Cancellation:** If for cancellation, company cancels shares within 10 days of buy-back. - **Reselling:** Public announcement of reselling shares within 2 days of BOD decision. Sale starts within 7 days, ends within 45 days or when sale is completed. - **Disclosure:** Details (number, prices) of shares purchased/sold, and information on treasury shares disclosed in annual report. ### Restrictions on Purchase and Disposal of Treasury Shares - **Prohibited Actions:** - Apply for voluntary winding up within 12 months of purchase period closing. - Transfer, sell, or dispose of treasury shares within 6 months of purchase period closing. - Withdraw, cancel, or postpone purchase once announced. - Make purchase before expiry of 12 months of last day of subscription. ### Listed Company: Issue Shares at Face Value and Premium - **Undertaking:** Directors and substantial shareholders must commit in writing to: - Subscribe to all their allotted right shares. - Or arrange subscription for any remaining right shares through at least two underwriters (not associated companies/undertakings). - **Underwriters:** Can use sub-underwriting agreements, but sub-underwriters must be licensed by commission. ### Conditions for Issue of Right Share at Discount - **User Question:** Conditions for issue of right share at discount. - **Answer:** The provided text does not explicitly detail the conditions for issuing right shares at a discount. It only mentions justification for issue at premium or discount in **Section: Information to Be Sent to Members with Letter of Right**. ### Utilization of Share Premium - **Allowed Uses:** - Write off preliminary expenses. - Discount allowed on share issue or expenses paid to commission. - Premium payment on redeemable preference shares on redemption. - Issue bonus shares to members. ### Buy Back of Shares: Required Documents and Closing Time - **Filing:** Company files purchase/buy-back of shares with Registrar within 30 days of purchase closing with: - BOD resolution regarding purchase. - Special resolution authorizing purchase. - Notice of general meeting where special resolution passed. - Public announcement copy. ### Exception of Free Reserve - **User Question:** Exception of free reserve? - **Answer:** The provided text does not explicitly define or provide exceptions for "free reserve." ### Bonus Shares: Conditions and Provisions - **Approval:** Issue of bonus shares must be approved by the board. - **Listed Company:** Board resolution communicating issue must be sent to Commission and securities exchange on the same day. - **Decision:** Once announced, board's decision to issue bonus shares cannot be varied, postponed, withdrawn, or cancelled. ### Disclosure of Price Sensitive Information - **Requirement:** Listed companies must disclose any price-sensitive information (related to company or subsidiaries) that could impact investor decisions. - **Purpose:** - To enable public understanding of company's position. - To avoid false market creation/continuation. - To prevent significant impact on market activity/prices. - **Access:** Ensure all investors and security holders have equal, timely, and effective access. - **Market-Affecting Info:** Ensure it reaches those who commonly invest. - **Foreign Listing:** If listed on foreign exchange, release same information in Pakistan simultaneously. ### Conditions for Withholding Price Sensitive Information - **Allowed to delay if:** - Delay does not mislead public investors. - Anyone receiving information has duty of confidentiality (legal, regulatory, contractual). - Company can maintain confidentiality during delay. ### Repayment of Money Received for Shares Not Allotted - **Refund:** Company must refund money for unaccepted shares or shares not allotted within 15 days. - **Penalty for Default:** If not refunded, directors are severally or jointly liable to repay with 2% surcharge per month after 15-day period, and Level 3 penalty. ### NBFC Ordinance: Requirements of Members - **Requirements for Promoters, Directors, CEO, Chairman of Board (when registering NBFC):** - Not associated with illegal businesses/individuals. - No overdue loans with State Bank of Pakistan or other financial institution. - Not served as CEO/director of a finance company. - No history of fraud or insolvency. - Net worth (per wealth statement) at least twice subscribed amount for NBFC. ### NBFC License Revocation: Effect on Employee and Directors/Officers - **Revocation Reasons:** - Non-compliance with license terms/conditions. - Failed to file financial statements/annual returns for 2 consecutive years. - Business inactivity for one year. - Reduction in members below three. - Refusal to act according to MOA, AOA, or Act. - Unlawful/fraudulent activities or mismanagement (including improper accounting practices/fraud). - Association with individuals involved in terrorist financing or money laundering. - **Effect:** The provided text outlines the reasons for revocation but does not explicitly detail the *effect* on employees and directors/officers. ### Provisions with Respect to Name of Company - **Prohibited Names:** Cannot be registered with names mentioned in Ans 116 (likely referring to **Section: Prohibited Names**). - **Prior Approval:** Required from Commission for certain names (see **Section: Names Requiring Approval**). - **Reservation:** Individuals can apply to Registrar to reserve a name for 60 days. - **Cancellation/Change:** If reserved name obtained with false/incorrect info, it's cancelled. If company incorporated, must change name. Penalty Level 1. - **Appeal:** If Registrar refuses reservation, applicant can appeal to Commission within 30 days. - **Finality:** Commission's decision is final and cannot be challenged. ### Names Which Require Approval of Commission and Prohibited Names - **Approval Required if Name Suggests:** - Support from former/current prime minister or president. - Patronage of international organization or foreign government. - Connection with federal/provisional government or statutory body/foreign government/organization. - Establishing a modaraba management company or floating a modaraba. - Any other business requiring SECP license. - **Prohibited Names:** - Identical to another company's name. - Inappropriate. - Undesirable. - Deceptive. - Offends religious susceptibilities. ### Where to Display Name of Company - **Display On:** - Certificate of incorporation. - Notices/publications. - Bills of exchange/promissory notes/cheques. - Parcels/invoices/receipts/letter of credit. - Outside every office. ### Company Name Change Process and Effect - **Process (e.g., Paramount to Paramount Construction):** - **Resolution:** Company passes special resolution with SECP approval. - **Registration:** Registrar enters new name, issues altered certificate of incorporation. - **Display:** After receiving certificate, company displays new name with former name for at least 90 days (outside office and in every document). - **Effect:** Change of name does not affect any rights/obligations or legal proceedings. ### Names Not Requiring Prior Approval for Change - **User Question:** Which names will not require prior approval for change? - **Answer:** The provided text does not explicitly state which names *will not* require prior approval for change. It only details names that *do* require approval (**Section: Names Which Require Approval of Commission and Prohibited Names**). ### Associations and Partnerships Allowed to Have More Than 20 Persons (Exceptions) - **Exceptions:** - Any society, body, or association other than partnership, formed under other Pakistan law. - Any joint family business. - Partnership of two or more joint families (total members, excluding minors, not exceeding 20). - Partnerships of lawyers, doctors, accountants, and other professions. ### Can Subsidiary Company Hold Shares of Its Holding Company? - **Prohibition:** A subsidiary company is prohibited from holding any shares in its holding company. - **Void Transactions:** A holding company cannot allot or transfer shares to any subsidiary; such transactions are void. - **Restrictions/Exemptions:** - **Trustee:** Subsidiary allowed to act as a trustee unless holding company is beneficially interested. - **Ordinary Course of Business:** Subsidiary can deal in holding company shares in ordinary course of business (on behalf of clients) but cannot exercise voting rights. - **Operation of Law:** Above restrictions don't apply when shares held by operation of law. - **Penalty:** Level 2 for violation. ### Procedure for Amalgamation of NBFCs - **Definition:** Combining two or more separate entities into a single unified entity. - **Procedure:** 1. **Draft Scheme:** Prepare a draft scheme with amalgamation terms. 2. **Shareholder Approval:** Obtain shareholder approval (at least 2/3rds majority in value). 3. **Notice:** Send notice of amalgamation to shareholders of each NBFC (time, place, purpose). Publish information weekly for 3 weeks in at least two nationwide newspapers. 4. **SECP Sanction:** After approval by majority, and sanction by SECP, the resulting entity transmits order copy to Registrar. 5. **Registrar Action:** Registrar strikes off names of NBFCs, refers to amalgamated NBFC. - **Effect:** Property and liabilities of amalgamated NBFC transfer to acquiring NBFC as specified in scheme. - **Shareholder Rights:** Shareholders who voted against scheme can claim value of their shares determined by Commission. ### NBFCs Involvement in Money Laundering Prevention (5 Conditions/Steps) - **Prevention Measures:** - Comply with laws, directives, circulars from Federal Government/Commission. - Verify true identity of customers and establish beneficial ownership. - Ensure customers from whom money is received have open accounts in their own name. - Establish effective procedures for new customer identification. - Ensure transactions are not conducted with individuals who cannot provide identity evidence. - Restrict cash payments/receipts to PKR 50,000 (except loan repayments by existing borrowers). ### NBFC Inspection: Responsibilities of Directors/Officers and Powers of Office - **Information Furnishing:** Every director, manager, officer, or other person dealing with NBFC must furnish information in their knowledge/custody to inspecting person. - **Examination/Seizure:** Inspecting person may examine and seize books of accounts. - **Penalty:** If default or refusal, punishable with fine up to PKR 50 million, and one or more licenses can be cancelled. ### Layers of Equity for NBFCs (Capital Requirements) - **Investment Finance Services:** - New NBFCs: PKR 1,000 million. - Existing NBFCs: PKR 750 million. - NB Micro-FCs: PKR 50 million. - **Leasing Services:** - New NBFCs: PKR 1,000 million. - Existing NBFCs: PKR 500 million. - **Discounting Services:** - New NBFCs: PKR 1,000 million. - Existing NBFCs: PKR 50 million. - **Housing Finance Services:** - New NBFCs: PKR 1,000 million. - Existing NBFCs: PKR 50 million. - **Asset Management Services (AMS):** PKR 200 million. - **Investment Advisory Services (IAS):** PKR 30 million.