Q Discuss briefly the historical background of formation of companies act 2017? And explain how a limited company is formed.
Q discuss briefly the historical background of formation of companies upto the promulgation companies act 2017
Definition:
Word Company was called earlier Soceetas means society or association of persons. Word Company is derived from two Latin words Cum and Panis. Cum means with altogether and Panis means bread.
Lord Lindley defined the Company as it is an association of many persons or by a company is meant an association of many persons who contribute money or money’s worth to a common stock and employ it (common stock) in some trade or business and who (persons) share the profit and loss as the case may be arising therefrom
The definition of company according to company act 2017, sec 2-clause 17, mean a company formed and registered under this act or the company law.
Generally company is defined as an registered association which is an artificial legal person, having an independent legal, entity with a perpetual succession, a common seal for its signatures, a common capitol comprised of transferable share and carrying limited liability
History:
Man is social animal. He needs trade. Earlier shape of trade was barter system, i.e., exchange of goods with goods. The idea of corporation as a legal fiction distinct from the individuals who compose it has an ancient history stretching back to romans. The early development of the corporate form was for local government, and later the power over its creation was through Royal charters. Great Britain passed Companies Act in 1908 which introduced several important provisions relating to company administrations. Just after five years, Companies Act of 1913 was passed in British India. Pakistan came into being on 14 August 1947 and adopted the companies Act of 1913. In 1959 a company Law Commission was set up to make laws in accordance with modern times. Its Report was published in 1960. And the Companies Ordinance 1984 was introduced.
The Companies Ordinance, 1984 was further amended but it resulted in disconnect and overlapping in the regulatory framework. Thus, there was a need to carefully reexamine the existing legal framework for efficient regulation of the entire corporate sector and so the Commission decided to constitute a Corporate Laws Review Commission (“CLRC”) during the year 2005. The Commission while finalizing the Bill reviewed many international jurisdiction including India’s company act 1980 and 2013, U.K’s company act 2006, etc.
After thorough public consultation and legal vetting by Ministry of Law and Justice the draft Companies Bill 2017 was introduced in the National Assembly on Nov,2016 and on the same day referred to Standing Committee on Finance, Revenue, Economic Affairs, Statistics and Privatization. Finally, the Committee presented its report to the National Assembly. With certain amendments the National Assembly passed the Bill but in Senate the bill was referred again to standing committee. Whom proposed 43 amendments in the bill and the bill then was approved in both houses and becomes the act.
The Companies Bill, 2017 is the longest and exhaustive piece of legislation ever in the parliamentary history of Pakistan comprising of five hundred and fifteen sections and eight schedules, and took almost 12 years in making.
Characteristics of company:
- Separarte legal entity: a company has a legal distinct entity and is independent of its members. The creditors of the company can recover their money only from the company and the property of the company. Individual Member of the company cannot be sued since company has a veil of incorporation except incase of fraud and so does the company is not in anyway liable for the individual debts of its members. The property of the company is to be used for the benefit of the company and not for the personal benefit for the shareholders. Company keeps its assets in its own name and is required to pay income-tax as a separate entity.
- Artificial legal person: A company is an artificial person it exists in the eyes of the law and cannot act on its own. It has the rights to acquire and dispose of the property, to enter into contract with third parties in its own name and can sue and be sued in its own name. There is no natural existence a company has to act through a board of directors elected by shareholders.
- Separate ownership: As a company is a legal person discitnct from its members, it is capable of owing, enjoying and disposing of property in its own name. It can own immovable and movable property. Although its capital and assets are contributed by its shareholders, they are not the private joint owners of its property.
- Perpetual succession: According to the concept of perpetual succession an company can live forever. A company is stable form of business organization. its life does not depend upon the death, insolvency or retirement of any or all shareholders or directors. Law creates it and law alone can dissolve it. Members may come and go but the company can go on forever
- Ability and capacity to sue and be sued in its own name: Any person or corporation can sue or file a case against a company but not its shareholders. An individual member of company or director cannot file a case against third party individually in its own name.
- Common seal: A company has a legal personality it can be bound by only those documents which bear its signature. Therefore, the law has provided for the use of common seal, with the name of the company engraved on it, as a substitute for its signature. Hence Every official document of a company must have a stamp or ceal of the official stamp of the company and the company will then be bound by it.
- Limited Liability: A company may be company limited by shares or a company limited by guarantee. The liability of the members are separate from those of company.
- Transferable shares: In a company shares are freely transferable. In a public company the shares are freely transferable and the rights to transfer shares is a statutory right and it cannot be taken away by a provision in the articles. However in case of private company, the articles shall restrict the right of member to transfer their shares. Because private company is usually made in relative hence there is right to offer first shareholders so that outsiders may not come in.
- Delegated Management: A company is an autonomous, self-controlling organization. Since company is an actual person it requires control and management which is therefore delegated by the shareholders to their elected representatives, known as directors and chief executive. They look after the day-to-day working of the company.
