BUSINESS LAW,lecture no1-6 (4)
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BUSINESS LAW? WHAT DOES IT MEAN TO YOU? RESPONSES: rules governing business interaction laws relating to business organization guidelines governing business organization set of rules and regulation for conducting business boundaries within which business can operate penalties for violating rules and regulation legislations and legalities regarding the entire business structure sets of rules and regulation for setting up, starting and conducting business rights and responsibilities of business
WHAT IS LAW? MEANING? DEFINITION?
WHAT DO YOU SAY?Set of rules and regulations Obligations Justice and equality Policies that restrict and govern actions of individuals Least amount of rules that you need to follow Rules which govern and bind a society
VARIOUS MEANINGS AND DEFINITIONS One view is that it is not capable of definition But this cannot be the answer nor solve the problem The confusion in defining law arises out of the different purposes to be achieved e.g.: Law has been defined by various individuals from different points of view Various schools of law define it from different angles: -basis of nature -on source -terms of effect on society -end or purpose of law
MEANINGS AND DEFINITIONS Contd.A universal and uniform definition is difficult. The evolution of society is of a dynamic nature and hence the difficulty in accepting a definition by all. One reason in defining law is the different types of purpose sought to be achieved: HORSE to a zoologist, a traveller, polo player, for some article of food etc.
DEFINITIONS---Contd.There have been and will continue to be different definitions of law: ARISTOTLE (384-322 B.C.) a pledge that citizens of a state will do justice to one another PLATO ( 427-347 B.C.) believed that law was a form of social control. SIR WILLIAM BLACKSTONE (1723-1780) a rule of civil conduct prescribed by the supreme power in a state, commanding what is right, and prohibiting what is wrong
MEANINGS AND DEFINITIONS: Contd. Generally and the most commonly accepted definition is A rule of action to which men are obliged to make their conduct comfortable Law is the command of the sovereign. It imposes a duty and is backed by a sanction. Command, duty and sanction are three elements of lawAll these definitions vary but all are based on law consists of enforceable rules governing relationships among individuals and between individuals and their society.
LAW MAKING:PROCESSLEGISLATION: The making of law. The act of enacting or legislating laws. Difference between Law and Ordinance Bill----Proposal Committees of the House Approval by the Legislature Assent by the President.
WHY STUDY LAW? Obvious! Course Requirement Study of law improves powers of reasoning, clarity of thought and the ability to analyze and express complicated ideas A greater appreciation of the workings of the system and the parts that ensure it s functioning. Law forms the foundation on which any civilized society is based. Nature has its own laws. So does society. Law effects all aspects of life and society and is the mechanism for change employed by governments across the globe.From the protection of life and liberty, through corporate law to international relations, the law is the central stage.
PURPOSE OF LAW Object of law is to maintain law and order in the country i.e. police functions Another view limit natural liberty ; Man is born free but is in chains everywhere. Hindu view , purpose of law is the welfare of the people in the world and also salvation after death. Muslim: the end of the law is to promote the welfare of man both individually and socially, not merely in respect of life on this earth but also life hereafter.
KINDS OF LAW1. 2. 3. 4. 5. 6. 7. 8. IMPERATIVE LAW. Imposed upon on men by some authority. Emphasis on the will and physical force of the organized political community. PHYSICAL OR SCIENTIFIC LAW . Laws of science e.g. law of gravity NATURAL or MORAL LAW. Universal rules of governance. Principles of natural justice. Divine Law. CONVENTIONAL LAW. Rules or regulations of voluntary organizations e.g. associations, clubs etc. CUSTOMARY LAW. Customs, practices, traditions with historical sanction and support e.g. jirga TECHNICAL LAW. For efficient conduct of business e.g building laws, laws of health INTERNATIONAL LAW. Sum of laws and rules recognized by civilized in their dealings with each other CIVIL LAW. Municipal Law.
ADVANTAGES AND DISADANTAGES. Uniformity and certainty to the administration of justice. Avoids the dangers of arbitrary, biased and dishonest decisions. Fixed principles protect the administration of justice from the errors of individual judgment More reliable than whims, wishes and desires. 1. 2. 3. 4. Rigidity. Conservative Formalism Complex.
ADVANTAGES AND DISADVANTAGES Contd.
Law is of interest to all persons, not just to lawyers. Those entering the world of business will find themselves subject to numerous laws and government regulations. A basic knowledge of these laws and regulations is beneficial if not essential to anyone contemplating a successful career in the business world of today.
STARTING BUSINESSPurpose in starting business is to be successful. Every business venture contains certain inherent risks, and any number of alternatives. Before starting the first thing to consider the legal form operating under because has a number of advantages and disadvantages e.g.: COMPANY: has a higher tax rates, stricter laws, elaborate accounting procedures, legality, forms, statements etc. PARTNERSHIP require registration of business
STARTING BUSINESS Contd.Successful business is a tight hold on expenditures; anything that does not make money, protects investment should not be ventured to especially in the beginning. The most important element of eventual success will be the soundness of planning before starting business. Success takes planning and planning involves and includes an understanding and grasp of Business Laws
STARTING BUSINESSENTREPRENEUR: One who initiates and assumes the financial risks of a new enterprise and undertakes to provide or control its management. Question before entrepreneur what form of business organisation choose for his business endeavour: OPTIONS: 1. Sole Proprietorship 2. A Partnership 3. A Corporation (Limited Company)
SOLE PROPRIETORSHIP Simplest form Owner is the business Business without creating a separate business organisation ADVANTAGES: 1. Proprietor receives all the of the profits (all risks assumed) 2. Easier, less costly than to start any other kind of business 3. Entails more flexibility compared to other organistations 4. Free to make any decision concerning the business 5. Pays only personal income tax (relatively less)
SOLE PROPRIETORSHIPDISADVANTAGES:1. Alone bears losses or liabilities incurred by the business 2. Unlimited liability or legal responsibility for business obligations incurred 3. Opportunity to raise capital is limited mostly to personal funds 4. Lack of continuity upon death of proprietor. Automatically dissolved 5. If transferred to family members new proprietorship created
BUSINESS BUSINESS LAW IN PAKISTANLegal form under which operating Main forms of business organizations by PRIVATE sector in Pakistan: Sole Proprietorship Partnership Limited Liability Company Joint venture: Created in contemplation of a limited activity or a single activity. PUBLIC SECTOR. Where the Government undertakes an enterprise either a statutory corporation or limited company. For medium and large scale business in Pakistan limited company is the preferred form
PRELIMINARYPURPOSE:Every Act (law) has a purpose for which it is enacted (made). CHAPTERS AND SCHEDULES: Every Act is divided in Chapters. Every Chapter deals with a particular subject. Schedules are part of the Act; often containing rules dealing detail a subject dealt summarily within the Act. SECTIONS,SUB-SECTIONS, CLAUSES AND SUB-CLAUSES Every Chapter has a subject. Each aspect of this subject is dealt with in a separate section. Each section deals with a particular topic. Its various aspects are then dealt in separate subsections which is further divided into clauses and sub-clauses
PRELIMINARY Contd.DEFINITIONS: Where and when a word is specifically defined it has a special meaning otherwise it has ordinary dictionary meaning. A specific meaning over rules the ordinary dictionary meaning TWO TYPES: 1. EXCLUSIVE DEFINITION: Gives a precise meaning completely replacing ordinary meaning. Excludes all other meanings. Begins with the word MEANS 2. INCLUSIVIVE DEFINITION: Expansive definition. Begins with INCLUDES . Has both elements
PRELIMINARY Contd.PROVISO: Normally varies the meaning or operation of a section, subsection. Makes an exception to the main provision EXPLANATION: Specifies the meaning of a word, term or phrase which is ordinarily capable of signifying more than one meaning or interpretation
Law divided into PARTS and each deals with a particular subject e.g. Part II Jurisdiction of Courts. Part III SECP, Part IV Incorporation of Companies Sections Sub Sections DEFINITIONS: The word or a term specifically defined has a special meaning assigned to it and replaces its ordinary meeting. Otherwise have their ordinary dictionary meaning e.g. Proceed in alphabetical order Section 2 (7) Company means a company formed and registered under this Ordinance or an existing Company
COMPANIES ORDINANCE, 1984 COMPANIES ORDINANCE. Legal regime for establishment and regulation of companies in Pakistan SECP. Securities and Exchange Commission of Pakistan for administration of companies and Registrar of Companies appointed by SECP. COMPANY LAW IN PAKISTAN:
1. 2. 3. 4.
Companies Act 1913 was adopted in Pakistan in Pakistan after 1947 Administered by Provinces till 1973 (new Constitution) and then taken over by Federal Government. New law promulgated on October 8, 1984 . Previous law repealed. To cater for needs of expanding sectors the law amended in 1991, 1999 and 2002
CONTD:A company is an artificial person created by law, endowed with a perpetual succession and an entity apart from its members. It signifies assent by means of common seal. It is capable of holding property, incurring debts, and suing and being sued in the same manner as an individual Under the law three different types of companies: Limited by shares Limited by Guarantee Unlimited liability Two types of limited companies: A Private Limited A Public Limited (Listed and Unlisted)
CONTD:OBJECTIVES OF COMPANIES ORDINANCE:
Healthy growth of the corporate enterprises Protection of investors and creditors Promotion of investment Development of economy.
COMPANY: CHARACTERISTICSFive core characteristics: 1. Legal personality/entity 2. Limited Liability 3. Transferable Shares 4. Centralized management under a board structure 5. Shared ownership by contributors of capital
CONTD: Granted a charter/permission (incorporated) by the competent authority (SECP/Registrar of Companies) A separate legal entity distinct from its members is created with its own privileges and liabilities It can sue and can be sued Creation of a specific law safeguarding the interests of the stakeholders. Not to put their interest at risk by interim arrangement Management operate the company As they are born when issued a certificate of incorporation they also die when they go bankrupt
LIMITED LIABILITY If the company fails shareholders normally only stand to lose their investment and the employees their jobs but neither will be further liable for debts that are outstanding against the company s creditors. Can be convicted of criminal offence like fraud, misstatements etc.
KINDS OF COMPANIES THREE: 1. Company Limited by Shares. Each person becoming a member (shareholder) of the company acquires one or more shares in which the Company s capital is divided. His liability is limited to his share holding. 2. Company Limited by Guarantee. Liability limited by Memorandum of Association to such amount as members may respectively undertake to contribute to the assets on being wound up . 3. Unlimited Company. More akin to a partnership where each member liable to all the debts of the company. He is free from his liability at the end of the year from his ceasing to be a member.
CONTINUED May be registered under the Law as: Private: restricts number of members to 50, invitation to public to subscribe and right to transfer its shares Public: Three or more persons associate to form. Not Private deemed to be public Listed/Quoted Unlisted/Unquoted. A company limited by shares, whether private or public, is the most common vehicle for carrying out business in Pakistan. Single Member: Only one subscriber to the Memorandum of Association. A private limited company for all intents and purposes of the Company Ordinance
PRIVATE vs. PUBLICDifferences: 1. Subscription 2. Transfer of shares 3. Members 4. Upper Limit of Members 5. Certificate of Commencement 6. Min. subscription 7. Prospectus or statement in lieu of 8. Filing of Accounts 9. Qualification of Auditors 10. Investment in associate company
PRIVATE vs. PUBLIC -Contd:11. Restriction on CEO 12.Statutory Meeting and Report ADVANTAGES OF PRIVATE COMPANY
FORMATION OF COMPANIESGenerally discussed the general characteristics of a company Now look at the process in which companies come into existence Process, generally, involves two steps: 1. Preliminary organisational and promotional undertakings--- particularly obtaining capital for the future/proposed company 2. The legal process of incorporation.
FORMATION OF COMPANIES Contd.1. File an application to the Registrar of Companies for availability of name. The Registrar of Companies then issues a certificate reminding that the proposed name is available. This is to ensure against duplication and deception File Memorandum and Articles of association with the Registrar of Companies in the Province where the proposed company is to be incorporated along with other prescribed forms. On registration the Registrar issues a Certificate of Incorporation and a private limited can commence business immediately. A public limited company can commence business only after a Certificate of Commencement of Business is issued by the Registrar A public limited company intending to have its shares listed must obtain permission from the relevant Stock Exchange
2. 3. 4. 5.
DEFINITIONS. MEMORANDUM OF ASSOCIATION . Sets out the constitution of the Company. The foundation on which the Company s structure is based. Defines scope of activities. Tells what it does spelling out its objectives 1. Name 2. Province of registration. 3. Objects 4. Limited by shares or guarantee A STATEMENT OF THE OBJECTS OF THE COMPANY, ITS POSITION AND ITS RELATION TO THE WORLD WITHOUT
DEFINITIONS Contd: ARTICLES OF ASSOCIATION A document regulating the rights of the member of company among themselves. The manner in in which the business of the company shall be conducted. Dealing with the whole internal arrangement of the Company. Originally framed when the Company incorporated. Subsequent changes by special resolution RULES AND REGULATIONS PRESCRIBED FOR THE INTERNAL MANAGEMENT OF A COMPANY.
PROSPECTUS A document which invites persons to take shares in a company and set forth the advantages of the company. Contains the information for invitation of subscription from the public Any notice, circular, advertisement or other intimation, offering to the public for subscription, or purchase of any shares or debentures of a company 1. Discussed and approved by the Board of Directors 2. Public companies issuing prospectus required to file application to SECP for approval of prospectus for publication. 3. Date of application to SECP and no publication unless prospectus registered with SECP