BUSINESS LAW? WHAT DOES IT MEAN TO YOU?RESPONSES:rules governing business interactionlaws relating to business organizationguidelines governing business organizationset of rules and regulation for conducting businessboundaries within which business can operatepenalties for violating rules and regulationlegislations and legalities regarding the entire business structuresets of rules and regulation for setting up, starting and conducting businessrights and responsibilities of business

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• 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 law”

All 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:PROCESS

LEGISLATION: 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. IMPERATIVE LAW. Imposed upon on men by some authority. Emphasis on

the will and physical force of the organized political community.2. PHYSICAL OR SCIENTIFIC LAW . Laws of science e.g. law of gravity3. NATURAL or MORAL LAW. Universal rules of governance. Principles of

natural justice. Divine Law.4. CONVENTIONAL LAW. Rules or regulations of voluntary organizations e.g.

associations, clubs etc.5. CUSTOMARY LAW. Customs, practices, traditions with historical sanction

and support e.g. jirga6. TECHNICAL LAW. For efficient conduct of business e.g building laws, laws

of health7. INTERNATIONAL LAW. Sum of laws and rules recognized by civilized in

their dealings with each other8. 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. Rigidity.2. Conservative 3. Formalism4. 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 BUSINESS

Purpose 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 BUSINESS

ENTREPRENEUR: 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 Partnership3. A Corporation (Limited Company)

SOLE PROPRIETORSHIP

• Simplest form• Owner is the business• Business without creating a separate business organisationADVANTAGES:1. Proprietor receives all the of the profits (all risks assumed)2. Easier, less costly than to start any other kind of business3. Entails more flexibility compared to other organistations4. Free to make any decision concerning the business5. Pays only personal income tax (relatively less)

SOLE PROPRIETORSHIP

DISADVANTAGES:1. Alone bears losses or liabilities incurred by the business2. Unlimited liability or legal responsibility for business

obligations incurred3. Opportunity to raise capital is limited mostly to personal

funds4. Lack of continuity upon death of proprietor. Automatically

dissolved5. If transferred to family members new proprietorship created

BUSINESSBUSINESS LAW IN PAKISTAN

• Legal 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

PRELIMINARY

PURPOSE: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-CLAUSESEvery 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 sub-sections 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, sub-

section. 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

CONTD.• 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. Companies Act 1913 was adopted in Pakistan in Pakistan after 19472. Administered by Provinces till 1973 (new Constitution) and then

taken over by Federal Government.3. New law promulgated on October 8, 1984 . Previous law repealed.4. 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: CHARACTERISTICS

Five core characteristics:1. Legal personality/entity2. Limited Liability3. Transferable Shares4. Centralized management under a board

structure5. 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 publicListed/QuotedUnlisted/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. PUBLIC

Differences:1. Subscription2. Transfer of shares3. Members4. Upper Limit of Members5. Certificate of Commencement6. Min. subscription7. Prospectus or statement in lieu of 8. Filing of Accounts9. Qualification of Auditors10. Investment in associate company

PRIVATE vs. PUBLIC -Contd:

11. Restriction on CEO12.Statutory Meeting and Report

ADVANTAGES OF PRIVATE COMPANY

FORMATION OF COMPANIES

Generally 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

2. 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.

3. On registration the Registrar issues a Certificate of Incorporation and a private limited can commence business immediately.

4. A public limited company can commence business only after a Certificate of Commencement of Business is issued by the Registrar

5. A public limited company intending to have its shares listed must obtain permission from the relevant Stock Exchange

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. Name2. 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 Directors2. 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