Companies Act 2017 Pakistan: An Updated Guide

The Companies Act 2017 is the main law that governs how companies operate in Pakistan. It officially came into effect on May 30, 2017, and replaced the older Companies Ordinance, 1984.

However, the 1984 Ordinance still applies to Non-Banking Finance Companies (NBFCs).

Most of the Companies Act 2017 became effective immediately, except for one section (Section 456) which deals with real estate companies taking advances for projects. This section was supposed to be activated later by the government, but there’s been some back-and-forth with the law, so it’s technically still there but not in use yet.

Purpose of the Companies Act 2017: Why the Change?

The Companies Act 2017 was introduced to bring about positive changes in the way companies operate in Pakistan. Its main goals are to:

• Make it Easier to Form Companies: The Act simplifies the process of setting up a company and encourages the growth of the corporate sector.
• Embrace Technology: It promotes the use of technology and online methods for conducting business and regulatory activities.
• Protect Everyone Involved: The Act ensures the rights of shareholders, creditors, and the general public are safeguarded.
• Encourage Good Practices: It emphasizes the importance of good governance and protecting the interests of minority shareholders.
• Resolve Disputes Quickly: The Act provides ways to settle company-related disputes faster, through mediation, arbitration, or the courts.

In short, the Companies Act 2017 covers everything from starting a company to closing it down. It provides guidelines for managing and running a company, and it’s the ultimate authority on all company-related matters in Pakistan.

How the Companies Act 2017 is Organized

The Companies Act 2017 is divided into thirteen parts, with each part focusing on a different aspect of company operations.

In addition to these thirteen parts, the Act also includes schedules, tables, forms, and general rules that help explain and enforce the law for companies. These additional materials are often referred to as ‘subordinate legislation’.

Breaking Down the Companies Act 2017: A Closer Look at its 13 Parts

As we mentioned earlier, the Companies Act 2017 is divided into 13 parts, each dealing with a specific area of company law. Here’s a quick overview of what each part covers.

Part I – The Basics

This first part of the Act lays the groundwork. It covers the following:

• Title: The official name of the law, which is the “Companies Act, 2017.”
• Definitions: It explains the meaning of important terms used throughout the Act, so everyone’s on the same page.
• Overriding Effect: This part establishes that the Companies Act 2017 takes precedence over any other laws when it comes to matters related to companies.

Part II – Which Court Handles Company Matters?

This part is all about figuring out which court has the authority to deal with company-related issues. It covers:

• Jurisdiction: It clarifies which specific courts have the power to handle cases involving companies.
• Company Benches: It explains the concept of special court benches dedicated to dealing with company matters.
• Procedures: It lays out the steps involved in filing petitions, applications, and appeals in company-related cases.

So, if you ever find yourself in a legal situation involving your company, this part of the Act will tell you where to go and what to do.

Part III – What the SECP Can Do

This section focuses on the Securities and Exchange Commission of Pakistan (SECP) and its role in regulating companies. It details:

• SECP’s Powers and Functions: It outlines what the SECP can do under the Companies Act 2017, along with the powers it already has from the Securities and Exchange Commission of Pakistan Act, 1997.
• Referring Matters to Court: It explains how the Federal Government or the SECP can take important matters to the court for resolution.

Basically, this part tells you what authority the SECP has when it comes to overseeing companies and how it can get the courts involved if needed.

Part IV – Setting Up Your Company: The Nitty-Gritty

This part is your go-to guide for establishing your company. It covers everything from the initial steps to getting your business up and running. Here’s what it includes:

• Registering Existing Groups: Some associations and partnerships may need to register as companies.
• Choosing Your Company Name: It explains the rules for picking a company name, including which words are off-limits, and how to change your company’s name later.
• Forming Your Company: This part details how to create different types of companies, even if you have fewer members than usually required.
• Registration Process: It outlines the steps involved in registering your company, including the important Memorandum of Association (MOA) and Articles of Association (AOA).
• Starting Operations: It explains how public companies can begin their business activities.
• Registered Office and Capital: It covers setting up your official company address and declaring your company’s capital.
• Business Objectives: It explains how to define what your company will do in its MOA.
• MoA and AoA Details: It provides specifics on what needs to be included in the MOA and AoA for different company types, and how to make changes to these documents.
• Changing Company Type: It details how to convert your company from one type to another.
• Not-for-Profit Organizations: It covers the formation of companies that are not focused on making a profit.
• Document Handling: It provides rules for serving and authenticating documents related to your company, the registrar, members, and legal proceedings.

Basically, this part walks you through the entire process of incorporating your company and getting it ready to operate legally in Pakistan.

Part V – Shares, Securities, and Company Finances: The Essentials

This part dives into the world of company shares, securities, and financial matters. It covers a lot, so let’s break it down:

• Prospectus: The document used to offer shares to the public.
• Shares and Securities: It explains the different types of shares a company can issue, how to change shareholder rights, and the rules for share certificates and debentures (a type of loan).
• Charges and Trustees: It covers how companies can use their assets as security for loans, and the roles and responsibilities of trustees in these situations.
• Sharia-Compliant Capital: It discusses how companies can issue capital that follows Islamic finance principles.
• Allotment and Transfer of Shares: It details the process of allocating shares to investors and the rules for transferring shares between owners.
• Share Capital Changes: It covers how to issue new shares, change the company’s share capital, and reduce share capital.
• Deposits and Director Liability: It touches on rules for inviting deposits from the public and the unlimited liability of directors in limited companies.

This part is crucial for understanding how companies raise funds, manage their shares, and deal with financial matters in accordance with the law.

Part VI – Mortgages and Charges: Keeping Things Transparent

This part deals with situations where a company uses its assets as collateral for loans (mortgages or charges). It’s all about making these transactions transparent and protecting the interests of everyone involved. Here’s a breakdown:

• Registration: It explains when and how a company must register a mortgage or charge.
• Debentures: It outlines the specific details needed when a company issues a series of debentures (a type of loan).
• Register and Index: It requires companies to maintain a register of mortgages and charges, along with an index for easy reference.
• Changes to Charges: It covers how to modify or correct details of a charge, and how to record when a charge is paid off.
• Receivers and Managers: It details the appointment, qualifications, powers, and duties of receivers and managers who might be appointed to oversee a company’s assets in certain situations.

In essence, this part ensures that any financial dealings involving a company’s assets are properly documented and accessible to those who need to know.

Part VII – Managing and Running Your Company

This part is like the instruction manual for your company. It covers how your company should be managed and the roles everyone plays, from the shareholders to the directors and the CEO. Here’s a quick rundown of what’s inside:

• Shareholders (Members):
  • Keeping track of who owns shares and debentures.
  • Rules about meetings, voting, and making important decisions.
• Directors:
  • How many directors you need, how they’re chosen, and their responsibilities.
  • What they can and can’t do, and how they can be removed.
• CEO and Other Officers:
  • Who can be the CEO, how they’re appointed, and their duties.
  • Rules about the company secretary and share registrar.
• Investments and Contracts:
  • Guidelines for investing in other companies.
  • How contracts are made and rules for dealing with related parties.
• Accounts and Audits:
  • What financial records your company needs to keep.
  • How financial statements are prepared and who can see them.
  • Rules for audits and auditors.
• Dividends:
  • When and how you can pay dividends to shareholders.
• Investigations:
  • How the SECP can investigate your company if needed.
• Powers of the Court and Registrar:
  • What the courts and the registrar can do in relation to your company.

This part is packed with details, but it’s all about making sure your company is run properly and transparently.

Part VIII – Settling Disputes and Restructuring Your Company

This part deals with resolving conflicts and making major changes to your company’s structure. It covers:

• Mediation and Conciliation: It establishes a panel for mediation and explains how companies can use mediation to settle disputes.
• Arbitration: It outlines how companies can choose arbitration to resolve disagreements.
• Compromises and Arrangements: It provides a way for companies to reach agreements with their creditors and members.
• Reconstruction and Mergers: It details the SECP’s powers to help companies restructure or merge with others.
• Merging Subsidiaries: It explains how holding companies can merge their wholly-owned subsidiaries.
• Keeping the Registrar Informed: It requires companies to notify the registrar about applications related to compromises, arrangements, reconstructions, or mergers.

This part is important if your company faces internal or external conflicts or needs to make significant changes to its structure.

Part IX – Dealing with Oppression and Mismanagement

This part of the Act is like a safety net for shareholders and the company itself. It provides a way to deal with situations where there’s unfair treatment or mismanagement within the company. Here’s a summary:

• Going to Court: It explains how you can approach the court if you feel there’s oppression or mismanagement, and the court’s power to issue temporary orders to protect the company.
• Compensation: It clarifies that you can’t claim damages in these cases.
• Specific Rules: It outlines which other sections of the Act apply to proceedings under this part.
• Administrator: It allows for the appointment of an administrator to manage the company in certain situations.
• Reviving Sick Public Sector Companies: It has provisions for helping struggling public sector companies get back on their feet.

In essence, this part offers legal remedies to address issues of oppression and mismanagement within companies, ensuring fairness and accountability.

Part X – Winding Up: Closing Down Your Company

This part covers everything you need to know about closing down or winding up your company. It’s a complex process, but the Act outlines the different ways it can happen and the rules involved.

Winding Up: The Basics

• Types of Winding Up: There are a few ways a company can be wound up, including by the court, voluntarily by the company itself, or under the supervision of the court.
• Liabilities: It explains who’s responsible for the company’s debts when it’s being wound up, including current and past members, and directors in certain cases.

Winding Up by the Court:

• When it Happens: This outlines the situations where a court can order a company to be wound up, like if it can’t pay its debts.
• The Process: It explains how to file a petition for winding up, what the court can do during the process, and the effects of a winding-up order.
• Official Liquidator: This covers the appointment, role, and powers of the Official Liquidator who oversees the winding-up process.

Voluntary Winding Up:

• When it Happens: This explains when a company can choose to wind up voluntarily.
• The Process: It details the steps involved, including passing a resolution, appointing a liquidator, and holding final meetings.
• Creditors’ Role: It outlines how creditors are involved in the voluntary winding-up process.

General Provisions and Winding Up Under Court Supervision:

• Rules for All Types of Winding Up: It covers things like how the company’s assets are distributed, the powers of the court and liquidator, and dealing with any offenses that happened before or during the winding-up.
• Court Supervision: This explains when a court can supervise a voluntary winding-up.

Inactive Companies:

• Striking Off the Register: It details how the registrar can remove defunct companies from the register.
• Easy Exit: It provides a simplified process for defunct companies to close down.

This part of the Act is essential reading if your company is facing difficulties or you’re considering closing it down. It ensures that the process is done legally and fairly, protecting the interests of everyone involved.

Part XI – Winding Up Unregistered Companies

This part deals with a special situation: what happens when a company that hasn’t been properly registered with the authorities needs to be closed down.

Here are the key points covered:

• What it Means: It explains what an unregistered company is and how the winding-up process works for them.
• Who’s Responsible: It identifies who’s liable for the company’s debts when it’s being wound up.
• Court’s Power: It outlines the court’s authority to stop or control legal actions against the company during winding up.
• Staying Lawsuits: It explains how existing lawsuits against the company are paused once the winding-up process starts.
• Dealing with Property: It provides guidance on what to do with the company’s assets during winding up.
• Additional Rules: It clarifies that the rules in this part apply in addition to other relevant laws.

This part is important because it ensures that even unregistered companies can be properly closed down and their affairs settled in a legal manner.

Part XII – Foreign Companies in Pakistan: Rules and Regulations

This part is specifically for companies that are registered outside of Pakistan but want to set up shop here. Here’s what it covers:

• Setting Up in Pakistan: It explains how foreign companies can establish a place of business in Pakistan.
• Rules for Foreign Companies: It outlines the specific rules and requirements that apply to foreign companies operating in Pakistan.
• Registration and Documentation: It details what documents foreign companies need to submit to the registrar and how to update them if there are any changes.
• Financial Reporting: It explains the accounting and reporting obligations of foreign companies.
• Other Requirements: It lists other things foreign companies need to do, like providing information to the SECP and appointing local representatives.
• Penalties: It outlines the penalties for not following the rules.
• Prospectus and Securities: It covers rules for foreign companies issuing prospectuses (documents inviting investment) and selling securities in Pakistan.
• Charges, Receivership, and Liquidation: It outlines notification requirements for foreign companies regarding charges on their assets, appointment of receivers, and liquidation proceedings.

This part is crucial for any foreign company looking to do business in Pakistan, as it outlines all the legal requirements they need to fulfill.

Part XIII – The Fine Print: Schedules, Tables, Forms, and General Rules

This final part of the Companies Act 2017 ties up loose ends and provides additional details to support the main parts of the law. It covers a wide range of topics, including:

• Shariah-compliant Companies: How to get certified as a Shariah-compliant company and issue Shariah-compliant securities.
• Beneficial Ownership: Rules for maintaining a global register to track who ultimately owns and benefits from a company.
• Preventing Financial Crimes: Measures to prevent fraud, money laundering, and terrorism financing.
• Free Zone Companies: Special rules for companies operating in free zones.
• Filing Documents: How to submit documents through an intermediary.
• Real Estate Advances: Rules (currently not in effect) about real estate companies taking advance payments for projects.
• Other Provisions: It also covers things like promoting agriculture companies, exemptions the government can grant, quotas for disabled persons in public sector companies, valuations, security clearances, registration offices, fees, electronic filing, penalties for non-compliance, and more.

Think of this part as the appendix to the main Act, providing all the extra information and procedures needed to make sure everything runs smoothly.

Forms You Need to File Under the Companies Act 2017

The Companies Act 2017 requires companies to submit various forms to the SECP. These forms serve different purposes, like informing the SECP about changes in your company, showing that you’re following the rules, and providing necessary information.

Some of these forms need to be filed regularly, while others are only required when specific events occur in your company.

Schedules in the Companies Act 2017: The Supporting Documents

The Companies Act 2017 includes several schedules that provide additional details and guidelines. These schedules are like appendices to the main law, offering more specific information on certain topics.

First Schedule

This schedule outlines the rules for managing different types of companies, such as companies limited by shares, single-member companies, and companies limited by guarantee. It also includes sample formats for the Memorandum and Articles of Association for different company types.

Second Schedule

This schedule provides a template for a statement that companies need to submit to the registrar if they’re not issuing a prospectus (a document used to offer shares to the public).

Third, Fourth, and Fifth Schedules

These schedules deal with the financial side of things. They outline how different types of companies (public interest companies, large, medium, and small companies) should prepare their financial statements and what information they need to disclose.

Sixth Schedule

This schedule lists the penalties for serious fraud offenses.

Seventh Schedule

This schedule provides a table of fees that companies need to pay to the registrar and the Commission.

Eighth Schedule

This schedule lists specific offenses for which the Commission, registrar, member, or creditor can directly complain to the court.

These schedules provide essential details and guidance to help companies comply with the Companies Act 2017. They are an important part of the overall legal framework governing companies in Pakistan.

Rules and Regulations: Going Beyond the Companies Act 2017

The Companies Act 2017 isn’t the only set of rules governing companies in Pakistan. The Act itself allows the Federal Government to create additional rules to ensure its objectives are met. Even though the Companies Act 2017 replaced the older 1984 Ordinance, the rules made under that old law are still valid until new ones are issued under the new Act.

There are several sets of rules currently in effect that provide more details on specific topics, all within the framework of the Companies Act 2017. Some of these topics include:

• Asset-backed Securitization
• Audit of Cost Accounts
• Buyback of Shares
• Companies Court
• Corporate Governance of Public Sector Companies  
• Employee Stock Option Schemes
• Investment of Employees’ Provident Fund
• Inviting and Accepting Deposits from the Public
• Issuing Capital
• Management by an Administrator
• Rehabilitating Troubled Industrial Units
• Changes in Shareholders’ Rights and Privileges

These rules are crucial for understanding the finer points of company law and ensuring your business stays compliant.

Wrapping Up

We hope this overview has given you a good grasp of the Companies Act 2017 and how it affects companies in Pakistan. In our upcoming articles, we’ll dive deeper into specific topics, helping you understand how to apply the Act’s provisions in real-world scenarios. Stay tuned for more insights into navigating the complexities of company law in Pakistan!

Need expert help with company matters? HETCO is here to guide you. Contact us today for a free consultation!