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Term Report:
Submitted to: Sir Zia Kayani
2012
MEMBERS:
Muqadam Butt 11476
Business Law
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LAW OF PAKISTAN
The Law of Pakistan is the law and legal system existing in the Islamic Republic of
Pakistan. Pakistani law is based upon the legal system of British India; thus ultimately on
the common law of England and Wales. Pakistan as an Islamic republic also has been
influenced by Islamic Sharia law.
HISTORY:
Upon the list of the Dominion of Pakistan in 1947 the laws of the erstwhile British Raj
remained in force. At no point in Pakistan's legal history was there an intention to begin the
statute book afresh. During the reign of General Muhammad Zia-ul-Haq, elements of
Islamic Sharia law were incorporated into Pakistani law, leading to the institution of
a Federal Shariat Court (FSC). In some Federally and Provincially Administered Tribal
Areas [(FATA) and (PATA)], a system of law employing traditional methods persists at the
local level. At this informal level, disputes are settled by a jirga, a council of tribal elders.
SOURCES OF PAKISTANI LAW WITH REFERENCE TO BUSINESS LAW
BUSINESS LAW IN PAKISTAN
This overview of business laws of Pakistan is a very brief description of common forms of
businesses adopted by private and public sector investors in Pakistan. An attempt has also
been made to outline general requirements and regulatory regimes for each of these forms
of businesses in Pakistan. These brief notes are for general guidance only and should not be
taken as a substitute for thorough and professional legal advice.
What are the common forms of business in Pakistan? Main forms of business organizations adopted by private sector in Pakistan are as follows:
Sole proprietorship in Pakistan
Partnership in Pakistan
Limited liability company in Pakistan
Joint venture in Pakistan
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RELEVANT LAWS OF PAKISTAN
Companies Ordinance, 1984
Companies General Provisions and Forms Rules, 1985
Single Member Companies Rules, 2003
Schedule of Filing Fee
Companies remain the most favored form of business organization in Pakistan especially
for medium and large-scale business enterprises. Legal regime for establishment and
regulation of companies in Pakistan is given in the Companies Ordinance, 1984. Whereas
the function of administration of these companies is vested in the Securities and Exchange
Commission of Pakistan and the Registrar of Companies appointed by the Securities and
Exchange Commission of Pakistan for a province of Pakistan where such company is to be
registered.
Under the provisions of the Companies Ordinance, 1984 a company is a body corporate
with separate legal entity and a perpetual succession and a company may be formed by
persons associating for any lawful purpose by subscribing their names to the Memorandum
of Association and complying with other requirements for registration of a company under
the provisions of the Ordinance.
THE COMPANIES ORDINANCE, 1984 PROVIDES FOR THREE DIFFERENT TYPES OF
COMPANIES:
A company limited by shares
A company limited by guarantee
An unlimited liability company
Further, under the Companies Ordinance, 1984 two types of limited liability companies areprovided for, namely:
A private limited company
A public limited company (which may be listed or unlisted)
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Any one or more persons associated for any lawful purpose by subscribing their name(s) to
the Memorandum of Association and complying with other registration specific
requirements of the Companies Ordinance, 1984 may incorporate a private limited
company. Provided that where a company has only one subscriber to the Memorandum of Association then such a company is called a Single Member Company, however, a Single
Member Company remains a private limited company for all intents and purposes of the
Ordinance. Whereas any three or more persons so associated may form a public limited
company. A company limited by shares, whether a private company or a public company, is
the most common vehicle for carrying out a business enterprise in Pakistan. .
REGISTRATION OF A COMPANY AND COMMENCEMENT OF BUSINESS IN PAKISTAN:
The first step toward incorporation of a company in Pakistan is to file an application before
the Registrar of Companies for availability of name. If the proposed name of the company isavailable and it is not in contravention to the provisions of the Companies Ordinance, 1984
and the Rules formed there under, then the Registrar shall issue a certificate stating that
the proposed name is available to be adopted.
The next step is to file the Memorandum of Association and Articles of Association, which
in effect is the constitution of any company, with the Registrar of Companies in the
Province where proposed company is to be incorporated, along with other necessary forms
prescribed under the Companies Ordinance, 1984. When the company has been registered,
the Registrar issues a Certificate of Incorporation. Once such a certificate has been issued
by the Registrar a private limited company may commence its business immediately.
Nonetheless, a public limited company cannot commence its business or exercise itsborrowing powers yet unless the Registrar has issued a Certificate for Commencement of
Business. The Registrar issues the Certificate for Commencement of Business only if the
following requirements have been fulfilled:
Shares held subject to the payment of the whole amount thereof in cash have been
allotted to an amount not less in the whole than the minimum subscription
Every director of the company has paid to the company the full amount on each of
the shares taken or contracted to be taken by him and for which he is liable to pay in
cash
No money is or may become liable to be repaid to applicants for any shares or
debentures which have been offered for public subscription by reason of any failure
to apply for or to obtain permission for the shares or debentures to be dealt in on
any stock exchange
There has been filed with the Registrar of Companies a duly verified declaration by
the chief executive or one of the directors and the secretary in the prescribed form
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that the aforesaid conditions have been complied with and the Registrar of
Companies has issued a Certificate of Commencement of Business
In the case of a company which has not issued a prospectus inviting the public to
subscribe for its shares, there has been filed with the Registrar of Companies, a
statement in lieu of prospectus
A public limited company may either be listed or unlisted. In case of a listed company its
shares may be quoted and dealt with on one of the three stock exchanges of Pakistan viz.
Karachi Stock Exchange, Lahore Stock Exchange and Islamabad Stock Exchange. Whereas
the shares of an unlisted public limited company may not listed on a stock exchange. A
public limited company that intends to have its shares listed on a stock exchange must
obtain permission from the relevant stock exchange under the listing regulations of that
stock exchange.
SPECIAL TYPES OF CONTRACT :
Contracts of Indemnity and Guarantee
A contract of indemnity is one whereby a person promises to save the other from loss
caused to him by the conduct of the promisor himself or of any third person.For example,a
shareholder executes an indemnity bond favouring the company thereby agreeing to
indemnify the company for any loss caused as a consequence of his own act.The person
who gives the indemnity is called the 'indemnifier' and the person for whose protection it is
given is called the 'indemnity-holder' or 'indemnified'. A contract of indemnity is restricted
to cover the loss caused by the promisor himself or by a third person.The loss must be
caused by some human agency.Loss arising from accidents like fire or perils of the sea are
not covered by a contract of indemnity.
A contract of 'guarantee' is a contract,whether oral or written,to perform the promise,or
discharge the liability,of a third person in case of his default. A contract of guarantee
involves three persons,viz. a person who gives the guarantee is called the 'surety'; the
person in respect of whose default the guarantee is given called the 'principal debtor'; and
the person to whom the guarantee is given is called the 'creditor'. A contract of guarantee is
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a conditional promise by the surety that if the principal debtor defaults he shall be liable to
the creditor.
Difference between Indemnity and Guarantee:-
In a contract of indemnity there are two parties i.e. indemnifier and indemnified. A
contract of guarantee involves three parties i.e. creditor, principal debtor and
surety.
An indemnity is for reimbursement of a loss, while a guarantee is for security of the
creditor.
In a contract of indemnity the liability of the indemnifier is primary and arises when
the contingent event occurs. In case of contract of guarantee the liability of surety is
secondary and arises when the principal debtor defaults.
The indemnifier after performing his part of the promise has no rights against the
third party and he can sue the third party only if there is an assignment in his
favour. Whereas in a contract of guarantee, the surety steps into the shoes of thecreditor on discharge of his liability, and may sue the principal debtor.
CONTRACTS OF BAILMENT AND PLEDGE
A 'bailment' is the delivery of goods by one person to another for some purpose upon a
contract that they shall, when the purpose is accomplished,be returned or disposed of
according to the directions of the person delivering them. The person delivering the goods
is called the 'bailor' and the person to whom the goods are delivered is called the 'bailee'.
The examples of a contract of bailment are:- delivering a watch or radio for repair; leavinga car or scooter at a parking stand; leaving luggage in a cloak room; delivering gold to a
goldsmith for making ornaments; leaving garments with a dry cleaner,etc. The essence of
bailment is the transfer of possession. The ownership remains with the owner. Therecannot be a bailment of immovable property.
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A 'pledge' is a bailment of goods wherein the goods are delivered as a security for payment
of a debt or performance of a promise.The bailor is called the 'pledgor' or 'pawnor' and the
bailee is called the 'pledgee' or 'pawnee'. Thus, pledge is a special kind of bailment. Pledge
can be made only of movable properties. In order to make the pledge legally valid it is
essential that the pledgor has the legal right or title to retain the goods.
Difference between Bailment and Pledge:-
Purpose:- A pledge is made for a specific purpose, while bailment can be made forany purpose.
Property:- In bailment, the bailee gets only the possession of goods bailed. The
ownership remains with the bailor. In the case of pledge, the pledgee acquires a
special property in the goods pledged whereby he gets possession coupled with the
power of sale, on default.
Right of sale :- Bailee can exercise a lien on the goods bailed. He has no right of sale.But in case of a pledge, the pledge can sell the goods after due notice to pawner.
CONTRACTS OF AGENCY
An 'Agent' is a person employed to do any act or to represent another in dealings with third
persons. The person who employs the agent and for whom such act is done,or who is so
represented,is called the 'principal'. The relation between the agent and the principal iscalled 'Agency'. It is only when a person acts as a representative of the other in the
creation,modification or termination of contractual obligations,between that order and
third persons,that he is an agent. The essence of a contract of agency is the agent's
representative capacity coupled with a power to affect the legal relations of the principal
with third persons.
Contracts of agency are based on two important principles:-
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Whatever a person can do personally shall also be allowed to be done through an
agent except in case of contracts involving personal services such as painting,marriage, singing, etc.
He who does an act through a duly authorised agent does it by himself i.e. the acts of
the agent are considered the acts of the principal
SALE OF GOODS ACT 1930 :
Sale of Goods Act is one of very old mercantile law. Sale of Goods is one of the special types
of Contract. Initially, this was part of Indian Contract Act itself in chapter VII (sections 76 to
123). Later these sections in Contract Act were deleted, and separate Sale of Goods Act was
passed in 1930.
The Sale of Goods Act is complimentary to Contract Act. Basic provisions of Contract Act
apply to contract of Sale of Goods also. Basic requirements of contract i.e. offer and
acceptance, legally enforceable agreement, mutual consent, parties competent to contract,
free consent, lawful object, consideration etc. apply to contract of Sale of Goods also.
CONTRACT OF SALE
A contract of sale of goods is a contract whereby the seller transfers or agrees to transferthe property in goods to the buyer for a price. There may be a contract of sale between one
part-owner and another. [section 4(1)]. A contract of sale may be absolute or conditional.
[section 4(2)].
Thus, following are essentials of contract of sale - * It is contract, i.e. all requirements of
‘contract’ must be fulfilled * It is of ‘goods’ * Transfer of property is required * Contract is
between buyer and seller * Sale should be for ‘price’ * A part owner can sale his part to
another part-owner * Contract may be absolute or conditional.
HOW CONTRACT OF SALE IS MADE
A contract of sale is made by an offer to buy or sell goods for a price and the acceptance of
such offer. The contract may provide for the immediate delivery of the goods or immediate
payment of the price or both, or for the delivery or payment by instalments, or that the
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delivery or payment or both shall be postponed. [section 5(1)]. Subject to the provisions of
any law for the time being in force, a contract of sale may be made in writing or by word of
mouth, or partly in writing and partly by word of mouth or may be implied from the
conduct of the parties. [section 5(2)]. Thus, credit sale is also a ‘sale’. - - A verbal contract
or contract by conduct of parties is valid. e.g. putting goods in basket in super market or
taking food in a hotel.
TWO PARTIES TO CONTRACT
Two parties are required for contract. - - “Buyer” means a person who buys or agrees to
buy goods. [section 2(1)]. “Seller” means a person who sells or agrees to sell goods. [section
2(13)]. A part owner can sale his part to another part-owner. However, if joint owners
distribute property among themselves as per mutual agreement, it is not ‘sale’ as there are
no two parties.
CONTRACT OF SALE INCLUDES AGREEMENT TO SALE
Where under a contract of sale the property in the goods is transferred from the seller to
the buyer, the contract is called a sale, but where the transfer of the property in the goods
is to take place at a future time or subject to some condition thereaf ter to be fulfilled, the
contract is called an agreement to sell. [section 4(3)]. An agreement to sell becomes a sale
when the time elapses or the conditions are fulfilled subject to which the property in the
goods is to be transferred. [section 4(4)]. The provision that contract of sale includes
agreement to sale is only for the purposes of rights and liabilities under Sale of Goods Act
and not to determine liability of sales tax, which arises only when actual sale takes place.
TRANSFER OF PROPERTY
“Property” means the general property in goods, and not merely a special property.
[section 2(11)]. In layman’s terms ‘property’ means ‘ownership’. ‘General Property’ means
‘full ownership’. Thus, transfer of ‘general property’ is required to constitute a sale. If
goods are given for hire, lease, hire purchase or pledge, ‘general property’ is not
transferred and hence it is not a ‘sale’.
POSSESSION AND PROPERTY
Note that ‘property’ and ‘possession’ are not synonymous. Transfer of possession does not
mean transfer of property. e.g. - if goods are handed over to transporter or godown keeper,
possession is transferred but ‘property’ remains with owner. Similarly, if goods remain in
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main purpose of the contract, the breach of which gives rise to a right to treat the contract
as repudiated. [section 12(2)]. Whether a stipulation in a contract of sale is a condition or a
warranty depends in each case on the construction of the con tract. A stipulation may be a
condition, though called a warranty in the contract. [section 12(4)].
Where a particular stipulation in contract is a condition or warranty depends on theinterpretation of terms of contract. Mere stating ‘Conditions of Contract’ in agreement does
not mean all stipulations mentioned are ‘conditions’ within meaning of section 12(2).
WHEN CONDITION TO BE TREATED AS WARRANTY
Where a contract of sale is subject to any condition to be fulfilled by the seller, the buyer
may waive the condition or elect to treat the breach of the condition as a breach of warran
ty and not as a ground for treating the contract as repudiated. [section 13(1)]. Where a
contract of sale is not severable and the buyer has accepted the goods or part thereof, the
breach of any condition to be fulfilled by the seller can only be treated as a breach of
warranty and not as a ground for rejecting the goods and treating the contract as
repudiated, unless there is a term of the con tract, express or implied, to that effect. [section
13(2)]. Nothing in this section shall affect the case of any condition or warranty fulfillment
of which is excused by law by reason of impossibility or otherwise. [section 13(3)].
TIME OF PAYMENT IS NOT ESSENCE OF CONTRACT BUT TIME OF
DELIVERY OF GOODS IS, UNLESS SPECIFIED OTHERWISE
Unless a different intention appears from the terms of the contract, stipulations as to timeof payment are not deemed to be of the essence of a contract of sale. Whether any other
stipula tion as to time is of the essence of the contract or not depends on the terms of the
contract. [section 11]. As a general rule, time of payment is not essence of contract, unless
there is specific different provision in Contract. In other words, time of payment specified is
‘warranty’. If payment is not made in time, the seller can claim damages but cannot
repudiate the contract.
CAVEAT EMPTOR
The principle termed as ‘caveat emptor’ means ‘buyer be aware’. Generally, buyer is
expected to be careful while purchasing the goods and seller is not liable for any defects in
goods sold by him. This principle in basic form is embodied in section 16 that subject to
provisions of Sale of Goods Act and any other law, there is no implied condition or
warranty as to quality or fitness of goods for any particular purpose. As per section 2(12),
“Quality of goods” includes their state or condition.
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TRANSFER OF PROPERTY AS BETWEEN SELLER AND BUYER
Transfer of general property is required in a sale. ‘Property’ means legal ownership. It is
necessary to decide whether property in goods has transferred to buyer to determinerights and liabilities of buyer and seller. Generally, risk accompanies property in goods i.e.
when property in goods passes, risk also passes. If property in goods has already passed on
to buyer, seller cannot stop delivery of goods even if in the meanwhile buyer has become
insolvent. - - - Where there is a contract for the sale of unascertained goods, no property in
the goods is transferred to the buyer unless and until the goods are ascertained. [section
18].
PROPERTY PASSES WHEN INTENDED TO PASS
Where there is a contract for the sale of specific or ascertained goods the property in themis transferred to the buyer at such time as the parties to the contract intend it to be
transferred. [section 19(1)]. For the purpose of ascertaining the intention of the parties
regard shall be had to the terms of the contract, the conduct of the parties and the
circumstances of the case. [section 19(2)]. Unless a different intention appears, the rules
contained in sections 20 to 24 are rules for ascertaining the intention of the parties as to
the time at which the property in the goods is to pass to the buyer. [section 19(3)].
SPECIFIC GOODS IN A DELIVERABLE STATE
Where there is an unconditional contract for the sale of specific goods in a deliverable state,the property in the goods passes to the buyer when the contract is made, and it is immate
rial whether the time of payment of the price or the time of delivery of the goods, or both, is
postponed. [section 20].
AUCTION SALE
Auction sale is special mode of sale. The sale is made in open after making public
announcement. Buyers assemble and make offers on the spot. Person offering to pay
highest price gets the goods. Usually, auctioneer is appointed to conduct auction. Higher
and higher bids are offered and sale is complete when auctioneer accepts a bid.- - - In the
case of a sale by auction—
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(1) where goods are put up for sale in lots, each lot is prima facie deemed to be the subject
of a separate contract of sale;
(2) the sale is complete when the auctioneer announces its completion by the fall of the
hammer or in other customary man ner; and, until such announcement is made, any bidder
may retract his bid;
(3) a right to bid may be reserved expressly by or on behalf of the seller and, where such
right is expressly so re served, but not otherwise, the seller or any one person on his behalf
may, subject to the provisions hereinafter contained, bid at the auction;
(4) where the sale is not notified to be subject to a right to bid on behalf of the seller, it shall
not be lawful for the seller to bid himself or to employ any person to bid at such sale, or for
the auctioneer knowingly to take any bid from the seller or any such person; and any sale
contravening this rule may be treated as fraudulent by the buyer;
(5) the sale may be notified to be subject to a reserved or upset price; (6) if the seller makes
use of pretended bidding to raise the price, the sale is voidable at the option of the buyer.
[section 64].
DELIVERY OF GOODS TO BUYER
The Act makes elaborate provisions regarding delivery of goods to buyer. It is the duty of
the seller to deliver the goods and of the buyer to accept and pay for them, in accordance
with the terms of the contract of sale. [section 31]. Unless otherwise agreed, delivery of thegoods and payment of the price are concurrent conditions, that is to say, the seller shall be
ready and willing to give possession of the goods to the buyer in exchange for the price, and
the buyer shall be ready and willing to pay the price in exchange for possession of the
goods. [section 32]. - - Note that this is ‘unless otherwise agreed ’, i.e. buyer and seller can
agree to different provisions in respect of payment and delivery.
ACCEPTANCE OF GOODS BY BUYER
Contract of Sale is completed not by mere delivery of goods but by acceptance of goods by
buyer. ‘Acceptance’ does not mean mere receipt of goods. It means checking the goods toascertain whether they are as per contract. - - - Where goods are delivered to the buyer
which he has not previously examined, he is not deemed to have accepted them unless and
until he has had a reasonable opportunity of examining them for the purpose of
ascertaining whether they are in conform ity with the contract. [section 41(1)]. - - Unless
otherwise agreed, when the seller tenders delivery of goods to the buyer, he is bound, on
request, to afford the buyer a reasonable opportunity of examining the goods for the
purpose of ascertaining whether they are in conformity with the contract. [section 41(2)].
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BUYER’S AND SELLER’S DUTIES
The Act casts various duties and grants certain rights on both buyer and seller.
RIGHTS OF UNPAID SELLER AGAINST THE GOODS
After goods are sold and property is transferred to buyer, the only remedy with seller is to
approach Court, if the buyer does not pay. Seller has no right to take forceful possession of
goods from buyer, once property in goods is transferred to him. However, the Act gives
some rights to seller if his dues are not paid.
SUITS FOR BREACH OF THE CONTRACT
Unpaid seller can exercise his rights to the extent explained above. In addition, seller can
exercise following rights in case of breach of contract. Buyer has also rights in case of
breach of contract.
MEASURE FOR COMPENSATION AND DAMAGES
The Sale of Goods Act does not specify how to measure damages. However, since the Act is
complimentary to Contract Act, measure of compensation and damages will be as providedin sections 73 and 74 of Contract Act.
PARTNERSHIP :
Relevant Partnership Laws
Partnership remains a common mode of business enterprise i for small to medium business
set-ups. Partnerships are normally formed where there is a desire to have some structural
flexibility alongwith some formality of relationship between partners. There is no
compulsory requirement for registration of a partnership in Pakistan . Nonetheless some
litigation and tax related consequences and advantages are linked to a registered
partnership.
Legal regime for establishment and regulation of partnerships in Pakistan is stated in the
Partnership Act, 1932 which defines a partnership in the following terms:
"as the relation between persons who have agreed to share the profits of a business carried on
by all or any of them acting for all."
Any twenty or less persons desiring to carry out a lawful commercial activity or a
profession may form a partnership except in certain cases e.g. where twenty or more
persons may form partnership to undertake practice as lawyers or accountants or any
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other practice which cannot be carried out as a limited liability company under the
provisions of law. In all other cases where the number of intended partners increases
beyond the figure of twenty a company should be incorporated.
A partnership may be registered with the Registrar of Firms of an area where the office of
the firm is situated or proposed to be situated. A statement in prescribed form must bedelivered to the relevant Registrar stating:
Firm name
Place or principal place of business of the firm
Names of any other places where the firm carries on business
Date when each partner joined the firm
Names in full and permanent addresses of the partners
Duration of the firm
The aforestated statement must be signed by all the partners of the firm for the time being
or any authorized agent on their behalf. Furthermore, the statement must be verified by the
persons signing it. Once Registrar is satisfied that the abovementioned requirements have
been complied with he records entry of the statement in Register of Firms and files the
statement.
FORMATION OF STATUTORY CORPORATIONS
Statutory corporations or bodies are creation of a statute. They are formed by the Central
Government or a Provincial Government through a Central Statute or a Provincial statute,
as the case may be. The purpose, functions, powers, duties, liabilities, rights, management
and legal status of any such statutory corporation is governed by each individual
enactment under which such statutory corporation has come into existence.
Administration of such statutory corporations is vested in a governing body, chairman etc.
as envisaged under the enabling statute. Circumstances or pre-conditions of winding-up of
any statutory corporation are also provided under the relevant statute.
Statutory Corporations do not require any registration.
RELEVANT JOINT VENTURE RELATED LAWS
LAW REGARDING JOINT VENTURES
Joint ventures are an appropriate vehicle of carrying out a business in Pakistan in cases
where two or more parties do not intend to form a separate entity to deal with a venture,
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however, they merely agree to act together in a specific manner and under certain terms
and conditions. In such a case each party retains its own individual identity which may be
in the form of a company or a partnership. In a joint venture, therefore, these parties agree
to enter into a consortium or a joint venture agreement. Relationship between the parties
is created on the terms and conditions as stated in this agreement and no relationship that
is beyond the ambit of this agreement comes into existence. Rights, liabilities etc. of eachcontracting party are also determined according to the terms and conditions of the
agreement.