Different Types of Companies Limited by Shares

Thu, 12/25/2014 - 07:43 -- Umar Farooq

There are different company types limited by shares i.e.

Private Limited Companies

Private limited companies (or privately held corporations) are generally family or closely held businesses. The Companies Ordinance of Pakistan (1984) requires at least two members to establish a private limited company. The maximum number of members can be 50.

The salient features of private limited company are:

  1. They cannot offer shares to the public.
  2. The shares are only transferable subject to the restrictions of the Articles of Association.
  3. Fewer legal formalities in formation as compared to public limited companies, e.g., no need to file a prospectus, no need for a certificate of commencement of business.
  4. Fewer legal restrictions, e.g. annual accounts are not required to be published, no statutory meeting, is required.
  5. The word PRIVATE is added in its name before the word LIMITED.

Public Limited Companies

In contrast to private limited companies, public limited companies are widely held companies with a very large number of shareholders. The minimum number of shareholders under the Companies' Ordinance of Pakistan is seven with no upper limit. However, the authorized number of shares determines the upper limit.

We cannot only classify public limited company by share but there are other types of companies are companies limited by guarantee, unlimited companies and associations not for profit.

Formation of a Public Limited Company

Each country has different legal requirements and procedures for registering limited companies. However, the first step in the formation of a public limited company is the filing of an application by the promoters with the relevant government authority. In the case of Pakistan, the application is to be filed with the Corporate Law Authority. The process generally requires providing the following information:

  1. The name, address and nature of business to be undertaken by the company.
  2. The description of the different classes of shares to be offered.
  3. The proposed authorized capital and face value of each class of shares.
  4. The description of rights, preferences and restrictions of each class of shares.
  5. The names and addresses of promoters and the number and type of shares to be acquired by each promoter.

Under the Companies' Ordinance of Pakistan (1984), an application for incorporation must include the following documents:

  1. Memorandum of association
  2. Articles of association
  3. Notice of address of head office
  4. List of directors
  5. Consent of directors
  6. Contract to purchase qualification shares
  7. Statutory declaration of fulfillment of legal conditions of incorporation

After filing the above documents to the entire satisfaction of legal requirements, the Registrar of Companies will issue a certificate of incorporation. The company then can raise capital by issuing shares. The company can, however, commence business only after getting a trading certificate. The trading certificate is issued once the registrar is satisfied that company is in a position to start business.

Memorandum of Association

The Memorandum of Association describes the objects, nature and scope of activities of the company. It can be described as the constitution of the company. A memorandum of association must contain clauses providing the following information:

  1. The name of the company
  2. The address and location of the registered office
  3. The objects clause identifying the objectives for. which the company is being formed
  4. The amount and number of each type of proposed shares
  5. A clause of limited liability.

Articles of Association

The Articles of Association describes the bylaws for the conduct of business within the limits of the memorandum of association. The powers and duties of directors and other officers are defined. Similarly, the rights, privileges and restriction of different types of shareholders are prescribed. The procedures for holding meetings, taking votes, maintaining accounts, appointing auditors, transferring of shares, altering of capital, etc. are outlined. The Companies Ordinance of Pakistan (1984) provides a model Articles in its table `.`A" and if promoters do not submit any articles of their own the model articles-are assumed to be adopted by the company.