ISLAMABAD, March 18: There will be no restriction on the amount of investment a company may make in an associated company or companies under the amendments in company laws suggested recently by the Securities and Exchange Commission of Pakistan (SECP).
At present, section 208 of the Companies Ordinance 1984 requires that “the aggregate investment in associated companies, except a wholly owned subsidiary company, shall not exceed thirty per cent of the paid-up capital plus free reserves of the investing company at any point of time.”
The justification now given for removal of this provision was: “The conditions and restrictions imposed under the existing provisions were considered too harsh, causing negative impact on the business of sister concerns incorporated by one industrial group. Under the proposed amendment, members of a company would be able to make final decision through a special resolution containing full disclosure of the investments.
It is proposed to introduce the concept of a single- member company (SMC) through the insertion of a new provision in Section 174. At present, at least two members are needed to form a private company.
The rationale for this change, the SECP spokesman explained, was to encourage the use of the corporate sector by small businesses and sole proprietorships.
The existing provision states: “...every private company shall have not less than two directors and every public company not less than seven directors appointed and elected in the manner provided in this Ordinance.” It has now been proposed that every single member company shall have at least one director, and every other private company not less than two directors, while the minimum number of directors a public company must have has been reduced to three.
Other changes in the Companies Ordinance envisaged by the SECP are as follows:
* Appeal against refusal of transfer of shares by the directors: Under the proposed provision, the aggrieved party will be able to appeal to SECP against such refusal. (Section 78-A)
* Rectification of Registrar of Mortgage: In view of practical difficulties experienced in obtaining extension from the High Court, it is proposed to empower the SECP to grant such extension. (Section 131)
* Reduction in period to present annual audited accounts in annual general meetings: In order to inform the shareholders at the earliest about the affairs of companies, amendments have been proposed to hold annual general meetings for consideration and approval of audited accounts within a period of four months instead of six months of close of accounts. Moreover, extension period has been curtailed from three to two months. (Sections 158/233)
* Quorum of listed companies: To provide for larger representation, quorum of general meeting of a public listed company is being increased from three members to ten members present in person representing not less than 25 per cent of total voting power either of their own account or as proxies. (Section 160)
* Providing copies of minutes of meetings of the Board of Directors: The amendment is proposed with a view to furnishing the directors with the minutes of such meetings. (Section 173)
* Appointment of company secretary: To improve the efficiency in the management of listed companies, appointment of a qualified company is proposed. (Section 204-A)
* Investment in associated companies: Existing provisions are changed to streamline, simplify and clear ambiguity. (Section 208).
* Removal of auditors: Since the law does not provide for removal of an auditor, it is proposed that the auditors would not be removed during their tenure except through special resolution. (Section 252).
* Winding up of the companies: The proposed amendment may remove a general clause of delay in winding up of companies by official liquidators. (Sections 321, 323, 364).