Guidebook

On

Further Issue of Shares

Otherwise Than Rights

Securities and Exchange Commission of Pakistan

NIC Building, Jinnah Avenue, Islamabad, Pakistan

Phone No. : 051-9207091-4, Fax: 051-9204915
Website: www.secp.gov.pk
E-mail: [email protected]
 Table of Contents

Chapter Page No.

1. Introduction 2
Specific Requirements of Law:
1. The Companies Ordinance, 1984
2. 2. Companies (General Provisions and Forms) Rules, 1985 3 -4
3. Sixth Schedule of the Companies Ordinance, 1984

3 General Requirements of the Ordinance 5 -6

1. Notice of General Meeting

2. Statement of Material Facts
4. 7 -8
3. Minimum disclosure of information to shareholders

5. Application to the Commission 9

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Chapter No. 1

INTRODUCTION

This booklet is a guide to the laws and rules governing further issue of shares
otherwise than rights, by a company limited by shares. This guide is designed to explain
and clarify the procedure of obtaining approval from the existing shareholders and
filing an application with the Securities and Exchange Commission of Pakistan (the
“Commission”) under the provisions of the Companies Ordinance, 1984 (the
“Ordinance”) and Companies (General Provisions and Forms) Rules, 1985 (the “Rules”).

Every company is required to comply with following requirements of the law

before filing an application with the Commission:-

i). Alter Memorandum of Association to give effect to increase in authorized

capital of the Company through a special resolution, where existing
authorized capital of a company is fully subscribed, or the un-issued
capital is insufficient for the new issue;
ii). Approval of shareholders through a special resolution for further issue of
shares otherwise than rights passed by a majority of not less than three-
fourths of such members entitled to vote, as are present in person or by
proxy at the general meeting;
iii). Application to be submitted in a manner prescribed under Rule 30 of the
Rules.

The guide highlights the topic under the Companies Ordinance, 1984 and Companies
(General Provisions and Forms) Rules, 1985.

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Chapter No. 2

Relevant provisions of the Ordinance and Rules, in brief, stipulating various

conditions regarding further issue of shares by a company are narrated hereunder
however detailed provisions may be referred to from the Ordinance and the Rules:-

2.1. The Companies Ordinance, 1984

Specific Requirements

ü Provisions of Section 28 of the Ordinance require that a company may alter or

add to its Articles of Association by passing a special resolution and any
alteration or addition so made shall be as valid as if originally contained in the
articles, and be subject in like manner to alteration by special resolution. The
Company needs to pass a special resolution to alter its Memorandum of
Association, to give effect to the increased authorized capital of the Company, if
required.

ü Proviso to Sub-section (1) of Section 86 of the Ordinance regarding further

issue of capital provides that the Federal Government may, on an application
made by any public company on the basis of special resolution passed by it,
allow such company to raise its capital without issue of right shares.

While issuing notice of general meeting, to be held for taking approval of the
shareholders for issuance of shares otherwise than rights, following provisions of the
Ordinance stipulating certain conditions may be kept in mind:

ü Provisions of Clause (b) of Sub-section (1) of Section 160 of the Ordinance, as to

meetings and votes, requires that:
where any special business, that is to say business other than consideration
of the accounts, balance-sheets and the reports of the directors and auditors,
the declaration of a dividend, the appointment and fixation of remuneration
of auditors, and the election or appointment of directors, is to be transacted
at a general meeting, there shall be annexed to the notice of the meeting a
statement setting out all material facts concerning such business, including,
in particular, the nature and extent of the interest, if any, therein of every
director, whether directly or indirectly, and, where any item of business
consists of the according of an approval to any document by the meeting, the
time when and the place where the document may be inspected shall be
specified in the statement;

2.2. Companies (General Provisions and Forms) Rules, 1985

ü Rule 30 of the Rules explain s the mode of submission of application to the

Commission. It is provided therein that the application shall, in addition to
complying with any other requirement of the Ordinance or the rules, be –

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 (i) duly signed and verified by an affidavit by the applicant indicating
complete name and address and, in the case of a company, signed and
verified by an affidavit by a responsible officer of the company;

(ii) neatly and legibly written, typed or printed, setting out precisely the
facts, grounds and claims or relief applied for in serially numbered
paragraphs and specifying the relevant provisions of the Ordinance
under which action or relief is applied for;

(iii) accompanied by documents referred to in the application or relied

upon and, in case of an appeal against any order or decision, by a
certified copy of such order or decision;

(iv) accompanied by one spare copy, duly signed, dated and verified and
accompanied by copies of the documents as aforesaid; and

(v) accompanied by the original bank challan or draft for the fee paid for
the application.

2.3. Sixth schedule of the Ordinance

Para VII of the Sixth Schedule of the Ordinance provides that filing fee, by or on behalf
of a company, for application with the Commission or the Registrar shall be Rs.500.

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Chapter No. 3

General Requirements of the Ordinance

The Company shall also take care of the following provisions of the law while
considering issue of shares otherwise than rights:-

ü Provisions of Section 91 of the Ordinance stipulate that only fully paid shares
should be issued and no company shall issue partly paid shares.

ü Section 92 of the Ordinance provides that a Company limited by shares, if so

authorized by its articles, may alter the conditions of its memorandum so as to
increase its share capital by such amount as it thinks expedient. Sub-section (2)
of the aforesaid provision of the Ordinance explains that new shares issued by
the company shall rank pari passu with the existing shares of the class to which
the new shares belong in all matters, including the right to such bonus or right
issue and dividend as may be declared by the company subsequent to the date
of issue of such new shares. Provisions of Sub-section (3A) provide that
notwithstanding anything contained in this Ordinance or any other law for the
time being in force or the memorandum and articles, where the authorized
capital of a company is fully subscribed, or the un-subscribed capital is
insufficient, the same shall be deemed to have been increased to the extent
necessary for issue of shares to a scheduled bank or financial institution in
pursuance of any obligation of the company to issue shares to such scheduled
bank or financial institution.

ü Provisions of Sub-section (1) of Section 94 of the Ordinance state that where a

company having a share capital has resolved to increase its share capital beyond
the authorized capital or such capital is increased under Sub-section (3A) of
Section 92 of the Ordinance it shall file with the registrar, within fifteen days
after passing of the resolution, a notice of the increase of capital and the registrar
shall record the increase.

Provided that where default is made by a company in filing a notice of

increase in the authorized capital under Sub-section (3A) of Section 92, the
scheduled bank or the financial institution to whom shares have been issued
may file notice of such increase with the registrar and such notice shall be
deemed to have been filed by the company itself and the scheduled bank or
financial institution shall be entitled to recover from the company the
amount of any fee properly paid by it to the registrar in respect of such
increase.

Sub-section (2) of the aforesaid provisions of the Ordinance provides that the
notice to be given under Sub-section (1) shall include particulars of the shares to
be affected and the conditions, if any, subject to which the new shares are to be
issued.

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ü Provisions of Section 95 of the Ordinance require that :

(1) No company shall have power to buy its own shares or the shares of its
holding company.

(2) No company limited by shares, other than a private company, not being
a subsidiary of a public company, shall give, whether directly or indirectly and
whether by means of a loan, guarantee, the provision of security or otherwise,
any financial assistance for the purpose of or in connection with purchase made
or to be made by any person of any shares in the company or, where the
company is a subsidiary, in its holding company:

Provided that nothing in this Sub-section shall prevent the company

from advancing or securing an advance to any of its salaried employees,
including a chief executive who, before his appointment as such, was not a
director of the company, but excluding all directors of the company, for
purchase of shares of the company or of its subsidiary or holding company, if
making or securing of such advance is a part of the contract of service of such
employee.

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Chapter No. 4

4.1 Notice of General Meeting

The notice of general meeting shall be sent to the members at least twenty-one
days before the date of the meeting and, in the case of a listed company, such notice, in
addition to its being dispatched in the normal course, shall also be published at least in
one issue each of a daily newspaper in English language and a daily newspaper in Urdu
language having circulation in the Province in which the stock exchange on which the
company is listed is situate. [Section 158 & 159 of the Ordinance]

Notice of general meeting must be faxed to the Commission along with

statement under Section 160 of the Ordinance on the same date on which it is sent to the
shareholders and copies of the newspapers in which the notices of general meeting are
published may be sent to the Commission within 07-days of their publication. [Circular
No. 5 dated March 14, 2002]

Notice of the general meeting at which business for issuance of further capital,
otherwise than rights, is placed before the shareholders for approval, must specifically
indicate:

1. the proposed resolution is a special resolution;

2. provision of the Ordinance under which the resolution is proposed;
3. total number of shares to be issued;
4. price per share;
5. total amount of capital to be issued;
6. the fact that the shares are to be issued otherwise than rights;
7. to whom these shares are proposed to be issued.

Illustration

Agenda item 3: to pass a special resolution under the provisions of Section 86(1)
of the Companies Ordinance, 1984, for issuance of 1,000 ordinary shares of the
Company at Rs.10 each, total amounting to Rs.10,000.00 (rupees ten thousand only), by
way of otherwise than rights, to ABC.

4.2 Statement of Material Facts

Clause (b) of Sub-section (1) of Section 160 of the Ordinance requires that where
any special business is to be transacted at a general meeting, there shall be annexed to
the notice of the meeting a statement setting out all material facts concerning such
business.

As provisions of Section 86 of the Ordinance require that where a public

Company intends to issue shares otherwise than rights it may file an application with
the Commission, on the basis of special resolution passed by it.

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 In view of the above a Company is required to circulate statement of material
facts along with the notice of general meeting at which the issuance of further shares,
otherwise than rights, by the Company is placed before the shareholders of the
Company for approval.

4.3 Information to be disclosed to the shareholders

Section 160 of the Ordinance states that the statement annexed to the notice of
the general meeting with regards to special business provides all material facts
concerning such business. Therefore the aforesaid statement, at minimum may include
the following information with regards to issue of further shares without rights to the
existing shareholders:-

ü Justification as to why proposed shares are to be issued otherwise than rights

and not as rights shares;

ü Name of the person(s) / organization(s) / company(s) etc. to whom shares will

be issued;

ü Price at which the proposed shares will be issued. Justification, with details of
the latest available market price and break up value per share, if such price
differs from par value;

ü Detail of asset(s), if proposed shares are to be issued for consideration otherwise

than cash ;

ü Purpose of the issue, utilization of the proceeds of the issue and benefits to the
Company and its shareholders with necessary details;

ü Existing shareholding of the person(s) / organization(s) / company(s) etc. to

whom the proposed shares will be issued (in number as well as percentage vis-à-
vis to existing paid up capital of the Company);

ü Total shareholding of the person(s) / organization(s) / company(s) etc. after the

proposed issue of shares (in number as well as percentage vis-à-vis to increased
paid up capital of the Company);

ü Whether the person(s) / organization(s) / company(s) etc. has provided written

consent to the Company for purchase of such shares;

ü The fact that these shares will rank pari passu in all respects with the existing
shares of the Company. Details if there is any change.

ü The fact that this issue of shares is subject to approval of the Commission;

If proposed shares are preference shares then the Commission’s Guide book on “Issue
of preference shares” may be consulted.

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Chapter No. 5

Application to the Commission

The Company after passing the special resolution has to file duly filled form 26 with the
concerned Registrar and obtain a certified copy of the same. The application to be filed
with the Commission, for its approval, under proviso to Sub-section (1) of Section 86 of
the Ordinance shall be submitted in a manner provided in Rule 30 of the Rules together
with the following information / documents:-

ü The application must narrate in detail the specific purpose for which the
proceeds of the issue will be utilized;

ü The application must be signed by the officer/director of the Company who has
been authorized by the shareholder to accomplish the transaction;

ü Financial projections for next three years reflecting implementation of the plan
and its benefits;

ü If the Memorandum and Articles of Association of the Company have been

amended then a certified copy of the same may also be provided;

ü Certified copy of form 26 with detailed text of special resolution;

ü Justification as to why shares are proposed to be issued otherwise than rights;

ü Relevant detail of the shares issued within past two years;

ü Minutes of the board of director’s meeting, along with attendance sheet, in

which decision for issuance of further shares otherwise than rights was made;

ü Attendance sheet of shareholders, who attended the general meeting either in

person or through proxies;

ü Affida vit as required under Rule 30 of the Rules;

ü Copy of voucher evidencing deposit of application fee.

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 SECURITIES AND EXCHANGE COMMISSION OF PAKISTAN
N.I.C BUILDING, JINNAH AVENUE, ISLAMABAD – PAKISTAN
Ph: 051- 9207091-4 Fax: 051-9204915
Web: www.secp.gov.pk
E-mail: [email protected]

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