Banking Law and Procedures

8/8/2019 Banking Law and Procedures

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Banking Laws and Procedures

Presentation

ByCh. Naseer Ahmad


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Banker Customer relationship.

Banker means a person transacting the

business of accepting, for the purpose of

lending or investment of deposit of moneyfrom the public repayable on demand or

otherwise and withdrawable by cheques,

draft, order or otherwise and includes any

Post office Saving Bank.


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Customer.

A person having contractual relationship

with the bank is a customer.

To be a customer one should have anaccount with the bank, ie current deposit ,

saving or PLS TDR account.

A person visiting the bank for depositing

utility bills or availing of remittances

services is not a customer of the bank.


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Qualification of a customer.

He should not be a minor and must haveattained the age of majority. section -3 ofMajority Act of 1875 a person is deemed

to have attained majority when he ascompleted his age of 18 years.

He should be person of sound mind for

making a contract. He should not have been debarred fromentering into a contract.


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Bankers rights towards the

customer. Right to lien, lien is the right to retain the

property belonging to another untill the

debt due from the later has been paid. Right of set-off, set off means adjusting

debit balance against credit balance in

other accounts of the same borrower.

Set-off is a statutory right of the bankers.

Right to charge for their services.


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Right to Lien.

According to section 171 of the contract

Act-1872, a bankers general lien is of a

peculiar type as it exceeds to all thesecurities placed with him by the

customer.

The general lien of the banks is something

more than an ordinary lien, it is consideredas an implied pledge.


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Conditions to exercise right of lien.

The property of the customer must come

into the hands of the banker as a banker

of the customer. There should not be any entrustment for

special purpose.

Banker should obtain possession lawfully.

There should be no agreement

inconsistent with the right of lien.


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Following are subject to bankers

lien. As a matter of practice the bankers

generally obtain a letter of lien dulysigned by the customers when some fund

and non-fund based facility is given to thecustomer against the following.

Bills, cheques and documents for collection.

Bearer bonds and coupons which are left forcollection.

Coupons only where the bonds are in safecustody.


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Contd.

Promissory note , B/E Treasury Bills ,coupons and bonds deposited with the bankwithout any particular intention.

Securities left after adgustment of anadvance or loan.

Dividend warrants, or stock and debentures,certificates issued in the name of bankr under

the instruction of the purchaser/ customer. Shares purchased by the bank for the

customers.s


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Following are not subject to lien.

When it is not the property of the customerand the banker is not aware of the fact.

Bills of exchange and other securitiesdeposited for a special purpose.

On credit balance in respect of contingentliability of bills not yet due.

Over articles or deposits left for safecustody.

Over securities for sale.


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Right of Set-Off.

In the event of death and bankruptcy of

the customer, the banks right of set-off

comes into operation without restrictions.

In case of active accounts the banker

cannot set-off the debit balance of one

account against the credit balance of other

account without serving a reasonablenotice to the customer.


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Contd.

In order to establish an immediate right of

set-off in the operative accounts banker

should obtain a written authority from his

customers.


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This right can be applied when,

The customer is running the account andthe cheque book is in the possession ofthe customer the banker requires to issue

a notice before the exercise of this right. In case of deceased account the banker

can transfer the credit balance to the

account having a debit balance beforepaying the amount to the legal heirs of thedeceased.


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Following can be subject to set-off.

Debit balance of Trust account against

the credit balance of trustees personal

account.

A deposit account can be set-off against

an over-draft account.

If all the joint account holders have given

individual guarantee, a joint account can

be set-off against individual account.


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Bankers duties towards the

customer. To honor the cheque if customer maintains

sufficient balance and cheque is in order.

To pay the financial return to the customer as

per agreement.

To provide the information about the account to

the customer in the form of account statement

and balance enquiry etc.

To maintain the secrecy of the customer

account.s


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Banks can disclose the secrecy in

the following situations. Under compulsion of law. Banks canprovide the account details under thewritten instructions of session judge or

income tax Commissioner or any othercompitent court of law.

Duty to public to disclose. If it is in the

interest of the public during nationalemergencies, a bank can make suitabledisclosure about some customer.


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Contd.

In the interest of the bank. Sometimes banks

sue their customers to recover the NPLs, they

may have to disclose some aspects of the

customers account. Express or implied consent of customer.A

customer may issue standing instructions to his

banker to supply information of his account to

some professional bodies for a certain period ie

for balance sheet preparation or audit

requirements.


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Contd.

Common courtesy to other banks. This

is required to exchange business related

information among the banks


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Account OpeningProducts and

Procedures


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Types of Customers

The bankers customers can beconveniently divided into two groups:

PersonalCustomers: These includeprivate individuals, agents, professionals,married women etc.

ImpersonalCustomers: These arecomprised of various types of companies,corporations, associations, societies etc


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PLSSaving Bank General Rules

1. In PLS Saving Account the minimum

balance requirement is determined bythe bank for , charitable institutions,

provident and other benevolent funds.

2. A minimum balance is required by the

bank to be maintained to qualify for

sharing of profit/loss.


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SB A/C general Rules.

3-Only one account is to be opened in onename. This, however, does not restrictthe opening of more than one account by

a person in the names of minor children.4-PLS Saving Accounts should not be

opened in the name of Local Bodies,Autonomous Corporation, Companies,Firms or other institutions except for theirProvident and Benevolent Funds.


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CONT.

5-The profit in PLS Savings Accounts is paid halfyearly, as per the rates declared by the bankafter the end of the half year as on 30th June

and December 31, on the basis of lowestbalance maintained in the account between theclose of 6th day and the last day of every month.

6-No finance even on temporary basis shall beallowed in PLS Saving Accounts.

7-Service charges Rs.50/-per month to be chargedat month end if the balance drops during themonth.


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Current Deposits Accounts

General Rules

1. Minimum initial deposit requirement is

determined by the banks as per their

policy.

2. No profit is paid by the Bank on current

deposit accounts


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Personal accounts include:

1. Minor

2. Illiterate Person3. Joint Account

4. Pardah Nasheen Lady

5. Agent

6. Administrator and Executor


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Documents to be obtained in light

of PR-M1

1. Attested photocopy of computerized NIC or

passport of the individual by a gazetted officeror an officer of the bank/DFI.

2. In case the CNIC does not contain a

photograph, the bank/DFI should also obtained

in addition to CNIC any other document suchas driving license etc. that contains a

photograph.


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Documents.

3-In case of a salaried person, attested copy of his

service card or any other acceptable evidence

of service, including, but not limited to a

certificate of the employer.4-In case of an illiterate persons, passport size

photographs of the new account holder

besides taking his right and left thumb

impressions on the specimen signature card.


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BasicBanking

Account.


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Basic Banking account

Generic name : BasicBanking Account(BBA)

BPD Circular No. 30 of 2005 November 29, 2005

In order to facilitate and provide basic banking facilitiesto the low income people in Pakistan, SBP vide BPDCircular No. 30 dated November 29, 2005 advised thecommercial banks operating in Pakistan will introduceBasic Banking Accounts (BBA) facility with the

following features:-

1. The minimum initial deposit will be Rs 1000.

2. Will be non-remunerative account.


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Features of BBA.

3- No limit on minimum balance. In cases, where balancein Unique Account remains nil for a continuous six-month period, such accounts will be closed.

4- No fee for maintaining Unique Account.

5- Maximum two deposit transactions and two chequingwithdrawals are allowed, free of charge, throughcash/clearing per month.

6- Unlimited, free of charge, ATM withdrawals from thebanks own ATMs. In case of withdrawal from BBAthrough the ATM machines of other banks, therespective/other bank may recover charges for suchtransactions.


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BBA contd.

7- For the existing banking accounts, banks mayget the consent of all their customers whetherthey wish to maintain a BBA with them or aregular full service banking account with its

accompanying terms and conditions.8- In case an account holder does not give his/her

consent for a BBA, his/her account will betreated as a regular full service bankingaccount.

9- Statement of account will be issued once in ayear.


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BBA

The above features represent the minimum set

of services which the banks shall provide to their

BBA customers.

The banks are; however, free to add moreservices, if they wish.

The banks are also free to charge, as per their

existing policy, for any service/transaction over

and above the minimum set of services of a

BBA, if they wish.


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Minors

Account


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Minors account

Who is a minor?

According to Pakistani Law, a person isregarded as a minor until he has attained

the age of 18 years. Under section 3 ofMajority Act, 1875, if a competent court oflaw appoints a guardian for this person orproperty or both before his age of 18years, the majority extends to the age of21 years.


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Who is a Guardian?

A person lawfully invested with the power, andcharged with the duty of taking care of the

person and managing the property and rights ofanother person who for defect of age,understanding or self control is consideredincapable of administering his own affairs.

One who legally is responsible for the care andmanagement of the person, or the estate, orboth of a child during its minority.


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Types of Guardian

1. Natural Guardian.

2. Testamentary Guardian.

3. Statutory Guardian.


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Minor- important points

Guardian and Ward Act about Guardian &

Minor.

Sec. 3 of Majority Act- 1875, about the ageof Minor.

Sec. 11 of Contract Act- 1872 capacity to

enter into a contract.

Sec. 26 of NIA -1881 a minor can bind

others.


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Points to remember.

Sec 184 of Contract Act- 1872 a Minor

being an agent.

Sec. 183 of Contract Act-1872 Minorcannot appoint an agent

Sec. 30 of Partnership Act-1932 Minor and

Partnership.


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Minor A/C.

Account opening procedure:

The natural guardian who signs both Account

Opening Form and Specimen Signature Card can

open an account in the name of minor. Title of Account:

The title of account should clearly indicate both

the names of minor as well as guardian in the

following manner: Zafar Islam (minor) Islam-ud-Din (guardian)


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Minors Account.

SpecialInstructions:

The guardian will continue to operate the

account even if minor attains the age ofmajority.

Documents

Computerized National Identity Card ofGuardian

Form B of minor


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Minor.

In case guardian is appointed by the court of law thenattested copy of guardianship certificate be obtained andplaced on record.

SpecialCare

The age of minor should not be recorded either inAccount Opening Form or any other document.

In case the account has been opened under thedirectives of the court, operations should strictly beallowed in accordance with the clauses of guardianshipcertificate.

No overdraft is allowed in minors account


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ILLITERATEPersonsAccount


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Accounts of Illiterate persons

Before opening such accounts the illiterate

persons should be informed that he/she cannot

issue cheques in favor of any other person


Title of Account:

Name of account holder should be written in

block form SpecialInstructions:

Personal Withdrawal


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Documents

1. Two attested photographs to be obtained

one for pasting on AOF and other on S.S.

Card.

2. Computerized National Identity card of

account holder.

3. Vernacular letter on form FM 014.4. Right and left hand thumb impressions on

SS Card.


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A/C of Illiterate persons.

Thumb Impressions for operationpurpose

Male Left hand thumb impression.

Female Right hand thumbimpression.

SpecialCare:

01-Before opening such account the illiterateperson should be informed that he/she cannotissue cheques in favor of any person.


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Illiterate A/C contd.

02-It should be ensued that the illiterate

persons should not be allowed to operate the

account unless they personally come to the

branch and put their thumb impression on thecheque in presence of bank officials.

03-Accounts of persons signing in raw hand

must also be treated as the accounts of

illiterate persons


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Joint

Accounts


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Joint Accounts

What is the difference between a joint

account and a partnership account?

Be careful as to who will operate the

account

Death of one account holder:

Survivors are entitled to receive the whole

amount.


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Contd.

Devolution under section 45 of Contract Act

1872.

A cheque drawn & signed by all the survivors be

paid. A cheque drawn by heirs of the deceased party

or less than all survivors shall not be paid.

If there is Overdraft & loan is unsecured, bankshall lodge claim against all survivors and legal

heirs of deceased.


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Insolvency of one account

holder

Operation in account shall be ceased.

Payments shall be made on the joint directions

of Official assignee and solvent parties.

If account is Overdrawn, bank has claim on the

estate of the insolvent and banker should inform

the Official Assignee about the same. Cheque drawn by the insolvent are returned with

reason Account Holder Insolvent.


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Contd.

Cheque drawn by the solvent account

holders are returned with reason Mr. X

insolvent.

Insanity of one account holder:

Mandate to operate ceases.

Operation in account should be ceased.


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Contd.

Devolution does not apply here.

These are the accounts of two or more

persons who are neither partners nor

trustees.


Title of Account:

Title of account should mention the namesof all the joint account holders.


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SpecialInstructions

At the time of opening the account clear

and specific instructions should be

obtained regarding operation of the

account and payment of the balance at the

death of one or more joint account holders

in the following manner:


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Special instructions.

1. The account shall be operated by any joint

account holders singly.

2. By either or survivor singly.

3. By any two or more joint account holders orby any two or more survivors jointly.

4. By all the joint account holders jointly.

5. By all the survivors jointly.


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Contd.

These instructions as far as possible should be obtainedin the handwriting of the parties concerned, under thesignatures of all the joint account holders. Documents:

National Identity Card of all the joint account holders. Mode ofSignature:

All joint account holders are required to sign as applicant and inthe column of special instructions.

Specimen signatures of only those joint account holders are

required who are authorized to operate the account.


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Special Care.

1. The operating instructions should be noted on AOFand SS card boldly and authenticated by deposit incharge.

2. All the operations in the account must be strictly inaccordance with the operating instructions given byall joint account holders.

3. In the event of death of any of the joint accountholders, the survivor(s) be asked to close the oldaccount and open a fresh one in the name of the

surviving joint account holders, depending upon theoriginal instructions regarding operation of theaccount.


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Special Care contd.

4-Cheques drawn by the deceased joint account holderand presented after his death should be returnedunpaid with the reason DrawerDeceased.

5-Cheques drawn by surviving joint account holdersmay be paid, if drawn strictly in accordance with theoriginal operating instructions and otherwise in order.However, no financing facility should be allowed.

6-If the original instructions do not allow for the payment

of balance amount to survivors then all the debitoperations on the joint account should be stopped.


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Contd.

7-If Bank receives an order issued at the request of the

heirs of the deceased joint account holder to stop

payment of the balance amount in the joint account,

then no withdrawal should be allowed and the matter

should be referred to Head Office.

8-A garnishee orderreceived against only one of the

joint account holders should not apply to the joint

account unless it contains the names of all the joint

account holders as judgment debtors. In any case thematter should immediately be referred to the Head

Office for further instructions.


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Contd.

Joint liability:

A joint liability is not individual but

collective; it is the liability of all

together

Joint and several liabilities:

A joint and several liability is not only

collective but also individual


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Proprietorship

Account


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Accounts of Proprietorship

Concerns:

A sole proprietorship concern is a businesscarried on by an individual owner in his ownname or trade name.

It is usual in such cases to take a declarationfrom the sole proprietor that no person otherthan himself has any interest in the business asa proprietor or otherwise and he, as the soleproprietor will personally be liable for all dealingsand obligations in the name of the business.


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Account opening procedure

Title of Account

Title of account must be in the name of

proprietorship concern

In the case of proprietorship concern, the

special instructions should cover the style

of the account and the name of the person

who will operate the account as soleproprietor.


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SpecialInstructions

F

or example, if the account to beopened is in the name of

Islamabad Cloth Store, the

person who is the sole proprietorshould declare as such.


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Documents

1. National Identity card of proprietor

2. Letter of request to open the account on the

letter head of proprietorship3. Account opening form (pink)

4. Declaration for proprietorship concern (PartII, printed on the reverse of AOF)

5. Third Party Mandate, in case any otherperson has been authorized by theproprietor to operate the account.


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DOCUMENTS.

While opening bank account of proprietorships, therequirements laid down for individuals in PR M-1 shouldapply except the requirements mentioned at No.(3) ofthe Annexure regarding proof of business. SBP, vide

BPRD Circular Letter # 30 dtd. 26-09-2007 has omittedparagraph No.(5) of PR M-1 regarding the requirementof introduction for opening new account.

Banks / DFIs should exercise extra care in view of thefact that constituent documents are not available in such

cases to confirm existence or otherwise of theproprietorships.


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Contd.

Amendment vide SBP, BPD Circular No. 05

dated July 08, 2006

While opening bank account of proprietorships,

the requirements laid down for individuals, shallapply except the requirement pertaining to proof

of service. Banks / DFIs should exercise extra

care in view of the fact that constituent

documents are not available in such cases toconfirm existence or otherwise of the

proprietorships.


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Mode ofSignatures

Signatures of proprietor as applicant and

on Declaration For Proprietorship (part-II)

are obtained in individual capacityof the

proprietor.

Specimen signatures and signature on the

special instructions are obtained in theofficial capacityof the proprietor.


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Special care

1. The death of sole proprietor will result infreezing all operations (debit) in his account

and any authority delegated by him to a thirdperson for operation of his account will come toan end.

2. The account of proprietorship concern shouldbe handled like individual deceased personsaccount, in the event of the death of theproprietor.


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Special Care.

3-In the event of the death of the proprietor

the account status should be changed to

Deceased Account in the Unibank

System by selecting option from themenu of Non-Financial Transactions


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Partnership

Firm Account


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Accounts of Partnership Firms

Legal Considerations:

Definition ofPartnership: (section 4,

Partnership Act, 1932)

Partnership is a relation between

persons who have agreed to share profits

of a business carried on by all or any ofthem acting for all.


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Partnership

Persons who have entered into

partnership with one another are called

individually partners and collectively a

firm the name under which the businessis carried on is called the firm name.


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Partnership contd.

It is important to create liability; all the

transactions must be apparently entered into

in the interest of the firm for the purpose of its

business and in the name of the firm.Therefore the act of a partner in order to be

binding upon the firm must be:


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Insolvency of Partners.

If all the partners or all but one partnerbecome insolvent, the firm is compulsorily

dissolved, and the operations on the accountshould be stopped.

It must therefore, be noted that insolvency ofone or more partners does not necessarily

dissolve the firm, provided at least two ofthem remain solvent. (if original instructionsallow for this)


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Contd.

According to section 34 (1) where a

partner in a firm is adjudicated as an

insolvent he ceases to be a partner on the

date on which orders of the adjudication ismade, whether or not the firm is thereby

dissolved.


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Contd.

It is laid down in section 42 (d) that subject to the

contract between the parties the firm is dissolved

by the adjudication of a partner as an insolvent.

where there is an agreement that the firm shallcontinue on the insolvency of a partner the only

effect is that the insolvent partner is dropped out

and the remaining partners continue as such

without dissolution of their partnership.


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Contd.

In case of insolvency of a partner the

cheques signed by him be returned unpaid

for confirmation by the other partners.

Cheques signed by the solvent partners

may be paid against credit balance in the

account provided the cheques are drawn

in accordance with the original operatinginstructions.


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Contd.

Subject to any agreement between partners,

a partnership is dissolved by the death of any

partner. The date, time and source of

information should be recorded in AOF, SSCard and the status of the account should be

changed to Deceased in the system.


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Contd.

Cheques signed by the deceased partner and

presented after his death should be returned

unpaid with the reasons Drawer Deceased.

In case of debit balance operations should bestopped and matter be taken up with the

Head Office/Higher authorities.


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Contd.

The surviving partners should be asked to

close the existing account and open a new

account.

The insanity of a partner does not dissolve the

firm automatically. The lunacy Judge is

competent to dissolve the firm. The general

principle is that the lunatic partner is by anagreement is retired from the business.


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DISSOLUTION OF THE FIRM

The dissolution of firm means the dissolution of

partnership between all the partners of the

firm. There are various ways in which thedissolution of the firm may take place.


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Partnership contd.

As a general rule in case of death, insolvency or

insanity of any of the partners the case must

immediately be referred to the higher authorities

for the legal/expert opinion. NumberOfPartners: The number of partners

in a firm is limited by law which cannot be less

than two or more that twentyin any business

(other than banking)


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Countermand OfPayment

One partner has been empowered to

countermand the payment of any cheque

drawn by him or the others and the banker

is bound to comply with the instructions.


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Account opening procedure

Title of Account.

Title of account must be in the name of the firm

as declared by the partners. OperationalInstructions:

Operations on the account must be allowed strictly in

accordance with the instructions given in Partnership

Mandate & Declaration (part III) in terms of section 25 of

Partnership Act of 1932 and partnership deed.

According to partnership deed, if given.


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Documents

1. Attested copy of NIC of all the partners.

2. Attested copy of Partnership Deed duly signed by

all the partners of the firm.

3. Attested copy of Registration Certificate with the

Registrar ofFirms. In case the partnership is

unregistered this fact should be clearly mentioned

on the Account Opening Form.

4. Third party mandate, if 3rd party is authorized tooperate the account.


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Mode ofSignature

1. Signatures of all the partners are obtained in

their individual capacity as applicant.

2. Partnership Mandate and Declaration (PartIII) is to be signed by all the partners in their

personal or individual capacity.

3. Specimen signatures are to be obtained in

the official capacity.


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Special Care.

1. When a partnership account is opened, followingconsiderations should be kept in mind by the banker:

2. A partnership should not consist of more than 20

persons.3. One partner is entitled to open an account for the firms

business provided that he opens in the firms name.

4. One partner has the power to stop the payment ofcheques drawn by him or another and the

5. Banker is bound to comply with the instructions by thatpartner.


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Joint

Stock

Companies.


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Account of Joint Stock Companies

Definition ofLimitedCompany:

Section 2 of the Companies Act, 1913, defines

Company as an association of individuals forthe purpose of profit, possessing a common

capital contributed by the members constituting

it, such capital being commonly divided into

shares, of which each possesses one or moreand which are transferable by the owners.


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Types of Companies.

UnlimitedCompanies

In such companies the liability of each

member, like partnership is unlimited.

Since there is a great risk, such

companies are not operating in Pakistan.


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Companies Limited By Shares.

These are the companies limited by shares. The

liability of a shareholder is to the amount of his

share. PublicLimitedCompany: A Public Limited

Company has to be registered as a joint stock

company under Companies Ordinance 1984. the

minimum number of member is 7, while there isno restriction on the maximum number of

members.


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Private Limited Company

It is a Company where the right to

transfer the shares of its members is

restricted. The maximum number of

members (shareholders) is fifty. While theminimum is two.

Difference between Public &


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Difference between Public &

Private Ltd. Companies.

Private Ltd. Co.

1-generally formed bypersons/ friendshaving closerelations.

2-Membership min=2max=50

3-Publication ofprospectus is notrequired.

Public Ltd. Co.

1- it may be formed byany group fromgeneral public.

2- Membership min=7max. unlimited.

3-Publication ofprospectus is a legalobligation.


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Differences contd.

4-Subscription isrestricted to membersonly.

5-It can start operationswithout Certificate ofCommencement ofBusiness.

6-There is no obligation

to get the accountsaudited

4- Subscription is opento general public.

5-Not allowed to startbusiness withoutCertificate ofCommencement ofBusiness.

6-It is legal obligation to

get the accountsaudited.


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Differences contd.

7-Transfer of shares isrestricted amongmembers.

8- Election of Directorsin not necessary.

9- Statutory meetingsare not necessary.

7- Shares aretransferable to anybody.

8-Election of Directorsis legal requirement.

9- Statutory meetingsare necessary min.once in a year &

within 6 months fromthe date ofincorporation.


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Company Limited By Guarantees

The members undertake to contribute to

the assets of the company such amounts

as may be agreed upon, in the

Memorandum and Articles of Association.

in the event of the company being wound

up.

Such company may or may not have theshare capital in addition to the guarantee.


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Single Member Company.

A single member Company SMC meansa private company which has only onemember.

It is incumbent on the person forming thecompany to file with the Registrar at thetime of incorporation names of twoindividuals to act as nominee director and

alternate nominee director of the companyin the event of his heath.

S C


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Joint Stock Companies.

Formation ofJoint Stock Companies:

These companies may be formed in any of the

following ways: CharteredCompanies: These companies are

incorporated under a Royal Charter, and have

very wide powers. This is the oldest form but is

becoming extinct gradually. For example EastIndia Company.

d


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contd.

StatutoryCompanies: These companies are

incorporated under a special piece of law. Such

a company is not governed by the Companies

Ordinance, but by the special law under whichthey are incorporated. For example State bank

of Pakistan.

RegisteredCompanies: these companies are

incorporated under the Companies Ordinance1984. These companies are being governed by

all the provisions of the Companies Ordinance.

A t i d


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Account opening procedure.

Title of Account:

Title of account should be exactly in the

same name and style as mentioned on the

memorandum and article of association:

Special Instructions:

All the special instructions should be given

to the bank in the form of resolution ofBoard of Directors.

D t


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Documents.

1. Up to date Memorandum & Article of

Association (certified by

Director/Companys Secretary affixed by

companys seal)

2. Certificate of Incorporation

3. Certificate of Commencement ofBusiness (for Public Ltd. Cos only)

D t


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Documents.

4-Resolution of Board of Directors passedunder companys seal to open account.Duly minuted in the minute book (As per

specimen given on AOF)5- Copies of CNIC/Passports of all the

directors/authorized signatories (attestedby companys secretary)

6-List of directors on Form 29 issued by theRegistrar Joint Stock Company.

C tifi t f I ti


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Certificate of Incorporation

The Companys Certificate ofIncorporation is a very importantdocument.

It gives the evidence of the existence ofthe company. Therefore, before having atransaction with a company a banker mustsatisfy himself that the company is in

existence for which the directors purportsto act, and which they purport to bind.

C td


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Contd.

Neither a public nor a private limited company

has any legal existence until Certificate of

Incorporation has been obtained.

Any contract purported to be made beforeincorporation cannot be ratified after

incorporation for the reason that ratification can

be made only in respect of contracts entered into

on behalf of the principal who was in existenceat the date of the contract.

Memorandum & Articles of


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Memorandum & Articles of

Association The Memorandum of Association is the most

important document as it is the charter of thecompany.

It sets out the objectives for which a joint stock

company is formed. It governs the company with regard to its

dealings with the outside world and defines thescope of its activities. It usually has:1. Name of the company with the word Limited

affixed to the last word in its name.2. Place with full address of its registered office

3. Object of the company.

A t i td

4-Amount of capital and its distribution into

shares


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Account opening contd.shares.5-Declaration of the fact that the liability of the

members is limited.

A ti l f A i ti


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Articles of Associations

Contains rules and regulations for the internal

management of the company and generally

contain:1. General powers of the company vested in the

directors.

2. Election, rotation and retirement of directors.

3. Procedure for calling of the meetings and passing

of resolutions.

4. Methods and principles of declaration of dividends.

M d f Si t


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Mode of Signature.

In official capacity (with the rubber stamp) on allthe documents, such as AOF, SS Card, Cheque-book requisition slip etc. SpecialCare

The opening of account for share subscriptionby a company shall be subject to prior approvalof Head Office.

Due care and caution should always beexercised to ensure that cheques payable to

limited companies are collected for the credit ofcompanys account and not foe personalaccount of any director / employee etc.

Opening of Single Member

C A t


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Companys Account

Securities and Exchange Commission of

Pakistan has allowed sole proprietorships to

convert themselves into a Companythrough

Single MemberC

ompanies Rules 2003. It isquite a new phenomenon rather Pakistan has

become the first country in Asia to experiment

this new idea. This revolutionary initiative carries

some great benefits like: Distinct legal entity separate from single member


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Contd


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Contd.

Higher credibility

Documented and regulated

Protection to personal assets

Better access to capital markets etc. etc