SINGLE MEMBER COMPANY INCORPORATION

LIST OF NOTIFICATIONS REPRODUCED IN THE <!--[if gte mso 9]> SINGLE MEMBER COMPANY INCORPORATION By Iqbal Mahmood Awan, Advocate, Supreme Court, Lahore A new concept of Single-Member Company "(SMC)" has been introduced in Pakistan through the Companies (Amendment) Ordinance, 2002. According to it, an opportunity has been provided to any sole proprietorship, individual trader, industrialist and other individual person to transform his businesses into bodies corporate. Previously a private company could only be incorporated by at least two members. Now a single member private company can be incorporated with only one person enabling entry of individual businessman into the corporate sector. Meaning thereby, an individual trader of manufacturer etc. would be able to form a company having its own separate entity enjoying the privilege of limited liability. This new concept would not only be beneficial to the investors but would also go a long way in the expansion of a disciplined corporate sector. The concept of `Single Member Company' is working successfully in European Economic Community especially in U.K. The procedure for the registration of a Single Member Company is very simple. One can just file the prescribed registration documents with the Registrar of Companies and get the certificate of incorporation, giving recognition to his business as a legal entity. Previously there used to be two main classes of companies, i.e. (i) a public company; and (ii) a private company. A Single-Member Company is a sub-class of a private company. There is no strict regulation and such company has just to file certain prescribed documents with the Registrar. However, law has assured that the Company through which an individual would be carrying out the business, shall be a legal entity quite separate from the individual owner. The Single-Member Company is in the benefit of business community and has the following visible advantages:-‑ (i) As a member would not having any associate in the Company, the chances of disputes which is a common factor in the private companies, has totally been mitigated. (ii) The Single-Member Company shall have the tax benefits at par with the private companies. The Securities Exchange Commission is further approaching the Central Board of Revenue for grant of certain additional tax incentives to the SMCs. (iii) The business of a sole proprietor shall not be disturbed with his death, as the business shall continue to exist and his heirs would be able to take over the running business conveniently. (iv) The disputes among the heirs may not have any negative impact on the business or legacy of their predecessor. (v) There is no restriction on the business of a Single Member Company. All the individuals having their own business in the form of trade, industry, agriculture, advisory role or any other profession may form a company and can be beneficiary of this new concept. (vi) Appointment of a company secretary has been made mandatory for efficient corporate compliance. (vii) It has been made compulsory for preparation of accounts in accordance with International Accounting Standards. (viii) A single person forming SMC is liable to nominate at least two individuals to act as nominee director and alternate nominee director in the event of his death. (ix) A Single Member Company may be converted into a private company on increase of the number of its members to more than one due to transfer of shares of further allotment of share or death of the single member or operation of law. (x) Where the sole member notifies a decision taken by way of written resolution, or a written record of a decision to a single member company of which he is the sole member, the notification can be recorded and retained by the Company in a book or by some other suitable means maintained for the purpose. (xi) All the powers exercisable by a private limited company in general meeting under the Companies Ordinance, 1984 or otherwise shall be exercisable, in the case of a single member company, by the sole member. Any provision of the Companies Ordinance which-‑ (a) enables or requires any matter to be done or to be decided by a company in general meeting, or (b) requires any matter to be decided by a resolution of the Company, can be deemed to be satisfied, in the case of a single member company, by a decision of the member which is drawn up in writing and notified to the Company in accordance with the proposed regulations. The exercise by the sole member of a single member company of any power, right or obligation under the proposed Regulations may be notified by the Company in writing, within the specified period of time, to the Registrar of Companies and be recorded by him. * The powers which require general meetings, include: * Change of name of the Company. * Alteration of the objects/Articles * Reduction of share capital. * Winding-up of the Company voluntarily. * Presenting a petition by the Company for an order for a compulsory winding-up. (xii) Sole member may not remove an auditor from office, without holding a requisite meeting as provided, under the Companies Ordinance, 1984. In short, SECP has allowed greater freedom both in the formation and working of a SMC and at the same time provided healthy growth of juristic entity which is really a convenient method for the transaction of business. It can safely be described as the "Magna Carta" of single corporate enterprise. It is pertinent to mention that the provisions of the law both in regard to the formation and management of SMC should be such as would ensure the maintenance of a minimum standard of good behaviour in company promotion and management without imposing needlessly irksome or rigid rules which may hamper legitimate business or affect initiative of enterprise. This can be achieved by lifting the veil or cracking open the corporate shell so as to go behind the corporate personality of the individual for the purpose to determine the real state of affairs.