The Securities and Exchange Commission of Pakistan (SECP) has proposed that a single person may form a private limited company in shares and having only one member that will be called a single member company. In this regard, the SECP has proposed certain amendments to the Single Member Companies (SMC) Rules, 2003 here on Thursday.
According to the SECP, to facilitate the corporate sector, the requirements of nominee and alternate nominee directors as well as particulars and documents of the legal heirs of the single member have been proposed to be deleted from the SMC rules. The SECP introduced the concept of SMC in 2002. The detailed framework for registration of 'Single Member Companies' was provided vide Single Member Companies Rules, 2003.
These rules allow single persons/businessmen to convert their non-corporate entities into companies with limited liability of the members, enabling them to deal with public entities as companies rather than individuals. However, it was observed that the concept of the Single Member Company could not flourish as per expectations because of cumbersome pre-incorporation procedures.
At present, SMCs have to provide particulars and documents pertaining to the legal heirs as well as details of nominee and alternate nominee directors along with their consents. These requirements were considered hurdle in promoting the SMCs and therefore have been proposed to be abolished in the amended rules.
In the amended rules, a provision regarding incorporation of SMC by corporate legal person has been added. Additionally, in case of death of single member, the role of secretary has been strengthened. A provision has also been added regarding penalty in case of violation of SMC Rules.
It is envisaged that the amended rules shall provide a hassle free regulatory mechanism and shall help flourish growth of SMCs. The draft notification for amendments in the SMC rules has been published in official gazette and has also been placed at the SECP website to elicit public opinion, SECP added.
According to the draft rules, for rule 3, the following shall be substituted, namely: "3. Single member company.- A single person may form a private company limited by shares having only one member to be called a single member company." The proposed rule regarding 'transfer of management' said that in case of death of the single member, the secretary, shall manage the affairs of the company till the transmission of shares to legal heirs of the single member; inform the registrar concerned about the death, provide particulars of the legal heirs and in case of any impediment report the circumstances seeking the directions in the form as set out in Form S3 within seven days of the death; after satisfying himself of compliance with all the requirements of the relevant laws, transfer the shares to the legal heirs along with the management in accordance with the applicable laws and call the general meeting of the members to elect directors.
In case of any impediment due to transfer of Shares, or election of directors or any other circumstances, the registrar concerned shall call, or direct to calling of the meeting of legal heirs, in exercise of the powers conferred by section 170 in such manner as he deems fit and give such directions with regard to election of directors and making alteration in the articles, if any, and such ancillary and consequential directions as he thinks expedient in relation to calling, holding and conducting of the meeting, the SECP proposed.
Draft rules said that a certified copy of the order containing the approval under sub-rule (1), together with a notice in the form as set out in Form S5 shall be filed with the registrar concerned within fifteen days of the approval of the Commission for change of status to single member company,
Penalty for contravention of these rules.- Whoever fails or refuses to comply with, or contravenes any provision of these rules, or knowingly and wilfully authorises or permits such failure, refusal or contravention shall, in addition to any other liability under the Ordinance, be also punishable under the provisions of sub-section (2) of Section 506, it said.
It said that if a sole director or the single member takes any decision which is required to be taken in a meeting of the board or in the general meeting or by means of a resolution and such decision is delivered in writing by the sole director and the single member as the case may be, within three days of such decision, to the company for entry in the minute hook and is so recorded, that decision shall be valid as lithe decision is made in such a meeting.
The board shall not have the power to remove the member director or the non-member director hut the single member shall have the power to remove any director, chief executive or secretary through a resolution, the SECP said. The directors may hold their meetings through tele or video conferencing in emergent situation where it is not possible for them to he physically present at the venue of the meeting, provided that the minutes of such meeting are approved and signed subsequently by all directors who participated in such meeting, requirements of the requisite quorum and other legal formalities relating to holding of such meetings have been observed and tele or video recording of the proceedings of the meetings are kept for the purpose of the record.
The directors shall provide for the safe custody of the seal and the seal shall not be affixed to any instrument except by the authority of a resolution of the board of director(s) or by a committee of director(s) authorised in that behalf by the member director or the non-member director and in the presence of at least member director or the non-member director and of the secretary or such other person as the director(s) may appoint for the purpose; and the member director or the non-member director and the secretary or other person as aforesaid shall sign every instrument to which the seal of the company is affixed in their presence.
In the event that a dispute, claim or controversy arises between the company, its management, or between the directors inter sir, all steps shall be taken to settle the dispute and resolve the issue through mediation by an accredited mediator before taking recourse to formal dispute resolution such as arbitration or litigation, the SECP added.
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