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S.R.O. 944 (1)/95.--- The companies (Issue of Share Capital) Rules, 1995 proposed to be made in exercise of powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII of 1984), read with the Finance Division Notification No. S.R.O. 698 (I)/86, dated July 2, 1986 is hereby published as required by sub-section (1) of section 506 of the said ordinance.

S.R.O. 945 (1)/95.--- In exercise of the powers conferred by section 506 of the Companies Ordinance, 1984 (XLVII of 1984). read with Finance Division Notification No. S.R.O. 698 (I)/86, dated July 2. 1986, the Corporate Law Authority hereby makes the following rules, namely:---

1. Short title and commencement. ---(1) These rules may be called the Companies (Issue of Share Capital) Rules, 1995.

(2) They shall come into force at once.

(3) These rules shall be applicable to all companies proposing to offer share capital to the general public and the listed companies proposing to increase their capital through right issue or bonus issue and to all other cases where shares are issued for consideration other than cash.

2. Policy for issue of capital.--- A company which owns a loan-based project or an equity based project and proposes to raise capital through public offer shall comply with the conditions specified hereunder:--

(A). Loan-based Projects:

(i). The size of capital to be issued shall be in accordance with financial plan as approved by the institution financing the project.

(ii). The company's auditors shall certify that sponsors' subscription has been received in full and at least eighty per cent thereof has been utilized in the project.

(iii) Last consignment of plant and machinery, wherever required, has been shipped to the company.

(iv). In case capital of the company is proposed to be raised up to two hundred million rupees, at least fifty. percent of such capital shall be offered to the general public.

(v). In case capital of the company is proposed to be raised beyond two hundred million rupees, public offer shall be at least one hundred million rupees or twenty five per cent of the capital, whichever is the higher.

(vi) Sponsors shall, at all times, retain at least twenty five per cent of the capital of the company.

(vii) Allocation of share capital to Overseas Pakistanis shall not exceed twenty per cent of the public offer.

(viii)Allocation of share capital to employees of the company shall not exceed five per cent of the public offer.

(B). Equity-based Projects:

(i) The project shall be appraised by a development financial institution or a commercial bank or an investment bank.

(ii) The appraisal report shall be accompanied by a certificate from the company's auditors confirming that---

(a)the capital allocated to the sponsors and foreign or local investors, if any, has been subscribed and fully paid; and

(b) the land for the project has been acquired, letter of credit has been established and shipment schedule of plant and machinery finalized by the suppliers.

(iii). In case capital of the company is proposed to be raised up to two hundred million rupees, at least fifty, per cent of such capital shall be offered to the general public.

(iv) In case capital of the company is proposed to be raised beyond two hundred million rupees, public offer shall be at least one hundred million rupees or twenty five per cent of the capital, whichever is the higher.

(v). Sponsors shall, at all times, retain at least twenty, five per cent of the capital of the company.

(vi). Allocation of share capital to Overseas Pakistanis shall not exceed twenty five percent of the public offer.

(vii). Allocation of share capital to employees of the company shall not exceed five per cent of the public offer.

(viii). The shares allotted to sponsors, friends, relatives, associates and other persons or institution of account of preferential allocation at par, shall not be saleable for a period of three years from the date of allotment. These persons or institutions shall be issued jumbo certificates with markings "not saleable for three years". The particulars of such jumbo certificate shall be furnished to the respective stock exchanges Companies while splitting jumbo certificates into markeable lots, after the prescribed period, shall also inform the respective stock exchanges.

3. Issue of shares on premium.---A company may issue shares to the public on premium subject to the following conditions:--

(i). The premium on public offering shall not exceed the amount of premium charged on foreign/local placement or charged to local institutions.

(ii) Particulars of foreign/local investors shall be disclosed in the prospectus.

(iii). In case of foreign placement, Pakistani nationals subscribing in foreign currency shall rank equally with the foreign investors.

(iv). The implementation of the project shall be in accordance with the approved financial plan.

(v). The issue shall be under-written by at least two development financial institutions including commercial banks, investment banks or corporate brokerage houses who shall justify the amount of premium in their due-diligence report.

(vi). Underwriting by the associated companies shall not be permissible.

(vii) Total underwriting by individual members of the stock exchanges shall not exceed twenty per cent of the issue.

(viii) Full justification for premium shall be disclosed in the prospectus.

(ix) the due diligence report of the under-writers shall form part of the material contracts.

(x). The employees of the company getting preferential allocation, if any, shall be charged premium at the same rate as the general public.

(xi). The shares allotted to sponsors, friends, relatives, associates and other persons or institutions on account of preferential allocation at par, shall not be saleable for a period of three years from the date of allotment these persons or institutions shall be issued jumbo certificates with markings "not saleable for three years". The particulars of such jumbo certificate shall be furnished to the respective stock exchange companies while splitting jumbo certificates into marketable lots, after the prescribed period, shall also inform the respective stock exchanges.

4. Issue of right shares by listed companies.---A listed company may issue right shares subject to the following conditions:---

(i) No company shall make a right issue within one year of the last issue of the capital.

(ii) The decision of the company to issue right shares shall be communicated to the Authority and the respective stock exchanges on the day of the decision.

(iii) A company may charge premium on right shares up to the free reserve per share as certified by the company's auditors. The certificate of auditors shall be furnished to the Authority and the respective stock exchanges alongwith intimation of the proposed right issue. The "free reserves" shall be calculated in the manner prescribed in rule 5.

(iv). A company announcing right shares shall, at the time of announcement, clearly indicate the purpose of the right issue benefits to the company, use of funds and financial projections for three years. The financial plan and projections for the right issue shall be signed by all the directors who were present in the meeting in which the right issue was approved.

(v) Right issues of a loss making company or a company whose average market share price for a period of six months is below par value shall be fully under-written.

(vi). Book closure shall be made within forty-five days of the announcement of the right issue.

(vii). If the announcement of bonus and right shares is made simultaneously, resolution of the board of directors shall indicate whether or not the bonus shares covered by the announcement quality for right entitlement.

5. Issue of bonus shares by listed companies.---A listed company may issue bonus shares subject to the following to the following condition:---

(i). The decision of the board of directors to issue bonus shares shall be communicated to the Authority and the respective stock exchanges on the day of the decision. The intimation letter shall be accompanied by the auditor's certificate as specified in clause (iii) of this rule.

(ii) The free reserves of the company shall be sufficient to permit issue of bonus shares after retaining in the reserves twenty-five per cent of the capital as will be increased by the proposed bonus shares.

(iii). A certificate from the company's auditor shall be obtained to the effect that the free reserves and surpluses retained after the issue of the bonus shares, will not be less than twenty-five per cent of the increased capital.

(iv). All contingent liabilities disclosed in the audited accounts and any such liability which may have been created subsequent to the audited accounts shall be deducted while calculating minimum residual reserves of twenty-five percent;

Explanation.--- "free reserve" included any amount which, having been set aside out of revenue or other surpluses after adjustment of all intangible or fictitious assets, is free in that it is not retained to meet any diminution in value of assets, specific liability, contingency. or commitment known to exist at the date of the balance sheet, but does not include:--

(i) Reserves created as a result of revaluation of fixed assets.

(ii). Goodwill reserve.

(iii). Depreciation reserve to the extent of normal depreciation including allowance for multiple shifts admissible under the Income Tax Ordinance, 1979 (XXXI of 1979).

(iv). Workers Welfare Fund.
(v). Provisions for taxation to the extent of the deferred or current liability of the company.

(vi) Capital redemption reserve.

6. Offer for sale of shares by privatised companies.--- In case of a company privatised by the Federal or a provincial Government, the new management may offer shares to the general public at the purchase price per share adjusted by right or bonus issue or any other distribution made out of the pre-acquisition reserves.

7. Offer for sale of shares by certain shareholders.--No person who holds ten per cent or more of the shares of a company shall offer such shares for sale to the public unless the following conditions are fulfilled:--

(i). The size of the capital to be offered to general public through offer for sale shall not be less than rupees one hundred million or twenty five per cent of the capital, which ever is less.

(ii). In case a premium is to be charged on the sale of shares, the offer shall be under- written by at least two development financial institution, including commercial banks, investment banks or corporate brokerage house. Full justification for the premium shall be disclosed in the prospectus.

(iii). Not more than twenty . per cent of the offer for sale of shares shall be underwritten by the individual members of the stock exchanges.

(iv). Due-diligence report of the under-writers shall form part of the material contracts.

8. Issue of shares for consideration other than cash.---A company may issue shares against consideration other than cash subject to the following conditions:--

(i) The value of assets shall be determined by a recognized valuer

(ii). The value of assets taken over shall be reduced by depreciation charged on consistent basis.

(iii). The goodwill and other intangible assets shall be excluded from the consideration.

(iv). Certificate from a practicing Chartered Accountant shall be obtained to the effect that the above mentioned conditions have been complied with.

9. 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 with fine not exceeding two thousand rupees, and in case of continuing failure refusal or contravention, to a further fine not exceeding one hundred rupees for every day after the first during which such contravention continues.

10. Power of Authority to relax rules.---Where the Authority is satisfied that it is not practicable or necessary to comply with the requirement of any of these rules in a particular case or class of cases, the Authority may, for reasons to be recorded, relax the rules in the case of such company or class of companies subject to such conditions, if any, as may be imposed by the Authority in that behalf.

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