The reach of The Combined Code on Corporate Governance

The Financial Reporting Council (FRC) may be the custodian of the Code but compliance is a matter for the Listing Rules Produced by the Financial Services Authority, these Rules regulate companies with a full listing on the London Stock Exchange.

The Code does not apply to:

companies whose shares are traded on AIM or other markets not covered by the Listing Rules;
a listed company incorporated outside the UK (though such companies do have a lesser reporting obligation).
There is, though, nothing to stop such companies complying with the Code if they choose to do so. Shareholder pressure, or simply a wish to conform with “best practice”, may lead many “exempt” companies to follow some or all of the Code’s recommendations. Most of the Code’s principles, if not all the detailed provisions, provide a sound basis for the governance of many companies.

Indeed, the Code’s reach increasingly extends beyond its immediate “target group”. The Code has been the impetus for the development of a more formalised approach to governance in other sectors. Universities have produced their own governance code; public sector bodies have guidance from the Independent Commission on Good Governance in Public Services. And mutual life companies are expected to follow guidelines on governance produced in the wake of the Equitable Life inquiry.

The Code and the annual report
The Code is divided into “main principles”, “supporting principles” and “provisions”. The main principles are general statements of corporate life, which, at times, come close to motherhood and apple pie in their level of general acceptability. The first, for example, states: “Every company should be headed by an effective board, which is collectively responsible for the success of the company”. Supporting principles expand on the main principles and give more guidance. But it is the Code’s provisions that state the detailed requirements necessary, in the view of the Code’s authors, to make sure the principles are upheld.

The Listing Rules seek to give the principles and provisions some force by placing two requirements on UK listed companies:

the annual report and accounts must contain a statement explaining how the company has applied the main and supporting principles. (It is taken for granted that the principles are accepted; the only room for debate is over how they are applied.)
the report and accounts must state whether the company has complied with the provisions throughout the year covered by the report. If the company has not complied with all of the provisions, or if it has complied with them for only part of the year, the departures must be listed and reasons for the non-compliance given.
The comply or explain rule
This brings us to a key feature of the listed companies’ Combined Code, copied to an extent by other codes derived from it: its regime of “comply or explain”. UK listed companies must comply with the Code’s detailed provisions or explain why they do not. Ignoring the Code is not an option; but if you have good reason to deviate from its terms, you may do so and leave it up to your members/shareholders to decide whether your reason is good enough. If you can talk to shareholders and demonstrate that departures from the Code’s provisions are in the company’s best interests, then non-compliance is unlikely to become a big issue.

Shareholders have no specific sanction if they disapprove of what you are doing, short of voting against the Directors’ Remuneration Report if the debate is over boardroom pay, or voting one or more directors off the board – a somewhat extreme step. What they can do, though, is apply pressure with the aim of persuading the board to change its mind.

As the case of the supermarket chain Morrisons shows, this can be most effective at those junctures when a company needs the support of its shareholders. (See box below.)

If the shareholders are not big enough or well organised enough to exert pressure or if they are unwilling to take the opportunities they have to do so, then the board can decide how much it complies. The key point is that the Code and its provisions are not compulsory; they are there for guidance and represent best practice.

Case study: Morrisons – How shareholders can change governance
A few years ago, the supermarket chain Morrisons seemed unencumbered by corporate governance principles. The company, led by the septuagenarian Sir Ken Morrison as full-time executive chairman, had no non-executive directors, no audit or remuneration committees and no shame in explaining that it did not think these were necessary. It was a FTSE 100 company and very much in the public eye. Institutional shareholders might not have liked its public defiance of generally accepted principles, but Morrisons was successful, and there was little they could do about it.

Things began to change after Sir Ken decided to bid for rival chain Safeway in 2003. The chairman needed to raise the money for the bid from shareholders, and one of the conditions they imposed was that he should at least appoint two non-executive directors. Over a year later and just before the AGM, two new non-executives duly appeared (though one resigned 10 months later). One institutional shareholder group commented, recognising the uphill task they still faced: “we welcome this step towards better corporate governance and hope to see formal board meetings established in due course.”

Since then, further steps have been taken to make management structures “more satisfactory to the City”. And following a number of profit warnings and acknowledged failures in its internal controls, the company now has a full complement of board committees manned by four independent non-executives (though they still do not equal in number the six executive directors).

This is adapted from the second edition (2007) of The Director’s Handbook, edited by Martin Webster of Pinsent Masons and available to buy from the Institute of Directors.

Governance is a word that barely existed 20 years ago. Now it is in common use not just in companies but also in charities, universities, local authorities and National Health Trusts. It has become a shorthand for the way an organisation is run, with particular emphasis on its accountability, integrity and risk management.

The “revolution” started in the early 1990s with the Cadbury Report on the financial aspects of corporate governance, to which was attached a code of best practice. Aimed at listed companies and looking especially at standards of corporate behaviour and ethics, the “Cadbury Code” was gradually adopted by the City and the Stock Exchange as a benchmark of good boardroom practice. In 1995, the Greenbury Report added a set of principles on the remuneration of executive directors (in response to some particular “fat cat” scandals, notably that involving British Gas chief Cedric Brown, whose 75 per cent rise incensed both unions and small shareholders), and in 1998 the Hampel Report brought the two together and produced the first Combined Code. A year later, the Turnbull Report concentrated on risk management and internal controls.

In each case, the reports were prompted either by shareholder disquiet over perceived shortcomings in corporate structures and their ability to respond to poor performance, or to government threats of legislation if the corporate sector failed to put its house in order.

In 2002 Derek Higgs, an investment banker, was given the brief to look again at corporate governance and build on the previous reports to produce a single, comprehensive code. Shortly afterwards, the full consequences of the Enron and Worldcom scandals were realised, leading to new unease. The Higgs Report came out in early 2003, but was greeted with horror by some leading companies, with claims that it placed an unrealistic burden on non-executives and marginalised the role of the chairman. The task of taking Higgs’s draft forward was passed to the Financial Reporting Council (FRC), a body established by government and comprising members from industry, commerce and the professions. The FRC consulted further and produced a revised Code that followed most of Higgs’s recommendations but softened a few of the more contentious points, and so gained general acceptance. With rather less fuss, at the same time Sir Robert Smith, chairman of the Weir Group, was leading a review of the role of audit committees and his recommendations were incorporated into the new Code. The 2003 Code was updated with minor amendments in June 2006, with the new version applying to financial years beginning on or after November 1, 2006.

Is all this attention on governance good for business, in the hard, commercial sense? Views differ. Several surveys have claimed that companies with better corporate governance are more profitable; sceptics have countered that it is only the more profitable companies that can afford the time and effort to make sure they follow best practice. There is no doubt, however, that the demand of shareholders and other stakeholders for good governance is strong and continuing. Investors, unions, government and assorted pressure groups are all increasingly likely to condemn a business that fails to follow the “rules”. The business case for good corporate governance is, therefore, not difficult to build.

Courtesy

Budget today

June 11, 2008

(For a detailed legal opinion on Finance Act 2008, please contact Al-Latif Corporate Legal Consultants and stay tuned for preliminary report this week)

Outlay likely to be around Rs 2.8 trillion
* Revenue target estimated to be around Rs 1.2 trillion
* Debate on budget to continue from June 14-30

By Sajid Chaudhry

ISLAMABAD: Salaries and pensions are likely to increase in the Rs 2.8 trillion federal budget for the 2008-09 fiscal year the Pakistan People’s Party (PPP) led coalition government will table in the National Assembly today (Wednesday).

Salaries of government employees belonging to grades 1 through 16 are likely to increase by 20 percent, and of those belonging to grade 17 through 22 by 15 percent through a “dearness allowance”, official sources told Daily Times. The Online news agency said a 10 percent increment was also likely in pension of retired government officials.

Finance Minister Syed Naveed Qamar will present the budget in the Lower House at about 6:30pm and his speech will be aired live on television and radio.

The government aims at lowering the budget deficit to around Rs 560 billion or 4.6 percent of the Gross Domestic Product (GDP) in 2008-09, after the highest-ever Rs 737.8 billion deficit this fiscal year (2007-08).

The sources said the new government had decided to increase the defence budget by 7.2 percent to Rs 295.5 billion against the Defence Ministry’s Rs 330 billion demand. Considering 10 percent inflation and the rising prices of oil, which accounts for major part of the defence spending, the increase is negligible, they added.

Following protest by the provinces, the government has decided to increase the allocation to the Public Sector Development Programme (PSDP) for 2008-09 to Rs 541 billion – 4.4 percent of the GDP – compared with Rs 523 billion last year. It will finance the PSDP with foreign loans worth Rs 67 billion.

Revenue target: The tax collection target is likely to be fixed at around Rs 1.2 trillion with an emphasis on increasing taxes and duties on luxury goods and including several un-taxed sectors in the tax net, with a possible amnesty for legalising undisclosed assets by paying taxes ranging from 2 percent to 10 percent.

The coming fiscal year has been termed “the year of fiscal consolidation”, and the government has set an economic growth target of 5.5 percent of the GDP. Economic growth remained 5.8 percent this fiscal year.

Citing official sources, Online said Rs 523 billion would be allocated to the Annual Development Programme in the budget – Rs 373 billion for the federation and Rs 150 billion for the provinces.

It said the government would allocate Rs 34 billion to subsidise essentials for the poor under a Benazir Card scheme. The current account deficit target is likely to be set at 5 percent, it added.

Official sources also told Daily Times the government will set up a Rs 50 billion “pro-poor fund” to provide cash grants to the poor to meet inflationary pressures and challenges.

Debate: Debate on the budget will begin on June 14 and the session will continue until June 30. The National Assembly proceedings will begin at 10am and end at 8:30pm every day during the budget session.

According to the state-run APP news agency, “The budget will focus on infrastructure, human capital and social sector development, poverty reduction, promotion of investments and exports, agriculture sector development and provision of relief to the common man.”

“The government is keen to provide relief to the people in the next budget for which concrete measures are being considered.”

main points

* Benazir Card scheme to provide Rs 34 billion subsidy on essentials

* Defence budget to increase by 7.2 percent to Rs 295.5 billion, against a Rs 330 billion demand

* Salaries of government employees belonging to grades 1 through 16 likely to increase by 20 percent, and grades 17 through 22 by 15 percent

* Pensions to increase by 10 percent

* Emphasis on increasing taxes and duties on luxury goods

* Amnesty for legalising undisclosed assets by paying taxes ranging from 2 percent to 10 percent

* Budget deficit likely to be Rs 560 billion or 4.6 percent of GDP

* Rs 541 billion to be allocated to the Public Sector Development Programme (PSDP)

* Rs 523 billion to be allocated to the Annual Development Programme

* Economic growth target set at 5.5 percent of GDP

KARACHI: Pakistan Telecommunication Authority (PTA) has asked Association of Call Centre Operators (ACCO) to provide list of all call centres registered with Pakistan Software Export Board (PSEB) so that uninterrupted communication at all times is ensured.

PTA has sent a letter to ACCO to provide the list of call centres, registered with PSEB, which were submitted on 4th June 2008. However PTA has asked ACCO to provide some more information regarding call centers.

In a letter to ACCO president, Abdullah Butt, PTA has asked for list of available range of IP addresses utilised for call centre operations and the source from which the IPs are obtained.

Abdullah told Daily Times that, in this regard we have asked all the registered call centres and Business Process Outsourcing (BPOs) to prepare all the relevant requirements of PTA and PSEB at the earliest. “In this context an advertisement should also be released, as well as through the services of ACCO an outbound campaign should be initiated to all registered call centres and BPOs for seeking all pre-requisite information on behalf of PTA & PSEB,” he added.

He said, this way a comprehensive and authentic database will be prepared and filtration of improper and redundant registered or un-registered call centres and BPO will also be possible.

Abdullah said we have also proposed PTA, to arrange a joint meeting with PSEB and ACCO for addressing all issues on International and Domestic call centre and BPO services and requirements. “We have assured PTA of full support and commitment to work towards promotions of call centres and BPO in Pakistan,” he further added.

Recently, Pakistan Telecommunication Authority (PTA) has asked PTCL and TWA1 to terminate all Voice Code services being used other than registered call centres in the country. PTA was of the view that these ports should only be used by legitimate operators such as Long Distance Internationals (LDIs) and Call Centres which are authorized to carry traffic over IP beyond international boundaries.

This was observed after PTA recently installed technical facility to check illegal telecom traffic coming into Pakistan. Data filtered by the system was analysed for scrutinising IP traffic of the country.

Therefore, PTA while ensuring the legal use of ports, directed PTCL and TWA to make arrangements for it so that no illegal use of ports takes place. According to PTA, this would help to block bulk of grey traffic flowing through IP backbone and would create a level playing field for all stake-holders.

While India hails to be amongst the world’s lowest telecom tariffs, with operators offering increasingly better mobile services, it nonetheless stands at the hind end of Pakistani mobile services, particularly in terms of international (ISD) calls.

 

The rates of international calls made from India and Pakistan to countries like United States of America (USA), UK, Canada, Germany and Hong Kong reflects an acute difference of how Pakistani mobile services are far superior to the Indian counter part.

 

Telecom operators in Pakistan offer ISD calls at rates as low as Rs 1-1.99 per minute while Indian mobile subscribers still pay Rs 5-6 per minute to call the above mentioned countries.

 

Furthermore, with the Pakistan Telecommunication Authority (PTA) reducing the Mobile Termination Rates (MTR) by about 30 percent from June 1, telecom services are expected to become more affordable.

 

Currently, Pakistan’s tele density stands at 56.7 percent, which is more than double of India’s tele density.

 

Mobilink, Ufone, Telenor, Warid (Singtel) and Zong (China Mobile) are the main service providers in Pakistan.

 

June 11, 2008

 

 

KARACHI: The Securities and Exchange Commission of Pakistan (SECP) is mulling to relax some conditions on holding of annual general meeting (AGM) rules and provide extension up to three months in this regard.

Executive director (registration) SECP, Nazir Ahmed Shaheen at a seminar organised by Income Tax Bar Association (ITBA), said the issue was raised as schedules of most of the companies’ AGM were coincided with the filing dates of annual returns to the Federal Board of Revenue (FBR) in September every year, troubling companies to manage all things in a short period.

Earlier the time limit was six months after closing of accounts on June 30, but later it was reduced to four months and now it further shrunk to three months.

Shaheen said the SECP had discussed with FBR to increase the limit of companies’ paid up capital to the authority because 85 percent the SECP’s registered companies are small. staff report

(This is not a legal opinion. Please contact Al Latif Law Corporate Legal Consultants at 92 300 555 2232 for more information)
Step1.

Seek the availability of a name proposed for the company from the Registrar of Companies.

Time to complete:
1 day
Cost to complete:
PKR 200

The company may propose one or more names, in order of preference. The name should not be inappropriate, deceptive, or designed to exploit or offend any religion. It should neither be identical to nor have any close resemblance to any existing company name. The availability of the name can be checked online by searching existing company names. Certain guidelines prohibit the association of the company name with state sponsorship with the national leaders and the like. The official confirmation (or denial) of the name availability is received by email in 24 hours. This confirmation satisfies name search requirements if the name search fee of PKR 200 is paid into the bank account of the regulatory authority.

Step 2.

Pay the fee for procedures 1, 3, and 4, and obtain bank receipt/ copy of treasury challans

Time to complete:
1 day
Cost to complete:
no charge

 The company pays stamp duty to the provincial government. A copy of the original treasury challan in the amount of the registration and filing fee must be deposited with the Habib Bank Ltd. or the State Bank of Pakistan. The amount is payable under the following headings and account numbers at the stated banks: – Account 1200000, Receipts from civil administration and other functions. – Account 1210000, Receipts from general administration. – Account 1213400, Economic regulations (receipts under the companies ordinance). The company picks up the treasury challan forms at the bank counter and completes them for payment purposes, pays the amount due to the official accounts, and obtains a copy of the form. The bank sends another copy to the relevant departments.

Step 3.

Obtain stamp paper on which the Declaration of Compliance will be drafted

Time to complete:
1 day
Cost to complete:
PKR 100

Formerly, the original copy of the memorandum and articles of association had to be stamped according to the Stamp Act of the relevant province of Pakistan in which the company proposed to be registered. Stamp duties vary from province to province. The Stamp Act prescribes the adhesive stamps to be affixed to the first page of the documents before they are executed. The unsigned copy of the memorandum and articles of association is submitted to the Stamp Office of the relevant provincial government agency with the proof of payment to the Treasury bank account. The documents are returned, duly stamped, the same afternoon. The following fees are paid in Sindh: – Memorandum of association without articles of association: PKR 2,000. – Memorandum of association with articles of association: PKR 1,000 if authorized capital is less than PKR 500,000; PKR 2,000 if authorized capital is more than 500,000: Under the Sindh Finance Act, 2006, since July 2006 the rates of stamp duty for the memorandum and articles of association for the Provinces of Punjab, Sindh, Balauchistan, and the Northwest Frontier Provice have been rescinded. However, under the Stamp Act, the fee of PKR 100 for the declaration of compliance on nonjudicial stamp paper still applies.

Step 4.

Register the company at the Registrar of Companies.

Time to complete:
3 days
Cost to complete:
registration fee + PKR 200, filing fee per document, 4 documents + PKR 50 for the Certificate of Registration

The following company incorporation documents are required for a private company: – Form-1, Declaration of compliance. – Form-21, Identifying the location of the office. – Form-29, Particulars of directors, secretary, chief accountant, auditors, and others. Note: Form 1 is to be signed by (a) an advocate entitled to appear before any High Court in Pakistan or the Supreme Court; (b) a qualified chartered accountant (member of ICAP or ICMAP) practicing in Pakistan, or (c) a person named in the articles of association as a director or other officer. Also to be submitted with these documents are the subcriber’s national identity card and four copies of the memorandum and articles of association, with the signature of each member (in presence of a witness) and with a special stamp affixed. It is not mandatory to hire a lawyer or accountant to incorporate a company, but doing so is generally preferred for ease of accomplishment. Any initial subscriber to the memorandum of association has to declare that all the formalities of company incorporation are completed before the certificate of incorporation is issued. The fee of incorporation was reduced recently. Fee schedule for company registration: – Nominal share capital under or at PKR 100,000: fee is PKR 2,500. – Nominal share capital over PKR 100,000: fee is PKR 2,500, along with an additional fee to be determined based on every PKR 100,000, or part thereof, of nominal share capital. The additional fee is PKR 500 for the first PKR 100,000 up to PKR 5,000,000 and PKR 250 after the first PKR 5,000,000. In any case, the total company registration fee must not exceed PKR 10 million.

Step 5.
Make a company seal
Time to complete:
2 days
Cost to complete:
PKR 1000

The company seal is prepared after the certificate of incorporation is obtained. It is affixed on significant documents according to the provisions of the articles of association.

Step6.
Apply for a national tax number (NTN) and register for income tax.
Time to complete:
2 days
Cost to complete:
no charge

Companies can check the status of their national tax number (NTN) within 24 hours of application. Since 2002, NTN are issued with a continuous valid term. Companies no longer need to renew their NTN. Income tax is paid on filing the return, which is due in 6 months from the end of the company’s financial year (usually in June). In addition, the Income Tax Department charges a fee of 2.5% for the workers welfare fund at the time of its income tax assessment. The company is also supposed to act as a tax withholding agent for the state and deduct and deposit tax on most payments made in connection with its business activities. For this purposes, the company must file monthly returns with the tax authorities. Every company must obtain the NTN by providing proof of registration, the memorandum and articles of association, the bank account number, the NTN of its directors, and an attestation of the registered business address. All required documents must be submitted to a station by a Class-I of Gazette Officer or an officer of a bank. A company can start its business activities without first obtaining the NTN, but the number is generally required by all the registering authorities: Chambers of Commerce, the Import-Export Regulatory Authority, the utility authority, and the like. The NTN branch (centralized for the entire country) at Islamabad allots a uniform number. The required form, along with the duly-verified documents must be submitted to the same NTN Center after the company is incorporated. The center quickly processes the application and issues the NTN in a week. The certificate is sent to the applicant’s registered address. If it is not delivered at the postal address, it can be obtained from the NTN center over the phone, and its status is communicated instantly. If undelivered, the NTN certificate can be collected from the specified office of the Central Board of Revenue (distinct from the NTN Center).

Step 7.
Register for sales tax
Time to complete:
12 days
Cost to complete:
no charge

The Central Board of Revenue (CBR) has simplified the registration process for sales tax by providing two methods to file Form ST-1: 1) Complete Form ST-1 and file it by courier with the registration wing of the Sales Tax Directorate. Application forms may be downloaded at http://www.cbr.gov.pk. 2) Complete Form ST-1 at a local registration office. The form is available at all facilitation counters of local registration offices. To ensure that applicants can monitor the process, applications must be sent by mail with acknowledgment of return receipt due. The same procedure must be followed for deregistration (Form ST-3) and for change of registration (Form ST-2). The local registration office sends the completed application forms to the Central Registration Office in the CBR. Note that the forms must be completed in capital letters with black ink. In either case, there is no need to enclose additional documents with the application form. The Central Registration Office, with online access to the NTN database and the National Database and Registration Authority(NADRA) database, must verify the details the application with database. On verification, the Central Registration Office must generate and issue a registration certificate to the applicant. The system was designed so that it can correct minor mistakes automatically without bothering the taxpayers. Registration status may be checked online at www.cbr.gov.pk.

Step 8.
Register for the Professional Tax with the local tax authority
Time to complete:
7 days (simultaneous with the previous procedure)
Cost to complete:
no charge

In practice, taxpayers do not usually register for the tax voluntarily unless the tax authority prompts them to do so. Companies are not charged local taxes except for professional taxes. A manufacturer owning fixed assets might have to pay certain local levies on its fixed assets. There is no registration for the latter. Professional tax is an annual tax and is paid irrespective of paid up capital or turnover in smaller companies. The department generally obtains the list from the Registrar for the issuance of payment challans. Before a challan is issued, a pro forma notice is served to the company, asking for details used for the assessment. There are no registration fees for the professional tax, which is not deducted at the source but rather paid into the bank account of the concerned department after assessment and issuance of the challan.

Step 9.
Register with the Employee Social Security Institution
Time to complete:
11 days (simultaneous with the previous procedure)
Cost to complete:
no charge

Employment tax or social security registration is not mandatory but is subject to notification in the Official Gazette. The Social Security Institute (SSI) is managed by the provincial government and levies employers, whether incorporated or not, at 7% of wages, up to PKR 3,000 per month. According to the Workers’ Children (Education) Ordinance of 1972 if at any one time during a year an employer employs 10 or more employees, it must pay to the provincial government an education cess of PKR 100 per worker per year. The levy is used to provide free education for two children of every worker employed by the company.

Step 10.

Register for old age benefits with Employees Old-Age Benefits Institution (EOBI).
Time to complete:
11 days (simultaneous with the previous procedure)
Cost to complete:
no charge

The provisions of the Employees’ Old-Age Benefits Act, 1976, automatically apply to every industry or company in which 10 or more persons are employed by the employer, directly or through any other person, or were so employed on any day during the preceding 12 months. The act shall continue to apply to every such industry or company even if the number of persons employed by the company is, at any time after the act becomes applicable to it, reduced to fewer than 10. The per-month contribution was increased to PKR 240 for employers and PKR 40 for employees as of July 1, 2006, as announced by the government in Finance Act, 2006. This increase resulted from the increase in the minimum wage from PKR 3,000 to PKR 4,000.

Step 11.
Register with Pakistan Shops and Establishment Ordinance, 1969
Time to complete:
7 days (simultaneous with the previous procedure)
Cost to complete:
PKR 10

 

Registration of establishment and fee for registration: (1) Every establishment, other than a one man shop, and factories employing clerical staff within the factory premises, shall be registered with the Deputy Chief Inspector for the area within which such establishment is situated. For the purposes of this section, a one-man shop means a shop run by an employer or by any member of his family without engaging an employee. (2) An application for the registration of an establishment shall be made by the employer on Form A and shall be accompanied by a Treasury challan under Head [9][XXXVI-Miscellaneous Departments-G-Miscellaneous-(S)-Receipts under the West Pakistan Shops and Establishments Ordinance of1969] for an amount depending on the number of workers. – 1 to 5 workers: fee is PKR 2. – 6 to 10 workers: PKR 3 – 11 to 20 workers: PKR 5. – More than 20 workers: PKR 10. (3) An application for establishment registration shall be made within 3 months of the ordinance coming into force (for establishments existing at the time) and within 2 months of setting up the establishment or the application of the ordinance to it (if an establishment is set up after the ordinance comes into force or if the provisions of the ordinance are subsequently applied to it). (4) On receipt of the application and the fees specified in Subsection 2, the Deputy Chief Inspector shall, on being satisfied about the correctness of the application, register the establishment in the Register of Establishments to be maintained in Form B and shall issue a registration certificate to the employer in Form C. (5) The registration certificate shall be prominently displayed by the employer at the establishment and shall be renewed every 2 years on depositing the fee prescribed in Subsection 2.

By Yasser Latif Hamdani and Binish Zafar Razi

This opinion covers the benefits and legal requirements of establishing a charitable foundation. 

 

In general, a charity is an organization established for humanitarian purposes.  It may make a profit but all profits should be applied in furthering the charitable purpose of the organization.  The owners, members, trustees or other private persons who may control or influence the organization may not use the profit of the charitable organization for their personal gain.

 

  1. Benefits

 

The benefits of establishing and registering a charitable foundation/Non-Profit Organization under Pakistani law, are three fold:

 

(a)    Tax Exemption for all activities under Income Tax Ordinance 2001 and Income Tax Rules 2002.

(b)   Tax Exemption for the donors vis a vis donations made to such a foundation/NPO.
  

(c)    Some of the various laws that deal with the issue confer the status of artificial legal person to the organization and hence the assets owned by such an organization shall be held in perpetuity and recognition as a bona fide foundation.

 

These are in addition to the benefits gained from Corporate Social Responsibility (e.g. good public relations, competitive edge, good reputation, employee participation and retainership).

 

  1. Process and order

 

In order to gain all the benefits outlined in section 3 above, the setting up of the charitable foundation should be taken as a two-stage process.

 

First a charity/foundation is registered under any of the relevant laws detailed in section 5 below.  

 

Second the same charity/foundation applies on a separate application form for approval as a non profit organization and tax exemption under the relevant Income Tax laws detailed in section 6 below.

 

An erroneous assumption is that once a charitable foundation is registered, it is automatically registered with the CBR. This is wrong and requires careful consideration.

 

  1. Legal requirements/relevant laws

 

The various laws that deal with charitable foundations/non-profit organizations may be broadly classified into these categories:

 

Those that require registration and are relevant to us are as follows:

 

(a)    Companies Ordinance 1984 – In the purview of Section 42, the Ordinance allows a company to be incorporated for objectives such as Charity, Commerce, Sport, Religion, Education, Culture, Arts and any other socially useful purpose.

 

(b)   Trusts Act 1882 Public Charitable Trusts may be set up under this by executing a trust deed, registerable under Trust Act 1908.

 

(c)    Societies registration Act 1860 i.e. Societies, Associations, Clubs etc are all registered under this. Fine Arts, Science, Museums, Libraries, educational endeavors, think tanks etc may all be registered under these.

 

(d)   Voluntary Social Welfare Organizations Ordinance 1961 covers the welfare of the disadvantaged members of society women, children, oppressed religious and ethnic minorities and other backward classes of people , delinquents, handicapped people, beggars, destitute and poor, senior citizens, socially handicapped people or for parents education, social welfare in general etc.

 

Others that – mostly irrelevant to our particular situation- recognize certain kinds of

 

(e)    Charitable and Religious Trusts Act 1920

(f)    Musalman Wakf  Act and the two  Musalman Wakf Validating Acts 1923, 1913 and 1930 respectively

(g)   Charitable Endowments Act

 

Nonprofit Organizations in Pakistan may be registered or incorporated by adopting any one of four forms, namely, society, trust, nonprofit company with limited liability, and social welfare agencies.

 

A.    Societies Registration Act 1860

 

A society may be established under the Societies Registration Act, 1860, if seven or more persons join together of whom at least three must be the members of the Managing Committee.  To establish a society a Memorandum and Rules and Regulations of Association must be printed. These documents must contain clauses which not only state the objectives for which the society is being established, but also how it will operate. This is considered to be one of the more lenient Acts with respect to registration requirements and to accounting and audit regulations.

 

The Memorandum of Association must include the following:

 

  • The name and registered address of the society.
  • The names, addresses and occupation of each present member of the Managing Committee.
  • Rules and Regulations of the society or Articles of Association duly signed by all office bearers.
  • In the case of an educational society, the academic certificates of all the subscribers must be produced.
  • Copies of the National Identity Cards of the office bearers.
  • Rent agreement of the office premises.

 

In addition to the Memorandum of Association, the Rules and Regulations for governing the society must be set out and filed with the Registrar of Societies. The Rules and Regulations, certified by not less than 3 members of the Managing Committee, must contain obligatory clauses relating to:

 

  • Membership
  • General Body and Managing Committee
  • Meetings and quorum
  • Notices for meetings
  • The manner of elections and removal of officers
  • Procedures relating to accounting and audit
  • Dissolution

 

B.     Trusts Act 1882

 

A trust is a ‘gift’ of property to a person or institution providing benefit to both parties. In order to create a trust it is necessary that there should be a creator or author of the trust, a person in whom confidence is reposed, i.e. the trustee, and a person for whose benefit the trust is created i.e. the beneficiary. Beneficiaries cannot be specific individuals, but must be society generally or a particular section or class of society.

 

A trust is established under the Trusts Act, 1882. For this type of trust, the three conditions of a creator, trustee and beneficiary being present, are unconditional requirements. A public charitable trust is a trust which is established for the benefit of the society or at least a certain section of society. There are no particular laws relating to public trusts. However, the rules in the Trust Act of 1882 can be applied to the public and charitable trusts. In the case of public charitable trusts, the conditions governing private trusts are equally important. However, if the objectives are not clear, unlike the private trusts, these trusts would be sustained as long as there is an intention of charity.

 

  • There must be some trust property, whether in cash or capital assets (land or buildings)
  • The objectives of the trust must be charitable or for the benefit of society

 

The application for the registration of trust requires the following:

 

  • Particulars of documents creating the trust.
  • Particulars of the trustees and the beneficiaries.
  • Details of what the trust property is going to be. There is no minimum value of property for starting a trust. If the property is an immovable property then the transfer deed shall be on a stamp paper on the value of the property and it shall be registered.
  • Preparation of the trust deed, that is, i.e. declaration of having created a public charitable trust.

 

C.    Companies Ordinance 1984

 

A nonprofit company is registered under Section 42 of the Companies Ordinance, 1984 as a public company with limited liability provided it meets the following criteria:

 

  • It directs, or it intends to direct its profits, if any, or any other form of income from the business carried out, in advancing its objectives.
  • It disallows the payment of any return to its members.

 

Registration is done through the SECP.

 

5.      Approval of a Non-Profit Organisation

 

This section examines the income tax benefits of setting up a non-profit organisation.  The references to the “Ordinance” and the “Rules” in this section shall mean the Income Tax Ordinance 2001 and the Income Tax Rules 2002 respectively.

 

The definition of “non-profit organization” is contained in Clause 36 of Section 2 of the Ordinance:

 

“2(36) “non profit organization” means any person

 

a) established for religious, charitable or educational purposes or for the promotion of amateur sport;

b) which is registered under any law as a nonprofit organization and in respect of which the Commissioner has issued a ruling certifying that the person is a nonprofit organization for the purposes of this Ordinance; and

c) none of the income or assets of the person confers, or may confer a private benefit on any other person.”

 

A.    Tax Benefits

 

Charities approved by the Commissioner of Income Tax are exempt from the levy of minimum tax of 0.50% of their turnover.

 

Charitable donations, both in cash or in kind, entitle the donor to a tax credit (tax rebate) against its tax liability (subject to certain conditions).

 

The following heads of income are exempt from tax for any trust or charitable organisation established under any legal obligation (e.g. Muslim Waqf, Societies Registration Act 1860, Charitable Endowments Act 1890, the Social Welfare Agencies (Registration and Control) Ordinance 1961 or the Companies Ordinance 1984).  The exemptions are applicable to the extent the monies are actually applied or set apart for application to the religious or charitable purposes of such organisation in Pakistan:

 

(a)        Voluntary contributions including donations and subscriptions.

 

(b)        Grants received from Federal, Provincial or District Governments.

 

(c)        Foreign grants.

 

(d)       Income from property.

 

(e)        Profits on investments in the securities of the Federal Government.

 

(f)        Profit on debt from scheduled banks.

 

B.     Registration as a Non-Profit Organisation

 

In order to get approval from the Commissioner of Income Tax pursuant to the Ordinance an application must be made in the prescribed form (detailed in Rule 211) and the application form must be signed by the President or Secretary of the organisation.

 

The documents required to be submitted along with the application form are as follows:

 

(a)        a duly attested copy of the constitution, memorandum and articles of association, rules and regulations or bye-laws;

 

(b)        a certified copy of the registered trust deed, in case of a Trust;

 

(c)        a certified copy of certificate of registration of welfare organisation;

 

(d)       duly attested copies of the balance sheet and of revenue accounts of the organisation as audited by a qualified accountant for the year immediately preceding the year in which the application is made;

 

(e)        the names and addresses of the promoters, directors, trustees, president, secretary, treasurer, manager and other office bearers, as the case may be, of the organisation, and indicating clearly their family relationships, if any, with each other;

 

 (f)       an evaluated and certified report with regard to the performance of the organisation for achieving its aims and objects during the preceding financial year preceding the date on which application is made.  This can be done by the Philanthropy Centre of Pakistan or the concerned Commissioner of Income Tax.

 

In addition, the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, must conform(s) to the provisions of sub-rule (1) of rule 213. This requires the following:

 

(a)        for the audit of the annual accounts of the organisation every year by a qualified accountant;

 

(b)        for welfare organisations other than Trusts for the quorum of a meeting of the members of the body to be not less than four or one-third of the total number of the members of such body, whichever is greater;

 

(c)        where the organisation is a Trust as defined in the Trust Act, 1882, for the quorum of a meeting of the members to be not less than three or one-third of the total number of the members of such a body, whichever is greater;

 

(d)       for the transfer of its assets, in the event of its dissolution, after meeting all liabilities, if any, to another organisation which is an approved non-profit organisation, within three months of the dissolution under intimation to the Commissioner;

 

(e)        for the utilisation of its money, property or income or any part thereof solely for promoting its objects;

 

(f)        for prohibiting any portion of its money, property or income being paid or transferred directly by way of dividend, bonus or profit to any of its members or the relative or relatives of a member or members;

 

(g)        for the maintenance of accounts of the organisation being kept in a scheduled bank or in a post office or national savings organisation, National Bank of Pakistan or nationalised commercial banks;

 

(h)        for prohibiting the making of any changes in the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, without the prior approval of the Commissioner; and

 

(i)         for restricting the surpluses or monies validly set apart, excluding restricted funds, upto twenty-five per cent of the total income of the year:

 

Provided that such surpluses or monies set apart are invested in Government securities, NIT units, a collective investment scheme authorized or registered under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, mutual fund, a real estate investment trust approved and authorized under the Real Estate Investment Trust Rules, 2006,   or scheduled banks:

 

Explanation: For the purposes of the Rules, “restricted funds” mean any fund received by the organization but could not be spent and treated as revenue during year due to any obligation placed by the donor.

 

On receipt of the application, the Commissioner may make such inquiries or call for such further information as the Commissioner may deem necessary and after completion of formalities may approve the organization for the purpose of clause (36) of section 2 of the Ordinance.

 

The Commissioner may refuse to approve the organisation if the Commissioner is satisfied that the organisation -

 

(a)        has been or is being used for personal gain of any particular person or a group of persons;

 

(b)        has been propagating the view of a particular political party or a religious sect;

 

(c)        has been or is being managed in a manner calculated to personally benefit its members or their families; or

 

(d)       has not been or will not be able to achieve its declared aims and objects in view of its set up, administration or otherwise as evaluated and certified by an independent certification agency.

 

The Commissioner of Income Tax will finalise applications within two months of receipt of the application.

 

C.    On-going obligations of Non-Profit Organisations

 

(a)                To file a Return of Income with specified attachments;

 

(b)               To collect, deduct, withhold tax at source;

 

(c)                After every three years to provide an evaluation and certified report on its performance and achieving its aims and objects during the three preceding financial years;

By Binish Razi,  LLB,  UK Solicitor

This section examines the income tax benefits of setting up a charitable foundation.  The references to the “Ordinance” and the “Rules” in this section shall mean the Income Tax Ordinance 2001 and the Income Tax Rules 2002 respectively.

 

Tax Benefits of a Non-Profit Organisation approved by the Commissioner of Income Tax

 

Charities approved by the Commissioner of Income Tax are exempt from the levy of minimum tax of 0.50% of their turnover.

 

Charitable donations, both in cash or in kind, entitle the donor to a tax credit (tax rebate) against its tax liability (subject to certain conditions).

 

The following heads of income are exempt from tax for any trust or charitable organisation established under any legal obligation (e.g. Muslim Waqf, Societies Registration Act 1860, Charitable Endowments Act 1890, the Social Welfare Agencies (Registration and Control) Ordinance 1961 or the Companies Ordinance 1984).  The exemptions are applicable to the extent the monies are actually applied or set apart for application to the religious or charitable purposes of such organisation in Pakistan:

 

(a)        Voluntary contributions including donations and subscriptions

(b)        Grants received from Federal, Provincial or District Governments

(c)        Foreign grants

(d)       Income from property

(e)        Profits on investments in the securities of the Federal Government

(f)        Profit on debt from scheduled banks

 

Registration as a Non-Profit Organisation

 

In order to get approval from the Commissioner of Income Tax pursuant to the Ordinance an application must be made in the prescribed form (detailed in Rule 211) and the application form must be signed by the President or Secretary of the organisation.

 

The documents required to be submitted along with the application form are as follows:

 

(a)        a duly attested copy of the constitution, memorandum and articles of association, rules and regulations or bye-laws;

 

(b)        a certified copy of the registered trust deed, in case of a Trust;

 

(c)        a certified copy of certificate of registration of welfare organisation;

 

(d)       duly attested copies of the balance sheet and of revenue accounts of the organisation as audited by a “qualified accountant” for the year immediately preceding the year in which the application is made;

 

(e)        the names and addresses of the promoters, directors, trustees, president, secretary, treasurer, manager and other office bearers, as the case may be, of the organisation, and indicating clearly their family relationships, if any, with each other;

 

 (f)       an evaluated and certified report with regard to the performance of the organisation for achieving its aims and objects during the preceding financial year preceding the date on which application is made.  This can be done by the Philanthropy Centre of Pakistan or the concerned Commissioner of Income Tax.

 

In addition, the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, must conform(s) to the provisions of sub-rule (1) of rule 213. This requires the following:

 

(a)        for the audit of the annual accounts of the organisation every year by a qualified accountant;

 

(b)        for welfare organisations other than Trusts for the quorum of a meeting of the members of the body to be not less than four or one-third of the total number of the members of such body, whichever is greater;

 

(c)        where the organisation is a Trust as defined in the Trust Act, 1882 (II of 1882), for the quorum of a meeting of the members to be not less than three or one-third of the total number of the members of such a body, whichever is greater;

 

(d)       for the transfer of its assets, in the event of its dissolution, after meeting all liabilities, if any, to another organisation which is an approved non-profit organisation, within three months of the dissolution under intimation to the Commissioner;

 

(e)        for the utilisation of its money, property or income or any part thereof solely for promoting its objects;

 

(f)        for prohibiting any portion of its money, property or income being paid or transferred directly by way of dividend, bonus or profit to any of its members or the relative or relatives of a member or members;

 

(g)        for the maintenance of accounts of the organisation being kept in a scheduled bank or in a post office or national savings organisation, National Bank of Pakistan or nationalised commercial banks;

 

(h)        for prohibiting the making of any changes in the constitution, memorandum and articles of association, trust deed, rules and regulations or bye-laws, as the case may be, without the prior approval of the Commissioner; and

 

(i)          for restricting the surpluses or monies validly set apart, excluding restricted funds, upto twenty-five per cent of the total income of the year:

 

Provided that such surpluses or monies set apart are invested in Government securities, NIT units, a collective investment scheme authorized or registered under the Non-Banking Finance Companies (Establishment and Regulation) Rules, 2003, mutual fund, a real estate investment trust approved and authorized under the Real Estate Investment Trust Rules, 2006,   or scheduled banks:

 

Explanation: For the purpose of this rule, “restricted funds” mean any fund received by the organization but could not be spent and treated  as revenue during year due to any obligation placed by the donor.

 

On receipt of the application, the Commissioner may make such inquiries or call for such further information as the Commissioner may deem necessary and after completion of formalities may approve the organization for the purpose of clause (36) of section 2 of the Ordinance.

 

The Commissioner may refuse to approve the organisation if the Commissioner is satisfied that the organisation -

 

(a)        has been or is being used for personal gain of any particular person or a group of persons;

 

(b)        has been propagating the view of a particular political party or a religious sect;

 

(c)        has been or is being managed in a manner calculated to personally benefit its members or their families; or

 

(d)       has not been or will not be able to achieve its declared aims and objects in view of its set up, administration or otherwise as evaluated and certified by an independent certification agency.

 

The Commissioner of Income Tax will finalise applications within two months of receipt of the application.

 

On-going obligations of Non-Profit Organisations

 

(a)    To file a Return of Income with specified attachments;

 

(b)   To collect, deduct, withhold tax at source;

 

(c)    After every three years to provide an evaluation and certified report on its performance and achieving its aims and objects during the three preceding financial years.

By Muhammad Kamran Sharif LLB (Punjab) LLM (London)

1. INTELECTUAL PROPERTY
Intellectual Property laws include the copyright laws, patent laws and trademark laws. Intellectual Property is often the most valuable and least protected asset of many businesses and creative individuals. This area of law protects the work of creative individuals and businesses and protects such creation from unauthorized use or exploitation by third parties. By utilizing Intellectual Property laws, creators and innovators can fully protect and benefit from their creations.
Pakistan is a signatory to the Marrakesh Agreement, signed in Marrakech, Morocco, on April 15, 1994, established the World Trade Organization, which came into being upon its entry into force on January 1, 1995 (the “WTO”). The WTO aims to increase international trade by promoting lower trade barriers and providing a platform for the negotiation of trade and to their business. Under the provisions of this agreement all states which subscribe to WTO become bound to a mutual recognition of intellectual property rights at a higher level of protection that the older conventions could offer. However, amendments have now been made in the Pakistani intellectual property laws, to accommodate the new WTO provisions.
I. COPYRIGHT REGIME

Pakistan is a signatory to the Berne Convention for the Protection of Literary and Artistic Work of 1886, came into force on December 5, 1887 (the “Berne Convention”), to the Universal Copyright Convention of 1952, came into force on September 16, 1955 (the “UCC Convention”) and to the Agreement on Trade Related Aspects of Intellectual Property Rights, came into force on January 1, 1995 (the “TRIPs”). The Berne Convention’s basic requirement is that each member state must follow the principle of national treatment where, in case, the country of origin of a work is a Berne state, other members must accord to the work of the same treatment as they offer to their own national.
The TRIPs is an international treaty administered by the World Trade Organization (the “WTO”) which sets down minimum standards for most forms of intellectual property (the “IP”) regulation within all member countries of the WTO. It was negotiated at the end of the Uruguay Round of the General Agreement on Tariffs and Trade (the “GATT”) treaty in 1994.
Specifically, TRIPs deals with: copyright and related rights, such as rights of performers, producers of sound recordings and broadcasting organizations; geographical indications, including appellations of origin; industrial designs; integrated circuit layout-designs; patents, including the protection of new varieties of plants; trademarks; trade dress; and undisclosed or confidential information, including trade secrets and test data. TRIPs also specify enforcement procedures, remedies, and dispute resolution procedures.

1. DEFINITIONS

Immense endeavors have been taken to bring the copyright laws of Pakistan inconformity with these conventions in order to protect the literary and artistic work. The definition of “literary work”, inter alia, now includes:
“compilations and computer programmes, that is to say programmes recorded on any disc, tape, perforted media or other information storage device, which, if fed into or located in a computer or computer-based equipment is capable of reproducing any information.”
“Audio-visual work” is defined as:
“a work which consists of a series of related images which are intrinsically intended to be shown by the use of a machine or device, such as a project, viewer or electronic equipment, together with accompanying sound, if any, regardless of the nature of the material object, such as film or tape, in which the work is embodied.”
2. TERM

The copyright shall subsist in any literary, dramatic, musical or artistic work (other than a photograph) published within the life time of the author until fifty years from the beginning of the calendar year next following the year in which the author dies.
3. ASSIGNABILITY OF COPYRIGHT
The owner of the copyright in an existing work or the prospective owner of the copyright in a future work, subject to provisions of law, may assign to any person the copyright either wholly or partially and either generally of subject to limitations and either for the whole term of the copyright or any part thereof by reducing such assignment into writing and by duly signing it.

4. INTERNATIONAL COPYRIGHTS

The Federal Government by notification in the official gazette direct that all or any of the provision of the Pakistani Copyright Ordinance shall apply to works first published in a foreign country to which the order relates in like manner as if they were first published within Pakistan provided that reciprocal arrangements exist which entitle protection to works protected under the Copyrights Ordinance in the foreign jurisdiction.
5. INFRINGEMENT: CIVIL PENALTIES

Owner of the exclusive licensee of copyright, shall in case of an infringement, be entitled to all such remedies by way of injunction, damages, accounts and otherwise as are conferred by law for the infringement of a right. However, if the defendant could prove that he was not aware of the subsistence of copyright in a work the owner may be entitled to only an injunction and a decree for the whole or part of the profits made by the defendant by the sale of the infringing copies.
Where copyright in any work has been infringed and the owner of the copyright is unable to institute immediate regular legal proceedings for sufficient cause, the owner, may apply to the Court for immediate provisional orders to prevent infringement of the copyrights in such work and for preservation any evidence relating to such infringement in spite of the fact that regular proceedings in the form of a suit or other Civil proceedings have not yet been initiated by the owner.
6. INFRINGEMENT: CRIMINAL PENALTIES
The act of infringement of copyright has been made a cognizable and non-bailable criminal offence tri-able by a first class magistrate where under any person who knowingly infringes or abets the infringement of the copyright in a work shall be punished with imprisonment or with fine or both as provided under the copyright laws.

II. PATENT REGIME

Pakistan as a member of WTO and signatory to the Agreement on Trade Related Aspects of Intellectual Property Rights (the “TRIPs”) undertook to amend its patent law in conformity with TRIPs. However, it is important to mention here that Pakistan has signed the Paris Convention for the Protection of Industrial Property (the “Paris Convention”) on July 22nd, 2004.
On December 2, 2000 the President of Pakistan promulgated the Patents Ordnance, 2000 (the “Ordinance”). Immense endeavors have been taken to bring the Ordinance in conformity with the requirements of TRIP’s and Paris Conventions, as well as, it corresponds to the regime of new patent laws promulgated around the globe. The Ordinance repealed the Patent and Design Act, 1911 (II of 1911).
1. DEFINITION

The Ordinance defines invention as “any new and useful product, including chemical products, art, process, method or manner of manufacture, machine, apparatus or other article; substance or article or product produced by manufacture and includes any new and useful improvement of any of them and an alleged invention”.

Process is defied as “any art, process or method of new manufacture of a product and includes a new use of a known process or a product”. Similarly, product is defined to include “any substance, article, apparatus, machine or a chemical product”.
Published means “made available to the public whether in Pakistan or elsewhere and a document shall be taken to be published under any provision of this Ordinance, if it can be inspected as of right at any place in Pakistan by members of public, whether on payment or free of cost.”
2. PATENTABLE INVENTIONS
To qualify grant of patent, the Ordinance requires an invention to be new (state of the art), involving an inventive step, and be capable of industrial application. The Ordinance provides that “an invention shall be considered to be new if it does not form part of the state of art”.
State of art is defined to include
(a) everything disclosed to the public anywhere in the world, by publication in tangible form or by oral disclosure, by use or in any other way, prior to the filing or, where appropriate, the priority date, of the application claiming the invention, or
(b) contents of complete specification and priority documents published under the Ordinance.
(c) traditionally developed or existing knowledge available or in possession of a local or indigenous community.
Inventive step is defined with its traditional meaning of non-obviousness to a person skilled in the art. Industrial application is defined to include capability of the invention to be used in any kind of industry. The Ordinance emphasizes that “the industry shall be understood in its broadest sense”. The Ordinance clarifies that “a product consisting of a substance or composition shall not be prevented from being treated as capable of industrial application merely because it was invented for use in such a method”.
Though under the Ordinance, patents are not to be granted for “animals or plants other than micro-organisms and essentially biological process for the production of animals or plants”, however, the Ordinance clarifies that this probation shall not apply to “micro-biological processes or products of such processes”.
3. APPLICATION FOR A PATENT
The Ordinance requires every application for the patent to be on the prescribed form and shall be filed at the Patent Office in the prescribed manner and shall contain a declaration to the effect that the applicant is in possession of an invention of which he, or in the case of joint application, at least one of the applicants, claims to be the true and the first inventor of or the legal representative or assignee of such inventor. The Ordinance requires each application to be in respect of one invention only or to be in respect of a group of inventions so linked as to form a single inventive concept. Complete or provisional specifications are required to accompany the application. Every complete specification is required:-
(a) to fully and particularly describe the invention and the method by which it is to be performed;
(b) disclose the invention; and
(c) end with a claim or claims defining the scope of the invention for which protection is claimed.

The claim or claims of a complete specification are required to relate to a single invention, to be succinct and to be fairly based on the matter disclosed in the specification. An abstract is also required to be furnished.
The Ordinance requires each application to be accepted or refused in eighteen months (or twenty-one months, in case an application for extension of time is filed) from the date of the filing. Once accepted, each application will be open for opposition within four months from the date of its publication in the official Gazette.
Additional information and documents relating to foreign applications:
The Ordinance empowers the Controller to require foreign applicants to furnish date and number of any application for patent filed by the foreign applicant abroad relating to the same or essentially the same invention as that claimed in the application filed in Pakistan. The applicant, when required by the Controller, is required to furnish with the following documents relating to foreign application(s):-
(a) a copy of any communication received by the applicant concerning the results of any search or examination carried out in respect of the foreign application(s);
(b) a copy of the patent granted on the basis of the foreign application(s); and
(c) a copy of any final decision rejecting the foreign application(s).

4. TERM OF PATENT

The term of Patent under the Ordinance shall be twenty years from the filing dated. Under the previous law, the term of patent was sixteen years.
5. RIGHTS CONFERRED BY PATENT

Under the Ordinance, the holder of a valid patent in Pakistan shall have the right to prevent the third parties, not having owner’s consent, from the acts of making, using, offering for sale, seling, or importing and having the right to assign, or transfer by succession, the patent and to conclude licensing contracts.
In addition to any other rights, remedies or action available to him under the Ordinance, the owner of the patent shall have the right to institute Court proceedings against any person who infringes the patent.
6. RELIEF IN SUIT FOR INFRINGEMENT

The Ordinance empowers the Court to grant relief in any suit for infringement of patent, which includes granting relief by way of damages, injunctions or accounts provided that where permitted. The court is also empowered to order prompt and effective provisional measures.
7. INTERNATIONAL ARRANGEMENTS

Under the Ordinance, the Federal Government has the powers to declare a country to be a convention country, with a view to fulfill the requirements of a treaty, convention or arrangement between Pakistan and any other country, in addition to the members of the WTO, for the purposes of the Ordinance or any provisions thereof.
The Ordinance requires that in case a convention application is made under the Ordinance, the applicant shall furnish, in addition to the complete specifications, copies of the specification or corresponding documents filed or deposited by the applicant in the patent office of the convention country in which the relevant application was made, certified by the official chief or head of the patent relevant application was made, certified by the official chief or head of the patent office of the convention country, or other wise verified to the satisfaction of the controller, along with the application or within three months thereafter, or within such further period as the controller may on good cause allow. It further prescribes that if any such specification or other documents in a foreign language, a translation into English of the specification or document, verified by affidavit or otherwise to the satisfaction of the controller, shall be annexed to the document or specification.
8. PENALTIES

Chapter XIX of the Ordinance deals with penalties. If any applicant/person contravene the provisions relating to certain inventions, or make a false entry in any register kept under the Ordinance, or make false representation, or wrongfully use the word “patent office”, or refused or failed to supply information required under the Ordinance, or deceitfully represent himself as registered patent agent such applicant/person shall be punished with imprisonment or fine or both according to the provision of the Ordinance.
III. TRADEMARK REGIME
The much-awaited trademark law was enforced in Pakistan on April 13, 2001. It is called The Trade Mark Ordinance, 2001 (the “Ordinance”). The new law has brought numerous reforms which are intended to comply with Pakistan’s obligation as a World Trade Organization (the “WTO”) member. The new law embodies new trends and concepts in Pakistan Trademark Law which were not there in the earlier Act of 1940. The Ordinance includes provisions which are likely to extend the scope of protection, and simplify enforcement and registration procedure.
1. DEFINITION
The definition of “mark” under the new law has been broadened, which includes:-
“in particular, a device, brand, heading label, ticket, name including personal name, signature, word, letter, numeral, figurative element, colour, sound or any combination thereof”.
“Trade Mark” means
“any mark capable of being represented graphically which is capable of distinguishing goods or services of one undertaking from those of other undertakings”

2. APPLICATION FOR REGISTRATION OF TRADE MARK
Under the Ordinance, it is possible to file service mark applications; thus, making it easier for brand owners in service industry to seek statutory protection. An application for registration of trade mark is to be made to the Registrar in the manners prescribed by the Ordinance. Provisions have also been made for filing collective marks and certification marks and for registration of a domain name as a trade mark.
3. TERM OF TRADE MARK

The Ordinance provides that a trade mark shall be registered for a period of ten years from the date of registration.
4. RENEWAL OF TRADE MARK

A proprietor of a trade mark may request for the renewal of a trade mark to the Registrar in the manners prescribed by the Ordinance. The registration may be renewed for a further period of ten years. Renewal shall take effect from the expiry of the previous registration. The renewal of the registration of a trade mark shall be published in the Journal governed under the authority, conferred by the Ordinance, of the Registrar.
5. RIGHTS CONFERRED BY REGISTRATION
Registration of a trade make, by following the manners prescribed under the Ordinance, shall entitle the proprietor of the trade mark for its ownership being personal property. The proprietor of a registered trade mark shall have exclusive rights in the trade mark. The infringement of the registered trade mark shall entitled its proprietor without prejudice to the rights to obtain any relief, by way of damages, injunctions, accounts or otherwise as is available in respect of the infringement of any other property right, under any law for the time being in force, the proprietor shall also have the right to obtain relief under the Ordinance if the trade mark is infringed.
6. RIGHT TO PRIORITY ON THE BASIS OF CONVENTION APPLICATION

It is now possible to file convention priority applications in Pakistan. Also, six months priority is available to any person who exhibits his goods at an officially recognized exhibition. Convention application means an application duly made by a person for registration of a trade mark in one or more than one convention country. A convention country means a country other than Pakistan which is a party to the Paris Convention for the Protection of Industrial Property, come into force on March 20, 1883 (the “Paris Convention”).
7. PROTECTION OF WELL KNOWN TRADE MARK

The Ordinance has recognized the theory of dilution of well-known marks and statutory protection for well-known marks. In determining whether a trademark is well- known mark, the law provides that use and reputation has to be examined in global context without insisting on use of a mark in Pakistan. The provisions of the Ordinance which contains protection of well known marks clarifies that criteria laid down under the Paris Convention for determining whether a mark is a well known mark shall apply.
8. ASSISTANCE OF CUSTOM AUTHORITIES

New rights have been introduced enabling IP holders to seek custom authorities assistance to stop infringing and/or counterfeit goods from entering Pakistan has been introduced. However, such a remedy is only available to IP holders, who have registered their mark in Pakistan.

The definition of infringement has been broadened to cover use of a mark:
i. for same or similar goods or services;
ii. as a trade name;
iii. as a domain name.
iv. on “signboards”, “advertisements”, “business documents”

The Ordinance gives specific power to the Court to order erasure of offending marks, delivery-up of goods and/or destruction of goods in case of infringement.
The Ordinance is a comprehensive legislation and is likely to attract foreign brand owners to invest in Pakistan. However, in order for the law to be effective the enforcement authorities and judiciary will need to fully embrace these changes. The Trade Marks Office will also need more resources and training to deal with the expected increase in filing.

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