Restructuring of Partnership into Private Company

[kamranACA]

Dear Star

Thank you for raising this point. I wrote the above post in probably 2 minutes and did not check the exact wording of Companies (Issue of Capital) Rules, 1996. However, now I must answer the point raised by you so that no one is left with misdirection due to this difference of opinion you posted.

For issuance of shares against consideration other than cash the rules prescribe conditions (as you have mentioned). However, these all conditions strictly pertain to revaluation of assets and nothing else. I again say there is no other condition but to have the assets revalued. Let me post below these 4 conditions by mentioning exact wording of rule 8.

QUOTE

A company may issue shares for consideration otherwise than in cash subject to the following conditions, namely;--

(i) The value of assets shall be determined by a consulting engineer registered with Pakistan Engineering Council and borne on the panel of at least two financial institutions as a 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; and

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

UNQUOTE

Let me discuss it to elaborate what I said and why I said.

There are in total 4 conditions out of which the first 3 (i to iii) strictly pertain to the scope of the work to be undertaken by the Independent Valuer.

The condition (iv) states that a practicing CA (a firm) has to certify that the condition from (i) to (iii) have been fulfilled. This means practicing CA has to certify that-

- the value of assets has been determined by consulting engineer (the independent valuers);

- the consulting engineer was registered with Pakistan Engineering Council current to the date of his appointment and valuation;

- The consulting engineer was borne on the panel of at least two financial institutions as a Valuer;

- The Valuer has reduced his valuation of assets (being taken over) by depreciation charged on consistent basis. (Rest assured this is Valuer’s work; if you doubt, please check such valuation reports issued for this specific purpose);

- The Valuer has excluded all intangible assets and goodwill etc from his valuation; (again rest assured this is for Valuer’s attention and not for any body else's).

So my brother, the certificate of practicing CA will cover nothing but

1. THE WHOLE SCENARIO OF VALUATION

This includes evidence of correct selection and appointment on the basis of conditions stipulated in rules (condition (i) of Rule 8).

2. THE VALUATION DETERMINED AND REPORTED BY VALUER

This means to certify that the Valuer has excluded all goodwill and intangible assets from his valuation and that he has taken into account depreciation charge on some consistent basis to reduce the gross value of assets determined by him. (Condition (ii) and (iii)

In my previous post I wrote

“For such revaluation independent valuer will be used whose report will also be required to be certified by a firm of CAs (Capital Issue Rules, 1996).”

I HOPE THERE WAS NOTHING WRONG IN WHAT I MENTIONED EARLIER. HOWEVER, IT WAS NOT TOO ELABORATED SINCE I MENTIONED CAPITAL ISSUE RULES, 1996 FOR REFERING TO ORIIGINAL TEXT. IF YOU FIND SOMETHING, PLEASE LET ME KNOW.


I am sorry for this lengthy post but it was necessary for providing the reasoning.

Regards,



Kamran.