Chapter 3 Flashcards
1.1 Director Definition
General Definition: A director is any individual who occupies the position of a director in a company, regardless of the title or designation used.
Natural Persons Only: Only natural persons can serve as directors.
Collective Action: Directors must act collectively or by majority. Each director has a single vote in board meetings.
No Variable Representatives: Directors cannot delegate their responsibilities or claim relief from their duties in any specific area of business.
1.2 Fiduciary Relationship
Agency Role: Directors act as agents of the company, meaning they are entrusted with making decisions in the company’s best interest.
Duty of Care: Directors must be vigilant and diligent in their duties, avoiding negligence.
1.3 Minimum Number of Directors
Single Member Company (SMC): At least 1 director.
Other Private Companies: At least 2 directors.
Public Companies (Unlisted): At least 3 directors.
Public Companies (Listed): At least 7 directors.
- Ineligibility of Certain Persons
2.1 General Ineligibilities
Minor: Individuals under the age of majority.
Unsound Mind: Persons declared mentally incapacitated.
Pending Insolvency: Individuals who have applied to be declared insolvent but whose application is still pending.
Undischarged Insolvent: Persons who have not been discharged from insolvency.
Moral Turpitude: Persons convicted of crimes involving moral turpitude (e.g., murder, kidnapping).
Debarred: Individuals barred from holding office under the Companies Act or other provisions.
Fiduciary Breach: Persons who have demonstrated lack of fiduciary behavior within the preceding 5 years.
NTN Requirement: Individuals who do not hold a National Tax Number (NTN) as per the Income Tax Ordinance 2001 (SECP may grant exemptions).
Membership Requirement:
Must be a member unless representing a non-natural person member.
Whole-time directors who are company employees.
Chief Executives.
Individuals representing creditors or special interests
1.4 Consent to Act as Director
Written Consent: No person can be appointed or elected as a director or chief executive without filing written consent.
Filing with Registrar: The company must file this consent with the registrar within 15 days of appointment or election.
Penalty for Non-Compliance: Failure to file written consent may result in fines or penalties as prescribed by the relevant regulations.
3.5 Nominee Directors
Creditors: Creditors may nominate directors if empowered by an agreement.
Governments/Investor Companies: Federal, provincial governments, and investor companies can nominate directors for their representation. Such individuals count towards the minimum number of directors.
3.1 First Directors
Appointment: Names and numbers of first directors are determined by the subscribers at incorporation.
Retirement: First directors must retire at the first Annual General Meeting (AGM). Additional directors can be appointed in the general meeting.
2.2 Additional Ineligibilities for Listed Companies
2.2 Additional Ineligibilities for Listed Companies
Defaulter in Loan Repayment: Declared defaulter in repaying loans to financial institutions.
Brokerage Engagement: Engaged in brokerage business or related by family to such persons.
Election Process:
(directors)
Pre-AGM Procedure: Directors must fix the number of elected directors at least 35 days before the general meeting where elections are held.
Notice Requirements: The notice of the meeting must state the number of directors to be elected and the names of retiring directors.
Nomination: Candidates must file a notice of intention to contest at least 14 days before the meeting. Notices must be shared with members at least 7 days before the meeting. For listed companies, notice must also be published in Urdu and English newspapers.
Unopposed Elections: If the number of candidates equals or is fewer than the number of positions, they are elected unopposed.
Voting: For companies with share capital, votes are calculated as the number of voting shares or securities multiplied by the number of seats. Members can allocate their votes to one or more candidates.
3.7 Casual Vacancy
Filling Vacancies: Casual vacancies must be filled by remaining directors. For listed companies, this must be done within 90 days. For other companies, there’s no mandatory time limit unless the number of directors falls below the minimum.
Penalty for Non-Compliance: Failure to fill vacancies within the stipulated time may result in fines or other penalties.
3.4 Duty of Retired Directors
Action Required: Continuing directors must hold elections immediately or report any impediments to the registrar within 45 days before the due date of the AGM or EGM.
AGM/EGM Timing: The meeting must not be delayed more than 90 days from the due date, or longer if permitted by the registrar.
Penalty for Non-Compliance: Failure to hold elections or report impediments in time may result in fines or other penalties.
3.3 Invalid Elections
Court Declaration: Elections can be declared invalid by the court if there has been a material irregularity. This can be challenged within 30 days of the election date.
Penalty: Non-compliance with election procedures may result in invalidation of the election and potential legal penalties.
3.6 Fresh Election on Request of Substantial Acquirer
Fresh Elections: An acquirer of sufficient shareholding can demand a fresh election of directors. The board must hold the election within 30 days.
Penalty for Non-Compliance: Failure to hold the fresh election within the stipulated time may lead to legal action and penalties.
3.8 Independent Directors
Definition: Independent directors are those not connected or having any relationship with the company or its affiliates, and who can make independent judgments.
Ineligibility Conditions:
Previous employment with the company or its affiliates within 3 years.
Material business relationship with the company.
Significant remuneration or stock options outside of director’s fees.
Close familial relationships with company insiders.
Significant cross-directorships or service exceeding specified terms.
Penalty for Non-Compliance: Non-compliance with the independent director criteria may result in the director being disqualified or removed from office.
