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Company Law > Chapter 3 " Directors" > Flashcards

Chapter 3 " Directors" Flashcards

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1
Q

Who is a director ?

A

Director means a person appointed by members to manage all affairs of company.

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2
Q

What are the roles of director in a company?

A

1-ROLE AS FUDICIARY:
Directors must act in the best interests of the company and shareholders. Directors lack fiduciary behavior if he intentionally keeps the company and members at disadvantage.

2-ROLE AS AGENT:
Directors are agents of company, and act in accordance with articles of company.

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3
Q

What is the eligibility criteria of a director?

A

A director:

  • must be a natural person:
  • be a member (with certain exceptions)
  • meet additional criteria if specified by articles.
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4
Q

What is ineligibility / Disqualification criteria of directors?

A

Act has specified following persons cannot become a director:
1- a person who is not a member.
2- a body corporate / company.
3- a minor.
4- a person with unsound mind.
5- a person who does not hold national tax number.
6- a person who is undischarged insolvent or has applied to court to be declared as insolvent and his application is pending.
7- A person who has been convicted by a court for an offense involving immorality.
8- a person who lacks fiduciary behavior as declared by a court during last 5 years.
9- a person who is disqualified from holding office under any provisions of Act.
For listed companies following persons are also disqualified:
1- who has been declared defaulter of a financial institution by a court.
2- a person or his spouse is a broker or is an officer / director of a brokerage house.

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5
Q

What penalty imposed bankrupt acting as a director?

A

IF an undischarged insolvent acts as a chief executive or director, he shall be liable to imprisonment upto 2 years or fine or both.

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6
Q 
What are the minimum  numbers of directors under the Act in case of
1-Single member company
2-Private company(other than SMC)
3-Public company_unlisted
4-Public company_listed
5-maximum number of directors
A 
1- one
2- two
3- three
4- seven
5-Companies Act 2017 does not specified maximum number of directors. Articles  or directors may decide any number of directors to be appointed.
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7
Q

What is Tenure / appointment of directors?

A

-First directors shall be appointed by subscribers of memorandum, and they shall hold office till the election of directors in first AGM.
-Subsequent directors shall be elected by members at general meeting, and they shall hold office for three years, unless he earlier dies or is disqualified or resigns.
However company limited by guarantee not having share capital may reduce this period through its Articles.

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8
Q

When is filing casual vacancy of directors required?

A

Filing casual vacancy is required if:

  • company is limited company (to be filled within 90 days of occurrence) or,
  • remaining directors are less than minimum number required by Law/Articles.
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9
Q

What is the procedure for election of directors for a company having share capital?

A

1-FIXATION OF NUMBERS DIRECTORS TO BE ELECTED:
existing directors shall fix the numbers atleast 35 days before the general meeting.

2-SEND NOTICE OF MEETING:
shall be sent to members atleast 21 before meeting.

3-FILING OF INTENTION TO BECOME DIRECTOR:
shall file notice of intention in writing with company atleast 14 days before relevant general meeting

4-LIST OF CANDIDATED TO BE TRANSMITTED TO MEMBERS:
all notices of intention received shall be transmitted to members atleast 7 days before general meeting.

5-IF NUMBER OF DIRECTORS IS EQUAL OR LESS THEN NUMBER FIXED:
All directors shall remain elected unopposed without poll.

6-IF NUMBER OF CANDIDATED EXCEEDS NUMBER FIXED:

  • -poll shall be conducted
  • every member shall have voted equal to “No of shares * No of directors to be elected’
  • Candidate getting highest votes shall be declared as director, and then next candidate and so on until..
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10
Q

What is the procedure for election of directors for a company not having share capital?

A

Directors shall be elected by members in general meeting in the manner as provided in articles.

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11
Q

Discuss power/requirements of court to declare election of directors invalid?

A

Court may declare election of all directors or any one of them as invalid:

  • If members holding 10% or more voting powers.
  • apply to court within 30 days from date of election.
  • it is provided that there has been material irregularity in the holding of the election
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12
Q

Discuss power of substantial acquirer to hold fresh election of directors?

A
  • Required shareholding, he may apply to commission for fresh election.
  • Within 30 days of request, company shall proceed fresh election.
  • However number of directors fixed shall not be reduced.
  • Listed company shall follow procedures specified by commission.
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13
Q

Who are the directors other than elected directors?

A

Nominee directors

  • Nominee directors by Govt or body corporate
  • Nominee directors by creditors
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14
Q

When will director shall cease to hold office?

A

A director shall cease to hold office if:
1- after appointment, he becomes subject to any of ineligibility criteria specified by Act.
2- he absents himself from three consecutive board meetings without seeking leave of absence.
3- he or any firm in which he is a partner or any private company in which he is a director:
a) obtains loan or guarantee from the company without fulfilling conditions of the Act.
b) accepts office of profit without approval of members. However…..

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15
Q

Can directors remove other directors?

A

Directors do not have powers to remove other directors. A director can be removed only by passing resolution in general meeting.

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16
Q

What is the procedure to remove “director elected by member”?

A

Number of votes shall be calculated in the same manner as at the time of election.
An elected director will not be removed if number of votes against the resolution equals or exceeds least number of votes obtained by any elected director in last election.

17
Q

How to remove director appointed as first director, in casual vacancy or unopposed director?

A

An appointed director will not be removed if number of votes against the resolution equals or exceeds following number:
total no shares * No of directors appointed at AGM/No of director for long time being

18
Q

What are the duties of directors?

A

A director of a company shall:
1-act in accordance with the articles of a company.
2-act in the best interests of the company,
3-performhis duties with reasonable care, due diligence and shall exercise independent judgment.
4-disclose if he has interest in a contract with company.

A director of company shall not:
1-obtain undue gain for himself or his relative.
2-involve in conflict of interest with company.
3-assign his office to any other person. Any such assignment shall be void.

19
Q

What are the powers of directors which can be exercised without approval in GM?

A

1- Issue shares, debentures and to borrow money.
2- To make loans
3- To make investments.
4- To approve financial statements.
5- To declare interim dividend.
6- To approve bonus for employees.
7- To incur capital expenditure or any single item or dispose of a fixed asset.
8- To undertake obligations under leasing contracts.
9- To authorize a director of the company for entering into transactions with the company.
10- To write of material debtors, inventories advances and other assets.
11- To settle material litigations.
12- To take over a company or acquiring controlling stake in another company.
13- To appoint and remove chief executive.
14- To fill casual vacancy of director.

20
Q

What are the powers of board which can be exercised after obtaining approval in general meeting?

A

1- Sell or dispose a subsidiary of the company.
2- Sell, lease or otherwise dispose of the undertaking or a sizeable part of it, (e.g 25% or more value of assets in that class) unless it is the company’s business.
3- Remit, or give extension of time for repayment of debt against specified persons.

21
Q

What is the Quorum of board meeting?

A

Following is the minimum numbers for quorum:

LISTED COMPANY:
1/3rd of total number or 4 whichever is higher

OTHER COMPANIES:
AS per articles.

QUORUM TO FILL CASUAL VACANCY, IF THERE NOT ENOUGH DIRECTORS RO FORM A QUORUM:
All the remaining directors shall be quorum for this limited purpose.

22
Q

What is the frequency of board meeting?

A

Directors of public company are required to meet atleast once in each quarter of a year.

23
Q

How to pass a resolution without conducting meeting, and what is its validity?

A

A resolution can be passed through resolution without conducting meeting.
VALIDITY: A resolution through circulation approved by majority of directors/committee of directors, shall be as valid and effectual as if passed at board meeting duly held.

24
Q

Define rules of passing of resolution by directors through circulation?

A

Directors can pass a resolution through circulation, provided:

  • > Resolution shall be circulated to all directors alongwith necessary papers.
  • > Resolution shall be signed in writing by directors.
  • > Once approved, a director cannot revoke his agreement to such resolution.
  • > Such a resolution shall be noticed in the minutes of subsequent board meeting.
25
Q

To whom minutes of board meeting shall be sent and for how much time will it preserved?

A

A copy of minutes of board meeting shall be sent to every director within 14 days of meeting.
The minutes/records must be kept at registered office of the company in physical and electric form. It shall be preserved for at least ten years in physical form and permanently in electric form.

25
Q

To whom minutes of board meeting shall be sent and for how much time will it preserved?

A

A copy of minutes of board meeting shall be sent to every director within 14 days of meeting.
The minutes/records must be kept at registered office of the company in physical and electric form. It shall be preserved for at least ten years in physical form and permanently in electric form.

26
Q

Can company indemnify a director or other officer incase of negligence?

A

A company shall not indemnify a director or other officer in case of his negligence or non-compliance with law, and any such provision in articles or agreement shall be void.
However a company can indemnify them for defending themselves in a legal proceeding, in which they are proven innocent.

27
Q

Who is a non-executive director?

A

It means director who:
> is not in executive management team.
> is not involved in managing affairs of the company, and does not give his whole managing time to company.
> does not draw any remuneration from the company except the meeting fee.
> is not beneficial owner of the company or its associated company.
> is expected to give an outside viewpoint in decision making by board.
A non executive director may or may not be independent.

28
Q

Discuss the protection to non-executive director?

A

A non-executive director of a listed company or public sector company, shall not be liable for any act or omissions of company unless:

1) act or omission was done with his knowledge and consent, or
2) he did not act diligently.

29
Q

Who is an independent director?

A

Independent directors are those directors who do not have any relationship with management. An executive director can never be an independent director.

30
Q

watch the topic of independent directors in book.

A
31
Q

Explain Restrictions/ Procedure of loan giving to directors?

A

A company can give loan (or guarantee or security) to its director (or his spouse or minor child):

1) If loan has been approved by resolution of members, and
2) In case of listed company, approval of commission is also required before sanctioning of loan.

This restriction also applies to director of its holding company, However does not apply to financial institutions.

32
Q

Can a director assign his office to any other person?

A

A director cannot assign his office to any other person, and such assignments shall be void ab-initio.
However he can appoint alternate/ substitute director if:
> he will absent from pakistan for 90 days or more, and
> such appointment is approved by board of directors.

33
Q

Can a company distributes gifts to members and can contribute to any political party?

A

A company shall not:
> distribute any gifts to its members in its meeting.
> donate any amount to any political party or for any political purpose.

34
Q

Discuss the remuneration to directors for attending board meetings and performing extra services?

A

Remuneration for attending board meetings shall not exceed scale approved by the company or directors in accordance with provisions of the articles of company.
Remuneration for performing extra services, including the holding of office of chairman, shall be determined by board or company in general meeting, in accordance with provisions of articles of company.

35
Q

In how many listed companies a person can be a director?

A

A person can be appointed as director in maximum 5 listed companies. However this limit does not include directorship in a listed subsidiary.

36
Q

Discuss cash transactions with directors?

A

All cash transactions of company with directors shall be conducted through banking channel.

37
Q

Discuss the non cash transaction with Directors?

A

WITH DIRECTOR OF COMPANY:
A company can buy or sell assets from its directors or directors od associated company for consideration other than cash if:
1) prior approval of transaction has been obtained by a resolution in general meeting, and
2) notice of resolution includes particulars of arrangement alongwith valuation of asset involved in transaction by a registered valuer.

DIRECTORS OF HOLDING COMPANY:
If that person is also a director in holding company, approval of transaction by a resolution in general meeting of holding company is also required.

Company Law (5 decks)

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