Chapter 3 Directors Flashcards
Define Director
Director means a person appointed by members to manage all affairs of company. It can be any person occupying the position of director, by whatever name called.
Directors are collectively called “Board” or “Board of Directors (BOD)”
Study Tip‼️
The word “Director” in a Job Title does not mean that person is legally a director e.g. Finance Director, HR Director, IT Director, Marketing Director.
Role (or Relationship) of directors in a Company:
- Role as Fiduciary:
A fiduciary relationship is established when one party puts trust on other party. takes care of money for another person. Directors and companies have a fiduciary relationship. Directors must act in the best interests of the company and shareholders
A director lacks fiduciary behavior if he intentionally keeps the company and members at disadvantage (e.g. when a director makes profit from a contract with company and does not disclose personal interest).
- Role as Agent:
Directors are agents of company, and act in accordance with articles of the company
Eligibility Criteria of Directors
A director must:
1. be a natural person.
2. be a member (with certain exceptions).
3. meet additional criteria if specified in articles e.g. holding qualification shares, education and experience requirements in case of banking and insurance companies.
Exceptions to rule “director must be a member”
In following cases, a non-member can be a director:
- A whole-time director who is an employee of the company (also called executive director)
- A Chief Executive
- A person representing a member who is government or a body corporate.
- A person representing a creditor or other special interests through contractual arrangement
Ineligibility Criteria of Directors
Act has specified that following persons cannot become directors of any company:
- a body-corporate/Company.
- a minor.
- a person with unsound mind
- a person who does not hold national tax number (Commission may grant exemption in this case).
- a person who is undischarged insolvent or has applied to Court to be declared as insolvent (and his application is pending.)
- a person who has been convicted by a Court for an offence involving immorality.
- a person who lacks fiduciary behavior as declared by a Court during last 5 years.
- a person who is disqualified from holding office under any provisions of the Act.
‼️For listed companies, following persons are also disqualified;‼️
1. a person who has been declared defaulter of a financial institution by a Court.
- a person or his spouse is a broker or is an officer/director of a brokerage house.
(Broker means a person who is engaged in business of buying and selling securities for himself or on account of others)
Exam Tip ‼️‼️‼️‼️‼️‼️
- A company can be a subscriber/member of another company; however, a company cannot be a director of any other company.
. Criteria is to be met at time of appointment, as well as during tenure of directorship.
Penalty to a bankrupt acting as director‼️‼️‼️‼️
: If an undischarged insolvent acts as a chief executive or director, he shall be liable to imprisonment upto 2 years or fine or both.
What is the penalty to a bankrupt acting as a director
If an undischarged insolvent acts as a chief executive or director, he shall be liable to imprisonmer upto 2 years or fine or both
What are the minimum number of directors under the act
For companies (private SMC, private company, unlisted public company, public listed company)
- SMC PRIVATE =1
- PRIVATE COMPANY =2
- UNLISTED PUBLIC COMPANY =3
- LISTED PUBLIC COMPANY =4
Determine Maximum number of directors under the Act(for all companies)
Companies Act 2017 does not specify maximum number of directors. Articles or Directors may decide any number of directors to be appointed
Briefly describe the provisions of the Companies Act, 2017 relating to the
Appointment and Tenure of Directors:
1.First directors shall be appointed by subscribers of memorandum, and they shall hold office till the election of directors in first AGM. -
2.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, a company limited by guarantee not having share capital may reduce this period through its articles.)
(a) Briefly describe the provisions of the Companies Act, 2017 relating to the casual vacancy.
Casual Vacancy of Directors: (e.g. death, disqualification, resignation)
Casual vacancy is filled by directors, and person appointed shall hold office for the remainder term of the director in whose place he is appointed.
Filling casual vacancy is required if:
- company is a listed company (to be filled within 90 days of occurrence),
- or remaining directors are less than minimum number required by law/articles.
Briefly describe the provisions of the Companies Act, 2017 relating to the Procedure for Election of Directors for a company having share capital in case of 1. Fixation of number of directors to be elected:
- Fixation of number of directors to be elected:
Existing Directors of the company shall fix the number of directors to be elected atleast 35 days before the general meeting.
Once the number is fixed in the Board meeting, it shall not be changed except with the prior approval of the general meeting in which election is to be held
Briefly describe the provisions of the Companies Act, 2017 relating to the
Procedure for Election of Directors for a company having share capital: in case of Send notice of meeting:
2.Send notice of meeting:
Notice of the general meeting shall be sent to members atleast 21 days before meeting.Notice shall expressly state number of directors to be elected, and names of retiring directors.
Briefly explain Procedure for Election of Directors for a company having share capital in case of Filing of intention to become director:
- Filing of intention to become director:
A person (whether retiring director or otherwise) seeking to contest election shall file a notice of his intention in writing with company atleast 14 days before relevant general meeting. Such person may withdraw notice anytime before holding of election.
Briefly explain Procedure for Election of Directors for a company having share capital in case of List of candidates to be transmitted to members:
4.List of candidates to be transmitted to members:
All notices of intention received by company shall be transmitted to members atleast 07 days before general meeting in the same manner as of notice of AGM. In the case of a listed company such notices shall also be published in English and Urdu daily newspapers having wide circulation
Briefly explain Procedure for Election of Directors for a company having share capital in case of If number of candidates is equal or less than number fixed by directors:
- If number of candidates is equal or less than number fixed by directors:
All directors shall stand elected unopposed without Poll.
