Chapter 3 (Directors) Flashcards
What are the eligibility criteria for directors?
- Must be a natural person.
- Must be a member (except Chief Executive, Executive Director, or Nominee Director by Body Corporate, Government, or Creditor).
- Additional criteria as specified
What are the ineligibility criteria for directors?
- A body corporate/company.
- A minor.
- Insolvent.
- Unsound mind.
- Without NTN number.
- Convicted of immorality or fiduciary misconduct in the last five years.
- A broker and defaulter (for listed companies).
What are the minimum and maximum numbers of directors?
- Minimum: 1, 2, 3, or 7 depending on the company.
- Maximum: Decided by articles or directors.
What is the tenure of directors?
- First directors: Appointed by subscribers till the first AGM.
- Subsequent directors: Appointed by members for three years.
- Nominee directors: Appointed by the nominating body for a period as they please.
What happens in case of a casual vacancy?
- Filled by directors within 90 days (if listed), for the remainder of the term.
- Necessary if the company is listed or the number of directors falls below the minimum.
What is the procedure for the election of directors in a company with share capital?
- Existing directors fix the number 35 days before the general meeting.
- Notice of meeting sent 21 days before the meeting, with retiring directors’ names and fixed numbers.
- Candidates file notice to the company 14 days before the meeting.
- Company transmits the list of candidates to members 7 days before the meeting (+ English and Urdu newspaper publication for listed companies).
- If candidates are less than or equal to the fixed number, they are elected unopposed.
- If candidates exceed the fixed number, election via poll.
When is the election of directors considered invalid?
When 10% or more voting powers apply to the court within 30 days, and material irregularity is proved.
What are the grounds for the vacation of a director’s office?
- Becomes disqualified.
- Absent from three consecutive board meetings without leave.
- Accepts a loan or office of profit without relevant approvals.
- Additional grounds specified by the Commission.
How is a director removed?
Saved if votes against the resolution are equal to or exceed:
- The least votes by an elected director in the last election (for elected directors).
- Total shares * directors appointed/current directors (for other directors).
What are the duties of directors?
- Act as per Articles, in the best interest of the company.
- Exercise due diligence.
- Disclose interest and avoid conflicts.
- Avoid undue gain.
- Do not assign the office.
What are the absolute powers of directors?
- Issue shares and debentures.
- Make loans and investments.
- Approve financial statements.
- Declare interim dividends.
- Approve employee bonuses.
- Incur capital expenditure and lease obligations.
- Approve transactions involving directors’ interests.
- Write off assets.
- Settle material litigations.
- Acquire another company.
- Fill casual vacancies of directors.
- Appoint and remove the chief executive.
What is the frequency of board meetings?
Once in each quarter (for public companies).
What are the requirements for board meeting records?
- Minutes signed by the Chairman (current or next meeting).
- Copy sent to each director within 14 days.
- Records kept at the Registered Office in physical form (10 years) and electronic form (permanently).
What are the indemnification and protection provisions for directors?
- Indemnification agreements for negligence are void.
- Non-executive/independent directors are not liable for company acts unless done with knowledge, consent, or negligence.
What is the eligibility criteria for independent directors?
- Graduate or member of a professional body with 5 years’ experience OR 15 years’ experience.
- Confirms devotion of reasonable time.
- Completes Directors’ Training Program within 12 months.
What is the disqualification criteria for independent directors?
- Chief Executive of the company/associated company in the last three years.
- Employee of the company/subsidiary in the last three years.
- Material business relationships with the company in the last three years.
- Nominee director.
- Director in an associated company.
- Served for three consecutive terms.
- Close relative of promoters, directors, or major shareholders.
What are the restrictions on directors?
- Cannot assign the office of director.
- May appoint an alternate director if absent from Pakistan for 90 days (approved by directors).
- Loans to directors require members’ approval and, for listed companies, Commission approval.
- Non-cash transactions with directors need general meeting approval.
- Cannot distribute gifts or donate amounts to political parties.
- Remuneration must align with board or Articles’ approval.
- Cash transactions with directors must use a banking channel.
What happens if a de-facto director is identified?
- Shall not act further as a director.
- Past acts are valid.
What is the condition for saving a director from removal?
Votes against the resolution must equal or exceed:
a. The least votes by an elected director in the last election (for elected directors).
b. Total shares multiplied by the number of directors appointed/current directors (for other directors).
What are the powers requiring members’ approval?
- Sell or dispose of a subsidiary of the company.
- Sell or dispose of a sizeable part (25%) of an undertaking.
- Remit or extend debt payment for specified persons.
When is a non-executive/independent director protected from liability?
Not liable for any act of the company unless it occurred with his knowledge/consent or was due to negligence.
What is the databank ?
- Databank for independent directors is available on the website of the Institute.
- Individuals may apply for inclusion.
- Companies can register to access the databank.
- Due diligence is the responsibility of the company.
What are the conditions for cash transactions with directors?
Must be conducted through a banking channel.
What happens if there is a casual vacancy, and the number of remaining directors falls below the minimum?
The remaining directors shall form the quorum to fill the casual vacancy.
Can a director assign their office to someone else?
No, a director cannot assign their office.
What are alternate directors?
- Appointed with the board’s approval to act during a director’s absence from Pakistan for at least 90 days.
- Automatically vacate office when the appointing director returns.
What are the rules for gifts or contributions by the company?
A company shall not distribute gifts to members or donate amounts to political parties.
What are the rules for resolution through circulation?
- Circulated to all directors with necessary papers.
- To be signed in writing.
- Once signed, cannot be revoked.
- To be noted in the minutes of the subsequent meeting.
What is the quorum for board meetings?
- For Listed Company: 1/3rd of the total number of directors or 4, whichever is higher.
- For Other Companies: As per Articles.
- If there is a casual vacancy and the number of remaining directors is less than the minimum, the remaining directors shall form the quorum to fill the casual vacancy.
What is the frequency of board meetings?
Once in each quarter (for Public Companies).
What are the rules for loans to directors?
- Loans to directors are allowed if approved by members.
- If the company is listed, approval by the Commission is also required.
What are the rules for non-cash transactions with directors?
- Non-cash transactions with directors are allowed with prior approval of the general meeting.
- The notice must state particulars with valuation.
How is remuneration to directors determined?
- For board meetings: Remuneration shall not exceed the scale approved by the board or company as per Articles.
- For extra services: Remuneration shall be determined by the board or company as per Articles.
What are nominee directors?
Represent creditors, government, or other special interests under contractual arrangements.
What are the duties of retiring directors?
- Take immediate steps to hold elections.
- If impediments arise, report the circumstances to the registrar within 45 days before the AGM/EGM.
How much the election of directors be delayed?
AGMs/EGMs cannot be delayed by more than 90 days without registrar approval.
What are additional ineligibility criteria of directors for listed companies?
- Default in loan repayment to financial institutions.
- Engagement in brokerage or related business.
What is the fiduciary relationship of directors?
- Directors must act as agents of the company, making decisions in its best interest.
- They are prohibited from holding office if declared lacking fiduciary behavior.
How do directors exercise authority?
- All directors are equal in authority, with each having one vote.
- Decisions are made collectively at board meetings through resolutions.
What is a casual vacancy, and how is it filled?
- A vacancy occurs due to death, resignation, or disqualification.
- It must be filled by directors within 90 days (if the company is listed).
What are the consequences if an undischarged insolvent acts as a director or Chief Executive?
Imprisonment for up to 2 years.
Fine.
Both imprisonment and fine.
