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.
