Directors Flashcards
Who is a director
Person appointed by members
To manage the affairs of company
Anyone occupying position of director(by whatever name called)
As fiduciary
Take care of money of other person
Act in best interest of company and shareholders
As agent
Act in accordance with articles of comapany
Eligibility of directors
1.Natural person
2.Be a member (shareholder)
Except; Whole time director or executive director
Chief executive
Representing body corporate Or creditor
3.Any additional criteria specified by articles
Ineligibility of director
- Not a member
- Body corporate
3 minor
4 unsound mind - No NTN
- Declared as insolvent by court
- Convicted by court
- Lacks fiduciary behavior declared by court (last 5 yrs)
- Disqualified under any provision of the act
Loan/Guarantee to directors
(Including spouse/minor child or holding)
1. Approval by resolution of members
2. Approval of commission (for listed)
3. No such restriction for financial institutions
Assignment of office
Not allowed
Alternate substitute director is possible if:
- Absent from pakistan for 90 days or more
- Approved by board
- Till he returns Pakistan
Non executive director
Not from executive management
Does not give his whole working time
Not beneficial owner of company or associated company
No remuneration except meeting fee
Give an outside viewpoint
Protection of non executive director
Shall not be liable for act or omission unless
- Act or omission was done with his consent
- He did not act diligently
Maximum directorship
Only in 5 companies except subsidiary
Remuneration
For attending meeting: Not to exceed scale approved by company or directors as per articles
For extra service: determine by board or company as per articles
Non cash transaction - conditions
-Approval of members in general meeting
-Notice of resolution shall mention particulars including valuation (valuer ki report)
-Restrictions applies on directors of holding company
Cash transaction
Must be thru bank
Independent director
No relationship with mgmt, company
And related parties
Eligibility criteria for independent director
- Graduate/professional with 5yrs exp in relevant discipline
- 15 years experience
Plus (reasonable time and complete training program for director)
Ineligibility of independent director
- Chief executive if co and its associate co (last 3 yrs)
- Employee of co and subsidiary for last yrs
- Material business relationship with co for last 3yrs
- Director nominated by creditor or Body corp
- Cross directorship or significant links
- Director served board for 3 consecutive terms
- Close relative of company’s promoters, directors or major shareholders
Indemnification
Agreement to indemnify directors/officers for negligence or breach of duty is void
Exception for indemnification
Legal proceeding if successful
Board meeting frequency
Once in each quarter for public company
Quorum for board meeting
For listed company- 1/3rd or 4 whichever is higher
For unlisted- as in articles
Resolution through circulation
Validity- approved by majority of directors. Valid and effective as if passed at board meeting.
Rules- Circulated to all directors, along with necessary papers, signed in writing, no revocation, to be noted in minutes of next meeting
Record of resolution and meetings (board meetings)
Keep record at registered office
Signed by chairman
Copy of minutes distributed to each director within 14 days of meeting
Preserve physically for 10 years
And permanent for electronically
Duties of director
Act in accordance with articles
Act in best interest if co, emp, shareholders
3. Disclose his interest if any
4. Perform with reasonable care, due diligence
Director shall not
- Obtain undue gain
- Involve in conflict of interest
- Assign his office
Power of director -after obtaining approval
- Sell or dispose subsidiary of co
- Sell/lease or dispose of undertaken or sizeable part (25% or more)
- Remit or give extension of payment of debt
Power of director without approval
- To issue shares, debentures and borrow money
- To make loan
- To make investment
- To approve quarterly or annual f/s
- To declare interim dividend
- To approve bonus for employees
- To incur capital expenditure on F.A
- To undertake obligation under leasing contract
- To authorise director for entering into transaction
- To writeoff material debtors, advances
- To settle litigation
- To takeover or acquiring, controliing stake in an other company
- To appoint and remove chief executive
- To fill casual vacancy
Director vacation - ipso facto ceases to hold office
- Ineligible
- If he is absent from 3 consecutive board meetings without leave
- Accepts/obtains loan without approval of members
- Office of profit without approval of members
Any additional ground
Removal of director elected
If no of votes against resolution less than
Least no of votes obtained by an elected director in last election
Removal of appointed director
Removed if no of votes less than the formula
No of shares of company x Director appointed at AGM/ director for time being
Manner of selection of independent director- responsibilities of institute
- An institute shall maintain data bank of eligible and willing person
- Institute may determine terms and conditions for inclusion of name in data bank
- Institute may fix a fee to be paid by individual for inclusion of his name and for companies to provide them access to databank
Responsibilities of company - independent director selection
- Due diligence before appointment
- Undertaking that individual meets requirement
Responsibilities of individual - indep director
- Accuracy and updation of information
- To ensure compliance with criteria and other requirements
