Directors (Chapter 3)

Question 1

What are the eligibility criteria for directors?

Answer 1

Eligibility Criteria: be a natural person, be a member (except Chief Executive, Executive Director, Nominee Director by Body Corporate, Govt, Creditor). Additional criteria (if any): Fresh election of directors: Required shareholding. Apply company. Company proceeds within 30 days. (follow Commission, if listed) Number of directors not to reduce.

Question 2

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

Answer 2

Procedure for Election of Directors for a company having share capital: 1. Existing directors fix number 35 days before general meeting. 2. Notice of meeting sent 21 days before meeting, with names of retiring directors, and number fixed for next term. 3. Candidates file notice to company 14 days before meeting. 4. Company transmits list of candidates to members 07 days before general meeting (+ 1 English & 1 Urdu newspaper publication for listed company). 5. Directors elected unopposed if candidates ≤ numbers fixed. 6. If candidates > numbers fixed, election via Poll.

Question 3

What happens if candidates exceed the number fixed during the election process?

Answer 3

If candidates > numbers fixed, election via Poll. a. Number of votes = Shares * Number fixed. b. Members distribute their votes and highest candidates get selected.

Question 4

What is the minimum and maximum number of directors required?

Answer 4

Number of Directors: Minimum —> 1 (Single Member Company), 2 (Private Company), 3(Public Unlisted Company), 7 (Public Listed Company); Maximum —> decided by articles/directors.

Question 5

How are the first directors appointed?

Answer 5

First directors: by subscribers till first AGM. Subsequent directors: by members, for three years. Nominee directors are appointed by the nominating body for the period they please.

Question 6

What are the ineligibility criteria for directors?

Answer 6

Ineligibility Criteria: 1. a body corporate/Company. 2. a minor. 3. Insolvent. 4. Unsound mind. 5. Without NTN number. 6. Convicted of immorality. 7. Convicted of lacking fiduciary behavior in last 5 years. 8. Broker and Defaulter (for listed companies).

Question 7

How are casual vacancies among directors filled?

Answer 7

Casual Vacancy: (e.g. death, disqualification, resignation) Filled by directors (within 90 days if listed), for the remainder term.

Question 8

What are the implications if a director’s election is invalid?

Answer 8

Election of directors, invalid: 10% or more voting powers apply to Court within 30 days material irregularity is proved. De-facto director: shall not act further as director. Past acts are valid.

Question 9

What are the grounds for vacation of office by the directors?

Answer 9

Grounds include disqualification, absents from 3 consecutive board meetings without leave, accepts loan or office of profit without relevant approvals. Additional grounds by the Commission.

Question 10

What is the process for the removal of directors?

Answer 10

Removal of Directors: He will be saved if votes against resolution equal/exceed: least votes by an elected director in the last election (in case of an elected director). Total shares * directors appointed/current directors (in case of other directors).

Question 11

What are the duties of directors?

Answer 11

Duties of Directors: Acts as per Articles, in the best interest of the company. Act with due diligence. Disclose his interest. Don’t involve in conflict of interest. Don’t obtain undue gain. Don’t assign his office.

Question 12

What are the absolute powers of directors?

Answer 12

Absolute Powers: 1. To issue shares and debentures. 2. To make loans and investments. 3. To approve financial statements. 4. To declare interim dividends. 5. To approve bonuses for employees. 6. To incur capital expenditure, lease obligations. 7. To approve transactions having a director’s interest. 8. To write-off assets. 9. To settle material litigations. 10. To acquire another company. 11. To fill casual vacancy of director. 12. To appoint and remove the chief executive.

Question 13

What powers require approval from members?

Answer 13

Powers with approval of members: 1. sell or dispose of a subsidiary of the company. 2. sell or dispose of a sizeable part (i.e. 25%) of an undertaking. 3. Remit or extend a debt payment against specified persons.

Question 14

What is the process for resolution through circulation at director meetings?

Answer 14

Resolution through circulation: Circulated to all directors with necessary papers. To be signed in writing. Once signed, cannot be revoked. To be noted in minutes of subsequent meeting.

Question 15

What are the quorum requirements for director meetings?

Answer 15

Quorum: For Listed Company: 1/3rd of total number or 4 whichever is higher. For Other companies: As per Articles. If Casual vacancies + remaining directors less than minimum: Remaining directors shall be the quorum for to fill casual vacancy.

Question 16

What are the requirements for maintaining records of meetings?

Answer 16

Records: Minutes to be signed by Chairman (of current or next meeting). Copy sent to each director within 14 days. Record to be kept at Registered Office in physical form (for 10 years) and in electronic form (permanently). Frequency: Once in each quarter (for Public Company).

Question 17

What are the indemnification and protection rules for directors?

Answer 17

Indemnification: Agreement to indemnify in case of negligence, is void. Protection: Non-executive/independent directors not liable for any act of the company, unless the act occurred with his knowledge/consent, or he acted with negligence.

Question 18

What are the eligibility/qualification criteria for independent directors in listed companies?

Answer 18

Eligibility/Qualification Criteria: 1. A graduate or member of a professional body + 5 years’ experience, OR A person with 15 years’ experience. 2. Person confirms to devote reasonable time. 3. Completes Directors’ Training Program (within 12 months).

Question 19

What are the disqualification criteria for independent directors?

Answer 19

Ineligibility/Disqualification Criteria: 1. Chief Executive of the company or its associated company (in last 3 years). 2. Employee of the company or its subsidiary (in last 3 years). 3. A person having material business relationships with the company (in last 3 years). 4. Nominee director. 5. Director in associated company. 6. A director who served for 3 consecutive terms. 7. A close relative of the company’s promoters, directors, or major shareholders.

Question 20

What is the assignment of the office of a director?

Answer 20

Assignment of Office of Director: Director cannot assign his office. Director can appoint an alternate/substitute director if absent from Pakistan for 90 days and approved by directors.

Question 21

What are the rules regarding loans to directors?

Answer 21

Loan to directors: Loan to a director allowed if approved by members and Commission, if listed company.

Question 22

What are the rules regarding non-cash transactions with directors?

Answer 22

Non-Cash Transaction with Directors: Allowed with prior approval of the general meeting. Notice shall state particulars with valuation.

Question 23

What restrictions exist on gifts and contributions by a company?

Answer 23

Gifts/Contribution: A company shall NOT distribute gifts to members or donate amounts to political parties.

Question 24

What are the remuneration guidelines for directors?

Answer 24

Remuneration to directors: For board meetings: shall not exceed the scale approved by the board or company as per articles. For extra services: shall be determined by the board or company as per articles.

Question 25

What are the rules for cash transactions with directors?

Answer 25

Cash transactions with directors: Through banking channel only.