Director1 and Chief Executive2

Minimum number of Directors u/s. 174

1. Private Company a. Single Member Company at least 1 director b. Other Private Company not less than 2 directors 2. Public Company a. Unlisted public Company not less than 3 directors b. Listed Company not less than 7 directors Remember, only natural persons to be directors and no variable representative3 can be a director [U/s. 175]

Appointment & Election of Directors [u/s. 176, 178 & 180]

1. First Directors: a. Subscribers shall be the directors until appointment. b. Appointed by a majority of the subscribers of the memorandum c. Term: until the election of directors in 1st AGM d. File with Registrar Consent to Act as Director Form 28, within 14 days from the date of appointment e. Save as provided in Section 187, no person shall be appointed as a director unless he is a member of the Company [Clause 43, 1st Schedule Table A] 2. Subsequent Directors a. By Election4 b. Directors shall decide number of directors to be elected i. not later than 35 days before AGM ii. Number so fixed can be changed subject to approval of General Meeting5. c. Notice of Meeting for Election i. State 1. Number of Elected Directors Fixed 2. Names of Retiring Directors ii. 21 day prior to election d. Filing of nomination i. with company not later than 14 days before General Meeting for Election ii. a notice of his intention Form 28 e. Notice to Members (transmission of nominations) i. Not later than 7 days before the date of meeting; and ii. In case of listed Company by 1. publication in one issue of a daily newspaper in English and Urdu 2. not later than 7 days before meeting
Director u/s. 2(13): Includes any person occupying the position of a director by whatever name called; Chief Executive: An individual appointed Under control & direction of Board of Directors Has substantial management powers (seem to be whole) Includes a Director Under a contract, Maximum for 3 Years 3 Variable Representative: In case of a holding company, a person who has shares in a subsidiary is called the variable representative. 4 Election: Formal way of documenting polling/ voting. 5 General Meeting: Shareholders Meeting
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f. File with Registrar Consent to Act as Director Form 28, within 14 days from the date of nominations [Public Company] g. Election of Directors i. Company limited by Shares 1. Voting Power: Votes of a Member = No. of voting shares held X No. of Directors to be elected 2. a member may give all his votes to a single candidate or divide among candidates 3. The candidate who gets the highest number of votes shall be declared elected and then one who gets the next highest number of votes and so on until directors to be elected are elected. ii. Company limited by Guarantee 1. One person, one vote h. Term: 3 years except if disqualified or Resigns

Casual Vacancy u/s. 180

Casual Vacancy may be filled up by the directors Person so appointed shall hold office for the remainder of the term of the director in whose place he is appointed.

Directors representing special interests [u/s. 182 & 183]

A company may have directors nominated by the companys creditors or other special interests by virtue of contractual arrangements. [U/s. 182] Certain Provisions not applying to directors representing special interests o Nothing in section 178 Election, 180 Casual Vacancy & 181 Appointment shall apply to directors nominated by Company formed under any law in force and owned or controlled by the Federal or Provincial Government ; The Federal or Provincial Government or the Commission; or Foreign equity holders on the board of the Pakistan Industrial Credit and Investment Corporation Limited or of any other company set up under a regional co-operation or other co-operation arrangement approved by the Federal Government o Director nominated u/s. 183 shall hold office during the pleasure of the corporation, company, Government or authority which nominates him. o Votes required to elect such director if he had offered himself for election shall stand excluded from the total number of votes otherwise available at an election of the directors

Removal of Directors u/s. 181

Company may by resolution in General Meeting remove a director o Appointed u/s. 176; o Appointed in case Casual Vacancy u/s. 180; or o Elected u/s. 178 Resolution shall be deemed to have been passed, if the number of votes casted are equal or exceed o The minimum number of votes that were cast for election at immediately preceding election, if resolution relates to director elected u/s. 178 o The total number of votes computed divided by the number of directors, if resolution relates to director appointed u/s. 176 or 180

Procedure to invalidate Election of Directors u/s. 179

Application to the Court o By Members holding not less than 20% voting power o Within 30 days of the date of election o State Grounds Court, if satisfied, may declare election of all directors or any one or more of them invalid

Validity of acts of Directors u/s. 185

No act shall be invalid merely on ground of any defect subsequently discovered in his appointment As soon as any such defect comes to notice, the director shall not exercise the right of his office until such defects have been rectified.

Ineligibility of certain persons to become director [u/s. 187 & code of Corporate Governance]
1. 2. 3. 4. 5. 6. 7. Minor Unsound mind Has applied to be adjudicated as an insolvent (pending application) Undischarged insolvent Convicted for an offence involving moral turpitude by court of law; Debarred from holding such office under any provision of Companies Ordinance Shown lack of fiduciary behavior and declared by the Court u/s. 217 at any time during the preceding five years 8. Not a Member6 9. In case of Listed Companies a. Declared by a Court as defaulter in repayment of loan to a financial institution; b. Engaged in business of Brokerage; or c. Declared as defaulter by stock exchange of which he is a member d. Spouse is a director or officer of a corporate brokerage house unless exempted by Commission e. A person Shall not be a director who is serving ten other listed companies as a director

Declaring a director to be lacking fiduciary behavior u/s. 217

The court may declare a director to be lacking fiduciary behavior if he contravenes provisions of 1) Section 214 Disclosure of interest by directors 2) Section 215 Interest of other officers 3) Section 216 Interested director not to participate or vote in proceedings of directors

Disclosure of interest by Directors u/s. 214

1) All commercial & personal interest by a director have to be disclosed at a meeting of the directors 2) Interests a) Direct or indirect interest in any contract i) entered into or ii) to be entered into; or iii) on behalf of the company; b) Relative7s Interest
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A person who is not a member can be a director, if Represents the Government or an institution or authority Whole time director who is an employee of the Company A chief executive A person representing a creditor

3) When & where to disclose a) In Meeting of directors b) When 1st time matter is taken into consideration 4) How to disclose a) A general notice to directors at a meeting of directors b) Such general notice shall expire at the end of financial year8 in which it was given 5) May be renewed by a fresh notice

Interest of other officers u/s. 215

Officer, other than Director, of a company who is in any way concerned or interested in any proposed contract or arrangement with the company shall not enter any such contract or arrangement He can participate if he discloses the nature and extent of his interest and obtains the prior approval of the directors. Penalty: Liable to a fine which may extend to five thousand rupees.

Interested director not to participate or vote in proceedings of directors u/s. 216

Interested Director shall not take any part in o The discussion; or o Vote on any contract or arrangement His presence shall not be count for the purpose of forming a quorum at the time of any such discussion or vote This section shall not apply to o A private company not subsidiary or holding of public company o Any contract of indemnity by the directors by reason of becoming a surety of a company o Any contract or arrangement with public company, in which the interest of the director consists solely in his being a director of such company.

Vacation of office by Directors u/s. 188

Become ineligible u/s. 187 Absence without leave, longer of a. In 3 consecutive board meetings; or b. For 3 months from all meetings Accepts loan in contravention of section 195

Restriction on Assignment of Office by Directors u/s. 192

Assignment of office can be made either by o Provision in Articles; or o Agreement between person and company Assignment of office of directory to another person shall be of no effect unless and until approved by special resolution. Remember, The appointment of an alternate or substitute director by the director with approval of the directors to act during his absence from Pakistan of not less than 3 months shall not be an assignment of office.
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Relative u/s 195(1): In relation to a director means his spouse and minor children Financial Year u/s. 2(16): In relation to any body corporate, means the period in respect of which any profit and loss account, or the income and expenditure account, as the case may be is made up and laid before it in general meeting, whether that period is a year or not;

Remuneration of Director (Restriction) u/s. 191

1. For performing extra services a. Determined by directors or in general meeting 2. For attending meetings a. Shall not exceed the scale approved by the company or the directors

Powers of Directors u/s. 196

Directors shall exercise powers on behalf of the company by means of a resolution passed at Board Meeting. Directors shall have following powers Make calls in respect of money unpaid on shares To Issue o Shares o Debenture o Any instrument in the nature of redeemable capital To borrow moneys otherwise than debentures To invest o Funds of the company o Make loans To authorize and Approve o To Enter into any contract for making sale, purchase or supply or rendering services o Annual or periodical accounts o Bonus to employees To declare dividend To write off o debt, advances and receivables o inventories and other assets To incur capital expenditure on any single item or dispose of a fixed Asset o Exceeding one million for incurring capital expenditure o Exceeding one hundred thousand for disposal of a fixed asset To undertake obligations under leasing contracts exceeding one million rupees To determine terms of and circumstances in which a law suit may be compromised and a claim or right in favor of a company may be released, extinguished or relinquished.
Remember, Director of a public company or of a subsidiary of a public company with the consent of general meeting Sell, lease or dispose of the undertaking or sizeable part thereof Remit, give any relief or give extension of time for repayment of any debt outstanding against any person specified u/s. 195(1)

What responsibilities does a director have towards Commission and the registrar?
Every company director has a personal responsibility to ensure that statutory documents are filed with the Registrar and the Commission as and when required under the Ordinance. In Particular Audited accounts (Public limited Companies Only) Annual Return Form A or B Particulars of directors or other officers Form 29 Notice of change of registered office Form 21

Responsibilities of Directors of Listed Companies [Code of Corporate Governance]

Exercise their powers and carry out their fiduciary duties with a sense of objective judgment and independence in the best interests of the listed company Prepare and circulate annually signed Statement of Ethics and Business Practices to establish a standard of conduct for directors and employees. Establish a sound system of internal control Determine and approve appointment, remuneration and terms and conditions of employment of the CEO and other executive directors Define the respective roles and responsibilities of the Chairman and Chief Executive Adopt a vision/mission statement and overall corporate strategy and formulate significant policies such as o Risk management o Human resource management o Procurement of goods and services o Marketing o Determination of terms of credit and discount to customers o Acquisition/disposal of fixed assets o Determination and delegation of financial powers o Health, safety and environment, etc Maintain complete record of particulars of significant policies along with date of approval or amendment In the case of a Modaraba or NBFI, approve and adopt an investment policy

Section 146: Restriction of Commencement of Business

(Applicable on Public Companies)

1. 2. 3. 4. 5.

Payment of Minimum Subscription9 in Cash; and Prospectus; and Form 22 Declaration of compliance with conditions of Section 146, if issuing Prospectus; or Statement in Lieu of Prospectus; and Form 23 Declaration of compliance with conditions of Section 146, if filing Statement in Lieu of Prospectus

Form of Contract u/s. 210

Contracts on behalf of a company if made between private persons may be made as follows 1. Requirement of Law a. Signed by the parties b. May be made on behalf of the company, signed by authorized person 2. Would be valid by Law a. Although made by parole only; and b. Not reduced in writing c. May be made on behalf of the company by authorized person All such contracts shall be effectual in law and shall bind the company, its successors & all other parties.
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Minimum Subscription: The smallest number of shares or securities that may be applied for in an new issue or Initial public offerings (IPO) Factors in Minimum Subscription Preliminary Expenses Working capital Loan Borrowed Property Purchased

Contracts by agents of company in which company is undisclosed principal u/s. 225

Contracts by agents of undisclosed principal (company) are allowed subject to following conditions o Every officer or other agent of a company who enters on behalf of the company which is undisclosed principal shall, at the time of entering into the contract make memorandum in writing of the terms of contract and specify therein the person with who it has been made o Every such person shall forthwith File the memorandum to company and send copies to the directors If any such person make default in complying with the requirement u/s. 225 o The contract shall be void as against the company at the option of Company; & o Such person shall be liable to a fine not exceeding two thousand rupees.

Loans to directors, etc. u/s. 195

No lending company shall make any loan to, or give any guarantee or provide any security in connection with a loan made by any other person to, or to any other person by o Any director of lending company or o its10 holding company or o any firm in which its director or relative11 is a partner o any private company of its director or member o body corporate at a general meeting of which not less tan 25% of total voting power may be exercised or controlled by its director or his relative, or by two or more such directors together or by their relatives; o body corporate under influence of directors, chief executive of the lending company Permitted Loans o Approval of commission o To Employees (whole time director) For acquiring dwelling house, household or Medical Expense himself or of relative loan taken, or guarantee or security obtained o If can not be taken or obtained without prior approval of commission. o Then, File within 14 days of appointment as director or chief executive with the registrar Particulars of any loan taken or guarantee or security obtained.

Surplus arising on revaluation of Fixed Asset u/s. 235

Where a company revalues its fixed assets, the increase in the value of such assets shall be transferred to Surplus on Revaluation of Fixed Asset Account shown in Balance Sheet after Capital and Reserves Surplus on Revaluation of fixed assets may be applied by the company in setting off or in diminution of any deficit arising from the revaluation of any other fixed asset of the company. Incremental depreciation arising out of revaluation of fixed asset may be charged to Surplus on Revaluation of Fixed Assets Account.

Directors report u/s. 236

(Applicable on all companies)

Directors Report is the review made by the Directors and annexed with the accounts The Report shall be signed by
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Here, it and his refer to lending company Relative: In relation to a director means his spouse and minor children.

o Chairman of the directors or o The Chief Executive on behalf to the Directors, if authorized o The Chief Executive and such number of Directors as are required to sign u/s. 24112 Contents (Comment on) o General (All Companies) State the Company Affairs Recommend Dividend Recommend amount to Transfer to Reserves purpose and impact o Public Company or a Private Company Subsidiary of Public company Material changes in Nature of the business Classes of business in which the company has interest Response to Auditors Report Circumstances Justifications Circulate information about the Pattern of Shareholding State the Earnings per share Disclose Events after Balance Sheet Date Give Reasons for incurring loss Remember, Capital Reserves are not available for paying Dividend.

Framing of Accounts (Overview)

Accounts Framed Audited Presented at Board Meeting Reviewed By Directors

Published

Presented before AGM

Pattern of shareholding [Form 34 Section 236(1) & 464]

Pattern of holding of shares held by the shareholders as at Classification of shareholdings, e.g. 1 to 100 Shares, 101 to 500 shares, 501 to 1000 shares & so on Number of shareholders in each class Total number of shareholders in each class Categories of shareholders (Shares held & Percentage) o Directors, Chief Executive Officer, and their spouse and minor children o Associated Companies, undertakings and related parties o NIT and ICP o Banks Development Financial Institutions, Non-Banking Financial Institutions o Insurance Companies o Modarabas and Mutual Funds
Authentication of Balance Sheet u/s. 241 The Balance Sheet and Profit and loss account shall be approved by the directors and shall be singed by the chief executive and at least one director. When the Chief Executive is for the time being not in Pakistan, then the Balance Sheet and Profit and loss account or income and expenditure account of the company shall be signed by not less than two Directors for the time being in Pakistan

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o Shareholders holding 10% o General Public Local Foreign o Others Authorization

Annual List of Member etc. [u/s. 156, Form A &B] 1. Company having Share Capital a. Once in each year b. Form A 3rd Schedule i. Particulars as on the date of AGM or where no such meeting is held or not concluded on the last day of Calendar year ii. Particulars 1. Nature of Business 2. Authorized Share Capital 3. Paid up Share Capital 4. Amount of indebtedness on the date upto which Form A is made in respect of all mortgages and charges 5. Particulars of the holding company 6. Chief Executive, Chief Accountant, Secretary, Legal Advisor 7. List of Directors on the date of Form A 8. List of Members & Debenture holders 9. Transfer of Shares/debentures since last Form A c. Filed with registrar i. Listed company within 45 days from the date of AGM held in the year or last day of calendar year, where no such meeting is held ii. In the case of listed company, the registrar may extend the period of filing of such return by a period not exceeding fifteen days. iii. Any other company within 30 days 2. Company not having Share Capital a. Once in each year b. Form B 3rd Schedule i. Particulars as on the date of AGM or where no such meeting is held or if held is not concluded on the last day of the calendar year ii. Particulars 1. Nature of Business 2. Total Number of Members 3. Particulars of the holding company 4. Chief Executive, Chief Accountant, Secretary, Legal Advisor, Auditors 5. List of Directors 6. List of Members & Debenture holders c. Filed with Registrar within 30 days from the date of AGM held in the year or last day of calendar year, where no such meeting is held 3. Penalty: Company and every officer of the company who knowingly and willfully authorizes or permits the default shall be liable a. In case of listed company, to a fine between fifty thousand to five hundred thousand rupees. b. In case of any other company, to a fine not exceeding one hundred thousand rupees and to a further fine not exceeding five hundred rupees for every day after the first during which the default continues.