Directors

The first question here is that why directors are needed?

A company is a legal person and it is an artificial entity with no mind and no emotions and no
thoughts. Consequently, it cannot act on its own behalf. Although, it is given rights and duties by
the law when personality is granted but it cannot exercise these powers by itself. A company
cannot use its rights without help of any other person because it is not a natural person. So, it is
needed that there must be some natural persons who can help the company to use its rights and
powers. First of all, one may think that the shareholders or the members of the company might
use these powers and authorities on behalf of the company but in various cases it would not be
possible because there may be large number of persons who are the members of the company.
There might be thousands of members or share holders of the company. If the power to use the
powers or rights of the company is given to shareholders and members of the company then it
would be impossible to do the same. One of the features of the company is separation between
ownership and control. In a company, this a special feature that there are certain persons who are
specially appointed to use these managerial powers and the rights of a company. In a company,
the shareholders and members might be considered to be the owners because they are holding
shares of a particular company but all of them do not exercise direct control over the
management of the company. For this purpose, the directors of the company are appointed. The
directors of the company act as the mind of the company. The members of a company are a large
body and it is impossible for them to manage the affairs of the company. So, directors are
appointed for this particular purpose. Management of the company is sometimes described as
corporate democracy so in that sense directors can be taken as the cabinet and the members of
the company as the parliament or a legislative body in a particular state. The directors are those
persons who are there to take care of affairs of a particular company.

A term board of directors is used. If one talk about a single director or directors individually
then one shall call them director but the collection of directors is termed as board of directors.
Whenever the term board will be used with reference to a particular company, the according to
clause 8 of section 2 of Companies Act 2017 says that it would mean the board of directors of
the company.

According to clause 25 of section 2 of Companies Act states that a director is any person who is
occupying the position of director by whatsoever name he is called. In other words, any person
who is appointed to perform functions of the director shall be a director.

The functions of director are mainly supervising, managing and controlling the affairs of a
company. Any person who is performing these things or who is given authority to do these
things on behalf of the company is known as director.
Under law, only a natural person can act as director. A director cannot be an association of
persons or a company or a corporation. It is for a simple reason that directors are needed to run
the affairs of the company, to work as a mind of a company. If any legal or artificial person is
appointed as a director then the main purpose for the appointment of director would fail.
Therefore, it is necessary that a natural person is appointed as a director.

Under section 19 Companies Act 2017, for commencement of business it is required that all of
the directors must have fully paid the amount of shares which have been taken by them. Until all
of the directors are properly appointed, a company cannot commence its operations.

Now the question arises about the status legal position of the director in a company.

Some persons may think that the directors are the real owners of the company because generally
those persons are appointed as directors who own substantial shares in a company or the persons
who have appointed them have got this much power but legally it is not true because the real
owners of the assets and all of the properties is the company. In the legal sense, no one can own
the company. One can see the actual status of director in different ways because the status of
director has been described differently by different persons. Directors have been termed as the
agents of the company. They have been termed as the trustees of the company. Some persons
have also described directors to be the managing agents or partners of the company.

1. Directors as agents of the company

A company cannot act on its own like natural persons because it has got no mind. A
company needs some natural persons to act for it. The directors and other officials are
appointed to use the powers and authorities delegated to them to act on behalf of the
company. Consequently, the position of directors is like the agents of the company
because they act on behalf of the company. It was affirmed in a historical case which is
Ferguson v Wilson 1866. It was observed that directors are mainly the agents of the
company and company cannot act on its own and it can act only through its directors. The
case of directors is merely the case of ordinary agents. Whereas, the agents would be
liable, the directors would be liable. In such a case, where only the principal is liable then
the company will liable and there would be no liability for directors. Accordingly, it can
be seen that law of agency would govern the relation between the company and the
directors. The directors can act on behalf of the company within the restrictions which are
imposed by the memorandum and articles of the company. If the directors go beyond
these documents, then they will be judged on the basis of doctrine of ultravires and
doctrine of indoor management. If the directors remain within the limits of articles and
memorandum there shall be no personal liability on the directors unless they do these
things without proper way or they do these things defectively like not mentioning the
name of company properly, not mentioning that they are acting on behalf of the company
etc. In such cases, they may be made personally liable otherwise the liability would be
imposed on the company because the company is the principal and directors are agents. It
 is also clear that it is not the ordinary agency which exists between the company and the
directors because any agent can act in his own name without disclosing the principal but
the directors cannot do these things. Consequently, all of the rules or provisions relating
to agents and principal would not be applicable on the directors and the company. It can
be seen that agents are appointed but the directors are elected. Although, the relation
between company and directors is the relation of agency but it is not complete relation of
agency. Moreover, the directors are the agents of the company but they are not the agents
of the share holders.
2. Directors as Trustees
Trustee is a person who is the legal owner of the property but the property is held by such
trustee for the interest or benefit of some other persons who are beneficiaries of that
property. A trustee holds and manages the property which is held by him for the benefit
of other persons. In the strict sense, directors are not the trustees because the trustee is a
legal owner of the property but a director has got no such ownership. Moreover, director
is not appointed as trustee nor he is given the ownership of the property. The relationship
between the director and a company is a fiduciary relationship so the relation of trust
does exist between the director and the company. Directors are deemed as trustees in this
sense because the relation of trust exists between him and the company. Directors are
trustees for the property and money of the company which is given to them or under their
control. It is their duty to exercise this property and capital for the best interest of the
company. In the same way, the powers and authority given to them are also held by them
on trust and it is their duty to use these powers and authorities for the best interest of the
company. So, they might be considered to be the trustees of the company in this sense but
still they are not the trustees for the individual member or shareholders of the company.
Directors have fiduciary duties towards the company.
3. Directors as managing partners
In a partnership, there might be some partners who are working or managing partners and
are given the authority to act on behalf of all of the partners. They can manage the
business of the firm on behalf of all other partners. In this sense, the directors are
sometimes taken as managing partners because they are among the members of the
company. They control the property of the company and they do the arrangement for the
company and its affairs and they are given the power to do these things. So, sometimes
they are taken as managing directors although strictly they are not the partners or even
the managing partners because the partners are agent of each other(Mutual agency) but
the directors are not the agents of each other and not the agent of the share holder of the
company. They can act only on behalf of the company and they cannot act on behalf of
one another.
The directors have been described as agents, trustees or managing partners but in strict
sense of these expressions the position of directors cannot be determined although in
different positions or for their different acts any of these expressions may be used.
 For the true appreciation of status of directors all of these positions and situations must be
realized but strictly directors are those persons who are appointed or given the powers to
run the affairs of the company. It was observed by the court in Imperial hydropathic
Hotel Co. v Hampson 1883 that directors are sometimes described as agents, trustees and
managing partner but each of these expressions is not used in an exhaustive of their
powers and responsibilities but as for indicating useful points from which they may be
considered.
Number of Directors
The section 154 of the Companies Act 2017 lays down the number the minimum number of
directors which a company must have.

According to section 154, a single member company shall have at least 1 director. Any other
private company must have 2 directors. A public company which is not a listed company shall
have at least three directors. A public company which is a listed company shall have at least 7
directors. This is the minimum number of directors required in different kinds of companies.
There is no maximum number prescribed but it can be fixed by the company itself.

According to subsection 2 of section 154, a director shall be a natural person.

Under clause 1 of section 159, the exact number of the directors for a particular company may be
fixed.

Types of Directors
There may be different types of directors as elaborated below.

1- First Directors
They are basically the subscribers of the memorandum. They are nominated in the
memorandum of association as directors. Under section 157 of Companies Act 2017, the
number of first directors shall be determined by the memorandum of association. Once,
the subscribers are preparing the memorandum they shall state the names and details of
first directors. Whenever, the documents for incorporation are submitted the names and
details of first directors shall be submitted to the registrar. Afterwards, this number of
first directors under section 157 may be increased in the general meeting of the company.
The first directors will hold their offices till the election of director is carried on in the
annual general meeting of the company.
2- Normal Directors
Normal Directors are elected among the normal members of the company. They are the
normal and usually founded directors in any company.
3- Nominee Directors
 This third category may be there in any company. Under section 164 of the Companies
Act 2017, in addition to the normal directors there may be other directors which are
appointed by any third person or outsider. These directors are to be considered as
nominee directors. They may be of different types and may have different purposes but
mainly first of all the nominee directors may be appointed by the creditors of the
company, by virtue of any contractual arrangement between the company and the
creditors. The creditors of the company may appoint nominee directors to act within the
board of directors. In the same way, any body-corporate or corporation which is
controlled by the federal or provincial government may also appoint nominee directors if
the company is debtor of the government. Nominee directors are basically appointed by
any other entity, authority or person who is not the member of the company. Under
section 164 there may exist nominee directors who are appointed by the creditors of the
company.
4- Another category of director may be the directors or a director who is appointed to fill a
casual vacancy. If any director gets retires or if due to his death a casual vacancy occurs
within a company then in such case the directors may appoint any person in place of such
person whose position has become vacant. The newly appointed director shall continue
his office for the remainder of his predecessor.
5- Whole Time Directors
They may also exist in a company. They are basically employees of the company. If the
company needs services of a particular person then he may be given the position of
Whole Time director.
6- Independent Directors
There may be independent directors in a company. Section 166 of the Companies Act
2017 provides that a company may select any person who is independent and will act as
independent director. Independent director is a person who is in no relationship with the
company and has got no interest in a company. So, any person who is not connected with
the company in any way or does not have financial or pecuniary interest towards the
company or its subsidiaries then such person can be appointed as an independent director.
The database of independent directors is held by certain authorities so if a company is
required under law or if a company wants to make his credibility image higher then it
may appoint an independent director who has no benefit or financial interest to the
company. So, it will make independent and unbiased decisions. Any person who has been
director of the company or chief executive officer of a particular company with in last 3
years or he has business relations directly or indirectly with the company in the past. Any
such person would not be considered as an independent director. An independent director
is mainly a person who can exercise judgment without taking any position or who can
remain impartial while carrying on his decisions.
7- Alternate Directors
Clause 2 of section 174 of Companies Act 2017 provides for the appointment by a
director with approval of the board, of an alternate or substitute directors to act for him
during his absence from Pakistan for not less than 3 months. It shall not be the
assignment of the office. According to clause 1 of section 174 a director of any company
shall not assign his office to any other person and any such appointment shall be void ab
initio. The alternate director appointed under sub section 2 of section 174 shall vacate the
office when the director appointing him returns to the office.
Qualifications and Disqualifications of Directors
The provisions of Companies Act 2017 do not exactly provide the qualifications of the
directors although one can find disqualifications of the director. Articles of the company
may lay down certain qualifications for directors.
We will be seeing disqualifications of directors. Any person who is who is struck by any
of these provisions will not be able to be appointed as a member of board of directors in a
particular company.
These disqualifications are contained in section number 153 of the Companies Act 2017.
Section 153 says that if any person has got any of these things in him then such person
would not be eligible to be appointed as a director. These disqualifications are given
below:
 First of all if he is a minor then a person cannot be a director.
 If a person is of unsound mind then such person cannot be a director.
 An un-discharged insolvent cannot be a director.
 If there is a person against whom the application for insolvency is pending before
a competent court then he cannot be a director.
 Any person who has been convicted by law for any crime or for any offence
whereby his moral character was damaged or he has done any immoral act and
got convicted by law then he cannot be a director.
 Any other provision of this act has put a bar on a person or he has been debarred
by any other law then he cannot be a director.
 Any person about whom judgment has been passed that he lacks fiduciary
behavior. Under section 212 this may be laid down that if a person who was
acting as a director of a company did not disclose his interests which were there in
any contract which was entered into by the company. Any non disclosure of such
interests would make him a person without fiduciary behavior. If any judgment
has been passed in this respect regarding a person then he will be debarred from
holding the position of a director.
 Any person who has got no National Tax Number (NTN) then he cannot be a
director of the company as it is a legal requirement.
 Any non-member cannot be a director. A director must be a person who is
member of that company. However, a representative of a non natural person can
be a director even though he is not a member of the company. Whole Time
director can also be the director of the company as he is only the employee of the
company and is not a member of the company. Chief Executive Officer of the
 company may be the director of the company although he may not be the member
of the company. In the same way, any nominee of the creditors or any interest
holder who has entered into any contractual relation with the company or any
contractual arrangement with the company by virtue of which they have got the
authority to appoint the nominee director. In such case, nominee director who
although is not a member of the company will be a director.
 Any person who is not a natural person cannot be a director as under clause 2 of
section 154.
 If a person has been declared by a court of competent jurisdiction as defaulter in
repayment of loan to a financial institution then he cannot be a director. This
disqualification is applicable only in case of listed companies.
 If a person is engaged in business of brokerage or is a spouse of such person or is
a sponsor, director or officer of a corporate brokerage house then he cannot be a
director in a public listed company.
Any person who wants to qualify as a director must be free of all of these
disqualifications.
Another thing which may also be considered for qualification of director is
section 167 of Companies Act 2017.
It states that any person cannot be appointed or elected as a director unless he
gives his written consent for this appointment or office. This consent must be sent
to registrar within 15 days of this consent. It is also one of the requirements which
must be there before a person can be elected or appointed or nominated as a
director. In all such cases, the written consent to act as director is necessary.

Vacation of Office of Directors

The directors may cease to hold their offices if they have been disqualified under law or secondly
if any other thing happens.

Now we will be seeing the ways other than disqualification by which the office of director may
become vacant.

The first way in this regard may be that the term of the office of director has ended. With
reference to the term of office of directors, section 158 of Companies Act 2017 says that the first
directors will cease to hold their office at the time of first general meeting of the company. In
first general meeting of the company, the first directors will retire and in place of them other
directors shall be appointed. Afterwards, when the first election of directors would be held then
at the time of election of directors all of the previous directors who were nominated by the
members of company shall cease to hold their office. The term of office of first directors is till
first general meeting. The term of any elected directors is 3 years. Section 161 says that the
persons who are elected as directors shall hold their office for 3 years unless they resign or are
disqualified or due to any other reason like death cease to hold the office.

If a person or a director dies then in such case any other person may be appointed by the board of
directors as a director who will complete the tenure which was there for deceased director.

In any case, whenever the term for office of director comes to an end then he will cease to hold
the office and his office will be vacated.

Another reason where a director might cease to hold his office is the removal of directors. It is
given under section number 163. According to this section, the members of a company may pass
a resolution so as to remove a director who may be a first or subsequent director or who may also
be an elected director. He may also be a director who was appointed by board of directors to fill
a casual vacancy. Any such director may be removed by the company after passing a resolution
in a general meeting. In order to remove an elected director, the resolution must be passed by
votes excessive than the votes which the director received to be elected as a director.

According to section 171 of Companies Act, in certain ways ipso facto the director’s would have
been considered to be vacated.

If any of these things happen due to this particular fact of happening any of these things, then the
office of director would be considered to have been vacated.

Under section 171, first condition is that when a director becomes ineligible to hold the office
due to the disqualifications given under section 153. If on any one or more of the grounds for
disqualification are fulfilled then the director will ipso facto cease to hold the office.

Then the second condition is that if a director keeps himself absent from three consecutive
meetings of board without seeking any leave or permission by the board then he will not remain
the director because the main duty of director is to manage affairs on behalf of the company and
if he does not come to the meetings of the board of directors and remain absent for three
consecutive meetings then he will cease to hold his office.

Then, if a director accepts any office or any beneficial position in any other company or in any
other firm without seeking permission by the board or by the resolution of the general meeting
then if a director holds these positions (other than any technical positions like if he is working as
a technical or legal adviser that is exempted) he will not remain a director in that particular
company.

If a director has accepted any loan without making proper disclosure to the company then he will
not remain a director.
Clause 2 of section 171 gives the power to the company to provide any other ground for vacating
the office of director. In addition to above mentioned grounds a company can by virtue of its
articles impose any other condition for vacating the director of the office.

Disqualification order by the Court

Another possibility that a director may not remain a director of a company where he is
disqualified under section 172 and this disqualification is by the commission. Under section 172
the commission may pass a disqualification order against any person who has been holding the
office of director and by virtue of this order he shall be disqualified to act as a director for a
period of 5 years. These 5 years would start from date of the order. There are circumstances
given under section 172.

 The first ground whereby a person shall be disqualified to act as a director by the
commission is that where he has been convicted for any offence related to
promotion, formation, management or liquidation of a company or with the
receivership or management of company’s property.
 If a director has remained incapable of proper submission such as he was required by
law to provide certain accounts of the company or any other document which was
required to be found and sent to the commission or registrar then director may be
declared to be disqualified.
 If a person was director of the company which became insolvent or the director left
the company and within the period of 2 years that company became insolvent then
the commission may also give disqualification order.
 If a person is attached to a company whose business is carried on to defraud its
creditors or it is carrying on any fraudulent purpose or activity or it is trying to
defraud any other person or it is carrying on business which is oppressive or in
violation of rights of its members then the director may be declared to be
disqualified by the commission.
 If a person was concerned with formation of company or was concerned with
management of its affairs and he is himself guilty of fraud or any breach of his duty
or he has remained involved in misconduct of company’s business or the company
of whom he is a director has done its activities in such a way that shareholders rights
have been violated or their share of the profit has been minimized due to wrong
activities of the company then the director may be declared to be disqualified.
 If a director has allotted the shares of the company for wrong consideration or for
less consideration the he may also be declared to be disqualified.
 If a person has acquired illegal deposits on behalf of the company without any
lawful authority or the company was not entitled to receive deposits but he received
that then he may also be declared to be disqualified.
 If a person has committed any offences or wrongful activities related to financial
regulations then he may also be declared to be disqualified.
 If a person has been a director of the company which has acted against sovereignty
of Pakistan or interests of Pakistan or against friendly relations of Pakistan with
other states
 If a person is director of the company which is not acting in accordance with its
articles or memorandum or it has denied and refused to act in accordance with these
documents or it is not carrying out the orders of the commission
 If a person is involved in malpractices or market manipulation practices etc.
 If a person has entered into plea bargain with NAB or any other regulatory body
 A person who has been declared as defaulter by the Securities Exchange
 Any other ground which is in accordance with the public interest can also be
considered to declare disqualification.
These are the grounds due to which a person may be disqualified by the commission
to act as director for 5 years. If there are two orders on different accounts then these
orders will run concurrently/side by side. It is the duty of the commission that before
passing such order to approach the concerned person and such person would be
provided enough opportunity to provide his defense or point of view over the matter.
This order can be passed against any person on any complaint received by the
commission or by own motion of the commission.

Election of Directors
The main category of directors is the director who is elected by the members of the
company. This election of directors is mainly held under section 159.
The steps or necessary actions which are to be performed before the elections are
actually held are given below:
First step is fixing the number of directors. Under section 154, the minimum
numbers of directors for different companies are given. Before the election of
directors the existing directors of that company shall fix the number of directors.
This number should be fixed in accordance with provisions of section 154. The exact
number of directors who shall be elected in the general meeting of the company shall
be fixed. This number shall be fixed at least 35 days before the meeting is
conducted. Whenever this number is fixed it shall not be changed afterwards unless
with approval of the general meeting in which elections are to be held. If the general
meeting allows that number will be changed then changing in number of directors is
possible. Otherwise, the number which has been fixed by the director shall be
elected.
Second step is the notice of meeting. Whenever, the directors have fixed the number
of directors to be elected then it shall be notified to the members. The members of
that company shall be given the notice that a general meeting of this company is
going to be held and it shall state first of all the number of directors as fixed by the
existing directors then it shall also state the names of retiring directors. It shall also
tell about the date on which this meeting is going to be held.
The third step is the notice of intention by the person who wants to contest the
election. Whenever, a number has been fixed and a notice has been sent to the
members of the company then any person who wants to contest the election of
directors shall give his consent to act as director to the company. Moreover, he shall
file this consent to the company at least 14 days before the date of election. This
notice of intention would state that this particular person with these particular details
wants to contest the election of directors. Any person who has represented himself as
the contestant can withdraw this notice of election before election.
Fourth step is the transmission of notices to the members. All of the notices of
intention shall be transmitted to the members of the company as they have already
been sent to the company. At least before 7 days before election all of the members
shall be notified about the persons participating in the election of directors. The
name of the contestants shall be disclosed to the members of the company. This
notice shall also be published in 1 English and 1 Urdu daily newspaper which have
very wide circulation.
These are the main steps which are followed by the company before the actual
election gets started. After completion of preliminary steps, the actual elections will
start.
There are two conditions given under clause 5 of section 159. First condition is that
if the number of contestants is equal or less than the actual number of directors to be
elected then all of them will be chosen as directors without going into any election.
In second condition, if the number of contestants is more than the actual number of
directors to be elected then the procedure of election given under clause 5 of section
159 shall be followed. In such a case, the number of directors which has been fixed
by the existing directors of that company under clause 1 of section 159 then the
number of such directors shall be elected by the members of the company in the
general meeting. As the notice of such meeting has been transferred to the members
so those members will gather and they will carry out the procedure of election.
During this election, there are certain ways or certain special procedures for these
elections. Normal voting procedure is not followed in cases of election of directors
rather cumulative voting should be done. The procedure is that first of all every
member shall have the number of votes which is equal to product of number of
directors which are to be elected and the number of securities which he holds. Let’s
say a member holds 100 shares in a company and the numbers of directors which are
going to be elected are six. Six shall be multiplied by 100 and in this particular
election he shall have 600 votes. In this way, a person can participate in voting
process. Then, every member participating in voting shall be given a certain number
of votes as above mentioned. This number of votes can be given to a single
candidate and they can also be distributed among different contestants. In this way,
 votes are casted. Afterwards, the votes shall be counted simply and the candidate
who has obtained the maximum number of votes should be declared to have been
elected as a director. Then, the contestant 2nd in position shall be declared to be the
director and so on. The persons who have been declared as directors should be the
persons who are among the maximum takers of the votes. There might be position or
possibilities whereby the minority share holders may also get any director to be
elected. Let’s say if in accompany there are 10 thousand shares and in the elections
there are three directors which are to be elected. The total number of votes shall be
10 thousand multiplied by three. In that company, out of 10 thousand total shares 7
thousand shares are held by the majority members and 3 thousand shares are held by
the minority share holders. For example there are four contestants. Three of them are
the candidates by the majority share holders and one candidate by minority share
holders then in this particular position minority shareholders have got 9 thousand
votes and majority share holders have 21 thousand votes. In this particular case,
there would be a possibility that the minority shareholders may get their candidate to
be elected as director by giving him 9 thousand votes. On the other hand, majority
share holders can get only two their candidates to be elected as directors.
This particular procedure for election of directors is mainly beneficial for the
minority shareholders due to which if they act diligently and get successful in
managing their votes they may get their candidate elected as a director.
This is the procedure of election for a company with share capital. If there is a
company without share capital like company limited by guarantee without share
capital or unlimited company not having share capital then there procedure of
election shall have been mentioned in their articles of association.

Powers of Directors
Section 183 tells about the rules and provisions regarding powers of directors. These
powers can be classified into 2 types.
 General powers of management
 Specific powers of directors
1. General Powers of Management
It says that the business of a company shall be managed by the board. Basically it is
giving powers to board of directors to run the general affairs of the company. All of the
matters which are related to the business of the company shall be carried on by the
directors. Here we are referring to the board of directors because directors shall
collectively take on these things and decide upon such matters. In this sense, the powers
of the board are co-extensive with the powers of the company itself because they are
performing all of these things for the sake of the company. All of such affairs which are
related to the daily and the routine/normal management of the company can be exercised
by the board. However, the restriction on such powers is also mentioned in clause 1 of
section 183. The directors cannot exercise such powers which are required by law or by
 articles or memorandum of the company to be exercised by general meeting of that
company. There are some matters about which members of the company and their
general meeting has to make decisions. The directors cannot make decisions on such
affairs or issues. For the efficient management of the company and for carrying on the
business of the company the general management powers are for the board and board can
exercise all of those things. It is required by the board to exercise these powers by
following the manner or the way which is prescribed by the Companies Act 2017,
memorandum or articles of the company.
The specific powers for the members of the company which are to be exercised in the
general meeting cannot be exercised by the board because they are specially reserved to
be decided in the general meeting of the members of that company.
2. Specific powers of Directors
Clause 2 of section 183 gives us the list of some powers which may be said to be the
specific powers. These powers can be exercised after passing a resolution in their
meeting. These powers of board are to be completed or undertaken by the board and for
this particular purpose directors in their board meeting shall pass a resolution and by
virtue of that resolution these powers can be exercised. The list of such powers is given
below.
 First power is to issue shares. It is the power of the board to issue shares but how
the shares will be issued for this purpose they shall discuss these things and pass a
resolution in their meeting and according to majority decision they can issue
shares.
 They can also issue debentures so as to raise loan. Debentures are also to be
issued by the directors.
 If the directors want to borrow money for the sake of the company by some other
ways by obtaining some loans other than debentures they can do these things also.
 The funds which are available with the company or the capital of the company
shall be invested in a particular business. These investments should be made by
the directors.
 The company can also lend money/make loans to other persons. Giving money as
loan to someone else is also a power of the board.
 The board can also authorize a director to enter into contract with another
company for rendering services by the company or supplying goods or purchasing
goods. If a company wants to render services to another company or it want to
supply its goods or it wants to acquire certain goods from another company then
any of the directors may be authorized to act for the sake of this company. This
authorization shall be made by the board of directors.
 Another power of board is to approve financial statements. There are different
statements including the financial statements which are to be prepared by the
company. After preparation, these shall be approved by the board firstly before it
can be submitted to general members or the registrar or commission etc.
 Another power of the board is to approve payment of bonuses to the employees of
the company. Employees may get some extra rewards on yearly basis on some
special performance etc. This bonus shall be authorized and approved by the
board of directors.
 The board can dispose off any fix asset or any special asset or instrument which
was there for a fixed period of time so it is the power of board to dispose of that
particular asset. There might be guidelines for disposal of such assets as described
by the commission etc. These guidelines shall be followed.
 The company can also acquire fix assets. These assets may include water or land
etc. It is also the power of board to acquire these assets. Acquisition and disposal
of these assets is the power of directors. There might be some rules for doing as
prescribed by law or articles which should be followed.
 The board may also enter into leasing contracts on behalf of the company. These
leasing contracts would consist of certain rights and obligations for the company
which should be fulfilled. The determination of terms of such contracts shall be
determined by the board of directors.
 To declare interim dividend (Dividend is to pay the part of profit to the members
of the company) and what is to be given to the members is to be decided by the
board. If any interim dividend is going to be paid to the members then it should
also be decided by the board.
 It is also the power of the board to write off bad debts, advances and receivables.
Bad debts are those debts which are not shown/assumed to be received in the
future. Instead of keeping those debts, the board may write off or cancel those
debts on some special terms which they have decided in their meeting
 The assets which are available to the company. The value of such assets if they
are not going well can also be taken off from the accounts of the company.
 If the company is going through legal proceedings then it can compromise that
claim or it can release or relinquish the right of the company. These compromises
and these deals must be made keeping in view the best interest of the company.
However, it is the power of the board to decide that when and how claim of a
company may be compromised or any right which is the right of the company
may be released or relinquished keeping in view the interest of the company.
 If a company wants to take over another company or to acquire substantial shares
in another company then these things shall be decided by the board.
 If there is any other matter which is specified by law or by articles of the company
then such matter can also be taken over and decided upon by the board.
All these matters are not to be decided by one or two directors rather resolutions
upon such matters shall be passed in the meeting of the board in accordance with
the majority decision of the board these matters should be decided.

Restrictions on the Board

The restrictions on the board are given in section 183. Section 183 says that there are some
things which are not to be done by the board. Some of these things may be done with the
approval of the general meeting of the company otherwise the board is not authorized to do these
things.

 If the directors want to sell out or lease or otherwise dispose off and there is any property
or undertaking in which the investment of the company is more than 20 percent it shall be
required that first of all the board shall take the consent of the general meeting of that
company.
 If there are some assets which occupies more than 25 percent of the total investment of
the company they are termed as sizeable part. These sizeable parts can also not be sold or
leased out by the board on its own except by the approval of the members of the company
in its general meeting.
 If there is a subsidiary of a company, the board cannot on their sell the subsidiary.
 If there is any outstanding debt which is to be paid by any person and especially a debt
which is to be paid by the director of a company then the term of that debt cannot be
extended by the board. This debt can neither be released by the board. In certain cases, a
director may get loan from the company but such loan cannot be released/remitting by the
board itself. If board wants to do these things they require the approval of the general
meeting of the company.
 There is another restriction on listed companies. If a listed company wants to sell out its
property in a way that it would lead to closure of its business, it means that there is a
property of the company and it is so significant if that property or asset is sold it would
lead to closure of business of the company. Listed Company cannot do this unless there is
an alternate plan to that sale. If a listed company has an alternate plan only then such
property can be sold otherwise not even with the approval of the general meeting.

For these things, the resolutions by the company would be needed. If the members of the
company have passed a resolution authorizing the board to perform any of these things and
the board fails to perform such things with in 1 year then such resolution will die and will be
off no effect.

There is another restriction on the company and the board under section 184 which is to
make political donations. Any company cannot make political contributions. It cannot give
donations to political parties. In the same way, it cannot give donations or contributions for
any political purpose to any person or any party or anybody. If a company has made any
political contributions then the company shall be liable to the penalty on level 2 of the
standard scale. The directors or officers involved in this contribution shall be imprisoned and
imprisonment may be of any description and time period for imprisonment may be up to 2
years. They shall also be liable to fine of 1 million rupees.
  Another restriction is on making of gifts to the members as given under section 185.
The company and the board are not authorized to distribute gifts of any form in its
meeting. If any company has made or distributed gifts among its members then it will
be an offence which can be punished on level 1 of the standard scale.
These are the different restrictions imposed on the board because when we are talking
about restrictions of the company as it is given under section 184 and 185 we are
basically also talking about board because these decisions are mainly made by the
board.

Procedure of meetings of the Board

Generally, it is the articles of association of a particular company which lays down the procedure
of meetings of the board, how their meetings shall be concerned, what shall be the frequency of
their meetings, number of meeting to be held by board, notice of those meetings, adjournment of
those meetings etc.

Section 176 has given some of the main and basic procedural rules for board meetings.

 The first thing in the meeting is its quorum. The quorum for meeting of the board of a
listed company shall not be less than one third of the number of directors or four
whichever is greater. Any director who is participating in the meeting using video
conferencing or any other electronic means shall also be included among the quorum.
This is an important thing because it is there in objects of preamble of Companies Act
2017 that it is there to facilitate the use of electronic means for the conduct of
business of company. An exception here is that if there is a casual vacancy and the
purpose of the company is to fill the casual vacancy and in this particular meeting the
quorum is not complete then in this case the directors who are present even though
less than the quorum would be taken as the quorum. This is quorum of board of a
listed company. Any other company shall have its quorum in its articles.
 It is required that the board of a public company shall meet at least once in a one year.

If the board has conducted its meeting in absence of quorum or there is no meeting held
in a particular year then the chairman as well as directors shall be liable to penalty on
level 2 of the standard scale if it was a public listed company. If it was any other
company which is a non listed or a private company the chairman of the board and
directors all of them shall be liable to penalty of level 1 on the standard scale.

There is another requirement related to the meeting of the board under section 178 that
every company shall keep records of its board meetings. All of the resolutions which
have been passed by the board shall be recorded. In the same way, the minutes of all of
the meetings of the board along with the participants of that meeting shall also be
recorded and kept properly. Everything which has been decided or recorded in a
particular meeting shall be properly maintained and they should be entered into properly
maintained books of that company. The recording of minutes of the meetings is very
important because it is the evidence that a particular meeting was held. If the minutes of a
particular meeting are properly recorded then it shall be the evidence that this meeting
was duly called and it was duly held. Moreover, the copy of minutes of every meeting
shall be furnished to every director of that company within 14 days of that meeting. All
of these records shall be kept at the registered office of the company in physical form as
well as in the electronic form. These shall be preserved for a period of 10 years in
physical form and in electronic form they shall be preserved forever. If any default is
there in keeping records of the meetings and resolutions then it shall be an offence which
is punishable on level 1 of the standard scale.

There is another special way of passing resolution called passing resolution by

circulation. The directors who are entitled to participate in a particular meeting or are
entitled to receive notices of the meeting and if that meeting is not properly held or
notices are not properly issued but the board has passed a resolution in writing and all of
directors have signed the resolution then it will be considered that this resolution has been
properly passed in a meeting which was properly held or conducted. This resolution must
be presented to every director along with the necessary documents and if every director
has signed the resolution which was presented and circulated to him then the resolution
will considered to be passed. When any resolution is passed in this way then it shall be
recorded in next meeting of board and it shall be made part of the proceedings of that
meeting and this resolution when passed properly cannot be withdrawn or revoked
afterwards.