CH 4

4.
Directors and other officers Page 56
Ch # 4: Directors and other officers
Directors are the persons who are responsible for day to day operations of the business,
and take decisions in their board or committee meetings. It is important to know how
directors work, what are their duties, powers, interests and liabilities.
As per the definition of director prescribed in the Companies Act 2017, “director means
any person occupying the position of director by whatever name”. Now the definition
clearly means that there is different type of directors working in or for a company. In
this chapter we shall be trying to get an understanding to these different directors along
with the rules for their appointment, election, removal and the tenure of directorship.
There are some other directors also in case of listed companies, we shall be
understanding those inter-alia different regulations regarding those directors in the
chapter of “Code of Corporate Governance”
Like the previous chapter of “Meeting”, this chapter is also fundamental to the users of
this book regarding importance. Students must be able to demonstrate and apply their
knowledge in the practical sceneries presented in the papers of different professional
qualification encompassing the Companies Act 2017.
After you are familiar with the management of company through its directors, it is
important to know that there are also some other officers performing the duties
assigned to them under Companies Act 2017. This chapter also encompasses rules and
regulations framed by the Companies Act regarding the appointment, removal,
qualification criteria and functions of these officers. This chapter also guides the
maintenance of a register for all such officers and making of entries therein. This
chapter also covers selected area from the “Directors and Secretaries Guide by SECP” to
make the students more familiar with the functions of a company secretary that has not
been properly covered in the Act. Although that area specifically is not part of the
syllabus, however it is critically important for understanding the secretarial practices
required to be exercised by a company secretary regarding different dimensions of its
functions.
Two different regulations, dealing with the connected issues of companies act presented
in this chapter, are also part of this chapter. In a nut-shell this chapter would be guiding
you with all the concepts of management and the officers. Users are directed to use this
chapter in conjunction with chapter 25 (i.e. code of corporate governance)
4. Directors and other officers Page 57
Main Contents of the Chapter

 Introduction and Appointment of Directors
 Election of Directors
 Removal of Directors
 Meetings of Directors
 Duties, Liabilities and Powers etc. of Directors
 Interest of Directors
 Chief Executive and Chairman
 Sole purchase, sale or distribution agent
 Company Secretary and Share Registrar
 Auditor
 Register of Director and other Officers
Syllabus Area Covered by the chapter
A 1.1: Companies Act, 2017

(Section 98, 99, 153-198, 204-213, 246-253)
A 1.4: Companies (General Provisions & Forms) Regulations, 2018
(Regulation 20 to 24)
A 1.7: Companies (Related Party Transactions & Maintenance of Related Records)
Regulations, 2018 (Regulation 3 to 6)
A 3.6: Companies (Manner and Selection of Independent Directors Regulations, 2018)
Level of Completeness:
100% (except transitional provisions)
Introduction and Appointment of Directors
Director – 2(25)
Includes any person occupying the position of a director, by whatever name called
Minimum number of directors of a company (sec 154)
SMC  At least 1
Other private  At least 2
Public (unlisted)  At least 3
Public (Listed)  At least 7
 Only natural persons to be directors
 Public interest companies shall be required to have female representation on their board
as may be specified by the SECP
Reg # 23 - Companies (General Provisions & Forms) Regulations, 2018

Female representation on the board of public interest company
 BOD of a public interest company (not being a listed company), shall have at least 1 female
director having at least bachelor’s degree from an institution recognized by HEC
 A company having no female representation on its board, shall, in addition to its elected or
nominated directors, appoint at least 1 female director within 1 year of these Regulations
 This regulation shall not apply in case, a company has already female representation on its
board having requisite educational qualification
Number of directorships (Sec 155)

 No person shall, after commencement of this Act, be a director, including alternate director
at the same time in more than such number of companies as may be specified
(This limit shall not include the directorships in a listed subsidiary)
 Any casual vacancy on board of a listed company shall be filled up by directors at the
earliest but not later than 90 days from the date of vacancy.
Consent to act as director to be filed with registrar (Sec 167)
 No person shall be appointed or nominated as a director or CE or represent such positions,

nor shall any person name any other person as a director/CE or proposed director/CE,
without giving his consent in writing for such appointment or nomination.
 The consent given to the company shall be filed with registrar within 15 days thereof.
Contract of employment with directors (Sec 210)
 Every company, except private, shall keep at its registered office:

- A copy of the contract (where a contract of service with a director is in writing); or
- A written memorandum setting out its terms (where such a contract is not in writing)
 Copies of contract/memorandum shall be open to inspection by any member without fee.
Any contravention shall be an offence liable to a penalty of level 1
Compliance with the Code of Corporate Governance (Sec 156)

SECP may provide for framework to ensure good corporate governance practices and the
connected matters for companies or class of companies in a manner as may be specified.
Different type of Directors
Type of Sec # Method of Appointment Tenure

Director
First 157 Names & numbers are determined by subscribers Till 1st AGM
Director to MOA and their particulars shall be submitted (N-1)
along with the documents for incorporation
(number of 1st directors may be increased by
appointing additional directors in general meeting)
Subsequent 159 Method of election 3 Years

(Elected) (see upcoming units for more details) (N-1)
Substantial 162 Where a person acquires requisite shareholding to 3 Years

Acquirer get him elected as a director, he may require the
(N-2) company to hold fresh election of directors
Casual 161 Remaining directors shall fill Remaining

Vacancy (Not mandatory unless number of directors are time
reduced below minimum directors)
Nominee 164 By company's creditors or other special interests As per terms of

Director by virtue of contractual arrangements. contract
Body corporate/corporation owned or controlled

by FG/PG may also have directors nominated on
board to whom such corporation or company has
extended credit facilities.
Directors 165 Directors nominated by: Shall hold

representing  A body corporate or company or any other office during
special entity owned or controlled, whether directly or pleasure of
interest indirectly, by FG/PG on board of company in nominating
which it has made investment; body
 Virtue of investment made by FG/PG/SECP (N-3)
 Foreign equity holders on board or any other
body corporate set up under a regional or other
co-operation arrangement approved by FG.
Alternate 174 Actual director being out of Country for not less During actual
Director than 90 days director’s
(With approval of other directors an alternate/ absence from
substitute director can be appointed) Pakistan
Non-executive director (for the purpose of Sec 181 only)

Means, a person on the board who:
 Is not from among the executive management team and may or may not be independent;
 Is expected to lend an outside viewpoint to the board;
 Does not undertake to devote his whole working time to company and not involve in
managing the affairs of the company;
 Is not a beneficial owner of company or any of its associated companies or undertakings;
 Does not draw any remuneration from the company except the meeting fee.
Notes:
1)Retirement of directors (Sec 158, 161)

 Retiring directors shall continue to perform functions until successors are elected; and
 Shall take immediate steps to hold the election of directors and in case of any hurdle report
circumstances to registrar within 45 days before due date of relevant AGM/EOGM
 Holding of AGM/EOGM shall not be delayed for more than 90 days (or extended time
allowed by registrar) from due date of meeting, for reasons to be recorded, in exceptional
circumstances beyond the control of directors, or in compliance of any order of court.
 The registrar may, on expiry of above period, direct the company to hold AGM/EOGM for
the election of directors on such date and time as may be specified in order; Either on:
- Its own motion; or
- Representation of members holding at least 10% voting powers in a company having
share capital or members comprising at least 10% of the total members of the company
not having share capital
 Any officer or other person who fails to comply with such direction liable to fine of level 2
 Term of office of directors of a company limited by guarantee and not having share capital
may be a period of less than 3 years as provided in AOA
2) Fresh election of directors on request of substantial acquirer (Sec 162)
 Number of directors fixed in the preceding election shall not be decreased.

 Listed company shall follow such procedure as may be specified by the SECP
 Board shall, as soon as practicable but not later than 30 days from receipt of such
requisition, proceed to hold fresh election of directors of the company.

Fresh election of directors of a listed company
Substantial acquirer shall file a requisition along with following documents to

company:
 Evidence of acquisition of requisite shareholding to get him elected as a director;
 Affidavit that he has complied with requirements of all relevant laws while acquiring; and
 An undertaking that he shall not dispose of the shares till next election of directors
Notice of the meeting (for fresh election) shall also disclose the fact that fresh elections
are being held on application of a member under section 162 of the Act:
3) Certain provisions not to apply to directors representing special interest (sec 165)
 Provisions of election, term of office and removal not applicable to these directors:
 If the authority/person nominating him wishes to cast votes at election to others as well
Votes available at election of directors shall exclude those minimum votes which
would have been sufficient to elect such director if he had contested election
Numerical example of available votes in sec 165

For example....
If nominating body have some 100,000 shares and they have already designated 1 director
Tutor Note on this company using the powers of special interest section....
Now say company is going for election with 12 number of seats....
So this body would have some 12x100,000 = 1,200,000 votes available for casting....
But as they have already appointed one director without voting we would exclude some
votes....
How much....
The minimum number of votes that were secured by the director who got least number of
votes in previous election and was selected at last place....
Now for example last time the last elected director (the one with minimum votes in
successful candidates) got 230,000 votes....
Then the appointing authority would exclude (minus) 230,000 votes from those 1,200,000
votes and now they would be participating the election with 970,000 votes (if they wish to
cast votes to other directors as well)
Hopefully the user of book have properly got the example and point.
Independent Directors (Sec 166)

A director who is not connected or does not have any other relationship, whether pecuniary or other,
with company, associates, subsidiaries, holding or directors; and he can be reasonably perceived as being
able to exercise independent business judgment without being subservient to any conflict of interest
No director shall be considered independent if one or more of following circumstances exist:

 Has been employee of company, its subsidiaries or holding company within last 3 years;
 Is or has been CE of subsidiaries, associated undertaking or holding company in last 3 years
 Has, or has had within last 3 years, a material business relationship with company either
directly, or indirectly as a partner, major shareholder (10% voting power individually or in
concert with his family or as part of group) or director of a body having such relationship.
 Has received remuneration in 3 years preceding his/her appointment as a director or
receives additional remuneration, excluding retirement benefits from company apart from
a director’s fee or has participated in stock option or a performance-related pay scheme;
 Is a close relative of the company’s promoters, directors or major shareholders:
(close relative means spouse, lineal ascendants and descendants and the siblings)
 Holds cross-directorships or has significant links with other directors through involvement
in other companies or bodies not being associations licenced u/s 42;
 Has served on board for more than 3 consecutive terms from date of his first appointment,
and for more than 2 consecutive terms in case of a public sector company
(such person shall be deemed “independent director” after a lapse of one term)
 Person nominated as a director or representing special interest (u/s 164 & 165)
For public sector companies, time period shall be taken as 2 years instead 3 years in first 3
conditions. An independent director in case of a public sector company shall not be in service of
Pakistan or any statutory body or any body or institution owned/controlled by Government.
Independent director of a listed company shall be elected in the same manner as other
directors are elected (u/s 159) and the statement of material facts annexed to the notice shall
indicate the justification for choosing the appointee for appointment as independent director.
Maintenance of a databank of independent directors

 An independent director to be appointed under any law, rules, regulations or code, shall be
selected from a data bank containing names, addresses and qualifications of persons who
are eligible and willing to act as independent directors
 It shall be maintained by any institute, body or association, as notified by SECP, having
expertise in so; and post on their website for use by the company making appointment
(Exercising due diligence before selecting a person from data bank lie with company/Govt)
 The manner and procedure of selection of independent directors on the databank who
fulfill the qualifications and other requirements shall be specified by the SECP.
Requirements of maintaining databank shall be deemed relaxed till such time a notification is
issued by the SECP and may be relaxed by SECP on an application made by company supported
with the sufficient justification or the practical difficulty, as the case may be.
Companies (Manner and Selection of Independent Directors) Regulations, 2018
Eligibility criteria for person desirous of inclusion in databank
 A person who:
- Either holds at least a graduate degree from a university recognized and approved by
HEC or is a member of a professional body; and
- Has at least 5 years of relevant experience in one or more of the fields of finance, law,
management, sales, marketing, administration, research, corporate governance,
technical operations or other disciplines relevant to the company’s business; or
 Has at least 15 years of relevant work experience in the above mentioned fields; and
 Person is willing to act as an independent director
 Can confirm that on appointment, would devote reasonable time to affairs of company in
order to enable him/her to discharge his/her stewardship responsibilities as given under
applicable law, corporate governance directives and if applicable, licensing requirements.
The expression, “professional body” means:

 Established in Pakistan, governed under a special enactment of the Federal Government as a
self-regulatory organization manged by a representative National Council, and has a
prescribed minimum criterion of examination and entitlement of membership of such body; or
 Established outside Pakistan and established under a special enactment in the country of its
origin and which is a member of the international body relevant for such field.
Directors’ Training Program
Independent director, after being appointed/ elected on board, shall complete Director’s
Training Program or avail exemption from SECP as per requirements of Listed Companies
(Code of Corporate Governance) Regulations, 2017 within 12 months of appointment etc.
Procedure and manner for inclusion of person desirous of inclusion in databank
 Any person so desirous and is eligible shall apply to institute with all relevant details
 Every Director Training Institute / organization (approved by SECP) shall provide
following details to institute within 15 days of any individual completing the DTP
- Name of Director
- CNIC / Passport # (if applicable)
- Year of completion of DTP
- Email address (if available)
Maintenance of data bank by the Institute
 Place the information on process of registration in databank, eligibility criteria, fees and
documents and other relevant details on its website
 Ensure that information shall be in format easily accessible & downloadable by applicants.
 May determine necessary measures, conditions and procedure for including and retaining
details of individuals in the databank.
 May fix a fee, with approval of SECP, to be paid by individuals for their names in databank.
Every person whose name is included in databank shall be responsible for the accuracy, adequacy
and completeness of the information and particulars provided by him/her to the institute
Database of indepnednt directors shall not include name of any person who has been:
 Ineligible under any applicable law
 Debarred by SECP
 Convicted by court of any offense involving moral turpitude or fraud
 Convicted in mismanagement of investments in any capacity
 Involved in management of any company whose registration or licence have been revoked
or cancelled or have gone into liquidation or other similar proceedings due to
mismanagement, misconduct of malpractices
 Entered into plea bargain arrangement with NAB
Responsibility of company and disclaimer by the Institute
 Company shall be responsible for exercising its own due diligence before selecting an
individual form the databank for appointment as independent director.
 Company shall require such individual to submit an undertaking on a non-judicial stamp
paper that he/she meets the requirements of this regulation with supporting information.
The institute shall conspicuously display the following disclaimers on its website:
“It is responsibility of every person appointing independent director, to exercise due diligence in
terms of requirements of Act or applicable laws for purpose of selecting a person from data bank;
Inclusion in databank does not guarantee selection as an independent director; institute shall
neither guarantee nor make any representation regarding the accuracy and or reliability of the
information about any person whose name has been included in the databank; and
Institute shall not be responsible for any contravention of any law committed by any company or
its directors by the reason of the fact that person appointed by company as an independent
director was selected from the databank nor it will be a defence in any court of law.”
How will independent director be elected?

[Q#25 of FAQ of Listed Companies (Code of Corporate Governance) Regulations 2017]
In view of the requirements of Section 153 and 166 of the Act, an independent director shall
Tutor Note be a member. However such member shall, in addition to test and circumstances of
independence as stated in Section 166 of the Act, not hold more than 10% of the shares of
the Company. Therefore, the requirements of being member shall be fulfilled by such
independent director prior to contesting elections. In this regard, companies shall facilitate
such directors by making amendment in their Articles of Association regarding
qualification shares, where required.
The conduct of the election and removal of independent director/s shall be made in
accordance with the election procedures as per Section 159 and 163 of the Act respectively
and articles of association of Company. Further, the statement of material facts annexed to
the notice of the general meeting called for the purpose of elections shall indicate the
justification for such person/s contesting election as independent director. Moreover, it
shall be the responsibility of the Chairman of the Meeting to inform all members in
attendance of the mandatory requirement of electing independent director/s. Chairman
shall also ensure that an independent director/s are elected during the general meeting and
specific slot/s for independent directors shall not be filled-up by unqualified nominees.
Section 166(2)(g) of the Act provides that an independent director shall not be
considered independent if he has served on BOD for more than three consecutive
terms from the date of his first appointment provided that such person shall be
deemed independent director after a lapse of one term. If an independent director
fills casual vacancy and holds office till conclusion of the remaining term, will
his/her remaining term be considered a complete term?
[Q#5 of FAQ of Listed Companies (Code of Corporate Governance) Regulations 2017]
The Act has used the word term and not number of years. In terms of Section 161 (2), a
director filling casual vacancy shall hold office till conclusion of the remaining term. This
implies that in case of casual vacancy, regardless of remaining number of months/ years,
such remaining term shall be considered as a complete term. Accordingly, an independent
director filling casual vacancy, shall have two more consecutive terms in that particular
company. Similarly, if an independent director resigns or vacates office of director before
the next election of BOD, he shall have two more consecutive terms in that particular
company. Further, there is no provision for relaxation of clause (g) of proviso to sub-
section (2) of section 166 of the Act.
Election of Directors
Procedure for election of directors (Sec 159)
 Directors of Co shall, fix No of elected directors not later than 35 days before general
meeting at which directors are to be elected
- Number so fixed shall not be changed except prior approval of general meeting in which
election is held
 Notice of meeting shall expressly state-
- No of elected directors fixed; and
- Names of retiring directors.
 Any person who seeks to contest in election of director shall (whether he is a retiring
director or otherwise), file with Co a notice of his intention at least 14 days before meeting
- Notice may be withdrawn at any time before holding of election
- All such notices received by Co shall be transmitted to the members at least 7 days
before meeting
- For listed company: Such notice shall be published in English and Urdu languages at
least in 1 issue each of a daily newspaper of respective language having wide circulation
 For Co having share capital (where No of contestants > No of directors fixed)

- Votes = No of voting shares or securities held x No of directors to be elected.
- Member may give all votes to 1 candidate or divide them between more than 1
- Candidate getting highest votes elected as director and then candidate getting next
highest votes shall be so declared and so on until total directors elected.
 For company limited by guarantee, not having share capital

- Elected by members of Co in general meeting in manner as provided in AOA.
Powers of the Court to declare election of directors invalid (Sec 160)
 On application of members having at least 10% voting power

 Within 30 days of the date of election
Court may, declare election of all directors or any one or more of them invalid if satisfied
that there has been material irregularity in election procedures.
Removal of Directors
Directors can be removed

 By Members (through resolution)
 By operation of Law (vacation of office)
 By SECP through a disqualification order
Removal of directors through resolution (Sec 163)
Resolution for removal not deemed to have been passed if No of votes casted against
resolution (i.e. in favor of director) is equal to or exceeds:
 Elected Directors: Minimum No of votes casted at immediately

preceding election
 First / Casual Directors: Total votes [u/s 159(5)] divided by

/ Substantial Acquirer Number of directors for the time being.
Removal of directors by operation of Law – Vacation of Office
Vacation of office by directors (Sec 171)
 Becomes ineligible u/s 153
 Absents himself (without leave of absence) for 3 consecutive meetings of BOD; or
 He or any firm (of which he is a partner) or any private company (of which he is a director)
- Without sanction of general meeting accepts or holds any office of profit under Co other
than chief executive or a legal or technical adviser; or
- Accepts a loan or guarantee from Co in contravention of sec 182
[Any additional grounds may be specified in AOA for vacation of office by directors]
Validity of acts of directors (Sec 168)
 Any act of a director, or of a meeting of directors attended by him, shall not be invalid only
due to any defect (subsequently discovered) in his appointment
 Director shall not exercise right of his office till the defect has been rectified
Ineligibility to become director (sec 153)
 Minor;
 Unsound mind;
 Has applied to be adjudicated as an insolvent and his application is pending;
 Undischarged insolvent;
 Has been convicted by a court of law for an offence involving moral turpitude;
 Has been debarred from holding such office under any provision of this Act;
 Has betrayed lack of fiduciary behaviour (u/s 212) at any time during preceding 5 years;
 Does not hold National Tax Number (NTN) as per Income Tax Ordinance, 2001
(SECP may grant exemption from the requirement of this clause as may be notified)
 Not a member, except
- Person representing a member which is not a natural person
- Whole-time director who is an employee of the company;
- Chief Executive
- Person representing a creditor or other special interests by virtue of contractual
arrangements
Additional Ineligibilities only for Listed Co
 Declared by Court of competent jurisdiction as defaulter in repayment of loan to a

financial institution
 Engaged in the business of brokerage, or is spouse of such person or is sponsor, director
or officer of a corporate brokerage house
Exemption from the requirements of having an NTN by Director, to be eligible.
SECP has granted a general exemption to the directors of small size companies, as
defined under 3rd Schedule of Companies Act 2017 including agriculture promotion
companies, from the said requirements for a period of 2 years
Circular
Penalties for ineligible persons on acting as a director (Sec 175, 177)
 If any person being an undischarged insolvent acts as CE or director of a company, he shall

be liable to imprisonment up to 2 years or to a fine up to Rs 100,000 or to both.
 If a person who is not qualified to be a director or chief executive or who has otherwise
vacated the office of director or CE describes or represents himself as so, shall be liable to a
penalty of level 1
Disqualification of directors by SECP (Sec 172, 173)
In any of the circumstances given hereunder, SECP may pass a disqualification order against a
person to hold the office of a director for a period up to 5 years beginning from date of order:
 Conviction of an offence in connection with promotion, formation, management or
liquidation of a company, or with receivership or management of a company's property;
 Persistent default in relation to provisions of this Act requiring any return, account or
other document to be filed with, delivered or sent, or notice of any matter to be given, to
the SECP or the registrar;
 A person has been a director of a company which became insolvent at any time, while he
was a director or subsequently
(Order against any such person shall not be made after end of 2 years beginning with the
day on which the company of which that person is or has been a director became insolvent)
 Business of the company in which he is or has been a director, has conducted to defraud its
creditors, members or any other persons or for a fraudulent or unlawful purpose, or in a
manner oppressive of any of its members or that the company was formed for any
fraudulent or unlawful purpose; or
 Person concerned in the formation of the company or the management of its affairs have in
connection therewith been guilty of fraud, misfeasance, breach of trust or other misconduct
towards the company or towards any of its member; or
 Affairs of the company of which he is a director have been conducted in a manner which
has deprived the shareholders thereof of a reasonable return; or
 Person has been convicted of allotment of shares for inadequate consideration; or
 Person is involved in illegal deposit taking; or
 Person has been convicted of financial irregularities or malpractices in a company or
 Company of which he is a director has acted against the interests of the sovereignty and
integrity of Pakistan, the security of the State, friendly relations with foreign States; or
 Company of which he is a director refuses to act according to the requirements of the
memorandum or articles or the provisions of this Act or fail to carry out the directions of
the SECP given in the exercise of powers under this Act; or
 Person is convicted of insider trading or market manipulation practices; or
 Person has entered into a plea bargain arrangement with the NAB or any other regulatory
body;
 Person has been declared a defaulter by the securities exchange;
 That it is expedient in the public interest so to do.
An order under this section may be made by SECP on its own motion or upon a complaint
made in this regard.
Before making order, SECP shall afford the person concerned an opportunity of representation
and of being heard.
Any order made by SECP under this section shall be without prejudice to the powers of SECP
to take such further action as it deems fit with regard to the person concerned.
Personal liability for company’s debts where person acts while disqualified (Sec 173)
Person shall be personally responsible for all relevant debts of a public interest company if:
 In contravention of a disqualification, he is involved in the management of the company, or
(debts and other liabilities incurred at time when he was involved in management)
 As a person who is involved in the management of company, he acts on instructions given
without the leave of SECP by a person who is subject of a disqualification order
(debts and other liabilities incurred at a time when he was acting on instructions given)
Provided that where the decision is taken in the board, the disqualified director shall be
personally responsible to the extent of proportionate amount of liability so incurred.
Where a person is personally responsible under this section for the relevant debts of a
company, he is jointly and severally liable in respect of those debts with the company and any
other person who, whether under this section or otherwise, is so liable.
Public interest company – 2(53)

A company which falls under the criteria as laid down in 3rd Schedule to this Act or deemed to be such
company under section 216;
Whoever contravenes or fails to comply with provisions of sections 154 to 168 or is a party to contravention
of said provisions shall be liable to a penalty of level 2 and may also be debarred by the authority imposing
penalty from becoming or continuing a director of company for a period not exceeding 3 years (Sec 169)
Meetings of Directors
Proceedings of the board (Sec 176)
 The quorum for a board meeting of a listed company shall be the greater of
- 1/3rd of the number of directors; or
- 4
 Participation of directors by video conferencing or by other audio visual means shall also
be counted for the purposes of quorum
 If there are not enough directors to form a quorum to fill casual vacancy, all the remaining
directors shall be deemed to constitute a quorum for this limited purpose.
 Quorum for other than listed company shall be as provided in the AOA.
 Board of a public company shall meet at least once in each quarter of a year.
 Contravention of this section shall attract a penalty of
- Level 2 for listed company
- Level 1 for others
Passing of resolution by the directors through circulation (Sec 179)
 A resolution in writing signed by majority of the directors/committee of directors for the

time being entitled to receive notice of a meeting shall be as valid and effectual as if it had
been passed at a meeting of directors/committee duly convened and held.
 Before passing it, the resolution should be circulated with necessary papers to all directors
 Such resolution shall be noted at a subsequent meeting of board/committee and made part
of the minutes of such meeting.
 Directors’ agreement to a written resolution, passed by circulation, once approved, may not
be revoked.
SECP circular – BOD Meeting through tele/video conferencing

 Allowed to all directors of Listed or unlisted public Co
 Previously it was only allowed for directors abroad; Now directors in Pakistan can also
attend the meeting through tele/video conferencing
 Draft minutes shall be sent for confirmation to director(s) who participated through
this medium
Circular  Minutes shall be signed by chairman of the meeting
 It shall be responsibility of secretary to observe requirements of quorum and other
legal formalities.
 No need to record the tele/video conference
SECP circular – Meeting of BOD Abroad
 SECP wants to discourage meetings of listed companies abroad as this is undue
wastage of Co’s resources
 SECP has defined certain thresholds of number of meeting allowed (to be conducted
abroad) as per the foreign shareholding of the respective companies.
Duties, Liabilities and Powers etc of Directors
Duties of directors (Sec 204)
 Act in accordance with the articles of the company.

 Act in good faith in order to promote the objects of the company for the benefit of its
members as a whole, and in the best interests of the company, its employees the
shareholders the community and for the protection of environment.
 Discharge his duties with due and reasonable care, skill and diligence and shall exercise
independent judgment.
 Shall not involve in a situation in which he may have a direct or indirect interest that
conflicts, or possibly may conflict, with the interest of the company.
 Shall not achieve or attempt to achieve any undue gain or advantage either to himself or to
his relatives, partners, or associates and if such director is found guilty of making any
undue gain, he shall be liable to pay an amount equal to that gain to the company.
 Shall not assign his office and any assignment so made shall be void.
 SECP may provide for the extent of duties and the role of directors as may be specified.
Any breach of duty, default or negligence by a director in contravention of AOA or any of its
policy or decision of the board may be ratified by the company through a special resolution
and the SECP may impose any restriction as may be specified.
In addition to any other fine, contravention of this section shall attract a penalty of level 1
Liabilities of directors and officers (Sec 180, 181)
Any provision in AOA/Contract with Co for exempting any Director/CE/Officer or any person
(whether an officer or not), employed by Co as auditor, from, or indemnifying him against, any
liability that would otherwise attach to him in respect of any negligence, default, breach of
duty or breach of trust of which he may be guilty in relation to the company, shall be void
 Exemption: Co may indemnify any such Director/CE/Officer/Auditor against any liability
incurred by him in defending any proceedings (civil or criminal), in which judgment is
given in his favor or in which he is acquitted, or relief is granted to him by the court.
Protection to independent and non-executive directors
An independent director and a non-executive director shall be held liable, only in respect of
such acts of omission or commission by a listed company or a public sector company which
had occurred with his knowledge, attributable through board processes, and with his consent
or connivance or where he had not acted diligently.
Unlimited Liability of a Director
Limited company may have directors with unlimited liability (Sec 98)
 In limited Co (if provided by MOA), liability of all directors/any one may, be unlimited.
 On the appointment / election of a director,
- Fact (his liability will be unlimited) shall be disclosed in proposal,
- Furthermore the promoters & officers shall give him a notice in writing that his liability
will be unlimited (before he takes charge)
 Any violation of this section shall be an offence liable to a penalty of level 1
Special resolution of limited company making liability of directors unlimited (Sec 99)
 A limited Co (if authorised by AOA) may, by special resolution, alter its MOA to render the
liability of its all directors/any one unlimited.
 Alteration shall not apply, without the consent of present director.
Restrictions on Directors
Restriction on director’s remuneration (Sec 170)
For performing extra services (including holding of office of chairman)

 Determined by directors / General meeting in accordance with AOA
For attending meetings,
 Shall not exceed scale approved by directors/Co in general meeting accordance with AOA
Prohibition regarding making of political contributions (sec 184)

 A company cannot make any contribution to any political party or for any political reasons
 If a company contravenes the provisions of this section:
- Company shall be liable to a penalty of level 2; and
- Every director and officer in default shall be punishable with imprisonment of either
description up to 2 years and shall also be liable to a fine of Rs 1 million.
Prohibition regarding distribution of gifts (Sec 185)

 A company shall not distribute gifts in any form to its members in its meeting.
 Any contravention of this section shall be an offence liable to a penalty of level 1
SECP circular – Prohibition on Grant of Gifts to Shareholders

 Companies are directed to restrain from any gift/incentive in lieu of gifts
(token/coupons/lunches/takeaway packages) in any form or manner to its
shareholders at or in connection to AGM
Circular
 Companies must denounce any demand of gifts/incentive from shareholder
Restriction on non-cash transactions involving directors (Sec 211)
 No company shall enter into an arrangement by which

- A director of company/holding/subsidiary/associated or a person connected with him
acquires or is to acquire assets for consideration other than cash, from the company; or
- Company acquires or is to acquire assets for consideration other than cash, from such
director or person so connected;
unless prior approval for such arrangement is accorded by a resolution of general meeting
of company/holding company.
 Notice for approval of resolution shall include the particulars of arrangement along with
the value of the assets involved in such arrangement duly calculated by a registered valuer.
 Any arrangement in contravention shall be voidable at the instance of company unless:
- the restitution of any money or other consideration which is the subject- matter of the
arrangement is no longer possible and the company has been indemnified by any other
person for any loss or damage caused to it; or
- any rights are acquired bona fide for value and without notice of the contravention of
the provisions of this section by any other person.
 The company shall ensure that all cash transactions with its directors are conducted only
through banking channels.
Loan to Director (Sec 182)
 Unless the transaction has been approved by a resolution of members, a company shall not:
- Make a loan to a director of company or of its holding company; or to any of his relatives
(spouse and minor children)
- Give a guarantee or provide security in connection with a loan made by any person to
such a director; or to any of his relatives;
 For a listed company, approval of SECP shall also be required before sanctioning of loan.
 This section shall not be applicable on a company which in ordinary course of its business
provides loans or gives guarantees or securities for the due repayment of any loan.
 Every person who is a party to any contravention of this section shall be liable:
- To a fine up to Rs 1 million; or
- For simple imprisonment for up to 1 year.
- Jointly and severally, to lending company for repayment of loan or for making good the
sum with markup not less than borrowing cost of lending company
This section shall apply to any transaction represented by a book-debt which was from its
inception in the nature of a loan or an advance.
Powers of directors (Sec 183)
Directors may exercise all such powers of Co as are not by Act/AOA/special resolution,
required to be exercised by Co in general meeting. Directors of Co shall exercise following
powers on behalf of Co by means of a resolution passed at their (BOD) meeting
 Issue shares
 Issue debentures or any instrument in the nature of redeemable capital
 Borrow moneys otherwise than on debentures
 Invest the funds of the company
 Make loans
For banking co: acceptance of deposits from public not be deemed a borrowing or placing of deposit
with another banking company not be deemed making of loans
 Authorise a director or firm (of which he is a partner) or any partner of such firm or a
private company (of which he is a member or director) to enter into any contract with Co
for making sale, purchase or supply of goods or rendering services with Co
 Approve financial statements
 Approve bonus to employees
 Incur capital expenditure on any single item or dispose of a fixed asset in accordance with
given limits prescribed by SECP
 Undertake obligations under leasing contracts exceeding one million rupees;
 Declare interim dividend; and
 Take over a company or acquire a controlling or substantial stake in another company;
 Any other matter which may be specified.
 Having regard to such amount as may be determined to be material (as construed in the
generally accepted accounting principles) by the board to
- write off bad debts, advances and receivables;
- write off inventories and other assets of the company; and
- determine terms and circumstances in which a law suit may be compromised and a
claim / right in favour of Co may be released/extinguished/relinquished
The directors of Public Co or subsidiary of Public Co shall not except with consent of general
meeting either specifically or by way of an authorisation, do any of the following things
 Sell, lease or otherwise dispose of the undertakings or a sizeable part thereof, unless main
business of the company comprises of such selling or leasing
 Sell or otherwise dispose of the subsidiary of the company
 Remit, give any relief or give extension of time for repayment of any debt outstanding
against any person specified in section 182
Any such resolution, if not implemented within 1 year from date of passing, shall stand lapsed.
A listed company is not entitled to sell or otherwise dispose of the undertaking, which results in
or may lead to closure of business operation or winding up of the company, without there being a
viable alternate business plan duly authenticated by the board.
For this section
Undertaking shall mean an undertaking in which the investment of the company exceeds 20% of its net
worth as per audited financial statements of preceding financial year or an undertaking which generates
20% of the total income of the company during previous financial year;
Sizeable part in any financial year shall mean 25% or more of the value of the assets in that class as per
audited financial statements of preceding financial year;
Any contravention of this section shall attract a penalty of level 2 and defaulting person shall
be individually and severally liable for losses or damages arising out of such action.
SECP Circular – Statement of special business for sale, lease or disposal of

undertaking or sizeable part
Listed company and its subsidiary shall, while issuing notice of its general meeting,
annex a statement of special business, detailing, as minimum, following information,
namely :
Circular
 In case of sale, lease or disposal of sizeable part of undertaking:
- Detail of assets to be disposed of i.e. cost, revalued amount, book value and
current market price/fair value.
- In case of disposal of land location and area proposed to be sold shall be
disclosed.
- The proposed manner of disposal of said assets.
- Reasons for sale, lease or disposal of assets and benefits expected to accrue to
shareholders.
 In case of sale or disposal of entire undertaking, following additional information

shall be provided.
- Future business plan of the seller company.
- Total cost of the proposed future business plan and means of financing.
- Expected time of completion of the proposed project.
- The mode of disposal in this case shall be through tender in newspapers.
- After transaction, report regarding sale proceeds and utilization shall be
submitted to SECP on quarterly basis.
- Nothing contained herein shall enable listed companies to sell or otherwise
dispose of entire undertaking for closure of business operation or winding up
of the company.
 Co shall, simultaneously with the dispatch of notice of meeting to its members, send a
copy to SECP
Interest of Directors
Disclosure of interest by directors (Sec 205)
 Every director (himself or through spouse / parents / children including step) who is
directly or indirectly concerned or interested in any contract or arrangement entered into,
or to be entered into, by or on behalf of company shall disclose nature of his concern or
interest at a meeting of directors:
 Time of Disclosure
- In case of a contract or arrangement to be entered into, at meeting of BOD at which
the question of entering into contract or arrangement is first taken into consideration
- If director was not concerned or interested on date of that meeting; at first meeting of
BOD held after he becomes concerned/interested
- In case of any other contract/arrangement, at first meeting of BOD held after director
becomes concerned or interested
 A general notice given to directors if a director of company is a director/member of a
specified body corporate or firm and is concerned/interested in any contract/arrangement
- Which may, after date of notice, be entered into with that body corporate or firm, shall
be deemed to be sufficient disclosure of concern/interest
- General notice shall expire at end of financial year in which it is given, but may be
renewed for further 1 financial year by giving notice in last month of year of expiry
- General notice/renewal shall be effective only if given at meeting of BOD or takes
reasonable steps ensuring it is brought up & read at first meeting of BOD after it
Any contravention of this section shall be an offence liable to a penalty of level 1
Interest of officers (Sec 206)

 No other officer shall enter into any contract or arrangement with company in which he is
directly or indirectly concerned or interested, unless he makes a disclosure & obtains
approval of directors.
 Any contravention under this section shall be an offence liable to a penalty of level 1
Interested director not to participate or vote in proceedings of board (Sec 207)

Over the approval of matter where he is interested; director cannot take part in discussion, or
vote. (Nor to be counted in quorum.)
Exceptions:
 Private Co (neither subsidiary nor holding of Public Co).
 Any contract of indemnity or insurance coverage executed by company in favor of
interested director against any loss which all or any of director(s), may suffer by reason of
becoming or being a surety for the company
(company shall only insure liability arising out of transaction approved by BOD/member)
Other requirements
 A director of a listed company who has a material personal interest in a matter that is being
considered at a board meeting shall not be present while that matter is being considered.
 If majority of directors are interested in, any contract or arrangement, the matter shall be
laid before the general meeting for approval.
Any contravention of this section shall be an offence liable to a penalty of level 1
Declaring a director to be lacking fiduciary behavior (Sec 212)

Court may so declare, if he contravenes the requirements of section 205 to 208
(Opportunity of show cause provided)
Disclosure to members of director’s interest in contract appointing chief executive or

secretary (Sec 213)
 Every director who is in (directly/indirectly) concerned or interested, in any appointment
of a chief executive, whole- time director or secretary of company shall
- Disclose the nature of his interest or concern at the relevant board meeting
- Not participate or vote in the proceedings of the board.
 All such contracts shall be kept at the registered office of the company.
 Every contract must be open to inspection by any member of the company without charge.
 Any member is entitled, on request and on payment defined fee, to be provided with a copy
of any such contract within 7 days of request
 Any contravention under this section shall be an offence liable to a penalty of level 1
Register of contracts or arrangements in which directors are interested (sec 209)
 Company shall keep 1 or more registers giving separately the particulars of all contracts or
arrangements, in manner and containing particulars as may be specified by SECP
 Every director shall, within 30 days of his appointment, or relinquishment of his office,
disclose to the company:
- Specified particulars relating to his concern or interest in the other associations; or
- Such other information relating to himself as may be specified.
 Register shall be kept at registered office
 It shall be open for inspection during business hours and extracts may be taken therefrom
 Any copies thereof required by any member shall be furnished by company to such extent,
in such manner, and on payment of such fees as may be specified.
 Register shall also be produced at commencement of every AGM and shall remain open and
accessible during continuance of meeting to any person entitled to attend the meeting.
 This section shall not apply to any contract or arrangement:
- For sale, purchase or supply of any goods, materials or services if the value of such
goods/services does not exceed Rs 500,000 in the aggregate in any year; or
- By a banking company for the collection of bills in the ordinary course of its business.
Any contravention under this section shall be an offence liable to a penalty of level 1

Particulars of contracts or arrangements in which directors are interested
 Date of the contract or arrangement;
 Names of the parties thereto;
 Principal terms and conditions thereof;
 Amount of contract or arrangement;
 Name of the director interested in the contract or arrangement;
 Name of the association and the extent or nature of interest of director therein and
also his relationship with association; and
 Date on which interest or concern arises or changes.
Related party transactions (Sec 208)
 Company may enter into any contract/arrangement with a related party only in accordance
with the policy approved by board, subject to such conditions as may be specified for:
- Sale, purchase or supply of any goods or materials;
- Selling or otherwise disposing of, or buying, property of any kind;
- Leasing of property of any kind;
- Availing or rendering of any services;
- Appointment of any agent for purchase or sale of goods, materials, services or property;
- Related party's appointment to any office of profit in company/subsidiary/associated.
 Where majority of directors are interested in any of above transactions, the matter shall be
placed before the general meeting for approval as special resolution
 Nothing in this sub-section shall apply to any transactions on an arm’s length basis.
 Every such contract or arrangement shall be referred to in director’s report along with the
justification for entering into such contract or arrangement.
 SECP may specify record to be maintained by company with regards to such transactions.
 Where any contract or arrangement is entered without obtaining consent as aforesaid and
is not ratified by board/shareholders within 90 days, it shall be voidable at option of board
 If contract or arrangement is with a related party to any director, or is authorised by any
other director, directors concerned shall indemnify company against any loss incurred by it
 Any such director or any other employee shall be liable:
- For listed company, be punishable with imprisonment up to 3 years or with fine of at
least Rs 5 million, or with both.
- For any other company, to a penalty of level 2
Related party
 A director or his relative (spouse, siblings and lineal ascendants and descendants)
 A key managerial personnel or his relative;
 A firm, in which a director, manager or his relative is a partner;
 A private company in which a director or manager is a member or director;
 A public company in which a director or manager is a director or holds alongwith his

relatives, any shares of its paid up share capital;
 Any body corporate whose chief executive or manager is accustomed to act in accordance
with the advice, directions or instructions of a director or manager;
 Any person on whose advice, directions or instructions a director or manager is
accustomed to act
(advice, directions or instructions given in a professional capacity are excluded)
 Any company which is
- A holding, subsidiary or an associated company of such company; or
- A subsidiary of a holding company to which it is also a subsidiary;
 Such other person as may be specified;
Office of profit
 Receives anything by way of remuneration over and above his remuneration as director;
Companies (Related Party Transactions & Maintenance

of Related Records) Regulations, 2018
Conditions for Policy of related party transactions (Reg # 3)
Policy approved by the board shall be subject to the following minimum conditions,
namely:-
 Minimum information required for related parties including nature of related party
relationship at time of approval in board/general meetings;
 Limitations or conditions that may be applicable for certain related party transactions;
 Potential risks of related party transactions and mitigating measures;
 Procedure to be followed in case of failure to present related party transactions for
approval by the appropriate forum within prescribed time; and
 Pricing policy.
Not applicable on related party transactions in ordinary course of business on arm‘s length basis
Conditions for transactions to be characterized as “arm’s length transactions (Reg # 4)”.
A transaction between related parties shall be characterized as an “arm’s length transaction”,

only if it is carried out in a way, as if-
 Parties to the transaction were unrelated in any way;
 Parties were free from any undue influence, control or pressure;
 Through its relevant decision-makers, each party was sufficiently knowledgeable about the
circumstances of the transaction, sufficiently experienced in business and sufficiently well
advised to be able to form a sound business judgement as to what was in its interests; and
 Each party was concerned only to achieve the best available commercial result for itself in
all the circumstances.

Approval of related party transactions (Reg # 5)
Board shall approve related party transactions and following minimum information shall be
circulated and disclosed to directors along with agenda for BOD meeting called for approval:
 Name of related party;
 Names of the interested or concerned persons or directors;
 Nature of relationship, interest or concern along with complete information of financial or
other interest of directors, managers or key managerial personnel in related party;
 Detail, description, terms and conditions of transactions;
 Amount of transactions;
 Timeframe or duration of the transactions or contracts or arrangements;
 Pricing policy;
 Recommendations of the audit committee, where applicable; and
 Any other relevant and material information that is necessary for the board to make a well
informed decision regarding the approval of related party transactions
Where approval of members is required for related party transactions, the above information
shall be provided to the member in statement of material facts u/s 134 of Companies Act
Responsibility of Board (Reg # 6)
The board shall ensure:

 To educate and train management and relevant employees so that they can identify and
report the related party transactions to board or other authorized persons;
 To provide direction as to whom a director or employee can consult, in case where they are
uncertain if a transaction is a related party transaction or not;
 To set general criteria to approve transactions or arrangement with related parties at
various levels;
 To identify and determine whether related party transaction requires members’ approval;
 That any related party transactions requiring members’ approval are put before members;
 To fix the responsibility for identification and disclosure of related party transactions; and
 That company meets its legal & regulatory obligations regarding related party transactions
Chief Executive and Chairman
Chief Executive – 2(14)

In relation to a company means an individual who, subject to control and directions of the board, is
entrusted with whole, or substantially whole, of the powers of management of affairs of the company and
includes a director or any other person occupying the position of a chief executive, by whatever name
called, and whether under a contract of service or otherwise;
Appointment of Chief Executive
First chief executive (Sec 186)
 Every company shall have a chief executive appointed in manner provided in this act.
 Name of first chief executive shall be determined by subscribers of MOA
 His specified particulars shall be submitted along with the documents of incorporation.
 Hold office till 1st AGM (unless he earlier resigns or otherwise ceases to hold office) or
shorter period (if any; fixed by subscribers)
 Government shall have the power to nominate chief executive of a public sector company
in such manner as may be specified.
Subsequent chief executive (Sec 187)
 Subsequent CE is appointed by the directors within 14 days of election of directors

 Term; Not more than 3 years from the date of appointment.
 Retiring CE is eligible for re-appointment.
 Retiring shall continue to perform until successor appointed unless non-appointment of his
successor is due to any fault on his part or his office is expressly terminated.
 Government shall have the power to nominate chief executive of a company where
majority of directors is nominated by Government, in such manner as may be specified.
Casual Vacancy (Sec 187)
 CE is appointed by directors within 14 days of casual vacancy

 Term: Till the directors elected in the next election appoint a chief executive
Terms of appointment of chief executive (Sec 188)
 To be determined by directors or company in a general meeting in accordance with AOA.

 Terms and conditions of appointment of a chief executive nominated by Government shall
be determined by the Government, in such manner as may be specified.
 CE deemed to be director (if not already a director) and entitled to all rights & liabilities
Other requirements regarding Chief Executive
Restriction on appointment of chief executive (Sec 189)
No person who is ineligible to become a director of a company or is disqualified shall be

appointed or continue as the chief executive of any company.
Removal of chief executive before expiration of term (Sec 190)
 Board by resolution passed by at least 3/4th of total number of directors for time being; or
 Company by a special resolution; or
 By Government/authority/person nominated authorised by it, where more than 75% of
the voting rights are held by the Government.
Chief executive not to engage in business competing with company's business (Sec 191)
 CE of a public company shall not directly or indirectly (spouse/minor children) engage in

any business of same nature and directly competing with business carried on by his
company or its subsidiary.
 If he is engaged in any such business at the time of appointment in a public company, he
shall disclose in writing nature of business and his interest therein.
Chairman in a listed company (Sec 192)
 Board of a listed company shall within 14 days from date of election of directors, appoint a
chairman from among the non-executive directors
 Chairman shall hold office for 3 years unless he earlier resigns, becomes ineligible or
disqualified under any provision of this Act or removed by the directors.
 The chairman shall be responsible for leadership of board and ensure that the board plays
an effective role in fulfilling its responsibilities.
 Annual financial statements shall contain a review report by the chairman on the overall
performance of board and effectiveness of role played by board in achieving the objectives.
Conditions applicable to both; Chairman and Chief Executive (Sec 192, 193)
 Board shall clearly define the respective roles and responsibilities of chairman and CE:
 SECP may specify the classes of companies for which the chairman and chief executive shall
not be the same individual.
 Any contravention or default in complying with requirements relating to CE and chairman
shall be an offence liable to a penalty of level 2; and may also be debarred from becoming a
director or CE of a company for a period not exceeding 5 years.
Sole purchase, sale or distribution agent (Sec 196)
No company (incorporated in Pakistan or outside) which is carrying on business in Pakistan

shall, without the approval of SECP, appoint any sole purchase, sale or distribution agent:
Exception to this rule
Company incorporated, or person ordinarily residing, outside Pakistan are not required to
obtain the approval of SECP for such appointment.
(unless the major portion of business of such company or person is conducted in Pakistan)
Whoever contravenes any of the provisions of this section shall be punished with imprisonment
up to 2 years, or with fine which may extend to Rs.100,000, or with both; and, if the person guilty
of the offence is a company or other body corporate, every director, chief executive, or other
officer, agent or partner thereof shall, unless he proves that the offence was committed without
his knowledge or that he exercised all due diligence to prevent its commission, be deemed to be
guilty of the offence.
Company Secretary and Share registrar
Company secretary (Sec 194)
Company secretary – 2(21)

Any individual appointed to perform secretarial and other duties customarily performed by a
company secretary, having such qualifications and experience, as may be specified;
Public company must have secretary; possessing such qualification as may be specified
Reg # 22 - Companies (General Provision and Form) Regulations, 2018

Qualification & experience of a Company Secretary
 A member of, -
- A recognized body of professional accountants; or
- A recognized body of corporate or chartered secretaries; or
 An MBA/M.COM/law graduate from university recognized by HEC (or similar foreign
qualification with equivalence certificate from HEC), having ≥ 2 years relevant experience
(for listed ≥ 5 years)
 A retired government servant in BS-19 or equivalent or above with at least 15 years service
Directors & Secretaries Guide by SECP – Functions of Co. Secretary

(Not Part of syllabus – Just given for developing an understanding)
These are not specified by the Act, but are usually contained in an employment
contract. The company secretary generally performs the following functions:-
Guideline
A. Secretarial functions:
 To ensure compliance of provisions of Ordnance, rules, other statutes and bye-

laws of the company.
 To ensure that business of the company is conducted in accordance with its
objects as contained in its MOA
 To ensure that affairs of Co are managed in accordance with its objects
contained in the AOA and Act.
 To prepare the agenda in consultation with Chairman and other documents for
all the meetings of BOD.
 To arrange with and to call and hold meetings of the board and to prepare a
correct record of proceedings.
 To attend the broad meetings in order to ensure that the legal requirements are
fulfilled, and provide such information as are necessary.
 To prepare, in consultation with the chairman, the agenda and other documents
for the general meetings.
 To arrange with consultation of chairman the annual and extraordinary general
meetings of Co and to attend such meetings in order to ensure compliance with
the legal requirements and to make correct record thereof.
 To carry out all matters concerned with allotment of shares, and issuance of
share certificates including maintenance of statutory Share Register and
conducting appropriate activities connected with share transfers.
 To prepare, approve, sign and seal agreements leases, legal forms, and other
official documents on the company’s behalf, when authorised by the broad of the
directors or the executive responsible.
 To advise, in conjunctions with the company’s solicitors, the chief executive or
other executive, in respect of the legal matters, as required.
 To engage legal advisors and defend the rights of company in Courts of Law.
B. Legal obligations of secretary:
 Filling of various documents/returns with the Registrar/SECP as required under

provisions of Act
 Proper maintenance of books and registers of the company as required under
the provisions of the Act.
 To see whether legal requirements of the allotment, issuance and transfer of
share certificates, mortgages and charges, have been complied with.
 To convene/arrange the meetings of directors, on their advise.
 To issue notice and agenda of board meetings to every director.
 To carry on correspondence with directors of company on various matters.

 To record the minutes of the proceedings of the meetings of the directors.
 To implement the policies formulated by the directors.
 To deal with all correspondence between the company and the shareholders.
 To issues notice and agenda of the general meetings to the shareholders.
 To keep the record of the proceedings of all general meetings.
 To make arrangement for payment of the dividend within prescribed period
C. To maintain the following statutory books
 Register of transfer of shares;

 Register of buy-backed shares by a company;
 Register of mortgages, charges etc.;
 Register of members and index thereof;
 Register of debenture-holders;
 Register of directors and other officers;
 Register of contracts, arrangements and appointments in which directors etc
are interested;
 Register of directors' shareholdings and debentures;
 Register of Pakistani members, directors and officers, in case of a foreign
company;
 Minute books;
 Proxy register;
 Register of deposits;
D.Other duties
 Ensuring that statutory forms are filed promptly

 Providing members and auditors with notice of meeting.
 Sending the Registrar copy of special resolutions
E.Supplying copy of accounts to every member, debenture holder & every person
entitled to receive notice.
F. Keeping or arranging minutes of directors' meetings and general meetings

G. Ensuring that people entitled to do so, can inspect company records.
H. Custody and use of the common seal
Independent Share Registrar (Sec 195)
Every listed company shall have an independent share registrar possessing such
qualifications and performing such functions as may be specified.
Auditor
Appointment and remuneration of auditors (Sec 246)
Auditor Time of Appointment Appointed by Term of Office

First 90 days of incorporation Directors Till 1st AGM
Subsequent At AGM Members on recommendation Till next AGM
of the BOD
Casual Vacancy 30 days of such vacancy Directors Till next AGM
 Auditor, appointed by directors or the members, may be removed before conclusion of next
AGM by Special Resolution
 If auditor is removed by Special resolution, next auditor will be appointed by board with
prior approval of SECP.
SECP shall appoint auditor, on its own motion or on application by company or members, if:
 1st auditors not appointed by directors within 90 days of the incorporation
 Auditor not appointed in an AGM
 Casual vacancy not filled by directors within 30 days
 Auditors appointed are unwilling to act
Appointing Authority Remuneration Fixed by

Directors Directors
SECP SECP
All other cases Members
Retirement of existing and Appointment of new auditor in an AGM
 Member(s) having at least 10% shareholding shall also be entitled to propose any auditor
whose consent has been obtained.
 A notice shall be given to company at least 7 days before the date of the AGM..
 On receipt of such notice, company shall:
- Sent a copy of notice to the retiring auditor, forthwith.
- Post it on its website.
 Retiring auditor can make representation to company at least 2 days before AGM. It shall
be read in AGM and it shall be mandatory for auditor/representative to attend the meeting.
 Company shall intimate the registrar within 14 days of appointment / removal / casual
vacancy together with the consent of appointed auditor.
Qualification and disqualification of auditors (Sec 247)
 Auditor shall be a CA having valid certificate of practice form ICAP or a Firm of CAs for:
- Public Company
- Private Company which is subsidiary of Public Company
- Private Company having paid up share capital of at least Rs. 3 million.
 For companies other than above, auditor shall be CA or CMA having certificate of practice
from respective institute or Firm of CAs/CMAs having such criteria as may be prescribed
 Firm where majority of partners practicing are qualified for appointment can be appointed
in firms name.
 Only partners meeting above criteria shall be authorized to act and sign on behalf of firm.
DISQUALIFICATIONS OF AUDITOR
1. Person who during preceding 3 years was director, other officer or employee of Company
2. Person who is a director, other officer or employee of Company
3. Person who is a partner or employee of a director, officer or employee of Company
4. Spouse of the director of Company
5. Person indebted to Company, other than in ordinary course of business of such entities
- Not be considered indebted, if owes less than 1,000,000 to a credit card issuer
- Not be considered indebted, if unpaid utility dues for ≤ 90 days to utility Company
6. Body Corporate
7. Person or his spouse and his minor children, or in case of a firm, all partners of a firm who
holds any shares in Company or its associated company.
(If he holds shares before appointment, the fact shall be disclosed at time of appointment
and shall disinvest such shares within 90 days of appointment)
8. Person who has given a guarantee/security in connection with the indebtedness of any
third person to the company other than in the ordinary course of business of such entities;
9. Person or a firm who, directly or indirectly, has business relationship with the company
other than in the ordinary course of business of such entities;
10. Person who has been convicted by a court of an offence involving fraud and a period of 10
years has not elapsed from the date of such conviction;
11. Person who is not eligible to act as auditor under the code of ethics as adopted by the
ICAP and the ICMAP;
 Person disqualified as auditor of a Company shall also be disqualified for its Holding
company, its Subsidiary Company or Subsidiary Company of its Holding Company.
 If after appointment auditor becomes disqualified, he shall deem to vacate office with effect
from date he becomes disqualified
 If an unqualified/disqualified person is appointed as auditor; It shall be void and SECP may
appoint a qualified person in place of the auditor appointed by Company.
 A person, who not being qualified to be an auditor, acts as auditor of a company shall be
liable to a penalty of level 2
Rights and duties of auditors
RIGHTS (Sec 248)
 To access freely to all books & papers of Company and all supporting documents
 Access to copies/extracts of branch records as transferred to Principal office of company
 To require any of the following, to provide him necessary information or explanations:
- Any director, officer or employee of the company;
- Any person holding or accountable for any of company’s books, accounts or vouchers;
- Any subsidiary of the company;
- Any officer, employee or auditor of any subsidiary
- Any person holding or accountable for books, accounts or vouchers of any subsidiary
 The auditor is entitled to attend, receive all notices of any general meeting
 The auditor is entitled to be heard at any general meeting which he attends on any part of
the business which concerns him as auditor
DUTIES (Sec 249)
 Conduct audit, prepare report and express opinion in compliance with the requirements
of ISA adopted by the ICAP.
 Carry out such examination to form an opinion as to
- Whether adequate accounting records have been kept and adequate returns have been
received from branches not visited by him; and
- Whether the company’s F/S are in agreement with accounting records and returns.
 Auditor shall make a report on books of accounts and F/S; shall be laid before AGM.
 The report shall state; whether or not:
- They have obtained sufficient audit evidence for audit
- In their opinion, proper books of accounts have been kept
- Statement of Financial position and profit and loss account and Other Comprehensive
Income or the income and expenditure account and the cash flows has been prepared
in accordance with Act and are in agreement with their books and returns.
- The true and fair view has been given by F/S
- In their opinion all the investments made, expenditure incurred and guaranteed
extended was for the purpose of the business.
- Zakat deductable under Zakat and Ushr Ordinance 1980 been deducted & deposited.
 If auditor's report makes reference to some other report or statement:
- Such report be annexed to auditor's report and be considered a part of report.
 SECP may direct any Company or class of Company that the auditor’s report shall also
include a statement of such additional matters as may be so specified.
 Where any qualification is put in auditor's report, there shall be added the reasons for it
and the true position of Company to the best of auditor's knowledge.
 For listed company, auditor or a person authorized by him in writing shall be present in the
general meeting in which financial statements and auditor’s report are to be considered.
 SECP may by general or special order, direct, that the statement of compliance to be
attached with Directors Report, shall be reviewed by the auditor who shall issue a review
report to the members on the format as specified.
Signature of auditors’ report (Sec 251)
The auditor’s report must

 State the name of auditor and Engagement Partner
 Signed by auditor (or partner of audit firm practicing in Pakistan)
 Dated
 Indicate the place at which it is signed
If audited by a firm, report must be signed by the firm with name of engagement partner.
Audit of Cost Accounts (Sec 250)
Where any company or class of companies are required to keep cost accounts, SECP may
direct audit of cost accounts be conducted in specified manner & stipulations by a CA or CMA
having same powers, duties etc as auditor, and other prescribed powers, duties & liabilities
Such audit shall be directed by SECP subject to the recommendation of the regulatory
authority supervising the business of relevant sector.
Companies required to submit following documents and info to SECP for approval
- Recommendations of 3 names of CAs/CMAs (preferring one of them with reasons)
- Details of experiences of cost audit of above CAs/CMAs
Circular - Valid copies of certificates of Practice from ICAP/ICMAP
- Affidavit under rule 30 of Companies Rules 1985
- Original paid challan of application processing fee
- Application to be signed by CE & submit to SECP at least 30 days before appointment
Penalty for non-compliance.
By companies (Sec 252)

Any contravention or default in complying with requirements of sections 246, 247, 248 and
250 shall be an offence liable to a penalty of level 3 on the standard scale.
By auditors (Sec 253)

For non compliance, Penalty of level 2
If auditor’s report is made with the intent to profit such auditor or any other person or to put
another person to a disadvantage or loss or for a material consideration, auditor shall,
additionally be punishable with imprisonment up to 2 years and penalty up to Rs 1 million.
Register of Director and other Officers
Officer – 2(45)
Includes any director, CE, CFO, company secretary or other authorised officer of a company;
Chief Financial Officer (CFO) – 2(15)

An individual appointed to perform such functions and duties as are customarily performed by a CFO;
Register of directors, officers (Sec 197)

 Every company shall keep at its registered office a register of its directors and officers,
including the chief executive, company secretary, CFO, auditors and legal adviser
 Register shall contain such particulars as may be specified.
 Every such officer shall, within 10 days of appointment or any change therein, furnish to
the company the said particulars
 Every company shall file, with registrar a return in specified form, within 15 days from
- Date of appointment of any such officer;
- Any change among them; or
- Any change in any of their particulars
 Immediately above requirement not applicable to first appointment at incorporation of Co.
 Any contravention shall be an offence liable to a penalty of level 1

Particulars of directors and officers
 Register shall have particulars as specified through Form 29 (furnished to the company by
each of these officers)
 Company shall file a return with the registrar as per Form 29
 In case of resignation of a director or CEO, Form 29 shall be supported by resignation letter
duly signed by resigning director, verified through an affidavit on stamp paper duly signed
by person signing Form 29 and attested by oath commissioner and witnessed.
Order for rectification (Sec 197)
If name of any person is fraudulently or without sufficient cause entered in or omitted from
the register of directors of a company:
 Person aggrieved or company, may apply to Court for rectification of such register
 Court may either refuse the application or may order rectification on such terms and
conditions as it may deem fit and may make order as to costs.
 With order of rectification, Court may send a reference for adjudication of offence
 Person at fault shall be punishable with imprisonment up to 3 years or with fine up to Rs 1
million, or with both.
 Court shall forward a copy of order to the company and shall, by its order, direct the
company to file notice of rectification with registrar within 15 days from receipt of order.
Rights to inspect (Sec 198)
 Register shall be open to inspection of any member (free of cost) and any other person (on
payment of fee fixed by the company) during business hours, subject to such reasonable
restrictions, as company may impose by its AOA or in general meeting
 At least 2 hours in each day should be allowed for inspection.
 Any person wishing o inspect must make a request to the company.
 The request must contain the following information-

- In the case of an individual, his name and address;
- In the case of an organisation, its name and address and also of authorised person; and
- The purpose for which the information is to be used.
 If inspection requested by any person is refused, registrar shall on his application and upon
notice to the company, may by order direct an immediate inspection of the register.
 Any contravention of this section shall be an offence shall be liable to a penalty of level 1
Beneficial ownership of shareholders or officer of a company – 2(7)
Ownership of securities beneficially owned, held or controlled by any officer or substantial shareholder
directly or indirectly, either by:
(a) him or her;
(b) the wife or husband of an officer of a company, not being herself or himself an officer of the company;
(c) the minor son or daughter of an officer (including step child);
(d) in case of a company, where such officer or substantial shareholder is a shareholder, but to the extent
of his proportionate shareholding in the company:
Provided that “control” in relation to securities means the power to exercise a controlling influence over
the voting power attached thereto:
Provided further that in case the substantial shareholder is a non- natural person, only those securities
will be treated beneficially owned by it, which are held in its name.
Substantial shareholder”, in relation to a company, means a person who has an interest in shares:
(a) the nominal value of which is equal to or more than 10% of the issued share capital of company; or
(b) which enables the person to exercise or control the exercise of 10% or more of the voting power at a
general meeting of the company;

CH 4

Uploaded by

Copyright:

Available Formats

You might also like

CH 4

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

CH 4

Uploaded by

Copyright:

Available Formats

4.

Directors and other officers Page 56

Ch # 4: Directors and other officers

Main Contents of the Chapter

Syllabus Area Covered by the chapter

A 1.1: Companies Act, 2017

Introduction and Appointment of Directors

Minimum number of directors of a company (sec 154)

Reg # 23 - Companies (General Provisions & Forms) Regulations, 2018

Number of directorships (Sec 155)

Consent to act as director to be filed with registrar (Sec 167)

 No person shall be appointed or nominated as a director or CE or represent such positions,

Contract of employment with directors (Sec 210)

 Every company, except private, shall keep at its registered office:

Compliance with the Code of Corporate Governance (Sec 156)

Different type of Directors

Type of Sec # Method of Appointment Tenure

Subsequent 159 Method of election 3 Years

Substantial 162 Where a person acquires requisite shareholding to 3 Years

Casual 161 Remaining directors shall fill Remaining

Nominee 164 By company's creditors or other special interests As per terms of

Body corporate/corporation owned or controlled

Directors 165 Directors nominated by: Shall hold

Non-executive director (for the purpose of Sec 181 only)

1)Retirement of directors (Sec 158, 161)

2) Fresh election of directors on request of substantial acquirer (Sec 162)

 Number of directors fixed in the preceding election shall not be decreased.

Reg # 25 - Companies (General Provisions & Forms) Regulations, 2018

Substantial acquirer shall file a requisition along with following documents to

Numerical example of available votes in sec 165

Independent Directors (Sec 166)

No director shall be considered independent if one or more of following circumstances exist:

Maintenance of a databank of independent directors

Companies (Manner and Selection of Independent Directors) Regulations, 2018

Eligibility criteria for person desirous of inclusion in databank

The expression, “professional body” means:

Directors’ Training Program

Procedure and manner for inclusion of person desirous of inclusion in databank

Maintenance of data bank by the Institute

Responsibility of company and disclaimer by the Institute

How will independent director be elected?

Procedure for election of directors (Sec 159)

 For Co having share capital (where No of contestants > No of directors fixed)

 For company limited by guarantee, not having share capital

Powers of the Court to declare election of directors invalid (Sec 160)

 On application of members having at least 10% voting power

Directors can be removed

Removal of directors through resolution (Sec 163)

 Elected Directors: Minimum No of votes casted at immediately

 First / Casual Directors: Total votes [u/s 159(5)] divided by

Removal of directors by operation of Law – Vacation of Office

Vacation of office by directors (Sec 171)

 Becomes ineligible u/s 153

 Absents himself (without leave of absence) for 3 consecutive meetings of BOD; or

Validity of acts of directors (Sec 168)

Ineligibility to become director (sec 153)

Additional Ineligibilities only for Listed Co

 Declared by Court of competent jurisdiction as defaulter in repayment of loan to a