Company Law – Study Notes Chapter 13: Management

CHAPTER THIRTEEN
MANAGEMENT

LO # LEARNING OBJECTIVE

PART 1 – APPOINTMENT, ELECTION AND REMOVAL OF DIRECTORS

LO 1 INTRODUCTION
LO 2 ELIGIBILITY AND INELIGIBILITY OF DIRECTORS
LO 3 APPOINTMENT OF DIRECTORS
LO 4 ELECTION OF DIRECTORS
LO 5 VACATION AND REMOVAL OF DIRECTORS
PART 2 – POWERS, DUTIES AND PROCEEDINGS OF DIRECTORS
LO 6 DUTIES AND POWERS OF DIRECTORS
LO 7 MEETING OF DIRECTORS
LO 8 INDEMNIFICATION AND PROTECTION OF DIRECTORS
PART 3 – RESTRICTIONS, PROHIBITIONS AND LIMITATIONS
LO 9 LIMITATIONS AND RESTRICTIONS ON DIRECTORS
LO 10 DISCLOSURE OF DIRECTORS’ INTEREST IN A CONTRACT
PART 4 – MEMORANDUM OF ASSOCIATION
LO 11 CHIEF EXECUTIVE
CHAIRMAN, SOLE AGENT, COMPANY SECRETARY, SHARE
LO 12
REGISTRAR
APPENDIX
APX 1 OBJECTIVE TYPE QUESTIONS
APX 2 HINTS TO REVIEW QUESTIONS AND CASE STUDIES

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PART 1 – APPOINTMENT, ELECTION AND REMOVAL OF DIRECTORS

LO 1: INTRODUCTION:
Definition of Director:
Director means a person appointed by members to manage the affairs of company. It can be any
person occupying the position of director, by whatever name called.

Directors are collectively called “Board” or “Board of Directors (BOD)”.

Role (or Relationship) of directors in a Company:

1. Role as Fiduciary:
Fiduciary means ethical or legal relationship of trust between parties. A fiduciary takes care
of money for another person.
Directors and companies have a fiduciary relationship. Directors must act in the best interests
of the company. A director lacks fiduciary behavior if he intentionally keeps the company and
members at disadvantage (e.g. when a director makes profit from a contract with company
and does not disclose personal interest).

2. Role as Agent:
Directors are agents of company, and act in accordance with articles of the company.

LO 2: ELIGIBILITY AND INELIGIBILITY OF DIRECTORS:

Eligibility Criteria:
A director must:
 be a natural person.
 be a member (with certain exceptions).
 meet additional criteria if specified by articles e.g. holding qualification shares, education and
experience requirements in case of banking and insurance companies.

Exam Tip – Exceptions to rule “director must be a member”

In following cases, a non-member can be a director:
 a whole-time director who is an employee of the company (also called executive director).
 a chief executive
 a person representing a member who is a body corporate or government.
 a person representing a creditor or other special interests through contractual arrangements.

Ineligibility Criteria:
Act has specified that following persons cannot become directors of a company:
1. a person who is not a member (exceptions described above).
2. a body-corporate/Company.
3. a minor.
4. a person with unsound mind
5. a person who does not hold national tax number (Commission may grant exemption in this
case).

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6. a person who is undischarged insolvent or has applied to Court to be declared as insolvent

and his application is pending.
7. a person who has been convicted by a Court for an offence involving immorality.
8. a person who lacks fiduciary behavior as declared by a Court during last 5 years.
9. a person who is disqualified from holding office under any provisions of the Act.

For listed companies, following persons are also disqualified:

1. a person who has been declared defaulter of a financial institution by a Court.
2. a person or his spouse is a broker or is an officer/director of a brokerage house.

Broker means a person who is engaged in business of buying and selling securities for himself or on
account of others.

Exam Tip – Can company act as a director?

A company can be a subscriber/member of another company; however, a company cannot be a director of
any other company.

CONCEPT REVIEW QUESTIONS

Q. 1
Mention two types of persons who cannot become a director of a company. (02)
(ICAP, CAF 03 Level – Autumn 1996)
Q. 2
Can a company act as a director of another company? Give reasons for your answer. (03)
(ICAP, CAF 03 Level – Autumn 2001)
Q. 3
List down the ineligibilities under the Provisions of Companies Act, 2017 by virtue of which a person cannot become a
Director. (07)
(PIPFA, Winter 2014)
Q. 4
Explain the exceptions to the following provisions of the Companies Act, 2017:
“No person shall be appointed as a director of a company if he is not a member of that company.” (03)
(ICAP, CAF 03 Level – Spring 2013)

LO 3: APPOINTMENT OF DIRECTORS:
Number of Directors:
Every company shall have directors.

Minimum number of directors under the Act:

Minimum no. of directors (unless articles
Type of Company
require larger number)
Single member company (SMC) One
Private company (other than SMC) Two
Public company – unlisted Three
Public company –listed Seven

Maximum number of directors under the Act:

Companies Act 2017 does not specify maximum number of directors. Articles or Directors may
decide any number of directors to be appointed.

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Appointment and Tenure of First Directors:

Appointment of First Directors:
First directors shall be appointed by subscribers of memorandum and their particulars shall be
submitted alongwith documents for incorporation.
Number of first directors may be increased by appointing additional directors by members in general
meeting.

Tenure of First Directors:

The first directors shall hold office until the election of directors in the first annual general meeting
of the company.

Appointment and Tenure of Subsequent Directors:

Appointment of Subsequent Directors:
Subsequent directors shall be elected by members at general meeting.

Tenure of Subsequent Directors:

A director elected at AGM shall hold office for a period of three years. However, a company limited
by guarantee not having share capital may reduce this period through its articles.

Appointment and Tenure of Casual Vacancy of Directors:

Appointment under Casual Vacancy: (e.g. death, disqualification, resignation)
Directors have authority to fill casual vacancy.
 In case of listed company, casual vacancy shall be filled within 90 days of its occurrence.
 In case of unlisted company, directors may not fill casual vacancy if remaining directors are
equal or more than minimum required number of directors.

Tenure under Casual Vacancy:

Director appointed to fill casual vacancy shall hold office for the remainder of the term of the director
in whose place he is appointed.

Appointment of Nominee Directors:

Nominated by creditors:
In addition to elected directors, a company may have directors nominated by creditors (through
contractual arrangements).
Directors nominated by creditors are not considered for calculation of minimum required directors.

Nominated by Govt. or Body Corporate:

Directors may also be nominated by Federal/Provincial Govt. or by a Company if they have made
investment in the company.

Such directors shall hold office during the pleasure of the nominating body.

CONCEPT REVIEW QUESTIONS

Q. 5
What minimum and maximum numbers of directors are stipulated for private as well as public companies? (04)
(ICAP, CAF 03 Level – Spring 2004)
Q. 6
Narrate the provisions of the Companies Act, 2017 relating to a private company in respect of appointment of the first
directors and their tenure. (03)
(ICAP, CAF 03 Level – Spring 2012)

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Q. 7
Alpha Technologies Limited (ATL) is in the process of being incorporated as a public limited company. Further, ATL has
plans to have its stock listed on Pakistan Stock Exchange within a period of one year of its incorporation.
Required:
Write a letter to the promoters of ATL, on behalf of Best Financial Services who are their consultants, advising them about
appointment authority and the terms of holding of office of the first and subsequent directors.
(ICAP, CAF 03 Level – Autumn 2009)
Q. 8
How the casual vacancy among the directors may be filled up? (03)
(ICAP, CAF 03 Level – Autumn 2001)

CASE STUDIES
Q. 9
Abid, Qasim and Tariq were the only members of Alpha Securities Limited, a public company and were elected as directors
on 30 June 2009. Qasim expired on 2 February 2012 in a road accident.
Briefly describe the provisions of the Companies Act, 2017 relating to the casual vacancy as described above. (05)
(ICAP, CAF 03 Level – Spring 2012)
(ICAP’s Official Study Text for CAF 03 – Example # 16)

LO 4: ELECTION OF DIRECTORS:
Procedure for Election of Directors for a company having share capital:
1. Fixation of number of directors to be elected:
Existing Directors of the company shall fix the number of directors to be elected atleast 35 days
before the general meeting.

Once the number is fixed in the Board meeting, it shall not be changed except with the prior approval
of a general meeting in which election is to be held.

2. Send notice of meeting:

Notice of the general meeting shall be sent to members atleast 21 days before meeting. Notice
shall expressly state number of directors to be elected, and names of retiring directors.

3. Filing of intention to become director:

A person (whether retiring director or otherwise) seeking to contest election shall file a notice of
his intention in writing with company atleast 14 days before relevant general meeting. Such
person may withdraw notice anytime before holding of election.

4. List of candidates to be transmitted to members:

All notices of intention received by company shall be transmitted to members atleast 07 days
before general meeting in the same manner as of notice of AGM. In the case of a listed company
such notices shall also be published in English and Urdu daily newspapers having wide
circulation.

5. If number of candidates is equal or less than number fixed by directors:

All directors shall stand elected unopposed without Poll.

6. If number of candidates exceed number fixed by directors:

 Poll for election of directors shall be conducted.
 Every member shall have votes equal to = “Number of shares x Number of directors to be
elected”.

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 A member can give distribute his votes between different candidates in any way he thinks
appropriate (even all votes can be given to one person).
 Candidate getting highest votes shall be declared elected as director, and then next candidate,
and so on until number of directors fixed have been elected.

Retiring directors shall continue to perform their functions until their successors are elected.

Procedure for Election of Directors for a company NOT having share capital:
Directors shall be elected by members in general meeting in the manner as provided in articles.

Exam Tip – Consent to act as director

No person shall be appointed as director or chief executive of ay company if he has not filed his consent in
writing to become a director or chief executive. Company shall file such consent to Registrar within 15 days of
appointment.

Power of Court to declare election of directors invalid:

Court may declare election of all directors or any one of them as invalid:
 if member holding 10% or more voting powers
 apply to Court within 30 days from the date of election, and
 it is proved that there has been material irregularity in the holding of the elections and related
matters.

Exam Tip – Past Acts of de-facto director are valid

If a defect is discovered subsequent to appointment of a director, his past acts are valid. However, after
discovery of defect, he shall not exercise any right as directors till defect is removed.

Power of substantial acquirer to hold Fresh election of directors:

 If a person gets required shareholding to become a director, he may apply company to hold
fresh election of directors.
 Within 30 days of request, company shall proceed to hold fresh election.
 However, number of directors fixed in preceding election shall not be reduced.
 To hold fresh election, a listed company shall follow procedures specified by Commission.

CONCEPT REVIEW QUESTIONS

Q. 10
XYZ Limited, a listed company, has decided to hold an extraordinary general meeting (EOGM) on April 30, 2010 for election
of directors. The company has not yet determined the number of directors to be elected. Explain the relevant rules for fixing
the number of directors to be elected, under the Companies Act, 2017. (02)
(ICAP, CAF 03 Level – Spring 2010)
Q. 11
Annual General Meeting of a Company is scheduled to be held on December 31, 19XX and the notice has been sent to the
members and published in the newspapers on 1st December, 19XX. The agenda beside other item also include the election
of seven directors. Please reply the following:
(i) If a person desires to contest the election, how and when he should inform the company of his intention?
(ii) How will the company inform the members about the receipt of such intimation?
(iii) Which Authority is required to be notified by the company about such appointment? (07)
(ICAP, CFAP 02 Level – Summer 1999)
Q. 12
Narrate the provisions of the Companies Act, 2017 relating to a private company in respect of procedure for election of
subsequent directors. (09)
(ICAP, CAF 03 Level – Spring 2012)

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Q. 13
Explain the circumstances under which election of the directors may be declared invalid. (03)
(ICAP, CAF 03 Level – Spring 2006)
Q. 14
Explain the conditions specified in the Companies Act, 2017 under which a person may request a listed company to hold
election of directors prior to the end of the term of the present board of directors.
(ICAP, CAF 03 Level – Autumn 2010)
Q. 15
Mr. Wahid has acquired 3 million ordinary shares of Wheel Limited, a listed company, whose paid up share capital consists
of 20 million ordinary shares of Rs. 10 each. The election of directors of the company has recently been concluded. Mr.
Wahid, being confident of holding a sufficient number of shares to be elected as a director, has requested the management
to arrange a fresh election.
Based on the provisions contained in the Companies Act, 2017 explain whether and under what conditions a fresh election
of the directors may be held.
(CFAP 02 Level, Winter 2014)
(ICAP’s Official Question Bank for CFAP 02 – Q. # 5.10)
Q. 16
(a) Is there any minimum or maximum restriction on number of directors of a private or public/limited company?
(b) Can a body corporate be a director of a company?
(c) How are the first directors of a company and their number determined?
(d) What is the procedure of election of directors?
(e) When and how is the number of first and subsequent directors fixed.
(ICAP, CFAP 02 Level – Winter 1992)
Q. 17
In what different manners directors of a company can be appointed. (08)
(ICAP, CAF 03 Level – Spring 1999)
Q. 18
Muharram Limited, a listed company, has found out that one of its directors does not meet the eligibility criteria provided
in the Companies Act, 2017. The said director has already attended three meetings of the Board of Directors.
Describe the impact of the above on the resolutions passed by the Board. Also explain whether the concerned director can
attend future meetings of the Board. (03)
(ICAP, CAF 03 Level – Spring 2007)

CASE STUDIES
Q. 19
M/s. Moon Light Limited (ML) is a public limited company listed on Karachi, Lahore and Islamabad Stock Exchanges. The
election of the directors of ML was held on June 30, 2014. A group of shareholders holding 25% of the voting power decided
on August 28, 2014 to challenge the election on the ground that voting was not carried out properly.
Required:
Can the above shareholders challenge the election? Elaborate your answer by stating legal provisions. (05)
(ICMA Pakistan, Winter 2014)

Q. 20
Recently, the company secretary of Al-Falah Sugar Mill Limited (ASML) has received a letter from Ghalib, a shareholder
whose holdings in the company’s shares has increased to 14% during the year 2013, to seek appointment on ASML’s board
of directors. The company secretary has informed him that he cannot be admitted on the board till the next elections become
due.
Not being satisfied with the response, Ghalib has asked you to advise on the above matter and explain the course of action
available to him under the Companies Act, 2017. (05)
(ICAP, CFAP 02 Level – Winter 2013)
(ICAP’s Official Study Text for CAF 03 – Example # 14)

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LO 5: VACATION AND REMOVAL OF DIRECTORS:

Vacation of office by the directors:
A director shall ipso facto ceases to hold office if:
1. after appointment, he becomes subject to any of ineligibility criteria specified by Act.
2. he absents himself from three consecutive board meetings without seeking leave of
absence.
3. He or any firm in which he is a partner or any private company in which he is a director:
a. obtains loan or guarantee from the company in violation of the Act.
b. accepts office of profit without approval of members. However, this restriction does
not apply to office of chief executive or a legal or technical adviser.
Company may include additional grounds in its articles for vacation of office of director.

Removal of Directors:
Directors do not have power to remove other director. A director can be removed only by passing a
resolution in general meeting through voting.

Removal of director elected by members:

Number of votes shall be calculated in the same manner as at time of election i.e.
Total votes of a member = Total Number of Shares * Number of directors appointed
Director will NOT be removed if number of votes against the resolution equals or exceeds least
number of votes obtained by an elected director in the last election.

Removal of director appointed as first director, in casual vacancy or unopposed director:

Director will NOT be removed if number of votes against the resolution equals or exceeds following
number:
Total Number of Shares * Number of directors appointed /Number of directors for the time being

CONCEPT REVIEW QUESTIONS

Q. 21
One of the directors while retaining his directorship in Tabdily (Pvt) Limited (TPL) is contemplating to start his own
business which is likely to take most of his time for the next few years.
Under the provisions of the Companies Act, 2017 the director is seeking your advice on the matters due to which he may
ipso facto cease to hold office of the director of TPL. (06)
(ICAP, CAF 03 Level – Spring 2016)
Q. 22
The Companies Act, 2017 prescribes grounds for vacation of office by director. Can a company provide additional grounds
for vacation of office and if so, how? (02)
(ICAP, CFAP 02 Level – Summer 2003)
Q. 23
Due to a dispute among the directors of Sun Limited, a listed company, all the directors want to remove Faheem from the
directorship of the company prior to the completion of his term.
Explain the conditions which must be met in order to remove Faheem from the Directorship under the provisions of the
Companies Act, 2017. (05)
(ICAP, CFAP 02 Level – Winter 2015)
(ICAP’s Official Study Text for CAF 03 – Example # 21)
CASE STUDIES
Q. 24
A board member in connection with his personal work gone outside Pakistan for about 8 months without informing the
company. During his absence, 4 meetings were held and because he did not attend the three consecutive meetings, the
Board considered it a casual vacancy and filled the same by co-opting another member. What course of action was available
to the board member to avoid this situation? (03)
(ICAP, CFAP 02 Level – Summer 1999)

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Q. 25
State whether the following statements are true or false.
“A director ceases to hold office if he is absent from three consecutive meetings without leave of absence from the directors.”
(01)
(ICAP, CAF 03 Level – Spring 1996)
Q. 26
Lucky Transport Limited holds a Board of Directors’ meeting on last day of every month.
The company held four meetings during the period from July 2015 to October 2015. Mr. Afzal, a Director of the company
attended meeting held in the month of August 2015 only. In the month of November 2015 Mr. Afzal intends to attend the
Board of Directors’ meeting, but Chief Executive Officer (CEO) of the company has objection that Mr. Afzal was remained
absent from three meetings i.e., July, September and October without leave of absence, so he shall ipso facto cease to hold
office of the director of the company.
Required:
Evaluate the above situation and describe whether the objection of CEO is valid or not. (03)
(ICMA Pakistan, Fall 2015)
Q. 27
Lalazar Limited, a pubic unlisted company has a paid up capital of Rs 100 million consisting of shares having face value of
Rs 10 each. Last election of its Board of Directors was held on April 15, 2008 in which eight directors were elected. Four of
the directors belonged to the same family. The remaining directors were Mr. Javed, Mr. Bader, Mr. Qasim and Mr. Dawood.
They secured 600,000, 350,000, 480,000 and 220,000 votes respectively. The remaining votes were equally distributed
among the four directors of the family. Mr. Javed died on May 30, 2008 and Mr. Aslam was appointed as a director on June
15, 2008 to fill in the casual vacancy.

Explain the following in the light of the provisions of the Companies Act, 2017:
(a) Is Lalazar Limited in compliance with the requirements of minimum number of directors? Who shall fix the number of
directors to be elected and by what time such number should be fixed? Is it possible for the company to change the number
of directors once fixed? (04)
(b) Who is responsible to fill the casual vacancy in the Board and when would Mr. Aslam’s term of office be completed?
(02)
(c) The conditions required to be fulfilled if a person desires to remove the following directors :
(i) Mr. Aslam (ii) Mr. Bader (05)
(ICAP, CAF 03 Level – Spring 2009)
(ICAP’s Official Study Text for CAF 03 – Example # 17 & 23)
Q. 28
Under the provisions of the Companies Act, 2017 comment on each of the following independent situations:
(i) Zafar was recently appointed as a Director of HP Limited, a listed company. In March 2018 the board of directors came
to know that Zafar had been declared a defaulter by the High Court. (02)
(ii) Kalim is a director of Behaal Limited. On 1 October 2017 Kalim went abroad on a personal trip and returned back on
15 February 2018. He was unable to attend five board meetings which were held during this period. (02)
(ICAP, CAF 03 Level – Spring 2018)
(ICAP’s Official Study Text for CAF 03 – Example # 06 & 24)

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PART 2 – POWERS, DUTIES AND PROCEEDINGS OF DIRECTORS

LO 6: DUTIES AND POWERS OF DIRECTORS:

Duties of Directors:
A director of a company shall:
1. act in accordance with the articles of the company.
2. act in the best interests of the company, its employees, shareholders, and community.
3. discharge his duties with reasonable care, due diligence and shall exercise independent
judgment.
4. disclose if he has interest in a contract with company.

Commission may provide framework for specified companies to comply with good corporate
governance.

A director of a company shall NOT:

1. obtain undue gain for himself or his relatives (if undue gain is obtained, he shall be liable to
repay amount equal to gain to company).
2. involve in conflict of interest with company.
3. assign his office to any other person. Any such assignment shall be void.

Any negligence, default or breach of duty by a director may be ratified by company through special
resolution. Commission may specify restrictions.

Powers of Directors:
General:
Following powers can be exercised by directors, but only after passing a resolution in board meeting:
1. To issue shares and debentures, or to borrow money.
2. To make loans. (however, in banking companies acceptance of deposits or placement of funds
is not considered loan)
3. To authorize annual and periodic accounts.
4. To declare interim dividend.
5. To approve bonus for employees
6. To incur capital expenditure exceeding or undertake leasing obligations exceeding Rs. 1 Million.
7. To sell/dispose of assets having book value exceeding Rs. 1 Lac.
8. To undertake obligations under leasing contracts exceeding such amounts as may be
specified.
9. To authorize a director of the company (or partnership firm in which he is a partner, or a
private company in which he is a director) for entering into transactions with the company.
10. To write-off material debtors, inventories, advances and other assets.
11. To settle material litigations.
12. To take over a company or acquiring controlling stake in another company.
13. To appoint and remove chief executive.
14. To fill casual vacancy of director.
15. To appoint auditor in certain cases.

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Further, a listed company cannot sell or dispose undertaking which results in closure of business
operations or winding up of company, unless there is a viable alternate business plan duly
authenticated by the board.

Conditional:
Directors of a public company can also exercise following powers, but only after obtaining consent of
general meeting:
1. sell or dispose a subsidiary of the company.
2. sell, lease or otherwise dispose of the undertaking (venture) or a sizeable part of it (i.e. 25%
or more value of assets in that class), unless it is the company’s business.
3. remit, or give extension of time for repayment of debt against specified persons.

Authorization for such powers may be specific to transactions, or may be general. Any such
resolution/approval of general meeting shall lapse, if not implemented within 1 year.

Exam Tip – All Directors are Equal

After election, all directors have equal authority, no one is superior or inferior on the basis of number of votes, or on
any other ground. Every director has one vote in Board meeting. Decisions in BOD meetings are made on the basis
of simple majority.
Directors are also not variable representative of company i.e. every director is responsible for entire business.

CONCEPT REVIEW QUESTIONS

Q. 29
At the annual general meeting of Rahbar Refineries Limited (RRL), certain shareholders have raised objections on matters
related to the use of the company’s funds. In the opinion of those shareholders the directors have exceeded the authority
vested upon them by the Companies Act, 2017. Identify those powers of directors which the shareholders of RRL may be
referring to. (05)
(ICAP, CAF 03 Level – Spring 2010)
(ICAP’s Official Study Text for CAF 03 – Example # 25)
Q. 30
(a)What are the powers which directors may exercise on behalf of the company without the consent of general meeting?
(09)
(b)What are the powers which directors can exercise with the consent of the general meeting in case of a public company?
(03)
(ICAP, CAF 03 Level – Spring 2000)

LO 7: MEETING OF DIRECTORS:
Quorum of Board Meeting:
Following is the minimum numbers for Quorum (although articles may fix higher numbers):
 Listed Company:
1/3rd of total number or Four whichever is higher (including alternate/substitute director).
Participation by video-conferencing or by other audio-visual means shall also be counted.
 Other companies:
As per Articles.
 Quorum to fill casual vacancy, If there not enough directors to form a quorum:
All the remaining directors shall be quorum for this limited purpose.

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Frequency of Board Meeting:

Directors of a public company are required to meet at least once in each quarter of a year.

Passing of resolution by directors through circulation: (i.e. without conducting meeting)

Directors can pass a resolution through circulation, provided resolution shall be circulated to all
directors alongwith necessary papers, and shall be signed in writing by all the directors.

Rules:
 Once signified, a director cannot revoke his agreement to such resolution.
 Such a resolution shall be noted in the minutes of subsequent board meeting.

Records of resolutions and meetings of board:

1. Every company shall maintain record of resolutions (passed at meeting or by circulation),
and minutes of board meeting.
2. Chairman of the meeting or chairman of the next meeting shall sign and authenticate minutes.
3. A copy of minutes of board meeting shall be sent to every director within 14 days of meeting.
4. The records must be kept at the registered office of the company in physical and electronic
form. It shall be preserved for at least ten years in physical form and permanently in
electronic form.

CONCEPT REVIEW QUESTIONS

Q. 31
A newly established listed company ‘Snooker Limited’ has approached you for advice. Being their legal advisor, you are
required to inform them about Quorum requirements in respect of meeting of the board of directors. (02)
(ICAP, CAF 03 Level – Autumn 2006)
Q. 32
A public listed company has 8 directors. How frequently must the board of directors meet, and how many would constitute
quorum? (03)
(ICAP, CFAP 02 Level – Summer 1998)
Q. 33
With reference to the Companies Act, 2017, discuss the validity of directors’ resolution passed through circulation. (03)
(ICAP, CAF 03 Level – Autumn 2007)
Q. 34
Haider Limited (HL), a listed company, is in the process of finalization of a financing facility with a bank. The bank requires
a copy of the board resolution for approval of the terms of the financing. However, no board meeting is planned in the near
future and few directors are out of the country.
In the light of the provisions of the Companies Act, 2017 explain what alternative course of action is available to HL and the
steps it would be required to take assuming that nothing in this regard is stated in the articles of association of the company.
(05)
(ICAP, CFAP 02 Level – Winter 2015)
(ICAP’s Official Study Text for CAF 03 – Example # 31)

LO 8: INDEMNIFICATION AND PROTECTION OF DIRECTORS:

Indemnification of Directors and Officers for non-compliance and legal expenses:
If company makes an agreements with an officer/directors (or includes a provision in articles) to
indemnify him in case of his negligence, default, breach of duty, or breach of trust (in relation to
company), it shall be void.

However, a company may indemnify for expenses incurred by to defend themselves in a legal
proceedings (whether civil or criminal) against them (in relation to company), in which they are
proven innocent.

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Protection to Non-Executive Directors and Independent Directors:

A non-executive director (or independent director) of listed company or public sector entity shall be
liable only for those acts or omissions of company which occurred with his knowledge and consent
or where he did not act diligently.

Who is a Non-Executive Director

It means a director who:
 is not involved in executive management of the company.
 is expected to give an outside viewpoint in decision making by board;
 is not a whole time worker of the company, and is not involved in managing the affairs of the
company.
 is not a beneficial owner of the company or its associated companies;
 does not draw any remuneration from the company except the meeting fee.

Who is an Independent Director:

An independent director means a director who is not connected or does not have any other
relationship with the company, its associated companies, subsidiaries, holding company or directors.

Only a non-executive director can be an independent director.

CASE STUDIES
Q. 35
Mr. Aaqil was appointed as Chief Executive of Chalaak Limited (CL). He made an agreement with company by which it was
agreed that he will not pay declared dividend to some of the shareholders for 2 years. Company agreed to compensate him
if any fine is imposed on him due to non-payment of dividend on timely basis.
Comment on legality of the above agreement.
(ICAP’s Official Study Text for CAF 03 – Example # 26)
Q. 36
Bilal is working as Chief Financial Officer of Shining Star Limited (SSL). Asad filed legal case against bilal alleging that hat
Bilal has misappropriated SSL’s funds to the tune of Rs. 10million. Based on the documentary evidences provided by Bilal
the court acquitted Bilal.
Can Bilal be indemnified?
(ICAP’s Official Study Text for CAF 03 – Example # 27)

PART 3 – RESTRICTIONS, PROHIBITIONS AND LIMITATIONS

LO 9: LIMITATIONS AND RESTRICTIONS ON DIRECTORS:

Loan to directors:
A company can give loan (or guarantee/security) to director of company or director of its holding
company (or to their spouse or minor child):
1. if loan has been approved by resolution of members, and
2. in case of listed company, approval of Commission is also required before sanctioning of loan.

This restriction does not apply to loan given by financial institutions to its directors (in ordinary
course of business).

Assignment of Office of Director:

A director cannot assign his office to any other person, and such assignments shall be void ab-initio.

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Appointment of Alternate/Substitute Director:

A director can appoint alternate/substitute director if:
 he will be absent from Pakistan for 90 days or more, and
 such appointment is approved by board of directors.

Alternate director shall cease to hold office as soon as director returns to Pakistan.

Political contribution and distribution of gifts:

A company shall NOT:
 distribute any gifts to its members in its meeting.
 donate any amount (or allow utilization of its resources) to any political party or for any
political purpose.

Remuneration to directors:
Remuneration of directors for attending meetings of directors shall not exceed scale approved by the
company or directors in accordance with provisions of the articles of company.

Remuneration of directors for performing extra services, including the holding of office of chairman,
shall be determined by board or company in general meeting, in accordance with provisions of
articles of company.

Restriction on transactions involving directors:

Restriction on non-cash transactions involving directors:
If there is a transaction between a company and directors of the company (or directors of its
associated companies) to acquire asset for consideration other than cash, prior approval of
company through resolution in general meeting (and its holding company, if he is director of
holding company) is required. Notice of resolution shall include particulars of arrangement including
valuation of asset by a registered valuer.

Restriction on cash transactions involving directors:

All cash transactions of company with directors shall be conducted only through banking channel.

Number of directorship:
A person can be appointed as director (or alternate director) in maximum 5 listed companies. If a
person is a director in holding as well as listed subsidiary, directorship in subsidiary shall not be
counted for this limit.

CONCEPT REVIEW QUESTIONS

Q. 37
In view of the provisions of the Companies Act, 2017 explain the conditions which are required to be complied with, if a
company wishes to grant loan to its director. (02)
(ICAP, CAF 03 Level – Autumn 2010)
Q. 38
Azad Limited (AL) is a listed company engaged in the business of manufacturing and supply of electrical appliances. Mr.
Majnou, a director of AL, has applied for an interest free loan from the company to be repayable in five years.
In view of the provisions of the Companies Act, 2017 describe the circumstances under which AL may grant loan to Mr.
Majnou. (02)
(ICAP, CAF 03 Level – Autumn 2015)
(ICAP’s Official Study Text for CAF 03 – Example # 41)

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Q. 39
What is an alternate director? How and in what circumstances may he be appointed? What rights does he have? When does
a person cease to be an alternate director?
(ICAP, CFAP 02 Level – Winter 1992)
Q. 40
(a) Explain the Provisions of the Companies Act, 2017 regarding distribution of gifts to members.
(b) What are the provisions of making Political Contributions under the Companies Act, 2017?
(ICAP, CFAP 02 Level – Winter 2000)
Q. 41
Discuss the provisions relating to the payment of remuneration to any of the directors for attending the board meeting and
performing extra services. (02)
(ICAP, CAF 03 Level – Autumn 2019)
(ICAP’s Official Study Text for CAF 03 – Example # 33)
Q. 42
Moonlight Power Limited (MPL) is a company listed on Karachi and Lahore Stock Exchanges. Mr. Bashar has been working
as a CEO of the company. In the month of July 2013, Mr. Iftikhar, a Director on the Board of MPL, informed the CEO that he
is planning to move to Europe for six months to set up his own business.
Required:
Mr. Bashar called the Company Secretary to his room and asked him to ascertain the legal requirements in respect of the
following:
(i) Is this mandatory for Mr. Iftikhar to attend the annual general meeting of the company to be held in September, 2013?
(01)
(ii) What would be the consequences if Mr. Iftikhar does not attend Board of Directors meeting during his vacation? Briefly
state. (03)
(iii) Is there any other way Mr. Iftikhar can identify another person to act as director in his place and if yes, then state?
(04)
(ICMA Pakistan, Summer 2014)
CASE STUDIES
Q. 43
Explain whether or not the following statements are in accordance with the provisions of the Companies Act, 2017.
(a) A company may change the number of directors to be elected at least 21 days before the date of general meeting at
which the election is to be held. (04)
(b) Directors’ remuneration for performance of extra services including the holding of office of the chairman or attending
the board meeting is decided by the chief executive. (04)
(c) A director of a listed company cannot assign his office to another person under any circumstances. (03)
(ICAP, CAF 03 Level – Spring 2011)
(ICAP’s Official Study Text for CAF 03 – Example # 08, 32, & 34)
Q. 44
In light of the provisions of the Companies Act, 2017 advise the directors of KM Limited on the following matters:
(a) Faisal, one of the directors, wishes to assign his office to Saeed as Faisal is going abroad for personal work. (04)
(b) The CEO has refused the personal loan application of Y, who is also employed as a technical director, on the premise
that grant of any loan to directors is prohibited under the law. (04)
(ICAP, CFAP 02 Level – Summer 2014)
(ICAP’s Official Study Text for CAF 03 – Example # 35, 42)

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LO 10: DISCLOSURE OF DIRECTORS’ INTEREST IN A CONTRACT:

Responsibility of director to disclose interest:
If a director of a public company, directly or indirectly (through his spouse, child, parents), is
interested in a proposed contract with the company, he shall give disclosure to other directors that
he is interested in the contract.

Timing of Disclosure:
If transaction require approval of directors:
 If director was interested at time of first discussion regarding the matter, notice of interest
will be given in the first meeting where discussion is started.
 If director was NOT interested at time of first discussion regarding the matter, notice of
interest will be given in the first meeting after he became interested.

If transaction does not require approval of directors:

Notice of interest will be given in the first meeting held after the transaction is entered into.

Prohibitions on interested director:

1. Interested director shall not participate in discussion of the matter in which he is interested.
2. He shall not be counted for the purpose of quorum for that part of the meeting.
3. He shall not vote on such matter. If he votes, his vote shall be void.
4. In case of listed company, interested director shall not be present at the relevant board
meeting.

However, such prohibitions do not apply:

 on directors of a private company (which is neither a subsidiary nor a holding of public
company), and
 on contract of indemnity against loss suffered by director as surety of company, provided
transaction (because of which liability arose) was validly approved by the board or members
of the company.

If majority of directors are interested in a contract/arrangement, matters shall be presented in

general meeting for approval.

General Notice of Interest:

Instead of giving a separate notice for each transaction, a director may give a general notice regarding
his interest that “he is a member/director/partner in another business and he should be treated as
interested in every contract/arrangement made with that business”.

Such notice should be given at directors’ meeting or interested director shall take reasonable steps
to ensure notice is read by other directors.

Such notice shall expire at end of financial year in which it is given, and a fresh notice may be given
in the last month of financial year.

Study Tip – Interest of other officers

If any other officer of the company is interested in a proposed contract, he is required to disclose his
interest in the transaction, and obtain the prior approval of the directors to enter into contract.

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CONCEPT REVIEW QUESTIONS

Q. 45
What is the procedure for filing a general notice of interest by a director and what would such a general notice include?
(ICAP’s Official Study Text for CAF 03 – Example # 44)
Q. 46
Briefly explain the exceptions to the following provisions as specified under the Companies Act, 2017.
In a meeting of board of directors, no director shall take any part in the discussion of, or vote on, any contract or
arrangement entered into, or to be entered into, by or on behalf of the company, if he is in any way, whether directly or
indirectly, concerned or interested in the contract or arrangement, nor shall his presence count for the purpose of forming
a quorum at the time of any such discussion or vote; and if he does vote, his vote shall be void.
(ICAP, CAF 03 Level – Autumn 2011)
(ICAP’s Official Study Text for CAF 03 – Example # 45)
CASE STUDIES
Q. 47
Faraz Limited (FL) is considering to enter into a contract with Bari Limited (BL) for the construction of its new
manufacturing facility. The Board of Directors of FL has authorized Hasan Ali, an executive director, to negotiate the final
price with BL. Sara Ali, who is a chief executive in BL, is the spouse of Hasan Ali.
In view of the provisions of the Companies Act, 2017 briefly explain the responsibilities of Hasan Ali towards FL under the
above circumstances. (05)
(ICAP, CAF 03 Level – Autumn 2019)
(ICAP’s Official Study Text for CAF 03 – Example # 46)
Q. 48
M/s. AK Limited is a renowned public limited company, listed on Pakistan Stock Exchange. Mr. Farhan is one of the directors
of the Co., which is in the process of awarding a major contract to Star Printers. The Chief Executive Officer (CEO) of Star
Printers is a spouse of Mr. Farhan.
Required:
Keeping in view of the above information, answer the following questions in the light of the provisions of the Companies
Act, 2017:.
(i) Is Mr. Farhan required to disclose his relation with CEO of Star Printers? Discuss. (04)
(ii) If Mr. Farhan is interested in a contract or agreement before its discussion in the Board of Directors meeting, when
would such disclosure of interest be made? (02)
(iii) When will Mr. Farhan disclose the interest if his spouse becomes CEO of Star Printers after the contract was awarded?
(02)
(ICMA Pakistan, November 2013)

PART 4 – CHIEF EXECUTIVE AND OTHER OFFICERS

LO 11: CHIEF EXECUTIVE:

Chief Executive
Chief Executive means an individual who is given the whole or substantial powers of management of
the affairs of the company, subject to control and directions of the directors. It includes a director or
any other person by whatever name called (e.g. managing director or president).

Every company shall have a chief executive, who is an agent of directors.

Eligibility Criteria:
Companies Act does not specify qualification requirements for chief executive. A chief executive can
be any person. He may or may not be a director, shareholder or employee of the company. A company
can fix some qualification requirements by including it in articles.

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Ineligibility Criteria:
A person who is ineligible for appointment as director, is also ineligible for appointment or continue
as chief executive.

Appointment of Chief Executive:

 First chief executive is appointed by subscribers of Memorandum, for a period upto first AGM
(or for shorter period if fixed by subscribers). His particulars shall be submitted to registrar
alongwith documents of incorporation.
 Subsequent chief executive is appointed by directors within 14 days of election, for a period
upto three years (or for shorter period).
 Casual vacancy is filled by directors within 14 days of its occurrence. Such chief executive
shall hold office till directors elected in next election appoint a new chief executive.

Roles and Responsibility (or Terms of appointment) of chief executive:

Companies Act has not fixed role and responsibility of a chief executive. The terms and conditions of
appointment of a chief executive are determined by the directors or the company in general meeting
in accordance with articles of company.

If a non-director is appointed as chief executive, he will be deemed to be a director and shall have
same rights and liabilities.

Rights of Retiring Chief Executive:

1. Retiring chief executive is eligible for reappointment.
2. Retiring chief executive shall continue to perform his functions till his successor is appointed,
unless:
o his office was expressly terminated, or
o he is the cause of non-appointment of new chief executive.

Removal of Chief Executive:

Irrespective of any provision in articles or agreement with chief executive, Chief Executive of a
company can be removed before expiry of his term:
 By directors with three-fourth majority of total number of directors, or
 By company through special resolution in general meeting.

Restriction on Chief Executive of a Public Company for Competing Business:

Chief executive of a public company (or his spouse or minor children) shall not engage in (i.e.
manage or own) any business which competes (i.e. of same nature and in same market irrespective
of size) with the business carried on by the company or its subsidiary.

At time of appointment, Chief executive shall immediately disclose to company in writing details of
such businesses carried on by him.

Powers of Federal Government to appoint Chief Executive:

Federal Government has power to:
 appoint chief executive if majority of directors are appointed by it.
 remove chief executive if more than 75% of the voting rights are held by it.
 determine terms and conditions of chief executive appointed by it.

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CONCEPT REVIEW QUESTIONS

Q. 49
A team of young engineers is planning to incorporate a private limited company which would provide machine maintenance
services to large companies. The company would initially be incorporated with a share capital of Rs. 20 million.
However, the engineers are not certain about the following matters:
(a) Registration and signing of articles of association. (03)
(b) Appointment of the first and subsequent directors and chief executive and terms of their office. (07)
Advise the team of engineers in respect of the above matters in the light of the Companies Act, 2017.
(ICAP, CAF 03 Level – Spring 2020)
(ICAP’s Official Study Text for CAF 03 – Example # 48)
Q. 50
The Board of Directors of Hassam Textiles Limited (HTL) is not satisfied with the performance of its chief executive officer
(CEO) and wants to remove him from his office before the expiry of his term on 31 August 2020.
Briefly explain the options available to HTL for removal of CEO under the above situation. (02)
(ICAP, CAF 03 Level – Autumn 2019)
(ICAP’s Official Study Text for CAF 03 – Example # 52)
Q. 51
Alpha Technologies Limited (ATL) is in the process of being incorporated as a public limited company. Further, ATL has
plans to have its stock listed on Pakistan Stock Exchange within a period of one year of its incorporation.
Required:
Write a letter to the promoters of ATL, on behalf of Best Financial Services who are their consultants, advising them about
appointment authority and the terms of holding of office of the first and subsequent chief executive.
(ICAP, CAF 03 Level – Autumn 2009)
Q. 52
(a) Mr. Zameer is the first chief executive of Ryan Industries Limited, a public company. The directors of the company are
not satisfied with his performance. In view of the provisions of the Companies Act, 2017 specify the term of office of Mr.
Zameer and explain how he can be removed before expiry of the above term. (05)
(b) Describe the provisions of the Companies Act, 2017 which restrict the chief executive of a public company from carrying
on any business competing with the company’s business. (03)
(ICAP, CAF 03 Level – Spring 2012)
(ICAP’s Official Study Text for CAF 03 – Example # 55)
Q. 53
Explain the legal provisions of Companies Act, 2017 for appointment of subsequent Chief Executive.
(PIPFA, Winter 2014)
Q. 54
Write short notes on the following:
“A Chief Executive can be removed by simple majority of share holders.” (02)
(ICAP, CAF 03 Level – Spring 1997)
Q. 55
Tabdily (Pvt) Limited (TPL) has recently been converted into a public listed company and the directors intend to appoint a
new Chief Executive of the company.
Under the provisions of the Companies Act, 2017 briefly explain the requirement(s) for the appointment of a Chief
Executive. Also state the restrictions, if any, on the appointment of a Chief Executive. (04)
(ICAP, CAF 03 Level – Spring 2016)
(ICAP’s Official Study Text for CAF 03 – Example # 50)
Q. 56
Can a Chief Executive of a company engage himself in a business competing with the company’s business? (03)
(ICAP, CAF 03 Level – Autumn 2002)
Q. 57
The board of directors of Sunshine Limited want to remove existing chief executive officer of the company and wish to
replace him with Mr. Nazim, as chief executive officer.
Mr. Nazim is a competent and visionary employee holding foreign degree in Business Administration. The board is agreed
to appoint Mr. Nazim as chief executive officer.
Required:
Explain the following in the light of the provision of the Companies Act, 2017:
(i)How can the existing chief executive officer of the company be removed before the expiry of his term of office? (02)
(ii)Who is authorized to appoint Mr. Nazim as chief executive officer of the company and what would be the tenure for
which he may be appointed? (02)

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(iii) What would be the minimum number of shares required to be acquired by Mr. Nazim? Whether it would be necessary
to obtain members’ approval for the terms and conditions being offered to him? (02)
(ICMA Pakistan, Summer 2015)
CASE STUDIES
Q. 58
Explain whether or not the following statement is in accordance with the provisions of the Companies Act, 2017. Support
your answer with reasons.
A chief executive, other than the first chief executive of the company, is appointed by the shareholders in the annual general
meeting of the company, for a period up to the next annual general meeting. (03)
(ICAP, CAF 03 Level – Autumn 2010)
(ICAP’s Official Study Text for CAF 03 – Example # 49)
Q. 59
Board of directors of ABC Limited consists of 12 directors. The chief executive of ABC Limited was appointed for a term of
three years. It was specifically mentioned in his contract that he shall not be terminated before the expiry of term of his
office. The directors are not satisfied with the performance of the chief executive and want to remove him. Can they remove
the chief executive in presence of such clauses in the contract which do not allow his early termination? If so, how?
(ICAP’s Official Study Text for CAF 03 – Example # 53)
Q. 60
Mr. Sami, the Chief Executive Officer of Malik Airways Limited, holds 9% shares of the company. He has now been offered
to become the Chief Executive Officer of Akhtar IT Services (Pvt.) Ltd., a subsidiary of Yousuf Textile Mills Limited. Mr.
Sami’s spouse holds directorship in Yousuf Textiles Mills Limited.
Explain whether Mr. Sami can accept this offer. (04)
(ICAP, CAF 03 Level – Autumn 2007)
Q. 61
In the first meeting of Board of Directors of Hamid Textile Mills Limited (HTML), a listed company, the name of Mr. Imran
was proposed for appointment as chief executive of the Company. Mr. Jamal opposed the proposal on the following grounds:
(i) Mrs. Imran is the Chief Executive Officer of Fahad Textile Mills (Private) Limited.
(ii) Mr. Imran is involved in the business of stock brokerage.
(iii) Mr. Imran is not a member of HTML.
Comment on the objections raised by Mr. Jamal in the light of the provisions of the Companies Act 2017.
(ICAP, CFAP 02 Level – Winter 2012)
(ICAP’s Official Study Text for CAF 03 – Example # 57)

LO 12: CHAIRMAN, SOLE AGENT, COMPANY SECRETARY, SHARE REGISTRAR:

Chairman of a listed company:
 Board of a listed companies shall appoint a Chairman among non-executive directors within
14 days of election of directors.
 Chairman shall hold office for 3 years. However, he may earlier resign, may be removed or
may otherwise cease to hold office.
 Board shall define the respective roles and responsibilities of Chairman. Chairman shall be
responsible for leadership and shall play an effective role in fulfilling responsibilities of
board.
 Chairman shall include his report on overall performance of the board in achieving its
objectives. This review report shall be included in annual financial statements.
 Commission may specify class of companies for which the Chairman and Chief Executive shall
not be the same individual.

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Sole purchase, sale or distribution agent:

A company carrying on a business in Pakistan shall not appoint any sole purchase, sale or distribution
agent without approval of Commission.

Exception:
A company is not required to obtain approval of Commission if it is incorporated outside Pakistan
and its major portion of business is conducted outside Pakistan.

Company Secretary of a Public Company:

Every public company shall have a secretary, with such qualification as may be specified. He shall be
an employee of the company.
Company secretary is responsible for advising the board on compliance of corporate laws and
maintains of relevant records and registers.

Share Registrar for Listed Companies:

Every listed company shall have an independent share registrar, with such qualification and
functions as may be specified.

Share registrar usually handles the transfer of shares and all other matters as an issuer. Applications
of transfer of shares are sent to share registrar, instead of company. Name of share registrar is also
mentioned in notice of general meeting.

CONCEPT REVIEW QUESTIONS

Q. 62
How a chairman of the board is elected?
(ICAP, CAF 03 Level – Spring 1999)
Q. 63
“An executive director cannot become the Chairman of the Baord”. Do you agree with the statement? Explain.
(03)
(ICAP, CFAP 02 Level – Summer 2007)
CASE STUDIES
Q. 64
Following is the composition of board of directors of Faisal Limited, a listed company:
Independent directors Khalid, Dawood, Rehmat
Non-executive directors Salman, Arif, Ashraf
Executive directors Fasih (CEO), Kashif (Director Finance)
Under the Companies Act, 2017 advise which of the above directors are eligible to be appointed as Chairman of the board.
Also state the time frame for his appointment, duration of office and his responsibilities. (06)
(ICAP’s Official Study Text for CAF 03 – Example # 58)

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APX 1: OBJECTIVE BASED QUESTIONS AND ANSWERS:

Select the most appropriate answer from the options available for each of the following Multiple Choice Questions. Each
MCQ carries ONE mark. Questions marked with single asterisk (*) are selected from ICAP’s Study Text, and marked with
double asterisk (**) are selected from ICAP’s Past Papers.

1.** Anas, Asadullah, Ameen and Arqam are founder partners of Fast Movers Forwarders (FMF). In January 2020, all
partners had purchased shares of Quality Tiles Limited (QTL), a listed company. In June 2020, they contested the
election of directors of QTL and got elected as directors out of seven positions. Being majority directors of QTL, they
cancelled the contract of existing logistics service provider and awarded the contract to FMF.
Whether the aforesaid contract is valid?
(a) Yes, because it is approved by the majority of the directors and the board is fully empowered to manage the affairs
of the company
(b) No, the contract need to be approved by majority of such directors who are not interested in the said contract
(c) No, the contract must be laid before the general meeting for approval
(d) No, the contract must be approved by the general meeting as well as by the Commission

2.** Abid is the chairman of the board of directors of Innovative Technologies Limited (ITL) and is present in ITL’s 25th
Annual General Meeting (AGM). However, due to difference of opinion with ITL’s chief executive on few agenda items,
Abid is unwilling to chair the AGM. In such a situation:
(a) the chief executive shall have to preside the AGM as chairman
(b) the members present in the AGM shall choose one of the members to be the chairman
(c) the member holding highest number of shares and present shall preside the AGM as chairman
(d) one of the directors present may be elected to be the chairman of the said AGM

3.** Casual vacancy on the board of directors of a listed company must be filled:
(a) by calling an extra ordinary general meeting within ninety days from the date of such vacancy
(b) by the directors not later than ninety days from the date of such vacancy
(c) by the directors or the members in general meeting, as the case may be, in accordance with the provisions
contained in the articles of association
(d) by the members in the upcoming annual general meeting

4.** Which of the following statements is correct regarding chairman of a listed company?
(a) Chairman must be from amongst the non-executive directors
(b) Chairman can only be removed by passing a special resolution
(c) Chairman must be from amongst the independent director
(d) Chairman is appointed by the shareholders within fourteen days from the date of election of directors

5.** Which of the following officers are mandatorily required to be appointed to manage the affairs of a listed company under
the provisions of the Companies Act, 2017?
(a) Chairman, chief executive, company secretary, sole purchase agent
(b) Chairman, chief executive, company secretary, share registrar
(c) Chairman, chief executive, company secretary, chief financial officer
(d) Chairman, chief executive, company secretary, chief financial officer, head of audit

6.* The names and number of first directors shall be decided by the
(a) Members of the company
(b) Promotors of the company
(c) Subscribers to the memorandum
(d) CEO of the company

7.* Subsequent Chief Executive of a company is required to be appointed by the directors within
(a) 07 days of the election of Directors
(b) 14 days of the election of Directors
(c) 21 days of the election of Directors
(d) 30 days of the election of Directors

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8.* Which of the following ineligibility applies only to appointment of directors in a listed company:
(a) Is a minor
(b) Is an undischarged insolvent
(c) Has been convicted by a court for an offense involving moral turpitude
(d) Has been declared by a court as defaulter in repayment of loan to a financial institution.

9.* A director shall be treated to have vacated the office of director if he absents himself from
(a) Meetings held in the last three months
(b) Meeting held in the last 120 days
(c) Three consecutive meetings of the board of directors
(d) Three consecutive meetings of the members

10.* A company is not allowed to contribute any amount

(a) To any social purpose
(b) To any dividend payment
(c) To any political party
(d) To any Zakat payment

11.* The maximum number of director of a public company fixed by the Companies Act, 2017 is
(a) 07
(b) 10
(c) 50
(d) Not specified by the Companies Act, 2017

12.* The quorum for a meeting of directors of a listed company will not be less than
(a) Two-third of their number or 4 whichever is greater
(b) One –third of their number or 4 whichever is greater
(c) One-fourth of their number or 4 whichever is greater
(d) Three-fourth of their number or 4 whichever is greater

13.* A chief executive shall be a person who is vested with whole or substantially the whole, of the powers of the management
of the affairs of the company. Being a member of the board of directors, he reports to
(a) The chairman of the company
(b) The members of the company
(c) The board of directors of the company
(d) The company secretary of the company

14.* Number of directors to be elected in the forthcoming election shall be fixed by the directors at least
(a) 21 days before election in the general meeting
(b) 35 days before election in the general meeting
(c) 60 days before election in the general meeting
(d) None of the above is correct

15.* The persons who may wish to contest the election of directors are required to give notice to the company at least
(a) 7days before election
(b) 14days before election
(c) 21days before election
(d) None of the above is correct

16.* Any casual vacancy on the board of a listed company shall be filled up by the directors at the earliest but not later than
(a) 90 days from the date, the vacancy occurred.
(b) 120days from the date, the vacancy occurred.
(c) 60 days from the date, the vacancy occurred.
(d) None of the above is correct

17.* In case of any material irregularity in the election of the directors, members having 10% or more voting power may apply
to the court within
(a) 14 days of election
(b) 21 days of election
(c) 30 days of election
(d) None of the above is correct

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18.* Mr. M has given a request to the company to hold fresh election of directors upon acquisition of a sizable shareholding in
the company that is public unlisted company. The directors are supposed to proceed to hold fresh election of directors
within
(a) 30 days of such application
(b) 60 days of such application
(c) Any time period as decided by the SECP
(d) One year of such application

19.* A person cannot be appointed as director of a company if he is lacking fiduciary behaviour and a declaration to this effect
has been made by the court at any time during preceding
(a) 3 years
(b) 5 years
(c) Any time period as decided by the court
(d) None of the above is correct

20.* The directors of a public company shall meet at least once in

(a) Every month
(b) Each quarter of a year
(c) A year
(d) None of the above is correct

SUGGESTED SOLUTIONS
MCQ # Correct Option MCQ # Correct Option MCQ # Correct Option
1. B 8. (d) 15. (b)
2. D 9. (c) 16. (a)
3. B 10. (c) 17. (c)
4. A 11. (d) 18. (a)
5. B 12. (b) 19. (b)
6. (c) 13. (c) 20. (b)
7. (b) 14. (b)

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APX 2: HINTS TO REVIEW QUESTIONS AND CASE STUDIES:

Q. 1
Any two examples from ineligibility criteria to be given.

Q. 2
A company, being body corporate, is ineligible for appointment as director of another company.

Q. 3
Reproduce “Ineligibility Criteria” in LO 2.

Q. 4
Reproduce “Exam Tip – Exceptions to rule “director must be a member”” in LO 2.

Q. 5
Refer “Minimum number of directors under the Act” in LO 3.
Note that these numbers are same as minimum number of members.

Q. 6
Refer “Appointment and Tenure of First Directors” in LO 3.

Q. 7
Refer “Appointment and Tenure of First Directors:” and “Appointment and Tenure of Subsequent Directors:” in LO 3.

Q. 8
Refer “Appointment and Tenure of Casual Vacancy of Directors:” in LO3.

Q. 9
1. A public company shall have atleast 3 directors, therefore, this casual vacancy shall be filled.
2. Directors have authority to fill casual vacancy.
3. Director appointed to fill casual vacancy shall hold office for the remainder of the term of the director in whose
place he is appointed.

Q. 10
Refer “Fixation of number of directors to be elected” in LO 4.

Q. 11
(i) file a notice of his intention in writing with company atleast 14 days before relevant general meeting
(ii) Transmit to members atleast 07 days before general meeting in the same manner as of notice of AGM.
(iii) Registrar.

Q. 12
Refer “Procedure for Election of Directors for a company having share capital”
Procedure for private or public company is same.
Procedure for listed company is slightly different (wrt publication of notices in newspapers).

Q. 13
Refer “Power of Court to declare election of directors invalid” in LO 4.

Q. 14
Refer “Power of substantial acquirer to hold Fresh election of directors” in LO 4.

Q. 15
Refer “Power of substantial acquirer to hold Fresh election of directors” in LO 4.

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Q. 16
(a) There is a restriction on minimum but not on maximum. Refer “Minimum number of directors under the Act” in LO 3.
(b) No.
(c)Refer “Appointment of First Directors:” in LO 3.
(d) Refer “Procedure for Election of Directors for a company having share capital” in LO 4.
(e) Refer “Appointment of First Directors:” in LO 3 for number of first directors.
Refer “Fixation of number of directors to be elected:” in LO 4 for number of subsequent directors.

Q. 17
 First directors.
 Subsequent directors.
 Casual vacancy
(these manners are also to be explained).

Q. 18
Refer “Exam Tip – Past Acts of de-facto director are valid” in LO 4.

Q. 19
Court may declare election of directors as invalid if member holding 10% or more voting powers apply to Court within 30
days from the date of election, and it is proved that there has been material irregularity in the holding of the elections and
related matters.
As 30 days have passed since the date of meeting, members cannot challenge the election.

Q. 20
View of company secretary is incorrect.

Under the Companies Act 2017, the tenure of the BOD is 3 years. Before expiry of the term a person can only be admitted
to fill in the casual vacancy. However, if a person gets required shareholding to become a director, he may apply company
to hold fresh election of directors. Within 30 days of request, company shall proceed to hold fresh election. However,
number of directors fixed in preceding election shall not be reduced.

To hold fresh election, a listed company shall follow procedures specified by Commission.

Q. 21
Refer “Vacation of office by the directors” in LO 5.

Q. 22
Yes, by including them in articles.

Q. 23
Refer “Removal of Directors:” in LO 5.
Note that it is not mentioned in the question whether Faheem is an elected director or otherwise. Therefore, we will write
both situations.

Q. 24
Director may have sought leave for absence from board to avoid disqualification.

Q. 25
Yes. Statement is true.

Q. 26
A director shall ipso facto cease to hold office if he absents himself from three consecutive meetings.

Afzal is not disqualified as he remained absent from two consecutives meetings only (September and October). He is entitled
to attend board meeting of November.

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Q. 27
(a)
An unlisted public company shall have atleast 03 directors, therefore Lalazar Limited is in compliance as it has 08 directors.

Directors fix number of directors to be elected atleast 35 days before the general meeting.

Once the number of directors are fixed, they shall not be changed except with prior approval of general meeting of company.

(b)
Directors have authority to fill casual vacancy. Mr. Aslam’s will hold office for remainder of the term of Mr. Javed (the
director in whose place he is appointed).

(c)
(i)
Mr. Aslam (director appointed to fill casual vacancy) can be removed by passing resolution in general meeting. However,
he shall not be removed if votes against the resolution are equal to or exceed “total number of shares multiplied number of
directors appointed / number of directors for the time being” i.e. 10 million * 8 / 8 = 10 million votes.

(ii)
Mr. Bader (elected director) can be removed by passing resolution in general meeting. However, he shall not be removed if
votes against the resolution are equal to or exceed least number of votes obtained by a director in last election i.e. 220,000
votes.

Q. 28
(i) If Zafar defaulted in repayment of loan to a financial institution, he is disqualified to act as director of any company. In
any other case, he is still qualified.

(ii)
A director shall ipso facto cease to hold office if he absents himself from three consecutive meetings of the board without
seeking leave of absence. Therefore, Kalim is disqualified as director if he did not seek leave of absence from board. If he
sought leave of absence, he is qualified.

Q. 29
“Powers of Directors” in LO 6 to be reproduced. No need to produce conditions powers (i.e. 3 powers subject to approval of
general meeting).

Q. 30
(a) General powers in “Powers of Directors” in LO 6 to be reproduced.
(b) Conditional powers in “Powers of Directors” in LO 6 to be reproduced.

Q. 31
1/3rd of total number or Four whichever is higher.

Q. 32
Directors of a public company are required to meet at least once in each quarter of a year.
Quorum will be 4 directors (i.e. 1/3rd of total number or Four whichever is higher).

Q. 33
Refer “Passing of resolution by directors through circulation” in LO 7.

Q. 34
Refer “Passing of resolution by directors through circulation” in LO 7.

Q. 35
This agreement between Aaqil and CL shall be void.

Q. 36
SSL may indemnify Bilal.

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Q. 37
Resolution by members, and approval of Commission (for listed company).

Q. 38
Resolution by members, and approval of Commission.

Q. 39
Alternate director is like a proxy to appointed director.
A director can appoint alternate/substitute director if he will be absent from Pakistan for 90 days or more, and such
appointment is approved by board of directors.
It has all the rights of a duly elected director (e.g. to attend board meeting, cast vote).
Alternate director shall cease to hold office as soon as director returns to Pakistan.

Q. 40
(a) Distribution of gifts to members not allowed.
(b) Political contribution not allowed.

Q. 41
Refer “Remuneration to directors” in LO 9.

Q. 42
(i) No.
(ii) He will ipso facto ceases to hold office if he absents himself from three consecutive board meetings without seeking
leave of absence.

(iii) Yes. By appointment of alternate director.

Q. 43
(a) This statement is not in accordance with Companies Act, 2017 because number of directors once fixed shall not be
changed except with prior approval of general meeting of the company.

(b) This statement is NOT in accordance with the provisions of the Companies Act, 2017 because remuneration of directors
for performing extra services, including the holding of the office of chairman, shall be determined by board or company in
general meeting, in accordance with articles of company.

Further, remuneration for attending meetings shall not exceed scale approved by board or company in accordance with
articles of company.

(c) This statement is correct. A director cannot assign his office to any other person, and such assignments shall be void.

However a director can appoint alternate/substitute director if:

 he is absent from Pakistan for 90 days or more, and
 such appointment is approved by board of directors.
Alternate director shall cease to hold office as soon as director returns to Pakistan.

Q. 44
(a) Faisal cannot assign his office to Saeed. However, he can appoint Saeed as alternate director if he is going abroad for
more than 90 days and such appointment is approved by board of director.
Saeed shall cease to hold office as soon as Faisal returns to Pakistan.

(b)
Understanding of CEO is wrong. A loan can be granted to directors of a company if it is approved by resolution of members.
If KM Limited is a listed company, approval of SECP is also required before sanctioning of loan.

Q. 45
Such notice should be given at directors’ meeting or interested director shall take reasonable steps to ensure notice is read
by other directors.
Notice shall state that “he is a member/director/partner in another business and he should be treated as interested in every
contract/arrangement made with that business”.

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Q. 46
Such prohibitions do not apply:
 on directors of a private company (neither a subsidiary nor a holding of public company), and
 on contract of indemnity against loss suffered by director as surety of company, provided transaction (because of
which liability arose) was validly approved by the board or members of the company.

Q. 47
Hassan Ali is deemed to be indirectly interested in the transaction as his wife is the chief executive in BL.
Hassan Ali should give a general notice of his interest to all other directors.
After disclosing his interest in the transaction, Hassan Ali should not participate in discussion on the proposed contract.

Q. 48
(i) Yes. If a director (or his spouse, child, parents) is directly or indirectly interested in a proposed contract or arrangement
with the company, he shall disclose this interest in board meeting.

(ii) If director was interested at time of consideration/approval of contract, he shall disclose his interest at the meeting of
the board at which contract is being considered/approved.

(iii) If director was not interested at time of approval of contract, he shall disclose his interest at the first meeting of the
board held after he becomes interested.

Q. 49
(a) Refer LO 4 in chapter 12.
(b) Refer “Appointment of Chief Executive:” in LO 11, and “Appointment and Tenure of First Directors” and “Subsequent
Directors in LO 3”.

Q. 50
Refer “Removal of Chief Executive:” in LO 11.

Q. 51
Refer “Appointment of Chief Executive” in LO 11.

Q. 52
(a) Term is for a period upto first AGM (or for shorter period if so fixed).
He can be removed by directors with three-fourth majority of total number of directors, or by company through special
resolution in general meeting.
(b)Refer “Restriction on Chief Executive of a Public Company for Competing Business” in LO 11.

Q. 53
Subsequent chief executive is appointed by directors within 14 days of election, for a period upto three years (or for shorter
period).

Q. 54
Not. He can be removed by special resolution.

Q. 55
Every company is required to have a chief executive.
Refer “Restriction on Chief Executive of a Public Company for Competing Business” in LO 11.

Q. 56
Refer “Restriction on Chief Executive of a Public Company for Competing Business” in LO 11.

Q. 57
(i) He can be removed by directors with three-fourth majority of total number of directors, or by company through special
resolution in general meeting.
(ii)Subsequent chief executive is appointed by directors within 14 days of election, for a period upto three years (or for
shorter period).
(iii) Not required to hold shares. No need to obtain members’ approval for terms and condition (can be decided by board).

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Q. 58
The statement is incorrect, because:
1. Chief executive is appointed by directors, and not by shareholders.
2. Chief executive is appointed within 14 days of election of directors, and not at AGM.
3. Chief executive is appointed for a period of 3 years (or shorter period), and not till next AGM.

Q. 59
Yes. Irrespective of any provision in articles or agreement with chief executive, Chief Executive of a company can be
removed before expiry of his term.

For this purpose directors will pass a resolution in their meeting with three-fourth majority. Alternatively, an
Extraordinary General Meeting may be called and members shall pass a special resolution to remove chief executive.

Q. 60
Chief executive of a public company (or his spouse or minor children) shall not engage in any business which competes (i.e.
of same nature and in same market) with the business carried on by the company or its subsidiary.

As Akhtar IT Services (Pvt.) Ltd. is not in the business of same nature and in same market as of Malik Airways Limited, Mr.
Sami can accept this offer.

Q. 61
(i) Mr. Jamal’s opinion is correct as spouse of a chief executive cannot engagement in a business which competes (i.e. of
same nature and in same market) with the business carried on by the company. As spouse of Imran is engaged in textile
business, Imran cannot be appointed as chief executive of Hamid Textile Mills Limited.

(ii)
Mr. Jamal’s opinion is correct as, in case of a listed company, a person is disqualified for appointment as director and chief
executive if he is engaged in the stock brokerage business.

(iii)
Mr. Jamal’s opinion is incorrect because a person can be appointed as chief executive even if he is not a member of the
company.

Q. 62
Board of a listed companies shall appoint a Chairman among non-executive directors within 14 days of election of directors.

Q. 63
Yes. Chairman of board of a listed company must be elected from non-executive directors.

Q. 64
Which directors are eligible to be appointed as Chairman of the board:
Chairman of Board of a listed company shall be from non-executive directors i.e. Salman, Arif, or Ashraf.

Time frame for appointment of chairman:

Chairman shall be appointed within 14 days of election of directors.

Duration of office for appointment of chairman:

Chairman shall hold office for 3 years. However, he may earlier resign, may be removed or may otherwise cease to hold
office.

Responsibilities of Chairman:
 Board shall define the respective roles and responsibilities of Chairman.
 Chairman shall include his report on overall performance of the board in achieving its objectives. This review
report shall be included in annual financial statements.

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