Company directors or Board of Directors (as a collective body) is the critical management team of a company. The Company law in Pakistan provides that a company’s management mainly vests with the board of directors. The law provides the minimum number of directors a company must have. Next, the law provides the eligibility criteria to become a director, the mode of appointment of a director, and their powers, roles, and responsibilities.

In this article, you will learn in detail about who is a director and what is a board of directors under the company law in Pakistan. You will learn how to structure the board of your company. Further, you will learn about how many directors a company must have and what kind of directors a company may have. You will also learn about the qualifications of the directors.

We will learn how the directors are appointed or elected and how a director may be removed from the company.

Overview

What is a Board of Directors in a Company?

The board of directors (BOD or the Board) is the management body of a company comprised of one or more directors. Under the law in Pakistan, the board of directors has a collective responsibility for the overall management of the company. All powers of the company are vested in the board of directors and the board may delegate their powers to one or more directors or officers of the company.

The Companies Act 2017 defines the board of directors as simply the “board of directors of the company”. However, from the context, one can understand that it is the collective management body of the company comprising more than one person in the case of private and public companies. However, the Single-member company has only one director.

Who is the Director of a Company?

You may ask if a company needs a board of directors then who is a director? A director is one of the members of the board who along with the other directors performs management functions in the company. His powers, functions, roles, and responsibilities are prescribed, subject to law, by the articles of the company, any resolution of the company, and the company law itself.

The Companies Act 2017 (company law in Pakistan) defines a director as; “any person occupying the position of a director, by whatever name called.” Though the definition in the company law does not precisely define the word “director”. However, generally, a director is the person who is responsible for managing the company under the law.

The next question that may arise in your mind is who can become a director of a company. Can every person become a director or there are some qualifications for the office of director?

Who can become a director of a Company?

Every natural person can become a director in a company if he is not ineligible or disqualified. This means that a company or other body cannot act as director of a company. In case a company holds a sufficient number of shares to elect a director, that shareholder company will have to nominate some natural person to represent it on the board of the company.

Qualification and Disqualification of a Director under the Companies Act

The Company law provides that a person shall be ineligible to become a director in a company if he:

  1. Is a minor (a person under the age of 18 is a minor);
  2. Is of unsound mind;
  3. Has applied to be adjudicated insolvent and his application is pending;
  4. Is an undischarged insolvent;
  5. Has been convicted by a court for an offense involving moral turpitude;
  6. Has been debarred to act as a director under the Companies Act;
  7. Lacks fiduciary behavior and a court has made a declaration in the last five years;
  8. Does not hold national tax number unless the Commission exempts this requirement;
  9. Is not a member. However, this requirement will not apply if i) the person is representing a member who is not a natural person (like a company, corporation, or a body corporate or other organization, ii) a whole-time director who is an employee of the company, iii) CEO and iv) a person representing a creditor or other special interest under a contractual arrangement;
  10. Has been declared defaulter of any financial institution by a court (applicable to the listed company only;
  11. is a broker or spouse of a broker or is a sponsor, director, or officer of a corporate brokerage house. (This applies only to a listed company).

If a person is not ineligible or disqualified for any of the reasons mentioned above, still a person may be disqualified to hold the office of director or he may cease to hold such office by the regulatory authority.

Vacation of office by the directors

A director may cease to hold the office for any of the reasons below:

  1. he becomes ineligible for any of the disqualifications mentioned above;
  2. he absents himself from three (03) consecutive meetings of the board without leave of absence;
  3. he, or company in which he is a director or a firm in which he is a partner holds any office of profit in the company other than CEO, or legal or technical advisor;
  4. he, or company in which he is a director or a firm in which he is a partner accepts a loan or guarantee from the company in violation of law related to loan to directors.

Minimum Number of Directors in a Company

The law provides different lower limits for the number of directors based on the kind of company. A company can not work without having the minimum number of directors as per the table below:

Kind of Company Minimum Number of Directors
Single Member Company 01
Private Limited Company 02
Public Limited Company 03
Listed Company 07

Maximum Number of Directors in a Company

The law does not limit the number of directors a company can have. However, the number of directors is fixed keeping in view the size of the company and the roles and functions to be performed by the directors.

Types of Directors

A company may have different types of directors. The law provides different roles and functions for each type of director.

A company may, keeping in view the type of company, have different types of directors.

Executive director

An executive director is a director who devotes his whole or substantial time to the operations of the company. He is paid for his executive role in the company.

Non-executive director

A non-executive director is a director who is not from the executive management, works part-time, gives an outside viewpoint to the board, and is not a beneficial owner in the company). Such a director may not receive any remuneration from the company except the meeting fee as approved by the board or the members.

Independent director

An Independent director is a director who is not connected or does not have any other relationship, whether pecuniary or otherwise, with the company, its associated companies, subsidiaries, holding company, or directors and can give independent business judgment without any conflict of interest). Independent directors are required in the listed companies.

The law provides specific criteria and manner of selection of an independent director in a company.

Nominee director

A nominee director is a director who represents creditors or special interests, a body corporate, or a government to act on the board. The role of the nominee director is limited to representing the company, body corporate, or the government who nominates and he represents the viewpoint of the nominating company, body corporate, or the government. His term of appointment lasts until his nomination is withdrawn or an election.

Alternate director

An alternate director is a director who works, with the approval of the board of directors, in place of another director who is not in Pakistan for more than 90 days.

Appointment, election and removal of a director under Companies Act 2017

Who Appoints the Directors?

Initially, the directors are appointed at the time of incorporation of the company. Later, they are elected by the shareholders (one of the rights of the shareholders) through election in the first annual general meeting and then after every three years. Sometimes director(s) may be appointed to fill a casual vacancy. And in the case where a member acquire requisite number of shares he may demand new election.

Time and Mode of Appointment of Directors

Time of Appointment Mode of Appointment
Incorporation/registration Determined by the subscribers to the memorandum
First AGM Elected by the members/shareholders
Subsequent Election (After every 3 years) Elected by the members/shareholders
Casual Vacancy due to the death, resignation, or removal of a director The board will appoint any member
New Election on acquiring the requisite number of shares to get a member elected as director Elected by the Members (on demand by the acquiring member)

First Directors of a Company

The first directors of a company are determined by the subscribers to the memorandum at the time of incorporation of the company. If you are registering a company, you will have to mention some or all of the subscribers (depending on the nature of the company) to act as directors.

Term of the First Directors

The directors appointed at the time of incorporation hold the office till the first annual general meeting (AGM). The law requires to hold the first AGM within 16 months of the incorporation. However, the first AGM may be held before 16 months. Every company other than a single member company, has to hold election of directors.

First Election of Directors

In the first AGM, the election of directors is held. The existing directors shall fix the number of directors to be elected in the AGM. They will have to fix this number not later than 35 days before the AGM. The law provides that this number may not be changed without approval of the general meeting in which election is to be held.

Election of Directors Procedure under Companies Act 2017

The Companies Act 2017 provides the procedure for election of directors. The step wise procedure for the election of directors (including independent directors, if required) is given below.

The existing directors of the company will, at least 35 days before the AGM, fix the number for the directors to be elected in the AGM. The numbers fixed by the directors may not be changed without approval of the general meeting in which the election is to be held. This means that if the directors fix a number for the directors to be elected and the member want a different number of directors, the matter will be decided by the members in the AGM.

The directors will send a notice of general meeting to every member of the company. The notice will contain the information about the retiring directors and the number of directors to be elected in the general meeting. The notice must be given 21 days before the meeting day.

Any interested member including the retiring directors may contest the election by filing a notice of their intention at least 14 days prior to the date of election. The contestants may withdraw their notice of intention any time before the meeting.

The directors will send notices of intention to contest election to all member at least 7 days before the election. If the company is a listed company, the notice of intention must be published in the Urdu and English (one each) newspapers of wide circulation.

If the number of contestants is not more than the number of directors to be elected, the contestants will be elected unopposed.

If the candidates are more than the number of directors to be elected then election will be conducted.