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.
Computation of Votes for the purpose of Election
Every member shall have voting rights calculated on the basis of a product of voting rights held by him and the number of directors to be elected. The following formula will apply for calculation of the voting rights for the election of directors.
For example, if a member holds 500 shares (having 1 vote for each share) and 3 directors are to be elected, the voting rights available to the member will be 1500.
The member has the option to give all his votes to any one candidate or divide these 1,500 votes in favor of more than one candidate as he wishes.
At the time of counting, the candidate getting the highest number of votes is declared as elected. Then the candidate who receives the next highest number of votes is declared as elected. This goes on until the total number of directors is elected.
Term of Office of Elected Directors
An elected director continues to hold that office for a period of 3 years from the date of election unless he resigns, vacates the office due to re-election, becomes disqualified or otherwise ceases to hold office.
Subsequent Election of Directors
The directors elected in the first AGM will hold their offices for 3 years. After the expiry of 3 years term, election will be held for next 3 years and so on. The elected directors may contest the subsequent elections without any restriction unless they are disqualified under the law.
Resignation of a Director
A director may resign from the office at any time by intimating the board of directors. The board of directors then may fill the casual vacancy by appointing any person (subject to qualification) who will hold the office for the remaining period. For example, if a director was elected in October 2020, his term would end in October 2023 but he resigns earlier. Then the director appointed in his place will hold the office till October 2023.
Fresh Election of Directors
If after election of directors, a member acquires such of number of shares that would get him elected on the board of a company may require the company to hold fresh election of directors. In such a case the board of directors will proceed to hold the election within 30 days. The election will be held in the same way as discussed above.
To ensure that the acquiring members gets a fair opportunity to be elected as director, the law requires that the number of directors fixed in the preceding election will not be decreased.
Removal of a Director
A company can remove an appointed or elected director by passing a resolution in the general meeting. The law provides different voting requirements for the removal of a director based on the mode of his appointment.
In case the directors were appointed:
- By the subscribers to the memorandum at the time of incorporation;
- By the board of directors to fill a casual vacancy;
- By unopposed election; and
- By fresh election due acquisition of the requisite number of shares
the number of votes will be calculated by the formula below:
Now if the votes against the removal resolution are equal to or more than the number 1000 (as calculated by the above formula), it shall be deemed that the resolution has not been passed. In other words, to remove a director in this scenario, the resolution must be passed by 2001 votes or more.
In case the director was elected in terms of section 159 (5) i.e. he became director after contesting the election, the director will be removed in the following manner.
To remove an elected director, the resolution for removal must be passed with more votes than the minimum number that was cast for the election of a director in the immediately preceding election.
For example, if in the immediately preceding election, the minimum votes of an elected director was 1000, the resolution of removal will require at least 1001 votes. If 1000 or more votes are against the resolution, it will be rejected and the director will not be removed.
Hope you have got a fair idea about who a company director is and what is the board of directors. Further, you have learned how the board is structured in different companies.
You have also learned how the directors of a company may be appointed in different ways; they may appointed by the subscribers to the memorandum, by the board of directors, or elected by the members. A director may resign and he may be removed by the resolution of the company (members) by following the procedure prescribed by the law.