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CORPORATE LAW

DIRECTORS
1. DIRECTOR: Person who leads, manages, or supervises an organization, program, or project. Company Appointed or elected member of the board of directors of a firm who, with other directors, has the responsibility for determining and implementing the firm's policy. He or she does not have to be a stockholder (shareholder) or an employee of the firm, and may only 'hold the office' of the director .Directors act by resolutions made at directors' meetings, and derive their powers from the corporate legislation and from the articles of association of the firm. As the firm's agents, they can bind it with valid contracts, entered into with thirdparties such as buyers, lenders, and suppliers. Directors are the trustees for the firm and not for individual stockholders, but they may be sued by the stockholders as personally liable for the consequences of the acts that are fraudulent or beyond their vested powers. Also, whether appointed validly or not, they are individually and collectively liable for the acts and/or negligence of the firm. Unlike to stockholders, directors cannot vote by proxy and, unlike employees, cannot absolve themselves of their responsibility for the delegated duties. 1.2. Definition of a director: Under the section of 2(1) (7) Director includes any person occupying the position of a director, by whatever name called; Note: By whatever name called means a person may have different name a part from the director of a company. Only natural person to be the director: Only a natural person shall be a director and no director shall be the variable representative of a body corporate. Note: Variable representative mean only for specific allotted areas and it is not permitted under companies ordinance 1984. 1.3. Who is chief executive of a company? A chief executive officer (CEO) or chief executive is the highest-ranking corporate officer (executive) or administrator in charge of total management of an organization. An individual appointed as CEO of a corporation, company, organization, or agency reports to the board of directors.

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CORPORATE LAW Chief Executive: Under the section of 2(1)(6A) Chief executive", in relation to a company means an individual who, subject to the control and directions of the directors, is entrusted with the whole, or substantially the whole, of the powers of management of the affairs of the company, and includes a directors or any other person occupying the position of a chief executive, by whatever name called, and whether under a contract of service or otherwise; 2. ELIGIBILITY: 2.1. Eligibility of directorship: Under the section of 176 All individuals (natural person) are eligible to become (to be elected) the director of a company: a. Natural person b. Person representing government or institute or authority c. Employee of the company ( as whole time director ) d. Chief executive e. Person representing creditors Any person who is not ineligible for directorship under the section of 187. 2.2. Ineligibility for directorship: Under the section of 187 all individuals (natural person) are eligible to become (to be elected) the director of a company except the following: A person who; a. Is a minor; b. Is of sound mind; c. Has applied to be declared as insolvent; d. Is an undercharged insolvent; e. Has been convicted for an offense involving moral turpitude; f. Has been debarred from holding office under any provision of companies ordinance, 1984; g. Has betrayed lack of fiduciary behavior. h. Is not a member (not applicable on representatives of Govt.etc If it is a member, whole time employees, chief executive, or representatives of creditors); and i. Is a defaulter in payment of loans, taxes, and / or utility bills as against the declaration given by him, which declaration is found to be false. This clause shall only apply to listed companies, listed Moradaba, financial institutions and banking companies. Provide that clause (h) shall not apply in the case ofI. A person presenting the government or an institution or authority which is a member; [2]

CORPORATE LAW II. A whole- time director who is an employee of the company; III. A chief executive; or IV. A person representing a creditor j. Has been declared by a court of competent jurisdiction as defaulter in repayment of loan to a financial institution, exceeding such amount as may be notified by the commission from time to time; k. Is engaged in the business of brokerage, or is a spouse such person[ person or is a sponsor, director or officer of a corporate brokerage house]: 2.3. Classification of directors There are four directors in the company which are explaining below; Elected Ex-officio Nominated Casual Vacancy

A board of directors is a body of elected or appointed members who jointly oversee the activities of a company or organization. The body sometimes has a different name, such as board of trustees, board of governors, board of managers, or executive board. It is often simply referred to as "the board."

An individual when acquires a position or is appointed for a in a company, and by virtue of his position in one company, He also become a director of another company. He said to be an ex-officio. For example in public sector governor of a province is an ex-officio chancellor of a public sector universities.

Sec 255(2) leaves scope for appointments to be made in accordance with the companys articles without being routed through the companys general meeting. An agreement among the shareholders may be imbibed in the articles you affect that every holder of 10% shares shall have the rights to nominate a director on the board.

Casual vacancies have the effect of eliminating or reducing representation for the member's constituency. Accordingly, many jurisdictions provide by law for the speedy filling of vacant seats. Casual vacancies can also occur in nongovernmental assemblies, such as boards of directors and committees of voluntary organizations.

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CORPORATE LAW

2.4. Minimum and Maximum number of directors Under ordinance-1984 Public company Unlisted Minimum number of member Minimum number of directors Listed Private Company Single member Other than single member 2 - 50

3 - infinite

7 infinite

1 -1

3 - infinite

7 infinite

1 -1

2 - 50

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CORPORATE LAW

2.5. Appointment of directors: Directors may b appointed by different interests Appointment schedule 1st time after incorporation Subsequent Casual vacancy

1. Appointed by:

The subscribers to the memorandum out of themselves normally way of majority Within 14 days of the incorporation of the company till the 4th coming election of directors(normally 1st annual general meeting Until the election of directors in first annual general meeting.

Members out of themselves in general meeting.

The remaining directors out of the rest of the members

2. Terms for appointment

At any time before the Within the 14 days of retirement of existing the occurrence of casual directors vacancy.

3. Terms of office / maximum tenure

3 years.

Remaining period of the person in whose place / position the vacancy accrued. Upon completion of the period for which he was appointed.

4. Retirement

Upon conclusion of its annual general meeting

Upon completion of 3 years

2.6. Powers of Directors of a company: Under the section of 196 director of a company may exercise all such powers of the company are vested in him (them) not through; 1. By the ordinance or 2. By the articles or 3. By the special resolution, Required to be exercised by the company in general meeting. However , following are exercisable by the directors and these powers shall exercised by means of a resolution at their meeting:

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CORPORATE LAW To make calls on unpaid capital; To issue shares and debentures; To borrow money; To invest funds; To make loans; To approve account and bonus to employees; To incur capital expenditure exceeding Rs. 200,000/-; To sell any fixed asset of value exceeding Rs. 100,000/-; To appoint chief executive (1st Sch:45 ); and To approve a contract for sale, purchase or supply of goods or rendering of services in which director is directly or indirectly interested. Following acts can b done by the director of a public company or a subsidiary of a public company or through the consent or authorization of general meeting: a) Sell, lease, or otherwise dispose of the undertakings or a sizable part thereof. This provision is not applicable to a company whose main business is such sealing etc; and b) Remit, give any relief or give extension of time for the repayment of any debt outstanding against any person specified in section 195 [Section 196 (3)]. 2.7. Duties / Functions of Directors: Corporate executives are today possess of immense power which must be regulated not only for the public good, but also for the protection of those whose investments involved, directorship will always be susceptible to abuse, Some director will a always be faithless to their trust. They can capitalize their strategic position in the company to serve their own interest. The law, therefore, continues to struggle against their wiles and impose upon them certain duties which, when properly enforced, will, without driving away from the field competent men, materially reduce the chance of abuse. 1. To hire, evaluate, support, and fire the executive director. 2. To develop agency policies governing human resource management and facilitate staff and client grievance issues. 3. To review and accept the annual agency audit and submit Form 990 to the IRS. 4. Accept fiduciary responsibility for the agency and assure the integrity of its financial records and reports. 5. Develop a strategic plan for the agency and monitor compliance with the goals and objectives of the plan. 6. Periodically review the agencys compliance with its mission and values statements. [6] a) b) c) d) e) f) g) h) i) j)

CORPORATE LAW 7. Maintain records (minutes) of the boards activities and decisions. 8. Represent the agency to its constituentswith the consent of the executive director. 9. Serve on agency sub-committees and attend meetings as schedule. 2.8. Liabilities of Directors: The companies ordinance 1984 requires directors to do or refrain doing various acts on behalf of the company. The ordinance also requires them to file various forms with the registrar and make their responsible for various documents issued by the company. If directors do not perform their duties in accordance with the provisions the ordinance regarding the above matters, they are liable to certain penal actions under the ordinance which may result in disqualification from being a director of that company or any other company or all companies, or imprisonment or all of these. Some of acts of directors, which may entails penalties, are as follows: a) b) c) d) e) Any false statement (Sec.492); Wrongful withholding of property (Sec.493); Allotment of shares for inadequate consideration(Sec.494); Carrying on ultra vires business(Sec.496); Refusal to transfer shares of a public limited company or failure to give notice of refusal (Sec.78).

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CORPORATE LAW

3. PROCEDURE FOR ELECTION OF DIRECTORS: [Section: 178]


Whenever the election of directors is to be conducted, there is a legal procedure that is laid down by ordinance, and there is separate procedure for two different types of companies: 1) A Company having share capital;
2) A Company not having share capital

1) A Company having Share capital


Step-1: Fixation of Number of Directors:

First step of procedure for election of directors is about fixation of number of directors. The directors of a company shall fix the number of elected directors at least 35 days before the general meeting.
Step-2: Notice of General Meeting:

Second step is about the notice of general meeting. Notice for election of directors should be given to the members by the company stating: a. The number of directors to the elected; and b. Names of the retiring director.
Step-3: Nomination for Contesting Election:

Third step tells about the nomination for contesting Election. A notice should be filled by the person contesting in the forthcoming election with the company, at least 14 days before the meeting.
Step-4: Notice to Member by the Company:

In forth step we come to know how a company sent notice to the member. All the notices received by the company shall be communicated to the members at least 7 days before the meeting. In case of listed company, such notice must be published at least in one English and an Urdu daily newspaper having circulation in the province in which the stock exchange, where its securities are listed, is situate.
Step-5: Number of Votes of the company:

In last step ordinance tells about number of votes of the company. In this step, there are three parts included which are described below: a. In the Election of Directors, every member has number of votes equal to the product of; i) his shares, and ii) the number of proposed directors.

The above statement can mathematical be derived as:


Total Number of votes of the company = Total number of share of paid up capital No. of Proposed Directors.

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CORPORATE LAW b. A member has right to cast all his votes to one or more candidates as per his own choice. c. The candidate securing the highest number of votes shall be so declared elected and then the candidate who gets next highest number of votes shall be so declared elected and so on until the total number of directors to be elected, are elected 2) Voting system for Company not having Share Capital: Following is the procedure that is to be followed for election of director for company not having share capital; a. Provisions regarding (1) (2) (3) (4) fixation of number of directors, nomination papers, notice of election, term of office, are the same as there of companies having share capital

b. No specification system of voting is provided for such compliance by law. c. Election is made according to system stated in articles. 4. REMOVAL OF DIRECTOR: [Under section 181] A company may by resolution in general meeting remove a director appointed under section 176 or section 180 or elected in the manner provided for in section 178: Provided that a resolution for removing a director shall not be deemed to have been passed unless the number of votes cast 1[against it is equal to, or exceeds].(i) the minimum number of votes that were cast for the election of a director at the Immediately preceding election of directors, if the resolution relates to removal of a director elected in the manner provided in sub-section (5) of section 178; or (ii) the total number of votes for the time being computed in the manner laid down in subsection (5) of section 178 divided by the number of directors for the time being, if the resolution relates to removal of a director appointed under section 176 or section 180.

5.1. Directors Nominated By Creditors: [Section: 182]


In accordance with the contractual arrangements between the company and its directors, the creditors may be given a right to nominate one or more directors on the board of the company. Likewise other special interests may also nominate directors. The restrictions imposed by section 178, 180, 181, shall not apply in respect of the following nominee directors: a. Directors nominated by PICIC. b. Directors nominated by a corporation or company formed or owned or controlled by the Federal Government. [9]

CORPORATE LAW c. Directors nominated by Federal Government or Provincial Government. d. Directors nominated by foreign equity holders on the board of PICIC, or of any other company set up under a regional co-operation or other co -operation arrangements approved by Federal Government. When a director is nominated, the number of votes equal to the minimum number of votes required for election in an independent capacity shall be excluded from the total number of votes otherwise available to the authority or person nominating him. Such nominee director shall hold office so long as the authority appointing him desire.

5.2. Procedure of Nomination of Directors by Creditors and Special Interests


a) Creditors Nominee: The creditors can nominate an individual as director of the company. Such individual need not be a member of the company. BOD will record nomination of creditors. Such director shall be entitled to notice Of all meetings (directors and members) b) Special Interest Nominee: They can nominate directors according to voting powers held by nominating authority determined in the manner provided by section 178. Such directors hold office during the pleasure of the nominating corporation, company, government or authority. 6. Rendering the Election

6.1. Rendering the Election of Directors as Invalid: [Section: 179]


Only the court has the authority to declare the election of directors as Invalid when: 1. Members having at least 20% of the total voting rights may apply to the court. 2. The application to the court must be filed within 30 days of the election. 3. There was material irregularity in holding the election.

6.2. Reasons and Grounds to Render the Election as Invalid: [Section: 179]
Under the following circumstances, the election of a director or all the directors may be declared by the court as invalid: 1. The person was not eligible legally to be appointed as director; 2. Legal procedure for the election of director as laid down in the ordinance was not follow; The meeting for the purpose was itself invalid.

7. LEGAL PROVISIONS REGARDING VACATIONS OF OFFICE BY DIRECTOR [10]

CORPORATE LAW

7.1. Under Ordinance [Section 188]: 7.1.1. A director who is otherwise legally appointed, shall ipso facto cease to hold office if:(a) he becomes ineligible to be appointed a director on any one or more of the grounds enumerated (u/s 187) in clauses (a) to (h); (b) he absents himself from three consecutive meetings of the directors or from all the meetings of the directors for a continuous period of three months, whichever is the longer, without leave of absence from the directors; (c) he or any firm of which he is a partner or any private company of which he is a director: (i) Without the sanction of the company in general meeting accepts or holds any office of profit under the company other than that of chief executive or a legal or technical adviser or a bank; or (ii) Accepts a loan or guarantee from the company in contravention (u/s 195) 7.1.2. Nothing contained [u/s(195(1)] shall be deemed to preclude a company from providing by its articles that the office of director shall be vacated on any grounds additional to those specified in that subsection. 7.2. Restrictions on director's Remuneration [Section 191]: The remuneration is paid to the directors when they perform extra services. The two cases are given below regarding the remuneration of directors: The remuneration of a director for performing extra services, including the holding of the office of chairman, shall be determined by the directors or the company in general meeting in accordance with the provisions in the company's articles. The remuneration to be paid to any director for attending the meetings of the directors or a committee of directors shall not exceed the scale approved by the company or the directors, as the case may be, in accordance with the provisions of the articles.

The Remuneration of Directors can be summarized simply as given below: [11]

CORPORATE LAW Restriction of Directors Remuneration

For Meetings Attended Payable to all such directors who have attended the Board Meetings (by director or company).

For Services Rendered ( Including the holding of office of chairman) Payable to only such director who regularly renders services in the management of the company. (by director or company).

7.3. Restriction on Assignment of Office by Directors [Section 192]: Assignment of office of directorship means a director deputes to any other person (not already being a director) to hold his office in place of directorship. (a) A director of a company can not assign his office to another person unless it is approved by a special resolution in general meeting even if it is allowed by the articles. (b) The appointment by a director with the approval of the directors, of an alternate or substitute director during his absence from Pakistan of not less than three months shall not be deemed to be an assignment of office.

Restriction on Assignment of Office by Directors

Assignment of Office by Director It is not permitted under the Ordinance even if it is provided in the Articles.

Under some extra ordinary circumstances, the members may allow assignment of office by a director through passing a special resolution.

Appointment of An Alternate Director A director going abroad for more than 3 months (consecutive) may appoint an alternate director with the permission of The Board (BOD). As soon as the original director enters into the legal Jurisdictions of Pakistan, the alternate director shall cease to be an alternate director.

8. Disclosure of Interest by Director

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CORPORATE LAW 8.1. Under the Ordinance [Section 214]: Following are the provisions about directors that how and when they would disclose their interest in a company. Every director of a company who is in any way, whether directly or indirectly, concerned or interested in any contract or arrangement entered into, or to be entered into, by or on behalf of the company shall disclose the nature of his concern or interest at a meeting of the directors in which: (a) He is entered into, by or on behalf of the company, and (b) He is concerned or interested in any way, whether directly or indirectly. Provided that a director shall be deemed also to be interested or concerned if any of his relatives, as defined in the Explanation [u/s195(1)] is so interested or concerned. Note: A director shall also be deemed to be interested or concerned with any contract or arrangement to which his relative (i.e. spouse and minor children), if any, is so interested or concerned. 8.1.1. Such Disclosure Shall Be Made: (i) In case of a contract or arrangement to be entered into the disclosure required to be made by a director [u/s195 (1)] shall be made:(a) At the meeting of the directors at which the question of entering into the contract or arrangement is first taken into consideration or, (b) if the director was not, on the date of that meeting, concerned or interested in the contract or arrangement, at the first meeting of the directors held after, he becomes so concerned or interested; and (ii) In the case of any other contract or arrangement, at the first meeting of the directors held after the director becomes concerned or interested in the contract or arrangement. (iii) A general notice is given to the directors to the effect that a director is a director or a member of a specified body corporate or firm, he is to be regarded as concerned in any contract which may entered into with that firm after the date of notice. This disclosure shall be a sufficient disclosure of interest in relation to any contract or arrangement so made. (iv) Any such general notice shall expire at the end of the financial year in which it is given, but may be renewed for further period of one financial year at a time, by a [13]

CORPORATE LAW fresh notice given in the last month of the financial year in which it would otherwise expire. (v) No such general notice, and no renewal thereof, shall be of effect unless either it is given at a meeting of the directors, or the director concerned takes reasonable steps to ensure that it is brought up and read at the first meeting of the directors after it is given. (vi) A director who fails to comply with [u/s 195(1)] shall be liable to a fine which may extend to five thousand rupees. (vii) Nothing in this section shall be taken to prejudice the operation of any law restricting a director of a company from having any concern or interest in any contract or arrangement with the company. 8.1.2. Interest of other officers, etc. [Section 215]: Save as provided (u/s 214) in respect of director, no other officer of a company who is in any way, directly or indirectly, concerned or interested in any proposed contract or arrangement with the company shall, unless he discloses the nature and extent of his interest in the transaction and obtains the prior approval of the directors, enter into any such contract or arrangement. 8.2. Interested director not to participate or vote [Section 216]: No director of a company shall, as a director, take any part in the discussion of, or vote on, any contract or 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, 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. 8.2.1. Exceptions: Such directors shall not be allowed to participate or vote in the proceedings of directors. However the above restriction shall not apply to: (a) A private company which is neither a subsidiary nor a holding company of a public company; (b) Any contract of indemnity against any loss which the directors, or any one or more of them, may suffer by reason of becoming or being sureties or a surety for the company; (c) In case of directorship contract with a public company if interest is only to common and he is a nominee director and does not hold enough number of shares to get himself elected. Note: [14]

CORPORATE LAW

No officer of the company, (other than a director), shall enter into any contract or arrangement with the company in which he is directly or indirectly interested unless he has obtained prior approval of directors. Contravening director shall be punishable with fine which may extend to Rs.5000. (u/s 215) 8.3. Declaring a Director to be lacking fiduciary behaviour [Section 217]: The Court may declare a director to be lacking fiduciary behaviour if he contravenes the provisions (u/s 214) or [u/s 215(1) (1) or (u/s 216): (a) The director does not disclose his interest or concern regarding any contract or arrangement in which: (i) He is entered into, or to be entered into, by or on behalf of the company; and (ii) He is concerned or interested in any way whether directly or indirectly. (b) Such interested director participates or votes in proceedings of directors. Provided that before making a declaration the Court shall afford the director concerned an opportunity of showing cause against the proposed action. 8.4. Disclosure to members of directors interest in contract appointing chief executive, managing agent or secretary [Section 218]: Some provisions are given below which will be applicable in case of appointment of a chief executive, managing agent or secretary in a company. (i) Directors Report: The company shall make out and attach to the directors report an abstract of the terms of the appointment or contract or variation, together with a memorandum clearly specifying the nature of the concern or interest of the director, where: (a) The company appoints, or enters into a contract for the appointment of:     a chief executive, managing agent, whole-time director; or secretary of the company, in which appointment or contract any director of the company is in any way, whether directly or indirectly, concerned or interested: OR

(b) Adjustment in Existing Contracts: [15]

CORPORATE LAW

The company varies any such contract already in existence; the company shall make out and attach to the report referred to (u/s236) an abstract of the terms of the appointment or contract or variation, together with a memorandum clearly specifying the nature of the concern or interest of the director in such appointment or contract or variation. (ii) Contract for the Appointment of a Chief Executive: When a company enters into a contract for the appointment of a chief executive of the company, or varies any such contract which already exists then the company shall send an abstract of the terms of contract to every member of the company within 21 days from the date of entering into the contract, and if any other director of the company interested in the appointment, a memorandum clearly specifies the nature of the interest of such other director in the appointment of contract and shall also be sent to every member of the company with the abstract. (iii) Inspection of the Members of the Company: All contracts entered into by a company for the appointment of a managing agent, chief executive or secretary shall be kept at the registered office of the company; and shall be open to the inspection of any member of the company at such office; and extracts may be taken there from and certified copies thereof may be required by any such member, to the same extent, in the same manner and on payment of the same fee, as in the case of the register of members of the company; and the provisions of (u/s 150) shall apply accordingly. (iv)Resolution of the Directors: The provisions of this section shall apply in relation to any resolution of the directors of a company appointing a managing agent, a secretary or a chief executive or other whole-time director, or varying any previous contract or resolution of the company relating to above stated persons, as they apply in relation to any contract for the like purpose. (v) Default by the Members: If default is made in complying with any of the provisions of the section, the company and every officer of the company who is knowingly and willfully in default shall be liable to a fine which may extend to five thousand rupees 8.5. Duty of directors, etc., to make disclosure of shareholdings, etc [Section 221] (i) Every director, officer and such other person as is referred to in [u/s 220(1)] shall give notice to the company of such matters relating to him as may be necessary for the purpose of enabling the company to comply with the provisions of above stated section.

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CORPORATE LAW (ii) A director, offices, and a person holding not less than 10% of the beneficial interest in a company shall give the notice referred to [u/s 220(1)] writing within fifteen days of each requisition or change of interest or right, as the case may be, referred in above mentioned section or date of agreement referred to [u/s 220(2)]. (iii) Any person who knowingly and willfully fails to comply with above stated sections. He shall be punishable with imprisonment for a term which may extend to two years, or with fine which may extend to five thousand rupees, or with both. 8.6. Submission of statements of beneficial owners of listed securities [Section 222]: A beneficial owner shall submit the return of its securities to the registrar and the Commission within a specific time period. (i) The following authorities will submit their returns:       a director, chief executive, managing agent, chief accountant, secretary or auditor of a listed company,

who is or has been the beneficial owner of any of its equity securities, and every person who is the beneficial owner of more than 10% of such securities, shall submit to the registrar & the commission a return in the prescribed form which contains prescribed particulars containing beneficial ownership of such securities and any change in the interest as described in Form-32. (ii) The period within which the said return is to be submitted to the registrar and the Commission shall be: (a) Where the person occupies the position or office, or is a person whose interest as beneficial owner of securities requiring submission of the return subsists on the commencement of the Ordinance, within thirty days from such commencement; (b) In any other case, including a case where the company is listed on the stock exchange after the commencement of this Ordinance or after the person has occupied the position or office or has acquired interest as beneficial owner of securities as aforesaid, within thirty days of occupying the office in the company or acquisition of interest as beneficial owner requiring submission of the return aforesaid or listing of the company on the stock exchange, as the case may be; (c) Where there is any change in the position or interest as aforesaid including a change in the beneficial ownership of any equity, security, within fifteen days of such change; or

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CORPORATE LAW (d) Where the Commission by an order so requires, within such period as may be specified in such order. 8.7. Trading by director, officers and principal shareholders [Section 224]: This description is about those directors, officers and shareholders who can trade within a specific time period. (i)Report of Return to the Registrar & the Commission: Where any of the under mentioned persons:  director  chief executive  managing agent  chief accountant  secretary or  auditor of a listed company or Any person who is directly or indirectly the beneficial owner of more than 10% of its listed equity securities of the company. He makes any gain from any such securities by purchase and sale within a period of less than six months. Then such beneficial owner will make a report and tender the amount of such gain to the company. An intimation is send to the registrar and the Commission. Provided that nothing in this sub-section shall apply to a security acquired in good faith in satisfaction of debt previously contracted. (ii) Beneficial Owners fails to Recover Gain: Where a director, chief executive, managing agents, chief accounts, secretary auditor or person who is beneficial owner as stated above fails or neglects the tender, or company fails to recover, any such gain which is mentioned above within six months after its accrual, or within 60 days of its demand, which ever is later, then such gain shall vest in the commission. The commission may direct recovery of the same as an arrear of land revenue unless such gain is deposited in the prescribed account. (iii) Auditor of the Company: For the purposes of (u/s 220-224), the term auditor of the company shall, where such auditor is a firm, include all partners of such firm. (iv) Contravention or Default: Whoever knowingly and willfully contravenes or otherwise fails to comply with any provision of above stated sections shall be liable to a fine which may extend to thirty thousand rupees and in the case of a continuing default to a further fine which may extend to one thousand rupees for every day after the first during which such contravention or default continues. [18]

CORPORATE LAW

8.7.1. Explanation: (a) For the purposes of (u/s 222), beneficial ownership of securities of any person shall be deemed to include the securities beneficially owned, held or controlled by him or his spouse or by any of his dependent lineal ascendants or descendants not being himself or herself a person who is required to furnish a return in above stated section, and (i) In the case where such person is a partner in a firm, shall be deemed to include the securities beneficially held by such firm; and (ii) In the case where such person is a shareholder in a private company, shall be deemed to include the securities beneficially held by such company: Provided that the gain which is required to be tendered to the company by such person shall be an amount bearing to the total amount of the gain made, as the case may be, by the firm or private company the same proportion as his relative interest bears to the total interest in such firm or private company. (b) For the purposes of this Explanation, control, in relation to securities means the power to exercise a controlling influence over the voting power attached thereto.

CHIEF EXECUTIVE

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CORPORATE LAW 9.1. MEANING: A chief executive is an officer of highest rank in a company or n organization, responsible for carrying out the policies of the board of directors on day to day basis. 9.2. DEFINITION: Under section 2(6) the term chief executive has been defined as: "Chief executive is an individual who, in relation to a company, i. means an individual who, subject to the control and directions of the directors, is entrusted with the whole, or substantially the whole, of the powers of management of the affairs of the company, and includes a director or any other person occupying the position of a chief executive, by whatever name called, and whether under a contract of service or otherwise.

ii.

9.3. Which Company must have a Chief Executive? Every company, other than the company managing agent, shall have a Chief Executive. 9.4. LEGAL RULES REGARDING CHIEF EXECUTIVE 9.4.1. APPOINTMENT OF CHIEF EXECUTIVE The legal rules regarding appointment of chief executive are as follows: 9.4.1.1. Appointment of first Chief Executive [section 198(2)]: The director of every company shall as from the date from which it commences business or as from a date not later than the fifteenth day after the date of its incorporation, whichever is earlier, appoint any individual to be the chief executive of the company. i. ii. The director of the company shall appoint the first chief executive. The first chief executive shall be appointed as from the date, the company commences its business or within fifteen days of incorporation of the company whichever is earlier.

. 9.4.1.2. Appointment of Subsequent Chief Executive [Section-199(1)]: Within fourteen days from the date of election of directors under section 178 or the office of the chief executive falling vacant, as the case may be, the directors of a company shall appoint any person, including an elected director, to be the chief executive, but such appointment shall not be for a period exceeding three years from the date of appointment. i. The subsequent chief executive must be appointed by the director within 14 days of election of directors. [20]

CORPORATE LAW ii. iii. If the casual vacancy arises in the office of the chief executive that shall also be filled by the directors within the 14 days of its occurrence. An elected director of a company or retiring chief executive is eligible for appointment as a chief executive of the company.

9.4.2. TERMS OF APPOINTMENT OF CHIEF EXECUTIVE [Section-200]: Terms of appointment for chief executive are in the following manner: (a) The terms and conditions of appointment of a chief executive shall be determined by the directors or the company in general meeting in accordance with the provisions in the company's articles. (b) The chief executive shall if he is not already a director of the company, be deemed to be its director and be entitled to all the rights and privileges, and subject to all the liabilities, of that office. All of the Legal rules and provisions regarding chief executive may be summed up as par the following table:

Rules governing appointment, terms of office and retirement of Chief Executive

Appointed by

First director Earlier of followings: the

Subsequent director

Casual Director

Time appointment

At any time before Within the 14 days the retirement of of the occurrence of a. within 15 days first director. Casual vacancy. from the date of for incorporation; or b. from the date of commencement of business.

Terms of office

Maximum annual meeting.

up to Maximum up to 3 Maximum up to 3 general years from the date years. of appointment

Retirement

Up to the completion of period for which he was appointed.

9.4.3. INELIGIBILITY TO BECOME A CHIEF EXECUTIVE [Section- 201]: [21]

CORPORATE LAW No person who is ineligible to become a director of a company under section 187 shall be appointed or continue as the chief executive of any company. The person shall deem to be disqualified, if he: i. ii. iii. iv. Is a minor; Is of an unsound mind; Has applied to be declared insolvent; and Has been debarred from holding office under any provision of companies ordinance, 1984.

Ineligibility and non-eligibility criteria for director shall also apply for Chief Executive. 9.4.4. REMOVAL OF CHIEF EXECUTIVE [Section 202]: The directors of a company by resolution passed by not less than three-fourths of the total number of directors for the time being, or the company by a special resolution, may remove a chief executive before the expiration of his term of office notwithstanding anything contained in the articles or in any agreement between the company and such chief executive. Above lines can be summed up in a following manner: Chief executive can be removed by: i. The directors by passing a resolution by atleast of the total number of directors for the time being; or ii. The company by passing special resolution. Removal of Chief executive By Directors By Members

By passing a resolution with at least By passing a special resolution 3/4th of the majority of the total directors for the time being.

9.4.5. PENALTY: Whoever contravenes any of the above provisions shall be liable to fine up to Rs. 10,000 and may debarred by the commission from becoming a director or chief executive of the company for the period not exceeding three years.

9.4.6. DUTIES OF CHIEF EXECUTIVE: [22]

CORPORATE LAW It is the duty of the Chief Executive to: a) manage the business and affairs of the Corporation within the guidelines established by the Board and report to the Board of Directors; direct the activities of the Corporate Secretary; ensure that the work carried out by the Corporation and its subsidiaries is of a quality which complies with the Corporations quality policy; develop and implement operational policies to guide the Corporation within the limits prescribed by the Corporations By-Laws and the framework of the strategic directions adopted by the Board; develop and seek the Boards concurrence for plans for management development and succession in all key positions and then implement such plans; meet regularly and as required with the Chairman and other Board members to ensure that they are provided in a timely manner with all information and access to management necessary to permit the Board to fulfill its statutory and other obligations.

b) c)

d)

e)

f)

9.5. FUNCTIONS AND RESPONSIBILITIES OF CHIEF EXECUTIVE: The functions performed and the responsibilities carried out by Chief Executive are as par the following manner: a) Board Administration and Support: They Support operations and administration of Board by advising and informing Board members, interfacing between Board and staff, and supporting Board's evaluation of chief executive. b) Program, Product and Service Delivery: Oversees design, marketing, promotion, delivery and quality of programs, products and services c) Financial, Tax, Risk and Facilities Management: Recommends yearly budget for Board approval and prudently manages organization's resources within those budget guidelines according to current laws and regulations. d) Human Resource Management: Effectively manages the human resources of the organization according to authorized personnel policies and procedures that fully confirm to current laws and regulations.

e) Community and Public Relations:

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CORPORATE LAW Assures the organization and its mission, programs, products and services are consistently presented in strong, positive image to relevant stakeholders. f) Fund-raising (nonprofit-specific): They supervise fundraising planning and implementation, including identifying resource requirements, researching funding sources, establishing strategies to approach fund raisers, submitting proposals and administrating fundraising records and documentation.

SHARE-HOLDERS AND MEMBERS


[24]

CORPORATE LAW

10.1. MEANING: A person is said to be a member of a company, if he holds the shares of a company. Or the stockholder whose name is recorded in the register of members shall deem to be a member of a company. 10.2. DEFINITION [Under Section 2(21)]: "member, in relation to a company having share capital, a subscriber to the memorandum of the company and every person to whom is allotted, or who becomes the holder of, any share, scrip or other security which gives him a voting right in the company and whose name is entered in the register of members, and, in relation to a company not having a share capital, any person who has agreed to become a member of the company and whose name is so entered. 10.3. MODES OF BECOMING A MEMBER: A person can become a member of a company by means of following modes. Modes of becoming a member are as follows: a. By subscription: A person who subscribes its name to the memorandum of association by signing such memorandum is deemed to be member of the company. b. By application: A person who makes an application to tale shares of the company and agrees to become a member but he does not become a member until his name is entered in the register of members. c. By transfer: A person by taking a share from member becomes the member of the company, on being put up the register of members. d. By succession: The legal representative of the deceased member or an official assignee of an insolvent becomes the member of the company in place of such deceased or insolvent. e. By estoppel: A person who allows his name to be on register of members or otherwise holds out as a member and who is estopped from denying that he is registered with his consent , becomes the member of the company.

10.4. DUTIES AND RESPONSIBILITIES OF A MEMBER: [25]

CORPORATE LAW

10.4.1. DUTIES OF A MEMBER: The role and duties of a member may vary according to the size and nature of the organization. However, all members are individually committing to: a) upholding the values and objectives of the organization; b) giving adequate time and energy to the duties of being a trustee; and c) acting with integrity, and avoiding or declaring personal conflicts of interest. 10.4.2. RESPONSIBILITIES OF A MEMBER: A member of a company is responsible to: a) examine the documentation sent to you for the AGM [and any other extraordinary meetings that may arise]; remained informed of GPAPs performance and activities against objectives (that is, reading board minutes); if possible, attend the AGM and General Meeting; and cast a vote [in person, by post or by appointing a proxy] on any matters presented.

b)

c) d)

10.5. RIGHTS AND LIABILITIES OF MEMBERS 10.5.1. RIGHTS: a. Members may remove a director by passing a resolution, at a general meeting, of which a notice of intention to propose is given; b. Members can take proceedings, in the name of company against the director; c. Member may have affairs of the company investigated by an inspector appointed commission; d. Members are entitled to receive notice of all general meetings of the company and to attend meetings and speech and vote therein; and e. Members are entitled to receive dividend declared by the company; f. Members are entitled to receive proportionate part of remaining in the case of winding up of the company. 10.5.2. LIABILITIES: [26]

CORPORATE LAW

Legal rules and provisions regarding liabilities of the members may be summed up as par the following diagram:

Company limited by shares

Company guarantee

limited

by Unlimited companies

Members are liable only to the extent of the nominal vale of shares taken by them.

Members are liable to the extent of the amounts which, under the memorandum, they undertake to contribute to the asset of the company in the event of its being wound up.

The liability of the member unlimited. So, the private estates members are also liable to pay debts of the company.

10.6. WHEN PERSON MAY TERMINATE OR CEASE TO BECOME A MEMBER: The circumstances under which the member may terminate are as follows: a. b. c. d. e. f. by transfer of his all shares; or by forfeiture of his all share; or by surrender of his all shares; or by sale of his all shares by the company under its lien; or by death; or by winding up the company.

RESOLUTION
[27]

CORPORATE LAW

The classification of Resolution may be summed up diagrammatically as follows:

Resolution

Board Resolution Ordinary resolution: A resolution passed with single majority of the members present in the meeting.

Company Resolution Specific Resolution: A resolution passed with at least majority of directors as has been specified in ordinance, articles and specific resolution/ Board resolution

Single Board Resolution: A resolution passed with single majority of the directors present in the meeting.

Specific Board Resolution: A resolution passed with at least majority of directors as has been specified in ordinance, articles and specific resolution/ Board resolution.

Special Resolution: A special resolution is the one passed at the general meeting

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CORPORATE LAW

RESOLUTION
11.1. MEANING: Under law, a motion (Motion is to express sum ones intention in relation to some prospective act or abstinence in black and white)of a single member becomes a resolution of the whole meeting if it carries; if it obtains necessary number of votes. A resolution is what a motion seeks to become. It is by resolution that an organization or company undertakes brain-storming and makes decisions. Until and unless a resolution is passed, a meeting does not accomplish anything that has a real effect; i.e. it does not produce any results which has any potency at all or any legal significance. But when a resolution has been passed, a legally binding decision has thereby been made. 11.2. DEFINITION: A resolution is the statement, for carrying out some decision taken in an officially convened body, accepted by the members or majority of the members requiring its approval present in that meeting, which is binding on the body as a whole Resolution is a determination of policy of a corporation by the vote of its board of directors. Legislative bodies also pass resolutions, but they are often statements of policy, belief or appreciation, and not always enactments of statutes or ordinances Resolution is a motion which is considered by the members and its passed by a majority of votes of the members in general meeting. It is a collective decision of the members in general meeting. 11.3. CLASSIFICATION OF RESOLUTION: The resolution in companies may take following forms on the basis of purpose and functioning. 11.3.1. Ordinary Resolution An ordinary resolution is the one passed by simple majority at a general meeting at which either notice of the intention to deal with the subject matter of the resolution have been duly given or where the subject matter of resolution does not require notice by the ordinance or the articles, e.g. appointment of auditors, or declaration of dividend. 11.3.2. Special resolution 11.3.2.1. Definition [section-2(36)] A special resolution is the one passed at the general meeting: a) When not less than twenty-one days notice has been given;

[29]

CORPORATE LAW b) When the notice specifies the intention to be propose the resolution as the special resolution; and c) By the majority of the three fourth of such members entitled to vote as are present in person or by proxy. 11.3.2.2. Exception Exception to condition (a), if all the members entitled to attend and vote at any such meeting so agree, a resolution may be proposed and passed as a special resolution at a meeting of which less than twenty-one days notice has been given. A special resolution is required to be passed to carry out one of the followings: a) To change the name of the company,(u/s-39); b) To change the registered office from one province to another ,etc and to alter its objects,(s-21); c) To reduce the share capital of the company,( u/s-28); d) To make the liability of the directors unlimited,( u/s-112); e) To sanction the assignment of office by a director,( u/s-192); f) To initiate a winding up by court,( u/s-305)(a); g) To wind up a company voluntarily,( u/s-358)(b); h) To confer authority on a liquidator in a voluntarily winding up to enter into any arrangement with a transferor company ,( u/s-367)(1); i) To enable a liquidator ,in members voluntary winding up, to exercise some of his powers(u/s-387(a)); j) To sanction any arrangement between the company and its creditors during the winding up proceedings(u/s-390(1));and k) To decide how, in a voluntary winding up the books and papers of the company are to be disposed of (u/s-428(1)). 11.4. Resolution requiring a specified majority, sometimes called class resolution: The ordinance or the articles sometimes require that something which may be done shall require a majority of special character, whether of the whole number of members or of a certain proportion of the issued capital or classes of capital, or merely of the members present at the meeting.

[30]

CORPORATE LAW 11.5. Resolution passed at an Adjourned Meeting (section-169) Where a resolution is passed at an adjourned meeting of: a) A company ; b) The holders of any class of shares in a company ; c) The directors of a company ;or d) The creditors of a company. Such resolution shall: i. For all purposes, be treated as having been passed on the date on which it was in fact passed ;and ii. Shall not be deemed to have been passed on an earlier date. 11.6. Notice of Resolution The company shall pass send copies of draft solution, other than routine of procedural resolutions to every member along with the notice for a meeting. The members having not less ten-percent voting power may give notice of a resolution and such proposed resolution together with the supporting statement ,if any, should reach the company. a) In the case of the meeting requisitioned by the members together with the requisition for the meeting. b) In any other case at least fifteen days before the meeting; And the company shall forthwith circulate such resolution to all the members. 11.7. Filing of Special Resolution [section 172] A printed or typed copy of every special resolution shall be: i. Filed with the registrar within fifteen days of passing thereof the company should be authenticated by the chief executive or company secretary; ii. Embodied in or annexed to every copy of the articles issued after the date of the resolution ;and Forwarded to any member at his request on payment of an amount determined by the company which should not increase the amount prescribed in rules.

iii.

[31]

CORPORATE LAW

MEETINGS AND PROCEEDINGS (12)Definition of meeting:


A meeting may be defined in any of the following ways; i) Any gathering, assembly, or coming together of two or more persons for the transaction of some lawful business of common concern. P.G. Ghosh. ii) Any validity constituted gathering of shareholders or their elected representatives for the transaction of business of the company so as to run it methodically, smoothly, efficiently and according to the law is called a company meeting. Notice that every gathering of persons does not constitute a meeting. A gathering will be a meeting only if prescribed rules and regulations are observed. A company meeting shall be valid.

(13)Classification of company meetings:


In broad term, company meetings are classified on the basis of the number of member participants-meetings held by all members of a company and the meetings held by only a particular class of members. The meetings held by all members are further classified as statutory general meeting, annual general meeting and extra-ordinary general meeting. The meanings, definition, and the further particulars are discussed below.

(14)Statutory general meeting of a company: (SGM)


14.1 General definition: Statutory meeting is the first general meeting of the members of a public company after its incorporation. The statutory meeting is held only once in the life time of the public company. 14.2 Definition by law: Every company limited by shares and every company limited by guarantee and having a share capital shall, within a period of not less than three months, nor more than six months, from the date at which the company is entitled to commence business, hold a general meeting of the members of the company, which shall be called "the statutory meeting". 14.3 By Whom Held: Section 157(1) provides that a statutory meeting shall be held by the following companies: i) every public company limited by shares. ii) every public company limited by guarantee and having a share capital. iii) Every public company which is converted from private company.
14.4 When held: i.e time of holding statutory meeting is as follows:

[32]

CORPORATE LAW

a) new company limited by shares having a Within not less than 3 months nor more share capital. than 6 months from date of commencement of business. b) new guarantee company having a share Within not less than 3 months nor more capital. than 6 months from date of commencement of business. c) a private company converted into public Within not less than three months nor more company. than 6 months from date of conversion. 14.5 Purposes of Statutory meeting: The purposes of a statutory meeting are summarized below: i) enable the members to know as early as possible, the financial position and prospects of the company; ii) discuss matters relating to the formation of the company iii) know the results of the companys appeal for public subscription to its share capital; iv) get an idea of assets and properties acquired or to be acquired by the company. The Companies Ordinance requires a company to place before the members at statutory meeting a statutory report containing particulars of allotment of shares, receipts and payments of cash, preliminary expenses, details of contracts submitted for approval, underwriting agreements, etc. the members while discussing the statutory report, get an opportunity to raise pertinent questions relating to any matter arising out of the report. 14.6 Statutory report: All companies present ,in the first general meeting i.e statutory general meeting, a report known as the statutory report to every member of the company. The directors, at least twenty-one days before the date on which the meeting is held, forwards a report to every member of the company referred as "the statutory report".The statutory report is to be certified by not less than three directors, one of whom is the chief executive of the company, and states the following information: 1) Shares allotted: The total number of shares allotted, distinguishing shares allotted otherwise than in cash, and stating the consideration for which they have been allotted. 2) Cash received: The total amount of cash received by the company in respect of all the shares allotted. 3) Abstract :an abstract of the receipts of the company and of the payments made there out up to a date within seven days of the date of the report, exhibiting under distinctive headings the receipts of the company from shares and debentures and other sources, the payments made there out, Companies Ordinance, 1984 and [33]

CORPORATE LAW particulars concerning the balance remaining in hand, and an account or estimate of the preliminary expenses of the company showing separately any commission or discount paid or to be paid on the issue or sale of shares or debentures. 4) Directors, Auditors, Other personnel: the names, addresses and occupations of the directors, chief executive, secretary, auditors and legal advisers of the company and the changes, if any, which have occurred since the date of the incorporation. 5) Particulars: The particulars of any contract the modification of which is to be submitted, the modification or proposed modification.

6) Underwriting contracts: the extent to which underwriting contracts, if any, have been carried out and the extent to which such contracts have not been carried out, together with the reasons for their not having been carried out; and 7) Commission And Brokerage: the particulars of any commission or brokerage paid or to be paid in connection with the issue or sale of shares to any director, chief executive, secretary or officer or to a private company of which he is a director. 8) Information about business plan: The statutory report also contains a brief account of the state of the company's affairs since its incorporation and the business plan, including any change or proposed change affecting the interest of shareholders and business prospects of the company. 9) Statutory report-certified by the auditors: The statutory report is, so far as it relates to the shares allotted by the company, the cash received in respect of such shares and to the receipts and payments of the company, accompanied by a certificate of the auditors of the company as to the correctness of such allotment, receipts of cash, receipts and payments.

10) Accessible list of names, occupations, nationality, addresses of the members: The directors shall cause a list showing the names, occupations, nationality and addresses of the members of the company, and the number of shares held by them respectively, to be produced at the commencement of the meeting and to remain open and accessible to any member of the company during the continuance of the meeting. The directors shall cause at least five copies of the statutory report, certified as aforesaid, to be delivered to the registrar for registration forthwith after sending the report to the members of the company. 11) Liberty of the members to participate openly: The members of the company present at the meeting are at liberty to discuss any matter relating to the formation of the company or arising out of the statutory report, whether previous notice has

[34]

CORPORATE LAW been given or not, but no resolution of which notice has not been given in accordance with the articles may be passed.

12) Status of the adjourned meeting: The meeting may adjourn from time to time, and at any adjourned meeting any resolution of which notice has been given in accordance with the articles, either before or after the original meeting, may be passed, and an adjourned meeting shall have the same powers as an original meeting. 13) Penalty in case of default :In the event of any default in complying with the provisions of any of the preceding sub-sections, the company and every officer of the company who knowingly and wilfully authorises or permits such default shall be liable a) if the default relates to a listed company, to a fine not less than ten thousand rupees and not exceeding twenty thousand rupees and in the case of a continuing default to a further fine not exceeding two thousand rupees for every day after the first during which the default continues; and b) if the default relates to any other company, to a fine not exceeding five thousand rupees and in the case of a continuing default to a further fine not exceeding two hundred rupees for every day after the first during which the default continues. 14.7 Business or Agenda: The business to be transacted at statutory meeting is as follows: 1. consideration and approval of the statutory report which the directors must circulate to members at least 21 days before the meeting; 2. discussion on any matter relating to the formation of the company or arising out of the statutory report. 3. Approval of the modification of the terms of any contract disclosed in the prospectus. 14.8 Procedure at statutory meeting: The following steps are to be followed during the statutory meeting: Step-1: The chairmen at the commencement ask the secretary to read the notice of the meeting. Step-2: The board should then places before the meeting a list showing the names, addresses and occupations of the members of the company and the number of shares held by them respectively. Such list remains open and accessible to any members during the continuance of the meeting.

[35]

CORPORATE LAW Step-3: After the notice has been read, the chairman takes up the items of business according to agenda. He will request the members to take the statutory report, already circulated, as read. Step-4: Thereafter, he addresses the meeting explaining the progress by the company since its incorporation, the existing position and future prospects. Step-5: Then he invites discussion and questions pertaining to the statutory report and other related matters. After members discussion the chairman proposes that the statutory report is approved. Step-6: Decision about matter, of which previous notice has been given, are then taken up for passing required resolutions. Step-7: If the members present consent the statutory meeting may be adjourned. The chairman has no power to adjourn statutory meeting except with the consent of members. Step-8: When all items of the agenda are over the meeting will be dispersed with a vote of thanks to the chair.

(15)Annual general meeting: (AGM)


15.1 Annual general meeting is the one which is convened and held every year. It is held during every calendar year throughout the existence of the company. The annual general meeting requires to be held annually and there shall be as many general meetings as there are years in the existence of a company. This means that each meeting is separate and independent. 15.2 By whom held: The annual general meeting is to be held by the following companies: i) Every company limited by shares whether public or private. ii) Every company limited by guarantee whether or not has a share capital. 15.3 By whom the meeting is convened: i) The annual general meeting is to be called by order of the board of directors. ii) The shareholders have no authority to convene the meeting. iii) If directors fail to convene the meeting, the company and every officer are liable to specified liability. 15.4 Time for holding AGM: Every company holds, in addition to any other meeting, a general meeting, as its annual general meeting. [36]

CORPORATE LAW

a) First annual general meeting is held within eighteen months from the date of its incorporation. b) Thereafter, it is held once at least in every calendar year within a period of 1[four] months following the close of its financial year and not more than fifteen months after the holding of its last preceding annual general meeting. 15.5 Extension of Time for(b): Provided that, in the case of a listed company, the Commission, and, in any other case, the registrar, may for any special reason extend the time within which any annual general meeting, not being the first such meeting, shall be held by a period not exceeding 2[sixty] days.

15.6 Place of holding AGM: An annual general meeting shall, in the case of a listed company, be held in the town in which the registered office of the company is situate: Provided that the Commission, for any special reason, may, on the application of such company, allow the company to hold a particular meeting at any other place. 15.7 Notice of AGM: The notice of an annual general meeting; a) shall be sent to the members at least twenty-one days before the date fixed for the meeting and, b) in the case of a listed company, such notice, in addition to its being dispatched in the normal course, shall also be published: I. at least in one issue each of a daily newspaper in English language and: II. a daily newspaper in Urdu language having circulation in the Province in which the stock exchange on which the company is listed is situated. 15.8 Consequences of default in holding AGM: If default is made in complying with any provision of this section, the company and every officer of the company who is knowingly and willfully a party to the default shall be liable -(a) if the default relates to a listed company, to a fine not less than 3[twenty] thousand rupees and not exceeding 4[fifty] thousand rupees and to a further fine not exceeding two thousand rupees for every day after the first during which the default continues; and (b) if the default relates to any other company, to a fine not exceeding 5[ten] thousand rupees and to a further fine not exceeding 6[five] hundred rupees for every day after the first during which the default continues.

15.9 Ordinary business in an AGM:

[37]

CORPORATE LAW An annual general meeting is held mainly for the purpose of doing the ordinary business, but, if the articles so permit; any special business may also be done at an ordinary general meeting.

(16)Extraordinary general meeting (EGM):


Meanings: 16.1 All general meetings of a company, other than the annual general meeting and the statutory meeting shall are called extraordinary general meetings. 16.2 Need of EGM: The need for holding an EGM arises when some special business is to be done at a company meeting. An EGM must be held under the following conditions; i) Some special business is to be done which cannot be transacted at an AGM. ii) The business can be done at general meeting; it is of so urgent a nature that it cannot conveniently wait till the next AGM. 16.3 Called by whom: This meeting can be called by the following: i) directors on their own motion: or ii) directors on requisition of members having voting powers of not less than 1/10 on the date of deposit of requisition; or iii) requisitionists, if directors do not proceed to call the meeting within 21 days of depositing the requisition. iv) The meeting must be held within 90 days depositing requisition. 16.4 Significant object: The requisition must be signed by the requisitionists and state the object for calling the meeting and deposited at the registered office of the company. 16.5 Expenses: Any reasonable expense incurred by the requisitionists by shall be repaid to the requisitionists by the company, and any sum so repaid shall be retained by the company out of any sum due or to become due from the company by way of fees or other remuneration for their services to such of the directors as were in default.

16.6 Notice of EGM:

[38]

CORPORATE LAW The notice of an extraordinary general meeting is required to be sent to the members at least twenty-one days before the date of the meeting, and in the case of a listed company also required to be published. Provided that, in the case of an emergency affecting the business of the company, the registrar may, on the application of the directors, authorise such meeting to be held at such shorter notice as he may specify. 16.7 Default: Every officer of the company who knowingly or wilfully fails to comply with any of the provisions of this section shall be liable-(a) if the default relates to a listed company, to a fine not less than ten thousand rupees and not exceeding twenty thousand rupees and in the case of a continuing default to a further fine which may extend to two thousand rupees for every day after the first during which the default continues; and (b) if the default relates to any other company, to a fine which may extend to two thousand rupees and in the case of a continuing default to a further fine which may extend to two hundred rupees for every day after the first during which the default continues. The meeting of the company that is held by the particular class of members and not by all members is called class meeting.

(!7)Class meeting:
It is a meeting of particular class of members. Such meeting is required in a case where an alteration in the rights and liabilities of class members is to be made. A class meeting is never a substitute of the general meeting. Its decisions are effective in respect of that class of members whose meeting was held.

(18)Essentials of a valid meeting:


i) ii) iii) Proper intimation (notice). Proper quorum. Chairmanship (convening authority).

(19)Requisites of a valid meeting:


19.1 Meeting properly convened: The business transacted at a meeting shall be valid and binding only when the meeting is validly held. Any irregularity occurring in convening and conducting a meeting shall invalidate the entire proceedings of such meetings. A meeting shall be properly and validly held if the following conditions are fulfilled: a) when convened by proper authority. b) when proper notice has been issued. c) when it has been properly constituted. d) when required quorum of members is present. e) when proper person is in chair.

[39]

CORPORATE LAW Every meeting whether of shareholders or of board directors, in order to be valid must be properly convened and properly constituted. Any defect in convening meeting shall make all decisions of the meeting null and void and not binding. 19.2 Consequences of an invalid meeting: When a general meeting of a company is improperly held for any reason such a meeting is not valid. So when it is observed that the meeting which was held was not a valid meeting under the law there would be a default in holding such a meeting.

(20) Proper authority for convening:


A meeting shall be legally valid when it is called by proper authority i.e a person authorized by the Ordinance, or articles otherwise it will be an invalid meeting. a) Board of directors: The proper authority to convene a general meeting of a company is the board of directors. The decision to convene a general meeting and the issuance of a notice to the shareholders is to be taken by a resolution of directors passed at their validly held meeting. If the board meeting at which this decision is taken is not valid itself, the notice for the general meeting directed by the board will be invalid and all proceedings thereat shall be null and void. b) Requisitions: When a general meeting is requisitioned by the shareholders and the board fails to convene such meeting within 21 days, the requisitionists themselves shall be the proper authority for convening such meeting provided they convene such meeting within 3 months from the date of deposit of requisition, Section 159(4). c) Registrar: The registrar may convene a general meeting of the company , if for some reasons default is made in the holding of statutory meeting, annual general meeting, or extra-ordinary general meeting on the requisition of members. Section 170. 20.1 Who shall preside the general meeting? i) ii) The chairman of the board of directors shall preside the general meeting. If the chairman of board of directors is either absent or late by 10 minutes or is unwilling to chair the meeting, one of the directors on proposal/recommendations of remaining directors shall preside the meeting. If none of the directors is present, or if present but unwiling to chair the meeting, the members will choose any one of the members as chairman.

iii)

[40]

CORPORATE LAW

(21)Notice of meeting
21.1 Proper notice for meeting A proper notice to every member of the company is required by law for the holding of every valid meeting. A meeting shall not be valid when it is convened by a notice issue without proper authority. Issuance of notice can be dispensed with except when all the members of a company are present and are agreed to hold the meeting without notice. Notice convening the meeting must be properly drafted according to the Companies Ordinance and the rules framed thereunder. It must be given 21 days before the date of holdingof the meeting. In calculating 21 days the date of posting of notice and the date on which meeting is held has to be excluded. Notice of general meeting must be served; a) either personally to every member; b) or may be sent by post. If notice is send by post; The address of members /creditors etc. must be carefully written/printed on the envelope. ii) The postal charges must be prepaid. iii) The notice must be delivered before time. In the case of joint holders, the notice, under the law, must be given to the joint-holder first named by the applicants. Any accidental omission to serve notice on any member will not invalidate the proceedings at a general meeting. But any deliberate omission to give notice to a single member may invalidate the meeting. 21.2 Notice convening meeting on holiday The Companies Ordinance or any other law does not contain any provision which prohibits a company from holding a general meeting of its members on a day which is or which is declared to be a public holiday. In the absence of any provision to the contrary in the articles of association of a company a company held on a holiday shall not be ultra vires or illegal. However, the general policy is to fix the date of the meeting of shareholders of company after taking into consideration the convenience of the company and that of shareholders. Sometimes the holding of meeting of the shareholders on a holiday may be more convenient to the shareholders. On the other hand, sometimes it may be more convenient when it is held on a working day hence, it cannot be said that if a general meeting is held on a holiday it must necessarily will be malafide, PLD (1980) Kar

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CORPORATE LAW

(22)Legal provisions regarding meeting


22.1 Particulars as regard notice of meeting: Every notice of a company meeting shall specify the following particulars; name of company; ii) nature of meeting; iii) day, date, time and place of the meeting; iv) venue for meeting; v) agenda of meeting. 22.2 Persons entitled to receive notice-Section 50 a) b) c) d) e) Every member of the company. Legal representation of a deceased member, if it is known to country. Official receiver of an insolvent member, if it is known to company. Auditors of the company. In case of joint-holders, to the joint-holder named first in the register of members.

22.3 Service of notice-Section 50 a) Notice must be served either personally or by sending it by mail to the registered address of a member. b) In the absence of any address in Pakistan whatsoever, supplied by him to the company for the giving of notice to him, Section 50(1): When a member has no registered address in Pakistan and also has not supplied to the company an address within Pakistan for giving of notice to him, a notice addressed to him or to the shareholders generally and advertised in a newspaper circulating in the province in which registered office of the company is situated shall be deemed to be duly given to him on the day on which the advertisement appears, Section 50(3). c) When notice is sent by post it shall be deemed that the letter containing the notice has been properly, prepaid and posted and delivered in the ordinary course of post , unless contrary is proved. d) In the case of listed companies notice shall also be published at least in one issue each of a daily newspaper in English language and a daily newspaper in Urdu language circulating in the province in which the stock exchange on which the company is listed is situated. 22.4 Length of notice: Length of notice means that how many days earlier, before the meeting date, a notice is to be sent/dispatched to the entitled persons. As regards the length of notice of the generel company meeings, the provisions of the Companies Ordinance are as follows:

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CORPORATE LAW i) Statutory meeting-Section 157[21 days]: The notice of the the statutory meeting is required to be sent atleast 21 days before the date of meeting under the provision of section 157(2). Annual general meeting-Section 158(3)[21 days]:The notice of annual general meeting is to be sent to the shareholders at least 21 days before the date fixed for the meeting. In the case of a listed of a company, such notice, in addition to its being dispatched is also to be published at least in one issue of a daily newspaper in English language and a daily newspaper in Urdu language circulating in the province in which the stock exchange om which the company is listed in situated. Extraordinary general meeting [21 day or registrar may permit shorter notice]:Notice of an extraordinary general meeting is to be sent to the members at least 21 days before the date fixed for the meeting.

ii)

iii)

iv)

22.5 Penalty: If default is made in respect of notice for any general meeting(i.e statutory meeting, annual general meeting or extraordinary general meeting)the company and every officer of the company knowingly and wilfully responsible for the default is liable: i) In the case of a limited company, to a fine not less than Rs.10,000 and not exceeding Rs.20,000 and to a further fine not exceeding Rs.2,000 for every day after the first during which the default continues. In the case of any other company , to a fine not exceeding Rs.5000 and to a further fine not exceeding Rs.200 for every day after the first during which the default continues.

ii)

(23)Business of a general meeting:


23.1 Ordinary Business: The ordinary businesses to be transacted at the general meetings are as follows; i) The consideration of companys audited accounts (annual), ii) consideration of auditors report, iii) Consideration of directors report,. iv) appointment of auditors and fixation of their remuneration, v) declaration of dividend, vi) Election of directors. 23.2 Special Business: All other businesses that may be transacted at a company meeting are classed as special business.

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CORPORATE LAW 24. BOARD MEETING 24.1. Meaning of Board The term board is a collective name of the directors. Board is the top administrative organ of a company. It is invested with wide powers. In regard to management of company, such powers are given to directors as a body and not to any individual director. Hence the directors have to act as a board in a meeting for exercising powers. 24.2. Meeting of Board of Directors Director must ordinarily act as a board meeting unless special powers are delegated to a director of a committee of the board. The board meetings are the meeting of the board of directors of a company. The board meetings are the most meetings of the company. All major decisions relating to the company matters even in regard to those for which approval of the shareholders in general meeting is required under the Ordinance, are taken there at. A formal approval of the general body of members is no doubt obtained. Companies Ordinance does not make any provision as to methods by which the board meetings are to be held. 25. Pre-requisites of Board Meeting Every meeting of the board of directors may not necessarily be a valid meeting. A board meeting to be valid must be properly convened duly constituted. For a valid meeting the followings rules should be observed: a) b) c) d) e) proper person in chair; board properly constituted; directors act at meetings; proper notice of meeting; and quorum must be present.

26. Board Meetings-Rules thereof Every meeting of the board of directors cannot necessarily be a valid meeting. For a meeting to be valid the following rules must be compiled with. 26.1. Rule (i) Proper Person in Chair There must be a chairman of every meeting appointed strictly in accordance with the provisions of articles. Regulation 52 of Table-A provides that: a) The directors may elect a chairman of their meetings and determine the period for he is to hold office; but if no such chairman is elected, or if at any meeting the chairman is not present within ten minutes of the time appointed for holding the same, the directors present may choose one of their number to be chairman of the meeting.

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CORPORATE LAW b) The appointment of a chairman made in contravention of the articles is void, and is not confirmed by mere acquiescence or laps of time and consequently a resolution carried by his casting vote is inoperative. c) The mere appointment of a permanent director as chairman will not make him a permanent chairmen. d) If the chairman for meetings of board of directors has been appointed by the directors, the latter can appoint another chairman in his place. A chairman does not necessarily remain such simply because he remains a director, for he may be substituted by another elected director. e) The appointment of a director as chairman without an increase in his remuneration is not a contract in which the said director is interested, but is simply a delegation of powers to him. f) An agreement to act as chairman could be enforced by the chairman when there is breach by the directors. Likewise action can be taken against the chairman for breach of such agreement. 26.2. Rule (ii) Board Properly Constituted a) The persons who have been invalidly appointed as directors cannot bind the company by their acts if the defect is known at the time. b) The acts of directors would, however, be valid if any irregularity regarding their appointment is discovered subsequently. Section 185 provides as follows: y The acts of director shall be valid notwithstanding any defect that may afterwards be discovered in his appointment. Provided that as soon as any such defect has come to notice, the director shall not exercise the right of his office till the defect has been rectified.

Regulation 55 of Table A provides c) All acts done by any meeting of the directors or of a committee of directors or by any person acting as a director, shall, notwithstanding that it he afterwards discovered that there was some defect in the appointment of any such director or persons acting as aforesaid, or that they or any of them were disqualified, be as valid as if every such persons had been duly appointed and was qualified to be a director. d) A defect in the formation of the board cannot adversely affect the right of the creditors who have no knowledge of the irregularity. Then a person can claim protection if he is ignorant of the irregularity and is put upon en

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CORPORATE LAW 26.3. Rule (iii) Directors Act at Meeting a) Legally articles delegate powers to the whole of the directors and not to any individual director or to a number of directors. Therefore an important consequence of this legal position is that the director must meet together as a board in order to discharge their duties. Unless the directors so provide, directors cannot think without meeting. Directors must act together at a properly convened and constituted meeting presided over by a chairman, and that is not sufficient to produce the separate authority of sufficient number of directors for the purpose. In a leading case, where no board meeting was held but it was proved that the individual directors were all of one mind the court rejected the contention that there must be a board meeting by which there is a collective decision and it is not sufficient that individual directors should individually be of one mind. Where six directors out of seven met in a different capacity and for a different purpose ( at a general meeting of shareholders), such a meeting does not make then a board of director. b) Directors can meet under informal circumstances, but where the only two directors met casually at the railway station, it cannot be treated as a board meeting at the option of one against the will of the other. Where there were only two directors, and they met at a meeting duly summoned, but shortly after the meeting they met in the passage of office, proposed the election of a third director and an objection being made, declared that by his casting vote a chairman he carried the resolution, it was held to be valid. c) An exception to the general rule, that the directors cannot think without a meeting and that the company is entitled to the combined wisdom of the directors in meeting, may be provided by express provisions in the articles. These days the articles of every company contain a provision similar to the following: A resolution in writing signed by the director for the time being in Pakistan if constituting a quorum shall be as effective as a resolution passed at a meeting of the directors duly convened and held. It is not necessary that a director must attend every board meeting but he should attend as often as possible. A director attending the meeting must act honestly and use fair and reasonable diligence in the management of the company.

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CORPORATE LAW 26.4. Rule (iv) Notice of Board Meeting The directors in order to meet together must receive notice. If no notice is given and any of the directors is absent, the proceedings would be invalid. But a notice need not be given in the following cases: y When a director is out of the country y When meetings are held at regular intervals e.g., fortnightly, monthly, and the time and place is also fixed. y When all the directors meet casually and are willing to hold a meeting. 27. Quorum a) Section193(1) lays down that the quorum for a board meeting of a listed company shall not be less than one-third of the total number of directors of a company or four, whichever is the greater. b) Articles of Association of a company usually provide for a minimum number of directors for transacting business at their meeting. Such minimum number is called the quorum. c) In the absence of any provisions in the articles, the directors may fix the quorum for their meeting but the same should not be less than the number prescribed by the Companies Ordinance. When the articles of a company provide that there shall not be less than a certain number of directors and that a quorum shall be some small number, the business shall not be validly transacted at a meeting, even though a quorum is present, if the number of directors fall short of the required number owning to there being vacancies on the board.

d) The directors who are interested in any resolution to be passed at a board meeting shall not be counted for the purpose of quorum for board meeting. e) As a general rule, if the requisite number of directors is not present at a meeting of the board, it will stand adjourned and will be held on the same day, time and place in the next week. At the adjourned meeting no quorum is necessary. f) The quorum must be present throughout the board meeting. In the absence of a quorum the business transacted is void. 28. Frequency of Board Meeting The Companies Ordinance does not lay down any specific procedure for board meetings. Such Board meetings may be held as and when the board of directors find expedient. Normally, directors meetings are held at regular intervals directed by the board. a) Articles usually contain procedure for board meetings.

b) If articles do not specifically prescribe any procedure for board meetings the director may prescribe a rule of procedure for their meetings. [47]

CORPORATE LAW

c) Under Section 193(2) directors of a public company shall meet at least once in each quarter. 28.1. Notice of Board Meetings a) Notice of every meeting of the board of directors of a company must be given to every director. A director has no power to waive his right of notice. b) Notice must be given to a director even if he has stated that he will be unable to attend the meeting. c) However, any accidental omission to give due notice to any director will not invalidate the proceedings at the meeting. d) Where meetings are held at regular intervals no notice need to be sent. 28.2. Resolution of Board a) The resolutions which are passed at the meetings of the board of directors are not classified into ordinary or special resolutions. All resolutions are of the one and the same class. They are called only as Board Resolution. b) Resolution by circulation: Where articles provide that a resolution in writing signed by all the directors or a committee of directors shall be as valid as if passed by the board or committee of directors at a duly convened meeting. 29. Voting at Board Meeting a) In the case of public company no director shall take part in any discussion or vote in respect of a matter if he is in any way, directly or indirectly, concerned or interested in such matter. b) His presence at the meeting shall not be counted for the purpose of determining the quorum required. 30. Matters of Board Meeting Usually the following matters are taken up at board meeting: a) b) c) d) e) f) g) h) i) to make calls; to allot shares; to borrow money; to invest companys funds; to make loans; to delegate powers to committee of directors; to fill casual vacancy in the board; to sanction certain accounts; to appoint Chief Executive; [48]

CORPORATE LAW j) k) l) m) to appoint Secretary; to appoint Auditors in a casual vacancy; to recommend dividend; capital expenditure.

30. Agenda of First Board Meeting after Incorporation After incorporation of a company, a meeting of the board of directors is held, such a meeting is called first meeting of board. At this meeting certain matters which are as following are usually dealt with: a) to produce certificate of incorporation; b) to appoint first directors if not already named in the articles; c) to appoint first chief executive; d) to elect chairman and appoint other officers; e) to appoint bankers to the company; f) to appoint first auditors; g) to adopt common seal of the company; h) to sanction purchase of statutory and account books; i) to determine board quorum if not fixed by articles; j) to consider issue of prospectus in the case of public company. 31. Procedure at a Board Meeting a) The directors of a public company are required to meet once in each quarter of a year (Section 193). b) The chairman, having seen that the quorum is present, will ask the secretary to read the notice of the meeting and after that to read the minutes of last meeting. The chairman will ask the directors present about the correctness of the minutes. If the same are declared to be correctly recorded the chairman will confirm the minutes and put his signature thereon. c) Thereafter the chairman will take up the items for discussion as per the agenda. During the conduct of the meeting the chairman will see that sufficient discussion on every item of the agenda has taken place. He must give equal opportunity to all directors present to express their views on the subject matter of the discussion. After the matter has been discussed, the chairman will put the motion to vote. If the majority voted for the motion it will be passed as resolution.

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CORPORATE LAW

Company Meetings

Directors Meetings

Members Meetings

Debenture holders Meetings

Creditors Meetings

Board Meetings

Committee Meetings

All Members Meetings

Certain Members Meetings

Required as per provision of Companies Ordinance

Desired by Members for special business

Class Meetings

Annual General Meeting (AGM)

Statutory Meeting

Extra-Ordinary General Meeting (EGM)

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CORPORATE LAW

32. QUORUM FOR MEETING


32.1. Meaning of Quorum The word quorum may be defined as the minimum number of members who must be present at a meeting as required by the rules to transact the business validly. In other words, a quorum represents minimum number of members entitled to participate in the meeting either in person or by proxy. 32.2. Object The fundamental object of having a quorum is to avoid decisions being taken at a meeting by a small minority which may be found to be unacceptable to vast majority of the members. 32.3. Legal Quorum Companies Ordinance in the Section 160(2) lays down the quorum of a general meeting as follows: a) in the case of a listed company, not less than ten members present personally who represent at least 25% of the total voting power, either of their own account or as proxies; and b) in the case of other company, two members present personally who represent at least 25% of the total voting power, either of their own account or as proxies. 32.4. Rules Regarding Quorum The following rules are to be observed in respect of quorum of general meeting of a company: a) For ascertaining quorum, only members present in person, and not by proxy, are to be counted. b) If a company, which is a member of another company, authorizes a person by a resolution to act as its representative at a meeting of the latter company, then such person shall be deemed to be a member in a person and counted for the purpose of quorum, Section 162(2). c) Where the federal government or provincial government is a member of a company, and appoints a person to act as its representative, at a meeting of that company, then such person shall be deemed to be a member present in person and counted for the purpose of quorum Section 163(2). d) Joint-holder of shares is treated as a single member for the purpose of ascertaining a quorum.

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CORPORATE LAW 32.5. Time for presence of quorum The quorum of members must be present at the beginning of a company meeting otherwise such meeting shall not be deemed to be validly constituted. Normally quorum should be present throughout the meeting. When meeting starts with a quorum but thereafter during the course of meeting the attendance falls below quorum, formal proceedings should be stopped as soon as the fact is pointed out. Companies Ordinance is silent at this point. Regulation 25 of Table-A lays down that: No business shall be transacted at any general meeting unless a quorum of members is present at the time when the meeting proceeds to business. It follows, therefore, by implication that in case of general meetings of a company quorum is required at the start of meeting and throughout the meeting. So the legal position is that, in the absence of any specific provisions in the articles to the contrary, a quorum is required to be present only at the commencement of a general meeting, and throughout the meeting or at the time of passing resolution. In the case of meeting called or directed to be called by the Commission, the quorum is fixed by the order under which the meeting is held. It is further provided in Section 170(1) that one member of company present in person or by proxy shall be deemed to constitute a meeting. 32.6. For Shareholders Meeting The articles of a company usually fix minimum number constituting a quorum for a company meeting. In the absence of such a provision in the articles, the provisions as to quorum contained in Section 160(2) of the Companies Ordinance shall apply. The articles may provide for a larger no. of members to constitute a quorum, but it cannot provide for a smaller quorum than that laid down under the provisions of the Companies Ordinance. 32.7. Class meetings The articles usually fix the quorum for class meeting at a fairly high proportion of shareholders of that class. This is done in order to ensure that a small minority of that class or shareholders may not take decision affecting the interest of majority of them. 32.7. Consequences for Absence of Quorum Section 160(2) of the companies Ordinance provided that: a) if there is no quorum within half an hour of the time appointed for the meeting, the meeting if called upon requisition of members shall be dissolved; and b) in other cases it shall stand adjourned to the same day in the next week at the same time and place. If at the adjourned meeting a quorum is not present within half an hour from the time appointed for the meeting, the members present, not being less than two, shall be a quorum, unless the articles provide otherwise, Section 160(2) proviso. [52]

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CORPORATE LAW

CORPORATE LAW

33. VOTING
33.1. Meaning of a Vote The word vote means an expression of a wish or an opinion in an unauthorized way for or against any proposal. After a resolution or a motion has been discussed in the meeting by the members it is put to vote for ascertaining the sense of the house. The articles prescribe regulations and procedure for voting at general meeting subject to the provision of the Companies Ordinance. 33.2. Voting rights-Section 160 The rights as to voting are governed by Section 160 and regulations 34 to 37 of Table-A. At a general meeting a shareholder is free to vote according to his own motive i.e., he is not bound to vote in the interest of company. The rules regarding voting are: a) Every member of a company having a share capital shall have votes proportionate to the paid-up value of the shares or other securities carrying voting rights held by him according to the entitlement of the class of such shares or securities. But at the time of voting, fractional votes shall not be taken into account, Section 160(4). b) No member holding shares (or other securities) carrying voting rights shall be debarred from casting his votes, nor shall anything contained in the articles have the effect of so debarring him, Section 160(5) c) In the case of a company limited by guarantee and having no share capital, every member thereof shall have one vote, Section 160(6) d) On a poll, votes may be given either personally or by proxy. 34. Methods for Calling Votes Voting at general meeting of a company may take place in any of the under-noted modes: 1) 2) 3) 4) 5) 6) by show of hands; by acclamation; standing vote; by division; by ballot; and by poll.

34.1. Voting By Show Of Hands Requirement of law At any general meeting a resolution put to the votes of the meeting shall, unless a poll is demanded, be decided on a show of hands, Section 165. [54]

CORPORATE LAW In other words, at any general meeting, all resolutions are decided in the first instance by a show of hands and each member has one vote. Proxies are not allowed under his method unless the articles of a company otherwise provide. In the first instance, voting on a proposed resolution takes place by show of hand. Thus those for and against a motion are requested in turn to indicate their opinion by raising their hand. The chairman or any other person so authorized counts the votes in favour and against the motion. On comparison of the number of hands shown for and against the motion chairman announces the result of voting. Where any person other than the chairman is appointed for counting the votes he in known as a teller. Until a poll is demanded declaration by the chairman of the result of voting by show of hands that the resolution has been carried or lost unanimously or by a particular majority and an entry to that effect in minutes book of the company shall be conclusive evidence of the fact without proof of the number of notes recorded in favour of or against such resolution, Section 166. Procedure on show of hands a) Under this method, the chairman asks all those in favour of the resolution to raise their right hand. b) When the number is noted, against all those to do likewise. c) The chairman then declared the result of voting indicating whether the proposed resolution has been carried or lost. Since the voting by a show of hands may not always reflect the opinion of members upon a value basis, Section 167 provides for the demand of a poll. 34.2. Voting By Acclamation Definition Voting by acclamation means that the members present in a meeting express their approval or disapproval about a motion before the meeting by applause, cheering or clapping of their hands. This type of voting can be conveniently adopted where the meeting is almost unanimous on any particular matter. Examples of such motions are formal motions of thanks to the chair. In such circumstances the sense of meeting is clearly indicated by the loud noise of clapping or cheering. This method is not suitable where there is a sharp difference of opinion among the members on any issue. 34.3. Standing Vote Standing vote is a variation of voting by a show of hands. Under this method members who are in favour and those who are in against the motion are requested in turn to stand up their seats. The teller (i.e., the person who is appointed to count the number) counts the number of members standing up for and against the motion respectively. Thereafter the chairman on the basis of the count declares the verdict. [55]

CORPORATE LAW 34.4. Voting By Division This method is not very common in the case of company voting. Under this the chairman requested the members present to divide themselves into two blocks. Those favouring the motion walk into one block or move to one room and those against the motion to other block or room. The teller counts the number of members in each block and communicates the same to the chairman. The chairman then announces the result of the division. 34.5. Voting By Ballot Under the voting by ballot method every member entitled to vote and present in person or by proxy records his vote on a ballot or voting paper and drops the same in the ballot box provided for that purpose. The ballot cast for against the motion is counted for the result of balloting. This method ensures the secrecy of voting under special circumstances such as the following: a) When the issue under consideration is very important. b) When there is sharp difference of opinion c) When it is desirable that voters should be given an opportunity to cast their votes secretly. 34.6. Voting By Polling Rules regarding polling Section 167 provide that before or on the declaration of the result of the voting on any resolution on a show of hands, a poll may be ordered to be taken by the chairman of the meeting of his own motion, but for a demand for a poll is made, he must order the poll to be taken. Who can demand poll-Section 167? A poll may be ordered by the chairman of his own motion. But he shall be bound to take a poll if demanded by the following persons: a) in case of a public company, by at least five members having the right to vote on the resolution and present in person or by proxy; b) in the case of a private company, by y one member having the right to vote on the resolution and present in person or by proxy if not more than seven such members are personally present, two such members present in person or by proxy if more than seven such members are personally present;

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CORPORATE LAW

c) by any member or members present in persons or by proxy and having not less than one-tenth of the total voting power in respect of the resolution; d) by any member or members present in person or by proxy and holding shares in the company conferring a right to vote on the resolution, being shares on which an aggregate sum has been paid up which is not less than one-tenth of the total sum paid up on all the shares conferring that right. Withdrawal of demand for poll The demand for a poll may be withdrawn at any time by the person who made the demand. Time of taking poll (section 168) A poll demanded on the election of a chairman or on a question of adjournment shall be taken forthwith. A poll demanded on any other question shall be taken at such time, but not more than fourteen days from the day on which it is demanded as the chairman of the meeting may direct. Procedure at polling a) Under section 168, the chairman of the meeting has power to regulate the manner in which the poll should be taken. b) When a poll is taken, the chairman or his nominee and a representative of the members demanding the poll shall scrutinize the votes given on a poll and report thereon to him. c) For a fair and unbiased polling the nominee of the chairman should not be his employee. d) After the scrutinizers have counted the votes and reported the same to the chairman, the result shall be announced by the chairman. e) The declared result of the poll shall be deemed to be the decision of the meeting on the resolution on which the poll was demanded. Closed door polling
The chairman may close the doors during the taking of poll if he thinks it advisable. He shall

be justified in such action when the meeting is not an ordinary meeting of the company but one in which special precautions have to be taken in view of the rivalry between two groups.

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CORPORATE LAW Poll at adjourned meeting When a poll is demanded at general meeting the original meeting continues until the chairman has carried out direction given to him by the shareholders to take a poll.

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CORPORATE LAW

36. PROXIES
36.1. Definitions The term proxy may be defined as: 1. Its the authority (assigned) to represent another member/person. 2. Person having authority to represent. 3. The instrument through which the authority of representing another person is duly given. 36.2. Nature of Proxy The Contract Act, 1872 governs the relationship of the shareholder with the proxy in as much as the proxy, on being appointed, becomes the agent of the shareholder by reason of a contract. A proxy cannot act against the instructions in the matter. So proxies vote according to the desires of shareholder who appointed him. A corporation holding shares of another company on behalf of its different reconstitutes votes as the proxy of each one of them in respect of his shares, although on paper the company appears as the holder of those shares. 36.3. Appointment of Proxy-Section 161 a) Any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person, as his proxy to attend and vote instead of him. b) The proxy so appointed shall have such rights as respect speaking and voting at the meeting as are available to a member. c) A member shall not appoint more than one proxy to attend any one meeting. d) If a member so appoints more than one proxy all such instruments of proxy shall be rendered invalid. e) A proxy must be a member of the company unless the articles permit appointment of a non- member as proxy. 37. Rights of Proxy A proxy is entitled to do any or all of the following things in a general meeting; a) demand a poll on any question; b) abstain from voting or not to exercise full voting right on a question before the meeting in which poll is demanded. Any provisions in the articles which are contrary to the above shall be void, Section 161(6). [59]

CORPORATE LAW 38. Instrument of Proxy The instrument of proxy shall: a) be in writing; b) be signed by the appointer or his authorized attorney; c) be under a seal and be signed by an authorized officer (or authorized attorney) when the appointer is a body corporate. The instrument of proxy may be in the form set out in regulation 39 of Table-A, Section 161(4). 39. Form of proxy to be supplied The legal requirement of providing a proxy form is to facilitate availability of such form so that the same could be conveniently utilized by members. 39.1. Stamp duty on proxy A proxy which contains specific powers as well as general powers the stamp duty payable is the aggregate of the amounts of the duty payable on each of the separate instruments executed in respect of each power. 39.2. Lodgment The instrument of proxy duly completed and properly executed shall be lodged with the company at least 48 hours before the time of the meeting. Any provision to the contrary in the articles of the company shall be void, Section 161(5) 39.3. Delay in Deposit of Proxy Proxies lodged after the date of originally fixed meeting cannot be sued for voting at the adjourned meeting when the articles required the lodgment of the proxies in advance of the meeting by a certain number of days. 40. Revocation of Proxies If the articles does not contain any provision excluding the right to revoke proxies, under the Contract act a proxy can be revoked like any other contract of agency. According to Section 204 of the Contract act the authority of a proxy can be revoked even when it has been partially exercised. So if a proxy has exercised the vote at one poll this fact does not prevent the revocation of its authority before the second poll.

41. Inspection of Proxy Every member entitled to vote at a meeting of the company shall be entitled to inspect during business hours of the company all proxies lodged with company, Section 161(7).

_____________________________

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CORPORATE LAW

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