1 rights & powers of shareholders & directors. 2 powers of directors sources of power...
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Rights & Powers ofRights & Powers ofShareholders & DirectorsShareholders & Directors
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Powers of DirectorsPowers of Directors
Sources of PowerSources of Power By and large, absolute powers vest in the By and large, absolute powers vest in the
directorsdirectors The issue of collective and individual powersThe issue of collective and individual powers
Executive DirectorsExecutive Directors Non-executive DirectorsNon-executive Directors Members of Board CommitteesMembers of Board Committees
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Sources of PowerSources of Power
Companies ActCompanies Act Table ATable A
Articles of Association of the Co.Articles of Association of the Co. Special Resolution of AGMSpecial Resolution of AGM Practice in the business worldPractice in the business world
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Borrowing PowersBorrowing Powers
How much can a Board borrow?How much can a Board borrow? Is it only a lenders’ problem, or should the Is it only a lenders’ problem, or should the
other stakeholders also have a say?other stakeholders also have a say? Regulatory constraints on lenders (e.g. Regulatory constraints on lenders (e.g.
Prudential Regulations of SBP)Prudential Regulations of SBP) What if the company borrows from non-formal What if the company borrows from non-formal
sector?sector? Tax implicationsTax implications
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Duties of DirectorsDuties of Directors
To act in the best interest of the companyTo act in the best interest of the company Accountability to ownersAccountability to owners Statutory duties Statutory duties Care and Skill DutyCare and Skill Duty
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Statutory DutiesStatutory Duties
Keep minutes of their meetingsKeep minutes of their meetings Deliver a copy of Annual report and accounts Deliver a copy of Annual report and accounts
to SECPto SECP Maintain proper booksMaintain proper books File all periodic returnsFile all periodic returns
Fiduciary duties (Trustee)Fiduciary duties (Trustee) To take due care and diligenceTo take due care and diligence Other duties under Stock Exchange RulesOther duties under Stock Exchange Rules
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Test of Fiduciary DutyTest of Fiduciary Duty
Transactions should be reasonably incidental Transactions should be reasonably incidental to the business of the company.to the business of the company.
Transactions should be bona-fide (good faith)Transactions should be bona-fide (good faith) Transactions should be for the benefit of the Transactions should be for the benefit of the
company.company. No conflict of interestNo conflict of interest
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Skill & Care DutySkill & Care Duty
Do not agree to be a director if you are not fit Do not agree to be a director if you are not fit to be a director.to be a director.
Must have necessary knowledge, skill and Must have necessary knowledge, skill and background / experience that is reasonably background / experience that is reasonably expected of a director of a particular company.expected of a director of a particular company.
Should exercise the degree of care, caution Should exercise the degree of care, caution and skill that can reasonably be expected from and skill that can reasonably be expected from them as directors.them as directors.
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Delegation of DutiesDelegation of Duties
Law permits delegationLaw permits delegation But does the responsibility remain with But does the responsibility remain with
directors? (Governance Issue)directors? (Governance Issue) Issues in Delegation:Issues in Delegation:
Was it properly delegated.Was it properly delegated. Was it properly supervised.Was it properly supervised. The system of oversight and accountability over The system of oversight and accountability over
delegates.delegates.
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Care & Skill by NEDsCare & Skill by NEDs
Pak law does not differentiate between EDs Pak law does not differentiate between EDs and NEDs – as yet.and NEDs – as yet.
If NEDs are paid (as in West), a letter of If NEDs are paid (as in West), a letter of appointment should define extent and nature appointment should define extent and nature of duties and responsibilities.of duties and responsibilities.
NEDs should have access to all they need to NEDs should have access to all they need to perform their tasksperform their tasks
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Directors’ LiabilityDirectors’ Liability
Only if they are proved to be negligent, or a Only if they are proved to be negligent, or a willful party to fraud.willful party to fraud.
If not negligent or willful party to a fraud, If not negligent or willful party to a fraud, directors are generally covered by the directors are generally covered by the company.company.
Companies may obtain insurance:Companies may obtain insurance: For liability of directorsFor liability of directors For losses arising from directorsFor losses arising from directors
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Dealings with DirectorsDealings with Directors
All deals must be fairAll deals must be fair No loans to directors or connected personsNo loans to directors or connected persons Disclosure of conflict of interestDisclosure of conflict of interest Prevention of misuse of informationPrevention of misuse of information As a rule, all substantial transactions should be As a rule, all substantial transactions should be
presented to shareholders.presented to shareholders. Related party transaction disclosureRelated party transaction disclosure
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Directors duties to Stakeholders Directors duties to Stakeholders other than shareholdersother than shareholders
EmployeesEmployees Except for explicit reasons, directors have no Except for explicit reasons, directors have no
duty to outsiders.duty to outsiders. Irregular contracts may be binding on the Irregular contracts may be binding on the
company if outsider acts in good faith.company if outsider acts in good faith.
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Other Issues re directorsOther Issues re directors
Notification to company of interestsNotification to company of interests Register of directors’ interests Register of directors’ interests Dealing in company’s shares?Dealing in company’s shares? Market AbuseMarket Abuse Insider TradingInsider Trading Moral CodeMoral Code Disqualification Disqualification
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Types of DirectorsTypes of Directors
Executive / Non-executiveExecutive / Non-executive De facto directorDe facto director Shadow directorShadow director Alternate directorAlternate director
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Shareholders’ PowersShareholders’ Powers
Voting powerVoting power Cumulative voting rightsCumulative voting rights Matters covered by voting:Matters covered by voting:
Election /removal of directorsElection /removal of directors Proxy: use of proxy votesProxy: use of proxy votes Rights issue of sharesRights issue of shares