APPOINTMENT, ELECTION AND REMOVAL OF DIRECTORS

Director [Section 2(25)]

Director includes any person occupying the position of a director, by whatever name called.
Directors are collectively called “Board” or “Board of Directors (BOD)”.
Word “director” in job title does not mean that a person is legally a director.
Example 1: Faisal is senior employee of ABC Limited and his designation is Human Resource
Director. However, he is not appointed to board of directors and does not participate in board of
directors’ decision making. He is not a director of ABC Limited.
Example 2: Naveed is senior employee of ABC Limited and his designation is General
Manager Operations. He is also appointed to board of directors and participates in board of
directors’ decision making. He is director of ABC Limited.
Relationship of directors with Company:
1. Role as Fiduciary: Fiduciary means “a relationship of trust between two or more
parties”. Directors have a fiduciary relationship with company as they prudently take care
of money of company. A director lacks fiduciary behavior if he intentionally keeps the
company and members at disadvantage.
2. Role as Agent: An agent is an individual employed by principal to provide a particular
service. Directors (agents) are appointed by members (principal) to act in best interest of
members in accordance with.
Eligibility Criteria:
A director must:
 Be a natural person [Section 154]
 Be a member (with certain exceptions)
 meet additional criteria if specified by articles e.g. holding qualification shares, education
and experience requirement in case of banking and insurance companies.
Ineligibility Criteria [Section 153]:
No person shall be appointed as a director of a company if he:
a) is a minor;
b) is of unsound mind;
c) has applied to be adjudicated as an insolvent and his application is pending;
d) is an undischarged insolvent;
e) has been convicted by a court of law for an offense involving moral turpitude (conduct
that is believed to be contrary to community standards of honesty, good morals, or
justice, e.g. murder, kidnapping, etc.);
f) has been debarred from holding such office under Companies Act;
 g) is lacking fiduciary behaviour and a declaration to this effect has been made by the Court
at any time during the preceding 5 years;
Example: Last year, the court declared Sami as lacking fiduciary behaviour as he did not
disclose his interest in transactions with the company. He cannot be appointed as a
director. He may be appointed as director once five years have elapsed after the court
order.
h) does not hold National Tax Number. The Commission may grant exemption from this
requirement;
i) is not a member. However, this shall not apply in the case of:
 a person representing a member who is not a natural person;
 a whole-time director who is an employee of the company;
 a chief executive; or
 a person representing a creditor or other special interests through contractual
arrangements
Example: Babar is senior employee of the company and because of his experience, he
was appointed as director and is now also involved in board of directors’ decision
making. He would be termed as whole-time director (or executive director).
Further for listed companies only, a person shall not be appointed as a director if he:
a) has been declared by a court as defaulter in repayment of loan to a financial institution;
b) is engaged in the business of brokerage or is a spouse of such person or is a sponsor,
director or officer of a corporate brokerage house.

APPOINTMENT OF DIRECTORS:
Number of directorship [Section 155]:
No person shall hold office as a director (including as an alternate director) at the same time in
more than such number of companies as may be specified.
However, this limit shall not include the directorships in a listed subsidiary.
Minimum number of directors [Section 154]
A company may require a larger number of directors by its articles
Type of company Minimum number of directors
Single member company One
Other private company Two
Public unlisted company Three
Public listed company Seven

Maximum number of directors under the Act:

Companies Act 2017 does not specify maximum number of directors. Articles or Directors may
decide to appoint any number of directors.
Consent to act as director
 No person shall be elected or appointed as a director or chief executive if he has not filed
his consent in writing
 Company shall file such consent to registrar within 15 days of the date of appointment or
election of director or chief executive
Appointment and Tenure of First Directors:
Appointment of First Directors: Number and names of first directors shall be decided by
subscribers of memorandum and their particulars shall be submitted along with documents for
incorporation. The number of first directors may be increased by appointing additional directors
by the members in a general meeting.
Tenure of First Directors: The first directors shall hold office until the election of directors in
the first annual general meeting of the company.
Appointment and Tenure of Subsequent Directors:
Appointment of Subsequent Directors: Subsequent directors shall be elected by members at
Annual General meeting.
Tenure of Subsequent Directors: A director elected at AGM shall hold office for a period of
three years. However, a company limited by guarantee not having share capital may reduce this
period through its articles.
Appointment and Tenure of Casual Vacancy of Directors [Section 161 & 155]:
Appointment under Casual Vacancy: A casual vacancy is filled by directors. In case of listed
company, casual vacancy is required to be filled within 90 days from the date of occurrence of
casual vacancy.
In case of unlisted company, directors may not fill casual vacancy if remaining directors are
equal or more than minimum required number of directors.
Tenure under Casual Vacancy: Person so appointed shall hold office for the remainder of the
term of the director in whose place he is appointed.

ELECTION OF DIRECTORS:
In first AGM, all first directors shall retire and election of directors shall be held. Afterwards
election shall be held after every 3 years. (Company limited by guarantee may reduce the period
through AOA).
Procedure for Election of Directors for a company having share capital:
 1. Fixation of number of directors to be elected: Directors of the company shall fix the
number of directors to be elected at least thirty-five days before the general meeting at
which directors are to be elected.
Exception: Once the number is fixed in the Board meeting, it shall not be changed except with
the prior approval of a general meeting of the company.
2. Send Notice of meeting: Notice of the general meeting shall be sent to members at least
21 Days before meeting. Notice of the relevant general meeting shall expressly state:
 Number of directors to be elected.
 Names of the retiring directors
3. Filing of intention to become director: A person (whether retiring director or
otherwise) seeking to contest election shall file a notice of his intention with company at
least 14 days before relevant general meeting. Such person may withdraw notice any
time before holding of election.
4. List of Candidates to be transmitted to members: All notices received by company
shall be transmitted to members at least 7 days before general meeting in the same
manner as provided under this Act for sending of a notice of general meeting. In the case
of a listed company such notice shall also be published in English and Urdu daily
newspapers having wide circulation.
5. If number of candidates is equal or less than number fixed by directors: If number of
candidates is equal or less than number fixed by directors, all directors shall stand elected
unopposed without Poll.
6. If number of candidates exceed number fixed by directors: If number of candidates
exceed number fixed by directors, Poll for election of directors shall be conducted as
follows:
 Number of votes of a member = Number of voting shares or securities held x
Number of directors to be elected.
 A member can give distribute his votes between different candidates in any way
he thinks appropriate. (even all votes can be given to one person)
 Candidate getting highest votes shall be declared elected as director, and then next
candidate, and so on until number of directors fixed have been elected.
Procedure for Election of Directors for a company NOT having share capital:
The directors of a company not having share capital shall be elected by members of the company
in general meeting in the manner as provided in articles of association of the company
Fresh election on request of substantial acquirer
 If a person acquires requisite shareholding to get him elected as a director, he may require
the company to hold fresh election.
 Number of directors fixed in last election shall not be decreased
 Board shall as soon as practicable within 30 days, proceed to hold such fresh election.
  A listed company shall follow such procedure as may be specified by SECP for such
fresh election
Circumstances in which election may be declared invalid
Court may, declare election of all directors or any of them invalid if satisfied that there has been
material irregularity in procedures.
 On application of members having at least 10% voting power
 Within 30 days of the date of election
Any act of director, or of meeting of BOD attended by him, shall not be invalid only due to any
defect (subsequently discovered) in appointment