Transcript Rights & Powers of Shareholders & Directors

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