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Rights & Powers of

Shareholders & DirectorsA Lecture by

Dr Safdar A Butt

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Powers of Directors

Sources of Power

By and large, absolute powers vest in the

directors

The issue of collective and individual powers

Executive Directors

Non-executive Directors

Members of Board Committees

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Sources of Power

Companies Act

Table A

Articles of Association of the Co. Special Resolution of AGM

Practice in the business world

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Borrowing Powers

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-formalsector?

Tax implications

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Duties of Directors

To act in the best interest of the company

Accountability to owners

Statutory duties Care and Skill Duty

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Statutory Duties

Keep minutes of their meetings

Deliver a copy of Annual report and accounts

to SECP

Maintain proper books

File all periodic returns

Fiduciary duties (Trustee)

To take due care and diligence

Other duties under Stock Exchange Rules

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Test of Fiduciary Duty

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

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

Law permits delegation

But does the responsibility remain with

directors? (Governance Issue)

Issues in Delegation:

Was it properly delegated.

Was it properly supervised.

The system of oversight and accountability over

delegates.

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Care & Skill by NEDs

Pak law does not differentiate between EDs

and NEDsas 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

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:

For liability of directors

For losses arising from directors

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Dealings with Directors

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

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

Notification to company of interests

Register of directors interests

Dealing in companys shares? Market Abuse

Insider Trading

Moral Code Disqualification

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Types of Directors

Executive / Non-executive

De facto director

Shadow director Alternate director

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Shareholders Powers

Voting power

Cumulative voting rights

Matters covered by voting: Election /removal of directors

Important issues like change in A & M of A

Proxy: use of proxy votes Rights issue of shares

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Thank you

Dr Safdar A Butt