Company Directors: Appointment, Powers, Duties & Qualifications

Posted on Apr 28, 2025 in Philosophy and ethics

Introduction

A company is a legal entity and does not have any physical existence. It can act only through natural persons to run its affairs. The individuals who act on its behalf are called directors. In short, directors of a company are professionals hired by the company to direct its affairs. However, they are not merely employees; they are officers of the company.

Definition of a Director

According to Section 2(13) of the Companies Ordinance, a ‘Director’ includes any person occupying the position of director, by whatever name called. Thus, function is paramount; the title matters little. As long as a person occupies a position that imposes the duty of guiding or controlling the company’s business, they are considered a director in law.

Number of Directors

Private Company

Every private company must have at least two directors.

Public Company

Every public company must have at least three directors.

Director Appointment Methods

A director of a company can be appointed in any of the following manners:
  • First Director Appointment: Promoters of the company typically elect the first directors.
  • Subscribers as Directors: In the absence of any provision in the articles of association regarding the first directors, the subscribers to the memorandum are considered the directors of the company.
  • Shareholder Appointment: Shareholders can appoint directors during the annual general meeting.
  • Creditor Nomination: A person can be nominated as a director by creditors, if provided for.
  • Casual Vacancy Appointment: If a director’s office becomes vacant before their term expires (a casual vacancy), the board of directors can appoint someone to fill that vacancy until the next general meeting.

Director Qualifications

According to Section 145 (or relevant section), the following persons are generally eligible for appointment as directors of a company:
  • A natural person.
  • A person representing the Government (if the Government is a shareholder or has statutory rights).
  • An employee of the company (though specific roles like Chief Executive might have distinct regulations).
  • The Chief Executive (often serves as a director).
  • A person representing a creditor (under specific circumstances or agreements).

Director Disqualifications

A person is disqualified from becoming a director if they:
  • Are a minor.
  • Are of unsound mind.
  • Have applied to be adjudged as insolvent and their application is pending.
  • Are an undischarged insolvent.
  • Have been convicted by a court of law for an offense involving moral turpitude.
  • Have been debarred from holding office under the Ordinance.
  • Have demonstrated a lack of fiduciary behavior and been declared so by a court.
  • Are not a member of the company (unless the articles permit non-member directors).

Powers of Directors

According to the Companies Ordinance, the following are among the powers of directors:

Powers Exercised by Board Resolution

The Board of Directors typically exercises powers such as:
  1. Issuing shares.
  2. Issuing debentures.
  3. Obtaining loans on behalf of the company.
  4. Investing the funds of the company.
  5. Making loans.
  6. Making calls on shareholders for unpaid money on shares.
  7. Authorizing contracts or actions.
  8. Approving bonuses.
  9. Incurring capital expenditure.

Powers Requiring General Meeting Consent

A director (acting for the board) typically requires the consent of the shareholders in a general meeting to exercise certain significant powers, including:
  1. Power to sell, lease, etc.: They may sell, lease, or otherwise dispose of the whole or a substantial part of the company’s undertakings.
  2. Power to remit debt: They may grant relief or extend the time for the repayment of any debt outstanding against certain persons (often related parties, as specified in relevant sections like Section 195).

Duties of Directors

The duties of a director include:
  1. To act honestly and in good faith in the best interests of the company (Duty of Loyalty).
  2. To exercise such degree of skill and diligence as would amount to the reasonable care an ordinary person might take on their own behalf (Duty of Care).
  3. To attend board meetings whenever reasonably able to do so.
  4. To ensure the preparation and filing of the annual list of members and summary (annual return).
  5. To hold the statutory meeting within the prescribed period (if applicable).
  6. To act in the best interests of the company as a whole, avoiding conflicts of interest.
  7. To ensure the profit and loss account and balance sheet are presented before the company in the general meeting at least once a year.
  8. To submit a statement of affairs at the time of the winding up of the company.
  9. To file their consent to act as directors with the registrar.

Conclusion

In conclusion, directors are the individuals responsible for directing, governing, and controlling the policy and management of a company. They occupy a pivotal position within the company’s structure and are, in effect, its mainspring. A company cannot function effectively without competent and diligent directors fulfilling their roles and responsibilities.