Rights & Powers of

Shareholders & Directors

A Lecture by
Dr Safdar A Butt

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

Sources of Power

Companies Act

Table A

Articles of Association of the Co.

Special Resolution of AGM
Practice in the business world

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-formal
sector?
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

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

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 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

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

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