UNLIMITED LIABILITY OF DIRECTORS

Limited company may have directors with unlimited liability. Sec 98

 In a limited company, the liability of the directors or of any director may, if so provided by
the memorandum, be unlimited.
 In a limited company in which the liability of any director is unlimited,
a) the directors of the company, if any, and
b) the member who proposes a person for election or appointment to the office of director,
shall add to that proposal a statement that the liability of the person holding that office will be
unlimited.
The promoters and officers of the company, or one of them shall, before that person accepts
the office or acts therein, give him notice in writing that his liability will be unlimited.
 Any violation of this section shall be an offence liable to a penalty of level 1 on the standard
scale and shall also be liable for any damage which the person so elected or appointed may
sustain from the default, but the liability of the person elected or appointed shall not be
affected by the default.
Special resolution of limited company making liability of directors unlimited. Sec 99
 A limited company, if so authorised by its articles, may, by special resolution, alter its
memorandum so as to render unlimited the liability of its directors or of any director:
 An alteration of the memorandum making the liability of any of the directors unlimited
shall not apply, without his consent, to a director who was holding the office from before
the date of the alteration, until the expiry of the term for which he was holding office on
that date.
Nominee directors.- Sec 164
 In addition to the directors elected or deemed to have been elected by shareholders, a
company may have directors nominated by the company's creditors or other special interests
by virtue of contractual arrangements.
 A body corporate or corporation owned or controlled by the Federal Government or as the
case may be, a Provincial Government may also have directors nominated on the board to
whom such corporation or company has extended credit facilities.
Validity of acts of directors. Sec 168
 The acts of a person acting as a director are valid even if it is afterwards discovered that
a) there was a defect in his appointment; or
b) he was disqualified from holding office; or
c) he had ceased to hold such office
Provided that, as soon as any such defect has come to notice, the director shall not exercise the
right of his office till the defect has been removed.
Restriction on director's remuneration. Sec 170
 The remuneration of a director for performing extra services, including the holding of the
office of chairman, shall be determined by the board or the company in general meeting, as
the case may be, in accordance with the provisions in the company's articles.
 The remuneration to be paid to any director for attending the meetings of the board or a
committee of directors shall not exceed the scale approved by the company or the board, as
the case may be, in accordance with the provisions of the articles:
Vacation of office by the directors. Sec 171
 A director shall ipso facto cease to hold office if
(a)he becomes ineligible to be appointed as a director on any one or more of the grounds
enumerated in section 153;
(b) he absents himself from three consecutive meetings of the board without seeking leave of
absence;
(c) he or any firm of which he is a partner or any private company of which he is a director-
(i) without the sanction of the company in general meeting accepts or holds any office of
profit under the company other than that of chief executive or a legal or technical adviser;
or
(ii) accepts a loan or guarantee from the company in contravention of section 182;
Prohibition on assignment of office by directors. Sec 174
 A director of any company shall not assign his office to any other person and any such appointment shall
be void ab-initio.
 the appointment by a director, with the approval of the board, of an alternate or substitute director to act
for him during his absence from Pakistan of not less than three months, shall not be deemed to be an
assignment of office.
 The alternate director appointed shall ipso facto vacate office if and when the director appointing him
returns to Pakistan.
Prohibition regarding making of political contributions.- Sec 184
 A company shall not contribute any amount or allow utilization of its assets
(a) to any political party; or
(b) for any political purpose to any individual or body.
 If a company contravenes the provisions of sub-section (1), then-
(a) the company shall be liable to a penalty of level 2 on the standard scale; and
(b) every director and officer of the company who is in default shall be punishable with imprisonment of
either description for a term which may extend to two years and shall also be liable to a fine of one million
rupees.
Prohibition regarding distribution of gifts. Sec 185
 A company shall not distribute gifts in any form to its members in its meeting.
 Any contravention or default in complying with requirement of this section shall be an offence liable to a
penalty of level 1 on the standard scale.
Proceedings of the board.- Sec 176
 The quorum for a meeting of board of a listed company shall not be less than one-third of
number of directors or four, whichever is greater and the participation of the directors by
video conferencing or by other audio visual means shall also be counted for the purposes of
quorum
 If at any time, there are not enough directors to form a quorum to fill a casual vacancy, all
the remaining directors shall be deemed to constitute a quorum for this limited purpose.
 The quorum for a meeting of the board of other than listed company shall be as provided in
the articles.
 The board of a public company shall meet at least once in each quarter of a year.
 If a meeting of the board is conducted in the absence of a quorum or a meeting of board is
not held as required the chairman of the directors and the directors shall be liable-
(a)if the default relates to a listed company, to a penalty of level 2 on the standard scale; and
(b) if the default relates to any other company, to a penalty of level 1 on the standard scale.
A non-executive director means, a person on the board of the company who-
(a)is not from among the executive management team and may or may not be independent;
(b) is expected to lend an outside viewpoint to the board of a company;
(c) does not undertake to devote his whole working time to the company and not involve in
managing the affairs of the company;
(d) is not a beneficial owner of the company or any of its associated companies or
undertakings;
(e) does not draw any remuneration from the company except the meeting fee.
Loans to directors: requirement of members’ approval.- Sec 182
 A company shall not
(a)make a loan to a director of the company or of its holding company; or to any of his
relatives;
(b) give a guarantee or provide security in connection with a loan made by any person to such a
director; or to any of his relatives;
unless the transaction has been approved by a resolution of the members of the company.
 In case of a listed company, approval of the Commission shall also be required before
sanctioning of any such loan.
 For the purpose of this sec on ―relative in relation to a director means his spouse and
minor children.
 This Section shall not apply to a company which in the ordinary course of its business
provides loans or gives guarantees or securities for the due repayment of any loan.
 Every person who is a party to any violation of this section, including in particular any person
to whom the loan is made or who has taken the loan in respect of which the guarantee is
given or the security is provided, shall be punishable with fine which may extend to one
million rupees or with simple imprisonment for a term which may extend to one year.
 All persons who are parties to any violation shall be liable, jointly and severally, to the
lending company for the repayment of the loan or for making good the sum with markup
not less than the borrowing cost of the lending company which the lending company may
have been called upon to pay by virtue of the guarantee given or the security provided by
such company.