2025 Essential Guide to the Election of Company Directors: A company is different from other business and civil proprietorships and partnerships in that it has to fulfil specific legal requirements. The most important aspect in company matters is the holding of elections of directors. It should be kept in mind that elections are required only in companies where there is more than one director. Since there is only one director in a single member company (SMC), the requirement of elections does not apply there. This requirement applies only to companies where there are at least two or more directors.
2025 Essential Guide to the Election of Company Directors: Why Election Are Important?
The question of why directors are necessary in a company is very important and is often questioned by people.
It is essential to have directors to carry out various matters of the company such as running accounts, operating bank accounts, filing documents and other legal or financial matters.
If for any reason a director dies, resigns or is declared incompetent, there is prescribed method of appointing a new director in his place, which is essential for the continuity of the company.
Importance of Elections in Family Companies
Most companies in Pakistan consist of family members. For example, if the father is the Chief Executive, then the son or brother joins as directors.
In such companies, sometimes the question arises that when all the members are from the same family, then what is the need for elections or AGM (Annual General Meeting)?
The fact is that differences can arise even in a family business each member has made his own investment, so it is important to decide whose investment or role is more important. In such cases, it is necessary to hold elections for transparency and dispute resolution so that each participant gets equal representation.
Need for Elections in Publicly Listed Companies
In publicly listed companies, whose shares are listed on the stock exchange, the situation becomes even more important.
Here, not only the director but dozens or hundreds of shareholders own the company. Every shareholder wants the company to be run in the best possible way so that the share price increases and profits increase.
That is why regular elections of directors have been made mandatory in these companies under the law so that the governance of the company is transparent and fair.
First Director of a company:
2025 Essential Guide to the Election of Company Directors: After incorporation, the all first directors retired on the date of the first Annual General Meeting (AGM), but they continue to discharge their duties until fresh elections are held. If they have completed their term, the fresh elections must be held within ninety (90) days. Delay in elections can attract a fine of up to five hundred thousand rupees.
Example:
For example, if a company is registered in July 2022, then the first elections must be Conducted within sixteen months i,e in December 2023. Therefore, the last date for elections will be 31 December 2023. All officers will be retired on that date. Elections can be taken up to a maximum of ninety days, i.e., March 31, 2024.
Term of Office of Directors:
2025 Essential Guide to the Election of Company Directors: The term of appointment of a director shall be three years, but he may vacate office before that term by resignation, death, retirement, disqualification or re-election.
If a director’s seat becomes vacant for any reason (such as death), the board may appoint a new director who shall hold office for the remainder of the term of his predecessor.
Example:
The election of directors of ABC Trading Company was held on December 31, 2023, with the next term running until 2026.
However, if a director dies on January 15, 2025 and his son is elected as the new director in his place on April 5, 2025, he will serve the remainder of his father’s term until 2026 only.
He will not be eligible for a new three-year term (e.g. from April 5, 2025 to April 5, 2028) from the date of his appointment (April 5, 2025), but will only serve for the remaining term of the former Director, i.e. until 2026.
Fresh election:
A “fresh election” can be held under section 162, in which all the directors must be re-elected. This happens when, for example, the company has sold some of its shares to other members, and new shareholders want to become board members. If there are more candidates than the existing officers, no additional directors can be taken in a by-election; a fresh election has to be held for this.
2025 Essential Guide to the Election of Company Directors: Procedures for a fresh election
The procedure for the election under section 159 is that the company will issue a notice containing the names of all the candidates. This will be followed by an “extraordinary general meeting” in which a resolution will be passed, which will expressly refer to section 162 and will include the names of all existing and new executives.
When appointment of a new director become necessary?
In some cases, the appointment of a shareholder or member as a director is necessary because the director is involved in the day-to-day operations of the company, while the shareholder or member is not involved in the day-to-day affairs. He is called only to the Extraordinary General Meeting or AGM, where he has the right to vote.
On the other hand, the director is directly involved in the day-to-day affairs, especially in the process of opening a bank account. Without his involvement, a bank account cannot be opened. Similarly, in other matters, which require the approval of the board, the directors are involved while the shareholders are not.
2025 Essential Guide to the Election of Company Directors: Filing Procedure with SECP
Filing with the SECP requires various forms, which may vary depending on each situation. However, the most common and mandatory forms are as follows:
Form 9: Induction, Cessation and Change in Particulars of Company Directors and Officers.
This form is mandatory to file for following purpose.
- Particulars of directors and officers, including the chief executive, secretary, chief financial officer, auditors, legal adviser and in case of single member company, nominee of sole member or of any change therein
- Consent of each Director / Chief Executive upon their appointment/re-appointment/election is required for filing of this form.
Form 3
Return of Allotments of Shares & Change of More Than Twenty-Five Percent in Shareholding or Membership or Voting Rights
If there is a change in the shareholding pattern during the election, it is mandatory to file the relevant form. For example, if two directors hold 50:50 shares and one of them resigns, while two new directors join and the share distribution becomes 30:30:40, then Form 3 along with Form 9 is mandatory to file to record this change.
General requirements
- Copy of resignation letter must be signed by resigning director or chief executive, verified through an affidavit on stamp paper, signed by the person who has signed this Form and attested by an oath commissioner and witnessed
- Copy of Board resolution in case of appointment/cessation
- Sufficient evidence in case of removal/ death / disqualification of Director/ Chief Executive
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