Page 82 - CMA Journal (Mar-Apr 2025)

Articles Section
Articles Section

Legality of Ex-Officio

and Nominated Directors

in a Company

Lately a controversy is discussed in professional circles are the shareholders. These
about the ex-officio and nominee directors in a company. artificial or legal share-
This controversy has started from clarification which was holders cannot act on their
sought from the Securities and Exchange Commission own, so they act through
(SECP) through a letter which was addressed to the their designated directors
worthy Chairman of the SECP. or managers, and in the
case of the provincial or
The subject of the letter was:
federal government,
“Clarification regarding the composition of the through their designated
board/election of directors’ vis-à-vis the provision officers or employees.
contained in the law vs the Articles of Association (AOA) These designated natural Syed Ahmad Ashraf, FCMA
of certain companies and regarding the ex-officio or persons are termed as Advocate High Court
nominated directors on the Board.” “nominees” of the Corporate and
Various divergent views and opinions are expressed and respective organisations or Tax Consultant, SR-Law
governments. In the case
received from various quarters (however, the response of
of the companies incorporated under the ACT if these
SECP is still awaited even after the lapse of three months).
Those who have some interest in public sector nominees become members of the Board after following
companies, specifically those companies which are the due process, they are termed "nominee" directors in
general commercial language.
incorporated and licensed as not for profit under Section
42 of the Companies Act, 2017 (hereinafter “the ACT”), The term "ex-officio" originates from Latin, meaning
are keen to have the clarification. "from the office". It refers to someone who holds a
position or role automatically due to their status or
Before indulging in the issue of ex-officio and nominated
another position they occupy or by virtue of an office. For
directors, it is appropriate that the author's
understanding of the “natural” and “legal or artificial example, a vice president might serve ex-officio as the
president of a committee simply because of his office.
person” be given.
However, the term “ex-officio directors” is alien to the ACT
While the ACT does not specifically define the person, the and the scheme of directors’ election on the Board. The
Constitution of Pakistan in Chapter 5 mentions, “person” word is not even remotely used for any situation in the
includes body politic or corporate. The Income Tax scheme of constitution of the Board under the ACT but is
Ordinance, 2001, and the General Causes Act also have surprisingly present in the Articles of Association (AOA)
the definitions of the person. While there is a common of many companies, especially the private and public
consensus that a “natural person” is a living human being sector companies.
with finite life, a “legal or artificial person” is created by
In the backdrop of the preceding discussion in the
some kind of legislation or action by the natural person.
following part of this article, an effort has been made to
Artificial persons act through natural persons (e.g., determine whether companies incorporated under the
directors or managers) who make decisions on their Act can have nominees or ex-officio. More specifically,
behalf. Natural persons act independently. can a person, by virtue of his office or by virtue of the
The purpose of the above discussion is to arrive at a point provision in the articles, become a member of the Board
to mention that many of the companies incorporated without following the relevant provisions of the ACT, laid
under the ACT have shareholders who are legal or down in section 159 for the election of directors, and
artificial persons in the sense of the discussion before. To whether the sections related to the terms of office of
elaborate, there are many companies in which other directors, filling of casual vacancies, consent to act as
companies, mutual funds, other bodies corporate, directors and other eligibility to become a director will be
provincial governments and/or the federal government applicable to them?

80 ICMA’s Chartered Management Accountant, Mar-Apr 2025