Page 83 - CMA Journal (Mar-Apr 2025)

Articles Section

The above matter is discussed in the following that, as per law, all the directors must retire on the date of
paragraphs in light of the provisions of the Act. the first annual general meeting of the company.
It is mandatory for the companies incorporated under The subsequent matters relating to the appointment and
the Act to have got their memorandum and articles removal of directors of the companies and their related
registered. Section 16 of the Act provides for the matters of the companies are stated in sections 153 to
registration of memorandum and articles. Section 16 also 180 of the Act. Small companies mostly adopt, as per
provides for a declaration on the specified form, by an subsection 2 of Section 36, all or any of the regulations
authorized intermediary or by a person named in the contained in Table A in the first schedule of the Act.
articles as a director, of compliance with all or any of the
Table A to Table F of the first schedule provides for the
requirements of this Act and the rules and regulations
election of directors in the manner provided in section
made thereunder in respect of registration and matters
159 of the Act, which inter alia prescribes that the
precedent or incidental thereto.
directors are to be elected by the members of the
Section 17 elaborates on the effect of the company, and the number of directors to be elected in
memorandum and articles. It states that the the general meeting is to be fixed by the directors in their
memorandum and articles shall, when registered, bind meeting, which should not be later than thirty-five days
the company and the members thereof to the same before the convening of such meeting.
extent as if they respectively had been signed by each
The term of office of directors is provided in section 161
member and contained a covenant on the part of each of the ACT which is three years, and subsection (2) of the
member, his heirs, and legal representatives, to observe
same section also states that any casual vacancy
and be bound by all the provisions of the memorandum
occurring among the directors may be filled up by the
and of the articles, subject to the provisions of this Act.
directors, and the person so appointed shall hold office
It is crystal clear from the above that all the provisions of for the remainder of the term of the director in whose
the memorandum and articles of a company are subject place he is appointed.
to and subservient to the provisions of the Act. No
To this point of discussion, it is established, though, that
provisions in the memorandum or articles can be made
there is no provision under which a company can have an
that can have in any way an overriding effect on any
ex-officio director. The natural person who intends to
provisions of the laws, the rules, and the regulations
represent an artificial or legal person may be elected to
made therein. Any such provision will be considered ultra the Board and will be known as the nominee of that
vires of the law and void ab initio.
artificial or legal person. Section 164 provides a restricted
Directors: and limited space for nominee directors under the
following cases also.
About the directors of a company, Section 18, Subsection
(e) of the Act provides for the first directors of a company 1) Directors nominated by the company’s creditors or
as follows. other special interests by virtue of contractual
arrangement.
Quote: “the persons named in the articles of association
as proposed directors are deemed to have been 2) Directors nominated by the federal or provincial
appointed to that office. Un-Quote government where the credit facility is extended by
a federally or provincially owned entity.
However, section 156 makes it mandatory for the first
directors to be the subscribers of the memorandum. The nominated directors on the board as per above will
be in addition to the directors elected under section 159,
”First directors and their term. — (1) The number of
and the term of office of directors under section 161 will
directors and the names of the first directors shall be
not be applicable to them.
determined by the subscribers of the memorandum, and
their particulars specified under section 197 shall be At this point it is important to discuss section 165 of the
submitted along with the documents for the ACT which excludes the application of section 158
incorporation of the company.” (Retirement of first and subsequent directors), section
159 (Procedure for election of directors), section 161
It seems that there is a conflict between section 18(e),
(Term of office of directors), section 162 (Fresh election of
where it says that the person named in the articles at the
directors) and section 163 (Removal of directors) to the
time of registration is deemed to have been appointed to
directors under sub-sections (a), (b) and (c) of section
that office, whereas section 156 specifically mentions
that the first director are the directors who are subscriber 165. All of these sub-sections exclude the director
nominated by virtue of investment made in the company
to the memorandum. It is implied from the rules of
by the government or any entity owned by it. It also
reading the statute that the first directors are not those
excludes the directors nominated by foreign equity
directors as mentioned in articles but are those who
holders under arrangements with the government.
subscribed to the memorandum. Irrespective of the fact
ICMA’s Chartered Management Accountant, Mar-Apr 2025 81