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Single Member Company• Private Company• One Member Company• (SMC-Private) Limited is written after name• Company secretary shall be appointed• Sole Director can not become Company
Secretary• Nominee Director and Alternative Nominee
Director also nominated by Single Member.• Quorum is 1 for meeting
Directors In SMCSOLE DIRECTOR NOMINEE DIRECTOR ALTERNATE NOMINEE
DIRECTORMeans the director of a single member companywho is for the time being the only director.
means an individual nominated by a singlemember to act as director in case of his death;
Single Member files nomination of nominee Director with the registrar at the time of incorporation on Form S1
means an individual nominated by asingle member to act as nominee director in case of no availabilityof nominee director
Single Member files nomination of nominee Director with the registrar at the time of incorporation on Form S1
SOLE DIRECTOR NOMINEE DIRECTOR ALTERNATE NOMINEE DIRECTOR
He can not serve as Company Secretary in addition to responsibility of Sole Director
Manage The Affairs Of The Company In Case Of Death Of Single Member Till The Transfer Of Shares To Legal Heirs Of The Single Member
He can be Member of the company.He has same power as given in section 196 of Companies Ordinance 1984
Transfer the shares to legal heirs of the single member; and call the general meeting of the members to elect directors.
Directors In SMC
SMC converts into Normal Private Company
Transfer o f Shares/ Shares Allotment
Death of Member Operation of Law
Pass Special Resolution; Nominee Director transfer the Shares to legal successors within 1-7 days of death of Member
Pass Special Resolution;
Pass Special Resolution;
Alter AOA (Add RPL) within 1-30 days of allotment / transfer of Shares
Alter AOA (add RPL) within 1-30 days of allotment / transfer of Shares
Alter AOA (add RPL) within 1-30 days of allotment / transfer of Shares
Appoint additional director if existing Director is one. Within 1-15 days and inform to ROC within 1-14 days
Appoint additional director if existing Director is one. Within 1-15 days and inform to ROC within 1-14 days
Appoint additional director if existing Director is one. Within 1-15 days and inform to ROC within 1-14 days
Important clauses of AOA of a private
Company
Restriction Prohibition Limitation
Transfer of sharesSubscription of
shares & Debentures to General Public
Of members from 2 to 50
excluding employees
NOTE AOA : IF IBA HAD DEW CAP ARE FOR BOTH PRIVATE AND PUBLIC
COMPANIES
RPL
COMPANY SECRETARY• A single member company (SMC) shall appoint a company secretary within
fifteen days of incorporation or of becoming a SMC
• The secretary shall be appointed at the time of incorporation and subsequently on the same day or the day next following his resignation or removal or in case of his death within seven days of the event
• Inform to ROC with 1-14 days for appointment or new appointment.
• Company shall attend all meeting but shall not have Voting power
• Company secretary does same function and in SMC It shall also be incumbent upon the company secretary to inform the registrar concerned about the death of the single member.
• Can be removed by Sole Director or Single Member
Normal Private Company become SMC
• Passes a special resolution for change of its status and makes necessary alteration in its AOA
• Obtains approval of the Commission within 1-30 days of passing Special Resolution.
• After approval Reduce members to 1 only.
• Change in Share Register
• Change BOD, if necessary
• Intimation to ROC within 1-14 days
• Nominee Director and Alternate nominee directors are to be appointed
• Changes after Name TCS (SMC-Private) Limited
• Registrar issues Certificate
Important clauses of AOA of a private
Company
Restriction Prohibition Limitation
Transfer of sharesSubscription of
shares & Debentures to General Public
Of members from 2 to 50
excluding employees
NOTE AOA : IF IBA HAD DEW CAP ARE FOR BOTH PRIVATE AND PUBLIC
COMPANIES
RPL
Changes in AOA remove RPL and Add following in AOA so private company becomes SMC
• (a) it shall not issue invitation to the public to subscribe for any share of the
• company;
• (b) the company shall not register any share(s) in the name of two or more persons to hold one or more shares individually or jointly; and
• (c) number of the members of the company shall be limited to one.
Meetings of directors and members
• Enables or requires any matter to be done or to be decided by directors or members, as the case may be, of the company; or
• Requires any matter to be decided by a resolution of the directors or members, as the case may be, of the company,
• Such matters shall be deemed to be satisfied if the decision is taken by the single member or sole director, as the case may be, and is drawn up in writing and recorded in the minutes book
Member Director
• Means an individual becoming director due to Shareholding/Membership of the company.
AOA
• (a) it shall not issue invitation to the public to subscribe for any share of the company;
• (b) the company shall not register any share(s) in the name of two or more persons to hold one or more shares individually or jointly; and
• (c) number of the members of the company shall be limited to one.
Corporate Governance OverviewThe responsibilities in corporate governance apply largely to accountability and ethical strategy.
World COM Listed at NASDAK USA Stock
Exchange
Took over 60
Companies
$7 Billion expenses
not recorded
Paid $37 Billion & bought
60 Companies
$2 Billion additional
income shown
Default declared in
2002 $41 billion
AT & T is number 1, W. Com was No. 2
Now W. Com is being run under
Business Horizon
World largest Bankruptcy
Use of Corporate Governance is now Must
Resolution passed in Board Meeting
Through Circulation In meeting
Meeting is counted
Meeting is not counted
Question : Test of Knowledge A director is serving on the board of 10 listed companies including three listed subsidiary companies of a holding
company. Is he compliant with the requirement of maximum number of directorships of the revised code?
• Yes, maximum number of directorships of seven does not include listed subsidiaries of a listed holding company.
Director in Board
Independent Directors
Maximum Executive Directors
Maximum number of Executive Directors cannot be more than
1/3rd of elected directors including CEO
while preference is for 1/3rd of the total members of the board to be independent directors.
One independent director is mandatory
Representation of following Directors in Board
Non-executive Directors
Directors Representing Minority Interests On Its
Board Of Directors Independent
Directors: Tax Payer & Not Defaulted
If Director is a member of a stock exchange, has not been declared as a defaulter by that stock exchange
None of them has defaulted in payment of
any loan to a banking company, a DFI or an
NBFI
All the resident directors of the company are registered as taxpayers
Remuneration of Directors
Disclosure Of Aggregate Remuneration In The Annual Report.
Formal And Transparent Procedure To Be
Followed
Training of the Board of Directors
Training Program must which meets the criteria specified by the SECP.
It will be mandatory for directors of
listed companies to attain
CERTIFICATION under any director training program
Training of the Board of Directors
• It will be mandatory for directors of listed companies to attain certification under any director training program (DTP) offered by any institution (local or foreign), which meets the criteria specified by the SECP.
• The criteria are available at the websites of the stock exchanges and the SECP.
Board Evaluation
The Board Has To Put In Place / Develop
Within Two Years Of The Implementation Of The
Code 2012
Mechanism For Undertaking Annual Evaluation Of The
Performance Of The Board.
Maximum Directorship
• A director can be on the board of 7 listed companies at the most at any one time.
• However, the limit does not include directorship in listed subsidiaries of a listed holding company.
Maximum Directorship
Excluding A director can be on the board of 7 listed
companies at the most at any one
timePrivate
Company
Subsidiary Companies
SMC
Unlisted Company
Board Evaluation
• Within two years of the implementation of the Code 2012, the Board has to put in place a mechanism for undertaking annual evaluation of the performance of the Board.
Chairman & CEO
• The Chairman and CEO shall not be the same person, unless specifically provided in any other law.
• The Chairman shall be elected from amongst the non-executive directors of the listed company.
Shall be elected from amongst the Non-Executive Directors of the listed company.
The Chairman of Board of Directors
unless specifically provided in any
other law
Chief Executive Officer
shall not be CEO shall not be
Chairman
Directors’ Training Program
• All listed companies shall make appropriate arrangements to carry out orientation courses for their directors to acquaint them with this code, applicable laws, their duties and responsibilities to enable them to effectively manage the affairs of the listed companies for and on behalf of shareholders.
• It shall be mandatory for all the directors of the listed companies to have certification under any directors’ training program offered by institutions—local or foreign—that meet the criteria specified by the SECP:
If a foreign director on the board of a listed company has already participated in a director training program abroad, then will it
still be mandatory for him to attend the orientation and director training program as required by the Code 2012?
• It is mandatory for the company to provide orientation to all directors - local and foreign.
• An orientation should cover the relevant information about the company as well as the relevant governing laws, rules and regulations.
• Foreign directors who have received training aboard shall be exempt from Directors’ Training Program (DTP) requirement of the Code 2012 if the program they attended broadly covered the areas stated in the criteria specified by the SECP for the purpose.
Approval of Accounts which are duly reviewed &
Audited
Audit Committee or
The Board Of Directors
Second Quarter & Annual Accounts
Second Quarter & Annual Accounts
OR
Circulation of Quarterly Accounts to Members, ROC,
SECP, Stock Exchange
Corporate Governance
Companies Ordinance
Does not require Directors review
report
Add also Directors review report
Attending of Meeting of Board Meeting
Company SecretaryCFO
CFO and Company Secretary shall not attend such part of a meeting of the Board of Directors, which involves consideration of an agenda item relating to the CFO and Company Secretary respectively
Outsourcing Internal Audit Function
• The internal audit function may be outsourced by a listed company to a professional services firm or be performed by the internal audit staff of the holding company.
• In the event of outsourcing the internal audit function, the company shall appoint or designate a fulltime employee other than the CFO, as Head of Internal Audit, to act as coordinator between the firm providing internal audit services and the board.
OUTSOURCING OF INERNAL AUDIT
• Can CFO work as head of Internal Audit if company has taken services from outside?– NO………… He is accounting man. Audit &
Accounting are two different work.– AN Internal Audit had must be appointed whether
outsource option is availed or not.
Outsourcing Internal Audit Function
In the event of outsourcing the internal audit function, the company shall appoint or designate a fulltime employee.
May Be Outsourced By A Listed Company To A Professional Services
Firm Or
other than the CFO, as Head of Internal Audit,
to act as coordinator between
Be Performed By The Internal Audit Staff Of The Holding Company.
the firm providing outsource Internal audit services and
the board
Internal Audit Staff Of The Holding
Company
Board of Directors
Must appoint Head of Internal
Audit
Who looks after the Internal
Control & Audit Functions
In case of out Source, He liaison the
Professional firm
with
BOD
Departments of organization
Audit Committee:
• The Chairman of the audit committee shall be an independent director, who shall not be the chairman of the board.
• Audit Committee shall comprise of non-executive directors.
• The secretary of Audit Committee shall either be the Company Secretary or Head of Internal Audit. However, the CFO shall not be appointed as the secretary to the Audit Committee
Audit Committee
Established by Listed Company 3 Members
Out of 3 one member must
understand Financial
Statements and Economics
One Chairman
2 other Members
Normally members are non Executive DirectorBut Independent
Directors are preferred
Human Resource & Remuneration Committee
Members(Preferred
Independent Director)
Chairman
Other members
CEO is alsoIncluded by Board in
HR & RC
CEO
Gives
Consideration about people
reporting to him
Shall not participate
If proceedings relates to CEO
benefits
Responsible
Recommending to Board for
HR Policy Succession Plan
Executive CompensationConsideration for CEO
Minimum Meeting of Audit Committee at least one meeting in each Quarter
Quarter 1 Quarter 4Quarter 3Quarter 2
More than 1 meeting in each quarter is possible
Who can be appointed as the secretary of the Audit Committee?
• The secretary of the Audit Committee shall either be the Company Secretary or Head of Internal Audit.
• However, the CFO shall not be appointed as the secretary to the Audit Committee.
Secretary
Company Secretary Head of Internal Audit
Chief Financial Officer
Audit Committee
May be Not possible
Audit Committee Meeting
approval of interim and final results of the
company and as required by the CCG
AT LEAST ONCE EVERY QUARTER
Head of Internal Audit
No person shall be appointed as the Head of Internal Audit of a listed company unless he/she has 5 years of relevant audit experience and
Member of a recognized
body of professional accountants;
Certified Internal Auditor;
Certified Internal Control Auditor
Certified Fraud Examiner
individuals serving as Head of Internal Audit of a listed company for the last five years at the time of coming into effect of this Code shall be exempted
from the above qualification requirement
Head of Internal Audit
a director cannot be appointed,
in any capacity, in the internal audit function
Appointment , Remuneration and Term of
Employment
CFOCompany Secretary
Internal Audit Head
Determine by Board of Directors
Can the positions of company secretary and internal auditor be given to one person within a listed company?
• No. The two positions carry minimal synergy and, therefore, should be performed by separate persons.
Mr. Ali both
CFOCompany Secretary
Mr. Ali can not be Secretary of Audit Committee. Any employee who is conversant in secretarial work then be
appointed as Secretary audit Committee.
Preferred Separate Person
CFOCompany Secretary
If CFO and Company Secretary are same person than Company Secretary can not be Secretary of Audit Committee. Any employee
who is conversant in secretarial work then be appointed as Secretary audit Committee.
Preferred to be different Person
Legal Advisor of the Company
Company Secretary
Though their work are to some extent same but Legal Advisor should be different
Person
Holding Company may provide
PROFESSIONAL SERVICE TO SUBSIDIARY
However, due care should be exercised to comply with the directives of the SECP in appointing external auditors to provide
other professional services
Holding Company can provide Professional Services to Subsidiaries
• In case of a holding company and a subsidiary (not wholly owned), both being listed companies, can the holding company for the purpose of handling operational and financial activities, provide professional services to the subsidiary through a service contract
• The holding company may provide professional services to its subsidiary.
• However, due care should be exercised to comply with the directives of the SECP in appointing external auditors to provide other professional services.
are mandated to present to
CFO CEO
Annual Accounts (Both Separate And Consolidated) And
Second-quarter (Only Separate/Stand-alone) Reviewed And Initialed By External Auditor,
Audit Committee Board
For The Purposes Of Identification, the responsibility of preparation of financial statements rests with the management in accordance with
provisions of the Companies Ordinance, 1984
Are consolidated accounts for the second quarter required to be reviewed by the statutory auditors?
• Consolidated accounts for the second quarter are not required to be reviewed by the statutory auditors.
• The requirement for the auditors to initial the financial statements has been introduced to ensure that only the accounts duly reviewed or audited are presented for the approval of the Audit Committee and the board.
What is meant by closed period?
• The closed period is a period during which no director, CEO or executive shall, directly or indirectly, deal in the shares of the listed company in any manner.
• It is expected that such a restriction would help minimize the risk of insider trading by key management/directors of the company.
CLOSED PERIOD
RESTRICTION Period A PERIOD DURING WHICH
NO
DIRECTOR, EXECUTIVE CEO
DIRECTLY OR INDIRECTLY
Deal In The Shares Of The Listed Company In Any Manner
such a restriction would help minimize
the risk of insider trading by key
management/directors of the company
CLOSED PERIOD
RESTRICTION Period
Shall Start From The Day When Any Document/Statement, Which Forms The Basis Of Price Sensitive
Information
Start Terminate
After The Information Is Told
To/Made Public
Is Sent To The Board Of Directors
Can the same person be appointed as the CFO and the CS of a listed company?
• The terms of reference of the two positions are distinct. It is, therefore, preferred that separate persons handle the functions of the CFO and company secretary within a listed company.
• The SECP Circular No 15 of July 8, 2003 also requires listed companies to have full time employee designated to perform specific assignments of company secretary
Requirement to attend board meetings
• The CFO and Company Secretary of a listed company or in their absence, the nominee, appointed by the board, shall attend all meetings of the Board of Directors.
• In the following issues CFO & Company Secretary shall not attend meeting of the Board of Directors, – which involves consideration (Incentive, increments,
benefits) of an agenda item relating to the CFO and Company Secretary respectively.
Passing of resolution no in meeting but by circulation
No face to face meeting. Resolution is acceptable but
meeting Is not counted
Can a broker be appointed as a director of a listed company?
• The Code 2012 does not restrict election/nomination of brokers on the boards of listed companies.
• However, the Companies Ordinance states that no person shall be appointed as a
– Director of a listed company if he/she is engaged in the business of brokerage, or is a spouse of such person or is a sponsor, director or officer of a corporate brokerage house.
• Therefore a broker cannot be appointed as a director on the board of a listed company.
Should the disclosure in the directors' report regarding the number of board meetings held during a year include the
number of resolutions passed by the board by circulation?
• The number of resolutions passed by the board of directors of a listed company through circulation should not be considered in determining the number of board meetings held during a year for the purpose of the Code 2012.
Can a director of a listed company be appointed as the head of internal audit of the company?
• The internal audit function of a listed company must be independent from the management/directors of a listed company. Therefore, a director cannot be appointed, in any capacity, in the internal audit function.
Can the offices of company secretary and legal advisor be held by one person, since both of them are required to be lawyers under the Code 2012 and the
Companies (Appointment of Legal Advisors) Act, 1974, respectively?
• The position of legal advisor in a company is a key appointment and is of executive nature, duties of which should not be expected to be fulfilled by a person who is also engaged in other responsibilities.
• As per the 1974 Rules a legal advisor must be an “Advocate” and not merely a lawyer. Therefore qualification for the two positions in not the same. 31
• Also, the SECP vide its Circular No 15 of July 8, 2003, reinforces that companies should engage full-time employees to perform functions of a "whole time secretary".
Significant Policies• Governance• Risk Management• Investors relations• Procurement of Goods & Services• Marketing• Determination of Credit terms & Discounts• Writing off Bad Debts• Investment & Disinvestment of funds• Planning & Controls• Expenditure capital in nature• Human Resource Management & Succession Plans• Code GRIP-MD-WIPE-H
Disclosure of Related Parties• Party wise maintenance of record • Supporting documents• Terms & Conditions• Received or paid in advance• Amount of transaction• Name of related parties• Nature of relationship• Nature of transaction
Secretarial Compliance Certificate
• Company Secretary shall furnish annually Compliance Certificate in prescribed form to ROC
• It means all Legal Compliance as per law has made & fulfilled / Completed by Company.
Audit Committee
• Who are not allowed to be part of Audit Committee?
• CEO• CFO• Head Internal Audit• The Best person for Audit committee are
Executive Directors
Qualification of Internal Auditor
• Member of Professional Body• CA, ACCA, CIMA, ICMA, CPA, CIA• Master degree in Business administration with
specialization in Finance. (MBA-Finance), M.Com in Finance.
• Local or Master degree in Finance.• Experience 3 years
Out Source of Internal Audit Function
• It is preferred to have inside Internal Audit Function Department
• Company must hire proper experienced & qualified people who perform Inter audit functions
• Law allows to take services of outsiders but Statutory Auditors are not allowed to serve Internal Audit functions
Description Executive Directors Non Executive Directors
Normally / Generally Paid (ON payroll of Company)
unpaid
Powers Dependent to Baord Independent to Board
Devotion Work -full time Normally do not work full time
Involvement in Management affairs
More Less
Directors Though Appointment Generally by election
Items mentioned on Dividend warrant
• Gross amount of dividend• Deduction of tax• Deduction of Zakat• Net Amount
When Change does not mean Change of Name
• Removal of Private Limited• TCS (Pvt) Limited– IF IT BECOMES Public Company it becomes TCS
Limited
• Addition of Private Limited• Unilever Pakistan Limited is a public Company– If it becomes private company it becomes Unilever
Pakistan (Private) Limited
Description Executive Directors Non Executive Directors
Normally / Generally Paid (ON payroll of Company)
unpaid
Powers Dependent to Board Independent to Board
Devotion Work -full time Normally do not work full time
Involvement in Management affairs
More Less
Directors Though Appointment Generally by election