Pakistan study notes for Matric, Intermediate, B.A, B.COM BSC, M.A, BCS. Free Pakistani Urdu educational school, colleges and University notes.



Unlike sole proprietorship and partnership, the management of the company is separate from ownership. The company is not run by its shareholders. Although the company is an artificial being and enjoys its own legal entity, it cannot act by itself. It needs some humans to run it. These humans are directors who are elected by the shareholders of the company on the basis of one share, one vote. These directors are thus representatives of the shareholders and form board of directors. The board and other hired managers are collectively known as the management of the company that is responsible for running its operations.



A director is a person who is responsible to guide, direct, and manage the operations of a company.

A private company must have at least two directors, and a public company at least seven directors. It is important to note that only individuals can be appointed as directors. Under the Companies Ordinance, the articles allow to increase or decrease the number of directors on the board up to a certain limit, beyond which an approval of the federal government should be sought.


The following persons can he appointed directors (liable to retire by rotation) of the company.

1. Managers or employees of the managing agent

2. Associates of the managing agent

3. Managers and employees of the subsidiary company

4. Persons sharing in the remuneration


A person cannot be a director if:

1. He is insane.

2. He has applied to be adjudged a bankrupt.

3. He has been adjudged a bankrupt

4. He is convicted by the court of law of any moral offence and is sentenced to imprisonment for six months or more.

5. He already holds directorship of twenty public companies.

6. He has attained the age of 65 years.


The Managing Director

Companies Ordinance 1984 defines managing director as “a director who, by virtue, of an agreement with the company or of a resolution passed by the company in general meeting or by its board or by virtue of its memorandum or articles of association is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called, lie will be subject to the control of the board of directors.” In simple language a managing director is a person who possesses substantial (strong, solid) powers of management to run the company. I le can be appointed by any of the following methods.


1. By an agreement with the company.

2. By a resolution passed in the general meeting of the shareholders.

3. By a resolution passed by the hoard.

4. Memorandum of association can specify the name of a person as managing director.

5. Articles of association can also mention the name of a person as managing director.

A managing director is appointed for a period not exceeding five years at a tune. He may be reappointed every time for five years, lie can act as managing director not for more than two companies at a time. In case of second he should have unanimous approval of the board of directors.


Shareholders/ Members

Members of the company are known as shareholders. A person can get membership of the company in the following manners.


1. By subscribing to the memorandum

A person who is the subscriber to the memorandum is committed to take a certain number of shares, and becomes the member of the company at the time of registration of the company.


2. By Registration

A person whose name appears in the register of the members/shareholders will be a member of the company.


Registration of a person as a member results from the following.


(i) By application

A person who applies for and is allotted a certain number of shares becomes a member of the company and his name is entered in the register of members.


(ii) By transfer of shares

When a person buys shares from the existing member and has the transfer registered, his name, then, appears in the register of the members.


(iii) By inheritance

If the heir of a deceased member gets the share transferred and registered he, then, becomes the member of the company.


(iv) By acquiescence

If a person allows his name to appear on the register he becomes the member of the company.

It must be noted that the liability of the shareholders/members of the company is limited to the amount of shares held by him. He is entitled to the dividends, bonus shares, and right shares at the rate declared by the board of directors of the company.

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