Chapter 10 Investments and Disclosures of Interests Flashcards
(40 cards)
When must a director disclose their interest in a contract?
If directly or indirectly interested (including spouse, child, or parents).
When should the disclosure of interest in a contract be made by a director?
- At the meeting where the contract is first considered.
- At the next meeting if the director becomes interested after the first consideration.
What are the prohibitions for board meetings for a director with an interest in a contract?
- Cannot participate in discussion.
- Cannot be counted for quorum.
- Cannot vote.
- Cannot be present in the meeting (for listed companies).
What is a general notice for a director’s interest?
A declaration given in advance regarding the director’s interest in transactions with an entity.
What is the validity of a general notice of interest?
- Expires at the end of the financial year.
- A fresh notice must be given in the last month of the financial year.
What does investment include?
- Equity investments.
- Loans
- Advances.
- Guarantees.
What is not considered an investment?
Normal trade credit.
What is an associated company?
A company is associated if:
1. A person is a common owner of two or more businesses.
- A person is a partner in two or more partnership businesses.
- A person is a director in two or more companies.
- A person holds or controls shares carrying not less than 20% of the voting power in two or more companies.
- Companies or undertakings are under common management or control, or one is the subsidiary of another.
- The undertaking is a modarba managed by the company.
What shares are considered when determining associated company?
Shares held personally, by a spouse or minor child are counted.
What are the exceptions to the definition of an associated company?
- Independent directors.
- Directors nominated by the government.
- Shares held by the National Investment Trust or financial institutions owned by the government.
- Shares held by a central depository.
What are the conditions for a public company to invest in an associated company?
- Approval by special resolution (stating terms and conditions).
- If it is a loan or advance:
a. Written agreement stating terms and conditions.
b. Rate of return not below borrowing cost.
c. Return must be recovered regularly.
d. Certificate by directors on due diligence. - Any changes in terms and conditions require another special resolution.
What are the exceptions to the requirement for investing in the company’s own name?
- To ensure the minimum number of members.
- Nominee directors (holding qualification shares).
- Central depository company.
What records must be maintained for investments not in the company’s name?
A register of investments not in the company’s name, containing the nature, value, and other particulars.
Who can inspect the investment not in the company name register?
- Members (free of cost).
- Others (on payment of a fee).
- Registrar’s intervention if inspection is refused.
How soon must a company provide a copy of the investment register to a member?
Within 7 days of request (upon payment of a fee).
Who is considered a related party?
- An associated company.
- A director, key manager, or their relative.
- A firm or company in which a director, key manager, or relative is a partner, member, or director.
- A company whose chief executive acts on the instructions of a director or key manager (and vice versa).
Who qualifies as a relative for related party transactions?
- Spouse.
- Siblings.
- Ascendants (parents, grandparents).
- Descendants (children, grandchildren).
What are the common types of related party transactions?
- Sale or purchase of goods or services.
- Sale, purchase, or lease of property.
- Appointment as a sales/purchase agent or to an office of profit.
What is an office of profit?
A position where a director receives remuneration or benefits, excluding board fees.
What are the approval requirements for related party transactions?
Approval as per board policy, except when:
1. The transaction is in the ordinary course of business.
2. The transaction is conducted on an arm’s length basis.
When is a special resolution required for related party transactions?
If a majority of directors are interested in the transaction.
What records must be maintained for related party transactions?
- Proper transaction records.
- Disclosure in the directors’ report, along with justification.
What is the status of a contract with a related party if it is not approved?
Voidable at the option of the Board if not ratified within 90 days.
What happens if a relative is involved in an unapproved transaction?
The concerned directors must indemnify the company against any loss.
