Chief Executive Officer (CEO) of a Company in Pakistan: Appointment, Duties & Removal Guide

CEO vs Director: What the Law Actually Says About Company Leadership in Pakistan

Most people think the CEO is the ‘boss’ — but in Pakistan, the law defines the role very differently…

What the Law Says About the CEO

Under the Companies Act, 2017, the term “Chief Executive” is legally recognized as the principal officer of a company. This individual, often referred to as the CEO in common business parlance, is entrusted with substantial powers of management of the company’s affairs. It’s crucial to understand that while the Chief Executive holds a leadership position, they operate under the supervision and control of the company’s Board of Directors. The law delineates a clear distinction between the directorial oversight and the executive management functions within a company’s structure. According to legal compliance advisors, many small companies misinterpret the CEO role — putting them at risk during SECP inspections.

Why the CEO Role Matters Legally

The role of the Chief Executive is legally significant for several reasons. Firstly, it establishes a clear point of responsibility for the day-to-day operations and implementation of the board’s policies and strategies. Secondly, it defines who has the authority to represent the company in various legal and operational matters. Furthermore, the Chief Executive is accountable to the Board for the company’s performance and compliance with regulatory requirements, including those set forth by the SECP Corporate Compliance Portal, if available. While both public and private companies have Chief Executives, the scope and scrutiny of their roles might differ, with public companies often facing more stringent compliance and reporting obligations. For a deeper understanding of the Board’s oversight role, refer to Board of Directors – Constitution & Structure.

Can Anyone Become a CEO? Here’s What Pakistani Law Really Says

Not everyone can become a CEO — in fact, the law disqualifies several types of individuals…

Who Qualifies Legally

In Pakistan, the role of Chief Executive Officer (CEO) can be held by any individual, irrespective of whether they are already a member of the company’s Board of Directors. The appointment can occur through a contractual agreement or by designating an internal officer to this position. However, all individuals aspiring to be a CEO must satisfy the eligibility criteria stipulated for directors under the Companies Act, 2017. This encompasses factors ensuring their fitness and propriety to hold such a significant management role within a company.

Disqualifications to Watch

The Companies Act, 2017 also outlines specific conditions under which an individual is disqualified from being appointed or continuing as a CEO. These disqualifications largely mirror those applicable to directors and include instances such as:

• Conviction by a court for offences involving moral turpitude or financial fraud.
• Being a declared defaulter in the repayment of loans to financial institutions.
• Having been blacklisted by the Securities and Exchange Commission of Pakistan (SECP) for regulatory violations.

Legal experts often advise startups to check the director disqualification list before appointing a CEO — especially in public companies. It’s also pertinent to note that individuals must provide their consent to act as a director/CEO by filing SECP Form 28 Guide.

CEO Eligibility in Private vs Public Companies

While the fundamental eligibility and disqualification criteria apply to both private and public companies, there might be nuances in the appointment process and the level of scrutiny involved. Public companies, due to their broader stakeholder base and regulatory oversight, often have more rigorous vetting processes for CEO appointments.

Ultimately, under Pakistani law, a CEO is considered a key managerial personnel and is deemed to be a director for the purposes of certain legal obligations and fitness standards.

This foundational law regarding CEO eligibility remains consistent unless SECP issues amendments. For a better understanding of corporate structures, you might find our guide on Board Structure in Pakistani Companies useful.

CEO Appointment Process in Pakistan: First Time vs Every Time After That

Did you know your company’s first CEO doesn’t come from an election — it comes from the signatures on your memorandum? The process for appointing a Chief Executive Officer (CEO) in a Pakistani company differs depending on whether it’s the initial appointment at the time of incorporation or a subsequent appointment after the Board of Directors has been elected. Understanding these distinct procedures is crucial for compliance with the Companies Act, 2017. Legal consultants recommend preparing SECP Form 29 Guide and board resolution drafts in advance to avoid SECP late filing penalties after elections.

Appointing the First CEO at Incorporation

At the time of a company’s incorporation, the subscribers to the Memorandum of Association play a key role in the appointment of the first CEO. The process typically involves the following steps:

1. Nomination by Subscribers: The individuals who sign the Memorandum of Association usually nominate the first Chief Executive Officer. This decision is based on their initial vision for the company’s leadership.
2. Consent to Act: The nominated individual must provide their consent to act as the CEO. This consent is a formal declaration of their willingness to undertake the responsibilities of the position.
3. Filing with SECP (Form 29): The appointment of the first CEO, along with their consent, is formally notified to the Securities and Exchange Commission of Pakistan (SECP) through [SECP Form 29 Guide]. This form provides the SECP with the details of the company’s principal officer.
4. Term of the First CEO: The term of the first CEO appointed at the time of incorporation typically extends until the conclusion of the company’s first Annual General Meeting (AGM). At the AGM, the newly elected Board of Directors will then be responsible for appointing the CEO for the subsequent term.

Appointing Subsequent CEOs After Board Elections

Following the first AGM and in subsequent years, the process for appointing the CEO is the responsibility of the elected Board of Directors:

1. Board Elections: Directors are elected by the shareholders at the Annual General Meeting.
2. Board Meeting for CEO Appointment: Within 14 days of the election of the Board of Directors, the newly constituted board must hold a meeting to appoint the Chief Executive Officer. This is a critical step to ensure the company has its principal officer in place.
3. Board Resolution: The appointment of the CEO is formalized through a resolution passed by the Board of Directors during this meeting. The resolution should clearly state the name of the appointed individual and the terms of their appointment.
4. Filing with SECP (Form 29): Similar to the initial appointment, the SECP must be notified of any subsequent CEO appointments through the filing of SECP Form 29 Guide. This ensures the SECP’s records are up-to-date regarding the company’s key management personnel.
5. Term of Subsequent CEOs: The term of a CEO appointed by the Board of Directors can be up to three years, as stipulated under the Companies Act, 2017, and is eligible for renewal upon the expiry of their term, subject to the Board’s decision.

This legal process is foundational for all new and running companies. For a comprehensive understanding of setting up a company, refer to our guide on Company Incorporation Process in Pakistan.

How Long Does a CEO Serve in Pakistan? What the Law Actually Says

Think your CEO serves forever? Under Pakistani law, even the first CEO has a strict end date — and reappointments follow specific timelines. Understanding the tenure of a Chief Executive Officer (CEO) in Pakistan is crucial for maintaining compliance with the Companies Act 2017 and ensuring smooth leadership transitions.

CEO Term Duration Under Pakistani Law

The duration for which a CEO holds office in a Pakistani company varies based on the initial appointment and subsequent terms:

• First CEO: The first Chief Executive Officer, appointed by the subscribers of the Memorandum of Association at the time of incorporation, typically holds office until the conclusion of the company’s first Annual General Meeting (AGM), unless a shorter term is specified in their appointment. This initial term is formally documented when filing [Form 29 Submission Requirements].
• Subsequent CEOs: For CEOs appointed by the Board of Directors after the first AGM, the term of office is for a period not exceeding three years from the date of their appointment, as outlined under [Companies Act 2017 – Section 187 on Chief Executive](Insert Actual Link Here), if available.

Can a CEO Be Reappointed?

Yes, a CEO appointed by the Board of Directors for a regular term (up to three years) is eligible for reappointment upon the expiry of their term. The decision for reappointment rests with the Board and is usually based on the CEO’s performance and the company’s strategic needs. Corporate advisors suggest adding reappointment options in the board’s resolution language to avoid legal ambiguity at term end. The reappointment process would again involve a board resolution and the filing of the relevant form with the SECP.

What Happens If a CEO Leaves Mid-Term?

In the event of a casual vacancy arising due to the resignation, removal, or death of the CEO before the expiry of their term, the Board of Directors has the responsibility to fill the vacancy. The newly appointed CEO in such a scenario will hold office until the next election of the Board of Directors. This ensures that the company has a principal officer to manage its affairs without undue delay. The appointment to fill a casual vacancy also requires a board resolution and notification to the SECP. This should align with the [Director Election Compliance Timeline].

This guidance on CEO term and reappointment is evergreen and crucial for proper corporate governance. For further details, you can refer to SECP Corporate Law Guide – Officer Appointments.

How Are CEOs Paid in Pakistan? 3 Legal Ways You Can Compensate a Chief Executive

Should your CEO be salaried, get equity, or both? The law allows all — but here’s what each option means legally and financially. In Pakistan, the compensation structure for a Chief Executive Officer (CEO) can take various forms, each with its own legal and financial implications. The Board of Directors, or the company in a general meeting as dictated by the Articles of Association, holds the authority to determine the CEO’s remuneration. According to corporate lawyers, equity-based CEO compensation must be carefully structured to avoid dilution disputes and maintain tax compliance.

CEO on a Salary (Contract of Service)

The most straightforward method of compensating a CEO is through a contract of service, which specifies a fixed salary, often paid monthly. This arrangement treats the CEO as an employee of the company.

• Legal Basis: The employment relationship is governed by the terms of the service contract and general labor laws of Pakistan, in addition to the Companies Act, 2017.
• SECP Compliance: The consent to act as a CEO, filed via [Form 28 – Consent to Act as Director/CEO], and the Board Resolution approving the appointment typically outline the salary terms for SECP’s record.
• Tax Implications: The salary is subject to income tax under the prevailing tax laws of Pakistan.
• Voting Rights/Dividends: A salary-based compensation does not automatically grant the CEO voting rights or eligibility for dividends unless they also hold shares in the company through separate means.

CEO with Share-Based Compensation

Equity-based compensation involves granting the CEO shares in the company or options to purchase shares at a future date. This aligns the CEO’s interests with those of the shareholders, incentivizing long-term growth.

• Legal Basis: This form of compensation must be permitted by the company’s Articles of Association and is usually approved by the Board and, in some cases, by the shareholders in a general meeting, especially if it involves a significant portion of the company’s equity.
• SECP Compliance: The details of share-based compensation, including the number of shares or options granted, vesting schedules, and exercise prices (if applicable), should be documented in the Board Resolution and any related agreements, which SECP may review.
• Tax Implications: The tax treatment of share-based compensation can be complex and may involve taxation at the time of grant, vesting, or sale of shares, according to the [Tax Implications for Equity Compensation – FBR](Insert Actual Link Here), if available.
• Voting Rights/Dividends: If the CEO receives actual shares, they become eligible for voting rights and dividends associated with those shares. Share options, however, do not confer these rights until the options are exercised and converted into shares.

Mixed Compensation Models (Salary + Equity)

A hybrid approach combines a fixed salary with equity-based incentives. This model aims to provide a stable income while also aligning the CEO’s interests with the long-term success of the company.

• Legal Basis: The legal framework for both salary and equity components applies as described above. The terms of the hybrid compensation package are typically detailed in the CEO’s service contract and the relevant Board Resolutions.
• SECP Compliance: All components of the compensation package must be clearly mentioned in the Form 28 – Consent to Act as Director/CEO and the Board Resolution.
• Tax Implications: Both the salary and any gains from equity (e.g., upon selling shares) are subject to relevant tax laws.
• Voting Rights/Dividends: Voting and dividend rights are tied to actual share ownership, not the salary component of the compensation.

This legal structure for CEO compensation remains constant, although share valuation can fluctuate. For clarity on CEO appointment, refer to CEO Eligibility Rules and Board Meeting Resolution Guide.

CEO Responsibilities in Pakistan: What You’re Legally Required to Do

Think the CEO makes all the decisions? Under the law, they follow the Board’s lead — and here’s exactly what they’re legally required to do. While the Chief Executive Officer (CEO) is at the helm of a company’s day-to-day management, their authority and responsibilities are legally defined and operate under the supervision of the Board of Directors, as mandated by the Companies Act, 2017. According to SECP guidance, CEOs are the executing hands of the Board — they cannot act beyond delegated powers even if operationally independent.

CEO’s Day-to-Day Management Role

The primary role of the CEO is to oversee the company’s daily operations and implement the strategic directions set by the Board. This includes:

• Managing the company’s resources, including financial, human, and material assets.
• Developing and executing business plans and strategies to achieve the company’s objectives.
• Leading and supervising the management team and employees.
• Making operational decisions within the scope of authority delegated by the Board.
• Representing the company in its dealings with external stakeholders, such as customers, suppliers, and regulatory bodies.

Statutory Duties Under the Companies Act

The Companies Act, 2017, imposes several specific legal responsibilities on the CEO:

• Filing Legal Forms: The CEO is often responsible for signing and filing various statutory forms with the SECP on behalf of the company, as outlined in Legal Filing Obligations – SECP Forms Overview.
• Authentication of Financial Statements: After the Board’s approval, the CEO is typically required to authenticate the company’s financial statements before they are presented to the shareholders and regulatory authorities.
• Ensuring Dividend Payouts: The CEO plays a crucial role in ensuring that dividends declared by the Board are duly paid to the shareholders in accordance with the law and the company’s policies.
• Compliance with Board Directives: It is the CEO’s fundamental duty to act under the control and direction of the Board of Directors and to implement their policies and resolutions.

Extra Obligations for CEOs in Public Companies

CEOs of public companies often face additional scrutiny and obligations due to the wider public interest involved:

• Enhanced Reporting Requirements: Publicly listed companies have more stringent reporting obligations to the SECP and the stock exchange, and the CEO is instrumental in ensuring these are met accurately and timely.
• Investor Relations: CEOs of public companies play a significant role in communicating with investors and maintaining transparency about the company’s performance and prospects.
• Corporate Governance Standards: Adherence to higher standards of corporate governance is expected, and the CEO is a key figure in promoting and ensuring these standards are followed throughout the organization.

These duties are codified under law and remain constant. For a clearer understanding of the division of power, refer to Board vs CEO – Powers Divided. You can also find relevant information in SECP Guidelines for Corporate Officers.

CEO? You Can’t Do These 3 Things Under Pakistani Law

Being a CEO comes with power — but also legal limits. Break these rules, and the SECP or courts can remove or penalize you. While the Chief Executive Officer (CEO) holds a leadership position, Pakistani company law, particularly for public companies, places specific restrictions on their actions to ensure they act in the best interests of the company and its shareholders. The CEO, being a fiduciary, has a legal obligation of trust and must avoid conflicts of interest, adhere to disclosure norms, and uphold their fiduciary duties diligently.

Conflict of Interest in Public Companies

CEOs, especially of public companies, must not engage in any business that directly competes with the company they lead. Having a “direct or indirect interest” in a competing entity is strictly prohibited unless disclosed in writing to the Board of Directors and approved by them. Legal experts warn that CEOs of public companies often violate this clause unintentionally — failing to disclose even passive interests in family-owned competitor firms. This restriction aims to prevent CEOs from prioritizing their personal interests over the company’s welfare.

Disclosure Obligations for the CEO

Transparency is paramount in corporate governance. The CEO has a legal duty to disclose any potential conflicts of interest or any direct or indirect interest in any contract or arrangement with the company. This disclosure must be made in writing to the Board and is crucial for maintaining ethical standards and legal compliance, as per SECP Guidelines on Director & CEO Disclosures, if available. Failure to disclose such interests can lead to severe penalties and may be viewed as a breach of their fiduciary responsibilities.

Breach of Fiduciary Duty and Legal Risks

As a fiduciary, the CEO must act honestly, in good faith, and with due diligence in the best interests of the company. Misusing company assets for personal gain, making decisions that benefit themselves at the expense of the company, or failing to act with reasonable care can be considered a breach of fiduciary duty. Such breaches can result in legal action by shareholders or regulatory intervention by the SECP, potentially leading to the CEO’s removal and other penalties.

These core legal duties are evergreen and essential for maintaining trust and compliance. For more information on potential removal scenarios, refer to CEO Removal Rules. You should also be aware of Related Party Disclosure Obligations.

CEO Removal in Pakistan: Who Has the Power and How It Works Legally

Think a CEO can only be removed by the board? Under Pakistani law, even shareholders, the SECP — and the courts — have removal power. The removal of a Chief Executive Officer (CEO) in Pakistan is a legally defined process that can be initiated by various authorities under specific circumstances, as outlined in the Companies Act, 2017. According to company law consultants, boards often avoid court disputes by passing timely resolutions and ensuring SECP is updated via Form 29.

CEO Removal by the Board of Directors

The Board of Directors holds the primary authority to remove a CEO. The process typically involves:

• Trigger Conditions: Removal can occur due to reasons such as breach of contract, incompetence, violation of company policy, or loss of confidence.
• Voting Threshold: A resolution for the removal of the CEO usually requires a majority vote of the directors present. However, some Articles of Association may specify a higher threshold. For significant cases, a 3/4th of total directors majority might be sought for stronger legal backing.
• Legal Formality: The removal is formalized through a Board Resolution Drafting Guide passed in a duly convened board meeting. The SECP must be notified of this change by filing Form 29 – SECP Officer Update Filing.

Removal by Members Through Special Resolution

Shareholders also possess the power to remove a CEO, albeit through a more formal process:

• Trigger Conditions: Members may seek the removal of a CEO if they have lost confidence in their leadership or believe it’s in the company’s best interest.
• Voting Threshold: Removal by members requires a special resolution passed in a general meeting, which necessitates the support of at least 75% of the votes cast.
• Legal Formality: The resolution passed at the general meeting, along with the minutes of the meeting, must be filed with the SECP via Form 29 – SECP Officer Update Filing.

Removal by SECP or Government

In specific scenarios, the Securities and Exchange Commission of Pakistan (SECP) or the Government may have the authority to remove a CEO, particularly in companies where the government holds a majority stake:

• Trigger Conditions: This usually occurs in cases of severe mismanagement, fraud, or actions detrimental to public interest.
• Voting Threshold: If the government holds 75% or more shares, it can issue an official notification for the removal of the CEO. The SECP can also initiate removal proceedings based on regulatory violations.
• Legal Formality: The removal is enacted through an official notification issued by the SECP or the relevant government agency.

Court-Ordered CEO Removal (on SECP Application)

The High Court can order the removal of a CEO based on an application filed by the SECP:

• Trigger Conditions: The SECP typically applies to the court in cases of serious misconduct, breach of fiduciary duties CEO Fiduciary Breach Clause Reference, or where the CEO’s actions are deemed prejudicial to the interests of the company or its shareholders.
• Voting Threshold: This is not based on voting but on the court’s assessment of the evidence presented by the SECP.
• Legal Formality: The removal is executed through a judicial order issued by the High Court.

These removal mechanisms are law-backed and consistently applicable. For guidance on shareholder meetings, refer to our General Meeting Compliance Guide.

Why the CEO Is the Legal Signature of Every Company

In law, the CEO is more than a manager — they’re the company’s signature, voice, and front-facing officer in every major transaction. While the Chief Executive Officer operates under the strategic guidance and control of the Board of Directors, they stand as the principal officer and the primary legal face of the company to the courts, regulatory bodies like the SECP, financial institutions, and its shareholders. Legal analysts consider the CEO position one of ‘regulated trust’ — held by one but answerable to many, including the board, SECP, and shareholders.

Several key aspects underscore this critical legal and operational role. The appointment and removal of a CEO are formal legal processes governed by specific timelines and procedures. The structure of their remuneration, whether through a service contract, equity stakes, or a hybrid model, carries distinct legal and tax implications that must be carefully documented. Beyond their executive functions, CEOs bear significant legal duties, and any violation of these duties or failure to disclose conflicts of interest can lead to severe legal repercussions.

Ultimately, the CEO serves as a crucial bridge between the policy-making authority of the Board and the on-the-ground execution by the company’s teams. Their actions and decisions carry the weight of the company’s legal and operational integrity. You can find more information on the definition of a principal officer in the SECP Officer Definition – Companies Act Glossary, if available. Remember the legal processes for CEO Appointment Process and the CEO Removal Legal Guide, both of which require adherence to SECP Form 28 and 29 Requirements.