Procedure and/or regulations or compliance for appointment of managing director differs on the basis of class
of company i.e. private company/unlisted public company/ listed public company.
Appointment
of Managing Director in a Private Company:
Applicable
Laws: Section 269 of the Companies Act, 1956 under
which managing directors are appointed in a company in general is not
applicable on a private company. At the time of appointing managing director in
a private company the article of association (AOA) of the company and section
2(26) of the Companies Act, 1956 need to be checked.
Procedure
of Appointment: If there is no article mentioned in
the AOA governing appointment of managing director in the private company, As
per section 2(26) of the Companies Act, 1956 the Managing Director may be
appointed in any of the following ways:
1.
By an agreement with the company; or
2.
By passing a Board Resolution;
3.
By passing a shareholders’ resolution.
E-Forms to be filed: Form 32 &
Form 23
Appointment of Managing Director in an
unlisted public company:
Applicable Laws: section 2(26), 269,
198, 309, 310 & Schedule XIII of the Companies Act, 1956 and provision of
article of AOA, if there is any.
Procedure of Appointment: It is mandatory
for a public company having Rs. 5 Cr. paid-up capital to appoint a managing
director/whole time director/ manager on board. Whether the company is
appointing managing director to fulfill this mandatory requirement or as per
the requirements of the company the procedure for appointment will be same. The
important criteria upon which the procedure of appointment of managing director
depends in an unlisted public company is the remuneration to be paid. The
company is having adequate profit or not that need to be calculated as per
schedule XIII, then the slab in which the remuneration of managing director
needs to be checked and accordingly ordinary or special resolution shall be
passed and the period of office of managing director will also be decided as
per schedule XIII in case of no/inadequate profits in the Company.
After
recent notification of ministry of corporate affairs on 8th
February, 2011 no central government’s approval is required for an unlisted
public company (which is not a subsidiary of a listed company) if all the other
conditions of schedule XIII have been fulfilled by the company.
E- Forms to be filed: Form 23, Form 32
& Form 25C or Form 25A
Appointment of Managing Director in listed
public company:
Appointment
of Managing Director in a listed public company is same as in unlisted public
company with the exception that after the notification of 8th
February, 2011 by MCA, central government is required as per schedule XIII in
case of listed public company which is not there, if all the other provisions
of schedule XIII have been applied in case of unlisted public company.
Board Resolution for appointment of Managing Director:
“RESOLVED THAT pursuant
to the provisions of Section 198, 269, 309 and 310 and all other applicable
provisions, if any, of the Companies Act, 1956 (hereinafter called as “the
Act”) and subject
to the approval of members at the Annual General Meeting of the company the consent of the Board be
and is hereby accorded for the appointment of Mr. ABC as Managing Directors of
the Company for a period of X years w.e.f. ------, upon and subject to the
terms and conditions including the remuneration payable as set out and
contained in the agreement to be entered between the Company and Mr. ABC, a
draft whereof is placed before the meeting and for the purpose of
identification by the Chairman hereof.
RESOLVED
FURTHER THAT in the event of loss, absence or
inadequacy of profits in any financial year of the Company, the remuneration
payable to Mr. ABC shall be as specified below:
(i) Salary:
Rs. ------/-(Rupees ------ Only) per month.
(ii) Perquisites and allowances:
(a)
In addition to the salary payable, the appointee shall be entitled to
perquisites and allowance like accommodation (furnished or otherwise) or house
rent allowance in lieu thereof; house maintenance allowances together with
reimbursement of expenses or allowance for utilities such as gas, electricity,
water, furnishing, repairs, society charges, property tax, medical reimbursement,
medical/accident insurance, leave travel concession for himself and his family;
club fees and other perquisites and allowances in accordance with rules of the
Company or as may be agree to by the Board of Directors and the Managing
Director.
(b)
For the purposes of calculating the above ceiling, perquisites and
allowances shall be evaluated as per Income-tax Rules, wherever applicable. In
the absence of any such Rules, perquisites and allowances shall be evaluated at
actual cost.
(c)
Company’s contribution to Provident Fund and Superannuation Fund or
Annuity Fund, to the extent these either singly or together are not taxable
under the Income Tax Act, gratuity payable as per rules of the Company and
encashment of leave at the end of the tenure shall not be included in the
computation of limits for the remuneration or perquisites aforesaid.
(d)
The total remuneration including
salary, perquisites, allowances (other than exempted perquisites and allowance)
and other monetary benefits shall not exceed the maximum ceiling of Rs. -------/-
per month.
(iii) Minimum Remuneration:
Notwithstanding anything to the contrary herein
contained, where in any financial year during the currency of the tenure of the
Managing Director, the Company has no profits or its profits are inadequate,
the Company will pay remuneration by way of salary and perquisites and
allowances as specified above.
(iv) General
Terms & Conditions:
(a) The terms
and conditions of the said appointment and/or agreement may be altered and
varied from time to time by the Board as it may, in its discretion, deem fit
within the maximum amount payable to the Managing Director in accordance with Schedule
XIII to the Act or any amendments made hereafter in this regard.
(b) The
appointment may be terminated by either party giving the other party Y months
notice, or the Company paying Y months salary in lieu of the notice.
(c) If at
any time the Managing Director ceases to be a Director of the Company for any
cause whatsoever, he shall cease to be the Managing Director of the Company.
Resolved Further that Mr. ABC subject to the provisions of
Section 255 of the Companies Act, 1956 shall not be liable to retire by
rotation during his tenure as Managing Director Chairman of the Company.
Resolved Further that the Board of Directors be and is hereby
authorized to do all such act, deeds, matters and things as may be considered
necessary, desirable or expedient for the purpose of giving effect to this
Resolution.”
Shareholders Resolution for appointment of Managing Director:
“RESOLVED THAT pursuant to
section 198, 269, 309, 310 and other applicable provisions, if any, of the
Companies Act, 1956, read with Schedule XIII to the said Act as amended from
time to time, the consent of the Members be and is hereby accorded to the
appointment of Mr. ABC as Managing Director of the Company for the period of X
years w.e.f. ------, upon and subject to the terms and conditions including the
remuneration proposed to be paid and as contained in the agreement to be
entered between the Company and Mr. ABC, a draft whereof is placed before the
meeting and initialed for the purpose of identification by the Chairman
hereof.
RESOLVED FURTHER THAT in the event of
loss, absence or inadequacy of profits in any financial year of the Company,
the remuneration payable to Mr. ABC shall be as specified in the Explanatory
Statement enclosed herewith.
RESOLVED FURTHER THAT Mr. ABC subject
to the provisions of Section 255 of the Companies Act, 1956 shall not be liable
to retire by rotation during his tenure as Managing Director of the Company.
RESOLVED FURTHER THAT the Board of
Directors be and is hereby authorized to do all such act, deeds, matters and
things as may be considered necessary, desirable or expedient for the purpose
of giving effect to this resolution.”
For
further information on appointment of managing director or draft of agreement
for appointment of managing director you may contact the writer at nikita.1.singh@gmail.com
·
The information given in
this blog is the personal understanding of the writer and shall not be used as
a conclusive material. The content stated/mentioned here is subject to changes
by respective government/authorities in the applicable laws. The writer shall not be liable for any direct or indirect
damages caused to any person acting solely on/based upon the information
provided herein.
