This article aims to clarify the process of appointing Key Managerial Personnel (KMPs) in companies planning to launch an Initial Public Offering (IPO). There have been instances where companies have KMPs but fail to designate them as such when filing the Draft Red Herring Prospectus (DRHP). The purpose of this article is to outline the requirements for appointing KMPs in different types of companies.
Understanding KMPs as per the Companies Act, 2013
Key Managerial Personnel (KMP), as defined under Section 2(51) of the Companies Act, 2013, includes:
- Chief Executive Officer (CEO), Manager, or Managing Director
- Company Secretary
- Whole-Time Director
- Chief Financial Officer (CFO)
- Any other officers designated as KMP by the Board, provided they are not more than one level below the directors in full-time employment
- Other officers as may be prescribed
Provisions Related to KMP Appointment
Section 203 of the Companies Act, along with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, mandates that certain categories of companies appoint KMP, including the CEO or Manager, Company Secretary, and CFO. If a company does not have a CEO, Manager, or Managing Director, it must appoint a whole-time director.
Mentioned below is a brief synopsis of the companies that are required to appoint KMP
| Appointment of KMP | Public Company | Private Company | |||
| Listed | Unlisted Public Company having a paid-up share capital more than Rs. 10 cr | Unlisted Public Company having a paid-up share capital less than Rs. 10 cr | Paid up capital more than Rs. 10 cr | Paid up capital less than Rs. 10 cr | |
| Appointment of Company Secretary | ✓ | ✓ | x | ✓ | x |
| Appointment of CFO | ✓ | ✓ | x | x | x |
| Appointment of CEO/WTD/ Manager | ✓ | ✓ | x | x | x |
To note the requirement for appointing a CFO and other key managerial persons is different as compared to the appointment of Company Secretary.
For private companies preparing for an IPO, the appointment of a CFO/ CEO/WTD/ Manager may be optional if the company has a paid-up capital of less than ₹10 crore, as mentioned in above mentioned table. However, if the Articles of Association (AoA) require such appointments, the company must comply.
In the instance wherein a private company plans to go public, it is strongly advised to designate the required KMPs (specifically CFO, CEO, WTD, or Manager) before filing the DRHP. This ensures that the company is compliant from day one after its listing. The Book Running Lead Managers (BRLMs) to the issue typically recommend appointing KMPs in advance to ensure the filing of Form DIR-12 with the Registrar of Companies (ROC) is within the statutory timelines under the Companies Act, 2013.
Appointment of Company Secretary on the other hand is mandatory for:
- Private companies with a paid-up capital of ₹10 crore or more
- Unlisted public companies with a paid-up capital of ₹10 crore or more
- Listed companies
However for private companies with a paid-up capital of less than ₹10 crore or unlisted public companies with a paid-up capital of less than ₹10 crore, may or may not appoint a Company Secretary subject to the Articles of Association of the company.
This article aims to provide clarity on the process of appointing KMPs. Companies, especially those preparing for an IPO, must ensure that they meet the necessary KMP appointment requirements to avoid non-compliance issues from the outset.
We hope this provides a clearer understanding of the KMP appointment process. Glad to engage with the readers and gather their perspective.
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