CEO & their Appointment under Companies Act 2013

Chief Executive Officer (C.E.O.) And Their Appointment Under The Companies Act 2013

A chief executive officer (CEO), or just chief executive (CE), is the most senior corporate, executive, or administrative officer in charge of managing an organization – especially an independent legal entity such as a company or non-profit institution.

The CEO of a corporation or company typically reports to the board of directors and is charged with maximizing the value of the entity, which may include maximizing the share price, market share, revenues or another element. In the non-profit and government sector, CEOs typically aim at achieving outcomes related to the organization’s mission, such as reducing poverty, increasing literacy, etc.

In the early 21st century, top executives typically have technical degrees in science, management, engineering or law.

The responsibilities of an organization’s CEO are set by the organization’s board of directors or other authority, depending on the organization’s legal structure. They can be far-reaching or quite limited and are typically enshrined in a formal delegation of authority. Typically, responsibilities include being a decision maker on strategy and other key policy issues, leader, manager, and executor.

 As they have such important role in a company, their appointment is covered under the Companies Act, 2013. Let’s us go through the important aspects as well as procedure for appointment of Chief Executive Officer (C.E.O.).

Who is Chief Executive Officer (C.E.O.)?

As per the Companies Act, 2013 Chief Executive Officer (C.E.O.) means an officer of a company, who has been designated as such by it.

The Companies Act, 2013 does not defines the qualification, experience or term or conditions for Chief Executive Officer (C.E.O.). Nor its does defines the role, functions, term and conditions, etc to be strictly adhered by Chief Executive Officer (C.E.O.).

Hence, it is purely the discretion of management of company what their qualifications, experience, roles or functions. Though it may be notes that it should be clearly set out in appointment letter to be furnished by company to appointee Chief Executive Officer (C.E.O.).

Why are they appointed in a company?

A Chief Executive Officer (C.E.O.) of a company typically aim at achieving outcomes related to the organization’s mission, such as reducing poverty, increasing literacy, etc.

Different Countries have their different definition and powers lying there is no universal roles defined for Chief Executive Officer (C.E.O.) and different qualification to criteria for eligibility.

Which companies are required to appoint a Chief Executive Officer (C.E.O.)?

As per section 203 of the Companies Act, 2013 a Chief Executive Officer (C.E.O.) is considered as Key managerial Personnel. And below given companies are required to appoint a Chief Executive Officer (C.E.O.): –

1. Every listed company

2. every other public company having a paid-up share capital of ten crore rupees or more.

What laws governs the appointment of Chief Executive Officer (C.E.O.)?

The appointment and other related provisions for appointment of Chief Executive Officer (C.E.O.) are:-

1. The Companies Act, 2013

2. SEBI (Listing Obligations and Disclosure requirements) Regulations, 2015.

Is Chief Executive Officer (C.E.O.) is considered as Key Managerial personnel (KMP)?

As per the Companies Act, 2013, Every listed company and every other public company having a paid-up share capital of ten crore rupees or more are required to appoint Chief Executive Officer (C.E.O.) as Key managerial personnel (KMP).

As per interpretation if any company not falling in above category or ambit, a Chief Executive Officer (C.E.O.) are not required to appointed. Though, a company can voluntary comply with this provision.

For how long a Chief Executive Officer (C.E.O.) can serve in a company?

A Chief Executive Officer (C.E.O.) can be appointed for any number of years, it totally depends upon the management and already included in the appointment letter of Chief Executive Officer (C.E.O.) stating his term, reasons for cessation etc.

What is the process to appoint a Chief Executive Officer (C.E.O.)?

The following process is followed for appointment of Chief Executive Officer (C.E.O.): –

1. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting for candidate consideration for appointment as Chief Executive Officer (C.E.O.).

2. Sending of Notice along with Agenda of Board meeting to all the Directors of company.

3. Convene board meeting and pass the following Board Resolution.

4. Sending of Outcome of Board Meeting to Stock exchange wherever company’s securities are listed within 30 minutes from the conclusion of meeting. (this point is applicable for listed companies only)

5. Issue letter of appointment to the candidate for their appointment as Chief Executive Officer (C.E.O.).

6. File e-Form MGT-14 and DIR-12 along with attachments with the Registrar of Companies regarding appointment of director and simultaneously as a Chief Executive Officer (C.E.O.) within thirty (30) days from appointment as Chief Executive Officer (C.E.O.).

7. Sending of Appointment letter to Chief Executive Officer (C.E.O.) and entry in register, minute books, etc of company.

What are the forms to appoint a Chief Executive Officer (C.E.O.) in a company?

Only two (2) forms are required for appointment of Chief Executive Officer (C.E.O.) and these are:-

1. DIR-12 within thirty (30) days

2. MGT-14 within sixty (30) days

What if Chief Executive Officer (C.E.O.) resigns from the company?

There are many times when a situation arises that a Chief Executive Officer (C.E.O.) wants to resign from the company, whatever the reason maybe.

If a Chief Executive Officer (C.E.O.) resigns, she/he can anytime resign from the company after giving a notice as well as reason. The company will take the required steps for such resignation.

It should be noted that the resulting vacancy shall be filled-up by the Board at a meeting of the Board within a period of six months from the date of such vacancy.

What are the documents required for appointment of Chief Executive Officer (C.E.O.)?

The following documents are required: –

1. Intimation letter to stock exchange along with Brief profile of proposed C.E.O.

2. Copy of Board Resolution for Board Meeting.

3. Consent letter of proposed Chief Executive Officer (C.E.O.)

4. Appointment letter.

5. Any other as required.

What if company fails to appoint a Chief Executive Officer (C.E.O.)?

Any company which is mandatorily required to appoint a Chief Executive Officer (C.E.O.) if don’t appoint, such company shall be liable to a penalty of five lakh rupees and every director and key managerial personnel of the company who is in default shall be liable to a penalty of fifty thousand rupees and where the default is a continuing one, with a further penalty of one thousand rupees for each day after the first during which such default continues but not exceeding five lakh rupees.

Disclaimer: – The above article is prepared keeping in mind all the important and basic question as well as provision of section 203 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while company doing appointing a Chief Executive Officer (C.E.O.) in a company. The author has tried to cover all the important and basic question. Under no circumstance, the author shall not liable for any direct, indirect, special or incidental damage resulting from, arising out of or in connection with the use of the information.

(The Author is Corporate Consultant and provides varied array of services including Start-ups mentor, Secretarial, Legal, Trademark, taxation, Audit, GST, Book keeping and other ancillary advisory service in Delhi, Chandigarh as well as The National Capital Region (NCR) and can be contacted through email id:- triptishakyacs2017@gmail.com and Contact Number: 91-8178515005)