Is a Company Required to Have Three Individuals as KMP?

Introduction: Key Managerial Personnel (KMP) are pivotal figures in a company’s management structure, guided by Section 203 of the Companies Act, 2013. This article delves into following crucial questions about KMP appointments, focusing on the necessity of having three individuals:

a) Whether a person can appoint KMP on more than one position?

b) Whether it is mandatory to have three individuals as KMP?

c) Whether only one person can hold two or three positions as KMP in same Company?

Example: Whether a person can be appoint as MD as well as Company Secretary.

Whether a person can be appointed as CS as well as CFO?

Brief about Section 186:

Key Managerial Personnel (KMP) refers to individuals who hold significant positions in a company and play a crucial role in its management and decision-making processes. These individuals are responsible for implementing the company’s strategies, ensuring compliance with regulatory requirements, and safeguarding the interests of stakeholders. The appointment, roles, and responsibilities of KMP are governed by specific provisions outlined in the Companies Act and other applicable regulations, emphasizing the importance of their role in corporate governance and effective management.

Legal Provision:

Every listed company and every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key managerial personnel.

i. managing director, or Chief Executive Officer or manager and in their absence, a whole-time director.

ii. Company Secretary; and

iii. Chief Financial Officer:

KEY TAKE AWAY FROM SECTION:

As per this section if public Company having paid up share capital more than 10 Crore, then it is mandatory to appoint key managerial personal. KMP can be CS, CEO, CFO, MD, WTD and Manager.

Understanding from point of view of Individual:

i. In legal contexts, “personnel” typically refers to the individuals who work for a particular organization or entity and the department responsible for overseeing their employment-related activities.

ii. In legal contexts, “Whole Time Employee” Key Managerial personnel are whole-time employees of the Company.

iii. In legal context, word “AND” Section 203(1) has specifically use word AND between all three positions.

iv. In legal context, word “Signing Power” Each individual possesses a unique signing potential. Like: if somewhere mentioned that this document is required to sign from MD and Company Secretary. It would then be impossible to obtain a signature from a single individual. (Signing of Financial Statement)

Reasons why an individual should not hold more than one position;

Based on the aforementioned point, it appears that distinct individuals ought to occupy distinct positions. Yet, there are numerous more reasons for employing individuals in a variety of positions.

Duty of Each Person:

Because of the expected nature of KMP’s work and the fact that they will be appointed to full-time positions, it’s safe to say that the Act probably didn’t intend for one person to do multiple things all the time. In addition, the reasoning behind the need to designate particular key management persons (KMP) on a permanent basis (only in certain types of businesses) is that a firm with extensive operations should have a diversified team carrying out critical and significant tasks.

Example:

Company Secretary is responsible for the Legal and Corporate Law Compliances of Company, conducting of Board and General Meeting etc.

Managing Director: The Managing Director (MD) of a company typically holds a key executive position responsible for overseeing the day-to-day operations and strategic direction of the organization.

Chief Financial Officer: The Chief Financial Officer (CFO) of a company holds a critical executive position responsible for overseeing the financial activities and strategies of the organization.

Upon reviewing the aforementioned arguments, one may conclude that Section 203 of the 2013 Companies Act mandates the presence of a minimum of three individuals in the capacity of KMP.

• Among them, a CS should be one.
• One ought to serve as CFO.
• The alternative could be MD/Manager/CEO/WTD.

However, in the case where three individuals hold KMP positions, they are permitted to hold multiple positions simultaneously, such as one individual holding CS in addition to Whole Time Director, CEO, and MD.

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Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com).