Key Managerial Personnel under Companies Act, 2013

Every company has top managerial personnel who takes decision and are responsible for the functioning as well as growth of company. The bigger company the bigger responsibility of Board of Directors. In such a scenario, number of actions and functions are performed in a company on daily basis and for more smooth execution, Board of Directors appoints some officers who are expert in their field depending upon the scope of company. For example, Board appoints officers like:

1) Chief Executive Officer (CEO)

2) Manager

3) Managing Director (MD)

4) Company Secretary (CS)

5) Chief Financial Officer (CFO)

These are officers who may or may not be directors of the company but holds a top managerial position in a company are responsible for work performed under their directions.

It should be noted that as a company are governed by the Companies Act, 2013 and rules made thereunder being amended, substituted, modified, omitted or otherwise from time to time, Key Managerial Personnel are responsible and liable for most of the wrong doing done in company.

Now, let us go through some of the important questions relating to Key Managerial Personnel.

Who are Key Managerial Personnel?

This question can be divided into two (2) Parts:-

1) As per section 2(51) of the Companies Act, 2013: A Key Managerial Personnel in relation to a company, means—

I) the Chief Executive Officer or the Managing Director or the Manager

II) the Company Secretary

III) the Whole-Time Director

IV) the Chief Financial Officer

V) such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and

VI) such other officer as may be prescribed

2) As per Section 203 of the Companies Act, 2013: Specified class of company shall have the following 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

Which companies are required to appoint Key Managerial Personnel?

As per section 203 of the Companies Act, 2013 read with the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014:-

a) Every listed company and

b) Every other public company having a paid-up share capital of ten crore rupees or more shall have whole-time key Managerial Personnel.

How to appoint a Key Managerial Personnel?

Every whole-time Key Managerial Personnel of a company shall be appointed by means of a resolution of the Board containing the terms and conditions of the appointment including the remuneration.

Is there any maximum limit for serving as Key Managerial personnel in a company?

Yes, as per Section 198 of the Companies Act, 2013, a company can appoint following Key Managerial Personnel for term of maximum five (5) years: –

a) Managing Director

b) Whole Time Director

c) Manager

Also note that their re-appointment shall not be made earlier than one (1) year from the expiry of their term.

There is no term limit in case of appointment of Company Secretary, Chief executive Officer, Chief Financial Officer. Hence, they continue to be appointed in their office for “n” number of years as per the terms and clauses in their appointment contracts.

Can Key Managerial Personnel be appointed as Key Managerial Personnel in any other company?

A whole-time Key Managerial Personnel shall not hold office in more than one company except in its subsidiary company at the same time.

But note that Key Managerial Personnel can be appointed as a director of any company with the permission of the Board.

Do Key Managerial Personnel appointment require approval from members of the company?

No, there is no approval required for appointment of Key Managerial Personnel for appointment except the following Officers: –

a) Managing Director

b) Whole Time Director

c) Manager

As in fact, their appointment is shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments.

Is there any provisions which govern remuneration of Key Managerial Personnel?

Yes, section 197 of the Companies Act, 2013, the remuneration of :-

a) Managing Director

b) Whole Time Director

c) Manager

For more detail on remuneration, one can visit by article already published on taxguru, whose link is: https://taxguru.in/company-law/managerial-remuneration-provisions-companies-act-2013.html

What is time limit for appointment of Key Managerial Personnel?

The provision of section 203 under the Companies Act, 2013 are notified with effect from 1^st April, 2014. So, at the time of commencement of the Companies Act, 2013, a company is required to appoint Key Managerial Personnel within a period of six (6) months from 1^st April, 2014.

And the companies which fall into the category to appoint Key Managerial Personnel shall again appoint Key Managerial Personnel within a period of six (6) months from applicability of this section.

What if, Key Managerial Personnel resigns from company?

If during the course of business, Key Managerial Personnel resign from a company, the company shall be filled-up by the Board at a meeting of the Board within a period of six (6) months from the date of such vacancy.

What if a company who are required to appoint Key managerial personnel but fails to do so?

If a company falling in the ambit to appoint Key Managerial Personnel but does not due to any reason, in that case 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 which comes in mind of a professional or other stakeholder while going through provision of Key Managerial Personnel. Wherever possible, I tried to state the specific section along with rules applicable. 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:- [email protected] and Contact Number: 91-8178515005)