pri All about Managing Director – Applicability and Appointment All about Managing Director – Applicability and Appointment

There are employees in the company who has a key role in its whole functioning and law imposes greater responsibility on them including the duty to protect the interest of various stakeholders.

Section 203 read with Rule 8 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides for the appointment of Whole Time Key Managerial Personnel.

APPLICABILITY : Every Listed Company and every other public company having paid up Share Capital of Rs. Ten Crores or more shall have to appoint Whole Time Key Managerial Personnels comprising of:-

  • Managing Director or (Manager or Chief Executive officer (CEO) and in their absence, a Whole Time Director)
  • Company Secretary (CS) and
  • Chief Financial Officer (CFO).

Thus, Private Companies and Public Companies not covered under the above threshold, need not to have Whole Time KMPs.

Section 2(54) of the Act provides that the Managing Director means “a director who, by virtue of the Articles of a Company or an agreement with the Company or by a resolution passed at a General Meeting or by a Board Resolution, is entrusted with the substantial powers of the Management of affairs of the company and includes a director occupying the position of Managing Director by whatever name called.”

Explanation : The power to do administrative acts of routine nature authorized by the board shall not be deemed to be included within the substantial powers of the Management such as power to affix common seal to any document, to sign any share certificate.

IMPORTANT POINTS TO NOTE:

  • A person needs to be appointed as a director before his appointment as a Managing Director.
  • A Company shall not appoint or employ at the same time a Managing Director and a Manager. [Section 196(3)]
  •  An individual shall not be appointed or reappointed as the chairperson of the Company as well as Managing Director or CEO of the Company except in two cases:-

√ The Articles of the Company provides for the same.

√ The Company does not carry multiple businesses.

However, such classes of companies engaged in multiple businesses can have more than one CEOs for each such business as may be notified by Central Government.

  • He shall be appointed by means of a Board Resolution containing Terms & Conditions of appointment including remuneration. {Section 203(3)}
  • Terms and Conditions of appointment of Managing Director and remuneration payable shall be approved at Board Meeting subject to the approval of Members in a General Meeting and by Central Government. {Section 196(4)} – Not applicable to private companies.
  • Where such appointment will not be approved by members at General Meeting, any act done by him before such approval shall not be deemed invalid.

QUALIFICATIONS:

  • No reappointment shall be made earlier than one year before expiry of his term.
  • Appointee should be less than 21 years of age and not more than 70 years old. However, a person more than 70 years old can be appointed as MD after passing Special Resolution and an explanatory statement justifying the appointment shall be annexed to the notice for motion of appointment.
  • Appointee should not be an undischarged insolvent nor has been adjudged as insolvent.
  • Appointee has not any time suspended the payment of his creditors or has made composition with them.
  • Appointee should not be convicted of an offence and sentenced for a period of more than 6 months.

PROCEDURE FOR APPOINTMENT:

  • Hold Board Meeting for appointment, draft an agreement citing all terms and conditions relating to the appointment and remuneration payable.
  • Hold General Meeting for getting the appointment approved by the members, if applicable.
  • File Form MR 1 – Return of appointment of Managing Director with the ROC within sixty days of the appointment.
  • File Form DIR 12 for particular of appointment of a Key Managerial Personnel within 30 days of the appointment.
  • Form MGT 14 if Special Resolution is passed in a General Meeting.
  • Make necessary entries in the register of Directors.

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DISCLAIMER: The content of this article is for informative purposes only and should not be considered as any legal advice on the topic covered. The information is based on the facts and relevant provisions of the applicable laws.

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