Every big organization are operated by number of important persons like Director, Managing Director, Chief Financial Officer, Chief Executive Officer, etc. In this article I will discuss about the appointment of Managing Director.

1. Who is Managing Director?

As per the Companies Act, 2013 Managing Director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

managing Director

For the purposes of above definition, the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within the substantial powers of management.

2. Why a Managing Director is appointed in a company?

Managing Director is a person entrusted with substantial powers of management; hence Managing Director is appointed to bring the smoothness of operations as well as functioning but their function is not just limited to this.

Different Countries have their different definition and powers lying there is no universal roles defined for Managing Directors and different qualification to criteria for eligibilty.

3. Which companies are required to appoint a Managing Director?

As per section 204 of the Companies Act, 2013 below given companies are required to appoint a Managing Director:-

1. Every listed company

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

4. What laws governs the appointment of Managing Director?

The appointment and other related provisions for appointment of Managing Director are:-

1. The Companies Act, 2013

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

5. Is Managing Director is considered as Key managerial personal (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 Managing Director as Key Managerial personnel.

As per interpretation if any company not falling in above category or ambit, a Managing Director are not required to be considered or appointed as Managing Director in such company.

6. For how long a Managing Director can serve in a company?

A Managing Director can be appointed for a maximum five (5) years on one term as per The Companies Act, 2013.

7. What is the process to appoint a Managing Director?

The following process is followed for appointment of Managing Director:-

1. First appoint the candidate as Director of the Company

2. Prepare notice of board meeting along with draft resolution(s) to be passed in the board meeting.

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.

5. Issue letter of appointment to the candidate.

6.File e-Form DIR-12 along with attachments with the Registrar of Companies regarding appointment of director and simultaneously as a managing director within thirty (30) days from appointment as Director as well as Managing Director.

7. File e-form MGT-14 for board resolution along with attachments with the Registrar of Companies regarding appointment or variation in terms of appointment of Managing Director within thirty (30) days from passing of resolution.

8. Prepare Annual General Meeting/ Extra Ordinary General Meeting notice for taking approval from member for appointment of Managing Director.

9. Convening and passing of ordinary resolution for appointment of Managing Director.

10. Sending of Appointment letter to Managing Director and entry in register minutes, etc of company.

8. What are the forms to appoint a Managing Director in a company?

Only three forms are required for appointment of Managing Director and these are:-

1. MGT-14 within thirty (30) days

2. DIR-12 within thirty (30) days

3. MR-1 within sixty (60) days

9. What if Managing Director resigns from the company?

There are many times when a situation arises that a Managing Director wants to resign from the company, whatever the reason maybe.

If a Managing Director 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.

10. What are the documents required for appointment of Managing Director?

The following documents are required: –

1. Intimation letter to stock exchange

2. Copy of Board Resolution for Board Meeting

3. Copy of resolution passed in general meeting

4. Appointment letter

5. DIR-2

6. DIR-8

7. MBP-1

8. Any other as required.

11. What if company fails to appoint a Managing Director?

Any company which is mandatorily required to appoint a managing director 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 54 of the Companies Act, 2013 which comes in mind of a professional or other stakeholder while company doing sweat equity shares allotment. 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:- [email protected] and Contact Number: 91-8178515005)

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Qualification: CS
Company: Proventure- Aiding your Business
Location: NEW DELHI, New Delhi, IN
Member Since: 06 Jul 2019 | Total Posts: 62
I am Company Secretary and engaged with this profession from last nine (9) years. Throughout this journey, my moto is to help people start their startups and business. View Full Profile

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One Comment

  1. Anoop Verma says:

    The provisions relating to appointment of managing director were given in Section 203 and not in Section 204 which pertains to ‘Secretarial audit of bigger companies’.

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March 2021