The Companies Act, 2013 does not mandates a Private Company to appoint Managing director, Whole-Time Director or Manager. It also does not prohibit voluntary appointment of Managing Director, Whole-Time Director or Manager by the Private Companies for efficient management of their businesses.
Managing Director under Section 2 (54) of the Companies Act, 2013:
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.
Whole Time Director under Section 2 (94) of the Companies Act, 2013
Whole Time Director means a director in the whole-time employment of the company. In other words, a director employed to devote the whole of his time and attention in the carrying on of the affairs of the Company.
A person, who is proposed to be appointed as a managing director or whole-time director, can’t be appointed unless he is already a director in the company. So, holding of office of director is a prerequisite for holding of office of managing or whole-time director.
Appointment of Additional Director as MD/WTD
If a person while he was the additional director of a company had been appointed as the managing or whole-time director, the appointment also ceases simultaneously with the cessation of his directorship at the commencement of the annual general meeting. However, if such a person is re-elected as a director at the next annual general meeting, he shall continue as a managing or whole-time director also for the period for which he is so elected by the annual general meeting.
Criteria for appointment (Section 196)
Procedure to appoint a MD/WTD/Manager by Private Company
1. Articles of Association must authorize the Board to appoint a MD/WTD and Manager, if not; alter the AOA of the company first.
2. Hold a Board Meeting for consideration of appointment of MD/WTD or Manager and pass resolution for appointment.
3. Execute Agreement with MD/WTD/Manager stating various terms and conditions of appointment.
4. Filling of Board Resolution in form MGT-14* for appointment of MD.
5. Filing of particulars of MD/WTD/Manager in Form DIR- 12.
MGT-14 is required for appointment including re-appointment of MD and variation in the terms and conditions of appointment of MD. Variation includes increase or decrease in remuneration also. [(Section 117(3)(c)] However, MGT-14 is not required to be filled for appointment of WTD and variation of any terms and conditions for his/her appointment.
Exemptions to Private Limited Companies