Managing Director and Whole Time Director in a Private Limited Company

Introduction: The Companies Act, 2013, provides a framework for the governance and management of companies within India, offering flexibility in the appointment of key managerial personnel in private companies. Specifically, the Act does not mandate private companies to appoint a Managing Director (MD), Whole-Time Director (WTD), or Manager but allows voluntary appointments for effective business management. Understanding the definitions and criteria for these roles is crucial for companies aiming to enhance their management strategies.

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)

• A company can’t appoint or employ at the same time a Managing Director and a Manager.
• A company can’t appoint or re-appoint any person as Managing Director or Whole Time Director or Manager for a term exceeding five years at a time.
• No re-appointment shall be made earlier than one year before the expiry of his term.
• The minimum age for appointment for these positions is 21 years and normal retirement age is 70 year.
• The appointment of a person having age of above 70 years may be made by the approval of members by special resolution.

Procedure to appoint a MD/WTD/Manager by Private Company

1. Hold a Board Meeting for consideration of appointment of MD/WTD or Manager and pass resolution for appointment.

2. Execute Agreement with MD/WTD/Manager stating various terms and conditions of appointment.

3. Filling of Board Resolution in form MGT-14* for appointment of MD.

4. 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

• No need to take approval of Shareholders for appointment of MD/ WTD.
• Provision of Section 197 i.e remuneration to MD/ WTD not applicable on such companies.
• Schedule V not applicable on such Companies.
• No need to file e-form MR-1.

Conclusion: The Companies Act, 2013, accommodates the strategic management needs of private companies by not imposing mandatory appointments of Managing Directors, Whole-Time Directors, or Managers. However, it lays down a clear pathway for voluntary appointments, including specific criteria and procedural requirements to ensure that such appointments are made judiciously. This regulatory flexibility supports private companies in structuring their management according to their unique operational needs, promoting efficient and effective governance. By adhering to the stipulated guidelines and leveraging the provisions for voluntary appointments, private companies can significantly enhance their management capabilities and business outcomes.

(Republished with amendments)