CS Divesh Goyal

Procedure & Requirement Of Appointment Of Managing Director (MD) For Private Limited Company

Appointment of Managing Director, Whole- Time Director OR Manager (Section: 196):

This Section is applicable on Both Private as well as Public companies. Only this section of Chapter-XIII applicable on Private Companies. At the time of practical working on this section, some points create difficulties, because for appointment of Managerial Personnel company have to comply with provisions of Section- 196 and have to leave all other sections of this chapter.

MY OPINION: As per Law, there is no compulsion for private company to appoint MD, WTD and Manager. As per Act Private Company can be in continue working without MD, WTD and manager throughout the life of company.

But problems arise when Private company appoint any Managerial Personnel willingly. Then company requires following Section: 196 of CA-2013.

SECTION- 196:

  • A company can appoint either Managing Director or Manager not both {Sub – section (1)}.
  • MD, WTD and Manager can be appoint for maximum tenure of 5 years. But company may reappoint them for next term of 5 Years or lesser period, before expiry of existing term.
  • But re-appointment cannot be done earlier than one year before expiry of the term. This means, company may re-appoint them for next term in last one year of current term.
  • The minimum age for appointment for these positions is twenty – one years and normal retirement age is seventy years. (So the person who does not attain age of 21 year can’t appoint as Managerial Personnel).
  • But a person who has attained age of 70 year can be appoint as Managerial Personnel, by passing of Special Resolution in General Meeting, Condition: Explanatory Statement justifying such appointment shall be annexed to the notice of General Meeting for motion of appointment.
  • For appointment of a person who has attained age of 70 year following procedure:
    • Call a Board Meeting
    • Issue notice of General Meeting
    • Pass Special Resolution In General Meeting.
    • File MGT-14 with ROC within 30 days of passing of Resolution.
    • File form DIR-12 and MR-1 with ROC with in 30 days of passing of resolution of appointment.
  • To appoint a person as Managerial personnel:
    • Appointee should not be an un-discharged insolvent nor has any time been adjudged as an insolvent.
    • Appointee has not any time suspended payment to his creditors or has made a composition with them.
    • Appointee should not be a convict of an offence and sentenced for a period of more than six months. {Sub – section (3)

APPOINTMENT OF MANAGERIAL PERSONNEL:-

For appointment of Managerial Personnel in private company we have to do following things:

  1. Require to pass Board Resolution.
  2. Require approval of Share Holders in General Meeting.
  3. Follow the provisions of Schedule – V of Companies Act, 2013. (If there is any variance to the conditions specified in the schedule, this appointment shall also be subject to the approval of the Central Government. {Sub – section (3)})

PROCEDURE FOR APPOINTMENT OF MANAGERIAL PERSONNEL IF COMPANY HAS ADEQUATE PROFIT:

a. Issue Notice for Calling Board Meeting. Notice shall include:

  • Terms and conditions of such appointment.
  • Remuneration payable to such Managerial Personnel.
  • Interest of Directors in such appointment.

b. Documents Require from Appointee:

  • Declaration that he is not disqualified to appoint as director. (Secion-152(4).
  • Consent that he is willing to appoint as director.(Section-152(5).
  • Consent that he is willing to appoint as Managing Director.
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c. Pass Resolution in Meeting for appointment of Managerial Personnel.

d. File Form MGT-14 within 30 days of passing of resolution. (Secion-179)

e. File Form DIR-12 within 30 days of passing of resolution.

f. File Form MR-1 within 60 days of passing of resolution. (Section-196).

g. GM; which will help after this appointment, Take Approval of Shareholders by passing of resolution.

DRAFT FORMATS ATTACHED BELOW:

  •       Notice Calling Board Meeting.
  •       Agenda of Board Meeting.
  •       Attendance Sheet of Board Meeting.
  •       Leave of Absence, if require.
  •       Declaration under section 152(4)
  •       Consent under section 152(5)
  •       Consent to act as Managerial Personnel.
  •       Draft MD Agreement, if require.
  •       Draft Board Meeting Resolution.
  •        Will explain in my next article Process of filling, filing and attachments of form MR-1.

FAQ’S:

  1. Is it mandatory to file the return of appointment of Managerial Personnel appointed in terms of Section 196?

Ans. Yes – it is mandatory for a company to file a return of appointment of a managing director, whole time director or manager, chief executive officer, company secretary and Chief Financial officer in Form no. MR.1 as prescribed in Rule 3 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Further, particulars of appointment of Managerial Personnel and any change among them are also required to be filed in Form DIR-12.

  1. Can a company have two Managing Directors?

Ans: As per third proviso to section 203 of the COMPANIES ACT, 2013 a company may appoint or employ a person as its MD, if he is the MD or Manager of one and not more than one other company with the consent of all directors present at meeting.

  1. Will Provisions of Section- 197 applicable on Private Companies?

Ans. No, the provision of Seciton-197 will not applicable on private companies. For appointment of managerial personnel private company require to follow section-196, but there is no need to follow section-197 for remuneration to managerial personnel.

4. Will Managerial personnel appointed under section 196, treated as KMP?

Ans. No, Managerial Personnel will not be treated as KMP.

Section: 203 talks about KMP and this section not applicable on Private Companies. So if a private company appoints any managerial personnel there Is no need to follow provisions of section-203.

5. If any existing director is interested director in pursuance to appointment of Managerial Personnel, so can he participate in this resolution?

Ans: No, Existing Director can’t participate in this resolution, As per Section-184 of Companies Act, 2013. Such interested director have to disclose before the meeting his interest.

CONCLUSION: As per Companies Act-2013 there is no compulsion to appoint MD/WTD/MANAGER. But some companies Appoint MD/WTD/MANAGER. So Private companies can appoint MD/WTD/ Manager as per process given above. In Companies Act-2013 process is lengthy but it’s not as difficult. It’s just require assistance of Professionals like Company Secretary or Charted Accountant. Because there is heavy penalty under Companies Act-2013. So its my request from all professionals and businessman be careful while working under companies Act-2013.

DOWNLOAD DRAFT ATTACHED FORMATS

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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27 responses to “Procedure for Appointment Of MD For Private Limited Company”

  1. Ankit says:

    Dear Sir
    Please help me for the following queries:

    1. our present director want to be Managing director in this ABC Pvt ltd. Company but he is already Managing director in another private company XYZ Pvt ltd, so can we appoint him managing director in ABC Pvt ltd company ?
    Please suggest me the process.

    Thanks & Regards
    Ankit Kumar
    email:- yours.ankitkumar@gmail.com
    PH. 9017193344

  2. deepika says:

    I want to appointment of existing director as a managing director in a private company.
    Following queries are mantioned below;
    1. first of all details procedure what will be follow
    2 i also want i could not inform all the directors of company that existing director appoinment as a managing director whether it is possible or not?if possible so what the procedure.
    3.what documents is required.
    4.what are eforms is required to be submitted.

  3. Swapan Kumar Dutta says:

    Respected Sir,
    Ours is a new private limited company (Directors are blood related – Father, Mother & Son)
    We like to appoint our son as “MD & CEO” of our company.
    What steps should we follow, Sir?
    A Board meeting in this regard & File MR1?
    Regards,
    Swapan Kumar Dutta
    dswapan50@gmail.com

  4. krutika says:

    I want Clarifications on following points
    1) Is thr requirement of filling MR-2 form also for Re-appointment of MD?

    2) can the chairman of the meeting in which he himself is appointed as jt. managing director can sign the minutes of that meeting?

    3) calculation of effective shall be done by auditor of the company?

  5. Prathap says:

    existing director to appoint managing director, model appointment letter and resolution will be required.

  6. Monu Kumar says:

    MR-1 and MGT-14 is mandatory to file in case of Appointment of MD in Private Company after exemption of 5 June 2015

  7. KMP KIRADOO says:

    is it require to file MR 1 in case of appointment of WTD in private limited company???????? and also whether the shareholders approval is required or not ?

    • Amisha says:

      Dear Sir

      Sir please Suggest me:

      MR-1 and MGT-14 is mandatory to file in case of Private Company for Appointment of non Resident Managing Director after exemption of 5 June, 2015.

      Thanks
      Amisha
      Cs Trainee

  8. Neelu says:

    If the date of appointment of md is 1.7.2015 and EGM was held on 29 July 2015. Then what will be the date of appointment in form dir 12 as it does not ask for EGM date. If we write 1.7.2015 then it is charging additional fees as beyond 30 days.

  9. Richa Sharma says:

    For any query in this regard mail your query to mailme.csricha@gmail.com

  10. ARVIND MEENA says:

    MR 1 is not required in case of appointment of MD/WTD/ Manager in private company.

  11. MAHAEER says:

    can a present directors appointed as manging director of same company ?
    Is there any oyher way to pay salary , remmunaration to director for there work , to one of the sprcifieddirector from board?

  12. prince says:

    Is MD can be appointed before the date of resolution?

  13. prince says:

    Can we appoint the MD before the date of Resolution?

  14. TANDAB says:

    Sir,
    I and my wife are only two directors in our private limited company. I want to know whether it is mandatory to appoint any other directors who are not our blood relation.

  15. TANDAB says:

    Sir,
    We are only two directors in our private limited company. I want to know whether it is mandatory to appoint any other directors who are not our blood relation.

  16. Namrata Gagrani says:

    What is the procedure for appointing director as managing director of the company?

  17. ca saravanan s says:

    Thanks for the share. Very useful analysis.

  18. NEHA says:

    Sir,

    Please let me know the complete details of appointment of whole time director with reference of case laws.

  19. Chandrika says:

    Sir,
    Please let me know whether drafting of the agreement is mandatory for appointment of Managing Director as per CA,2013.

  20. Manjeet Bucha says:

    Section 196(4) of CA 2013 says that subject to provisions on Section 197 and Schedule V, so in case of appointment of MD in pvt.ltd. company is there any restriction on payment of remuneration. Also the MD’s appointed on or before 2008 and where tenure was not fixed, do we have to re-appoint them in current AGM?

  21. M2 says:

    Kindly confirm the following:-

    In case of re-appointment of whole-time director cum vice chairman in a private limited company, the following forms are required to be filed as per Companies Act, 2013 :-

    Form MGT-14 within 30 days of the Board Meeting
    Form MR-1 within 60 days of the Board Meeting
    Form DIR-12 within 30 days of the General Meeting

    Form MGT-14 and Form MR-1 should be filed after Board Meeting, because the Company cannot withheld the remuneration to be given to the whole-time director till the general meeting. And once the re-appointment is confirmed in the General Meeting, then Form DIR-12 should be filed as the confirmation of re-appointment.

    Kindly correct me if I am wrong.

  22. Vishwash says:

    If company have MD appointed without any fixed tenure & already completed 5 years as on March, 2014; Is require to re-appoint again to comply the provisions of maximum 5 years tenure for re-appointment?

  23. Saraskumar says:

    As per Section 196(4) the appointment and fixation of remuneration to MD/WTD in Board meeting is subject to approval of shareholders in terms of section 197 and Schedule V which are applicable only to public companies. Hence, in my view no approval of shareholder is required for fixation of remuneration.

  24. anjali says:

    query

    A private company paid up capital Rs 2 crores

    appointed MD in 2000

    Tenure : not specified

    Now after april 14
    only tenure 5 years resolution to be passed by board and then AGM

    what about remuneration : can board decide it or AGM

  25. NITIN KUMAR says:

    Sir,

    Thanks for valuable information supplied regarding appointment of MD/WTD by Private Company. I want to know one more thing. Whether private company can pay remuneration to executive director without appointing him as WTD or MD and without fulfilling requirements of section 196 of CA 2013. Thanks in advance. Waiting for early valuable response.

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