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Payment of Remuneraton to Director or Managing Director

Managerial Remuneration:

Managerial Remuneration is the remuneration payable to Managerial Personnel ie. Director or Managing Director. Remuneration means any money or cash equivalent paid or payable to any person for services rendered by him/her and which includes the perquisites under the Income-tax Act, 1961. Compnay law is scilent about payment of remuneration to managerial personnel ie. Directors or Managing Director of a Private Limited Companies. The only restriction is there for Public Limited Companies in paying the remuneration to Director or Managing Director. A director or manager may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other.

Therefore, a private limited company can pay any reuneration to it's director or managing director..

Payment of Remuneration in a Public Limited Company:

The payment of remuneration to direcror or a managing director is calculated in two situtations:

  • When the Company has Profits.

  • When the Company does not have Profits or has inadequate profits.

When the Company has Profits:

The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed eleven per cent of the net profits of that company for that financial year. Provided that the company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding eleven per cent of the net profits of the company.

By passing a special resolution in a general meeting, the following remuneration will be paid to managerials personnel:

Condition Maximum Remuneration
When the company has one managing director/whole time director/manager 5% of the net profits
When the company has more than managing director/whole time director/manager 10% of the net profits to all
Any directors who are neither managing director or whole-time directors 1% of the net profits of the company if there is a managing director/whole time director/Manager
Any directors who are neither managing director or whole-time directors 3% of the net profits of the company if there is no managing director/whole time director/Manager

When the Company does not have Profits or has inadequate profits:

Where in any financial year during the currency of tenure of a director or managing director, a company has no profits or its profits are inadequate, it may pay remuneration to the managing director or director not exceeding the limits given below:

Where the effective capital (in rupees) is Limit of yearly remuneration payable shall not exceed (in Rupess) in case of a managerial person Limit of yearly remuneration payable shall not exceed (in rupees) in case of other director
Negative or less than 5 crores. 60 lakhs 12 lakhs
5 crores and above but less than 100 crores. 84 lakhs 17 lakhs
100 crores and above but less than 250 crores. 120 lakhs 24 lakhs
250 crores and above. 120 lakhs plus 0.01% of the effective capital in excess of Rs.250 crores: 24 Lakhs plus 0.01% of the effective capital in excess of Rs.250 crores.

Notes:

  • The maximum limit of managereial remuneration is 11% of the net profits.

  • The remuneration in excess of above Iimits may be paid if the resolution passed by the shareholders is a special resolution.

  • The sitting fees paid to directors or managing director or whole time director or executive director for attending board meetings of the company will not be included in the above percentage.

  • Where any insurance is taken by a company on behalf of its managing director, whole-time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, the premium paid on such insurance shall not be treated as part of the remuneration payable to any such personnel. However, if such person is proved to be guilty, the premium paid on such insurance shall be treated as part of the remuneration.

  • Every listed company shall disclose in the Board’s report, the ratio of the remuneration of each director to the median employee’s remuneration and such other details as may be prescribed.

  • If any director draws or receives, directly or indirectly, by way of remuneration any such sums in excess of the limit prescribed by this section or without the prior sanction of the Central Government, where it is required, he shall refund such sums to the company and until such sum is refunded, hold it in trust for the company.

Let's Clear Your Doubts


Who is Director?

A director is an individual appointed to manage the affairs of the company.

Who is Mnaging Director?

Managing Director is an individual who is entrusted with substantial powers of the management.

Who is Whole Time Director in a Company?

A whole-time director is a director in the whole-time employment of the company. In other words, a director who devotes his whole time to the affairs of a company is called a whole-time director of the company.

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Who is an Additional Director?

A director appointed by the Board of Directors of the Company is called as 'Additional Director' as per Companies Act. The additional director's validity is limited to the upcoming general meeting only. You have to re appoint him in the AGM as regular director if you want to avail his services.

Who is alternative director?

An alternate director is an individual who is appointed to attend a board meeting on behalf of the director of a company where the principal director would be otherwise unable to attend.

Is there any restriction under companies act for payment of remunaration to directors or managing director in a private limited company?

There is no such restriction in private limited company.

What is maximum percentage of remuneration a Public Limitd Company pay to its directors and managing director?

11% of net profits.

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