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Managerial Remuneration under Companies Act, 2013

Narendra Kumar

| Updated: Sep 25, 2017 | Category: MCA Notification

Managerial Remuneration

Just as profits drive business, incentives drive managers of the business. Managerial remuneration is a significant piece of the management puzzle.

Remuneration to Managerial Personnel

The Companies Act, 2013[1] has prescribed the maximum ceiling for the payment of managerial remuneration by the public company to its MDWTD and manager which shall not exceed 11% of the net profit of the company in that financial year computed according to as mentioned in the ACT, except that the remuneration of directors shall not be deducted from gross profits. Additional, the company in general meeting with the approval of Central Government, authorize the payment of remuneration beyond 11% of the net profits of the company, subject to the provisions of Schedule of the ACT.

The remuneration which is payable to any 1 managing director or whole-time director or manager shall not surpass or go beyond 5% of the net profits of the company and if there is more than one such director remuneration shall not exceed 10% of the net profits to all such directors and manager taken together.

Except with the approval of the company in general meeting, the remuneration payable to the directors who are neither managing directors nor whole-time directors shall not go beyond,—

  • 1% of the net profits of the company, if there is a managing or whole-time director or manager;
  • 3% of the net profits in any other case.

The remuneration payable to directors together with managing or whole-time director or manager shall be all-encompassing of the remuneration payable for services rendered by him in any other capacity apart from the following:

(a) The services rendered are of the professional nature; &

(b) In an opinion of Nomination and Remuneration

The director might receive remuneration by way of fees for attending Board and/or Committee meetings or for any other purpose as the case may be decided by the Board of directors. On the condition that the amount of such a fee shall not be beyond the amount as may be prescribed. The number of sitting fees payable to directors for attending the meetings of Board or committees thereof as may be decided by the Board of directors or Remuneration Committee &shall not go beyond the sum of Rs. 1,00,000 per meeting of the Board or committee.

A director or manager shall be paid remuneration either by way of the monthly payment or at a specified % of the net profits of the company.

All the independent directors are not be entitled to any stock option &mightbe given remuneration by way of required fees & reimbursement of all the expenses for participation in Board & any other meetings as well as profit related commission as may be sanctioned by the members.

Any of directors who are in receipt of any commission from a company & who are a managing or whole-time directors (WTD) of the company shall not be disqualified from receiving any remuneration or commission from any holding company or its subsidiary company depending on its disclosure in boards report by the company.

Remuneration Drawn in Excess of Prescribed Limit

In case of any director who draws or accepts, by way of any remuneration any such sums in additional of the limit prescribed or without prior consent of the (C.G) Central Government, where it is required, we will refund such amount of money to company &up to such sum is refunded, hold it in trust for the company.

The Central Government (C.G) through the rules prescribed that a number of rupees of the sitting fees payable to the director for attending meetings of Board or committees thereof may be such, as may be decided by Board of directors or Remuneration Committee thereof which shall not exceed the sum of rupees 1 lakh per meeting of the Board or committee thereof.

Insurance Premium as Part of Remuneration

Where any kind of insurance is taken by the company on behalf of its managing director M.D, whole-time director, manager, Chief Executive Officer(CEO), Chief Financial Officer(CFO)[2] 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 company, the premium paid on such an insurance shall not be treated as part of the remuneration payable to any such personnel. However, if such a person is proved to be guilty, the premium that is paid on such insurance shall be treated as part of the remuneration.

Managerial Remuneration under Schedule V

Section I: Remuneration to be paid by the Companies having Profits: if a company having profits in a financial year might pay remuneration to its managerial persons in accordance with provisions of the Act.

Section II: Remuneration by Companies having no profits or inadequate profits without Central Government approval

Where in any financial year during the period of the managerial person, a company doesn’t have any profits or if its profits are not adequate, it may without taking Central Government (C.G) approval, pay the remuneration to a managerial person not exceeding the higher of the following limits as below:

(A)

Where in the effective capital is as below:Limit applicable for yearly remuneration payable shall not exceed or go beyond (Rs)
Negative or less than Rs.5 CroreRs.30,00,000
Rs.5 Crore and above but less than Rs. 100 CroreRs.42,00,000
Rs.100 Crore and above but less than Rs.250 CroreRs. 60,00,000
Rs.250 Crore and beyond thatRs.60,00,000 plus 0.01% of the effective capital in excess of Rs. 250 Crore

If a special resolution is passed by the shareholders, the above limits shall be doubled.

(B) In the case of a managerial person who was not a shareholder, employee or a Director of the company at any time during the two years prior to his appointment as a managerial person- 2.5% of the current relevant profit. If a special resolution is passed by the shareholders, this limit shall be doubled.

Remuneration in Special Circumstances

Special circumstances under which companies having no profits or inadequate profit can pay remuneration to its managerial personnel in excess of the amount provided without the Central Government’s approval.

Narendra Kumar

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