Managing Director : Appointment, Duties and Remuneration (2023)

Read this article to learn about Managing Director of a Company. After reading this article you will learn about: 1. Meaning of Managing Director 2. Appointment of Managing Director 3. Disqualifications 4. Powers and Duties 5. Remuneration.

Meaning of Managing Director:

It is a common practice that the Board of Di­rectors appoints one of its members to manage the affairs of the company as a whole time officer and calls him the Managing Director.

He acts as the chief executive. He occupies a position of dual authority and responsibility. As a director, he attends the Board meetings and, as a manager, he performs the managerial functions.

Managing Director—as defined by the Com­panies Act—means a director who—by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or by virtue of its Memoran­dum or Articles of Association—is entrusted with substantial powers of management which would not otherwise be exercisable by him and includes a director occupying the position of a Managing Di­rector, by whatever name called.

An analysis of the definition shows that:

(i) The managing director must be an indi­vidual,

(ii) He must be a member of the Board of Directors,

(iii) He must be appointed by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Di­rectors or by virtue of its Memorandum or Articles of Association,

(iv) He is entrusted with substantial power of management,

(v) He is not entrusted with powers of rou­tine nature, and

(vi) He shall exercise his powers subject to superintendence, control and direction of its Board of Directors.

Appointment of Managing Director:

A man­aging director is appointed by the Board of Directors subject to the approval of the Central govt. He is appointed at the first instance for the period of five years which can extend for a period of another five years.

The appointment of a person as manag­ing director in a public or its subsidiary private company shall not have effect unless it is approved by the Central Govt. In case of a new company, the approval must be made within three months of his appointment.

The Central Govt. shall not accord its approval unless it is satisfied that:

(i) It is the interest of the company to have a managing director,

(ii) The proposed incumbent is a fit and proper person for such appointment,

(iii) His appointment is not against public in­terest,

(iv) The terms and conditions of the appoint­ment of the proposed managing direc­tor is not against public interest.

If his appointment is not approved by the Cen­tral Govt., the incumbent must vacate his office from the date of receipt of the disapproval of the Govt.

Disqualifications of Managing Director:

No person can be appointed a managing director if:

(i) He is an un-discharged insolvent, or has at any time been adjudged an insolvent,

(ii) He suspends or has at any time sus­pended, payment to his creditors,

(iii) He makes, or has at any-time made, a composition with his creditors, or

(iv) He is, or has at any time, convicted by a Court of an offence involving moral tur­pitude.

The disqualifications applicable to directors apply to managing director.

Powers and Duties of Managing Director:

Managing Director is entrusted with substantial powers of company management subject to the su­perintendence, control and direction of the Board of Directors.

But he is not entrusted to do the ad­ministrative acts of a routine nature such as the following:

(i) To affix the common seal of the company to any document, or

(ii) To draw and endorse any cheque on ac­count of the company in any bank, or

(iii) To draw and endorse any negotiable in­strument, or

(iv) To sign any certificate of shares, or

(v) To direct registration of transfer of any share.

The substantial powers of management con­sist of

(i) Laying down broad policies and objec­tives of the company, and

(ii) Executing such policies and objectives.

Substantial powers of management imply the ability to take a decision to do or not to do a thing. It is not necessary that the managing director should be entrusted with the management of the whole affair of the company as is the case with the man­ager. He is the liaison officer between the Board of Directors and the rest of the organisation. He is the director-cum-executive and as a member of the board of directors he shares the objectives and poli­cies of the company, though he is subordinate to the Board.

Powers, duties and responsibilities of the man­aging director may be stated as follows:

1. As a member of the Board of Directors he participates in formulating the objectives and policy-making functions of the Board.

2. To execute policies laid down by the Board of Directors.

3. He is the liaison officer between the Board of Directors and the rest of the organisation.

4. To interpret and communicate policies of the company to subordinate employees.

5. To review the operations of the company and present to the Board periodically accounts and statistics showing the progress and the present po­sition of the company.

6. To formulate the employment and compen­sation plan in accordance with the accepted poli­cies of the company.

7. To appoint high officials of the company.

8. To plan the development and expansion of business.

9. To organise meetings with department heads.

10. To promote high morale among the em­ployees of company by creating a sense of belong­ing.

11. To maintain contact with the govt., cham­ber of commerce, trade unions and community at large.

12. To maintain a harmonious relationship be­tween line and staff managers.

13. To approve or disapprove development plans submitted by the senior executives and place before the Board for final approval.

14. To establish a system of budgetary control by which the actual performance of the company may be evaluated against the planned course of action.

15. To administer production and sales activi­ties of the company.

16. To give due attention to consumer satis­faction which is ensured by the continued supply of goods and services to the market.

Remuneration of Managing Director:

A Man­aging Director or a Whole time Director of a com­pany may be paid remuneration either

(i) By way of a monthly payment, or

(ii) At a specified percentage of the net prof­its of the company, or

(iii) partly by one and partly by the other.

Provided that, except with the approval of the Central Govt., such remuneration shall not exceed 5% of the net profit for one such director and 10% for all of them together. In case of inadequacy of profits, the company may pay, subject to the approval of the Central Govt., to its managing director and other manage­rial staff together minimum remuneration—such sum not exceeding Rs. 50,000 per annum. Such sum shall be exclusive of any fees payable to directors. Increase of remuneration to managing director re­quires the approval of the Central Govt.

Any appointment or re-appointment of any such director on a higher remuneration than that of his predecessor shall not be effective without the approval of the Central Govt. and shall be void if it is disapproved by the Central Govt.

While fixing remuneration, the Central Govt. shall have regard to:

(i) The financial position of the company,

(ii) The remuneration or commission drawn by the individual concerned in any other capacity,

(iii) The remuneration or commission drawn by him from any other company,

(iv) His professional qualifications and expe­rience.