M d remuneration

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Querist : Anonymous

Querist : Anonymous (Querist)

07 December 2011
What will be the MD remuneration for Public Limited Company Which is Paid Up capital is more than Rs.5 Crore and the company is in profit?

Can we give Monthly Remuneration Rs.4Lac or more than Rs.4Lac?

If Central Government approval is required then What is the procedure to take approval?

CS Ankur Srivastava

CS Ankur Srivastava (Expert)
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07 December 2011 You have to calculate the effective capital of the company which consist paid up capital + reserves + loan term deposits.

You have to follow schedule XIII.

For the remuneration of 4 lacs or more you have to obtain the Central Government approval and for this Form 25A is required to be filed within 90 days of the Appointment.

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Guest

Guest (Expert)

08 December 2011 How the ceiling of 11% of net profit in the manner laid down in section 349 and 350 is calculated?

What are the things which are added and deleted from net profit to calculate 11 % ceiling.

Pls elaborate with illustration.

Many Thanks.

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Asha Kanta Sharma

Asha Kanta Sharma

(Expert)
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03 August 2024 In India, the remuneration of the Managing Director (MD) or any other director in a public limited company is governed by the Companies Act, 2013. Here's a detailed explanation regarding the remuneration limits, approval requirements, and the procedure to obtain approval:

### **1. **Remuneration Limits for MD**

**A. **General Guidelines:**

- **Under the Companies Act, 2013**, the remuneration of an MD or Whole-time Director in a public limited company is subject to certain limits and conditions based on the company's paid-up capital and profits.

- **Section 197** of the Companies Act, 2013, prescribes the overall limits for managerial remuneration:

- **For a Company with a Paid-Up Capital of More Than Rs. 5 Crore:**
- **Basic Limit**: The remuneration of all directors, including the MD, cannot exceed **11%** of the net profits of the company. However, this is subject to specific conditions and approvals.

- **For Managing Director/Whole-time Director:**
- **If the company is in profit**, the MD's remuneration needs to be in accordance with the limits prescribed under Schedule V of the Companies Act, 2013, and often requires the approval of the shareholders and sometimes the Central Government.

**B. **Monthly Remuneration of Rs. 4 Lakh or More:**

- **Company in Profit and Paid-Up Capital Over Rs. 5 Crore**: A monthly remuneration of Rs. 4 lakh for an MD is generally permissible if it is within the overall limit of 11% of net profits and conforms to the limits and conditions outlined in the Companies Act and Schedule V.

- **Schedule V**: Provides the conditions under which remuneration beyond certain limits can be paid without requiring Central Government approval, typically related to the amount of net profits and company performance.

### **2. **Central Government Approval**

**A. **When is Central Government Approval Required?**

- **Without Schedule V Compliance**: If the proposed remuneration exceeds the limits specified in Schedule V or if the company fails to comply with certain conditions laid out in the Act or Schedule V, Central Government approval is required.

- **In Case of Loss or Inadequate Profits**: If the company has inadequate profits or is in loss, Central Government approval is mandatory if the remuneration exceeds the limits set under Schedule V.

**B. **Procedure for Obtaining Central Government Approval:**

1. **Board Resolution:**
- **Pass a Board Resolution**: The first step is to pass a resolution in the Board Meeting, proposing the remuneration amount and seeking approval from the shareholders if necessary.

2. **Shareholder Approval:**
- **Resolution at the General Meeting**: If required, obtain approval from shareholders through a special resolution in the General Meeting.

3. **Application to Central Government:**
- **Prepare and Submit Application**: File an application with the Ministry of Corporate Affairs (MCA) seeking approval for the remuneration. The application should include:
- The proposed remuneration.
- Justification for the remuneration.
- Details about the company's financial status.
- Board and shareholder resolutions.

4. **MCA Approval:**
- **Obtain Approval**: Wait for the approval from the MCA. The approval is generally provided in the form of a letter or order.

5. **Filing with Registrar of Companies (RoC):**
- **File with RoC**: Once you receive approval from the MCA, file the relevant documents and resolutions with the RoC.

### **3. **Additional Considerations**

- **Compliance with Other Provisions**: Ensure compliance with other provisions of the Companies Act, 2013, related to managerial remuneration, including disclosure requirements in the company’s annual return and financial statements.

- **Documentation and Justification**: Maintain detailed documentation and justification for the proposed remuneration, including performance metrics and company financials.

### **Summary**

For a public limited company with a paid-up capital of more than Rs. 5 crore and that is in profit, a monthly remuneration of Rs. 4 lakh for the MD is generally permissible under the Companies Act, 2013, provided it falls within the overall limits specified (up to 11% of net profits) and complies with Schedule V.

If the remuneration exceeds the limits prescribed or if the company is in loss or has inadequate profits, Central Government approval will be required. The procedure involves obtaining board and shareholder approvals, applying to the Ministry of Corporate Affairs, and then filing with the Registrar of Companies.

For the most accurate and specific guidance, consulting with a company secretary or legal professional is recommended, as they can provide tailored advice based on your company’s situation.