Wholetime director remuneration

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

06 April 2010 My query is this.

The company G Ltd was incorporated on 31/12/2009 and received its commencement of certificate last week.
Its authorised capital is Rs. 5 lakhs.
It wants to appoint two whole time directors with a salary of Rs. 3.5 lakhs each per month.
Is this allowable without central government permission?
Is there any way the director can get such a remuneration considering that it still has not really commenced its activities?
What are the restrictions pertaining to remuneration of whole time directors.
Please give me a detailed answer

Jagruti (CS)

Jagruti (CS) (Expert)
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06 April 2010 Any public Company can give Maximum remuneration of 11% of its net profit as calculated as per Section 349 & 350 of the Companies Act.

Of which maximum 5% can be paid if Company has one Mangerial person(MP) or 10 % if Company has more than one MP.

But in your case being the 1st year of Company confirm that if Company wants to pay 3.5 each inclusive of all other expense but excluding sitting fees, minimum net profit for that year should be 840 lacs so the 10% will come to 84 lacs i.e. yearly remuneratin of both WTD.

Else you have to take Central Government approval as it is beyond the limit specified in Schedule XIII.

Otherwise you have to pay remuneration as per Section II of Schedule XIII depending upon effective capital of your company which is calculated as:

1. Paid-up share capital (excluding share application money and advances against shares);

2. Share premium account;

3. Reserves and surplus (excluding revaluation reserve); and

4. Long-term loans and deposits repayable after one year but excluding working capital loans, overdrafts, interest due on loans unless funded, bank guarantee and short-term arrangements.

The following amount shall be deducted:—

1. Investments (except in the case of investment company);

2. Accumulated losses;

3. Preliminary expenses not written off.

The net figure will be considered as the effective capital of a company.

As the appointment of the managerial person is made in the year in which the company has been incorporated, the effective capital shall be calculated on the date of such appointment on the abovesaid basis.

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Querist : Anonymous

Querist : Anonymous (Querist)

06 April 2010 Thank you so much for such a clear reply. One more doubt please.
Could you please explain Section II of Schedule XIII . what percentage of net effective capital can be given as remuneration?

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Rasesh

Rasesh (Expert)
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07 April 2010 There is no percentage of effective capital that can be given as remuneration. I belive that central government approval is required in your case.