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Clarification on Section 197

08 September 2018

Does Section 197 apply on all public companies ? Are the whole time directors of the public companies automatically entitled to remuneration.

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Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits (1) 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 computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits: 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, subject to the provisions of Schedule V:

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Jatin Bajaj (CS) (2930 Points)
Replied 10 September 2018

As per the Provision of Section 197 of the Companies Act 2013, the overall remuneration payable by the Public Company to its Director shall not exceed 11 percent of the Net profit of the Company in a single financial year. However the remuneration payable to single Whole Time or mamanging Director shall not exceed 5 % of the net profit of the Company but if the Company is having more than one whole time or managing Director then it shall not exceed 10% of the net profit of the Company in single financial year.

If the Company is having whole time or managing Direcrtor remunerration paid to independent Director shall not exceed 1 percent of the Company and if the Company is having no Managing or whole time Time Director, then it shall not exceed 3 percent of the net profit of the Company.