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Company law

akanksha (CA Final Student) (325 Points)

11 January 2014

Respected Sir,

We have certain queries regarding payment of remuneration/salaries to directors :

Company is having paid up share capital of Rs 5 Lakhs

Company wish to pay remuneration/salary to director A Rs 3 lakhs per annum
Company wish to pay to directpr B rs 3 lakh per annum.

Company is having paid up capital of Rs 1 lakh

Company wish to pay remuneration/salary to director A Rs 3 lakhs per annum
Company wish to pay to directpr B rs 3 lakh per annum.

company is having paid up capital of rs 5 lakhs

Company wish to pay remuneration/salary to director A (who is a software engineer) Rs 5 lakhs per annum
Company wish to pay to directpr B (who is a Chartered accountant) rs 3 lakh per annum.

Kindly clarify the position of company in all the three situations as above. Whether a company can pay remuneration/salary as above?

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4 Replies

JAINENDRA JAIN (ACS/CA) (1668 Points)
Replied 11 January 2014

As per section 198 & 309 : Company having more than one managerial person shall pay total remuneration which shall not exceed 11% of net profit for that financial year. Accordingly in options 3 you can pay any amount being in professional capacity. And in other two calculate as discussed above. I think the above payment is within limit and ok. Moreover if company have more than one director , remuneration shall not exceed 10% of net profit. . The above limit can be exceeded if it is within the prescribed limits under schedule Xiii and this limit can also be exceeded by taking prior approval of central government. However in calculating remuneration any sum paid in professional capacity should not be included.

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akanksha (CA Final Student) (325 Points)
Replied 11 January 2014

What if the company wants to pay salary to its directors?

Case 1 : directors have no professional qualification

Case 2 : director has professional qualification.

JAINENDRA JAIN (ACS/CA) (1668 Points)
Replied 11 January 2014

If payment is made for rendering professional work by director to company than it is paid in professional capacity and should not be included in the limit. Otherwise any payment as remuneration to director shall be under limit as specified irrespective of Wether they have professional qualification or not.