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Consultancy Fees to MD

Roc Compliance (2 Points)

03 September 2024

Can a Managing Director of a Listed company can draw professional consultancy fees from an UK based company in which he is the only director and shareholder.

Is there any restriction on the same?

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Rama chary Rachakonda (Master in Accounts & Lawyer email ID:ramachary64@gmail.com voice no:9989324294) (5309 Points)
Replied 04 September 2024

The Managing Director of a listed company may face restrictions on drawing professional consultancy fees from a UK-based company where they are the sole director and shareholder. Here are some potential issues to consider: 1. _Conflict of interest_: The Managing Director may face a conflict of interest, as they are in a position of control in both the listed company and the UK-based company. 2. _Related-party transactions_: This arrangement may be considered a related-party transaction, which could require disclosure and approval from the listed company's board and/or shareholders. 3. _Tax implications_: There may be tax implications in both the UK and India, including potential tax liabilities and withholding obligations. 4. _Regulatory approvals_: The listed company may need to obtain regulatory approvals or disclosures, such as from the Securities and Exchange Board of India (SEBI). 5. _Corporate governance_: This arrangement may raise corporate governance concerns, particularly if not properly disclosed or approved. To navigate these issues, consider: 1. _Seek legal and tax advice_: Consult with legal and tax professionals in both India and the UK to ensure compliance with all relevant laws and regulations. 2. _Disclose and obtain approvals_: Make necessary disclosures and obtain required approvals from the listed company's board, shareholders, and regulatory bodies. 3. _Establish arm's length terms_: Ensure that the consultancy fees are paid on arm's length terms, reflecting the market rate for similar services. 4. _Maintain transparency_: Ensure transparency in all dealings, including proper documentation and disclosure of the arrangement. Remember, it's essential to prioritize transparency and compliance to avoid any potential legal, tax, or reputational risks.

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