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Corporate laws

honey (Compliance Executive) (73 Points)

21 September 2012

Please help me with the section that says that MD agreement is compulsory if a MD has to be appointed in a private limited company.

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CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 21 September 2012

Not required. In private company MD can be appointed by way of simple board resolution only.

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CA Manish (Job) (5264 Points)
Replied 21 September 2012

Definition of MD as per Section 2(26) "managing director" means a director who, by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of directors or, by virtue of its memorandum or articles of association, is entrusted with [substantial powers of management] which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director, by whatever name called.

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Paridhi Somani (Student) (72 Points)
Replied 21 September 2012

No. Only a simple Board Resolution required. No agreement is mandatory.

CS Ankur Srivastava (Company Secretary & Compliance Officer) (17853 Points)
Replied 21 September 2012

Appointment of managing director in case of private limited companies

The appointment of managing or whole-time director or manager is not mandatory in the case of independent private companies. However, an independent private company can appoint them in accordance with the provisions contained in the Articles of Association.

If Articles of the concerned independent private company do not provide for such office then the Articles will have to be first altered by following the procedure laid down under section 31 of the Companies Act, 1956.

Appointing authority for managing director, whole-time director or manager in case of a public company or a private company which is a subsidiary of public company.

The appointment of managing or whole-time director or manager in a public company or a private limited company which is a subsidiary of a public company shall be made by the Board of directors subject to the approval of members at the general meeting by way of ordinary or special resolution as may be required subject to the conditions of Schedule XIII of the Act and/or with the approval of the Central Government.

Directors cannot appoint a managing director in the absence of provisions in the articles empowering them to do so. [Horn v Henery Faulder & Co (1908) 99 LT 914] Articles normally confer power on the directors to appoint "one or more of their number" as managing director(s). If the articles have given the power of appointing a managing director to the Board of directors, the company in general meeting cannot make the appointment. [Thomas Lagan Ltd. v Davies (1911) 104 LT 914] However, the remuneration of a managing director has to be approved at a general meeting.