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Remuneration to directors in profit making public co

Anita Joshi (Practising Company Secretary) (35 Points)

02 April 2010

If public company with paid up capital of Rs. 2 crores makes profit of Rs. 1 Crore, then it can pay managerial remuneration 10% of profit i.e. roughly about 10 Lacs to all directors without CG approval. If company makes loss or inadequate profit then it can pay Rs. 1,25,000/- to Each Director p.m. (eligible as per effective capital) with fulfillment of simple conditions/ requirements. Please let me know whether is it justifiable?

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4 Replies

S. Satheesh Kumar (Assistant Company Secretary) (84 Points)
Replied 02 April 2010

Hi All,

In your first case, you need not get approval from CG.

In your second case, as per schedule XIII your company may pay managerial remuneration upto Rs.1 lakh only for all of them together ‘based on your effective capital is Rs. 2 crore’.

When the remuneration exceed the ceiling limits ‘depending upon your effective capital’ Special Resolution and Central Government approvals are required.

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Jagruti (CS) (Service) (1953 Points)
Replied 03 April 2010

In first case, you can pay maximum remuneration of 11% of the net profit i.e. 11 Lakhs without CG approval.

If company makes loss or inadequate profit then depending upon Company effective Capital respective limit can be applicable.

So effective capital is calulated as sum of

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.

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