Managing Director Meaning (Appointment & Procedure)

Checkout MD Analysis from Companies Act 2013. The Following article is an Detailed explanation of Meaning of Managing Director, Appointment of Managing Director, Procedure for Appointment of Managing Director, Appointment of a Person as Managing Director, who is Managing Director of Another Company, Appointment of Managing Director/whole-time Director/Manager of a Private Company etc.

Managing Director Meaning (Appointment & Procedure)

Managing Director is Key Managerial Personal of utmost importance. He is face of a company and its decision-making mechanism. Also read our Previous articles on Directors Appointment in casual Vacancy, Appointment of Additional Director  and Appointment of Alternate Director.

Appointment of Managing Director

A company can appoint either Managing Director or Manager not both. [Section 196(1)] Appointment of Managing Director shall be for a term which must be less than five years. No re-appointment shall be made earlier than one year before the expiry of his term.

The minimum age for appointment for these positions is twenty – one years and normal retirement age is seventy years. A company may appoint a person on these positions, who has attained the age of seventy years. Where it is proposed to appoint a person who has attained aged of seventy years, an explanatory statement justifying such appointment shall be annexed to the notice for motion of appointment.

Appointee should not be an undischarged insolvent nor has any time been adjudged as an insolvent. Appointee has not any time suspended payment to his creditors or has made a composition with them. Appointee should not be a convict of an offence and sentenced for a period of more than six months. [Section196 (3)]

According to Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 every listed company and every other company having a paid-up share capital of five crore rupees or more shall have whole-time key managerial personnel.

Procedure for Managing Director’s Appointment

Appointment of Managing Director is to be made according to Section 196 and its remuneration should be in accordance with Section 197 and Schedule V of the Companies Act, 2013. Provisions relating to managerial remuneration are not applicable to a private company.

Convene and hold a Board meeting after giving to all the directors due notice as required under Section 173 of the Companies Act, for transacting, inter alia, the following business:-

  1. take a decision on the person to be appointed as managing director after fully ensuring that he does not suffer from any disqualification in Sections 164, 196, 203, Schedule V and any other provision of the Companies Act;
  2. approve the draft agreement to be signed and executed by and between the company and the proposed managing director (it is not mandatory);
  3. fix time, date and venue for holding a general meeting of the company;
  4. approve notice of the general meeting along with the explanatory statement as required by Sections 101 and 102 of the Act after keeping in mind the requirements of Section 190 of the Act and
  5. to authorise company secretary to issue notice of the general meeting on behalf of the Board.

In case of listed company, send three copies of the notice to the stock exchanges on which the securities of the company are listed.

Hold the general meeting and get the resolution passed approving appointment of the managing director.

In case the appointment of the managing director is not in accordance with the provisions of Schedule V of the Act, the company is required to obtain approval of the Central Government as per Section 201 of the Act.

For getting the approval of the Central Government under Section 201 certain formalities are to be complied with:

  1. As required by Section 201 of the Act, the Company shall give a general notice to the members of the company indicating the nature of the application proposed to be made, and
  2. this notice has to be published at least once in the principal language of the district in which the registered office of the company is situate, and circulating in that district and also once in English in an English newspaper also circulating in that district,
  3. the company shall attach a copy of this notice with the application together with certificate as to the due publication thereof.
  4. The application should be filed electronically in MR – 2 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules 2014 accompanied by the prescribed fees. Details of proposal needs to be entered along with certain attachments as given below:
    1. Copy of the calculation sheet of effective capital;
    2. Copy(ies) of Board Resolutions;
    3. Copy of resolution of Nomination and Remuneration Committee along with its composition and certificate by the nomination committee that the remuneration is as per remuneration policy of the company;
    4. copy of share holders resolution;
    5. certificate form auditor or company secretary of the company or company secretary in practice with regard to compliance of Section 196;
    6. Certificate of no – default in repayment of debts for continuous period of thirty days in the preceding financial year from a director or company secretary of the company;
    7. No objection certificate from the financial institutions or banks to whom the company has defaulted;
    8. copy of scheme of approval by the Tribunal for the revival of the company;
    9. Copy of Draft agreement between the company and the proposed appointee;
    10. Newspaper clipping of notices published under section 201
    11. Copy of visa or passport in case the proposed appointee is foreign national;
    12. Copies of education or professional qualification certificate;
    13. Statement as per item (iv) of 3rd proviso of Section II of Part II of Schedule V of the Companies Act, 2013
    14. Statement as per item (iv) of third proviso of section II of Part II of Schedule V to the Companies Act, 2013
    15. Projections of the Turnover and net profits for next three years;
    16. Calculation of estimated profit under section 198 of the Act;
    17. An application under Section 460 of the Act for condonation of delay;
    18. Full and proper justification in favour of the proposal along with bio-data of the appointee;
    19. Documentary proof regarding compliance of the provisions of Section 196 of the Companies Act, 2013 at the time of appointment/ re-appointment of the proposed appointee;
    20. Certificate by the secretary of the company or CA/CS in whole time practice to be notified erstwhile;
    21. Details, if applicant company is a subsidiary of listed company;
    22. Certificate from CA/CS in whole time practice along with calculation of excess remuneration paid to the appointee;

Execute the agreement, as approved by the Board, with the managing director.

Make necessary entries in the register of directors etc. and other records and registers of the company.

File the following documents with the ROC:

  1. The company should file with the ROC return of appointment of the managing director in Form MR -1, within sixty days as per Section 196(4) of the appointment and the return must be certified by the auditors of the company or the company secretary or a secretary in whole-time practice. The Mandatory attachments for Form MR – 1:
    1. Copy of Board Resolution,
    2. Copy of Shareholders Resolution
    3. Copy of letter of consent to act as managing director
    4. Copy of Central Government Approval
    5. Copy of certificate by nomination and remuneration committee
  2. Form DIR – 12 for particular of appointment of a key managerial personnel, within thirty days of the appointment.
  3. Form MGT – 14 for special resolution within thirty days of the appointment.

In case of listed company, submit to the stock exchanges, proceedings of the general meeting. Inform stock exchanges of the appointment of the managing director immediately after the appointment.

Inform all concerned about the appointment of the managing director. It is advisable to issue a general notice in newspapers about the appointment of the managing director.

Appointment of a Person as Managing Director, who is Managing Director of Another Company

According to Section 203(3) of the Companies Act, 2013, Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at the same time.

A company may appoint or employ a person as its managing director, if he is the managing director or manager of one, and of not more than one, other company and such appointment or employment is made or approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting and of which meeting, and of the resolution to be moved thereat, specific notice has been given to all the directors then in India.

In case a case, procedure shall remain same as discussed earlier but notice for the board meeting shall be a special notice.

Appointment of Managing Director/whole-time Director/Manager of a Private Company

The appointment of a managing director or a whole-time director or a manager in a company would be as per provisions contained in the articles. If the articles are silent in this behalf, such appointment can be made by the company in a general meeting.