PROCEDURE OF APPOINTMENT OF MD FOR PRIVATE LIMITED COMPANY

Appointment of Managing Director, Whole- Time Director OR Manager (Section: 196): This Section is applicable on Both Private as well as Pub...

Appointment of Managing Director, Whole- Time Director OR Manager (Section: 196):

This Section is applicable on Both Private as well as Public companies. Only this section of Chapter-XIII applicable on Private Companies. At the time of practical working on this section, some points create difficultiesm, because for appointment of Managerial Personnel company have to comply with provisions of Section- 196 and have to leave all other sections of this chapter.

MY OPINION: As per Law, there is no compulsion for private company to appoint MD, WTD and Manager. As per Act Private Company can be in continue working without MD, WTD and manager throughout the life of company. 

But problems arise when Private company appoint any Managerial Personnel willingly. Then company requires following Section: 196 of CA-2013.

SECTION- 196:

1. A company can appoint either Managing Director or Manager not both {Sub – section (1)}. 
2. MD, WTD and Manager can be appoint for maximum tenure of 5 years. But company may reappoint them for next term of 5 Years or lesser period, before expiry of existing term.
3. But re-appointment cannot be done earlier than one year before expiry of the term. This means, company may re-appoint them for next term in last one year of current term.
4. The minimum age for appointment for these positions is twenty – one years and normal retirement age is seventy years. (So the person who does not attain age of 21 year can’t appoint as Managerial Personnel).
5. But a person who has attained age of 70 year can be appoint as Managerial Personnel, by passing of Special Resolution in General Meeting, Condition: Explanatory Statement justifying such appointment shall be annexed to the notice of General Meeting for motion of appointment.
6. For appointment of a person who has attained age of 70 year following procedure:
1. · Call a Board Meeting
2. · Issue notice of General Meeting
3. · Pass Special Resolution In General Meeting.
4. · File MGT-14 with ROC within 30 days of passing of Resolution.
5.  File form DIR-12 and MR-1 with ROC with in 30 days of passing of resolution of appointment.
7. To appoint a person as Managerial personnel:
1. · Appointee should not be an un-discharged insolvent nor has any time been adjudged as an insolvent.
2. · Appointee has not any time suspended payment to his creditors or has made a composition with them. 
3. · Appointee should not be a convict of an offence and sentenced for a period of more than six months. {Sub – section (3)

APPOINTMENT OF MANAGERIAL PERSONNEL:-
For appointment of Managerial Personnel in private company we have to do following things:

1. Require to pass Board Resolution.

2. Require approval of Share Holders in General Meeting.

3. Follow the provisions of Schedule – V of Companies Act, 2013. (If there is any variance to the conditions specified in the schedule, this appointment shall also be subject to the approval of the Central Government. {Sub – section (3)})

PROCEDURE FOR APPOITNT OF MANAGERIAL PERSONNEL IF COMPANY HAS ADEQUATE PROFIT:

      Issue Notice for Calling Board Meeting. Notice shall include:

v  Terms and conditions of such appointment.

v  Remuneration payable to such Managerial Personnel.

v  Interest of Directors in such appointment.

      Documents Require from Appointee:

v  Declaration that he is not disqualified to appoint as director. (Secion-152(4).

v  Consent that he is willing to appoint as director.(Section-152(5).

v  Consent that he is willing to appoint as Managing Director.

      Pass Resolution in Meeting for appointment of Managerial Personnel.

      File Form MGT-14 within 30 days of passing of resolution. (Secion-179)

      File Form DIR-12 within 30 days of passing of resolution.

      File Form MR-1 within 60 days of passing of resolution. (Section-196).

      GM; which will help after this appointment, Take Approval of Shareholders by passing of resolution.

DRAFT FORMATS ATTACHED BELOW:

      Notice Calling Board Meeting.

      Agenda of Board Meeting.

      Attendance Sheet of Board Meeting.

      Leave of Absence, if require.

      Declaration under section 152(4)

      Consent under section 152(5)

      Consent to act as Managerial Personnel.

      Draft MD Agreement, if require.

      Draft Board Meeting Resolution.

       Will explain in my next article Process of filling, filing and attachments of form MR-1.

FAQ’S:

1.      Is it mandatory to file the return of appointment of Managerial Personnel appointed in terms of Section 196?

Ans. Yes – it is mandatory for a company to file a return of appointment of a managing director, whole time director or manager, chief executive officer, company secretary and Chief Financial officer in Form no. MR.1 as prescribed in Rule 3 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. Further, particulars of appointment of Managerial Personnel and any change among them are also required to be filed in Form DIR-12.

2.      Can a company have two Managing Directors?

Ans: As per third proviso to section 203 of the COMPANIES ACT, 2013 a company may appoint or employ a person as its MD, if he is the MD or Manager of one and not more than one other company with the consent of all directors present at meeting.

3.      Will Provisions of Section- 197 applicable on Private Companies?

Ans.  No, the provision of Seciton-197 will not applicable on private companies. For appointment of managerial personnel private company require to follow section-196, but there is no need to follow section-197 for remuneration to managerial personnel.

4.      Will Managerial personnel appointed under section 196, treated as KMP?

Ans. No, Managerial Personnel will not be treated as KMP.

Section: 203 talks about KMP and this section not applicable on Private Companies. So if a private company appoints any managerial personnel there Is no need to follow provisions of section-203.

5.      If any existing director is interested director in pursuance to appointment of Managerial Personnel, so can he participate in this resolution?

Ans: No, Existing Director can’t participate in this resolution, As per Section-184 of Companies Act, 2013. Such interested director have to disclose before the meeting his interest.

CONCLUSION:  As per Companies Act-2013 there is no compulsion to appoint MD/WTD/MANAGER. But some companies Appoint MD/WTD/MANAGER. So Private companies can appoint MD/WTD/ Manager as per process given above. In Companies Act-2013 process is lengthy but it’s not as difficult. It’s just require assistance of Professionals like Company Secretary or Charted Accountant. Because there is heavy penalty under Companies Act-2013. So its my request from all professionals and businessman be careful while working under companies Act-2013.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) 

Regards,

CS Divesh Goyal                                                                                           +91-8130757966

ACS-35817                                                                                      csdiveshgoyal@gmail.com

DRAFT ATTACHED FORMATS

1. Notice Calling Board Meeting:

Date of issue of Notice

Name of Director

Address of Director

NOTICE FOR THE MEETING OF THE BOARD OF DIRECTORS OF                           Name of Company---------------------- LIMITED

Dear Mr. Name of Director,

Notice is hereby given that a meeting of the Board of Directors of the Company shall be held as per the following schedule:

Date:               of Meeting

Time:              of Meeting

Venue:            of Meeting

The agenda for the meeting is enclosed.

You are requested to make it convenient to attend the above meeting.

For Name of company LIMITED

__________________________

Name of Director

(DIRECTOR)

DIN: --------------------

Add: of Director

2. AGENDA OF BOARD MEETING:

AGENDA

AGENDA FOR THE MEETING OF BOARD OF DIRECTORS TO BE HELD ON

 ------------DAY OF----------MONTH, 2014 AT -------------TIME OF MEETING

 AT ADDRESS OF PLACE OF MEETING

1.      To Appoint Chairman of the meeting.

2.      To Grant leave of absence.

3.      To Confirm minutes of the previous Board Meeting.

4.     To ADD MORE AGENDA’S ACCORDING TO REQURIEMENT

5.      To give Vote of Thanks.

Signature

Name of Director

(DIRECTOR)

DIN: --------------------

Add: of Director

3. ATTENDENCE SHEET OF BOARD MEETING:

DIRECTORS MEETINGS

ATTENDANCE SHEET

ATTENDANCE SHEET OF THE MEETING OF BOARD OF DIRECTORS OF M/S NAME OF COMPANY LIMITED HELD ON ---------DAY OF------------MONTH OF, 2014 AT REGISTERED OFFICE OF COMPANY.

        NAME                                                                                         SIGNATURES

            DIRECTORS:

1)     Mr. Name of Director

2)     Mr. Name of Director

3)     Mrs. Name of Director

SPECIAL INVITEE:

4)     If any;

4. LEAVE OF ABSENSE:

From:

Mr. Name of director who is on leave

Address of Director.

Date of Leave of Absence before Meeting

The Board of Directors

M/s NAME OF COMPANY LIMITED

ADDRESS OF REGISTERED OFFICE

Subject: Leave of Absence

Dear Sir,

With reference to the board meeting of the company to be held on date of mewing, it is hereby submitted that due to preoccupations, I am not in a position to attend the same. You are requested to grant the leave of absence.

Thanking you,

Name of Director who is on leave

DIN: ------------------

Address of Director

5. CONSENT TO ACT AS MD:

CONSENT TO ACT AS MANAGING DIRECTOR

To,                                                                                                                        Date:

The Board of Directors,

Name of Company,

Registered office address

Subject:  Consent to act as Managing Director U/s 196 of Companies Act, 2013.

Dear Sir,

This is to submit that I, Name of Director (DIN: ______________) S/o Mr. ---------- R/o B----------------------------------, the undersigned, having consented to act as a Managing Director of the Name of Company pursuant to section 196 of Companies Act, 2013.

You are requested to take on record the same.

Name of Director

DIN: ----------

Add: of Director

6. MD AGREEMENT:

AGREEMENT

This agreement made on Date of Agreement, effective from Date of Effectiveness between Name of Company Limited, a company incorporated under the Companies Act, 1956 and having its Registered office at --------------------------------------------------------------, (Hereinafter called “the Company”) of the one part and Mr. Name of MD (DIN: ------------) (Hereinafter called “the Managing Director”) of the other part, whereby it is agreed as follows:

1. The Company hereby appoints Mr. ---------------------------- (DIN: -------------) as Managing Director of the Company and the Managing Director hereby agrees to serve the Company in such a capacity for a period of five years with effect from ------------------.

Now this present witness and it is hereby agreed by and between the parties thereto as follows:

2.  a) The Managing Director shall exercise and perform such powers and duties as the Board of Directors of the Company (hereinafter called “ the Board”) shall from time to time determine, and subject to any directions, and restrictions, time to time given and imposed by the Board, he shall have the general control, management and superintendence of the business of the Company with power to appoint and dismiss employees and to enter into contracts on behalf of the Company in the ordinary course of business and to do and perform all other acts and things, which in the ordinary course of business he may consider necessary or proper or in the interest of the Company.

b) Without prejudice to the generality of the power vested in the Managing Director,

    Managing Director shall be entitled to exercise the following powers:-

(i)       With Board’s approval together with other Director(s) and other personnel authorized by the Board, to open and operate on any banking or other account and to draw, make, accept execute, endorse, discount, negotiate, retire, pay, satisfy and assign cheques, drafts, interest and dividend warrants and other negotiable or transferable instruments or securities.

(ii)     To incur capital expenditure up to sum of Rs.------------ lacs (Rupees --------- Lacs Only) during any financial year.

(iii)   To invest surplus funds of the Company in fixed deposit with the company’s bankers or other securities (liquid funds) provided that such investments in any one financial year shall not exceed Rs.------------- lacs (Rupees ---------------- Lacs Only) at any one time.

 To engage employees and other servants for the Company at a basic salary not exceeding Rs.---------------- lacs per month within the budget sanctioned by the Board.

(iv)   To increase the salary or the remuneration of any employee or servant of the Company whose basic salary does not exceed Rs.--------------- lacs per month.

(v)     To institute, prosecute, defend, oppose, appear or appeal to compromise, refer to arbitration, abandon subject to judgment and execution or become non-suited in any legal proceedings including trade marks, trade names and trade property and customs passing off actions and revenue proceedings relating to customs or excise duties, tax on income, profits and capital and taxation generally or otherwise as it relates to the Company.

(vi)   To give loan to employees other then directors of company of Rs. 1 lacs (Rupees one lacs only) each and Rs. --------------- lacs (Rupees ------------ Lacs only) in aggregate.

3. The Managing Director shall throughout the said term devote the whole of his time, attention and abilities to the business of the Company, and shall obey the orders from time to time, of the Board and in all respects, confirm to and comply with the directions and regulations made by the Board, and shall well and faithfully serve the company and use his utmost endeavors to promote the interest thereof.

4.  a) The Company shall pay to the Managing Director during the continuance of this

          Agreement in consideration of the performance of his duties.

(i)       A salary at the rate of Rs. -------------- lacs (Rupees ------------- Lacs only) per month w.e.f-------------------, which may be reviewed by the Board.

(ii)     Reimbursement of medical and hospitalization expenses of the Managing Director and his family subject to a ceiling of one month salary in a year.

(iii)   Leave Travel Allowance for the Managing Director and his family once in a year in accordance with the Company policy.

(iv)   Bonus for the financial year, at the discretion of the Company, with shareholder approval.

(v)     Reimbursement of expenses incurred by him in Purchase of newspapers, magazines, books and periodicals in accordance with the Company policy.

(vi)  Reimbursement of expenses incurred by him on account of business of the Company in accordance with the Company policy.

(vi)      Reimbursement of any other expenses properly incurred by him in accordance with the rules and policies of the Company.

(viii) Provision of chauffer driven car for the use on Company’s business, meal

         Coupons and telephone at residence.

(ix)  The Managing Director shall be entitled to such increment from time to  

         time as the Board may by its discretion determine.

5.  This agreement may be terminated by either the Company or the Managing Director at any time within the five year period, by the giving of 3 months notice in writing.

In witness whereof the parties hereto have set their hands the day, month and year first above written.

For Name of Company Limited

(Name of Director)                                                             (Name of MD)

DIRECTOR                                                                              Managing Director

DIN: ---------                                                                            DIN: -----------

Add: --------------------                                                              Add:---------------

Witness

7. CONSENT TO ACT AS DIRECTOR- DIR-2

DIR-2

[Pursuant to section 152(5) and rule 8 of Companies (Appointment and Qualification of Directors) Rules, 2014]

To

Name of Company Limited

Subject: Consent to act as a director

I Name of Director, hereby give my consent to act as director of Name of Director Limited, pursuant to sub-section (5) of section 152 of the Companies Act, 2013 and certify that I am not disqualified to become a director under the Companies Act, 2013.

1. Director Identification Number (DIN)                            :          

2. Name (in full)                                                                    :          

3. Father’s Name (in full)                                                     :          

4. Address                                                                              :          

5. E-mail id                                                                             :          

6. Mobile no.                                                                          :

7. Income-tax PAN                                                                :          

8. Occupation                                                                         :          

9. Date of birth                                                                      :          

10. Nationality                                                                         :          

11. No. of companies in which I am already a Director and out of such companies the names of the companies in which I am a Managing Director, Chief Executive Officer, Whole time Director, Secretary, Chief Finacial Officer, Manager.              :           Not Applicable

12. Particulars of membership No. and Certificate of practice No. if the applicant is a member of

any professional Institute.                                                      :           Not Applicable

Declaration

I declare that I have not been convicted of any offence in connection with the promotion, formation or management of any company or LLP and have not been found guilty of any fraud or misfeasance or of any breach of duty to any company under this Act or any previous company law in the last five years. I further declare that if appointed my total Directorship in all the companies shall not exceed the prescribed number of companies in which a person can be appointed as a Director.

Date                                                                                                                                  Signature:

Place: New Delhi                                                                                           Designation: Director

DIN:

Attachments:

1. Proof of identity;

2. Proof of residence;

8. BOARD RESOLUTION:

TO REAPPOINTMENT MR. NAME OF DIRECTOR (DIN: ----------) AS MANAGING DIRECTOR OF THE COMPANY:-

The Chairperson placed before the Board draft Agreement to be entered with Mr. Date of Director (DIN: ----------) to re-appoint him as Managing Director of company w.e.f. ---------------------------- as per terms and condition mentioned in the draft agreement.

After discussion following resolution passed unanimously:-

“RESOLVED THAT pursuant to the provisions of the of Companies Act, 1956 along with other applicable provisions, if any of the Companies act 2013, and rule made there under (including any statutory modification or re-enactment thereof for the time being enforce) and Article of Association of Company and subject to approval of shareholders in general meeting, Mr. name of director (DIN: --------------), Managing Director of the Company be and is hereby Re-appointed as Managing Director of the Company with effect from -------------------------- as per terms and conditions as mentioned in the agreement to be entered with him.

“RESOLVED FURTHER THAT Mr. ---------------- (DIN: ------------) and Mrs. ---------------- (DIN: ----------), Directors of the Company either jointly or severally be and is hereby authorized to do all such acts, deeds, things etc. as may be required to comply with all formalities etc. as may be required to comply with all formalities in this regard”.

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com) 

CONTACT ON BELOW MENTIONS EMAIL ID FOR ANY QUERY OR QUESTION OR SUGGESTIONS:

Regards,

CS Divesh Goyal                                                                                        +91-8130757966

ACS-35817                                                                                csdiveshgoyal@gmail.com