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Key Managerial Personnel- Operational Decision Making Group

Key Managerial Personnel- Operational Decision Making Group

Key Managerial Personnel under Companies Act, 2013 KMP refers to a group of people responsible for the company's operation. They are responsible for the smooth running of the company and making decisions. These employees are vested with essential functions and roles.

Definitions of Key Managerial Personnel under the Companies Act, 2013

According to the provisions of the Companies Act,2013 gives the KMP list for a company as:

  • Manager or chief executive officer or managing director
  • Company Secretary
  • Whole-time Director 
  • Chief financial officer
  • Other officers as may be specified

Chief Executive Officer, Manager, or Managing Director

The company's Chief Executive Officer and Managing Director are responsible for its management. The company's Managing Director is responsible for all operations. They also have the responsibility for expanding and innovating company operations to a greater extent.

The Act defines the Managing Director as a director with substantial power over the management of the company and its affairs. The following are how a Managing Director can be appointed:

  • The Articles of Association
  • Contract with the company
  • Special resolution
  • Board of directors

A manager is defined by the Act as someone who oversees all company affairs and is subject to the direction, control, and supervision of the board. Chief Executive Officer CEO/Managers can also include directors or persons who hold key personnel of a company, even if they are under contract of service. A company cannot simultaneously appoint both a managing director and a manager.

Company Secretary

The company secretary is responsible to ensure efficient administration. They ensure compliance with regulatory requirements and company policies. They ensure that the targets and instructions of the board are met.

The Act defines a company secretary as a person who is a member of the Institute of Company Secretaries of India (ICSI) and is a secretary to a company. A Company Secretary is defined by the Company Secretaries Act as a person who has been appointed by the company to perform the functions of a Company Secretary. The company secretary must ensure compliance with secretarial standards.

Whole-Time Director

A Whole-Time Director, as defined by the Act, is a director in the whole-time employment of the company. They are involved in the day-to-day operations and have a substantial stake in the company, they are distinct from independent directors. 

A Whole-time key managerial personnel shall not hold office in more than one company except in its subsidiary company at that time. However, key managerial personnel or KMP can be appointed as a director of any company after taking permission from the Board.

Chief Financial Officer

The company's chief financial officer is responsible for managing its finances and treasury functions of the company. They monitor cash flow, plan for financial emergencies and make financial decisions. They are responsible for the company's treasury, finance, and accounting functions. 

The director and chief financial officer is also responsible for accounting divisions and ensures that the financial reports of the company are prepared accurately and completed on time.

Appointment Of Key Managerial Personnel

Section 203 of the Act states that certain types of companies must appoint key managerial personnel. This includes the Chief Executive Officer or Manager, Chief Financial Officer, Company Secretary, and Managing Director. A company must appoint a whole-time director, without the need for a manager, chief executive officer, or managing director.

Rule of Companies (Appointment & Remuneration of Managerial personnel)  Act, gives the categories of companies that must appoint a whole-time director.

  • Each listed company
  • A public company having a paid-up capital of Rs. 10 crores or more

Further as per the Rule of Companies (Appointment & Remuneration of Managerial personnel) 

  • Any company with a paid-up capital of Rs. 10 crores or more other than specified in the Rule shall appoint a whole-time company secretary

A resolution of the board contains the terms and conditions of each key managerial personnel KMP appointment, as well as remuneration. Whole-time directors must not hold office in more than one company unless it is a subsidiary.

The board is responsible to fill the vacancies within six months from the date of the vacancy. 

Persons who cannot be appointed as Key Managerial Personnel

The Act says that a company can't continue to employ or appoint a whole-time director, managing director, or manager if such a person is not available.

  • Younger than 21 years or has exceeded 69 years of age (A person can be appointed at the age of 70 years on satisfying some conditions) or is 
  • Is a convicted insolvent, or an uncharged insolvent
  • Has stopped paying creditors at any moment
  • Has been convicted by the court and has been sentenced to imprisonment for more than six months.

Role and Responsibilities of Key Managerial Personnel post

The key managerial personnel are responsible for making crucial company decisions and managing employees. They can also be held responsible if the company fails to comply with the Act's mandatory compliance requirements. The primary functions and responsibilities are:

  • Section 170 of the Act requires that the Register be filled out with information about securities held within the company or in its holding/subsidiary.
  • They are allowed to voice their opinions, particularly in Audit Committee meetings. However, they don't have voting rights.
  • Section 189(2) requires that they disclose their interest in other companies and associations within 30 days of being appointed.

They are the essential people who manage the affairs and management of a company. The Companies (Appointment & Remuneration of Managerial Staff) Rules, 2014 require the appointment by the companies.