About Key Managerial Personnel Of The Company

Key Managerial Personnel (referred to as KMP) is the whole-time employees of the company who are empowered with certain essential functionalities and roles. They are the starting point for the contact between the company and its stakeholders and are responsible for the formulation and implementation of strategies. 

Section 203 of the Act read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 specifies that every Listed company and every other public company having a paid-up share capital of Rs 10 crore or more shall have a following whole-time key managerial personnel 

• The managing director or Chief executive officer (CEO) or manager and in their absence, a whole-time director
• Company Secretary 
• Chief financial officer (CFO)

Managing Director

A managing director is someone who oversees the daily operations of a corporate or corporate division. He is entrusted with substantial powers of management of the company and is in charge of the company’s affairs. He/she is also expected to keep a company solvent and promote its expansion and growth. In other countries, managing directors generally work as the heads of individual business units of a company rather than heading up the company as a whole.

Definition of Managing Director: 

As per Section 2(54) of the Companies Act, 2013, managing director means a director who by the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

The explanation of section 2(54) of the companies excludes the following powers from the preview of administrative acts of a routine nature:

• Power to affix the common seal of the company to any document
• Draw and endorse any cheque on the account of the company
• Draw and endorse any negotiable instrument 
• Sign any certificate of share
• Direct registration of transfer of any share

[Note: As per the definition of Managing director, a managing director must be a director of the company, hence if a company wants to appoint any person as managing director of the company, who is not a director of the company, first he has to be appointed as a director or an additional director.]

Point To Be Remembered:

• A person cannot be appointed or reappointed as the chairperson of the company as well as the managing director or CEO of the company unless the AOA provides or the company does not carry multiple businesses.
• As per Section 196(1) of the Companies Act,2013 private company or public company shall appoint at the same time a managing director or a manager.  However, companies can appoint a whole-time director along with a Managing Director or Manager.
• A managing director cannot hold the office of a director including alternative directorship in more than 20 companies

Different Ways For Appointment Of Managing Director:

The company can appoint a Managing director for 5 years, in any of the following ways unless one of the following five procedures is expressly stipulated in the Article of Association of the company:

• By an agreement with the company.
• By resolution passed by the company in a general meeting.
• By resolution passed by the Board of directors.
• By the Memorandum of Association or Articles of Association.

Tenure of Managing Director:

A managing Director cannot be appointed for a term exceeding five years at a time. He/she can be reappointed for another term, but such re-appointment shall be made earlier than one year before the expiry of his term.

Appointment of Managing Director, who is Managing Director of Another Company

Section 203(3) of the Companies Act, 2013 specifies that the Managing Director shall not hold office in more than one company except in its subsidiary company at the same time. A company may appoint a managing director who is already the managing director of not more than one other company and such appointment is approved by a resolution passed at a meeting of the Board with the consent of all the directors present at the meeting.

Eligibility Criteria For Appointment Of Managing Director:

The following are the essential qualifications for holding the position of Managing Director:

• Managing Director must be above the age of 21 years and must not have attained the age of 70 years

However, a person above the age of 70 years may be appointed as Managing Director by passing a special resolution and the explanatory statement attached to the notice shall indicate the justification for appointing such a person.

• Managing Director must not an undischarged insolvent or has been adjudged as an  insolvent at any time
• The managing Director must not suspend payment to his creditors at any time
• The managing Director must not be convicted by a court of an offense and sentenced to more than six months at any time.

Role and Responsibility of Managing Director:

• A Managing Director must perform his duties with reasonable care and due diligence and use independent judgment.
• Managing Directors have to direct and control the corporate’s operations and give proper guidance and direction to the board of directors to ensure that the company achieves its vision, mission, and objectives.
• Prepare and monitor an annual business plan progress to ensure that the company achieves its objectives as cost-effectively and efficiently as possible
• Liaising with government departments and agencies, local authorities, key decision-makers, major customers, and other stakeholders to exchange information and views and exchange onion and views and to ensure that the company is providing the appropriate quality of services.
• He/she must not take or obtain any undue advantage or profit for himself/herself, or their relatives. If a director has invariably taken undue gain, he/she must pay the company an amount equal to that gain.
• The managing Director should not assign his office since such assignments are void under the law.
• Oversee the preparation of the annual accounts and annual report of the company and ensure that has been approved by the board.
• Develop and direct the implementation of policies and procedures to ensure that the company complies with all applicable Acts, rules, and regulations.
• He/she must refrain from situations where his/her indirect or direct interest conflicts with the interests of the company.

Procedure for Appointment of Managing Director:

Appointment of Managing Director shall be made as per Section 196 and its remuneration should be as per Section 197 and Schedule V of the Companies Act, 2013. However, Provisions relating to managerial remuneration do not apply to a private company.

1.  Convene and hold a Board meeting after giving 7 days’ notice to all the directors for transacting the following business: 

• Decide on the person to be appointed as managing director after fully ensuring that he does not suffer from any disqualification 
• Consider approving the draft agreement between the company and the proposed managing director 
• fix time, date, and location for holding a general meeting of the company;
• Approve notice of the general meeting along with the explanatory statement as per Sections 101 and 102 of the Act and authorize the company secretary or other officer of the company to issue a notice of the general meeting on behalf of the Board.

2.  Collect the following document from the proposed appointee:

• A declaration that he/she is not disqualified to become a director under the Act in form DIR-8
• Consent on or before appointment in form DIR-2
• Self-attested copy of identity and residential proof

3.  File e-form MGT-14 with ROC within 30 days from the date of passing of board resolution along with a copy of the board resolution and along with prescribed fees.

4.  Issue a Notice of General Meeting at least 21days before the General meeting to a member of the company.

5. Convene and hold the general meeting of members and pass a resolution for approving the appointment of the managing director.

If the age of the proposed Managing Director is more than 70 years, then the appointment has been approved by passing a special resolution. 

6.  File the following e-forms with the ROC

i.  Form MR -1:

The company shall file a return of appointment of the managing director with the ROC in Form MR -1, within sixty days from the date of appointment of Managing Director.

The e-form requires the detail of the CIN of the company, DIN for the Proposed appointee, tenure of appointment, remuneration, and SRN of e-form MGT-14.

The following documents are mandatory to attach with form MR-1

• Certified copy of Board Resolution
• Certified copy of shareholder’s resolution along with explanatory statement annexed to notice of meeting
• Copy of central government approval is mandatory in case the proposed appointment is convicted or detained as per Schedule V.
• Copy of letter of consent to act as a managing director
• Any other document can be provided as an optional attachment

Form MR-1 is digitally signed by the Director/Manager/Company Secretary/CEO/CFO of the company who has been authorized by a board resolution and certified by CA/CA/CMA in whole-time practice.

The form will be processed in STP mode and on submission of the form, SRN will be generated and the form will be approved.

ii. Form DIR – 12

Particular appointment of managing Director shall be filed with ROC within thirty days from the date of appointment of managing director.

The following documents are mandatory to attach with form MR-1

• DIR-2 (consent of Managing Director)
• Copy of Board Resolution
• Letter of Appointment of Managing Director
• DIR-8

The E-form DIR-12 needs to be digitally signed by the Director so authorized by the Company in its Meeting and certified by a CA/CS/CMA in Whole-time practice. 

This form also will be processed in STP mode and on submission of the form, SRN will be generated and the form will be approved.

iii. Form MGT-14:

The e-form MGT-14 shall file with ROC within 30 days from the date of appointment. This form is filed only when the age of the proposed Managing Director is more than 70 years.

Individual Government fees for Form DIR-12, MR-1, and MGT-14

7. Execute the agreement with the managing director as approved by the Board of directors of the company

8. Make necessary entries of appointment of Managing Director in the register of directors and other records and registers of the company.

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