Appointment of Managing Director

Introduction:

The Companies Act, 2013, provides a framework for the governance and management of companies within India, offering flexibility in the appointment of key managerial personnel in private companies. Specifically, the Act does not mandate private companies to appoint a Managing Director (MD), Whole-Time Director (WTD), or Manager but allows voluntary appointments for effective business management. Understanding the definitions and criteria for these roles is crucial for companies aiming to enhance their management strategies.

 The Companies Act, 2013 does not mandates a Private Company to appoint Managing director, Whole-Time Director or Manager. It also does not prohibit voluntary appointment of Managing Director, Whole-Time Director or Manager by the Private Companies for efficient management of their businesses.

Managing Director under Section 2 (54) of the Companies Act, 2013:

 A director who, by virtue of 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.

Criteria for appointment (Section 196)

• A company can’t appoint or employ at the same time a Managing Director and a Manager.
• A company can’t appoint or re-appoint any person as Managing Director or Whole Time Director or Manager for a term exceeding five years at a time.
•  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 21 years and normal retirement age is 70 years.
• The appointment of a person having age of above 70 years may be made by the approval of members by special resolution.

Procedure to appoint a MD/WTD/Manager by Private Company

1. Hold a Board Meeting for consideration of appointment of MD/WTD or Manager and pass resolution for appointment.
2. Execute Agreement with MD/WTD/Manager stating various terms and conditions of appointment.
3. Filling of Board Resolution in form MGT-14* for appointment of MD within 30 days from the date of appointment.
4. Filing of particulars of MD/WTD/Manager in Form DIR-12 within 30 days from the date of appointment.

 *MGT-14 is required for appointment including re-appointment of MD and variation in the terms and conditions of appointment of MD. Variation includes increase or decrease in remuneration also. [(Section 117(3)(c)] However, MGT-14 is not required to be filled for appointment of WTD and variation of any terms and conditions for his/her appointment.

5. Filing of Form-MR-1 for appointment of managing Director within 60 days from the date of appointment.

Conclusion: The Companies Act, 2013, accommodates the strategic management needs of private companies by not imposing mandatory appointments of Managing Directors, Whole-Time Directors, or Managers. However, it lays down a clear pathway for voluntary appointments, including specific criteria and procedural requirements to ensure that such appointments are made judiciously. This regulatory flexibility supports private companies in structuring their management according to their unique operational needs, promoting efficient and effective governance. By adhering to the stipulated guidelines and leveraging the provisions for voluntary appointments, private companies can significantly enhance their management capabilities and business outcomes.

Consequences of Non-filing of Form-MGT-14, Form-DIR-12 and MR-1 for appointment of Managing Director with registrar of Companies

Penalties for Delayed Filing of DIR 12 Form:

In the event of delayed filing of the form, penalties in the form of additional fees will be imposed based on the duration of the delay:

Penalties for Delayed Filing of MGT-14 Form:

Penalties for Delayed Filing of MR-1 Form: