MANAGING DIRECTOR

 INTRODUCTION
the directors of the company do not attend the office
of the company everyday and hence they appoint a
person amongst the directors for the purpose of
carrying out their policy decision taken a the board
meeting . This person is called the managing director
Meaning of managing director
 A managing director or MD is a director of the
company given special powers by its article of
association. MD is a person at the head of the
executive structure of an undertaking by virtue of its
membership of the BOD ,or by virtue of powers
delegated to him by that body . In most companies
MD is the senior executive director ,subordinate only
to the chairman of the board and He/she controls
resources and expenditures.
 Definition of MD
The companies act defines a managing director sec.267
as ”a director who by virtue by an agreement with the
company or of a resolution passed by the company in a
general meeting, or by the BOD ,or by the virtue of its
MOA or AOA is entrusted with substantial powers of
management which would not otherwise be exercisable
by him , and includes director occupying the position of
MD by whatever name called."
 Qualifications of MD
Section 269 of the companies act , 1956 provides that in
the case of a public company including a private
company which is a subsidiary of the public company,
the appointment of the MD shall not have effect unless
approved by the central Govt. in the case of a company
form after the commencement of companies ‘ act 1960,
the 1st appointment of the MD may be made without
such approval, but it will cease who have effect if the
approval of the central Gov. is not obtained within 3
months of the incorporation of the company.
 The central govt shall not grant its approval unless it is
satisfied that :
1. it is in the interest of the company a MD.
2. The proposed MD is a fit and proper person and the
appointment is not against the public interest .
3. The terms and conditions of the appointment are
fair and reasonable.
The central govt may ,if it the opinion that it is in the
interests of the company who reduce the period of
appointment proposed by the company.
Checklist for appointment of MD
 Proper application fees in the manner provided vide
GSR no .501(E),dated 6-7-1999.
 Copies of public notices in English and in local
newspaper in local languages .
 Monetary value of each perquisites and allowances and
total remuneration package (in the form of statements
annexed )valued as per actual cost .
 Appropriate and clear resolution in support of the
proposal.
 In case of appointment as managerial personnel in 2 or
more companies the manner in which compliance of
section 316(2)/(4) has been made.
 Reason for Loss/inadequancy of profit ,steps taken to
improve the financial performance and future
projections.
 Full and proper justification for proposed
appointment/remuneration.
 The manner in which compliance of section 269(2) of
the companies Act was met at the time of appointment
/reappointment of the managerial person where
midterm increase in remuneration is proposed.
 Application for condemnation of delay under section
637B along with justification and requisite application
fee where the application was not submitted within
90days of the date of appointment/re-appointment.
 Monetary value of total remuneration in rupees or
rupees equivalent drawn by the proposed appointee
during last 3 years from the applicant company or any
other company.
 Copy of the directors 'report and the audited accounts
of the company for each of the last 5 financial years of
the company
 Each column of the application is filled up .
 Copies of FIPB approvals, in case of foreign
collaboration/investment.
 Each page of application and documents attached is
authenticated under the seal of the applicant company.
 Contravention of section 197A makes a company liable to penalty
under section 629A and the appointment will be invalid.
Approval of managing or whole-time director or manager of a
public company without the approval of the central govt when
we follow schedule xiii for appointment of a person as a
managing or whole-time director or manager there is no need to
obtain the central govt approval.in the case of appointment
through schedule xiii a return Is required to be filed in e-form
25c with ROC within 90days of appointment . As per explantion
of section269”the term appointment includes reappointment “.
 Pre conditions for appointment
under schedule xiii
• The person proposed to be appointed does not suffer any
disqualification specified in sub paragraphs (a) and(b) of
part 1 of schedule xiii of the act on where necessary
approval of the central govt has been obtained
• That he fulfills the requirements of age or where necessary
special resolution will be passed by the company in general
meeting as prescribed in paragraph(c) of part 1.
• That the company is free from any default in repayment of
any of its debts( including public deposits ) etc.
 Action to be taken by the company after appointment
under schedule xiii
 File within 30days of appointment ,e-form 23 with ROC as desired by
section 192 in respect of appointment of MD or re-appointment or
variation of the form. This provision is not applicable to the
appointment of whole-time director and manager.
 Forward abstract of the appointment and remuneration to the
members of company within 21days of the appointment under section
302 in respect of MD, whole-time director or manager.
 File e-form 32 with Roc within 30days of appointment.
 Where an existing director is appointed as MD or manager e-form 32
shall be filed with ROC within 30days of further appointment, as there
will be change in the position of the existing director.
 Make entries in the registers of directors, manager and secretaries.
Restrictions on MD’s appointment
and Re-appointment
 The approval of the central govt is required for the appointment or Re-
appointment of a MD.
 The sanction of the central govt is required for any change in MD’s agreement
in the provisions of the memorandum or articles to his appointment or re-
appointment.
 A person cannot be appointed as a MD for a term exceeding five years at a time.
 A person cannot be appointed as a MD of more than two public companies at a
time.
 The rules regarding the retirement of directors by rotation is not applicable to
MD’s. therefore, he may be called a non-retiring director so long as he acting as
a MD.
 No person can be appointed as a MD who is an undercharged insolvent or who
suspends or has at any time suspended payment to his creditors , or has at any
time been convicted by a court of an offence involving moral turpitude.
 The managing director works in two capacities ,one as a
director and another as a manager of the company. The
duties assigned to him should be such as to involve the
exercise of substantial powers of management.
 The MD enters into an agreement with the company. The
agreement provides his terms and conditions of services ,
powers, duties etc.
 As a MD is also one of the directors of the company other
provisions of the act relating to directors will also be
applicable to the MD
 If a company has a MD , it cannot have a manager.
 Appointment should be as per the conditions laid down in
schedule xiii which has been introduced by Amendment
act of 1988.
 Power of MD
 The power of MD derive from one of the source stated
in the companies act (CA),although the law does
recognize ’implied power’. The principal source of an
MD’s power is the board of directors (BOD).this
principle Carries great weight with respect liability for
defaults and contravention of the law by the company ,
because the liability depends on the powers.
 The power of MD are as follows:
 To supervise and control the work of employees of the federation.
 To conduct , negotiate ,and make agreements for the purchase and sale
of goods and their proper storage etc., as many be entrusted to him by
the board.
 To sanction expenditure on establishment or for purchase stores
subjects to the approval of the board.
 To perform such other function that may delegated by the board from
time to time.
 To sign on behalf of the federation and to conduct its correspondence.
 To supervise and control staff of the federation subordinates to him ,
and to maintain their confidential files and impose penalties as per
staff services rules.
 To arrange for sale and marketing of commodities, to and on behalf of
its members and the federation.
 To negotiate with government and business firms and
manufacturers about the terms and conditions of the
business of the federation and to place details for
negotiations before the executive committee or other sub-
committees for consideration.
 To purchase furniture , fixtures and equipment's to the
office up to a limit of rs20,000 in each case subject to the
budget allotment and observing the normal formalities.
 To engage godowns for storage of fertilizer and other
commodities at such rents as the local circumstances
demand for a period of 11 months.
 To incur expenditure on books, forms and stationary
subject to the budget allotment.
 To purchase and supply any commodity from any society company or any
association and government against specific indent or order up to a limit of
rs50,000 for each items at a time. It shall not apply to controlled commodities
allotted by govt or semi- govt.
 To move the government and the other competent authorities for disciplinary
action against official lent by govt.
 to incur expenditure in connection with stock verification of commodities
stored in federation’s godowns , whenever necessary.
 To incur expenditure in connection with re-bagging or standardization of
commodities.
 to incur expenditure towards repairs of the office and godowns buildings
subject to budget allotments.
 To incur expenditure towards maintenance and repairs of the office vehicles
subjects of budget allotments.
 To sanction charge allowances beyond(6) months at one twentieth of the
minimum pay of the post to the employees who are placed in addition charge
of the equivalent or higher posts or placed in independent charge of higher
post.
 Duties of MD
 BRING IS NEW BUSINESS
A MD is responsible for new business development. He
helps to bring new clients to the firm. In this way , the MD is
similar to a high level salesperson. The director set meeting
with potential clients(may be off-site at a dinner , on-site or
at the customers business) and present a proposal in order
to win a clients business . The MD stays in touch with
potential clients. In addition to bringing in a new work. The
MD must also research and implement new strategies that
could help increase his company’s( and the shareholders)
profit.
 KEEP CLIENTS HAPPY
Once a new clients comes on board, the MD must also
nurture this new business relationship. The MD helps
make the transition smoother and addresses the clients.