Managing Director and Whole Time Director in a Private Limited Company By CS Dhaval Gusani


Dear Professional Colleagues,

The Companies Act, 2013 does not mandate a Private Company to appoint a Managing Director, Whole-Time Director or Manager. It also does not prohibit the 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.
 
Whole Time Director under Section 2 (94) of the Companies Act, 2013
 
Whole Time Director means a director in the whole-time employment of the company. In other words, a director employed to devote the whole of his time and attention in the carrying on of the affairs of the Company.

A person, who is proposed to be appointed as a managing director or whole-time director, can’t be appointed unless he is already a director in the company. So, the holding of office of director is a prerequisite for holding of office of managing or whole-time director.
 
Appointment of Additional Director as MD/WTD
 
If a person, while he was the additional director of a company, had been appointed as the managing or whole-time director, the appointment also ceases simultaneously with the cessation of his directorship at the commencement of the annual general meeting. However, if such a person is re-elected as a director at the next annual general meeting, he shall continue as a managing or whole-time director also for the period for which he is so elected by the annual general meeting.
 
Criteria for the 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 the appointment for these positions is 21 years and normal retirement age is 70 year.
  • The appointment of a person having the age of above 70 years may be made by the approval of members by special resolution.
 
Managing Director V/S. Whole Time Director
 
The basic difference between a managing director and a whole-time director is that a managing director cannot be appointed for more than 5 years at a time, but this is not applicable to a whole-time director. Further, an individual can be a managing director of two companies, but an individual cannot be a whole-time director of more than one company.
 
Procedure to appoint an MD/WTD/Manager by Private Company
 
  1. Articles of Association must authorize the Board to appoint an MD/WTD and Manager, if not; alter the AOA of the company first.
  2. Hold a Board Meeting for consideration of appointment of MD/WTD or Manager and pass a resolution for the appointment.
  3. Execute Agreement with MD/WTD/Manager stating various terms and conditions of appointment.
  4. Filing of particulars of MD/WTD/Manager in Form DIR- 12
  5. Filling of Board Resolution in form MGT-14
 
MGT-14: This form is required to file within 30 days of the passing of board resolution by all the Companies including Private Limited Company {Section 117(3)(c)}
 
  1. Appointment including re-appointment of MD
  2. Variation in the terms and conditions of appointment of MD(Variation includes increase/decrease in remuneration also)
 
Resignation by MD and WTD
 
Ordinary Director may resign under section 168 by tendering resignation but a managing or whole-time director or manager cannot resign merely by giving a notice to this effect. They cannot freely resign and consider themselves relieved from the respective office. Acceptance of their resignation by the company is necessary for their resignation to be effective.
 
Exemptions to Private Limited Companies
 
  • No need to take approval of Shareholders for the appointment of MD/ WTD.
  • Provision of Section 197 i.e remuneration to MD/ WTD not applicable to such companies.
  • Schedule V not applicable on such Companies.
  • No need to file e-form MR-1.

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