CEO Appointment in Private Limited Company – Procedure Guide

Ever wondered why Private Limited Companies appoint a CEO when it is not legally necessary? A Chief Executive Officer (CEO) is the highest-ranking executive in the corporate world. The role of a CEO in an organisation is crucial as they guide employees and improve the company’s overall performance. And so, the appointment of a CEO in Private Limited Companies is an essential step in establishing a strong organisation. 

The procedure for the appointment of a CEO in a private company is not a complicated task. Private Companies offer flexibility in this process and require fewer legal complications. 

While appointing a CEO isn’t necessary for Private Limited Company incorporation, some firms still choose to appoint one for improved management. In short, appointing a CEO can bring multiple benefits to the company, which we will further discuss in this blog. We will also learn about the roles and responsibilities, eligibility criteria, and the appointment process of a CEO. 

Who is a CEO and What are their Responsibilities?

A CEO is the Chief Executive Officer who oversees the management and performance of the company. They ensure that the company’s goals are achieved and that operations run smoothly. They also act as a crucial link between the Board members and the management team of the company. 

The CEO’s role is not just managerial but involves a wide range of tasks. In a Private Limited Company, a CEO must undertake the following responsibilities: 

• Plans strategies for business growth 
• Makes Important Business decisions
• Must ensure full legal and regulatory compliance 
• Ensure the company’s direction aligns with the vision of Board members. 

Who can be appointed as a CEO in a Private Company?

There’s no specific qualification for the appointment of a CEO in a Private Limited Company. However, companies may propose their particular eligibility criteria in their Articles of Association (AoA) or internal HR policy.

Typical qualifications include:

• Adequate educational background: A candidate with an MBA in Finance or a Master’s in Business Administration from a reputed institution 

• Leadership experience in senior management roles: Someone who has served as a Chief Operating Officer (COO) or Vice President of Operations in a company for several years

• Integrity and a clean professional record: A professional with no criminal record, fraud, penalties or regulatory actions.  

• Strong strategic, analytical, and communication skills: A leader who has designed and executed a long-term business growth strategy and has relevant experience.   

What Law Governs the Appointment of a CEO in a Private Company? 

In India, the appointment of a CEO is governed by the following: 

• Company Act, 2013
• SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. (Only if the company is listed)

The Public companies largely follow these laws. The Law does not mandate the appointment of a CEO in Private companies. It is completely optional for them and depends on:

• The company’s internal structure
• Provisions in the Articles of Association (AOA)
• Board of directors’ decision

Which Companies are Required to Appoint a CEO? 

Section 203 of the Companies Act, 2013, requires Public Companies to appoint the “whole-time key managerial personnel (KMP)” — which can include a CEO, Managing Director (MD), or Manager. This is only applicable in the following circumstances: 

• For every listed company 
• For every public company with a paid-up share capital of ₹10 crore or more

*Listed Company: A listed company is a company whose shares are listed and traded on a recognised stock exchange (such as NSE or BSE in India).

What is the difference between a CEO and a KMP? 

The term CEO is not always treated as a legal designation. Under the Companies Act, 2013, only certain senior positions are treated as Key Managerial Personnel (KMP). A CEO can become a KMP only when they are formally designated as one. Hence, a CEO is not automatically a KMP, but can be appointed as one under legal provisions. 

Read More: How to appoint a Managing Director in India?

Procedure for Appointment of CEO in a Private Company

The appointment of a CEO in a private limited company does not require compliance with any legal formality. However, the process still needs to be systematic to ensure the selection of the right candidate.

The company must follow these basic guidelines: 

1. Check the Articles of Association

• Review the AoA to see if it specifies eligibility, term, or method of appointment.
• To define the roles and responsibilities of the CEO.

2. Call a Board Meeting

• Issue a proper notice to all directors as per Section 173 of  the Companies Act, 2013
• Include the agenda to appoint the CEO 
• Prepare a Board Resolution for the appointment of a CEO

3. Evaluation and Selection of Candidate 

• Reviewing potential candidates’ profiles and shortlisting. 
• Conduct a vote as per the AoA and record the resolution in the meeting minutes.

4. Documenting and Signing Employment Agreement 

• An employee contract drafting must take place       
• Ensure the minutes clearly mention the CEO’s role, term, and powers.

5. Update Internal Registers and Communication

• Update the company’s Register of Directors or Board records.
• Reflect the CEO’s name in company communications, letterheads, or website if needed.

Documents Required for the Appointment of a CEO in a Private Company

For a Private Limited Company, since there are no legal obligations to appoint a CEO, the documentation process is not so complicated. However, to keep the process recorded and formal following documents are required: 

• Board Meeting Notice and Agenda Draft 
• Copy of Board Resolution for Appointment 
• Consent Letter of Proposed Chief Executive Officer 
• Appointment Letter
• Other Required Documents 

To carry out this procedure smoothly, take expert guidance from RegisterKaro. We offer legal and compliance consultation tailored to your company structure.

Legal Compliance if a CEO is appointed as a KMP/Director

Suppose a CEO is also appointed as Director, Managing Director (MD), Whole-time Director (WTD), or a Key Managerial Personnel (KMP) under the law. In that case, the appointment must comply with the following under the Companies Act 2013. 

• File e-Form DIR-12 with the Registrar of Companies (ROC) if the CEO is designated as a Director.
• File e-Form MGT-14 with ROC (only if Board Resolution filing is required as per the company’s Articles).
• Make necessary entries in:
  • Register of Directors & KMP
  • Statutory Register and Minute Books

Note: Appointment of a CEO in a Private Limited Company can be done by the board of directors. Shareholders’ approval is not required to appoint a CEO unless the person is a Director of the company. 

Challenges in the Appointment Process of the CEO 

Appointing a CEO can be a complex and highly critical decision for a company, especially when significant business risks are involved. The Board must overcome the following challenges to appoint a competent CEO: 

• Budget and Compensation Issue: Top executives demand higher salary packages, bonuses, and stock options, which private companies may struggle to offer. 

• Compliance and Legal Formalities: Although more flexible than public companies, there are still procedural requirements that need to be fulfilled in the case of private limited companies, such as:
  • Board Resolution 
  • Director Registration 
  • Updated Company Filing 

• Shareholder/Founders’ Control: The CEO’s powers and authorities should be clearly predefined to avoid any conflict in decision-making.

Removal and Resignation of CEO 

The board of directors can remove a CEO if the performance is unsatisfactory or the trust is compromised. 

In case of removal of the CEO: 

• The board passed a formal resolution
• A hearing  (If applicable in case) 
• Proper settlement of all contractual obligations.

In case of the CEO’s Resignation: 

• The concerned individual must submit a formal resignation letter to the board of directors. 
• The Board formally accepts the resignation. 

Note: If the CEO also holds the position of a director, necessary regulatory filings and statutory compliances must be completed to record the cessation of directorship. 

Conclusion

The appointment of a CEO in a Private Limited company is a strategic decision that shapes the organisation’s direction, culture, and performance. It marks a shift from founder-led management to professional leadership, allowing companies to scale, innovate, and compete more effectively. 

Appointment of a CEO in a company also ensures that the power will not be accumulated by the founder and will be regulated well with the board of members. 

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Frequently Asked Questions (FAQs) 

1. Who is above the CEO in a private company? 

If you work for a private company, owners or board members could rank above the CEO. In most organisations Chairman of the Board, President, and Vice-President are considered higher positions. 

2. Can you have a CEO in a private company?

Yes, a Private company can have a CEO based on the guidelines of its institutions. A CEO in a private organisation can either be a member of the board or a professional executive appointed solely by the board of directors. Appointing a CEO for a Private Company can be a strategic choice that can significantly enhance the business performance. 

3. Who is next in line to be CEO? 

Commonly, a Chief Operating Officer (COO) is next in command to a CEO, but the successor can vary depending on the executive structure of the company. If a company does not have a COO, the Managing Director (MD), Deputy CEO, Chief Strategy Officer (CSO), Chief Business Officer (CBO), or Board Chairperson can be the next in power. 

4. Can a sole proprietor be called a CEO?

The owner or sole proprietor is the one who owns the business and controls all its financial resources. A CEO, on the other hand, is a title that has nothing to do with ownership and more to do with roles and responsibilities. Hence, a sole proprietor can be called a CEO, but not necessarily hold the title just because they own the business.

5. Who approves CEO expenses?

The Chief Financial Officer (CFO) or another member of the executive team most commonly approves CEO expenses. For major or material expenses, approval may require oversight from the Board of Directors or a Board-appointed committee. 

6. Is it mandatory for a private limited company to appoint a CEO?

No, the Companies Act, 2013, does not make CEO appointments compulsory for private companies. However, they can choose to appoint a CEO based on their internal needs and for better management. Most Private Companies appoint a CEO to improve their business performance. 

7. Can a foreign national be appointed as CEO of an Indian private company?

Yes, a foreign national can be appointed as the CEO of an Indian private limited company. Indian company law does not restrict this, but the individual must have a valid employment visa to legally work in India.

8. Is section 196 applicable to private companies?

Section 196 of the Companies Act, 2013, deals with the appointment of Managing Director, Whole-Time Director, or Manager, and applies to all companies, including private limited companies. However, Private Companies do enjoy some exemptions under the act and related notifications, which provide them more flexibility in terms of board approvals, shareholder approvals, and conditions regarding the appointment of managerial personnel.

9. How does a CEO get appointed in a Private Limited Company?

In a private limited company, the appointment of a CEO is made by the Board of Directors through an internal corporate decision. The Board holds a meeting, evaluates a candidate, and passes the resolution once the selection is completed. Once the appointment is confirmed, an employment letter is issued, clearly stating the CEO’s role, responsibilities, and remuneration.

10. Who is more powerful, the CEO or the Board of Directors?

The Board of Directors is more powerful than the CEO in a corporate structure. The Board is responsible for overseeing the company’s overall direction, making key strategic decisions, and protecting shareholders’ interests. A CEO, on the other hand, is appointed by the Board to manage the company. A CEO might be the highest-ranking executive, but the Board of Directors holds the power to evaluate, guide, and even remove the CEO if necessary.