Maximum managerial Remuneration as per companies act 2013
Akshat Srivastava
December 22, 2023 at 05:57 AM
INTRODUCTION:
This provision talks about the managerial remuneration of the management of the company. This Section applies to every public company but not to private companies.
What is ‘Remuneration’
“Remuneration” refers to any money or its equivalent paid to a person in exchange for services done, as well as the perquisites included in the 1961 Income-tax Act. In basic terms, managerial compensation is the compensation provided to managing personnel. Here, management personnel refers to directors such as the managing director and full-time director, as well as the manager.
What is the permissible managerial remuneration payable under the Companies Act 2013?
• Overall management compensation payable by a public business to its directors, managing director, and full-time director, as well as its manager, for each fiscal year:
| Condition | Max Remuneration in any financial year |
| Company with one Managing director/whole time director/manager | 5% of the net profits of the company |
| Company with more than one Managing director/whole time director/manager | 10% of the net profits of the company |
| Overall Limit on Managerial Remuneration | 11% of the net profits of the company |
| Remuneration payable to directors who are neither managing directors nor whole-time directors | |
| For directors who are neither managing director or whole-time directors | 1% of the net profits of the company if there is a managing director/whole time director |
| If there is a director who is neither a Managing director/whole time director | 3% of the net profits of the company if there is no managing director/whole time director |
The aforementioned percentages are exclusive of any fees due under section 197. (5). Prior to this point, any managerial compensation over 11% required government approval. Yet, a public business may now pay its managerial staff compensation in excess of 11% without prior clearance from the Central Government. The shareholders’ approval of a special resolution will suffice. If a corporation has defaulted on its obligations or failed to fulfil its obligations, authorization from the lenders will be required.
When a corporation has insufficient or no profits: In the event that a corporation has insufficient or no earnings in any fiscal year, no compensation shall be paid unless these rules are met.
| Where the effective capital is: | Limits of yearly remuneration |
| Negative or less than 5 Crores | 60 Lakhs |
| 5 crores and above but less than 100 Crores | 84 Lakhs |
| 100 Crores and above but less than 250 Crores | 120 Lakhs |
| 250 Crores and above | 120 Lakhs plus 0.01% of the effective capital in excess of 250 Crores |
MAXIMUM MANAGERIAL REMUNERATION:
The Company which is acquiring the profits in the financial year may have to pay the remuneration to managerial personnel or person, not exceeding the limits prescribed in this provision.
According to Section 197(1) of the Companies Act, 2013, the total managerial remuneration payable by a public company to its directors, including the managing director and whole-time director, and its manager in respect of any fiscal year period not exceeding 11% of the company’s net profits for that fiscal year.
If there is a requirement to exceed the overall limit of eleven percent, as per Schedule V, the company needs to call the general meeting and should obtain the authorization for exceeding the limit.
Moreover, the company needs to obtain the approval of the shareholders and pass the special resolution.
It is stated under this provision that if there is one managing director/Whole-time director manager, then that individual will entertain the 5% of the net profits of the company for that financial year.
If there is a requirement for exceeding the limit of 5%, then there is a need to pass or approve a special resolution.
However, if there is more than one managing director/Whole-time director manager, then the remuneration will be 10% of the net profits of the company for that fiscal year.
If there is a requirement for exceeding the limit of 10%, then there is a need to pass or approve the special resolution.
Remuneration payable to the directors who are neither Managing Directors nor whole-time directors is the 1% of the net profits of the company if there is a managing director.
Remuneration payable to the directors who are neither Managing Directors nor whole-time directors is the 3% of the net profits of the company but there is no managing director or Whole-time director in the company
If there is a need to exceed the limit of 3%, then there is a requirement for special resolution approval.
When the company has defaulted in the payment of dues to any bank or public financial institution or non-convertible debenture holders or any other secured creditor, there is a need to obtain the prior approval of such person (as applicable) shall have to be obtained by the company before obtaining the approval in the general meeting.
DETERMINATION OF REMUNERATION:
To determine the remuneration, there are certainly three ways, which are been stated under the Section 194(4), they are as follows:
- By the articles of the company, or
- By a resolution or,
- If the article so require, by a special resolution, passed by the company in a general meeting.
Remuneration to Directors in other Capacity
The payment payable to directors includes the remuneration payable for services provided in any other position, with the following exceptions:
(a) the nature of the services rendered is professional; and
(b) the director holds, in the judgement of the Nomination and Remuneration Committee (where applicable) or the Board of Directors in all other situations, the qualifications necessary for the practise of the profession.
Sitting fees to directors
- A director may accept compensation in the form of a fee for attending Board or Committee meetings or for any other purpose. The Board must authorise director sitting fees subject to the following conditions: (i) The fees must not exceed one lakh rupees every meeting of the Board or any of its committees. (ii) The sitting fee paid to Independent Directors and Women Directors cannot be less than that paid to other directors.
- Different fees may be established for various kinds of corporations and for independent directors.
Manner of payment of remuneration
A director or manager may be paid remuneration in any of the following manner:
(a) Monthly payment
(b) Specified percentage of profit
(c) Combination of method (a) and method (b)
Remuneration in excess of prescribed limit to be refunded
- If a director obtains pay in excess of the authorised limit (described above) or without the necessary consent, he must either return the excess to the business or retain it in trust for the company.
- Such recovery may not be waived unless the firm approves it by issuing a special resolution within two years of the date the amount becomes refundable.
- If the corporation has failed to pay its debts to a bank, public financial institution, or other secured creditor, the agreement of that person is necessary prior to waiving the collection of excess compensation.
MODES OF PAYMENT OF REMUNERATION:
The certain modes of payment of remuneration, which are been prescribed under the Section 197(6), are:
- By way of a monthly payment, or;
- At a specified percentage of the net profits of the company, or;
- Partly in one way and partly in another.
PENALTY FOR NON-COMPLIANCE:
- For a Defaulting Person: The Defaulting individual is liable to a penalty of rupees one lakh.
- For a Company: The Company or an organization is liable to a penalty of rupees five lakhs.
Auditor responsibility regarding managerial remuneration
The auditor of the company shall make a statement regarding remuneration in his report as under:
(i) whether the remuneration paid by the company to its directors as per section 197;
(ii) whether remuneration paid to any director is in excess of the limit given under section 197;
(iii) give such other details as may be prescribed.
FAQs
1.What is managerial remuneration as per Companies Act, 2013?
Ans. The total managerial remuneration payable by a public company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year shall not exceed 11% of the net profits of that company for that financial year computed in the manner laid down in section 198 of the .
2.What is managerial remuneration and its provisions?
Ans. According to the provisions of Section 197 of the Companies Act 2013 the overall remuneration paid by the public company to its directors including managing director and whole time director and its manager in relation to the financial year shall not exceed 11 % of net profits of the company.
3.What is maximum managerial remuneration?
Ans. Maximum Remuneration to Managerial Personnel
The remuneration computed as per section 198 shall not exceed 11% of the net profits for the financial year, except that the remuneration of the directors shall not be deducted from the gross profits.
4.What are the 2 types of remuneration?
Ans. Remuneration Package Types. In order to understand the various types of remuneration packages, they are broken into two categories: direct and indirect compensation. Direct compensation covers payment methods from salaries to bonuses, while indirect compensation covers benefits and incentives.
5.What are the elements of managerial remuneration?
Ans. Managerial remuneration – Company Having Profit
A company can pay any remuneration by way of salary, dearness allowance, perquisites, commission and other allowances not exceeding 5% of its net profit for one managerial person.
6.What is remuneration and its types?
Ans. Remuneration is the total compensation paid to the employees for their services. In addition to the basic salary, it includes benefits like commissions, bonuses, overtime pays, and other financial compensation paid by the employers to their personnel. Perks may or may not be a component of the employees’ compensation.
7.What are the benefits of managerial remuneration?
Ans. Managerial remuneration is compensation for services provided to a company in a managerial capacity. This can include cash payments, along with benefits like stock options, health insurance, and bonuses.’
8.What is the overall maximum limit of managerial remuneration under section 197 of the Companies Act 2013?
Ans. The Company may pay the remuneration to the managerial personnel exceeding total limit of 11% of net profit with the approval of members at the general meeting subject to the provisions of Schedule V of the Companies Act, 2013. Section 197 is applicable only on Public Limited Companies.
9.What is Section 197 of Companies Act, 2013?
Ans. in respect of any financial year shall not exceed 11% of the net profits of that company for that financial year computed in the manner laid down in section 198 except that the remuneration of the directors shall not be deducted from the gross profits.
10.Is Section 197 not applicable to private companies?
Ans. (vi) Managerial Remuneration under section 197 and 198 along with Part I and Part II of the schedule V of the CA, 2013 are applicable for the public limited companies only.
11.What is Section 197 of Companies Act, 2013 applicable to private companies?
Ans. Section 197 applies only to Public Companies and not to Private Companies. Therefore, Private Companies are allowed to pay remuneration at any rate without any limit of 11% whether there is adequacy or inadequacy of profits.
12.What is the maximum limit of managerial remuneration in private limited company?
Ans. Whether it is Managing director or whole time directors. A company having only one managing director, whole-time director or manager shall not pay more than 5% of its net profits. A company has more than one such directors, remuneration shall be payable not more than 11% of the net profit.
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