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Managerial Remuneration to Directors payable by a public company

Deepa Lakhwani 
on 06 September 2020

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Provisions

"197. 1[(1)] 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 eleven percent 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:

Provided that the company in general meeting may, authorize the payment of remuneration exceeding eleven percent of the net profits of the company, subject to the provisions of Schedule V:"

"Section 198: Calculation of Profits for section 197"

"Schedule V: PART II REMUNERATION

Remuneration payable by companies having no profit or inadequate profit 

Where in any financial year during the currency of tenure of a managerial person, a company has no profits or its profits are inadequate, it may, 6[Omitted], pay remuneration to the managerial person not exceeding, the limits under (A) and (B) given below:- 

"(A): Where the effective capital is Limit of yearly remuneration payable shall not exceed (Rupees)

(i) Negative or less than 5 crores 60 Lakhs
(ii) 5 crores and above but less than 100 crores 84 Lakhs
(iii) 100 crores and above but less than 250 crores 120 Lakhs
(iv) 250 crores and above 120 lakhs plus 0.01% of the effective capital in excess of Rs. 250 crores:

7[Provided that the remuneration in excess of the above Limits may be paid]if the resolution passed by the shareholders is a special resolution.

For the purposes of Section II of this Part, "effective capital" means the aggregate of the paid-up share capital (excluding share application money or advances against shares); amount, if any, for the time being standing to the credit of share premium account; reserves and surplus (excluding revaluation reserve); long-term loans and deposits repayable after one year (excluding working capital loans, overdrafts, interest due on loans unless funded, bank guarantee, etc., and other short-term arrangements) as reduced by the aggregate of any investments (except in case of investment by an investment company whose principal business is the acquisition of shares, stock, debentures or other securities), accumulated losses and preliminary expenses not written off.

Managerial Remuneration to Directors payable by a public company

PART III OF Schedule V

1. The appointment and remuneration referred to in Part I and Part II of this Schedule shall be subject to approval by a resolution of the shareholders in general meeting.

2. The auditor or the Secretary of the company or where the company is not required to appointed a Secretary, a Secretary in whole-time practice shall certify that the requirement of this Schedule have been complied with and such certificate shall be incorporated in the return filed with the Registrar under sub-section (4) of section 196.

 

Requirement in Drafts

  1. The resolution passed by the Board and,
  2. Nomination and Remuneration Committee (section 178 (1)
  3. EOGM special resolution via Postal ballot
  4. Disclosures requirement
  5. Computation of Effective Share Capital
 

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Category Corporate Law
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Deepa Lakhwani 

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