Ceiling on remunaration to directors

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Querist : Anonymous

Querist : Anonymous (Querist)

09 January 2013 Does the ceiling of 5% applicable to private limited companies,and also the rotation of auditors

Ajay Mishra

Ajay Mishra (Expert)
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09 January 2013 Hi

The provisions of Companies Act, 1956 relating to remuneration to director is not applicable to private limited company.

Private limited is free to pay any remuneration subject to approval of Board as per your company's articles.

Ajay Mishra

Ajay Mishra (Expert)
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09 January 2013 Appointment of directors in the case of a private company
In the case of a private company, which is not a subsidiary of a public company, the first directors assume the office from the date of incorporation. Therefore, a private company, which is not a subsidiary of a public company, can provide in its Articles of Association the manner of appointment of directors. The Articles can also provide that the first directors appointed by the Articles shall continue to hold office until their office become vacant by resignation, removal, death or otherwise, or they are superseded by appointing other directors in accordance with the provisions of the Articles.
It is permissible for a private company to provide in its Articles that none of its directors is liable to retire by rotation. In the absence of anything to the contrary in the Articles, however, all the first directors of such a private company who have been appointed under the Articles may hold office till the directors are
appointed in accordance with the provisions of section 255(2) at the first general meeting held after incorporation but before the holding of the first annual general meeting.
It is desirable to have an explicit and clear provision in the Articles of Association of a private company, which is not a subsidiary of a public company regarding the manner of appointment of directors. If the Articles are silent or do not specifically provide for appointment of directors otherwise than at a general meeting, then the directors of such a private company are to be appointed at general meetings. [Swapan Dasgupta v Navin Chand Suchanti (1988) 64 Comp Cas 562 (Cal)].
If appointment of directors is not in accordance with articles, they are not the directors. [Rajan Nagindas Doshi v British Burma Petroleum Co. Ltd. (1972) 42 Comp Cas 197 (Bom)].
Where the company has delegated power to appoint a director to the Board, in event of board being unable to function, the members have the power to appoint. [B.N. Viswanathan v Tiffin's Barytes Asbestos & Paints Ltd. (1953) 23 Comp Cas 29 (Mad.)].

Not less then two-third of the total directors shall be liable to retire by rotation
In a public or a private company, which is a subsidiary of a public company, not less than two-thirds of the total number of directors shall be such whose period of office shall be subject to retirement by rotation.
The duration of office of remaining one-third of the total strength shall be as per the provisions in the Articles. In the absence of any such provision, the said remaining directors shall also be subject to retirement by rotation.
The directors in a private company, in case of default of any provision in the Articles, will also be appointed by the company in its general meeting.

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