Commission to non executive director

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Querist : Anonymous

Querist : Anonymous (Querist)

08 April 2011 Our Company is a unlisted public ltd company. There is a change in the designation of one of our directors from whole time director to non executive director. However the Company proposes to pay commission to the said director. Whether the Company can pay the commision on quarterly or monthly basis though it is calculated on the net profit of the Company. Can he be called independent director? However Company is paying remuneration to WTD on effective capital basis.

Shraddha Shukla

Shraddha Shukla (Expert)

08 April 2011 eiling on remuneration of ordinary or non-executive directors
Sections 309(4) and 309(7) deals with remuneration payable to the part time directors, that is to say the directors who are neither in the whole-time employment of the company nor a managing director, within the overall limit stipulated in section 198(1) and further in section 309(4) itself.

Section 309(4) authorises payment of remuneration to part time directors in two alternative ways:—

(i) by way of monthly, quarterly or annual payment with the approval of the Central Government; and/or
(ii) by way of commission without the approval of the Central Government, subject to the approval of the members by way of special resolution.

Therefore, if the commission payable exceeds the limit, payment can be made only with the approval of the Central Government.

Quantum of commission that may be paid to non-executive directors
Section 309(4) provides that a director or directors who is/are not managing or whole-time directors may be paid remuneration periodically with the approval of the Central Government or may be paid commission, provided the said remuneration shall not exceed 1% of the net profits if the company has a managing or whole-time director and 3% in other cases. The net profits shall be computed in terms of sections 198, 349 and 350 of the Act.

Querist : Anonymous

Querist : Anonymous (Querist)

08 April 2011 Thanks Shraddha. I know the provisions, can u clarify my doubts?

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