Director remuneration?
This query is : Resolved
08 April 2013
sir I have a query. A non listed Limited company have four director and they are paying more then 11% of their net profit to them as remuneration.
Kindly help with the compliances as they have not done anything till now. Also they do not need CG approval.
Kindly help with the compliances as they have not done anything till now. Also they do not need CG approval.
08 April 2013
Kindly reply soon.
09 April 2013
Hello expert. Kindly help me
21 July 2024
If a non-listed limited company is paying remuneration to its directors and the total remuneration exceeds 11% of its net profits, there are certain compliances and considerations that need to be addressed under the Companies Act, 2013. Here’s a guide on what needs to be done:
1. **Compliance with Section 197 and Schedule V:**
- **Appointment and Approval:** Ensure that the appointment of directors as employees and their remuneration is approved by the Board of Directors. This approval should be in accordance with the provisions of Section 197 read with Schedule V of the Companies Act, 2013.
- **Limits on Remuneration:** According to Schedule V, the total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its directors and manager in any financial year shall not exceed 11% of the net profits of that company for that financial year.
- **Excess Remuneration:** If the remuneration exceeds the prescribed limit of 11% of net profits, it would require approval by the shareholders through a special resolution and also necessitate approval from the Central Government (CG).
2. **Board Approval:**
- The board of directors should approve the payment of remuneration to directors and ensure that such payments are within the limits prescribed by Schedule V.
3. **Filing Requirements:**
- **Form MR-1:** File Form MR-1 with the Registrar of Companies (RoC) within 60 days from the date of the annual general meeting (AGM) where the remuneration was approved.
- **Board Resolution:** Ensure that board resolutions approving the remuneration are properly drafted, signed, and maintained as per company records.
4. **Central Government Approval (if applicable):**
- If the total managerial remuneration exceeds the limits specified in Schedule V (11% of net profits), prior approval from the Central Government is required. This approval process involves submission of necessary documents and justifications to the CG.
5. **Consequences of Non-compliance:**
- Failure to comply with the provisions of Schedule V can lead to penalties and legal consequences for the company and its directors. It’s crucial to ensure timely compliance to avoid such issues.
6. **Legal and Professional Advice:**
- It’s advisable to consult with a company secretary or a legal professional specializing in corporate law to ensure all necessary steps are taken and compliance requirements are met.
In summary, if the non-listed limited company is paying remuneration to its directors exceeding 11% of net profits, it must ensure compliance with Schedule V of the Companies Act, 2013. This includes board approvals, shareholder approvals (if required), filing of Form MR-1, and obtaining Central Government approval if the limits are exceeded. Prompt action should be taken to regularize any non-compliance to avoid penalties and legal repercussions.
1. **Compliance with Section 197 and Schedule V:**
- **Appointment and Approval:** Ensure that the appointment of directors as employees and their remuneration is approved by the Board of Directors. This approval should be in accordance with the provisions of Section 197 read with Schedule V of the Companies Act, 2013.
- **Limits on Remuneration:** According to Schedule V, the total managerial remuneration payable by a public company or a private company which is a subsidiary of a public company to its directors and manager in any financial year shall not exceed 11% of the net profits of that company for that financial year.
- **Excess Remuneration:** If the remuneration exceeds the prescribed limit of 11% of net profits, it would require approval by the shareholders through a special resolution and also necessitate approval from the Central Government (CG).
2. **Board Approval:**
- The board of directors should approve the payment of remuneration to directors and ensure that such payments are within the limits prescribed by Schedule V.
3. **Filing Requirements:**
- **Form MR-1:** File Form MR-1 with the Registrar of Companies (RoC) within 60 days from the date of the annual general meeting (AGM) where the remuneration was approved.
- **Board Resolution:** Ensure that board resolutions approving the remuneration are properly drafted, signed, and maintained as per company records.
4. **Central Government Approval (if applicable):**
- If the total managerial remuneration exceeds the limits specified in Schedule V (11% of net profits), prior approval from the Central Government is required. This approval process involves submission of necessary documents and justifications to the CG.
5. **Consequences of Non-compliance:**
- Failure to comply with the provisions of Schedule V can lead to penalties and legal consequences for the company and its directors. It’s crucial to ensure timely compliance to avoid such issues.
6. **Legal and Professional Advice:**
- It’s advisable to consult with a company secretary or a legal professional specializing in corporate law to ensure all necessary steps are taken and compliance requirements are met.
In summary, if the non-listed limited company is paying remuneration to its directors exceeding 11% of net profits, it must ensure compliance with Schedule V of the Companies Act, 2013. This includes board approvals, shareholder approvals (if required), filing of Form MR-1, and obtaining Central Government approval if the limits are exceeded. Prompt action should be taken to regularize any non-compliance to avoid penalties and legal repercussions.
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