Managerial remuneration

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Vipul (Querist)
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05 August 2009 In the Public company (closely held) this is the first year where there is managerial remuneration being paid to the main guy. There is a huge loss being incurred for the year. however there are adequate reserves even after adjusting the current year loss. How much is the maximum that can be paid as Managerial remuneration and what are the regulations/provision pertaining to the same.
The main two points on which i have a doubt is
1. Loss in the CY, hence should Managerial remuneration paid.?
2. Secondly, if yes then upto what limit.
3. Thirdly the computation need to be done on this years profit right? not last years right?

Jagruti (CS)

Jagruti (CS) (Expert)
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08 August 2009 1) Yes, as per Shedule XIII, section II of PartII, in case of inadequate profit company can pay managerial remuneration.
2) the limit upto which it can be paid is based on "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 reserves); 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 the case investment by an investment company whose principal business is acquisition of shares, stock debentures or other securities), accumulated losses and preliminary expenses not written off.

Also, Where the appointment of the managerial person is made in the year in which company has been incorporated, the effective capital shall be calculated as on the date of such appointment;

3) Yes, as per Sec. 198 of the Co. Act, 1956., computation of Managerial Remuneration need to be done on current years profit.

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