07 August 2014
What is the provision regarding remuneration payable to managing director of non investment company and treatment of profit and it's ceiling limit??
21 July 2025
Regarding remuneration payable to a managing director of a non-investment company and the treatment of profits and ceiling limits, here’s a summary based on typical company law provisions (such as those under the Companies Act, 2013 in India, which is a common reference):
Remuneration to Managing Director of a Non-Investment Company Approval Requirements:
The appointment and remuneration of a managing director (MD) must be approved by the Board of Directors and, in many cases, by the shareholders in a general meeting.
If the company is a public company, the remuneration payable to MD is generally subject to approval by the shareholders and/or the Central Government (in case of excess beyond prescribed limits).
Treatment of Profits:
The remuneration payable to the MD can be made out of the company’s profits.
If the company has adequate profits, the remuneration can be paid within the prescribed limits.
If the company does not have adequate profits or has losses, remuneration can still be paid but subject to specific ceiling limits and conditions as approved by the members and/or the Central Government.
Ceiling Limits (Section 197 of the Companies Act, 2013):
The total managerial remuneration payable by a company to its directors, including managing director and whole-time directors, shall not exceed 11% of the net profits of the company for that financial year.
If there is more than one managing or whole-time director, the total remuneration payable to all of them together shall not exceed 11% of net profits.
The remuneration may include salary, commission, perquisites, and other benefits.
Remuneration in Case of Inadequate or No Profits:
If the company has no profits or inadequate profits, the MD may be paid remuneration as per Schedule V of the Companies Act, 2013.
Schedule V lays down the maximum limits for remuneration based on fixed salary plus perquisites, allowances, and commission.
These limits can be exceeded only if the Central Government sanctions higher remuneration.
Calculation of Net Profits:
Net profit for the purpose of calculating remuneration is computed as per Section 198 of the Companies Act, 2013.
Certain adjustments may be made as prescribed to arrive at the net profit figure.
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