Remuneration to directors
This query is : Resolved
12 August 2019
WHAT ARE THE THINGS WE NEED TO DO IF A PRIVATE COMPANY IS GIVING REMUNERATION TO ONE OF ITS DIRECTOR CUM CHAIRMAN RS. 5 LAKHS P.M. AND OTHER DIRECTORS 2.5 LAKHS AND 1 LAKHS P.M. RESPECTIVELY AND ALL OF THE DIRECTORS ARE RELATIVES.
12 August 2019
Such remuneration payments to directors allowed in private limited companies. You can't do anything.
12 August 2019
Thanks sir, so in this case whether Section 188 of the CA, 2013 will not be applicable to private companies as all of the Directors are relatives.
12 August 2019
Applicable but approval of the board is required. No problem in obtaining approval.
12 August 2019
THANKS SIR, BUT ONE OF THE VERY SENIOR MEMBER IS INSISTING ME THAT ITS REQUIRED TO PASS SPECIAL RESOLUTION FOR THE SAME AS ITS COME UNDER DEFINITION OF "PLACE OR PROFIT" U/S 188(1)(F) AND THERE IS NO EXEMPTION FOR PRIVATE COMPANIES REGARDING THIS.
21 July 2025
1. Is Section 188 applicable to remuneration paid to director-cum-chairman & other directors in a Private Company, especially when they are relatives?
Section 188 deals with related party transactions (RPTs), which include transactions involving "appointment to any office or place of profit" with a related party.
Section 188(1)(f) includes appointment to any office or place of profit in the company, its subsidiary or associate company as a related party transaction.
So, remuneration paid to directors (who are relatives) can fall under "office or place of profit" and thus, be a related party transaction.
2. Does Section 188 apply to Private Companies?
Yes, Section 188 applies to all companies (Private and Public).
There is no blanket exemption for private companies from Section 188.
3. What kind of approval is required under Section 188?
For public companies, approval by the Board and shareholders is required (special resolution in some cases).
For private companies, the Board's approval is mandatory, but shareholders' approval is generally not mandatory unless the Articles specify otherwise.
Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014 states:
Related party transactions need prior approval of the Board by passing a resolution, and where the Articles require, shareholders’ approval may be needed.
4. Is a Special Resolution required for remuneration paid to directors as a related party transaction?
Remuneration to directors is generally governed by the provisions of the Companies Act relating to managerial remuneration (Sections 197, 198, etc.), and Board approval is mandatory.
The remuneration is typically not treated as a "contract" or "transaction" under Section 188 but as managerial remuneration under Chapter XI.
However, if the remuneration arrangement also involves some other related party transaction (like service contracts or consultancy agreements), then Section 188 applies and Board approval is needed.
For pure remuneration to directors, the usual route is:
Follow provisions under Sections 197 and 198 (limits and approvals).
Board resolution to approve remuneration.
Shareholders’ approval by special resolution if remuneration exceeds prescribed limits.
5. Regarding the Senior Member's insistence on special resolution due to "office or place of profit"
This concern generally arises if the remuneration or appointment is outside normal limits or terms and needs approval beyond Board level.
If the remuneration exceeds the limits prescribed under Section 197, then shareholders’ approval by special resolution is mandatory.
If within limits, Board approval is sufficient.
Section 188 deals with related party transactions (RPTs), which include transactions involving "appointment to any office or place of profit" with a related party.
Section 188(1)(f) includes appointment to any office or place of profit in the company, its subsidiary or associate company as a related party transaction.
So, remuneration paid to directors (who are relatives) can fall under "office or place of profit" and thus, be a related party transaction.
2. Does Section 188 apply to Private Companies?
Yes, Section 188 applies to all companies (Private and Public).
There is no blanket exemption for private companies from Section 188.
3. What kind of approval is required under Section 188?
For public companies, approval by the Board and shareholders is required (special resolution in some cases).
For private companies, the Board's approval is mandatory, but shareholders' approval is generally not mandatory unless the Articles specify otherwise.
Rule 15 of Companies (Meetings of Board and its Powers) Rules, 2014 states:
Related party transactions need prior approval of the Board by passing a resolution, and where the Articles require, shareholders’ approval may be needed.
4. Is a Special Resolution required for remuneration paid to directors as a related party transaction?
Remuneration to directors is generally governed by the provisions of the Companies Act relating to managerial remuneration (Sections 197, 198, etc.), and Board approval is mandatory.
The remuneration is typically not treated as a "contract" or "transaction" under Section 188 but as managerial remuneration under Chapter XI.
However, if the remuneration arrangement also involves some other related party transaction (like service contracts or consultancy agreements), then Section 188 applies and Board approval is needed.
For pure remuneration to directors, the usual route is:
Follow provisions under Sections 197 and 198 (limits and approvals).
Board resolution to approve remuneration.
Shareholders’ approval by special resolution if remuneration exceeds prescribed limits.
5. Regarding the Senior Member's insistence on special resolution due to "office or place of profit"
This concern generally arises if the remuneration or appointment is outside normal limits or terms and needs approval beyond Board level.
If the remuneration exceeds the limits prescribed under Section 197, then shareholders’ approval by special resolution is mandatory.
If within limits, Board approval is sufficient.
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