Salary to director in private company
Querist : Anonymous
Querist : Anonymous
As soon as we start giving salary to a director, that director becomes a whole time employee of the company. Once a director is a whole time employee than by virtue of Section 2 (94) of Co's Act, 2013 he becomes a Whole Time Director.
Section 196 read with Schedule V of Co's Act, 2013 is applicable on both Private and Public Company.
So if the proposed appointee is a person who complies with Section 196 and SchduleV than no approval of CG is required and only MR-1 along with MGT-14, DIR-12 would be filed with ROC.
please confirm
Querist : Anonymous
But if we are showing as salary, then?
---
### 1. **Non-Executive Director (NED) — Salary or Fees?**
* Generally, **Non-Executive Directors are not "employees"** of the company and do not draw a "salary."
* Instead, NEDs are paid **Sitting Fees** for attending Board/Committee meetings and/or **Commission** on profits (subject to limits).
* Payment as **“salary” to a NED is generally not allowed** because they are not whole-time employees.
---
### 2. **If Salary is Paid to a Director:**
* If a director **receives salary**, by definition, he/she becomes a **Whole-Time Director (WTD) or Managing Director (MD)**.
* This means the director is an employee and holds an executive position.
* Appointment as a WTD/MD requires compliance with **Section 196 and Schedule V of the Companies Act, 2013**.
* The company must pass a **Board Resolution** and **Shareholders’ approval** (if applicable).
* File **forms MR-1, DIR-12, MGT-14** with the Registrar of Companies (ROC).
---
### 3. **So, can you pay “salary” to a Non-Executive Director?**
* **No**, salary is meant for whole-time directors or employees.
* For Non-Executive Directors, payments can only be in the form of:
* Sitting fees (per meeting basis),
* Commission (within limits prescribed under the Act).
---
### 4. **If the company still wants to pay salary and call the director "Non-Executive"**
* This is **contrary to law** because paying salary creates an employer-employee relationship.
* The director then **must be appointed as a whole-time director** and comply with statutory provisions.
---
### **Summary Table:**
| Director Type | Payment Allowed | Notes |
| ------------------------- | ------------------------ | ---------------------------------------------------------- |
| Non-Executive Director | Sitting fees, commission | No salary, not an employee |
| Whole-Time Director (WTD) | Salary, allowances | Employee, must comply with Companies Act, 2013 formalities |
---
### Would you like me to draft the required Board Resolutions or help with ROC filings for appointing a WTD?
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