sharing of profit

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

15 November 2010 We are 5 directors in a private limited company.
A B C D and E
A B and C have the sharing of 34 %
D and E has 33%-33% each.
With the efforts of D and E company got the profit in a buisness.
A B and C are the non operative directors.
What is the possibility that sharing of the profit be in 45%-45% that of D and E
Rest of the profit remains in the company as 34%-33%-33%.
How two Directors can withdraw the profit from the company as other Directors are ready to cooperate them.

My query is not the share of profit distribution rather I want to know that if 2 out of 5 directors want their money safe and how theycan take the money in their individual account
1. as remuration 2.share
What amount fromthe total capital can bewithdrawn in name of 2 Directors as per company law

CA Shiv

CA Shiv (Expert)
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15 November 2010 First thing is it is a company as mentioned by you. Than how directors are going to get profit from it. They can withdraw salary.
Also it wil be done as per AOA. so amend AOA if want to change terms and conditions

CA.Madhusudan B.P.

CA.Madhusudan B.P. (Expert)
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15 November 2010 What ever the Profit sharing is stated holds good in case of partnership firms.

When it comes to Company, profits cannot be based on profit sharing, rather based on the capital contribution in the Share capital Equity shares. THAT TOO only when the company pays dividends & not otherwise.

Querist : Anonymous

Querist : Anonymous (Querist)

16 November 2010 We are 5 directors in a private limited company.
A B C D and E
A B and C have the sharing of 34 %
D and E has 33%-33% each.
With the efforts of D and E company got the profit in a buisness.
A B and C are the non operative directors.
What is the possibility that sharing of the profit be in 45%-45% that of D and E
Rest of the profit remains in the company as 34%-33%-33%.
How two Directors can withdraw the profit from the company as other Directors are ready to cooperate them.

My query is not the share of profit distribution rather I want to know that if 2 out of 5 directors want their money safe and how theycan take the money in their individual account
1. as remuration 2.share
What amount fromthe total capital can bewithdrawn in name of 2 Directors as per company law

Aashok Kumar Sharma

Aashok Kumar Sharma (Expert)
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25 July 2025 Got it! Here's a clear explanation for your situation:

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### Context:

* 5 directors: A, B, C (holding 34% shares collectively), and D, E (33% each).
* D and E have been active in generating profits.
* You want D and E to get 45%-45% of the profit generated by their efforts.
* A, B, C are non-operative directors.
* You want to know how D and E can **withdraw money individually** (not about share of profits, but actual money).

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### Important points under **Company Law** (Private Limited Company):

#### 1. **Profit Sharing and Dividends**

* Dividends are paid strictly according to shareholding proportion, unless otherwise specified in the Articles of Association (AOA).
* You **cannot arbitrarily pay profits or dividends differently than the shareholding ratio**, except by changing the AOA or issuing different classes of shares.

#### 2. **Directors withdrawing money**

* Directors are **not entitled to take money directly as "profit" or "withdrawal"** like partners in a partnership.
* Directors can receive money from the company in two legal ways:

**a) Remuneration (Salary / Commission / Sitting Fees)**

* As per Companies Act, directors can be paid remuneration by the company.
* This must be authorized by the Board and/or Shareholders (through resolutions).
* It can be fixed or performance-linked.
* This is **a legitimate way for D and E to get rewarded for their efforts**.

**b) Dividends**

* Paid out from profits to shareholders based on shareholding percentage.
* If D and E want more profits, the company must declare dividends accordingly.

#### 3. **Changing profit share legally**

* You can consider:

* Amending the **Articles of Association** to include **different classes of shares** with different dividend rights.
* Issuing **Preference Shares** or special class shares for D and E with preferential dividend rights.
* This requires shareholder approval and regulatory compliance.

#### 4. **Amount that can be withdrawn**

* Money can be withdrawn by directors only:

* Through **approved salary or commission** (within limits prescribed under Companies Act).
* By receiving **dividends** declared by the company.
* Directors **cannot withdraw company capital** arbitrarily.
* Withdrawal from capital is only possible via:

* Buyback of shares.
* Reduction of capital (requires court approval and compliances).

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### Summary: How can D and E get money safely?

| Method | Explanation |
| -------------------------------- | -------------------------------------------------------------------------------------------- |
| Remuneration (Salary/Commission) | Company pays D and E for services rendered, authorized by board/shareholders. |
| Dividends | Company declares dividend in proportion to shares or special dividend rights if AOA amended. |
| Bonus Shares or Special Shares | Issue special shares to D and E with preferential dividend rights, if agreed. |
| Loan from company | Company can lend but subject to strict compliances and limits. |

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### What you **cannot** do:

* Distribute profits arbitrarily ignoring shareholding.
* Withdraw company capital without legal procedures.
* Transfer profit-sharing terms as in a partnership without changing company structure.

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If you want, I can help draft a framework for remuneration or guide you on amending the AOA for profit sharing. Would you like that?

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