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Director salary in public limited company

Rajendra (CA) (46 Points)

12 March 2025

Can a directors of a public limited company draw salary if the company has zero operating revenues and the only income it generates is interest on bank deposits?

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Rama chary Rachakonda (Master in Accounts & high court Advocate) (8674 Points)
Replied 13 March 2025

Directors of a public limited company can draw salaries, but there are certain conditions and restrictions that apply, especially when the company has zero operating revenues. Key Considerations: 1. *Companies Act, 2013*: According to the Companies Act, 2013, directors can draw remuneration, but it should be authorized by the Articles of Association (AoA) of the company and approved by the shareholders [1]. 2. *No-objection from Shareholders*: Even if the company has zero operating revenues, directors can draw salaries if the shareholders have given their no-objection or approval for the same [2]. 3. *Interest Income*: If the company's only income is from interest on bank deposits, it may not be considered "operating revenue." However, this income can still be used to pay directors' remuneration, provided it is authorized and approved as mentioned earlier. Additional Considerations: 1. *Accounting Standards*: Ensure compliance with accounting standards, particularly AS-12 (Accounting for Government Grants) and AS-28 (Impairment of Assets), when recognizing and accounting for directors' remuneration [3]. 2. *Tax Implications*: Directors' remuneration is taxable in the hands of the directors. Ensure compliance with tax laws and regulations, including TDS (Tax Deducted at Source) provisions. 3. *Disclosure Requirements*: Disclose directors' remuneration in the company's financial statements, as required by the Companies Act, 2013, and accounting standards. To ensure compliance with all regulations, consult with a chartered accountant, company secretary, or legal expert. References: [1] Section 197, Companies Act, 2013 [2] Section 198, Companies Act, 2013 [3] Accounting Standards Board (ASB), Institute of Chartered Accountants of India (ICAI)

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