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Salary to non - executive director of private company


Sneha (Company Secretary)     24 May 2013

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Kindly reply. Can a private company pay salary of Rs. 70,000/- pm to its non - executive director ?? What are the compliances required for the same.

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Devendra (Chartered Accountant)     24 May 2013

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Yes. Salary can be paid to the Non-Executive Director. No compliance required to be made.

 

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Sneha (Company Secretary)     25 May 2013

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Thanks for your prompt reply..

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P C Agrawal (Vice President (Corporate))     25 May 2013

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If you pay salary to non-executive director, he will become whole time director and you will have to file Form 32 for change of designation from 'Director' to 'WTD'.

 

 

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Sneha (Company Secretary)     25 May 2013

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Kindly refer the section or proviso or explanation for your intrepretation ?

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Sneha (Company Secretary)     25 May 2013

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Members please reply

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Sarvesh (Company Secretary)     27 May 2013

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A private company may pay salary/ remuneration to its non-executive director subject to the provisions of its articles.

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P C Agrawal (Vice President (Corporate))     27 May 2013

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Payment of salary to a person presupposes existence of employer-employee relationship.  Such employment could be either on whole time basis or part time basis.  Relevant provisions of Companies Act are reproduced below:

 

Section 198(3):

"Within the limits of maximum remuneration specified in sub-section (1), a company may pay a monthly remuneration to its managing or whole-time director in accordance with the provisions of section 309 or to its manager in accordance with the provisions of section 387."

 

Section 309(3):

"A director who is either in the whole time employment of the company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other:"

Section 309(4):

"A director who is neither in the whole time employment of the company nor a managing director may be paid remuneration---

either

(a) by way of a monthly, quarterly or annual payment with the approval of the Central Government; or

(b) by way of commission if the company by special resolution authorises such payment."

 

Although these provisions may not be applicable to a private company, the intention of the Act is to provide for payment of remuneration by way of monthly salary to MD/WTD and commission to other directors. 

 

 

 

 

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Sarvesh (Company Secretary)     27 May 2013

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As per the provisions of  section 309 (4) (a) as mentioned above by Mr. P C Agrawal, remuneration may be paid to non whole time director with the approval of Central Government.  It was understood from this provision that if a public company wants to remunerate its non whole time director then it can do so with the approval of central govermnment. Therefore an independent  private company may  also remunerate its non whole time director  without CG approval since the section is not applicable on a private company unless it is a subsidiary of public company. 

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P C Agrawal (Vice President (Corporate))     27 May 2013

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I agree that in case of private company restrictive provisions for payment of remuneration to directors are not applicable and it can pay remuneration to any director.  Remuneration paid by public companies u/s 309(4)(a) can ony be in the form of 'commission' and not 'salary'.  Hence if a private company pays monthly remuneration in the form of 'commission', there is no issue.  However, if a private company pays monthly 'salary' to a director, the following questions will arise: 

 

1. Whether the designation of the director needs to be changed to 'WTD' or not?

2. If not, in which circumstances a director of a private company who is paid monthly salary will be deemed to be a WTD and not a director?

 

Members may please enlighten on this issue.

 

 


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