Managing Director of a Company

Managing directors play a significant role in the company’s management and are responsible for its expansion, profitable growth and innovation. They are senior-level managers in a company looking after its day-to-day operations. They oversee the functioning and performance of different departments. They obtain reports from the department managers and, in turn, report them to the Chief Executive Officer (CEO) and the board of directors.

Managing Director Under the Companies Act, 2013

The Companies Act, 2013 (‘Act’) defines a managing director as a director entrusted with substantial powers of managing the company affairs by virtue of either an agreement with the company, articles of association or a resolution passed in its general meeting or board of directors. However, the managing director must exercise their powers subject to the board’s control, superintendence and direction.

The Act also states that substantial powers of the managing director do not include the power to do administrative acts that are of a routine nature authorised by the board, such as the following:

• Power to affix the company’s common seal on any document.
• Draw and endorse cheque on the company’s account in any bank. 
• Draw and endorse a negotiable instrument.
• Sign any share certificate.
• Direct registration of transfer of a share.

Appointment of a Managing Director

The process of appointment of a managing director by passing a resolution is as follows:

• The company should conduct a board meeting after giving notice to all the company directors to transact the following business:
  • Decision on the person to be employed as a managing director based on the recommendations of the Nomination and Remuneration Committee, if applicable, and ensuring that the person is not disqualified for such appointment.
  • Approve the draft agreement to be executed and signed between the company and the proposed managing director.
  • Fix the date, time and venue for conducting a general meeting. 
  • Approve the notice of the general meeting and the explanatory statement.
  • Authorise the company secretary to issue the general meeting notice on behalf of the board.
• The company should file the board resolution copy in Form MGT-14 with the Registrar of Companies (ROC) within 30 days of passing such a resolution.
• In the case of listed companies, it should submit the disclosure of such an appointment to the stock exchange within 24 hours from the board meeting date and post it on its website within two working days.
• The company should hold a general meeting at the time and date fixed in the board meeting and obtain shareholders’ approval for the appointment of the managing director through a resolution.
• In the case of listed companies, it should disclose the proceedings of the general meeting to the stock exchange within 24 hours from the conclusion of the general meeting and post it on its website within two working days. 
• When the appointment of a managing director is not according to the provisions of Schedule V of the Act, it must obtain approval of the Central Government by filing an application as per Section 201 of the Act. (Schedule V lays down the disqualification and remuneration provisions for the appointment of managing directors)
• After appointing the managing director by passing a resolution in the general meeting, the company must file the following forms with the ROC:
  • File the Form MGT-14 with the ROC within 30 days of passing the resolution in the general meeting.
  • File the Form DIR-12 relating to the particulars of the appointment of a managing director within 30 days of such appointment.
  • File Form MR-1, i.e. return of the appointment of a managing director within 60 days from the date of such appointment.
• The company should make the necessary entries in the director and key managerial personnel register and the register of contracts in which the directors are interested in the Form MBP-4.

Disqualification of a Managing Director

The following persons are disqualified and cannot be appointed as managing directors of a company:

• When the person is an undischarged bankrupt or has been adjudged as an insolvent.
• The person had been or is sentenced by a court and convicted for more than six months.
• The person has suspended payments to his creditors or has made a composition with them at any time.

Conditions for Appointment of a Managing Director

Maximum and Minimum Age Limit

The minimum age limit for the appointment of a managing director is above 21 years, and the maximum age is 70 years. However, a person above 70 years can be appointed as a managing director by passing a special resolution in the general meeting after obtaining the shareholders’ approval. In such a case, the explanatory statement annexed to the notice for passing such a resolution should state the justification for appointing such a person.

Tenure

The maximum tenure for the appointment of a managing director is five years at a time. The managing director must submit the identity proof and address proof to the company for such an appointment.

Re-appointment 

Re-appointment of a managing director can be done for another term. However, such re-appointment cannot be done earlier than one year before the expiry of the current term. Thus, a company can re-appoint the managing director for another term in the last year of his/her current term. The managing director can be re-appointed for an additional term of five years.

Number of directorships 

A company cannot appoint or employ a managing director and a manager simultaneously. A managing director cannot hold the office of a director in more than 20 companies, including alternate directorship. The appointed managing director and the company in which he/she is appointed should confirm the same with the ROC.

Role and Responsibilities of a Managing Director

A company’s managing director does the following work:

• Manages the company’s budget and allocates its resources.
• Create strategic business plans for meeting the company’s goals.
• Promote development and research for boosting business growth.
• Track technology advancements and trends to stay competitive.
• Interact with clients and company shareholders.
• Meeting the public and engaging in promotional activities.
• Ensuring that the company’s policies comply with industry and legal regulations.
• Take up directing, planning, controlling and overseeing the business operations of the company’s departments.
• Ensure smooth functioning and supervise department managers and heads.
• Update and inform the board and CEO about business strategies, budget targets and industry developments.
• Develop public relations strategies, research programmes and marketing initiatives to promote the company.
• Represent the company in business negotiations with other suppliers, companies, customers, vendors and government officials.

Additionally, the managing director should ensure the following:

• Exercise duty with reasonable and due skill, care, diligence and exercise independent judgment.
• Not get involved in a situation where he/she may have an indirect or direct interest that conflicts with the company’s interest.
• Not obtain any undue advantage or gain to himself/herself or relatives, associates or partners. If such a director is found guilty of making undue gain, he/she will be liable to pay the company an amount equal to that gain.
• Not to assign his/her office as such assignments are void under the Act.

Disclaimer: The materials provided herein are solely for information purposes. No attorney-client relationship is created when you access or use the site or the materials. The information presented on this site does not constitute legal or professional advice and should not be relied upon for such purposes or used as a substitute for legal advice from an attorney licensed in your state.
 

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