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The Companies Act, 2013 (‘Act’) mandates that certain classes of companies have to appoint Key Managerial Personnel (KMP). KMP is a group of people in charge of the company’s operations. They are the decision-makers and responsible for the company’s smooth functioning. They are employees vested with certain essential functionalities and roles.
Section 2(51) of the Act defines Key Managerial Personnel (KMP). It states that the KMP of a company means:
The Chief Executive Officer and Managing Director are responsible for running the company. The Managing Director has authority over all company operations. They are also responsible for growing and innovating the company to a larger scale.
Under the Act, the Managing Director is defined as a director having substantial powers over the company management and its affairs. A Managing Director is appointed through any of the following means:
The Act defines a manager as the individual who manages the whole company affairs, subject to the board of directors’ direction, control and superintendence. A manager also includes a director or a person occupying a manager position in a company, even under a contract of service. However, a company cannot appoint a managing director and a manager at the same time.
A company secretary is responsible for looking after the efficient administration of the company. They take care of the company’s compliance and regulatory requirements. They also ensure that the instructions and targets of the board are implemented.
As per the Act, a company secretary or secretary means a company secretary defined under Section 2 of the Company Secretaries Act, 1980. The Company Secretaries Act defines a Company Secretary as a person who is a member of the Institute of Company Secretaries of India (ICSI). The company secretary should ensure that the company complies with secretarial standards.
Under the Act, a Whole-Time Director is defined as a director who is in whole-time employment of the company. A Whole-Time Director means a director who works during the entire working hours of the company. They are different from an independent director as they are part of the daily operation and has a significant stake in the company. A Managing Director can also be a Whole-Time Director.
A Chief Financial Officer is responsible for handling the company’s financial status. They keep a tab on cash flow operations, create contingency plans for financial crises and do financial planning. They lead the treasury and financial functions of the company.
Section 203 of the Act provides that certain classes of companies must appoint the KMP, which includes the Managing Director or manager or Chief Executive Officer, company secretary and chief financial officer. The company must appoint a whole-time director without a chief executive officer, manager or managing director.
Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 provides the class of companies that must appoint the whole-time KMP, which are as follows:
Every whole-time, KMP is appointed through a resolution of the board containing the conditions and terms of appointment, including remuneration. A whole-time KMP must not simultaneously hold office in more than one company except its subsidiary company.
The board is responsible for filling the vacancies in the post of KMP within six months of the vacancy. A company can appoint or re-appoint a person as its managing director, whole-time director or manager for a maximum of five years.
The Act states that a company cannot continue the employment or appoint a managing director, whole-time director or manager when such person:
The KMPs are responsible for taking crucial company decisions and managing the employees. They are also liable when the company does not follow the mandatory compliances laid down by the Act. The primary responsibilities and functions of the KMP are:
The KMPs of the company are essential persons who look after the management and affairs of a company. The companies specified under Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, must mandatorily appoint KMP for the company management.
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