Managing Director and Manager of a Company

After reading this article you will learn about the managing director and manager of a company.

Managing Director:

Section 2 (26) of the Companies Act defines a managing director as, “a director who, by virtue of an agreement with the company, or of a resolution passed by the company in general meeting, or by its board of directors, or by virtue of its memorandum or Article of Association, is entrusted with substantial powers of management which would not otherwise be exercisable by him, and includes a director occupying the position of a managing director by whatever name called.”

The Companies Act has also laid down the restriction on the managing directors that they will exercise their powers under the superintendence, control and direction of the Board.

It is now clear that managing director is also director but being the chief executive, he enjoys some substantial powers.

Appointment and the Restrictions Thereof:

Following are the provisions regarding appointment and the restrictions thereof for the managing director:

1. Only an individual can be appointed as a managing director.

2. No public company and subsidiary private company can appoint the managing director first time unless approval from the Central Government has been obtained. A new company may obtain permission within 3 months of the appointment. [Sec. 269]

3. No change as regards terms of appointment can be made without the consent of the Central Government. [Sec. 268]

4. No person can be appointed as managing director for more than 20 companies. [Sec. 316]

5. No managing director can be appointed for period exceeding 5 years at a time. His reappointment also cannot be made for more than 5 years at a time. [Sec. 317]

Disqualifications:

According to Sec. 267 of the Act, the following persons cannot be appointed as the managing director of the company:

1. If he is un-discharged insolvent or has at any time been adjudged insolvent.

2. He suspends or has any time suspended payment to his creditors or has made composition with them.

3. He has been convicted by a court at any time for any offence of moral turpitude.

Rights and Duties of a Managing Director:

A managing director has to perform two types of duties one is a director and other as a chief executive or manager of a company. He helps the Board in the formulation of the policy and as a chief executive, he is responsible for efficient running of business.

The managing director derives his powers from the Memorandum and Articles and from the service agreement which takes place between him and the company. He has all the rights and duties of a director. He has to perform many other duties for the efficient management of the company.

Remuneration:

The remuneration paid to the whole-time director must not exceed 5 per cent of the net profits of the company without the sanction of the Central Government. They may be remunerated either by way of monthly payment or at a specified percentage out the net profits of the company.

Manager:

Section2 (24) of the Companies Act defines manager as, “an individual who subject to the superintendence, control and direction of the Board of Directors has the management of the whole or substantially the whole of the affairs of a company and includes a director or any other person occupying the position of a manager, by whatever name called and whether under a contract of service or not.”

A company may appoint either a managing director or a manager. A manager or General Manager appointed for the management of the company has to work under the supervision, control and direction of Board of Directors. The manager is considered as the officer of a company and he cannot assign his office to any other person like directors of a company.

Appointment and Restrictions Thereof:

So far as the question of appointment and restriction thereof is concerned, the provisions are altogether similar to managing directors. Only individual can be appointed as a manager of a company. [Sec. 384]

Rights and Duties:

The manager is given enough powers to enable him for the management of the company. His rights and duties are similar to that of managing director. He works under the control, supervision and direction of the Board. He derives his powers and duties, mainly from his service agreement.

Remuneration:

The provisions relating to remuneration of manager are similar to the provisions relating to managing directors. The remuneration paid to the manager cannot exceed 5 per cent of the net profits of the company without the approval of the Central Government. [Sec. 387]