Question

Answer the following question:

Explain the Managing Directors.

Answer 1

(1) Meaning: A Director who is appointed from amongst the Directors as a Chief Executive Officer and entrusted with the substantial powers of management in addition to the routine administrative powers is called a Managing Director.

(2) Definition: According to Section 2(26) of the Companies Act, 1956, “Managing Director is a Director who has been entrusted with substantial powers of management under an Agreement or by a resolution passed by the company at its general meeting or by the Board of Directors”.

(3) Appointment: In terms of Section 2 (26), a Managing Director can be appointed in any of the four ways, namely: (a) By virtue of an agreement with the company, (b) By virtue of a resolution passed by the company in general meeting, (c) By virtue of a resolution passed by the Board of Directors, (d) By virtue of Memorandum/Articles of Association. The appointment is subject to approval by resolution at the next general meeting. According to Section 269(1) of the Companies Act, it is compulsory for a public company (or a private company which is a subsidiary of a public company) having a paid-up share capital of Rs 5 crores to appoint a Managing Director or Whole-time Director.

(4) Term of appointment: The maximum for the appointment of a managing director 1. “Years at a time and can be reappointed within the last 2 years of the present term. A person can an as a managing director for the maximum 2 companies of which one must be a public company

(5) Qualification: A person appointed as Managing Director must be a director of the company and he should not be less than 21 years of age and more than 70 years of age. He should not be adjudicated as insolvent by the court of law. He should not be convicted by the court of law for an offence with a sentence of more than 6 months period.

(6) Remuneration: The remuneration of the Managing Director should not exceed 5% of net profits without the sanction of the Central Government. The remuneration may be paid either by way of the monthly payment or as a specific percentage of the net profits of the company.

(7) Powers: Managing Director is given substantial powers. Substantial powers are powers of executive nature like deciding the purchase policy, sales policy, credit policy, investment policy, selection and recruitment procedure, etc.

(8) Nature of duty: He works under the super intendant, control, and direction of the Board of Directors. He is responsible for the Implementation of the policies framed by the Board. He acts as a link between the Board and the staff of the company. He is responsible for the day-to-day administration of the affairs of the company. He works in two capacities, viz. that Of a Director and that of a Manager of the company' A Managing Director is first a Director and then an employee.