Appointment of MD in Private Companies under the Companies Act, 2013

[2022] 136 taxmann.com 74 (Article)

1. Introduction

In the earlier Companies Act 1956, the provisions relating to managerial appointments and remunerations as prescribed under erstwhile schedule XIII were not applicable to the private companies. Private companies were outside the purview of the provisions relating to managerial remuneration and as well the applicability of erstwhile schedule XIII under the Companies Act 1956.

In the recent Companies Act 2013, the provisions relating to appointment of managerial personnel i.e., appointment of managing director and whole time directors are made applicable for all companies which means the provision relating to appointment of managing director applicable even to a private company.

Although there is no compulsion legally to appoint a managing director / whole time director or manager under the provisions of the Companies Act 2013, the law also does not prohibit voluntary appointment of managing director / whole time director or manager by a private company for running the company and its management in a most efficient manager for its businesses. In practice, many private companies are headed by a duly appointed managing director and or whole time director.

2. Managing Director

Managing Director under sub-section (54) of section 2 of the Companies Act, 2013 means a director who, by virtue of the provisions in the Articles of a company or an agreement with the company or a resolution passed by its shareholders at its general meeting of by the company’s board of directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director by whatever name called.

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