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ECL 2

UNIT 2

KEY MANAGEMENT PERSONNEL (KMP)

Q1) What are the difference between the MD,WTD and Manager of the company?

A1) Difference Managing director and Whole Time Director

1. Power:

MD: A managing director is director who is entrusted with substantial powers of the management.

WTD: A whole-time director is an employee of the company entrusted with powers as per terms of employment.

2. Prohibition:

MD: Section 197 A of the Act prohibits a company from having simultaneously both a managing director and a manager.

WTD: A whole-time director could also be appointed along side a manager director.

3. Restriction:

MD: No individual are often appointed for more than five years at a time. [Sec. 317]

WTD: there's no such restriction regarding the appointment of a whole-time director.

4. Number of directorship:

MD: a person are often managing a person can't be whole- director of two companies or time director of more than even more in certain cases, one company. [Sec. 316]

WTD: a person can't be whole-time director of quite one company.

5. Appointment:

MD: The appointment of managing director doesn't necessarily require the consent of the shareholders of the company by means of resolution.

WTD: The appointment of a whole- time director requires the consent of shareholders of the corporate by a special resolution.

Difference between manager and managing director

1. Need:

Manager: A manager may or might not be a director of the company.

MD: A managing director must be a director of the company also .

2. Power:

Manager: in case of a manager, Sec. 2 (24) of Act provides that he has the management of the entire or substantially the entire of a company.

MD: just in case of a managing director Sec. 2(26) of the Act provides that he's entrusted with substantial powers of the company.

3. Number:

Manager: a company cannot have more than one manager.

MD: a company may have quite one managing director.

4. Contract:

Manager: A manager needn't be under a formal contract of service.

MD: A managing director is appointed by virtue of an agreement with the company.

5. Disqualification:

Manager: in case of appointment or employment of manager the disqualifications shall operate only if they occurred during the five years immediately preceding the date of his appointment. [Sec. 385]

MD: just in case of appointment or employment of a managing director, the same disqualifications will operate albeit they have taken place at any time during the life of that person. [Sec. 26]

6. Removal of disqualification:

Manager: The Central Government by way of notification within the official gazette may remove the disqualifications for the appointment of manager.

MD: there's no such provision just in case of managing directors.

Q2) Short note on corporate social responsibility

A2) Corporate Social Responsibility (CSR) are often defined as a Company’s sense of responsibility towards the community and environment (both ecological and social) during which it operates. Companies can fulfil this responsibility through waste and pollution reduction processes, by contributing educational and social programs, by being environmentally friendly and by undertaking activities of similar nature. CSR isn't charity or mere donations. CSR may be a way of conducting business, by which corporate entities visibly contribute to the social good. Socially responsible companies don't limit themselves to using resources to engage in activities that increase only their profits. They use CSR to integrate economic, environmental and social objectives with the company’s operations and growth. CSR is said to increase reputation of a company’s brand among its customers and society.

The Companies Act, 2013 has formulated Section 135, Companies (Corporate Social Responsibility) Rules, 2014 and Schedule VII which prescribes mandatory provisions for Companies to fulfil their CSR. this article aims to analyse these provisions (including all the amendments therein).

Applicability of CSR Provisions:

On every Company including its holding or subsidiary having:

Net worth of Rs. 500 Crore or more, or

Turnover of Rs. 1000 crore or more, or

Net Profit of Rs. 5 crore or more

During the immediately preceding financial year

A foreign company having its branch office or project office in India, which fulfills the criteria specified above

However, if a company ceases to satisfy the above criteria for 3 consecutive financial years then it's not required to comply with CSR Provisions till such time it meets the specified criteria.

CSR Committee:

Every Company on which CSR is applicable is required to constitute a CSR Committee of the Board:

Consisting of three or more directors, out of which at least one director shall be an independent director. However, if a company isn't required to appoint an independent director, then it shall have in 2 or more directors within the Committee.

Consisting of two directors just in case of a private company having only two directors on its Board

Consisting of a minimum of 2 persons just in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company

Q3) What are the activities of the CSR?

A3) CSR Activities

The CSR activities shall be undertaken by the corporate , as per its CSR Policy, excluding activities undertaken in pursuance of its normal course of business.

The BOD may decide to undertake its CSR activities approved by the CSR Committee, through

a section 8 company or a registered trust or a registered society, established by the company, either singly or alongwith the other company, or

a section 8 company or a registered trust or a registered society, established by the Central Government or state government or any entity established under an Act of Parliament or a State legislature

a section 8 company or a registered trust or a registered society, aside from those laid out in clauses (a) and (b) above, having an established track record of three years in undertaking similar programs or projects;

collaboration with other companies,

for undertaking projects or programs or CSR activities in such a manner that the CSR Committees of respective companies are during a position to report separately on such projects or programs.

The CSR projects or programs or activities to not be considered as CSR Activities:

Expenses for the advantage of only the employees of the company and their families

Contribution of any amount directly or indirectly to any political party.

Q4) Who can be called the company secretary of the company? Also give its tenure of company secretary.

A4) COMPANY SECRETARY

Section 2(24) of the companies Act, 2013 defines “company secretary” or “secretary” means a company secretary as defined in clause (c) of sub-section (1) of section 2 of the company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act;

A company secretary may be a principally an employee even though he holds very high rank. He / She could also be the Chief Executive & then his position is near to those of the directors. in reality, he's the sole employee who has advisory powers.

CS advice is pursued in carrying out general administration and within the decision-making process at the time of framing policies of the company. he's consulted to work out the lawful suggestions of policy decisions. Therefore, he/she is that the only outsider who is present at the Board meetings.

Company Secretary is that the one that may be a member of the (ICSI) Institute of Company Secretary of India appointed by the company to perform the functions of the company Secretary.

Time period for such appointment of company secretary:

The Companies Act 2013 doesn't provide the period wherein the company has to designate Company Secretary as (KMP) key managerial personnel. But it's advisable to appoint a corporation Secretary as KMP within the first board meeting which is to be conducted after applicability of such a provision.

Q5) Brief note on meaning, appointment of MD, WTD and Manager

A5) (1) No company shall appoint or employ at the same time a managing director and a manager.

(2) No company shall appoint or re-appoint any person as its managing director, whole-time director or manager for a term exceeding five years at a time:

Provided that no re-appointment shall be made before one year before the expiry of his term.

(3) No company shall appoint or continue the employment of any person as managing director, whole-time director or manager who —

(a) is below the age of twenty-one years or has attained the age of seventy years:

Provided that appointment of an individual who has attained the age of seventy years could also be made by passing a special resolution during which case the explanatory statement annexed to the notice for such motion shall indicate the justification for appointing such person;

(b) is an undercharged insolvent or has at any time been adjudged as an insolvent;

(d) has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and therefore the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule:

Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any:

Provided further that a return within the prescribed form shall be filed within sixty days of such appointment with the Registrar.

(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager isn't approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.

Q6) Short note on remuneration of KMP of the company.

A6) REMUNERATION TO MANAGERIAL PERSONNEL

Section 197 of the companies Act, 2013 prescribed the utmost ceiling for payment of managerial remuneration by a public company to its managing director whole-time director and manager which shall not exceed 11% of the net profit of the company in that financial year computed in accordance with section 198 except that the remuneration of the directors shall not be deducted from the gross profits.

Further, the company in general meeting may, with the approval of the Central Government, authorise the payment of remuneration exceeding 11% of the net profits of the company, subject to the provisions of Schedule V.

The net profits for the needs of this section shall be computed within the manner mentioned in section 198.

The remuneration payable to any one managing director or whole time director or manager shall not exceed 5% of the net profits of the company and if there are quite one such director remuneration shall not exceed 10% of the net profits to all such directors and manager taken together.

Except with the approval of the company in general meeting, the remuneration payable to directors who are neither managing directors nor whole-time directors shall not exceed,—

1% of the net profits of the company, if there's a managing or whole-time director or manager;

3% of the net profits in the other case. the percentages aforesaid shall be exclusive of any fees payable to directors for attending the meeting of the board/committees or for such other purposes as decided by the board.

Q7) Short note on CSR COMMITTEE of the company.

A7) CSR Committee:

Every Company on which CSR is applicable is required to constitute a CSR Committee of the Board:

• Consisting of three or more directors, out of which at least one director shall be an independent director. However, if a company isn't required to appoint an independent director, then it shall have in 2 or more directors within the Committee.

• Consisting of two directors just in case of a private company having only two directors on its Board

• Consisting of a minimum of 2 persons just in case of a foreign Company of which one person shall be its authorised person resident in India and another nominated by the foreign company

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