An MD, among other things, oversees the company's budget and allocates its resources, develops strategic business plans for attaining the company's goals, and ensures that the company's policies comply with industry and legal regulations. In this post, we will discuss the function, responsibilities, and qualifications for becoming a company's managing director.
The managing director of a company is in charge of the organization’s daily operations and is under the purview of the CEO (Chief Executive Officer), the executive head of a company. He or she is also expected to keep a company solvent and facilitate its expansion and growth. In other words, the managing director is entrusted with substantial powers of management and is in charge of the company’s affairs.
The Companies Act of 2013 further specifies that considerable powers of the managing director do not include the authority to do routine administrative acts authorized by the board, such as the following:
- The authority to affix the company’s common seal to any document.
- Draw and endorse a check in any bank on the company’s account.
- Create and sign a negotiable instrument.
- Sign or direct the registration of a share certificate.
| Do note that private limited companies can appoint only one person as their Managing Director. |
The Basis for Appointment of a Managing Director in a Company
The MD of a corporation may be appointed for up to five years and then reappointed for an additional term starting one year before the previous term expires. A corporation may elect to appoint a director or a MD full form in company any of the following ways unless one of the following five procedures is expressly stipulated in the bylaws of the company:
- By virtue of an agreement with the company.
- By virtue of a resolution passed by the company in a general meeting.
- By virtue of a resolution passed by the Board of directors.
- By virtue of the Memorandum of Association or Articles of Association
Do note that within sixty days following the appointment, a company must file a return of appointment for a Director, Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary, and Chief Financial Officer (CFO). The filing must be completed online through Form MR-1.
We can help you With Appointment of additional director online for the businesses you own.
| In the case of publicly traded companies, the disclosure of such an appointment shall be made to the stock exchange within 24 hours of the board meeting date and posted on the company’s website within two working days. |
When a MD is appointed in a manner that does not comply with the provisions of Schedule V of the Act, the Central Government: https://www.india.gov.in/ must authorize the same. A company can seek its approval by making an application under Section 201 of the Act.
| Schedule V specifies the disqualification and salary criteria for mds. |
Disqualification of a Director
A Managing Director can be disqualified in certain circumstances such as:
- Breach of fiduciary duties: If a Director breaches their fiduciary duties to the company by engaging in activities that harm the company’s interests or using their position to gain personal benefits, they may be disqualified.
- Insolvency: If a Director is found to have contributed to the insolvency of the company, they may be disqualified.
- Criminal convictions: If a Director is convicted of a criminal offense, it may lead to their disqualification.
- Misconduct: If a Director engages in misconduct such as fraud, misrepresentation, or dishonesty, they may be disqualified.
The specific grounds and procedures for disqualifying a MD may vary depending on the applicable laws and regulations in the relevant jurisdiction.
Eligibility for Taking on the Role of a Managing Director in a Company
The following are the necessary qualifications to be eligible for being appointed as a Managing Director:
- The Director must be above the age of 21 years and must not have attained the age of 70 years, provided, however, that the appointment of a person beyond the age of 70 years may be made by moving a special resolution, in which case the explanatory statement affixed to the notice for such motion should describe the rationale for selecting such a person.
- The Director must not be an undischarged bankrupt or has at any time been adjudged as insolvent.
- The Director must not have been sentenced by a court or convicted for more than six months
- The director must not have made suspended payments to his creditors or made a composition with them at any time.
| A managing director cannot hold the office of a director including alternative directorship in more than 20 companies. |
Responsibilities of a Managing Director in a Company
- An MD must perform his duties with reasonable and due skill, care, and diligence, and use independent judgment.
- He must prevent getting engaged in situations where he or she may have an indirect or direct interest that conflicts with the interests of the company.
- He or she must not strive to obtain any unfair advantage or profit for himself/herself, their relatives, associates, or partners. If a Director of company has invariably made an unfair profit of this nature, he or she must pay the corporation an amount equal to that gain.
- He/she should not assign his/her office since such assignments are void under the law.
The Takeaway
A MD is a member of the board of directors who has been delegated critical management responsibilities. Hence, the appointment of such personnel must be made by following the due procedure of law. Engage the services of our experts to ensure that you dot all your i’s and cross all your t’s while Appointment of managing director in private company.
Is VP higher than managing director?
In general, a MD is typically higher in the organizational hierarchy than a vice president (VP) in India, as the MD is the highest-ranking executive in a company's management team and is responsible for the overall performance of the organization. However, this may not always be the case, as job titles and responsibilities can differ between companies.
What does managing director meaning?
Managing Director is a senior-level executive in a company who is responsible for the overall operations, strategy, and performance of the organization. The MD typically reports to the board of directors or the highest-ranking executive in the company and leads the management team in setting and achieving business goals.
Is Managing Director the owner of company?
No, the MD of a company is not necessarily the owner of the company. The owner of a company can be an individual, a group of individuals, or another company. The role of the MD is to lead the management team and oversee the day-to-day operations of the company, and they are typically appointed by the board of directors.
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