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Unit 12: Divisible Profits and Managerial Remuneration

12.2 Meaning of Managerial Remuneration Notes

The managerial personnel include the following personnel:
(a) Director: Directors are the representatives of the company. They manage and control the
company. Directors are also the trustees for the company’s property. Therefore, it is their
duty to use company’s property for its benefit alone. It is compulsory for every company
to have a board of directors. Board of directors is a group of directors. A contract signed by
the directors on the behalf of the company is binding on the company and the concerned
third party. If the directors use their reasonable care and skill to perform their duties and
yet the company suffers a loss, the directors will not be responsible for such a loss. But if
the loss is due to the negligence of directors and breach of trust, they must have to
compensate the loss suffered by the company. There can be two types of directors in a
company i.e. full-time director and part-time directors. A whole-time director is not a new
category of managerial personnel. But a director who is in the whole-time employment of
the company is called a whole-time director. Managing directors are also called the whole-
time directors. Part-time directors are those who devote part of their time in the affairs of
the company. There can be more than one part-time director in a company.
(b) Managing director: A company can have one or more than one managing director. The
board of directors may appoint one of themselves as the managing director of the company
by giving more powers to manage the company. According to section 2(26) of the
Companies Act, a managing director is a director who (i) by virtue of an agreement with
the company, or (ii) of a resolution passed by the company in general meeting, or (iii) by
its board of directors, or (iv) by virtue of its memorandum or articles 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. Without unanimous approval of the board of directors, a
managing director cannot manage more than one company at a time.

(c) Manager: There cannot be a manager and a managing director both in a company. Like
managing director, a manager is also appointed by board of directors. His tenure cannot
be more than five years at a time. According section 2(24) of the Companies Act, a manager
means a person who, subject to the superintendence, controls and manages the company
according to the 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 cannot have more than one manager at a time. The
same disqualifications and restrictions will be applicable for the manager which exist for
a managing director.
The remuneration which is paid to the managerial personnel (directors, managing directors and
managers) by the company is called managerial remuneration. This remuneration is shown in
the debit side of profit and loss account of the company. Besides salary, dearness allowance
perquisites, commission and other allowances, the managerial remuneration includes the
following as per section 198:

(a) Expenditure incurred by the company in providing any rent-free accommodation, or any
other benefits or amenity in respect of accommodation free of charge,
(b) Expenditure incurred by the company in providing any other benefit or amenity free of
charge or at a concessional rate,

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