Page 294 - DCOM201_ACCOUNTING_FOR_COMPANIES_I

Unit 12: Divisible Profits and Managerial Remuneration

(b) Remuneration of part-time directors: As per the provision of section 309(4) a part-time Notes
director (who is neither whole-time nor managing director) may receive monthly, quarterly
or annual payment of remuneration with the approval of Central Government or by way
of commission, if a special resolution of the company authorizes such payment. But except
with the approval of the Central Government, total remuneration shall not exceed:
(i) 1% of the net profit of the company if the company has managing directors or
whole-time directors or;

(ii) 3% of net profit of the company if the company has no manager, managing directors
or whole-time director.
It is to be noted that these rates of 1% and 3% respectively can be increased by the
company by a special resolution in a general meeting with the approval of the
Central Government. This special resolution will be valid for a period of five years.

(c) Director’s fees: In addition, a director may receive remuneration by the way of a fee for each
meeting of board of directors or a committee thereof attended by him according to the
Companies Act, but the government has decided that in case of whole-time directors or
managing directors, no sitting fee will be payable. As per notification of the Central
Government dated, 27.8.1993 a company can pay fees upto ` 2, 000 to its each director for
attending the meeting of board of directors or a committee thereof. As stated earlier, director’s
fees a not included in the managerial remuneration for the purpose of overall limit.
(d) Whole-time director or managing director shall not get any remuneration or commission
from subsidiary company: As per section 309(6) a whole-time or managing director who
is in receipt of any commission from a company is not entitled to receive any commission
or remuneration from the subsidiary company of such company.

(e) as per section 309(1) remuneration to a director will include any remuneration paid to him
for services rendered by him in any capacity except when-
(i) The services rendered by him are of a professional nature.

(ii) In the opinion of the Central Government, the director possesses the requisite
qualifications for the practice of the profession.
(f) The above-mentioned provision of section 309 regarding the remuneration of the
managerial personnel will not be applicable to a private company unless it is a subsidiary
company of a public company.

(g) As per section 310 of the Companies Act, if a public company or a private company, which
is the subsidiary of a public company, increases the remuneration payable to directors, such
an increase requires the approval of Central Government, except in the following cases–
(i) if schedule XIII is applicable and the increase is in accordance with the conditions
specified in that schedule and

(ii) if the increase is in the fee payable for attending each meeting of the board of
directors or a committee thereof and the increased rate does not exceed such sum as
may be prescribed.
(h) The net profit of the company for the purpose of calculating director’s remuneration
would be computed as per the provisions of sections 349 and 350 of the Companies Act.

(i) As per section 200, no company will pay its officers or employees any remuneration free
of any tax.

LOVELY PROFESSIONAL UNIVERSITY 287