Page 300 - DMGT407Corporate and Business Laws

Unit 12: Management of Companies

Self Assessment Notes

Fill in the blanks:
4. A person cannot be appointed as managing director of more than two companies unless so
permitted by the……………………………...

5. In order to be called a manager in accordance with the Act, an individual must be
……………of the whole or substantially the whole of the business of the company.
6. Section 385 lays down the ………….........of a Manager.

12.3 Compensation to Directors

12.3.1 Compensation to Directors for Loss of Office

Section 318 provides that no compensation for loss of office may be paid by a company to any
director other than the managing director, or whole-time director, or a director holding the
office of manager. Even in their cases, no such payment must be made: (i) when he resigns his
office on reconstruction or amalgamation of the company; (ii) where the office is vacated under
s.203 or s.283; (iii) where he has to give up directorship beyond 20 directorships; (iv) where the
winding up of the company takes place due to his negligence and mismanagement; (v) where he
has been guilty of fraud or breach of trust in relation to, or of gross negligence in or gross
mismanagement of the conduct of the affairs of the company or any subsidiary or holding
company thereof; (vi) where he has instigated or has taken part directly or indirectly in bringing
about the termination of his office.
Where, however, the compensation is payable, it must not exceed the remuneration which
would have been earned by the director for the unexpired residue of the term or for three years
whichever is shorter. The calculation of this amount should be based on the average remuneration
actually earned by him during a period of three years immediately prior to the date on which he
ceased to hold the office, or where he held the office for a shorter period than three years, during
such period. No such payment can be made to him if the winding up has commenced either
before or at any time within 12 months after the date of his ceasing to hold office, if the assets of
the company are not sufficient to repay to the shareholders the share capital including the
premium, if any, contributed by them.

12.3.2 Remuneration of Managerial Personnel

Section 198 provides that the total managerial remuneration payable by a public company or a
private company which to its directors or manager in respect of any financial year must not
exceed 11 per cent of the net profit of that company for that financial year, in computing the
above ceiling of 11 per cent computed in the manner laid down in sections 349 and 359. The fees
payable to directors for attending Board meetings is not included.
What is included in managerial remuneration? Explanation to s.198 describes the term
remuneration. According to it, for the purposes of Ss. 309, 310, 311, 381 and 387, ‘remuneration’
includes the following: (a) any expenditure incurred by the company in providing rent-free
accommodation, or any other benefit or amenity in respect of accommodation free of charge, to
any of its directors or manager; (b) any expenditure incurred by the company in providing any
other benefit or amenity free of charge or at a concessional rate to any of the persons aforesaid;
(c) any expenditure incurred by the company in respect of any obligation or service, which, but
for such expenditure by the company, would have been incurred by any of the persons aforesaid;

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