Appointment of Managing Director

The Managing Director of a company is the most important working director, and is in charge of the way the company is managed. They are responsible for the daily operations of a company, organization, or corporate division. Managing directors have the highest rank within the company and have the authority to fire the executive director. If the company lacks a managing director or CEO, the executive director takes the spot as the highest ranking company official.

Definition of Managing Director according to Companies Act, 2013 [Section 2(54)]

The Companies Act, 2013 has for the first time recognized the concept of Key Managerial Personnel. As per Section 2(51) “key managerial personnel”, in relation to a company, means

1. The Chief Executive Officer or the managing director or the manager
2. The Company Secretary
3. The whole-time director
4. The Chief Financial Officer
5. Such other officer, not more than one level below the directors who is in whole-time employment, designated as key managerial personnel by the Board; and
6. Such other officer as may be prescribed

Managing Director means a director who is entrusted with substantial power of management.

The substantial powers of management can be entrusted to a managing director of a company in any of the following four ways (i.e. there are four modes of appointment of managing director)

The administrative acts of a routine nature such as a affixing common seal (if any), draw and endorse any cheque or negotiable instruments, signing share certificates, etc are excluded from the sphere of substantial powers to be exercised by the managing director.

Further, the expression Managing Director shall also include a director occupying the position of managing director, by whatever name called.

1. President
2. Chief Executive Officer,
3. Chief Operating Officer, etc

In the case of multinational companies shall be considered as the managing director for the purpose of Companies Act, although they are not designed as such.

Important Pre-Requisites for Appointment of Director as Managing Director under Companies Act, 2013

1. As per above definition, a person has to be a director before he can be appointed managing director. Therefore, if a company wants to appoint a person as managing director who is not a director of the company, he has first to be appointed as an additional director in accordance with the provision of Section 161 of the Act.
2. Managing Director is vested with the substantial power of management, but he need not necessarily have the whole or substantially the whole of the affairs of a company under his management. A company may, therefore, have more than one managing director.

Maximum Tenure of Managing Director in a Company

No company shall appoint or re-appoint any person as its managing director for a term exceeding five years at a time.

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

Note: No Company shall appoint or employ at the same time a managing director and a manager.

Disqualification employment of any person as managing director

No person can be appointed as a managing director, who Is below the age of twenty-one years or has attained the age of seventy years.

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

• Is an undischarged insolvent or has at any time been adjudged as an insolvent;
• Has at any time suspended payment to his creditors or makes, or has at any time made, a composition with them; or
• Has at any time been convicted by a court of an offence and sentenced for a period of more than six months.

Procedure for appointment of Director as Managing Director