Rules regarding directors’ remuneration of a company

The rules regarding directors’ remuneration are discussed in detail as follows:

1. The remuneration of directors is to be determined either by the articles of the company or by special resolution.

2. The amount and the mode of remuneration shall be in accordance with the provisions of section 198. That is to say the remuneration payable to directors, managing directors and whole time director shall not exceed eleven percent of the net profits of the company in a particular year excluding the sitting fees payable to directors for attending board and committee meetings.

3. The remuneration of a whole time or managing director may be paid either by way of a monthly payment or at a specified percentage of the net profits of the company or partly by one way and partly by the other. Except with the approval of the central government, such remuneration shall not exceed five percent of the net profits if payable to one managing or whole time director and ten percent if payables to more than one managing or whole time director.

4. A director who in neither in the whole time employment of the company nor a managing director may be paid remuneration either by way of a monthly, quarterly or annual payment with the approval of the central government or by way of commission if the company by special resolution authorizes such payment. Such commission shall not exceed one percent of net profits if the company has a managing or whole time director and three percent if the company has no managing or whole time director.

5. If any director receives any remuneration in excess of the permissible limit, he will have to refund such sums to the company and until such sum is refund, he shall hold it in trust for the company. Even the company cannot wave the recovery of such sum unless permitted by central government.

6. No director of a company who is in receipt of any commission from the company and who is either in the whole time employment of the company or a managing director shall be entitled to receive any commission or other remuneration from any subsidiary of such company.

7. The above rules do not apply a private company unless it is a subsidiary of public company.

8. Where any provision in the memorandum, articles agreement or resolution of the company or its board is sought to be made so as to increase the remuneration of any director, it will not have any effect unless approved by the central government.