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Managerial payout: No government approval needed, says MCA

Public companies will no longer require government approval for paying salaries beyond a certain threshold to their managerial personnel, as the government notified amendments to the Companies Act and related rules with effect from Wednesday.

This will be applicable for public companies and not private companies, Ministry of Corporate Affairs said in a statement on Thursday. Under the Companies Act, 2013, there are public as well as private companies. Generally, those having more than 200 members are classified as public companies and they have to follow stricter corporate governance norms. There are more than 70,000 public companies.

The approval of the “Central government shall no longer be required for the payment of remuneration to managerial personnel (in excess of 11 per cent of the net profit of a company),” the ministry said. Now, such payments can be approved by a company’s shareholders through a special resolution. In case a company has defaulted in payment of dues to any bank, financial institution or non-convertible debenture holders, approval of the entity concerned would be required before the remuneration proposal is put up to the shareholders.

The ministry said the move is in pursuance of the policy of minimum government-maximum governance and providing ease of doing business to the law-abiding corporates of this country. “With the issue of the notification, all pending applications submitted to the Ministry for approval of proposals for payment of managerial remuneration in excess of the limits laid down, would automatically abate and companies are free to obtain requisite approvals for those proposals, from the shareholders within one year,” it said.

The changes come within days after the government announced that unlisted public companies will have to compulsorily issue new shares in demat form starting October 2. Any transfer of shares by these companies will also have to be done only in demat or electronic form, Ministry of Corporate Affairs said in a statement on Tuesday.

The government said this step has been taken for further enhancing transparency, investor protection and governance in the corporate sector. The decision came at a time when the ministry is clamping down on shell companies that are suspected of being conduits for illicit fund flows. According to the ministry, elimination of risks associated with physical certificates such as loss, theft, mutilation and fraud, would be a key benefit from the decision on having shares in demat form.

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