Managing Director of Company

Managing Director of Company

Management as we know it is the key to a successful institution. Everything that runs now a group of people coming together to accomplish a particular task. In order to run the organisation there are various aspects which are to run efficiently so that the institution achieves its goals. Management is one such activity which is the main reason why a company does not crash on its first day. Basically managing means handling or controlling the activities of the company and deal with the errands which the company runs through every day. Management is a skill which requires due care and control of the situations & complexities which a company can face in its regular working. With every department there is a head which governs the same. As management is the most important of all the head for the same is the Managing Director of the Company.

The primary work of a managing director is to look over the daily operations of the company. In some divisions of the world the work of an MD is considered same as that of the CEO (Chief Executive Officer) but an MD is a member of the Board of directors and responsible for day to day business activities of the firm. Also an MD is responsible for the overall management of an organisation whereas it is the CEO’s responsibility to facilitate the business and have a strategic vision to assign the company both internally or externally.

The Companies Act, 2013 defines Managing directors under clause 54 of Section 2 of the act. According to which a managing director means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.

Provided that the power to do administrative acts of a routine nature when so authorised by the Board such as the power to affix the common seal of the company to any document or to draw and endorse any cheque on the account of the company in any bank or to draw and endorse any negotiable instrument or to sign any certificate of share or to direct registration of transfer of any share, shall not be deemed to be included within the substantial powers of management.

In order to be qualified as a Director of a company the person should be a director of the company already, a non-director cannot be appointed as an MD. It is a pre-requisite to being appointed as an MD even if prior approval has been obtained by the government of the state.

The act also provides people who cannot be elected as Managing Directors (MD), which are:

  • An undischarged insolvent or one who has been declared by the court as insolvent
  • One who suspends or has suspended payment to his creditors, or has anytime made a composition with them
  • One who has been convicted in the court on an offence which involves moral turpitude.

The maximum term of appointment can be five years at a time and a new term cannot be sanctioned earlier than two years from the date on which it is to come into force. An MD is also a director but with that he is an employer of the company as well in the form of a manager the tenure for which an MD can be appointed shall not exceed 5 years at once.

The substantial powers which are enjoyed by an MD are not to be exercised by a normal director. These power of management are entrusted upon the MD with an agreement or a resolution passed by members, Board of Directors, or by the Memorandums of Associations or Articles of Association of the company. Although to look whether the person is an MD or not one has to look into the position it holds and not the designation or name thereof. The Central Government may permit any person to be appointed managing director of more than two companies if the Government is satisfied that it is necessary that the companies should, for their proper working, function as a single unit and have a common managing director.

An Managing Director of Company is accountable to the shareholders of the company and also shall be responsible for the actions of the company thereof. As under section 269(1) a public company shall have an MD or an all-time director or manager to look over the operations. This excludes private companies therefore for a private company it is not mandatory to have an MD.

Therefore as seen before the job description of an MD is to look into the regular operations of the company and therefore he can do so without the prior permission of the Board of Directors and efficiently abide by its duties and responsibilities. Therefore, the managing director is usually considered to be a major player in organizational leadership, and is supposed to understand the major divisions in the company for efficient working of the same.

Author: This blog is written by Ms. Anmol Srivastava, student of Damodaram Sanjivayya National Law University, Visakhapatnam, a passionate blogger & intern at Aapka Consultant.

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