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Managerial Remuneration Checklist Final

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Managerial Remuneration Checklist - India
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  Computation of Net Profit as per Section 349Net profit as per P& L Account Add (subsection 2)1) Subsidies received from the GovtLess (subsection 3)1) Profit by way of premium on shares/debentures issued /sold by the company2) Profit on sale of forfieted shares 3) profits of a capital nature I.e sale of any immovable property/fixed assets/undertakingLess (subsection 4)1) usual working charges2) directors remuneration3) bonus /commission4) interest  Statutory ComplianceManagerial Remuneration Checklist OBJECTIVE: Schedule VI of the Companies Act, 1956 requires disclosure of remuneration paid to the Managing / Whole time Directors, which is subject to certain limits and requires compliance with certain procedures, together with the computation of the ne NoParticulars (A)APPOINTMENT OF MANAGING / WHOLE TIME DIRECTORS OR MANAGER (AS DEFINED IN THE ACT)1 Does the paid-up capital of the Company exceed Rs 5 crores as per the last audited accounts. 2 If yes, has the Company appointed a managing director, whole time director or a manager, as required by Section 269(1). 3 Do the above managerial personnel fulfil the conditions as laid down in Part I of Schedule XIII, which are as under: a) He should not have been convicted of an offence under any of the 15 acts indicated under sub clause (a) of the above Schedule. b) He should have completed 25 years and should not have completed 70 years. c) Is he holding appointment as a managerial person in any other company ?   For the purpose of (b) and (c) above, the consent given by the director in the prescribed Form No. 29 and the prescribed Form No. 32 filed with the Registrar of Companies should be verified. d) where he is a managerial person in more than one company, then total remuneration drawn from the companies does not exceed the higher maximum limit admissible from any one of the companies of which he is a managerial personel e) Is he resident in India 4 Ensure that the appointment of managerial personnel in all cases is approved by a special resolution passed by the shareholders at a eneral meetin as reuired b Part III of the Schedule XIII. 5 In case the conditions specified under (3) above have not been satisfied, ensure that an application is made to the Central Government within 90 days  from the date of such appointment. Note: Whilst in cases where the appointment is not in accordance with Part I of Schedule XIII, the application has to be made within 90 days, in other cases where only the shareholders’ approval is required, the Department of Company Affairs has clarifi6 Ensure that the Company has filed the prescribed return under Section 269(2) within 90 days of the date of appointment. Indicate the date of filing of the same. B.REMUNERATION7 Obtain the computation of the total remuneration payable to the managerial personnel as well as to any other directors. 8 The remuneration should as far as possible be broken up under the following broad heads as per the requirements of Schedule VI :- a) Salaries and allowances b) Monetary value of various perquisites c) Contribution to provident, superannuation and gratuity funds d) Commission 9 Obtain and check the computation of net profit as per Section 349 . Ensure that the various adjustments to arrive at the same have been correctly done. Note that the depreciation is the same as that provided for in the accounts( as per Section 350). 10 Express the total remuneration as per (8) above as a % of the net profits computed as per (9) above. 11 The % should not exceed the following limits:- a) 5% of the net profits in case of remuneration to only one managerial personnel. b) 10% of the net profits in case of remuneration to  more than one managerial personnel. c) 11% of the net profits in respect of the total remuneration to all managerial personnel (including the non-whole time directors. 12 In case the total remuneration is in excess of the above limits, the previous approval of Central Government to be taken 13 In case the Company is making adequate profits , it has the freedom to structure the remuneration package in such a manner as it deems fit subject to it being approved by the shareholders and / or the Central Government in cases covered under (6) & (7) abo 14 In cases covered under (13) above, ensure that :- a) The various components of salary , allowances and perquisites are as per the shareholders and / or Central Government approval. b) Ensure that all payments made to managerial personnel whether termed as allowances or reimbursement of expenses or perquisites, and whether paid through the payroll or otherwise, and whether taxable or tax free are considered as part of the remuneration c) In respect of certain perquisites where a monetary value cannot be assigned, the taxable value thereof as per the Income Tax Act, 1961 and the Income Tax Rules, 1962 would need to be considered e.g. providing motor car, providing rent free furnished or u d) In cases where any “furnishings” have been provided, obtain a certified list from the Company Secretary or any other appropriate official and verify the cost of such items based on the accounting records.  15 In respect of Companies having no profits / inadequate profits the remuneration by way of salaries, allowances or perquisites shall not exceed the ceiling limits as per the following alternatives: A  A ceiling of Rs 24,00,000 per annum or Rs 2,00,000 per month calculated on the following scale based on the “effective capital Effective Capital - Monthly Remuneration   less than Rs 1 crore - Rs.75,000   Rs 1 crore to less than Rs 5 crores - Rs.100,000   Rs 5 crores to less than Rs 25 crores - Rs 1,25,000   Rs 25 crores to less than Rs 50 crores - Rs1,50,000   Rs 50 crores to less than Rs 100 crores - Rs 1,75,000   Rs 100 crores or more - Rs 2,00,000   The above ceiling limits would apply only if the following conditions are satisfied: i) The payment of managerial remuneration is approved by a resolution passed by the remuneration committee. ii) The company has not made any defaults in repayment of any debts (including public deposits ) or debentures or interest payable thereon for a continuous period of thirty days in the preceeding financial year before the date of appointment of the manageria B  A ceiling of Rs 48,00,000 per annum or Rs 4,00,000 per month calculated on the following scale based on the “effective capital Effective Capital - Monthly Remuneration   less than Rs 1 crore - Rs 1,50,000   Rs 1 crore to less than Rs 5 crores. - Rs 2,00,000   Rs 5 crores to less than Rs 25 crores. - Rs 2,50,000   Rs 25 crores to less than Rs 50 crores. - Rs3,00,000   Rs 50 crores to less than Rs 100 crores - Rs 3,50,000   Rs 100 crores or more - Rs 4,00,000   The above ceiling limits would apply only if the following conditions are satisfied: i) The payment of managerial remuneration is approved by a resolution passed by the remuneration committee. ii) The company has not made any defaults in repayment of any debts (including public deposits ) or debentures or interest payable thereon for a continuous period of thirty days in the preceeding financial year before the date of appointment of the manageria iii)  A special resolution has been passed a the general for payment of remuneration for a period not exceeding three ears. iv)  A statement containing certain prescribed information is attached alongwith the notice calling the general meeting c Exceeding the limit of Rs.48,00,000 Effective Capital - Monthly Remuneration   less than Rs 1 crore - exceeds Rs 1,50,000   Rs 1 crore to less than Rs 5 crores. -exceeds Rs 2,00,000   Rs 5 crores to less than Rs 25 crores. -exceeds Rs 2,50,000   Rs 25 crores to less than Rs 50 crores. - exceeds Rs3,00,000   Rs 50 crores to less than Rs 100 crores -exceeds Rs 3,50,000   Rs 100 crores or more - exceeds Rs 4,00,000   The above ceiling limits would apply only if the following conditions are satisfied: i) The payment of managerial remuneration is approved by a resolution passed by the remuneration committee. ii) The company has not made any defaults in repayment of any debts (including public deposits ) or debentures or interest payable thereon for a continuous period of thirty days in the preceeding financial year before the date of appointment of the manageria iii)  A special resolution has been passed a the general for payment of remuneration for a period not exceeding three years. iv)  A statement containing certain prescribed information is attached alongwith the notice calling the general meeting v)PRIOR APPROVAL OF CENTRAL GOVERNMENT to be obtained Note: (a) Contribution to provident and superannuation funds to the extent not taxable, gratuity upto half months salary for each completed year of service and encashment of leave are not to be considered whilst calculating the above ceiling.   Note: (b) An expatriate managerial personnel would be entitled to children’s education allowance, holiday passage for children and leave travel allowance subject to certain limits and conditions, which are not to be considered whilst calculating the above16 Check the computation of the “effective capital” on the basis of the last audited accounts which have been adopted by the shareholders. (For the mode of computation of “effective capital” refer to explanation I under section II 2 of Part II of Schedule 17 In case the remuneration is paid as per normal terms and subsequently it is observed that the Company has made inadequate profits or losses ensure that the excess remuneration, if any, has been recovered. 18 In case commission is payable to both whole time / non whole time directors:- a) In case of whole time directors, ensure that it is in accordance with the terms of appointment as approved by the shareholders and / or the Central Government. b) In case of non-whole time directors/non managing director, ensure that it is in accordance with the terms / basis approved by the Board and the shareholders or it is subsequently ratified by the shareholders.  Note : Maximum remuneration to director who is neither whole time nor a managing director is 1% of net profits if company has a whole time/managing director and 3% in any other case c) In case of no profits or inadequate profits ensure that no commission has been paid.
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