The managing director of a company is in charge of the organization’s daily operations and is under the purview of the CEO (Chief Executive Officer), the executive head of a company. He or she is also expected to keep a company solvent and facilitate its expansion and growth. In other words, the managing director is entrusted with substantial powers of management and is in charge of the company’s affairs.
It is a common practice that the Board of Directors appoints one of its members to manage the affairs of the company as a whole-time officer and calls him the Managing Director.
The Companies Act of 2013 further specifies that considerable powers of the managing director do not include the authority to do routine administrative acts authorized by the board, such as the following:
- The authority to affix the company’s common seal to any document.
- Draw and endorse a check in any bank on the company’s account.
- Create and sign a negotiable instrument.
- Sign or direct the registration of a share certificate.
Managing Director as defined by the Companies Act means a director who by virtue of an agreement with the company or of a resolution passed by the company in general meeting or by its Board of Directors or by virtue of its Memorandum or Articles of Association—is entrusted with substantial powers of management which would not otherwise be exercisable by him and includes a director occupying the position of a Managing Director, by whatever name called.
The explanation to section 2(54) excludes administrative acts of a routine nature when so authorized 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, from the substantial powers of management.
A Managing Director is a professional who provides inspiration, motivation, and guidance to leaders and managers in a company. They are in charge of directing the company’s operations to make sure it achieves its objectives effectively and efficiently.
who will be deemed to be a Managing Director?
The test to determine whether a person is a managing director or not, is the position holds and not the designation or name. Therefore, a person may be deemed to be a managing director, although he is not so appointed and designated as such. It was held in the case of CIT v Sarabhai Sons Ltd. (1983) that the Chairman of the board had exercised the powers of management and rendered his services to the company in managing its business, although he was not appointed as managing director was deemed to be the managing director.
Main purpose of role:
To direct and control the company’s operations and to give strategic guidance and direction to the board to ensure that the company achieves its mission and objectives
Main responsibilities of managing director:
- Direct and control the work and resources of the company and ensure the recruitment and retention of the required numbers and types of well-motivated, trained and developed staff to ensure that it achieves its mission and objectives.
- Prepare a corporate plan and annual business plan and monitor progress against these plans to ensure that the company attains its objectives as cost-effectively and efficiently as possible.
- Provide strategic advice and guidance to the chair and members of the board, to keep them aware of developments within the industry and ensure that the appropriate policies are developed to meet the company’s mission and objectives and to comply with all relevant statutory and other regulations.
- Establish and maintain effective formal and informal links with major customers, relevant government departments and agencies, local authorities, key decision-makers and other stakeholders generally, to exchange information and views and to ensure that the company is providing the appropriate range and quality of services.
- Develop and maintain research and development programmed to ensure that the company remains at the forefront in the industry, applies the most cost-effective methods and approaches, provides leading-edge products and services and retains its competitive edge.
- Prepare, gain acceptance, and monitor the implementation of the annual budget to ensure that budget targets are met, that revenue flows are maximized and that fixed costs are minimized.
- Develop and maintain an effective marketing and public relations strategy to promote the products, services and image of the company in the wider community.
- Represent the company in negotiations with customers, suppliers, government departments and other key contacts to secure for it the most effective contract terms.
- Develop and maintain Total Quality Management systems throughout the company to ensure that the best possible products and services are provided to customers.
- Develop, promote and direct the implementation of equal opportunities policies in all aspects of the company’s work.
- Oversee the preparation of the annual report and accounts of the company and ensure their approval by the board.
- Develop and direct the implementation of policies and procedures to ensure that the company complies with all health and safety and other statutory regulations.
Managing Director responsibilities include:
- Developing and executing the company’s business strategies
- Providing strategic advice to the board and chairperson
- Preparing and implementing comprehensive business plans to facilitate achievement.
Requirements and skills:
- Proven experience as Managing Director or other managerial position
- Demonstrable experience in developing strategic and business plans
- Thorough knowledge of market changes and forces that influence the company
- Strong understanding of corporate finance and measures of performance
- Familiarity with corporate law and management best practices
- Excellent organizational and leadership skills
- Excellent communication, interpersonal and presentation skills
- Outstanding analytical and problem-solving abilities.
The Basis for Appointment of a Managing Director in a Company
The managing director of a corporation may be appointed for up to five years and then reappointed for an additional term starting one year before the previous term expires. A corporation may elect to appoint a managing director or a full-time director in any of the following ways unless one of the following five procedures is expressly stipulated in the bylaws of the company:
- By virtue of an agreement with the company.
- By virtue of a resolution passed by the company in a general meeting.
- By virtue of a resolution passed by the Board of directors.
- By virtue of the Memorandum of Association or Articles of Association
Do note that within sixty days following the appointment, a company must file a return of appointment for a Managing Director, Whole Time Director or Manager, Chief Executive Officer (CEO), Company Secretary, and Chief Financial Officer (CFO). The filing must be completed online through Form MR-1.
When a managing director is appointed in a manner that does not comply with the provisions of Schedule V of the Act, the Central Government must authorize the same. A company can seek its approval by making an application under Section 201 of the Act.
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