Corporate and Other Laws · Management & Administration

Key Managerial Personnel and Managerial Remuneration (CA Intermediate)

Q: What is the difference between a managing director and a whole-time director?

An MD is a director entrusted with substantial powers of management, subject to the Board's control. A WTD is a director in the whole-time employment of the company. A person can be both, but the two terms focus on different things: powers for the MD and full-time service for the WTD.

Q: Who must appoint KMP under section 203?

Companies of a prescribed class must appoint them. This class is listed companies and public companies with paid-up share capital of ₹10 crore or more. They need an MD or CEO or manager (or a WTD in their absence), a company secretary and a CFO.

Q: What is the maximum remuneration under section 197 when profits are adequate?

The total for all directors and the manager is limited to 11% of net profit. Within that, one MD/WTD/manager can get up to 5%, or all together 10% if there are more than one. Other directors get up to 1% if there is an MD/WTD/manager, and up to 3% if there is none.

Q: Can one person be KMP in two companies?

As a rule, no. A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary. A KMP can be a director of another company with the Board's permission, and a person who is MD or manager of one other company can be appointed MD with the consent of all directors present at a Board meeting.

Updated 4 October 2026 · Fact-checked

Key Managerial Personnel (KMP) are the top officers who run a company: CEO, MD or manager, whole-time director, company secretary and CFO. Section 196 governs appointing an MD, WTD or manager. Section 203 requires KMP in prescribed companies. Section 197 and Schedule V cap their pay. Identify the person, the section, then the limit.

Understand Key Managerial Personnel and Managerial Remuneration

A company is run by people. Some of them hold such senior, whole-time roles that the Act gives them a special name: Key Managerial Personnel (KMP). Under the definition in section 2(51), KMP means the CEO, managing director or manager; the company secretary; the whole-time director; the CFO; and such other officer, not more than one level below the directors, who is in whole-time employment and is designated as KMP by the Board; and any other officer as may be prescribed.

The managing director (MD) is a director who, by the articles, an agreement or a resolution, is entrusted with substantial powers of management, subject to the Board's control. A whole-time director (WTD) is a director in the whole-time employment of the company. A manager is an individual who, under the Board's control and superintendence, manages the whole or substantially the whole of the company's affairs. Think of it this way: MD is about powers, WTD is about full-time service, and a manager need not be a director.

Section 196 controls how these three are appointed. A company cannot have an MD and a manager at the same time. The term cannot exceed five years at a time. The person must be at least 21 and below 70, unless a special resolution is passed for a person aged 70 or more. Undischarged insolvents, persons who suspended payment to creditors or made a composition with them, and persons convicted and sentenced for more than six months are barred. The Board approves the appointment and terms, and the next general meeting must approve them by resolution.

Section 203 requires every company of a prescribed class to have whole-time KMP: MD or CEO or manager (or, in their absence, a WTD), a company secretary and a CFO. The prescribed class is listed companies and public companies with paid-up share capital of ₹10 crore or more. KMP are appointed by a Board resolution stating terms and remuneration. A whole-time KMP cannot hold office in more than one company, except its subsidiary. A vacancy must be filled by the Board within six months.

Remuneration is controlled by section 197 and Schedule V. In a company with enough profit, the Act sets percentage caps on net profit. In a company with no profit or inadequate profit, Schedule V Part II sets a ceiling based on the company's effective capital. Exam questions mix these rules, so always decide first whether profits are adequate.

Key rules to remember

Maximum term of MD/WTD/manager: Term ≤ 5 years at a time; Re-appointment cannot be made earlier than one year before the term expires (section 196(2)).
Age limits for MD/WTD/manager: 21 years ≤ age < 70 years; A person aged 70 or more can be appointed by a special resolution with a justification in the explanatory statement. Another route exists: if votes in favour exceed votes against and the Central Government is satisfied the appointment is most beneficial, it may be made.
Who must have whole-time KMP (section 203): Listed companies + public companies with paid-up capital ≥ ₹10 crore; They need MD or CEO or manager (or a WTD in their absence), company secretary and CFO.
Filling a KMP vacancy: Board fills the vacancy within 6 months; Applies to the vacancy of any whole-time KMP (section 203(4)).
Penalty for default under section 203: Company ₹5,00,000; each officer in default ₹50,000; plus ₹1,000 per day after the first, total daily penalty not above ₹5,00,000; The daily penalty applies to continuing default.
Overall managerial remuneration (adequate profit): Total to all directors and manager ≤ 11% of net profit; Net profit is computed under section 198. Sitting fees are outside this limit.
Limit for MD/WTD/manager: One such person: ≤ 5% of net profit. More than one: ≤ 10% of net profit in total; These amounts sit inside the 11% overall cap.
Limit for other directors: With an MD/WTD/manager: ≤ 1% of net profit. Without one: ≤ 3% of net profit; Sitting fees are not counted in this limit.
Schedule V Part II (inadequate profit) by effective capital: Below ₹5 crore: ₹60 lakh a year. ₹5 crore to below ₹100 crore: ₹84 lakh. ₹100 crore to below ₹250 crore: ₹1.2 crore. ₹250 crore and above: ₹1.2 crore + 0.01% of effective capital above ₹250 crore; Applies when the company has no profit or inadequate profit. Conditions in Schedule V must also be met. Check the table in your current study material.

How to solve Key Managerial Personnel and Managerial Remuneration questions

Use this order for any question on KMP, appointment or remuneration. It stops you jumping to a limit before checking eligibility.

1Identify the person and the post: MD, WTD, manager, CEO, CFO, company secretary or an ordinary director. Use the definitions to confirm who is KMP.
2Check the company type. For section 203, ask whether it is listed or a public company with paid-up capital of ₹10 crore or more.
3Test the appointment under section 196: no MD and manager together, term not above five years, age between 21 and below 70, and no disqualification such as insolvency or conviction with a sentence above six months.
4Check the approval route: Board meeting first, then the next general meeting, and Central Government approval if the terms are at variance with Part I of Schedule V. Note the return to the Registrar within sixty days.
5For remuneration, decide whether profits are adequate. If yes, apply the 11%, 5% or 10%, and 1% or 3% caps on net profit. If not, use the Schedule V Part II table on effective capital.
6Check section 203 conditions: whole-time KMP not holding office in more than one company (except a subsidiary), vacancy filled in six months, and the penalty for default.
7Write the answer as provision, facts, conclusion. State the rule, apply the numbers or facts, and end with a clear yes or no.

Quickest way: Four checks and a clear conclusion

When to use it: Use this for MCQs and for case-based written answers when time is short.

Underline the number in the question: age, term in years, net profit, effective capital or paid-up capital. Most questions turn on one number.
Match the number to its rule: 70 years, 5 years, 21 years, 6 months, ₹10 crore, 11%, 5%, 10%, 1%, 3%.
For MCQs, eliminate options that mix up the percentages or apply the wrong threshold. There is no negative marking, so always mark an answer.
For written answers, use three short parts: Provision, Facts, Conclusion. Name section 196, 203 or 197 only where you are sure, and otherwise state the rule in words.
In remuneration sums, show each cap separately and then add them. Step marks are given for each correct cap.

Common mistakes in Key Managerial Personnel and Managerial Remuneration

Saying an MD and a manager can both be appointed if the Board approves.
Students remember that the Board has wide powers and assume it can approve anything.
Fix: Section 196(1) is absolute: no company can appoint or employ an MD and a manager at the same time.
Treating age 70 as a complete bar.
The rule is remembered as 'below 70' and the proviso is forgotten.
Fix: Add the exception: a person who has attained 70 can be appointed by a special resolution with a justification in the explanatory statement.
Applying the 5% and 10% limits as extra limits on top of 11%.
Students see three percentages and add them.
Fix: The 5% or 10% for MD/WTD/manager is a part of the overall 11%. Other directors' 1% or 3% is separate and must also fit inside 11% in total.
Using Schedule V effective-capital limits when the company has adequate profit.
Students recall the table and apply it automatically.
Fix: Check profits first. The Schedule V Part II table applies only when profits are absent or inadequate.
Forgetting the general meeting approval and thinking Board approval alone is enough.
Students stop reading after 'approved by the Board'.
Fix: Section 196(4) needs Board approval and then approval by resolution at the next general meeting. Central Government approval is also needed if the terms are at variance with Part I of Schedule V.
Thinking acts of an MD are void if the general meeting rejects the appointment.
Students link invalid appointment with invalid acts.
Fix: Section 196(5): acts done before the company's non-approval are not deemed invalid.

Worked examples

Example 1

Alpha Ltd, a public company, plans to appoint Mr. Rao, aged 71, as managing director for six years. Another person is already working as its manager. Advise the company.

Show the solution

Provision: under section 196, no company can appoint or employ an MD and a manager at the same time.
Provision: the term of an MD cannot exceed five years at a time.
Provision: a person who has attained 70 can be appointed only by a special resolution, with the justification in the explanatory statement. The alternative route needs a majority of votes in favour and the Central Government's satisfaction.
Facts: a manager is already employed, the proposed term is six years, and Mr. Rao is 71.
Conclusion: the proposal fails on the manager point and on the term. The company must end the manager's employment (or not appoint an MD), reduce the term to at most five years, and pass a special resolution with justification for Mr. Rao's age. The Board approval must also be ratified at the next general meeting.

Answer: As proposed, the appointment is not valid. Appoint him for a maximum of 5 years, do not have a manager at the same time, and pass a special resolution for age 70+.

Example 2

Beta Ltd has a net profit (computed under section 198) of ₹10,00,00,000. It has one managing director and two whole-time directors, and some non-executive directors. Compute the maximum remuneration payable to (a) the MD and WTDs together, (b) the other directors, and (c) all of them together.

Show the solution

Net profit = ₹10,00,00,000.
There is more than one MD/WTD (three persons), so the limit is 10% of net profit.
(a) 10% × ₹10,00,00,000 = ₹1,00,00,000.
The company has an MD/WTD, so the limit for other directors is 1% of net profit.
(b) 1% × ₹10,00,00,000 = ₹10,00,000.
(c) The overall cap is 11% × ₹10,00,00,000 = ₹1,10,00,000.
Check: ₹1,00,00,000 + ₹10,00,000 = ₹1,10,00,000, which equals the overall cap. Sitting fees are outside these limits.

Answer: (a) ₹1,00,00,000; (b) ₹10,00,000; (c) ₹1,10,00,000 in total.

Exam tips

Learn the numbers as a set: 5 years, 21 years, 70 years, 60 days, 6 months, ₹10 crore, 11%, 5%, 10%, 1%, 3%. Most MCQs test one of them.
In case studies, check age, term and approvals separately. A single question often has two defects, as in a 71-year-old appointed for six years.
In remuneration sums, state the net profit basis first, then compute each cap in a separate line to earn step marks.
For section 203, name the class of company before the duty: listed companies and public companies with paid-up capital of ₹10 crore or more.
Write the conclusion plainly: 'valid', 'invalid', 'permissible up to ₹…'. A clear conclusion earns the final mark.

Practice questions from Management & Administration

Key Managerial Personnel and Managerial Remuneration in other exams

The same ground in other exams, if you are preparing for more than one or want another angle on it.

Key Managerial Personnel and Managerial Remuneration: frequently asked questions

What is the difference between a managing director and a whole-time director?

An MD is a director entrusted with substantial powers of management, subject to the Board's control. A WTD is a director in the whole-time employment of the company. A person can be both, but the two terms focus on different things: powers for the MD and full-time service for the WTD.

Who must appoint KMP under section 203?

Companies of a prescribed class must appoint them. This class is listed companies and public companies with paid-up share capital of ₹10 crore or more. They need an MD or CEO or manager (or a WTD in their absence), a company secretary and a CFO.

What is the maximum remuneration under section 197 when profits are adequate?

The total for all directors and the manager is limited to 11% of net profit. Within that, one MD/WTD/manager can get up to 5%, or all together 10% if there are more than one. Other directors get up to 1% if there is an MD/WTD/manager, and up to 3% if there is none.

How is remuneration decided under Schedule V when profits are inadequate?

Schedule V Part II sets a ceiling based on the company's effective capital. The higher the effective capital, the higher the ceiling, for example ₹60 lakh a year for a company with effective capital below ₹5 crore. The conditions in Schedule V must also be satisfied.

Can one person be KMP in two companies?

As a rule, no. A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary. A KMP can be a director of another company with the Board's permission, and a person who is MD or manager of one other company can be appointed MD with the consent of all directors present at a Board meeting.