Business Laws and Ethics · Key Managerial Personnel

Powers, Duties and Remuneration of Key Managerial Personnel

Updated 10 October 2026 · Fact-checked

Key managerial personnel (KMP) are the senior officers who run a company day to day. Their duties include acting within their appointment terms, disclosing interests, and not misusing inside information. Whole-time KMP are appointed by Board resolution that fixes remuneration, cannot hold office in more than one company except a subsidiary, and vacancies must be filled within six months.

Understand Powers, Duties and Remuneration of KMP

Key managerial personnel (KMP) are the top officers through whom a company acts. For a company that must have them, the whole-time KMP are: the managing director, or Chief Executive Officer, or manager (and if none, a whole-time director); the company secretary; and the Chief Financial Officer. The Act also treats other officers designated or prescribed as KMP. Your first job in any question is to check who is a KMP and whether the person is whole-time.

KMP have no powers of their own. Their powers come from the Board resolution of appointment, the articles and any delegation by the Board. A managing director is given substantial powers of management, always under the Board's superintendence. A whole-time director is a director in the whole-time employment of the company. So a managing director is a type of director with delegated management powers, while a whole-time director is defined by full-time service.

The Act controls how KMP are appointed and how they serve. Every whole-time KMP is appointed by a Board resolution that states the terms and conditions, including remuneration. A whole-time KMP cannot hold office in more than one company at the same time, except in its subsidiary. The Board can, however, permit a KMP to be a director of any company. A company may appoint a person as managing director if he is managing director or manager of one, and not more than one, other company. This needs a Board resolution passed with the consent of all directors present, after specific notice to all directors then in India.

KMP also carry duties of honesty and disclosure. When special business is put to a general meeting, the explanatory statement must set out the nature of the concern or interest of every director, the manager, every other KMP and their relatives. If non-disclosure gives a KMP or a relative a benefit, the KMP holds that benefit in trust for the company and must compensate it. Separately, KMP must not misuse unpublished price-sensitive information or deal forward in company securities. These are covered in their own topics.

On remuneration, the Board resolution fixes it for whole-time KMP. For KMP who are also directors, the limits on managerial remuneration for directors also apply. The Nomination and Remuneration Committee recommends the remuneration policy for directors, KMP and other employees. Section 203 does not list its own disqualifications. If the KMP is also a director, the disqualifications of directors apply to that person.

Key rules to remember

Whole-time KMP of a prescribed company: MD or CEO or manager (else a whole-time director) + Company Secretary + CFO; Applies to companies of the class prescribed. Check the company's class before saying a post is mandatory.
Appointment of whole-time KMP: Board resolution stating terms and conditions, including remuneration (Section 203(2)); A Board resolution is needed. Shareholder approval is not the route stated in this section.
One company limit: Whole-time KMP may hold office in only one company, except its subsidiary (Section 203(3)); Board may permit the KMP to be a director of any company. An MD may also be MD or manager of one other company, with consent of all directors present and specific notice to all directors in India.
Filling a vacancy: Vacancy in whole-time KMP office to be filled by the Board at a Board meeting within 6 months (Section 203(4)); The six months run from the date of vacancy.
Chairperson and MD/CEO: Same person cannot be chairperson and MD/CEO unless the articles provide otherwise or the company does not carry multiple businesses (Section 203, first proviso); The proviso does not apply to notified companies in multiple businesses that have appointed one or more CEOs for each business.
Penalty for default under Section 203(5): Company: ₹5,00,000. Each director and KMP in default: ₹50,000, plus ₹1,000 per day after the first while default continues, further penalty capped at ₹5,00,000; Read the cap as applying to the daily further penalty.
Disclosure in explanatory statement: State nature of concern or interest of every director, manager, other KMP and their relatives (Section 102(1)(a)); Applies to each item of special business. In an AGM, ordinary business such as accounts, dividend, retiring directors and auditors is not special.
Penalty for default under Section 102: Higher of ₹50,000 or 5 × benefit accruing to the promoter, director, manager, KMP or relatives (Section 102(5)); Also, the benefit is held in trust for the company and must be compensated (Section 102(4)).
Shareholding disclosure: If special business affects another company, set out shareholding of every promoter, director, manager and KMP in it where it is not less than 2% of paid-up capital (Section 102 proviso); Two per cent or more is the trigger.

How to solve Powers, Duties and Remuneration of KMP questions

Use this order for any question on KMP duties, appointment, disclosure or penalties. It keeps your answer in the shape examiners reward.

1Identify the person and post. Is the person a KMP: MD, CEO, manager, whole-time director, company secretary or CFO? Is the post whole-time?
2Name the rule in plain words and give the section only if you are sure: Section 203 for appointment, vacancy and penalty, Section 102 for disclosure in the explanatory statement.
3Match the facts to the conditions: Board resolution or not, one company or two, subsidiary or not, time since vacancy, whether the interest was disclosed.
4Apply the exceptions. Check for Board permission to be a director, the proviso for managing directors, and the articles or single-business exceptions for chairperson and MD/CEO.
5Work out the consequence: compensation to the company, holding a benefit in trust, or the penalty. Do the arithmetic line by line.
6Write the conclusion in one line, such as 'the appointment is valid' or 'the penalty is ₹X'. Add the remedy, for example filling the vacancy within six months.

Quickest way: Four-check KMP scan for MCQs and short notes

When to use it: Use for 2-mark MCQs and 3-4 mark short notes where you must decide fast whether an act is permitted or penalised.

Check the appointing authority: it must be a Board resolution with terms and remuneration.
Check the number of companies: one only, except a subsidiary. Then look for Board permission for directorships, or the MD proviso.
Check the time: six months to fill a vacancy.
Check the penalty trap: Section 203 gives ₹5,00,000 for the company and ₹50,000 for each officer in default. Section 102 gives the higher of ₹50,000 or five times the benefit.

Common mistakes in Powers, Duties and Remuneration of KMP

Saying shareholders appoint whole-time KMP by ordinary resolution.
Students mix KMP with directors, whose appointment is a shareholder matter.
Fix: Remember that the Act requires a Board resolution with terms and remuneration for whole-time KMP.
Stating that a KMP can never hold office in two companies.
Students recall the one-company rule but forget the exceptions.
Fix: Add the exceptions: a subsidiary, Board permission to be a director of any company, and the MD proviso for one other company with unanimous consent of directors present.
Giving the penalty as ₹50,000 for the company.
The two amounts in Section 203(5) look similar.
Fix: Company: ₹5,00,000. Each director or KMP in default: ₹50,000, plus ₹1,000 per day after the first for continuing default.
Treating all AGM business as special business requiring a Section 102 statement.
Students forget the deemed-ordinary list.
Fix: At an AGM, accounts and reports, dividend, retiring directors and auditors' appointment and fees are not special. Everything else is special. At other meetings all business is special.
Forgetting the benefit-in-trust consequence when a KMP does not disclose interest.
Students remember only the penalty.
Fix: Write both: the benefit is held in trust and compensated, and the penalty is the higher of ₹50,000 or five times the benefit.
Applying director-only rules to a KMP who is not a director.
The words 'directors and KMP' are often used together.
Fix: Section 203 contains no disqualification list of its own. Director disqualification applies only if the person is also a director.

Worked examples

Example 1

Aditya Textiles Ltd, a company required to have a CFO, left the post of CFO vacant and the Board took no action. The default continued for 20 days. Compute the penalty payable by each director and KMP in default under Section 203(5), and state the company's penalty.

Show the solution

The company's penalty is a fixed ₹5,00,000.
Each director and KMP in default: ₹50,000 for the default.
Further penalty applies to each day after the first. For 20 days, the days after the first are 20 − 1 = 19.
Further penalty = 19 × ₹1,000 = ₹19,000. This is within the ₹5,00,000 cap.
Total for each officer in default = ₹50,000 + ₹19,000 = ₹69,000.

Answer: The company is liable to ₹5,00,000. Each director and KMP in default is liable to ₹69,000.

Example 2

At an extraordinary general meeting of Kaveri Industries Ltd, a resolution is moved to sell a plot to a firm owned by the relative of a director. The director did not disclose this interest in the explanatory statement. The relative's firm gained a benefit of ₹4,00,000. State the director's liability under Section 102.

Show the solution

A meeting other than an AGM treats all business as special, so Section 102 applies.
The statement must disclose the concern or interest of every director, manager and KMP, and of their relatives. The director did not do so.
The benefit accrued to the director's relative, so the director holds the benefit of ₹4,00,000 in trust for the company and must compensate the company to that extent.
Penalty is the higher of ₹50,000 or five times the benefit.
Five times the benefit = 5 × ₹4,00,000 = ₹20,00,000. This is higher than ₹50,000.

Answer: The director must compensate the company ₹4,00,000 and is liable to a penalty of ₹20,00,000, without prejudice to other action under the Act or other law.

Exam tips

Learn the six-month vacancy rule and the two penalty amounts under Section 203(5). MCQs often test these figures.
In written answers, state the section number only if sure. Use Sections 203 and 102 as given, and describe other rules in plain words.
For penalty questions, show a short calculation. Step marks are given for working even when the final figure is wrong.
Use the MD versus whole-time director contrast when a question asks about the difference: management powers under the Board's superintendence versus whole-time employment.
Keep one line each on disclosure of interest, forward dealing and insider information. These link this topic to related topics.

Practice questions from Key Managerial Personnel

Powers, Duties and Remuneration of KMP in other exams

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

Powers, Duties and Remuneration of KMP: frequently asked questions

Who are the key managerial personnel of a company?

For a company that must have them, the whole-time KMP are the managing director, CEO or manager (or a whole-time director in their absence), the company secretary and the Chief Financial Officer. The Act also covers other officers who are designated or prescribed as KMP.

How is the remuneration of KMP decided?

Every whole-time KMP is appointed by a Board resolution that sets out the terms and conditions, including remuneration. If the KMP is also a director, the limits on managerial remuneration for directors also apply. The Nomination and Remuneration Committee recommends the remuneration policy for directors, KMP and other employees.

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

A managing director is entrusted with substantial powers of management of the company's affairs, subject to the Board's superintendence. A whole-time director is a director in the whole-time employment of the company. One person can be both, but the labels describe different things.

What must a KMP disclose, and what happens if they do not?

In the explanatory statement for special business, the nature of the concern or interest of every director, manager, other KMP and their relatives must be stated. If a benefit arises because of non-disclosure, the KMP holds it in trust for the company and must compensate it. The penalty is the higher of ₹50,000 or five times the benefit.