Managerial Remuneration

Percentage ceilings and approval thresholds under the Companies Act are periodically revised. This article is for general information and does not constitute legal advice.

The 11% Ceiling

Under Section 197 of the Companies Act, total remuneration payable to all directors, including managing and whole-time directors, plus manager, can’t exceed 11% of the company’s net profits for that financial year, computed in a specific manner set out under Section 198, distinct from accounting profit. Within that overall ceiling, further individual sub-caps apply: 5% of net profits for one managing director or whole-time director, or 10% collectively where there’s more than one, and 1% (with a shareholder resolution) or 3% (without one) for a non-executive director.

Paying Beyond the Cap: Schedule V

Where a company has inadequate or no profits, Schedule V sets out minimum remuneration that can still be paid, based on the company’s effective capital, without needing Central Government approval, provided the shareholders approve it and other prescribed conditions are met. Remuneration beyond even these Schedule V limits generally requires prior approval from a bank or public financial institution (where the company owes them money), followed by a special resolution, though the government-approval route has been substantially eased compared to the position under the earlier 1956 Act.

Private Companies Sit Outside This

These specific percentage ceilings under Section 197 apply to public companies. A private company isn’t bound by them, and can structure director remuneration more flexibly through its AOA and board/shareholder resolutions, though ordinary disclosure requirements in the financial statements and board’s report still apply regardless of structure.