Key managerial personnel (KMP) or key management personnel cites to the company’s employees who are vested with the most essential parts and functionalities. They are the initial point of contact between the company and its stakeholders and are responsible for formulating strategies and their implementation. Key managerial personnel can directly and indirectly plan and control business operations. The Companies Act mandates definite classes of companies to include such personnel in its ranks.
The Companies Act, 2013 has acknowledged the conception of key managerial personnel for the first time. According to section 2(51), “key managerial personnel”, in relation to a firm, means:
- The chief executive officer or the managing director, or the manager
- The company secretary
- The whole-time director
- The chief financial officer
- Such other officer may be prescribed
Section 2(54) of the Companies Act, 2013 explains a managing director as a director responsible for substantial powers of the company’s management and its affairs. They are appointed by an agreement or a resolution passed in its general meeting.
A managing director is also called a chief executive officer (CEO) in many countries. The managing director or chief executive officer is responsible for running the whole company. He is also responsible for innovating and growing the company to a larger scale.
The whole-time director of a firm is explained under section 2(94) of the act, which means a director in whole-time employment of the firm. He is different from independent directors because he has a significant stake in the company and is part of the daily operations. A managing director may also be a whole-time director.
Manager as explained under section 2(53) of the Companies Act, 2013, is a person who works under the authority and administration of the board of directors and is entrusted with the administration of the whole of the affairs of the business.
The board of directors appoints a manager at a meeting which shall be subject to the resolution to be passed at the firm’s next general meeting. The resolution comprises of terms and conditions for the appointment and remuneration to be paid to the manager, which has to be initially accepted by the board of directors. Any move taken by the manager before the board of directors’ approval and passing of resolution shall be deemed invalid.
Chief financial officer
The chief financial officer under section 2(19) of the Companies Act, 2013 is an individual who leads the finance and treasury purposes of a firm. The CFO keeps a tab on cash flow operations, does financial planning and creates contingency plans for possible financial crises.
Appointment of key managerial personnel
As per section 203(1) read with rule 8 of the companies’ rules, 2014 the following companies are commanded to appoint a whole-time KMP:
- Every listed company.
- Public companies having paid-up share capital of ten crore rupees or more.
- Public companies having paid-up shares of five crore rupees or more.
- Companies having paid-up share capital of ten crore rupees or more are mandated to appoint a company secretary.
Roles and responsibilities of key managerial personnel
KMP has been bestowed with a huge authority of being liable for any non-compliance with the provisions of the Companies Act, 2013. The management function of implementing chief decisions comes under the duties of KMP. The future of a firm depends on the effectiveness of its KMP, and the consequences of KMP’s errors could impact the company negatively. Some of their primary roles and responsibilities are mentioned below:
- According to section 170 of the act, the details of securities held by KMP in the firm or its holding, subsidiary, a subsidiary of the firm or associated firms should be revealed and noted in the registrar of the books.
- KMP has a power to be heard in the meetings of the audit committee while contemplating the auditor’s report. Nevertheless, they do not have the right to vote.
- According to section 189(2), KMP should disclose to the company, within thirty days of appointment, relating to their concern or interest in the other associations, which must be included in the register.
Section 196(3) of the Companies Act mentions that a firm shall not designate or pursue the job of a managing director, whole-time director or manager if such person:
- Hasn’t achieved the age of 21 years or has surmounted the age of 69 years (an individual can be handed over the roles at the age of 70 years on the fulfillment of certain conditions).
- Has been an uncharged insolvent or was convicted as an insolvent.
- Has a record of holding payments to their creditors.
- Has been convicted by a court for a crime and imprisoned for more than six months.
- Has been sentenced to incarceration or has been fined with more than Rs. 1000 for the conviction of any crime under definite acts.
- Wasn’t obstructed under the Conservation of Foreign Exchange and Prevention of Smuggling Activities Act, 1974 (subject to further conditions).
- Is an Indian native.
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