Meaning:
According to Section 2 (26) managing director means “a director who, by virtue of an agreement with the company or 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.”
A managing director has essentially to be a director. A managing director will cease to be so the moment he ceases to be a director.
A managing director of a company has to exercise his powers subject to the superintendence, control and direction of the Board of directors.
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Appointment of a managing director:
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The appointment of a managing director can be made either by:
(a) An agreement with the company; or
(b) A resolution passed by the company in the general meeting; or
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(c) A resolution of the Board of Directors; or
(d) A clause in the memorandum or articles of association of the company.
Terms of appointment as per schedule XIII:
Appointment of a person as a Managing Director in a public Company or a private company which is subsidiary of a public company is required to be made in accordance with the conditions specified in Schedule XIII of the Act. The company is also required to file a return in the prescribed form within 90 days of such appointment [Sec. 269 (2)].
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Where the appointment is not as per the conditions of Schedule XIII, the company is required to obtain the approval of the Central Government.
Number of managing directorships:
Ordinarily, a person can, at a time, be a managing director of only one company, private or public. A person can be appointed managing director of two companies, including both private and public only on the approval of his appointment by a resolution of the Board of Directors, passed with the consent of all the directors present at the meeting (Sec. 316).
However, a person can be appointed managing director of more than two companies by special permission of the Central Government. This permission may be granted by the Central Government only when it is satisfied that the companies should, for their proper working, function as a single unit and have a common managing director [Sec. 316(4)].
A person may be a managing director of any number of independent private companies.
Term of office:
A person cannot be appointed managing director of a company for a term exceeding 5 years at a time. However, he can be reappointed or his term may be extended for a period not exceeding five years on each occasion (Sec. 317).
This provision is not applicable to an independent private company. Reappointment or extension of the managing director must be made and approved only within the last two years of his present term.
A managing director need not retire by rotation provided he comes within the limit of 1/3 of the total strength of non-rotational directors in case of a public company and he has been appointed for a fixed period, not exceeding five years at a time. But, he will cease to be a managing director as and when he ceases to be a director.