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Loans to Directors & Managerial Remuneration 💰

Loans to Directors (Section 185) 🚫

General Rule: Company CANNOT give loans to:

  1. Any Director of company.
  2. Any Director of Holding Company.
  3. Partner or Relative of such director.
  4. Firm in which such director is partner.
  5. Private Company of which director is member/director.

Punishment: Imprisonment up to 6 months OR Fine up to ₹5 Lakhs OR both.

Exceptions (When Loan is Allowed):

  1. Government Companies: Can give loans without limit.
  2. Housing Loans to Employees (including director-employees): As per terms of employment.
  3. Loan to Managing/Whole-time Director: Against security and approved by Special Resolution.
  4. In Ordinary Course of Business: Banks/NBFCs can give loans (their business is lending).

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Managerial Remuneration 💼

"Managerial Remuneration" = Salary & perks paid to Managing Director, Whole-time Directors, and Managers.

Limits on Remuneration (Section 197):

General Rule:

  • Total managerial remuneration ≤ 11% of Net Profits (in a year).
  • For 1 manager/MD/WTD: ≤ 5% of Net Profits.
  • For Multiple managers: ≤ 10% of Net Profits (collectively).

If Company Has NO Profits or Inadequate Profits:

  • Still can pay, but limits are specified in Schedule V (based on capital).
  • Requires Central Government approval or shareholder approval.

Components of Remuneration 📊

Managerial remuneration includes:

  1. Salary: Fixed monthly/annual pay.
  2. Perquisites: House, Car, Medical, Education allowance.
  3. Commission: On profits (if approved).
  4. Stock Options: Shares at discount (ESOPs).

Not Included:

  • Sitting fees for attending Board meetings (separate).
  • Reimbursement of actual expenses.

Approval Process 📝

RemunerationApproval Required
Within limits (11% rule)Board Resolution + Shareholders' Ordinary Resolution
Exceeds limitsShareholders' Special Resolution + (if no profit) Central Govt approval
Private CompanyOnly Board Resolution (if as per Articles)

Sitting Fees 💺

  • Directors (who are not employees) get sitting fees for attending Board/Committee meetings.
  • Limit: ₹1 Lakh per meeting (can be more if approved by Board).

Quiz Time! 🎯

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💡 Final Wisdom: "Salary is earned for performance. Loans to yourself from company money? That's theft, not smart!" 💸

Next up: Managing Director - The CEO of the company! 👨‍💼

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