Director Remuneration Compliance Check

Summary

Under the Companies Act, 2013, director remuneration generally requires shareholder approval unless the Articles of Association specify otherwise. A company cannot pay another companys directors without a legal arrangement. If X Ltd were a private company not a subsidiary of a public company, compliance might be less stringent but still subject to the Act and Articles of Association.

Full Conversation

X Pvt Ltd has three directors. All of them are non-executive directors. All of them look after management of the company. The company pays remuneration to them pursuant to a resolution passed by the board of directors (since the Articles of Association of the company do not provide that directors’ remuneration should be approved by the shareholders at a general meeting. Is this consistent with the provisions of the Act?
Under the Companies Act, *, specifically Section *, the remuneration of directors, including non-executive directors, generally requires approval from shareholders in a general meeting. However, if the Articles of Association do not specify this requirement, the board's resolution alone may not be sufficient.
Do you have a copy of the company's Articles of Association for further review?
X Ltd is a holding company of Y Ltd. Three directors of X are on Y's board. X had been paying remuneration to its executive as well as non-executive directors. But in the financial year *-*, it had a loss. So, the board of X decided that the remuneration of all directors would be paid by Y, which had adequate profit to pay the remuneration. Is this arrangement in compliance with the provisions of the Act? Would it make any difference if X had been a private company which is not a subsidiary of a public company?
The arrangement you've described has several compliance issues under the Companies Act, *:
- A company (Y Ltd) cannot pay the remuneration of directors of another company (X Ltd) unless there is a specific service contract or other legal arrangement.
- Section * and related provisions require that directors' remuneration be approved by shareholders.
If X Ltd were a private company not a subsidiary of a public company, the compliance requirements might be less stringent, but still subject to the Act and Articles of Association.
Would you like more details on the specific provisions or any other legal aspects?