22 Dec 2024

Can-an-Individual-Serve-as-Managing-Director-in-Two-Companies-Without-Them-Being-Holding-and-Subsidiary-Companies

Can-an-Individual-Serve-as-Managing-Director-in-Two-Companies-Without-Them-Being-Holding-and-Subsidiary-Companies

Can an Individual Serve as Managing Director in Two Companies Without Them Being Holding and Subsidiary Companies?


Yes, this is legally permissible. 

Here’s an explanation based on the Companies Act, 2013:

First who is an MD?

According to 2(54)

(54) "managing director" means a director who, by virtue of the articles of a company or an agreement with the company or a resolution passed in its general meeting, or by its Board of Directors, is entrusted with substantial powers of management of the affairs of the company and includes a director occupying the position of managing director, by whatever name called.


Applicability: 
Section 203(3) of the Companies Act, 2013 the section specifies that whole-time key managerial personnel (KMP) cannot hold office in more than one company at the same time, except when the second company is a subsidiary.


Key Provisions:
1. Restriction on KMPs:
As per Section 203(3), a whole-time KMP is generally restricted from holding office in more than one company, except in its subsidiary.


2. Permission for Directorship: 
The first proviso clarifies that a KMP can act as a director in another company, with the Board’s permission.


3. Option to Choose: 
KMPs holding multiple positions on the commencement date of the Act had to choose a single office within six months.


4. Special Provision for Managing Directors:

The third proviso provides flexibility specifically for Managing Directors. It allows a person to be appointed or employed as Managing Director in two companies, provided:

The appointment is approved by a Board resolution, with the unanimous consent of all directors present. Specific notice of the meeting and the resolution is given to all directors in India.

Analysis: 

The general rule prohibits KMPs from holding similar positions in more than one company unless they are in a holding-subsidiary relationship. 

However, the third proviso creates an exception for Managing Directors. It allows an individual to serve as Managing Director in two distinct companies (not necessarily related as holding and subsidiary) if the Board of Directors approves this arrangement unanimously.


Conclusion: 
Thus, under the Companies Act, 2013, an individual can indeed serve as Managing Director in two companies without them being a holding and subsidiary. This is permissible by utilizing the exception provided in the third proviso to Section 203(3). No such liberty exists for other KMPs, who can only serve in multiple companies if one is a subsidiary of the other.

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From the desk of CS Sharath