Everyone asks for a prize for the services offered. As such, a director is paid for services offered to the company. Such a payment is called a director’s “remuneration”. Section 8 company registration governs a company including remuneration conditions. Further, the Act implies that the restriction on the refund of the amount. There are different phases of payment for different types of directors. Work and status are the basis of payment.
How does a company pay directors?
There are various ways of paying returns and remuneration to the directors in addition to a monthly salary. It can be in any form, such as in cash or kind. There are different types of remuneration listed below.
A company may pay a fixed amount of remuneration to its directors. This can happen every month or in a pre-decided manner.
The company may decide to pay a fixed percentage profit to its director. The basis of the percentage of profit is the value added by the director to the company and position. Such returns are payable to technical or specialist directors.
Seating fees are usually paid to independent directors or non-executive directors. It is the amount paid to a director for attending board/committee meetings. Any specific amount or rate can be set in the AOA or at the time of appointment.
Remuneration in the form of insurance premium
Some companies seek an insurance against negligence and breach of duty by directors or KMP (Chief Managerial Personnel). The premium paid is considered remuneration, but only if the director is found guilty.
Sweats are issued for reasons other than equity discounts or cash. They are issued to an individual for any value addition or contribution of IP rights. Directors can also take advantage of this. Such awards are for unusual contributions or technical expertise for business growth.
ESOP is a type of equity that is issued to company directors and specified employees with certain conditions. Such equity is meant to retain good talent within the company. It is not related to the profit of the company so can be issued in case of loss as well.
The company may choose to provide any of the above types in addition to monthly payments. It can also choose a combination.
Payment of remuneration will have an impact on both – the director and the company. The effects are as follows:
For the company: Remuneration is in the form of company expenses. Therefore, there will be a cut in financial statements.
For a director: This is an income for the director. Hence the director has to pay tax according to the tax slab.
In a private limited company, there are no set limits and restrictions. But, the company is required to follow the law and specific restrictions, if any. To know more information about the appointment of a director, NGO online registration, NGO registration process, contact Chartered Munshi as an NGO registration consultant, and all these points should be kept in mind. Furthermore, no specific forms of remuneration are prescribed. But it can be in any of the forms mentioned above. Remuneration is important to maintain good talent.