Elements of Company Law - II

Key Managerial Personnel

Key Managerial Personnel refers to a group of people who are in charge of maintaining the operations of the company. Accounting Standard 18(AS-18) states that Key Managerial Personnel (KMP) are people who have authority and responsibility for planning, directing and controlling the activities of the reporting enterprise. Chief Executive Office, Cheif Financial Officer, Company Secretary, Whole Time Director are the Key Managerial Personnel.

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Key Managerial Personnel

The term ‘personnel’ refers to a group of people working together, instead of one person. The Key Managerial Personnel are the decision makers. They are accountable for the smooth functioning of company operations.

The members of the Board of Directors do not necessarily get involved in the day to day operations of the company. Their job is to supervise the company as a whole, not micromanage. The Board of Directors sets goals and objectives for the company. The key managerial personnel is the one who actually works on these goals and objectives to be achieved.

Key managerial personnel

(source – taxguru)

Key Managerial Personnel under Companies Act, 2013

Under Section 2 of the Companies Act 2013, Key Managerial Personnel in reference to a company are as follows:

  • Chief Executive Officer/Managing Director
  •  Company Secretary
  • Whole Time Director
  • Chief Financial Officer

Chief Executive Officer/Managing Director 

The managing director or chief executive officer is responsible for running the whole company. Also, the managing director has authority over all operations and has the most power in a managerial hierarchy.

He is also responsible for innovating and growing the company to a larger scale. In many countries, a managing director is also called a Chief Executive Officer (CEO).

Browse more Topics Under Elements Of Company Law Ii

Company Secretary 

A company secretary is a senior level employee in a company who is responsible for the looking after the efficient administration of the company. The company secretary takes care of all the compliances with statutory and regulatory requirements.

He also ensures that the targets and instructions of the board are successfully implemented. However, in some countries, a company secretary is also called a corporate secretary.

Whole Time Director 

A Whole Time Director is simply a director who devotes the whole of his working hours to the company. He is different from independent directors in the sense that he has a significant stake in the company and is part of the daily operation. A managing director may also be a whole time director.

Chief Financial Officer 

Chief Financial Officer (CFO) is a senior level executive responsible for handling the financial status of the company. The CFO keeps tabs on cash flow operations, does financial planning, and creates contingency plans for possible financial crises.

key managerial personnel

(source – reliancehomefinance)

Appointment of Key Managerial Personnel

Section 203 of the Companies Act 2013 has the provisions for the appointment of key managerial personnel. The Board appoints them. Also, the Board of Directors is responsible to fill any vacancies in the KMP within a period of six months.

It is mandatory for any listed company and any company with a paid up capital of more than or equal to 10 lakhs to appoint a whole time KMP. Further, a company with at least 5 lakhs paid-up capital is required to employ a full-time company secretary(who is also a KMP).

Roles and Responsibilities of Key Management Personnel

The KMPs are basically are basically responsible for taking the most important decisions and managing all the employees. They are also liable if they do not follow compliances laid down by the Companies Act 2013.

The growth and development of the company depend on the effectiveness of the KMPs at their jobs. The main responsibilities and functions of the KMP are:

  • As per Section 170 of the Companies Act, the details about the securities held by the KMPs in the company or its holdings and subsidiaries must be disclosed and thus recorded in the Registrar.
  • KMPs have a right to voice their opinion especially in meetings of the Audit Committee. However, they don’t have a voting right.
  • According to Section 189, Companies Act, KMPs should disclose their interests in other companies and associations, at least within 30 days of the start of the employment period.

Solved Question for You

Question: Which roles in the company constitute the Key Managerial Personnel? 

Answer: Under Section 2 of the Companies Act 2013, Key Managerial Personnel in reference to a company are as follows:

  1. Chief Executive Officer/Managing Director
  2. Company Secretary
  3. Whole Time Director
  4. Chief Financial Officer.
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