The managing director is the head of any limited company. It is the top boss of any such company. His position and powers are bought by a number of duties and responsibilities. Who actually pays the managing director? And how can he or she resign? In this article we look at the details of the role of the managing director, the contract of service, remuneration and the legal aspects of the position.
The managing director is the head of the limited liability company. It is the statutory body that is responsible for the management of the company. The managing director acts and acts on behalf of the company and enters into contracts on its behalf. However, he or she is also the one whose head is on the chopping block, whether it is the management or compliance with legal obligations.
The managing director must be of legal age and capable of performing legal acts. He is appointed by the general meeting. A company may have more than one managing director, who may act independently. The managing director may also be liable for the company’s debts if they are incurred through his fault.
The difference between a managing director and a partner: in smaller companies, the managing director is also a partner, but in larger organisations these two roles may be separate and held by two people. A partner is the owner of the firm who is involved in some of the major decisions. The managing director is the manager who handles the day-to-day operations. So you, as a shareholder, can set up a company and put in a managing director to manage it for you.
The difference between a managing director and a proxy: While the managing director is the statutory body of the company, a proxy is only an agent with limited powers. For example, a proxy cannot sell the company’s real estate unless he or she is specifically authorized to do so. The managing director therefore has greater powers but also greater responsibilities.
Proper treatment of the relationship between the managing director and the company is a legally more complex act, for which general templates will not suffice. In the service contract, you need to carefully specify all the terms and conditions and mutual requirements. We will prepare such an agreement for you.
On the one hand, the position of managing director looks nice. Who wouldn’t want to be the one who has the final say and decides everything? However, with power comes responsibility and the CEO has a lot of duties to perform. What are some of them?
Of course, this is not the end of the list of obligations. In any case, if the managing director violates his obligations, he is legally and personally liable for this, as well as for damages caused to the company.
The executive contract is the basic document that sets out the rules and regulates the relationship between the company and its executive. It must be in writing and its approval falls within the powers of the general meeting.
The basic elements of the executive contract are:
The executive contract also needs to specify the remuneration and how it is to be determined, as well as the duration and conditions of office.
While an ordinary employment contract falls under the Labour Code, the executive contract is governed by the Civil Code and the Companies Act. This therefore also affects entitlement to severance pay or terms of employment.
Tip: If a company wants to spread the risks of its individual business activities, it can set up a subsidiary. What are the subsidiary’s obligations to its parent company? Not only that, you can find out in our article.
The big advantage is flexibility, so the executive does not have to work to a fixed schedule. On the other hand, high-level positions often entail so many responsibilities that many executives sometimes only dream about leisure activities. Another plus is the lower tax burden, as executive compensation is not subject to the same taxes as a regular salary.
On the other hand, the executive has to deal with the lack of protection from employment law. For example, he is not entitled to severance pay or wage compensation in case of incapacity for work. Moreover, in the event of mismanagement, the managing director is also liable for his own assets, so he is definitely more liable than an ordinary employee.
The managing director can be remunerated in several ways. He or she may receive a fixed monthly fee or a share of the profits, or a combination of both.
The executive’s remuneration is also subject to a 15% personal income tax, social security and health insurance, but if the executive does not have a contract of employment, both are calculated differently than for regular employees. In some cases, part of the remuneration can be dealt with through dividends, which may be more advantageous from a tax perspective. If you want to calculate the remuneration of the managing director, the income calculator will be a useful tool in this case as well.
As long as the managing director complies with the legal procedures and deadlines, no one can prevent him from resigning as managing director. In the first step, he needs to submit his resignation in writing. This will notify the company of his resignation and then an entry will be made in the commercial register of the changes.
The resignation can take effect either immediately or after the expiry of the notice period. It depends on what conditions the managing director has set out in his contract of office.
Tip: One of the basic duties of the managing director is to convene the general meeting. Even this act has its specifics and legal aspects that need to be observed.
A resignation may take the form of a simple letter delivered by the managing director to the shareholders. Here is a simple resignation letter template that you can use if you need to:
[Name and surname]
[Address]
[Date][Company name]
[Company address]
Subject: Resignation as Managing Director
Dear Management,
i hereby resign as an executive officer of [company name] as of [effective date]. Thank you for your cooperation to date.
Yours sincerely
[Signature]
The managing director of a limited company is the statutory body responsible for managing the company, entering into contracts and complying with legal obligations. He is appointed by the general meeting and may also be a shareholder. Compared to a proxy, he has wider powers but also greater responsibilities, including liability for his own assets in the event of mismanagement. In order to perform his duties, he needs a contract that regulates his rights, duties and remuneration, which may take the form of a fixed sum, a share of the profits or a combination of both. He may resign from office by written resignation, the effectiveness of which depends on the terms of the contract and the registration of the change in the commercial register.
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