Section 197 of Companies Act, 2013 governs managerial remuneration payable by public companies to their directors, managing director, whole-time director, and manager.
It sets:
- Overall remuneration limits
- Conditions for exceeding limits
- Requirement of shareholder approval
- Reference to Schedule V of Companies Act, 2013
The objective is investor protection. Since public companies raise money from the public, the law restricts how much top management can pay itself using company profits.
This philosophy does not extend to private companies, which operate with limited shareholders and closer ownership control.
Is Section 197 Applicable to Private Companies?
Let’s address the primary query directly.
👉 Section 197 is applicable only to Public Limited Companies.
👉 Section 197 is not applicable to private companies.
There is no provision in the Companies Act, 2013 that extends Section 197 to private companies, whether directly or indirectly.
This position has been consistently accepted in professional practice, MCA interpretations, and expert commentary. Therefore:
- No statutory cap on managerial remuneration
- No mandatory Schedule V compliance
- No shareholder approval under Section 197
for private companies.
Section 197 Applicability to Deemed Public Company
A deemed public company is treated as a public company only for limited purposes, not for all provisions of the Act.
In practice:
- Section 197 applies only when a company is actually a public company
- Merely being deemed public under specific sections does not automatically trigger Section 197
Each case must be analysed based on the exact status of the company under the Act.
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Why Section 197 Does Not Apply to Private Companies
The logic is rooted in corporate governance philosophy.
Private companies:
- Have limited shareholders
- Are closely held
- Do not raise funds from the general public
- Allow owners to decide remuneration internally
Because of this, lawmakers intentionally excluded private companies from managerial remuneration limits under Section 197.
Imposing public-company-style restrictions on private entities would defeat the flexibility that private incorporation is meant to provide.
Managerial Remuneration Under Section 197 for Private Companies – A Myth
Many articles & consultants incorrectly discuss managerial remuneration Section 197 for private companies.
Legally speaking:
- Section 197 does not regulate remuneration in private companies
- Director pay in private companies is governed by:
- Articles of Association
- Employment agreements
- Board and shareholder decisions
As long as remuneration is properly authorised internally & disclosed correctly in financial statements, there is no statutory ceiling.
What About Schedule V of Companies Act, 2013?
This is where confusion increases.
Search results often show:
- “Schedule V applicable to private companies”
- “Schedule V non-applicable to private companies”
The correct legal position is nuanced.
✔ There is no provision which makes Schedule V non applicable to private companies
❌ But Schedule V is linked to Section 197, which itself applies only to public companies
So in effect:
- Schedule V does not restrict private companies
- Private companies are not impacted by this amendment
This distinction matters during audits & drafting remuneration structures.
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Section 197(16) of Companies Act, 2013 Explained
Section 197(16) deals with auditor reporting on whether managerial remuneration paid by a company is in accordance with Section 197.
Since Section 197 does not apply to private companies:
- Auditors do not comment on excess remuneration under this section for private companies
- No reporting obligation arises under Section 197(16)
This further reinforces that Section 197 is a public company-specific provision.
Disclosure Requirements – What Still Applies?
While private companies enjoy flexibility, disclosure obligations still exist.
The law states:
- Every listed company is required to disclose detailed managerial remuneration"
- Private companies have limited disclosure requirements under Schedule III
So although Section 197 does not apply, transparency in financial statements is still required under accounting & audit standards.
Common Mistakes Private Companies Make
Even though Section 197 does not apply, many private companies:
- Incorrectly cap director remuneration"
- Unnecessarily pass shareholder resolutions
- Follow Schedule V without legal need
- Misinterpret auditor remarks
These errors lead to over-compliance, delayed structuring, and unnecessary legal costs.
Understanding section 197 of companies act, 2013 applicability avoids such mistakes.
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Summary: Section 197 & Private Companies
Let’s simplify everything:
- Section 197 of Companies Act, 2013 is not applicable to private companies
- It applies only to public limited companies
- No remuneration cap for private companies
- Schedule V does not restrict private companies"
- Private companies are not impacted by this amendment
- Listed companies have mandatory disclosure obligations
The law is clear. The confusion is not.
Why This Clarity Matters for Founders & Directors
Misinterpreting Section 197 can:
- Limit rightful compensation
- Delay restructuring decisions
- Create incorrect audit narratives
- Affect investor negotiations
Private company promoters should use the flexibility the law intentionally provides—but correctly.
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