Specimen Agreement for Service explained: this guide covers what Specimen Agreement for Service means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
What Is an MD Service Agreement?
An MD Service Agreement (also called MD Appointment Agreement) is the contract between the company and the Managing Director governing the terms of appointment, remuneration, duties, and termination. Under Section 196 of the Companies Act, 2013: the appointment of MD requires Board Resolution + Shareholder Approval (Ordinary Resolution, or Special Resolution if the MD is also a manager or WTD). The agreement must comply with Section 197 (remuneration limits) and Schedule V (conditions for payment of managerial remuneration). For listed companies: SEBI LODR Regulation 17 imposes additional governance requirements.
Specimen MD Service Agreement — Key Clauses
AGREEMENT FOR SERVICE OF MANAGING DIRECTOR
This Agreement is made on between , CIN: (the "Company") and Mr./Ms. , DIN: (the "Managing Director").
Terms and Conditions
1. Appointment: The Company appoints Mr./Ms. as Managing Director for a term of [3/5] years from to , pursuant to: (a) Board Resolution dated , (b) Ordinary/Special Resolution of shareholders passed at on , (c) .
2. Duties and Powers: The Managing Director shall: (a) manage the affairs of the Company subject to the superintendence, control, and direction of the Board, (b) exercise such powers as are delegated by the Board from time to time, (c) attend Board Meetings and General Meetings, (d) ensure compliance with all applicable laws, (e) represent the Company before government authorities, regulators, banks, and other stakeholders, (f) not engage in any other business or employment without the Board's prior consent.
3. Remuneration:
| Component | Monthly (Rs.) | Annual (Rs.) |
|---|---|---|
| Basic Salary | ||
| House Rent Allowance | ||
| Special Allowance | ||
| Perquisites (car, medical, club) | ||
| Contribution to PF | ||
| Total |
Commission: % of net profits of the Company (subject to Section 197 limits). Sitting Fee: Not payable (MD receives remuneration, not sitting fees). Performance Bonus: As determined by the NRC and approved by the Board.
4. Remuneration Limits — Section 197:
(a) Total remuneration to ALL directors (including MD): shall NOT exceed 11% of net profits. (b) Remuneration to MD: shall NOT exceed 5% of net profits (if there is one MD) or 10% of net profits (if there is more than one MD/WTD). (c) If the company has NO profits or INADEQUATE profits: remuneration as per Schedule V — the company may pay minimum remuneration subject to the limits prescribed in Schedule V (based on effective capital of the company).
5. Minimum Remuneration (Schedule V): If the company has no profits or inadequate profits in any financial year: the MD shall be entitled to the following minimum remuneration (as per Section II of Part II of Schedule V):
| Effective Capital | Maximum Annual Remuneration |
|---|---|
| Negative or less than Rs. 5 crore | Rs. 60 lakh |
| Rs. 5 crore to Rs. 100 crore | Rs. 84 lakh |
| Rs. 100 crore to Rs. 250 crore | Rs. 120 lakh |
| Above Rs. 250 crore | Rs. 120 lakh + 0.01% of effective capital beyond Rs. 250 crore |
6. Termination: (a) By the Company: The Board may terminate this appointment by giving [3] months' notice or salary in lieu, subject to shareholder approval under Section 196. (b) By the MD: The MD may resign by giving [3] months' notice. (c) Automatic Termination: The appointment terminates if: the MD is disqualified under Section 164, the MD becomes insolvent, or the shareholders pass a resolution removing the MD under Section 169. (d) Severance: On termination: the MD is entitled to unpaid remuneration up to the termination date + months' salary as severance (subject to Section 197 limits).
7. Non-Compete: During the term and for [1] year after termination: the MD shall not engage in any business competing with the Company within .
8. Confidentiality: The MD shall keep confidential all trade secrets, business plans, financial information, and proprietary data of the Company — during and after the appointment.
9. Insurance: The Company shall maintain Directors and Officers (D&O) Liability Insurance covering the MD against claims arising from bona fide actions taken in the course of duty.
Approval Requirements
(a) NRC Recommendation: The Nomination and Remuneration Committee recommends the MD's appointment and remuneration (Section 178). (b) Board Approval: Board Resolution at a Board Meeting. (c) Shareholder Approval: Ordinary Resolution at a General Meeting (or Special Resolution if the MD is also a manager). (d) Central Government Approval: Required ONLY if remuneration exceeds Schedule V limits AND the company has no/inadequate profits. (e) Filing: Form MR-1 (return of appointment of MD) with ROC within 60 days.
Filing Requirements
(a) Form MR-1: Return of appointment of managing director — filed within 60 days of appointment (Section 196(4)). (b) Form DIR-12: Change in directorship (if the MD is a new director). (c) Form MGT-14: Special Resolution (if applicable) — within 30 days. (d) The service agreement itself is NOT filed with ROC — but a certified extract is maintained in company records and may be produced during inspection.
Disclaimer: This article is for informational purposes only and does not constitute legal or professional advice. While every effort has been made to ensure accuracy based on the latest laws and amendments, readers should consult a qualified professional before acting on any information provided. For expert assistance, contact us.