Can Two Directors and a Founder Set Their Own Salaries in a New Company?

For a new private limited company, can two directors have a salary? If yes, who will decide the salary? Similarly, who can decide the founder of the company's salary?

Thank you,

Regards, Rahul

1. Yes, one can't expect anyone to work for free.

2 & 3. Discuss with your seniors.

Warm regards.

Director Salary Decision Process

The salary of directors is decided by the company when it issues the appointment letter. In general, the board of directors is authorized to decide the salary of individual directors, subject to the overall limit (if any) set by the shareholders in a general meeting. However, in such a decision by the board, the directors concerned are considered as "interested" and cannot vote on the proposal.

First Director's Salary

The first director's salary and terms should be either as per the Articles of Association or as decided by the shareholders in the general meeting.

In reality, it is the owners/promoters that decide the salary of directors or founders. The same is implemented by the company. So, whatever they decide is fine, don't try to argue with it.

Regards

Role of Investors in a New Company

What if there are investors who are helping set up the company? In this situation, who will be the head of the company? Who will hire them? What is their designation? Who will decide their salary?

If you want a proper answer, you need to share the complete information. Otherwise, you will get incomplete information that may not suit your situation. Please provide all the necessary details.

Here is the situation. We are receiving funding from a UK company to establish a setup here in India. There are two main individuals who will oversee this company. Now, the question is, what will be the position of these two people? What will be their salaries? Who will decide their salaries? What are their responsibilities?

Regards

Terms of Funding and Director Salaries

The terms of funding—both the term sheet and the MOU that the promoters sign—will have explicit clauses about every aspect of the business and the relationship between promoters and the business, including the salary to directors. If the salary is not mentioned, then the directors cannot receive a salary, as it will be in violation of the term sheet. If, at a later date, they want a salary, they should seek approval from shareholders in the manner laid down by the Articles of Association, term sheet, and MOU with investors.

As a general rule, you don't take any money from the company that has not been disclosed beforehand to the investors in the business plan and in the term sheet. Or if you do, then it must be with the approval of investors.

Further to what Saswatabanerjee mentioned, your most recent posting/response still lacks clarity and details.

Funding Agreement Status

You mentioned, "We are getting funding from a UK company..." What is the stage of the funding agreement/MOU? Has it been signed and sealed? If yes, the UK entity would surely have incorporated the Indian Directors' wages, which usually include some sort of revenue/turnover-linked salary. Please check the agreement.

If no, then it all depends on what sort of funding arrangement is being worked out. Many times, the investing entity asks for a place on the Board of the Company, so what you or the Indian Directors may think on this issue may not be realistic. It has to be approved by the investing UK entity.

Head of the Company

Regarding who will be the Head of this company, every Private Limited Company's head is its Managing Director, who is decided by the Board of Directors. Since there are only two Directors, one of them will have to take up this designation and responsibilities.

As Saswatabanerjee mentioned, in reality, it is the investing entity/individual who will have a major say in this decision/selection.

Regards,
TS