If you pay salary to non-executive director, he will
become whole time director and you will have to file Form 32 for change of
designation from director to whole time director.
Payment of salary to a person presupposes existence of
employer-employee relationship. Such employment could be either on whole
time basis or part time basis. Relevant provisions of Companies Act are
reproduced below:
Section 198(3):
"Within the limits of
maximum remuneration specified in sub-section (1), a company may pay a monthly
remuneration to its managing or whole-time
director in
accordance with the provisions of section 309 or to its manager in accordance
with the provisions of section 387."
Section 309(3):
"A director who is
either in the whole time
employment of the
company or a managing director may be paid remuneration either by way of a monthly payment or at a specified percentage
of the net profits of the company or partly by one way and partly by the
other:"
Section 309(4):
"A director who is
neither in the whole time employment of the company nor a managing director may
be paid remuneration---
either
(a) by way of a monthly, quarterly
or annual payment with the
approval of the Central Government; or
(b) by way of commission if
the company by special resolution authorises such payment."
Although these provisions may not be
applicable to a private company, the intention of the Act is to provide for
payment of remuneration by way of monthly salary to MD/WTD and commission to
other directors.
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