With new amendments to the Companies Act 2013, the Ministry of Corporate Affairs has ruled that companies need not seek the government's approval for paying salaries to top employees of a company beyond a certain threshold.
If the employee's salary is more than 11 per cent of the net profit of the company, the company's shareholders' approval is needed through a special resolution and not the government's.
This new rule will be in effect from Wednesday.
However, a clause in the amendment is that the new rule is applicable to public companies and not private ones. Currently, there are 70,000 public companies, according to the Indian Express.
The ministry said, "central government shall no longer be required for the payment of remuneration to managerial personnel (in excess of 11 per cent of the net profit of a company)."
The release said, "With the issue of the notification, all pending applications submitted to the Ministry for approval of proposals for payment of managerial remuneration in excess of the limits laid down, would automatically abate and companies are free to obtain requisite approvals for those proposals, from the shareholders within one year."
The new changes come days after the government said that unregistered public companies will have to issue new shares in the dematerialised form by October 2. Any transfer of shares will also have to be done in demat form.
This is done to help the ministry detect shell companies and will also minimise the risk of losing or damaging the physical certificates.