Difference between various business positions is quite confusing for the general public. Here, we will discuss, what is the difference between a chairman, a managing director, a CEO, and a proprietor?
I replied to this question earlier on Quora. I am reproducing my reply here for benefit of the general public interested in corporate laws and affairs in students of the subject.
- Chairman is a person chairing some meeting. In the corporate world, a chairman is a person who usually elected or appointed to chair meetings of the Board of Director or Members of a company.
- Managing Director is the top director of a company who is entrusted with substantial powers to manage the company. The Board of Directors of the company always have a supervisory role over Managing Director. There may be one or more Managing Directors in large companies.
- CEO – the Chief Executive Officer is not a Board Position technically. He may or may not otherwise be on the Board. CEO manage the company or one or more business verticals. They report to the Managing Director or the Board of Directors of the company depending on the organisation structure of the company.
- The proprietor is an owner of the small business of this own. Legally and practically, he is not different from his business except some accounting treatments in many jurisdictions.
There is no difference regarding power and duties of Managing Director, Manager and Chief Executive Officer as such.
[Note – to give more clarity, I am adding a legal position of Manager, though not used these days. Please do not confuse with Manager with managers reporting to these three topmost positions]
The difference is in the “legal flow of powers and duties”.
Firstly, basic observations.
- All three “may” be members of the Board of Directors but Managing Director “will” be Director before his appointment as MD.
- All three shall drive their power from the Board of Directors and report to the Board only.
A manager is an individual who has the management of the whole, or substantially the whole, of the affairs of a company. Manager exercises his powers subject to the superintendence, control and direction of the Board of Directors. Here, Manager has whole powers but under day to day control of the Board.
Managing Director is a director who is entrusted with substantial powers of management of the affairs of the company. Here, MD may not has whole powers without day to day control of the Board. It means unlimited decision-making powers in his entrusted area.
Chief Executive Officer legally is a designation. CEO has powers to manage the business but shall be in day to day control of Board.
A careful reading of legal definitions of these three designations under the (Indian) Companies Act, 2013 show Managing Director may have fewer powers than Manager but more than Chief Executive Officer. Managing Director faces less Control than Manager and Chief Executive Officer.
It is the wisdom of the Board of Directors how to have their control over these three persons.
In Market, use of these terms does not depend upon their legal position. Companies use these terms interchangeably with ease. Many Designated CEO actually are Managing Directors or Manager, in the legal sense.