Difference between Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

The Chief Executive Officer (CEO) and Chief Financial Officer (CFO) are two Key Managerial Personnel in a company. In our country, every person is free to form any type of company, and a large number of companies are incorporated as per the rules of the Companies Act, 2013. After the independence of our country, the government introduced the Companies Act, 1956 to uniformly manage all the functions of the company. After some time, this act was replaced with the Companies Act, 2013 and the new act has added various new provisions related to the functioning of the company. This act expanded the scope of functioning of Key Managerial Personnel (KMP) in a company and also added various other posts under the Key Managerial Personnel (KMP) in a company.

KMPs are responsible for ensuring the smooth functioning of the company. There are various persons under this and all have different responsibilities. Each member of the group “Key Managerial Personnel” holds a separate responsibility and manages a branch of the company. Chapter XIII of the Companies Act, 2013 governs the appointment, functions, and other responsibilities of these people. These people are the heads of the branch, and they are responsible for making any decision regarding the branch they are handling.

Section 2 (51) of the Companies Act, 2013 defines Key Managerial Personnel (KMP). It states that the KMP of a company means:

• Chief Executive Officer or the Managing Director or the Manager;
• Company Secretary;
• Whole-Time Director;
• Chief Financial Officer;
• Such other officers, not more than one level below the directors who are in whole-time employment, are designated as Key Managerial Personnel(KMP) by the Board; and
• Such other officer as may be prescribed.

Who is a Chief Executive Officer (CEO)?

Section 2(18) of the Companies Act, 2013 defines the Chief Executive Officer (CEO) of a company as, “Chief Executive Officer means an officer of a company, who has been designated as such by it.”

The Chief Executive Officer of a company is the highest-ranking official of the company, and he manages the day-to-day affairs of the whole company. The CEO is responsible for making all the big decisions for the company. He/ she is responsible for selecting the top management of the company who handles all the work. They create the strategy on which all the other team has to work. The Board of Directors (BOD) elects the CEO, and the CEO reports all of their work to the Board of Directors.

The CEO of the company also acts as the face of the company, and he is responsible for maintaining good communication between the Board of Directors and the managers of the company. The CEO has various powers and can act on behalf of the company, but at the same time, the CEO can also be made liable. The CEO can be made liable in case there is any fraud or any type of negligence in the business of the company. The CEO cannot show his interest in anything that is not aligned with the interests of the company.

Who is a Chief Financial Officer (CFO)?

Section 2(19) of the Companies Act, 2013 defines the Chief Financial Officer (CFO) of a company as “Chief Financial Officer means a person appointed as the Chief Financial Officer of a company.”

They are ranked as the highest officers of the company about the finances of the company. The CFO of the company makes all the decisions related to the finances of the company; i.e., planning to spend the cash, planning on the financial risk management, record keeping of the company, and also reporting the funds of the company to appropriate authorities. In some companies, CFO is also known as CFOOs, which stands for Chief Financial and Operational Officers.

In most cases, the CFO of a company holds a degree in business administration; i.e., MBA in finance, or a certified CA or CS, or both. They are a very important person for the company as the whole finance of the company is in their hands. They also keep a constant check on all the financial reports of the company, as it is their responsibility that the company provides correct information to the government. They are also responsible for analyzing any financial risks for the company and also for making plans that take out of the company from such financial risks.

Difference between Chief Executive Officer (CEO) and Chief Financial Officer (CFO)

Basis	Chief Executive Officer (CEO)	Chief Financial Officer (CFO)
Key Responsibility	They create the strategy for the company and are also responsible for overseeing their subordinates, whether all of them are working as per the directions or not.	They are responsible for raising funds for the company and also for assessing how much funds are required by the company and the best way to raise such funds.
Strategy	They develop the strategy for all the branches of the company and also are responsible for implementing the strategy in the company.	They are responsible for developing the financial and tax strategy for the company.
Development	The CEO is responsible for taking any new initiative as per the needs of the company.	The CFO is responsible for arranging funds for the company whenever required by them.
Reporting	The CEO is responsible for communicating the grievances of the employees of the company with the Board of Directors.	The CFO is responsible for declaring the financial records of the company with the Board of Directors.
Culture	The CEO is responsible for providing guidance and giving advice to any person who is facing difficulty in the execution of any plan for the company.	The CFO is responsible for maintaining the books of the company as per the government norms and providing any necessary suggestions to the team that is necessary to keep the books.
Liaising	The CEO is responsible for providing constant support to all the departments of the company and has to make sure that the company is working to achieve its goal.	The CFO is responsible for managing all the departments; i.e., accounting, finance, legal, and compliance.
Scope of Services	The CEO has a broader nature of services and has to interact with many stakeholders of the company.	The CFO has a narrower nature of services and has to interact with only those stakeholders who are engaged in finance and banking.
Analysis	The CEO is responsible for evaluating the overall business risks and gains of the company.	The CFO is responsible for evaluating the financial risks and gains for the company.

Conclusion

The Key Managerial Personnel in a company are very important positions and because of that, the government of our country has mandated the same for the companies. Every company that falls under the criteria established by the government of our country must appoint Key Managerial Personnel to their company. The government of the country has included these terms in the act to protect the companies and the employees who are working in the company. These KMPs are responsible for a large amount of work done for the company, and they are responsible for the growth of the company. The company must appoint these KMPs as per the norms established in the act and only if they fulfill the criteria established by the law. CEO and CFO are both part of Key Managerial Personnel in a company and both have different roles and responsibilities under their umbrella. The Chief Executive Officer of a company is the highest-ranking official of the company, and he manages the day-to-day affairs of the whole company. The CFO is ranked as the highest officer of the company about the finances of the company. Both officers are very essential for the growth of the company and to comply with all the requirements of the law.

Frequently Asked Questions (FAQs)

1. What are Key Managerial Personnel and what is their role in the company?

Answer:

Section 2(51) of the Companies Act, 2013 defines “Key Managerial Personnel” in a company. These persons are responsible for ensuring the smooth functioning of the company.

2. What is the highest position of any company?

Answer:

The position of CEO is highest in any company, since all the Key Managerial Personnel in the company reports to the CEO of the company.

3. What is the role of a CEO in a company?

Answer:

The Chief Executive Officer (CEO) of a company is the highest-ranking official of the company and he manages the day-to-day affairs of the whole company.

4. What is the role of a CFO in a company?

Answer:

The Chief Financial Officer (CFO) of the company makes all the decisions related to the finances of the company; i.e., planning to spend the cash, planning on the financial risk management, record keeping of the company, and also reporting the funds of the company to appropriate authorities.

5. Is it necessary to appoint Key Managerial Personnel (KMP) in a company?

Answer:

No, it is not necessary. As per Section 203 of the Companies Act, 2013 only the companies that fall under the category defined in the section have to appoint KMP in their company.