• Aug
  • 21
  • 2013

Provisions Applicable To Private Limited Company Under The New Companies Bill 2013

Posted In Company Law | | 23 Comments » Print Friendly and PDF

A quick perusal of the Companies Bill 2013 shows that many exemptions given to Private limited companies under Companies Act are withdrawn. .  The following provisions are applicable to Private limited companies under the new Companies Bill 2013. 

Maximum Number of members

There is no change in the minimum number of member which is 2. The maximum number the members in a private limited company are increased from 50   members to 200 members. (Clause 2 sub section (68)).

Financial Year for the Balance Sheet

 Financial year of the balance sheet will be 31st march for all the companies.

   For any relaxation approval from NCLT is required.  (Clause 2 sub section (41)).

Further Issue of Shares

The exemption given to private limited companies regarding further issue of shares is withdrawn. Further issue of shares under section 81 applicable to both private and public limited companies. Valuation  of shares  shall be done based on the certificate issued by registered valuer subject to such conditions as may be prescribed. (Clause 62)

Certification for Annual Return

         Annual Return must be certified by a Practicing company secretary and requirement of compliance certificate by practicing company secretary is dispensed with. The annual return should contain particulars like:

  (a) The extract of the annual return as provided under sub-section (3) of sec 92.

  (b) Number of meetings of the Board.

  (c) Directors’ Responsibility Statement;

  (d) A statement on declaration given by independent directors under sub-section.

And also PCS to certify that all the provisions of the Companies Act has been complied with (Clause 92)

Number of days of Notice of General Meetings.

For private limited company as per the existing Companies Act is even seven days notice is sufficient. This exemption is withdrawn.   As per the New Provisions 21 clear days notice has to be given to the shareholders and the notice can be given by electronic mode also.  However the general meeting may be convened by giving shorter notice if consent is given in writing or electronic mode by not less than ninety nine per cent of the members entitled to vote  at such meeting. (Clause 101).

Postal ballot for passing the Resolutions

 Till now postal ballot is applicable only for listed companies. Postal ballot is applicable to private limited companies also for certain transactions after the  amendment  prescribed by the central government by notification. (Clause 110).

Board Report to give  more details  

                                       

The Board report shall contain the following information (Clause 134(3))

(a) The extract of the annual return

(b) Number of meetings of the Board;

(c) Directors’ Responsibility Statement;

(d) a statement on declaration given by independent directors

(e) Company’s policy on directors’ appointment and remuneration   including    criteria for determining qualifications, positive  attributes, independence  of   a director and other matters if required by Section 178 provided under   sub- section (3) of section 178;

 (f) Explanations or comments by the Board on every qualification,  reservation or adverse remark or disclaimer made—

  (i) by the auditor in his report; and

 (ii) by the company secretary in practice in his secretarial audit report;

(g) Particulars of loans, guarantee s or investments

(h) Particulars of contracts or arrangements with related parties  referred to in sub-section (1) of section 188 in the prescribed form;

(i) The state of the company’s affairs;

(j) The amounts, if any, which it proposes to carry to any reserves;

(k) The amount, if any, which it recommends should be paid by way of   dividend;

(l) Material changes and commitments, if any, affecting the financial   position   of the company which have occurred between the end of the financial year   of the company to which the financial statements relate and the date of the report;

(m) The conservation of energy, technology absorption, foreign Exchange earnings and outgo, in such manner as may be prescribed;

(n) a statement indicating development and implementation of a risk   management policy for the company including identification therein of  elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

(o) The details about the policy developed and implemented by the Company on corporate social responsibility initiatives taken  during the year;

(p) In case of a listed company and every other public company  having such paid-up share capital as may be prescribed, a statement indicating the  manner  in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;

 (q) Such other matters as may be prescribed.

Corporate Social Responsibility.

Every company having net worth of rupees five hundred crore or more, turnover of rupees one thousand crore or more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social Responsibility (CSR) Committee of Board consisting of three or more directors, out of which at least one director shall be an independent director and 2 per cent of the average net profits of the immediately preceding three financial years should be spent for CSR (Clause 135). Schedule VII prescribes the activities to be included under Corporate Social  Responsibility which is given below:

 

SCHEDULE VII

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities relating to:—

(i) Eradicating extreme hunger and poverty;

(ii) Promotion of education;

(iii) Promoting gender equality and empowering women;

(iv) Reducing child morality and improving maternal health;

(v) Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;

(vi) Ensuring environmental sustainability;

(vii) Employment enhancing vocational skills;

(viii) Social business projects;

 (ix) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central Government or the State Governments for  socio-economic development and relief and funds for the welfare of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and  women; and

 (x) such other matters as may be prescribed.

 Appointment of Auditors

 A. An auditor will be appointed in the first annual general meeting for a five-year term. Thereafter, the auditor will be changed as per the members’ decisions.

B. Secondly, an audit firm cannot be re-appointed for more than two five-year terms. (i.e. 10 years)  For re-appointment purposes for the individual auditor or audit firm, there has to be a gap of five years. Moreover, for appointment or re-appointment purposes, there should be no common partners between the new firm and old audit firm. Another interesting clause is that members can resolve to ask the audit firm to rotate the audit partner and team every year.

The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Register within fifteen days of the meeting in which the auditor is appointed. Every company shall comply with the requirements of this sub-section within three years from the date of commencement of this Act. (Clause 139)

Appointment of Internal Auditor

             Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor, who shall either be a Chartered Accountant or a Cost Accountant or such other professionals as may be decided by the Board conduct internal audit of the functions and activities of the company. (Clause 138).

 Duties of Directors

  1. A director of a company shall act in good faith in order to promote the object of the company. 
  2. A director of a company shall exercise his duties with due care, skill and diligence. 
  3. A Director of a company shall not assign his office and any assignments so  made shall be void. 
  4. If a director of the company contravenes the   provisions of this section such director shall be punishable with fine which shall not be less than Rs.1, 00,000/- but which may extend to Rs.5, 00,000/- (Clause 166).

Borrowing Powers

The exemption given to private limited company for borrowings under section.293 is withdrawn. Borrowing powers now require approval by shareholders and applicable to both private and public limited companies.  (Clause 180). 

Loan and Investment

The exemption given to private limited company under Section 372A regarding loan and investment is withdrawn.  Existing limit of 60% Paid up capital and free reserves or 100% of free reserves applicable to both private limited and public limited companies.(Exemption to private limited Company for loan and investment under section372A is removed now)  (Clause 186). 

 Related party Transactions

Only with the consent of the Board of Directors given by a resolution at a meeting of  the Board and subject  to such conditions as may be prescribed   no company shall  enter into any contract or arrangement with a related party             with respect to—

(a)   Sale, purchase or supply of any goods or materials;

(b)  Selling or otherwise disposing of, or buying, property of any kind;

(c)   Leasing of property of any kind;

(d)  Availing or rendering of any services;

(e)  Appointment of any agent for purchase or sale of goods, materials,  services or  product.

(f) Such related party’s appointment to any office or place of profit in the company, or its subsidiary company or associate company.

        No contract or arrangement, in the case of a company having a paid-up share capital of not less than such amount, or transactions not exceeding such sums, as may be prescribed, shall not be entered into except with the prior approval of the company by a special resolution. Further that no member of the company shall not vote on such special   resolution to approve any contract or arrangement which may be entered into by the company, if such member is a related party. (Clause 188).

Loan to Directors 

The exemption given to the Private Limited Company under section 295 regarding loan given to director of a private limited of company is withdrawn. Loan should not be given to directors of any company including private limited company or to any private company in which a director is a director or member (Clause 185).

Appointment of Key Managerial Personnel

Appointment of Key Managerial Personnel – Every company belonging to such     class or description of companies as may be prescribed shall have the following whole time Key Managerial Personnel (Clause 203).

1. Managing Director or Chief Executive Officer or Manager and in  their absence a Whole Time Director.

2. Company Secretary and;

 3. Chief Financial Officer.

Secretarial Audit Report

Every listed company and company belonging to other class of companies as may be prescribed shall annex with its Board’s report a secretarial audit report given by Practicing Company Secretary in such form as may be prescribed. (Clause 204). 

Director to stay in India for 182 days

 Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. Every company existing on or before the date of commencement of this Act   shall, within one year from such commencement or from the date of notification of the rules in this regard as may be applicable, comply with the requirements of this provision (Clause 149(3)). 

Board and Annual General Meeting minutes 

   Hereafter the companies shall follow the Secretarial Standards while making the minutes of Board and General Meeting. (Clause 118 (10)) 

  Books of Accounts

                The Books of Accounts may be kept in electronic form also. (Clause 128)

Managing Director. 

The exemption given to private limited company under section 269 for appointment of Managing Director is withdrawn. Provision relating to the appointment of Managing Director is also applicable to the private limited companies (Clause 196).

In addition to the above Clause 190 of the Companies Bill 2013 regarding keeping of Contracts of employment entered with wholetime directors is not applicable to Private Limited Companies.

Need for Amendment of Articles of Association of private limited company:

           Sec 171 to 186 sections which are not applicable to Private Limited companies is now deleted in the Companies Bill.  Hence, after Companies Act, 2013, comes into effect, it may require to amend the article of association of Private Limited by substituting the new set of article of association so that it will not contain any contrary provision of the Companies Act, 2013. 

A comparison is made with respect to exemptions given in the Companies Act, 1956 and new Companies Bill 2013. The following are the exemptions available to Private Limited Companies in Companies Act 1956 and its status in New Companies Act 2013.

S.No Existing Section in Companies Act, 1956. Nature of exemptions in the Companies Act, 1956. Status in Companies Act 2013
1. Section 77(2) Financial assistance can be given for purchase of or subscribing for its own shares in its holding company, Whereas not applicable to Public company Clause 67 – Restrictions on purchase by Company or giving of loans by it for purchase of its shares. Private limited company not specifically mentioned in the clause. Hence exemption is available.
2. Section 81(3) Further shares can be issued without passing special resolution or obtaining central government’s approval and without offering the same necessarily to existing shareholders Clause 62 – Further issue of shares now applicable to Private limited Company also. Exemption is withdrawn.
3. Section 149(7) Exemption from Certificate of Commencement of business Clause 11 – Commencement of business declaration has to be filed by Private Limited Company. Exemption is withdrawn.
4. Section 198(1) No restriction on the payment of Managerial Remuneration on net profits Clause 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable. Exemption is withdrawn.
5. Section 252(2) Need not have more than two directors Clause 149 – Minimum two directors. There is no change in the existing provisions. Exemption continues.
6. Section 255(1) A proportion of directors need not retire every year Clause 152 – The exemption continues but as per the AOA of the Company.
7. Section 257(2) Statutory notice, etc., is not required for a person to stand for election as a director Clause 160 – Exemption is withdrawn. 

 

8. Section 259 Central Government’s sanction is not required to affect increase in the number of directors beyond 12 or the number fixed by articles of association Clause 149 – The Company to have Board of Directors. Exemption given now to maximum of 15 Directors.
9. Section 263(1) In passing resolution for election of directors, all directors can be appointed by a single resolution. Clause 162 – Appointment of directors to be voted individually. Exemption is withdrawn. Single resolution for the appointment of directors can be passed both by private and public company provided, a proposal to move such a motion has first been agreed to at the meeting without any votebeing cast against it.
10. Section 264(3) Consent to act as director need not be filled with registrar Clause 152 – Appointment of directors. Exemption removed. Private Limited Companies also to file consent. Exemption is withdrawn.
11. Section 269(2) Central Government’s approval is not required for appointment of managing or whole-time director or manager Clause 196 – Exemption is withdrawn. Applicable to Private Limited Companies
12. Section 275 to 279 Restrictive provisions regarding total number of directorships which any person may hold do not include directorships held in private companies which are not subsidiary of public company Clause 165 – The maximum number of companies in which a director can hold office is 20 companies. Out of this he can hold only up to 10 public companies. There is no restriction for private limited companies. One can become director in 20 private limited companies. Exemption is withdrawn.
13. Section 293(1) Certain restrictions on powers of board of directors do not apply Clause 180 – Exemption is withdrawn.
14. Section 295(2) Prohibition against loans to directors does not apply Clause 185 – Exemption is withdrawn. Loan to directors applicable to private limited company
15. Section 300(2) Prohibition against participation in board meetings by interested director does not apply Clause 184 – Exemption is withdrawn. Disclosure of directors interested applicable to private limited company.
16. Section 303(1) Date of birth of director need not be entered in the register of directors Clause 170 – Register of directors and key managerial personnel and their shareholding. Exemption is withdrawn. Anybody can view the particulars of the directors through their DIN numbers.
17. Section 309(9) There is no restriction on remuneration payable to directors Clause 197 – Overall maximum managerial remuneration applicable to Public Company. For Private Limited Company this section is not applicable. Exemption continues.
18. Section 316(1) No restriction on appointment of managing director Clause 203 – Appointment of Key Managerial Personnel. Exemption is withdrawn.
19. Section 349 Provisions relating to method of determination of net profits and ascertainment of depreciation do not apply Clause 198 – Calculation of Profits. Exemption is withdrawn.
20. Section 372(A) No prohibition against purchase of shares, etc., in other companies Clause 186 – Exemption is withdrawn. Applicable to Private Limited Companies

 The following provisions which exempted private limited companies have been deleted in the Companies Act, 2013.

S.No Existing Section in Companies Act, 1956. Particulars Status in Companies Act 2013
1. Section 70(3) Statement in lieu of prospectus need not be delivered to the registrar before allotting shares No provisions exist
2. Section 90(2) Provisions as to kinds of share capital (sec.85), further issue of share of capital(sec.86), voting rights(sec 87), issue of shares with disproportionate rights (sec 88) and termination of disproportionate excessive rights (sec 89) No provision exist
3. Section 165(10) Exemption from Statutory Meeting and Statutory Report No provision exist

 

 

4. Section 170(1) Articles of private company having provisions relating to general meetings without being subject to the provisions of sections 171 to 186 No provision exist
5. Section 204(6) Can appoint a firm or body corporate to an office or place of profit under the company No provision exist
6. Section 266(5) Restriction on appointment or advertisement of directors as regards consent and qualification of shares does not apply. No provision exist
7. Section 268 No Central Government approval to modify any provision relating to appointment of managing, whole-time or non-rotational directors No provision exist
8. Section 273 No share qualification u/s 270 for Directors of a private company. No provision exist
9. Section 310 No Government approval for change in restriction on remuneration to directors No provision exist
10. Section 311 No central government approval for increase in the remuneration beyond specified limit of directors on an appointment or reappointment No provision exist
11. Section 317(4) No restriction on appointment of managing director No provision exist
12. Section 350 & 355 Provisions relating to method of determination of net profits and ascertainment of depreciation do not apply No provision exist.
13. Section 370(2) No restriction on making loans to other companies No provision exist
14. Section 388A Provisions of sections 386 and 387, which restrict the number of companies of which a person can be appointed as manger, remuneration of the manager, etc., and also provisions of  sections 269, 310,311,312 and 317, do not apply No provision exist
15. Section 409(3) Central Government cannot exercise its power to prevent change in board of directors which is likely to affect the company prejudicially No provision exist
16. Section 416(1) Person can enter into contract on behalf of company as undisclosed principle and need not give intimation to the other directors No provision exist

 Rules to clarify the clauses be to be published by MCA shortly: 

The rules relating to annual return, secretarial audit, Postal Ballot, Related Party Transactions, auditors, etc will be notified by the Government shortly. Thereafter the clauses under the new Companies Act will have more clarity.

          From the above, it is obvious that the exemption coat available to the private limited companies is now removed by the Companies Bill 2013. Therefore, the private limited companies are required to follow many provisions under Companies Act, 2013 which are applicable now.

 —————————-

N. Sridharan

Practising Company Secretary

ensridaran@gmail.com


23 Responses to “Provisions Applicable To Private Limited Company Under The New Companies Bill 2013”

  1. satish Jategaonkar says:

    Thanks for sharing useful information.

  2. jyoti soni says:

    nice article

  3. G.Sivakumar says:

    Neatly prepared and informative. Thanks

  4. AJAY says:

    SIR
    I HAVE A QUERY WITH REGARD TO THE EXEMPTIONS PROVIDED UNDER THE COMPANIES ACT 1956 FOR USE OF PRIVATE LIMITED IN CASE OF GOVERNMENT COMPANY. PLEASE CLARIFY.THANKS

  5. CA Rajeev Agarwal says:

    Nice article

  6. CS Swati Mittal says:

    very useful article.. Thanks a lot for sharing

  7. CS Swati Mittal says:

    its really very useful article.. Thanks a lot for sharing

  8. CA Rajesh Pabari says:

    Very nice article
    Thanks a lot

  9. Nikhil Lokur says:

    very good info

  10. Nikhil Lokur says:

    Very Informative.

    I want to Knoe whether Section 160 of Companies Act, 2013 is applicable to Private Limited Companies

  11. madhuri dandekar says:

    very good specific comparision as to what exactly needs to be changed.. I was looking just for this… thx

  12. CS Deepak Malik says:

    Very helpful information .

    thanks a lot.

  13. CS Bhawani says:

    Very Very informative and comparative article.

  14. ravinder jain says:

    very good information. thanks for the same

  15. CA G J SHAH says:

    Informative, and very helpful at right time

    Thanx

  16. Ullas Sanghvi says:

    Informative. Good to Share .

  17. ca poonam says:

    useful information thanx

  18. Vinay Joshi says:

    As of now CSR taxation not defined.

    Regards,

  19. amit says:

    Sir

    Nice information and comparison…thanks for sharing.

    keep posting

    Regards
    Amit

  20. Ashok says:

    Very Useful…Thank you!!!

  21. nagarajan v says:

    Thanks for informative article..

  22. Sudhindra K S says:

    Dear Sir

    Thank U very much for nice article, I had good fortune to listen your lecture during my TOP training at ICSI, chennai.

  23. CS Sharadchandra Patil says:

    Sir,

    A very informative article indeed!!

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