CS Divesh Goyal

Previously, Ministry of Corporate Affairs by notification dated 5th June, 2015 has given several exemptions to Private Limited Companies. Via Notification dated 13th June, 2017 MCA has added more exemptions by amending the notification dated 5th June, 2015.

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In this Flash editorial, the author begins by referring the exemptions given by Ministry of Corporate Affairs (by all the notifications) concerning to compliance of various provisions of Companies Act, 2013 by Private Limited Company.

Chapter/ Section of CA Act 13
Relevant Extract of The Section As Per Companies Act 2013
Exemption vide notification on 5th June 2015
Further exemptions wide notification on 13th June 2017
Final remarks
1.
Chapter 1,
Proviso of clause (40) of section 2.
Financial Statement in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement
 NO EXEMPTION
Provided that the financial statement, with respect to One Person Company, small company, dormant company and private company (if such Private Company is a Start up), may not include the cash flow statement.
Private Companies (if such Private Company is a Start up) No need to prepare Cash Flow Statement.
“Start up company means a private company incorporated under Companies Act, 2013 or Companies Act, 1956 and recognized as a start up in accordance with notification issued by department of industrial policy and promotion, ministry of commerce and industry.”
2.
Chapter V- Section-73(2) Clause (a)- (e)
A company may, subject to the passing of a resolution in general meeting and subject to such rules as may be prescribed in consultation with the Reserve Bank of India, accept deposits from its members on such terms and conditions, including the provision of security, if any, or for the repayment of such deposits with interest, as may be agreed upon between the company and its members, subject to the fulfilment of the following conditions, namely:—
(a) issuance of a circular to its members including therein a statement showing the financial position of the company, the credit rating obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed;
(b) filing a copy of the circular along with such statement with the Registrar within thirty days before the date of issue of the circular;
(c) depositing such sum which shall not be less than fifteen per cent. of the amount of its deposits maturing during a financial year and the financial year next following, and kept in a scheduled bank in a separate bank account to be called as deposit repayment reserve account;
(d) providing such deposit insurance in such manner and to such extent as may be prescribed;
(e) certifying that the company has not committed any default in the repayment of deposits accepted either before or after the commencement of this Act or payment of interest on such deposits; and…………..
Shall not apply to a private company which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital and free reserves and [1]Such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.
Provision of Section 73(2) clause (a-e) shall not be applicable on following private Companies:
1) Which accept from its members monies not exceeding 100% percent of aggregate of the paid up share capital, free reserves and Securities Premium account; or
2) Which is a start-up, for five years from the date of its incorporation; or
3) which fulfill all of the following conditions, namely:-
A. – Which is not an associate or a subsidiary of any other Company;
B. -If the borrowing of such a company from the banks or financial institutions or anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and
C. Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under the section.
Provided that the company referred to in clause (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified”
The procedure to be followed for acceptance of deposit under section 73(2) has been withdrawn in following cases-
-deposit from member less than 100% of paid up share capital, free reserve and securities premium .
– start up (upto 5 year of incorporation).
– Satisfying all the following conditions as- not an associate or a subsidiary of any company, borrowing less than twice of the paid up capital or Rs 50cr (whichever is lower) and no default in repayment of borrowings.
3.
Chapter VII- Section-92(1) Clause (g)
1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—
(g) remuneration of directors and key managerial personnel;
NO EXEMPTION
For the purpose of Small Company, Clause (g) read as under:
(g) Aggregate amount of remuneration drawn by directors.
Now a small company shall give aggregate amount of remuneration by director in clause (g) and no need to give detail of remuneration of key managerial personnel.
4.
Chapter VII- Section-92(1) Proviso
Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding – ( clause a to k)
and signed by a director and the company secretary, or where there is no company secretary, by a company secretary in practice: Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
NO EXEMPTION
Provided that in relation to One Person Company, small company and private Company (if such private Company is a start-up) the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.
Private Companies (if such Private Company is a Start up) Annual return can be signed by the Director of Company only if there is no Company Secretary.
5.
Chapter X- Section-143 (3) (i) Proviso
The auditors’ report shall also state— …………..
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
NO EXEMPTION
Clause (i) shall not apply to a private company:-
i. which is one person company or a small company; or
ii. which has turnover less than Rs. 50 crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or anybody corporate at any point of time during the financial year less than Rs. 25 crores.
Reporting on IFCS u/s 143(3)(i) exempted in the following cases
-small company or OPC.
-turnover less than 50cr as per last audit balance sheet.
-borrowing during the financial year less than 25 cr.
6.
Chapter XII- Section-173 (5)
A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days: Provided that nothing contained in this sub-section and in section 174 shall apply to One Person Company in which there is only one director on its Board of Directors.
NO EXEMPTION
A One Person Company, small company, dormant company and private Company (if such private Company is a start-up) shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days
Private Companies (if such Private Company is a Start up) can hold at least one board meeting during each half of calendar year and the gap between the two meetings is not less than 90 days.
7.
Chapter XII- Section-174 (3)
Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.
Explanation.—For the purposes of this sub-section, ―interested director means a director within the meaning of sub-section (2) of section 184
NO EXEMPTION
Shall apply with the exception that the Interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.
Interested directors can participate as part of quorum after disclosure of their interest.
8.
chapter I, sub-clause (viii) of clause (76) of section 2
any company which is-
(A) a holding, subsidiary or an associate company of such company; or
(B) a subsidiary of a holding company to which it is also a subsidiary.
Shall not apply with respect to section 188.
NO FURTHER EXEMPTION
Holding, Subsidiary and Associate Company will not cover under Related Party for the purpose of section 188.
Note:-
Although Holding company is excluded but Director (other than independent Director), KMP of holding company or their relative are still included in definition of Related Party. (Section 2(76)(ix))
9.
Chapter IV section 43 and section 47
Section 43 (Kinds of share capital) Section 47 (Voting rights.)
Shall not apply where memorandum or articles of association of the private company so provides.
NO FURTHER EXEMPTION
If anything else mentioned in MOA & AOA then MOA & AOA prevail over the section 43 and 47.
10.
Chapter IV, sub-clause (i) of clause (a) of sub-section (l) and sub-section (2) of section 62
The notice referred to in sub-clause (i) of clause (a) of sub-section (1) shall be dispatched through registered post or speed post or through electronic mode to all the existing shareholders at least three days before the opening of the issue
Shall apply with following modifications: – In clause (a), in sub-clause (i), the following proviso shall be inserted, namely: –
Provided that notwithstanding anything contained in this sub clause and sub-section (2) of this section, in case ninety per cent of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or sub-section shall apply.
NO FURTHER EXEMPTION
In case 90%, of the members of a private company have given their consents in writing or in electronic mode then Offer Can Be Close Before 15 Days.
Note:-  The time limits cannot be increased, they can only be reduced.
11.
Chapter IV, clause (b) of sub section (1) of section 62
to employees under a scheme of employees‘ stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed.
In clause (b), for the words “special resolution”, the words “ordinary resolution” shall be substituted.
NO FURTHER EXEMPTION
Now for ESOP Ordinary Resolution is enough
12.
Chapter IV, section 67.
Restriction on purchase by company or giving of loans by it for purchase of its shares. ( includes 5 sub section).
Shall not apply to private companies –
(a) in whose share capital no other body corporate has invested any money;
(b) if the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower; and
(c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
NO FURTHER EXEMPTION
13.
Chapter VII, sections 101 to 107 and section 109
Section 101- notice of a meeting Section 102- Statement to be annexed to notice.
Section 103- Quorum for meetings.
Section 104- Chairman of meetings.
Section 105-Proxies.
Section 106-Restriction on voting rights.
Section 107-Voting by show of hands.
Section 109-Demand for poll.
Shall apply unless otherwise specified in respective sections or the articles of the company provide otherwise.
If anything else mentioned in AOA then AOA prevail over the section 101-107 & 109.
Articles of A Private Company May Override Provisions Pertaining To
1. Content & Length of Notice
2. Explanatory Statement
3. Quorum
4. Chairman
5. Proxies
6. Restriction on Voting Rights Show of Hands & Poll
14.
Chapter VII, clause (g) of sub-section (3) of section 117
resolutions passed in pursuance of sub-section (3) of section 179
[Provided that no person shall be entitled under section 399 to inspect or obtain copies of such resolutions]
Shall not apply.
NO FURTHER EXEMPTION
Now there is NO NEED TO FILE FORM MGT-14 for the purposes of resolutions passed u/s 179(3) read with rule 8 of Companies (Meeting of Board & its power) Rules, 2014
15.
Chapter X, Clause (g) of subsection (3) of section 141
The following persons shall not be eligible for appointment as an auditor of a company, namely:-
(g) a person who is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than twenty companies.
Shall apply with the modification that the words “other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees” shall be inserted after the words ‘twenty companies”
NO FURTHER EXEMPTION
Now under the limit of 20 (Twenty) Companies following will not include:
• one person companies,
• dormant companies,
• small companies, and
• Private Companies having paid-up share capital less than one hundred crore rupees”.
Limit of 20 Companies only Includes:-
1. Public Companies Private Companies having paid up capital of Rs. 100 Crore or more
16.
Chapter XI, section 160
Right of persons other than retiring directors to stand for directorship
Shall not apply
NO FURTHER EXEMPTION
Now there is no need to deposit Rs. 100,000/- by the Director at the time of appointment
17.
Chapter XI, section 162
. Appointment of directors to be voted individually
Shall not apply
NO FURTHER EXEMPTION
Now more than one director can be appoint via a single resolution
18.
Chapter XII, section 180
Restriction on powers of Board.
Shall not apply
NO FURTHER EXEMPTION
Now there is no need to pass “Special Resolution” for the purposes of passing of Resolution mentioned under Section 180.
Example:
1. Borrow exceeding paid up capital & free reserves.
2. Sell/lease/dispose off undertaking
19.
Chapter XII, sub-section (2) of section I 84
Disclosure of interest by director.—
Every director of a company who is in any way, whether directly or indirectly, concerned or interested in a contract or arrangement or proposed contract or arrangement entered into or to be entered into—
(a) with a body corporate in which such director or such director in association with any other director, holds more than two per cent. shareholding of that body corporate, or is a promoter, manager, Chief Executive Officer of that body corporate; or
(b) with a firm or other entity in which, such director is a partner, owner or member, as the case may be, shall disclose the nature of his concern or interest at the meeting of the Board in which the contract or arrangement is discussed and shall not participate in such meeting
Shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest.
NO FURTHER EXEMPTION
Now Interested directors can participate in the meeting and vote in the meeting after disclosure of his interest.
Note:-
He Cannot be counted in Quorum (Section 174(3) explanation)
20.
Chapter XII, section 185
Loan to directors, etc.
Shall not apply to private companies-
(a) In whose share capital no body corporate has invested any money .
(b) If the borrowing of such company from bank and financial institution or any other body corporate is less than twice of its paid up share capital or Rs. 50cr, whichever is lower.
(c) Such a company has no default in repayment of such borrowings subsisting at the time of making transaction under this section.
NO FURTHER EXEMPTION
Loan to director are allowed for Private Limited Companies if its fulfill the below mentioned conditions:
1. No Body Corporate Shareholder
2. Not borrowed money from Bank/ Financial Institution/ Body Corporate exceeding lower of the following:-
i. Twice its Paid up capital
ii. Rs. 50 crore
3. No repayment default subsisting of such borrowings at time of giving loan
Note:
Giving of loans/ guarantee/security to Group Companies now possible.
21.
Chapter XII, second provision to sub-section (l) of section 188
Related party transactions.
Shall not apply.
NO FURTHER EXEMPTION
Restriction On Voting Right In General Meeting In Case Of Related Party Transaction Not Applicable:
Now This proviso will not apply on Private Limited Company.
“Even if, Member is related then also he can vote on such resolution required to be pass u/s 188 in GM.
22.
Chapter XIII, sub-sections (4) and (5) of section 196.
(4) Subject to the provisions of section 197 and Schedule V, a managing director, whole-time director or manager shall be appointed and the terms and conditions of such appointment and remuneration payable be approved by the Board of Directors at a meeting which shall be subject to approval by a resolution at the next general meeting of the company and by the Central Government in case such appointment is at variance to the conditions specified in that Schedule:
Provided that a notice convening Board or general meeting for considering such appointment shall include the terms and conditions of such appointment, remuneration payable and such other matters including interest, of a director or directors in such appointments, if any: Provided further that a return in the prescribed form shall be filed within sixty days of such appointment with the Registrar.
(5) Subject to the provisions of this Act, where an appointment of a managing director, whole-time director or manager is not approved by the company at a general meeting, any act done by him before such approval shall not be deemed to be invalid.
Shall not apply
NO FURTHER EXEMPTION
Now there is no need to Pass Resolution in General Meeting for appointment of Managerial Personnel and no need to file form MR-1.
Managerial Personnel can be appoint in Private limited Company without following:
1. Shareholder’s Ratification in not required.
2. Schedule V not applicable.
3. MR-1 not required to be filed
4. T&C of appointment, remuneration not mandatory to be mentioned in resolution

[1] Removed by the Notification dated 13.06.2017

(Author – CS Divesh Goyal, ACS is a Company Secretary in Practice from Delhi and can be contacted at csdiveshgoyal@gmail.com)

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2 responses to “Lets understand 22 changes in Exemption to Private Limited Company”

  1. Madhu Mittal says:

    Respected Sir,
    Regarding section 73, if conditions fulfilled, one company having paid up capital of Rs. one lakh, can get amount from its members as loan even one crore or more i.e. there is no limit. please correct if I am wrong.

  2. Bijay Shrestha says:

    In respect of exemption from IFC reporting, does it apply to Audit Report for FY 2016-17 ?
    Or applies to any audit Report issued after Notification date 13.06.2017 ?

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