MCA vide notification dated 5th June, 2015 (‘Principal Notification’) exempted private companies from complying with certain provisions of the Companies Act, 2013 (“Act, 2013”) subject to the condition that the company will ensure protection of shareholder’s interests. MCA vide notification dated June 13, 2017 (’Amendment Notification’) made certain amendments in the principal notification which has been analysed hereunder. The exceptions, modifications and adaptations shall be applicable to a private company which has not committed a default in filing its financial statements under section 137 of the Act, 2013 or annual return under section 92 of the Act, 2013 with the Registrar. Majority of the amendments are to extend the existing exemptions to private companies that are start-up.
|Section No.||Principal Notification||Amendment Notification||Analysis|
|2(40)||New insertion||For the proviso, the following shall be substituted, namely:-
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) not include the cash flow statement
Explanation. – For the purposes of this Act, the term ‘start-up’ or “start-up company” means a private company incorporated under the Companies Act, 2013 (18 of 20’l3) or the Companies Act, 1956 (‘l of 1956) and recognised as start-up in accordance with the notification issued by the Department of industrial Policy and Promotion, Ministry of Commerce and Industry.”
|The proviso to section 2(40) of Act, 2013 has been substituted to provide exemption from furnishing cash flow statement by such private companies that are recognized as start-up in accordance with DIPP notification.|
|Clauses (a) to (e) to section 73(2)||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 such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.||Shall not apply to a private company-
(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or
(B) which is a start-up, for five years from the date of its incorporation; or
(C) which fulfils all of the following conditions, namely:-
(a) which is not an associate or a subsidiary company of any other company;
(b) if the borrowings of such a company from banks or
Financial institutions or any body 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 this section:
Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.”
|Earlier the private company which has accepted from its members monies not exceeding 100% of aggregate of the paid up share capital and free reserve was given exemption from the provided the requisite filing with Registrar has been done.
The scope of exemption has been widen. Now, start-up company can avail the exemption for 1st five years.
In addition to this, a private company fulfilling all the following 3 conditions can also avail exemption-
(i) A private company shall not be an associate or a subsidiary company of any other company.
(ii) If the borrowing of the private company from banks or financial institutions or any body corporate is less than:
· 2X of its paid share capital or,
· Rs. 50 Crore;
whichever is lower.Online GST Certification Course by TaxGuru & MSME- Click here to Join
(iii) There is no default subsisting at the time of acceptance of deposit by private company.
The details of monies accepted by a private company shall be filed with the Registrar.
This is surely a welcome amendment.
It is interesting to note that Rule 2 (1) (c) (xvii) of Companies (Acceptance of Deposits) Rules, 2014 provides as under in case of start-up:
‘”deposit” includes any receipt of money by way of deposit or loan or in any other form, by a company, but does not include –
xvii) an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.
Therefore, any amount received from members by start-up which is not in the nature of convertible note will be covered under aforesaid exemption for 5 years from the date of incorporation and compliance of Section 73 (2) (a) to (e) will not be required to be made.
|92(1)(g)||New insertion||Shall apply to private companies which are small companies, namely:-
“(g)aggregate amount of remuneration drawn by directors;”
|Section 92 (1) provides as under:
“92. (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;”
Therefore, in the Annual Return, the private company which is a small company shall not be required to disclose the aggregate amount of remuneration drawn by KMPs.
Small company shall have the same meaning as defined under 2(85) of the Act, 2013.
Private companies, other than small companies, to provide details of remuneration drawn by directors and KMPs.
|Proviso to section 92(1)||New insertion||For the proviso, the following proviso shall be substituted, namely:-
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.”
|The annual return in case of one person company and small company were signed by company secretary or where there is no company secretary, by the director of the company.
The benefit has now been extended to private companies that are start-up as well.
|Clause (i) of section 143(3)||New insertion||Shall not apply to a private company:-
(i) which is a one person company or a small company; or
(ii) which has turnover less than rupees fifty crores as per
latest audited financial statement or which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore.”.
|Section 143(3) of the Act, 2013 lists the items which are required to be stated in the auditor’s report.
Section 143 (3) (i) provides as under:
(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;
An auditor need not report the aforesaid for following class of private companies:
· A one person company or small company; or
· A company which has a turnover of less than rupees fifty crores as per latest audited financial statement; or
· Aggregate borrowing of a private company at any point of time during the financial year is less than rupees twenty five crore.
|173(5)||New Insertion||For sub-section (5), the following sub-section shall be substituted, namely:-
(5) A One Person Company, small company, dormant company and a 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:
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.
|Exemption from holding board meetings in every quarter is now available to private companies that are start-up.
It shall be regarded as sufficient compliance if the meetings are held once in a half year provided that the gap between two board meetings shall be atleast 90 days.
|174(3)||New Insertion||Shall apply with the exemption that the interested director may also counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.||The Principal Notification made section 184 (2) applicable to private companies with the exception that the interested director may participate in such meeting after disclosure of his interest.
Corresponding clarity has been given for the purpose of ascertaining quorum. Therefore, in case of private companies, the interested director may also counted towards quorum in the Board Meeting after he has disclosed his interest pursuant to section 184.