MCA initiates step to restore heydays for Private companies: issues draft notification for public comments

• The savings provided in Section 90 of Companies Act, 1956 is intended to be introduced.
• Private companies are eligible to create and issue such other kind of share capital and on such other terms as may deem appropriate.
• The restrictions on new issues of share capital and voting rights will no longer apply to private companies.

• Private companies need to keep the rights issue offer open for a period of atleast 7 days and maximum of 15 days within which the existing shareholder as on the date of the offer and in receipt of the notice, shall be required to intimate his acceptance.

• The issue of Employees Stock Option Scheme by private companies will require approval by the shareholders of the company by passing an ordinary resolution.

• Sub-section (2) of Section 73 pertains to acceptance of deposits from members.
• Private companies having 50 or lesser number of members can continue to accept deposits from members upto the maximum of the following :

o 25% of aggregate of paid up capital + free reserves; or

o 100% of the paid up capital

• Details of such monies will be required to be informed to Registrar. Form DPT-3 pertaining to return of deposits may be required to be filed.
• However, requirement to issue circular, maintain deposit repayment reserve, deposit insurance, providing security etc need not be complied with.

• Exemption provided under Section 170 (1) of Companies Act, 1956 is intended to be restored.
• The provisions shall continue to apply to private companies if in any particular section it has been specifically stated that the provisions of a particular section shall apply to private companies. Example – Section 103 (1) (b). Thus, where applicability of provision is specified in the section itself, the articles cannot modify or exclude the applicability. However, the Articles may impose a more strict requirement, example a Quorum of 5 members personally present in general meeting.
• Subject to aforesaid, in case there are special provisions in the articles of such private companies which either partially modify the applicability of provisions of Sections 101 to 107 and Section 109 or completely exempt such companies from the applicability of aforesaid sections, then such provisions of the Articles shall prevail.
• Thus, private companies can frame their regulations with respect to length of period of notice, demand for poll, chairman, proxy so long as it is not inconsistent with provisions of the Act.

• A person who is in full time employment elsewhere is capable of being appointed as an Auditor in case of private company;
• A person or a partner of a firm holding appointment as its auditor and holding appointment as auditor of more than twenty companies is capable of being appointed as auditor in a private company.

• The requirement of giving a special notice for appointment or proposing a person to be appointed as director by a member, alongwith a deposit of Rs. 1,00,000/- has been done away with for private companies.

• Now private companies can appoint two or more directors at a general meeting by a single resolution only.
• The requirement of voting for appointment of directors individually is no longer applicable on private companies.

• Exemption to private companies from the restriction of giving loans and guarantees for loans taken to directors and other entities in which directors are interested.
• However such exemption is only to private companies with borrowings of not more than Rs. 50 crores and in which there are no corporate shareholder.

• This proposes to fully exempt private companies from Related Party Transactions (RPTs), irrespective of size. This means that they will not have to take any approval of either the Board or the general meeting for RPTs.
• This may be a major relief, since the requirement of seeking approval of “majority of minority” would have been impossible for private companies.
• It may be noted here that the erstwhile section 297 of the 1956 Act, corresponding to sec. 188, did not exempt private companies.

• Appointment and the terms and conditions of such appointment and remuneration of a MD / whole-time director / manager need not be approved at a Board or general meeting and by the Central Government in cases where the appointment is at variance to the conditions specified in Schedule III.

• A whole time KMP of a private company can hold office in one more than one company at the same time.
• The compliance required on appointment of managing director who is also a managing director or manager of other company is not applicable to private companies.