Ministry of Corporate affairs has given many Relaxation/Exemptions to Private Companies vide notification No. G.S.R. 464(E) dated: 5th June, 2015 and G.S.R. 583(E) dated 13th June 2017 to ease the doing of Business in India. Exemption includes exemption from disclosure of Related Party Transactions, Voting Rights, Further Issue of Share Capital, Restrictions on purchase by company or giving of loans by it for purchase of its shares, Prohibition on acceptance of deposits from public, exemption from filing board resolution, Eligibility, qualifications and disqualifications of auditors, Right of persons other than retiring directors to stand for directorship,
Appointment of directors, Restrictions on powers of Board etc.

A. Relaxation/Exemptions to Private Companies vide notification No. G.S.R. 464(E) Dated: 5th June, 2015

Sr. No. Relevant
Section
Brief Explanation
1 Chapter 1, sub-clause (viii) of clause (76) of section 2.

Section 188(1) specifies certain types of related party transactions requires approval of Board of Directors at Board meeting, disclosure of specified matters in agenda of board meeting, interested director shall not remain present during discussion of related party transactions, and where it’s value is beyond prescribed limits, such transactions also requires prior approval of shareholders by way of a special resolution with prescribed details to be specified in explanatory statement annexed to notice of general meeting.

The exemption is given to private companies from applicability of said requirements so far as related party transactions are with holding company, subsidiary company, fellow subsidiary company or an associate company. It may be noted that section 188 is applicable to private companies for transactions with related parties specified under section 2 (76) – (other than those stated above).

2 Chapter IV, section 43 and section 47.

Section 43 states companies limited by shares can have two kinds of share capital viz. equity (including equity with differential voting rights) and preference share capital. Exemption is provided to private companies from section 43, if either its memorandum or articles of association so provides. The effect could be that private companies may have only one kind of share capital say preference share capital (though term ‘preference’ indicates that there shall be one other kind of share capital). Or private companies can issue equity shares with differential voting rights without compliance of conditions related thereto specified under the Companies (Share Capital and Debentures) Rules, 2014.

Section 47 provides voting rights equity shareholders and preference shareholders. Exemption is provided to private companies from section 47, if either its memorandum or articles of association so provides. The effect could be that private companies can determine voting rights of its equity shareholders and preference shareholders in any manner it desires by incorporating suitable provision in its memorandum or articles of association. It seems the exemption is given to boost investments as it gives freedom to private companies in case of joint venture or private equity funding to structure the capital and voting rights. However, this exemption from section 47 is subject to section 106 of the Companies Act, 2013. Section 106 provides that company can prohibit its members from exercising his voting rights only on the ground (which shall be stated in its articles of association) that no member shall exercise any voting right in respect of the shares on which any calls or other sums presently payable by him have not been paid or in regard to which the company has a right of lien and has exercised that right. Section 106(2) threatened the intended freedom to private companies to raise capital. However, private companies are given option to alter or omit provisions of Section 106 by making suitable provision in its articles of association.

3 Chapter IV, sub-clause (i) of clause (a) of sub- section (1) and sub- section (2) of section 62. For increasing paid-up share capital, companies issue further shares. Under section 62, companies need to offer its securities to its existing equity shareholders in the proportion of their shareholding in the company. Section 62 (1)(a)(i) requires companies issuing further shares to send notice along with offer letter to its equity shareholders and the offer shall remain open for subscription for minimum 15 days and maximum 30 days. Now, relaxation is provided to private companies from requirement of Section 62 (1)(a)(i), by providing that if 90% of the members agree in writing (consent can be even by electronic mode) then the offer can be kept open for lesser than 15 days. Further section 62(2) requires notice (as aforesaid) shall be sent atleast three days before the opening of the issue. Now, relaxation is provided to private companies from section 62(2), by providing that notice can be sent even lesser than three days before the issue opens, if 90% of the members agree in writing (consent can be even by electronic mode).
4 Chapter IV, clause (b) of sub- section (1) of section 62. For offering stock options to employee’s (ESOP), consent of members by way of special resolution is required under section 62(1)(b). Now, consent of simple majority (ordinary resolution) would suffice. This relaxation is applicable to private companies as well as public companies
5 Chapter IV, section 67.

Section 67 restricts companies to buy its own shares, except by way of reduction of share capital or redemption of preference shares. Of course companies can buy-back its shares as per provisions of sections 68, 69 and 70. Private companies are given exemption for section 67, if it satisfies the following three conditions.

(a) body corporate (includes foreign company, LLP) have not invested money in share capital of the private company;

(b) borrowings from banks or financial institution or any body corporate is less than twice the paid up share capital or Rs. 40 crore, whichever is lower; and

(c) such private company has not made default in repayment of borrowings subsisting at the time of purchase of its own shares.

6 Chapter V, clauses (a) to (e) of sub-section

(2) of section 73. Substituted by Notification dated 13 June 2017 refer table 2

From 01 April 2014, companies are prohibited from inviting, accepting or renewing deposits from public. Only eligible companies (public limited companies with net worth of Rs.100 crore or turnover of Rs.500 crore) can invite, accept or renew deposits from public, subject to several conditions.

However, companies (public and private) are permitted to accept deposits from its members subject to provision of the Rules and the following conditions:

(a) company issues circular in form DPT-1 to its members;

(b) files form DPT-1 with the ROC within 30 days before the date of its issue to members;

(c) maintains liquid asset of 15% of amount of deposit maturing during the financial and the financial year next following and keeping it in a separate bank account with a scheduled bank to be called as deposit repayment reserve account;

(d) providing deposit insurance;

(e) certifying that the company has not defaulted in repayment of deposit or payment of interest thereon; and

(f) securing deposit accepted from members by creating charge over assets of the company OR where no such charge is created the deposit shall be called “unsecured deposits” and stated so in every circular, form, advertisement etc.

Now, provisions of section 73(2)(a) to (e) is no longer applicable to private companies.

Thus, private companies are permitted to accept deposits from its members subject to provision of the Rules and they need not satisfy aforesaid five conditions (a) to (e) if –

(a) amount of deposits from members does not exceed aggregate of the paid-up share capital and free reserves, and

(b) details of monies accepted as deposit from members is filed with the ROC.

Hopefully, MCA will soon modify Rule 3(3) of the Companies (Acceptance of Deposits) Rules, 2014, which states that maximum amount of deposit that a company may accept from its members shall not exceed 25% of its paid-up share capital and free reserves. Also Rules 4, 5 and 13 requires suitable modifications.

7 Chapter VII, sections 101 to 107 and section 109.

Private companies are now given option to adopt provisions stated below or omit the same or provide their own regulations by suitably providing for the same in their articles of association.

Section 101: Notice of general meetings

Section 102: explanatory statement to be annexed to notice of general meetings

Section 103: Quorum for general meetings

Section 104: Chairman of general meetings

Section 105: Proxies Section 106: Restrictions on voting rights

Section 107: Voting by show of hands

Section 109: Demand for poll

8 Chapter VII,
clause (g) of
sub-section (3) of section 117.

Private companies are exempted from filing following Board Resolutions with the Registrar of Companies:

(1) to make calls on shareholders in respect of money unpaid on their shares;

(2) to authorise buy-back of securities under section 68;

(3) to issue securities, including debentures, whether in or outside India;

(4) to borrow monies;

(5) to invest the funds of the company;

(6) to grant loans or give guarantee or provide security in respect of loans;

(7) to approve financial statement and the Board’s report;

(8) to diversify the business of the company;

(9) to approve amalgamation, merger or reconstruction;

(10) to take over a company or acquire a controlling or substantial stake in another company;

(11) to make political contributions;

(12) to appoint or remove key managerial personnel (KMP); and

(13) to appoint internal auditors and secretarial auditor.

9 Chapter X, Clause (g) of sub- section (3) of section 141. Following person can be appointed as auditor of a private company

A person who is in not 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 not more than twenty companies. For counting twenty companies – one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees shall be disregarded.

10 Chapter XI, section 160. Section 160 of Companies Act, gives right to any person (other than a retiring director) to propose himself or any member can propose him as director of the company by sending requisite notice with deposit amount said section is not applicable to private companies. Thus, private companies are free to include suitable provision in their articles of association for eligibility of a person (other than retiring director) to be appointed as director of the Company.
11 Chapter XI, section 162. The section 162 provides that Appointment of directors at a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. The said provision is relaxed for private limited company and now more than one director can be appoint via a single resolution
12 Chapter XII, section 180. Earlier, the Board of Directors of a company shall exercise the following powers only with the consent of the company by a special resolution – to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company or where the company owns more than one undertaking, of the whole or substantially the whole of any of such undertakings; to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation; to borrow money, where the money to be borrowed, together with the money already borrowed by the company will exceed aggregate of its paid-up share capital and free reserves, apart from temporary loans obtained from the company’s bankers in the ordinary course of business; to remit, or give time for the repayment of, any debt due from a director. Now for Private Companies there is no need to pass “Special Resolution” for the Section 180
13 Chapter XII, sub-section (2) of section 184.

Earlier, Interested director cannot attend and vote on the resolution passed related to Disclosure of Interest pursuant to section 184(2) of Companies Act, 2013.

Now Interested director can participate in such meeting after disclosure of his interest.

14 Chapter XII, section 185.

No company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him.

Now this provision is not applicable to Private Companies –

(a) body corporate (includes foreign company, LLP) have not invested money in share capital of the private company;

(b) borrowings from banks or financial institution or any body corporate is less than twice the paid up share capital or Rs. 50 crore, whichever is lower; and

(c) such private company has not made default in repayment of borrowings subsisting at the time of purchase of its own shares.

15 Chapter XII, second proviso to sub-section (1) of section 188. No member of the company shall 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. Now, This provision is not applicable to private companies i.e. Member can vote on such resolution passed under sub-section (1) of section 188, if member is a related party.
16 Chapter XIII, sub-sections (4) and (5) of section 196.

In relation to appointment of MD, WTD & Manager, following were mandatory:

Special Resolution in General Meeting Compliance of Schedule V Filing of Form MR-1 (Return of appointment of MD/WTD/Manager) Terms and Conditions of Appointment need to be mentioned in the resolution.

Now, Above requirement for the appointment of MD/WTD/Manager is not applicable for private companies.

B. Relaxation/Exemptions to Private Companies vide notification No. G.S.R. 583(E) dated 13th June 2017.

Sr. No. Relevant
Section
Brief Explanation
1 Chapter I, clause (40) of section 2

The proviso would apply as under:- Provided that the financial statement, with respect to One Person Company, Small Company, dormant company and private company (if such a private company is a start-up), may not include the cash flow statement;

A Start up private company is not required to include the cash flow statement in the financial statement

2 Chapter V, clauses (a) to (e) of subsection (2) of section 73 Prohibition on Acceptance of Deposits from public

Substitution of the Clause 6 in the 5th June, 2015 exemption Notification to a private company which provided for exemption from accepting from its members.

Now exempts (i) Private Companies which accepts money not exceeding 100% of the paid up capital and free reserves and securities premium. (ii) Startup private company for 5 years from its incorporation. (iii) Also to a private company which is not an associate or a subsidiary of a company, having borrowings less than twice of its paid up share capital or Rs 50 crore whichever is less and default in repayment of borrowings is not subsisting at the time of acceptance of deposits.

Provided that the company referred to in Clause (i), (ii) or (iii) shall file the details of monies accepted to the Registrar in such manner as may be specified.

3 Chapter
VII, clause (g) of subsection (1) of section 92

Private companies which are Small Companies need to disclose aggregate amount of remuneration drawn by directors. They need not give details of remuneration of all the directors and key managerial personnel individually.

Except above 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.

Also provided that in relation to One Person Company, small company and a 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.

4 Chapter X, clause (i) of sub- section (3) of section 143 The auditor’s report shall also state whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls; the said provision shall not be applicable 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;
5. Chapter XII, subsection (5) of section 173- Meetings of Board For subsection (5), the following subsection shall be substituted:-(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.
6. Chapter XII, subsection (3) of section 174 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. Relaxation to private companies as interested director may also be counted for quorum in such meeting after disclosure of his interest pursuant to section 184.

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Tags : Companies Act (2408) Companies Act 2013 (2181)

One response to “Relaxation / Exemptions to Private Companies under Companies Act, 2013”

  1. Bhaskaran Chakrapani Warrier says:

    Read. Thanks for the writing.

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