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    Exemptions To Private Limited Companies

    All are aware that the Companies Act, 2013, came in to effect from 12.09.2013, and most of the working provisions came in to force with effect from 01.04.2014.

    In comparison with the Companies Act, 1956, though the number of sections have reduced in the Companies Act, 2013, it is mostly due to clubbing of various sections in to single section and most of the operating provisions being moved to Rules.

    After the commencement of the Act, it is evident that many representations were received by the Ministry, from the Trade as to difficulties in implementation of certain provisions with specific reference to Private Companies. This was clearly evident from the draft notification by the Ministry wherein certain exemptions were proposed to be given to Private Companies. The said Draft notification was placed in the MCA Website on 24.06.2014, seeking comments from General Public, till 01.07.2014.

    There was no trace of the said proposed exemptions as per the Draft notification Dt:24.06.2014, after receiving of the public comments.

    On 05.06.2015, the Central Government has issued Four Notifications all Dt: 05.06.2015, vide which the Central Government has provided certain exemptions/modifications and adaptations as to certain provisions of the Companies Act, 2013 which are applicable to:

    è Government Companies

    è Nidhi Companies (Nidhis)

    è Private Company

    è Section 8 Companies (Companies not for profit)

    In this article, an effort is being made to look in to the exemptions, modifications and adaptations to the provisions of the Companies Act, 2013, to Private Limited Companies

     

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    1

    Chapter 1, sub-clause (viii) of Clause 76 of Section2

    (Related Party definition)

     

     

    Exception:-

    (A) a holding, subsidiary or an associate company of

    Private company; or

    (B) a subsidiary of a holding company to which it is

    also a subsidiary; is /are not a Related Party to such

    Private Company for the purpose of Section 188.

    For the purpose of Sec.188,

    the Holding, Subsidiary or

    Associate Company of a

    Private Limited Company not

    be considered as a related

    party.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    2

    Chapter IV, section 43 (Kinds of Capital) and 47 (Voting

    Rights)

    Exception:-

    Shall not apply

    So,     a   Private         Limited

    Company, now, can have

    Capital other than Two Types

    as given in Section 43, and

    also have voting rights in the

    form other than as given in

    Section 47.

    3

    Chapter IV, sub-clause (i) of clause (a) of sub-section (1) of

    section 62) (Rights Issue) and sub-section (2) of section 62

    (relating to Despatch of Notice of Rights issue)

    Modification:-

    As to inclusion of a proviso aftersub-clause (i) of

    clause (a), for having a lesser period of notice,

    subjection to obtaining of consent from 90 %

    members of a Private Limited Company.

    Enables the Private Company

    to have rights offer with

    lesser period, if approved by

    90 % of the members of the

    Company.

    4

    Chapter IV, clause (b) of sub-section (1) of section 62

    (Issue of Shares to Employees under ESOPS)

    Modification:-

    Shall apply except that instead of Special resolution,

    Ordinary resolution would be enough.

    Reduction in requirement as

    to the nature of resolution,

    from Special to Ordinary

    Resolution.

    5

    Chapter IV, Section 67 (Restrictions on purchase by

    company or giving of loans by it for purchase of its

    shares)

    Modification/Adaptation/Exception:-

    Shall not apply to Private Companies:

    - In whose share Capital no other Body corporate

    has invested any money;

    - Whose borrowings from Banks/FI or other Body

    Corporates is less than (a) Twice its Paid-up capital

    or (b) Rs. 50 Crores, whichever is less; and

    - Has not defaulted in repayment of such

    borrowings, subsisting at the time of making

    transactions under this section.

    Benefit to closely held Private

    c o m pa n i e s with                                  s ma ll

    amounts of borrowings and

    who does not have any

    equity investment from

    other Body Corporates.

    Certain Limits have been

    prescribed,                      thereby,                        any

    private Company not hitting

    any of the said limits, is free

    to purchase its shares or give

    loans for purchase of its

    shares.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    6

    Chapter V, Clauses (a) to (e) of sub-section (2) of section

    73 (Acceptance of deposits from its Members)

    Exemption/Adaptation:-

    Shall not apply to private companies which accepts

    from its members monies not exceeding 100 % 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.

    Exemption to                         private

    companies which propose to

    accept      mon iesfrom                 its

    members not exceeding 100

    % of aggregate of the Paid‑

    up Share Capital and Free

    Reserves.

    However, the details of

    deposits accepted needs to

    be informed to the Registrar.

    7

    Chapter VII, sections 101 to 107 and section 109 (Notice of

    Meetings, Statement to be annexed to the notice, Quorum

    for meetings, Chairman of meetings, Proxies, Restrictions

    on voting rights, voting by show of hands, and Demand for

    Poll)

    Exemption/Adaptation:

    Shall apply unless:

    - otherwise specified in respective sections or

    - articles of the private company otherwise provide.

     

    8

    Chapter VII, Clause (g) of sub-section (3) of Section 117

    (Filing of Resolutions passed by the Board)

    Exemption:

    Shall not apply.

    Accordingly the resolutions

    passed by the Board of

    Directors of the Company

    pursuant to Section 179 (3)

    read with Rule 8 of the

    Companies (Meetings of

    Board and its Powers) Rules,

    2014, as amended from time

    to time, are not required to

    be filed with ROC

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    9

    Chapter X, Clause (g) of sub-section (3) of section 141

    (Appointment of a person as a Auditor, who is already an

    auditor of more than 20 Companies)

    Exception/Modification:

    Shall not apply in respect of appointment of

    auditors by private companies.

    In calculating 20 companies,

    the    following         shall             be

    excluded:

     

     

     

    - One Person Companies;

    - Dormant Companies;

    - Small Companies; and

    - Private Companies having

    paid-up Share capital less

    than Rs.100 Crores.

    10

    Chapter XI, section 160 (Right of person other than the

    retiring director to stand for directorship)

    Exception:

    Shall not apply

    Relief as to deposit of Rs.1

    Lakh by the member making

    the     proposal           as           to

    candidature of a particular

    person for directorship.

    11

    Chapter XI, section 162 (Appointment of Directors to be

    voted individually)

    Exception:

    Shall not apply

    Accordingly,   for a                       Private

    Company, a motion for

    appointment of two or more

    persons as directors of the

    company can be moved by a

    single resolution.

    12

    Chapter XII, Section 180 (Restrictions on the Powers of the

    Board)

    Exception:

    Shall not apply

    The provisions of Section

    180 are not applicable to

    Private Companies,                               and

    accordingly,      in                          case                          of

    borrowingsin excess of paid‑

    up capital and free reserves,

    approval of members is not

    required and no approval is

    required for mortgaging the

    properties of the Company

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    13

    Chapter XII, Sub-Section (2) of Section 184 (Disclosure of

    Interest in a particular part and participating in the Board

    meeting)

    Modification/Exception:-

    Shall apply with the exception that the interested

    director may participate in such meeting after

    disclosure of interest.

    Keeping in view of the

    practical     difficulties,                   the

    earlier harsh restriction that

    the said interested Director

    shall not participate in the

    Board meeting has been

    relaxed, and now allowing

    him to      participate in the

    meeting,       after     he                     has

    disclosed his interest to the

    Board

    14

    Chapter XII, section 185 (Loans to Directors)

    Modification/Adaptation/Exception:-

    Shall not apply to Private Companies:

    - In whose share Capital no other Body corporate

    has invested any money;

    - Whose borrowings from Banks/FI or other Body

    Corporates is less than (a) Twice its Paid-up capital

    or (b) Rs. 50 Crores, whichever is less; and

    - Has not defaulted in repayment of such

    borrowings, subsisting at the time of making

    transactions under this section.

    Benefit to closely held Private

    companies   with                         small

    amounts of borrowings and

    who does not have any equity

    investment from other Body

    Corporates.

    Sl.

    No

    Chapter/Section number/Sub-section(s) in the Companies

    Act, 2013 and Description of the Section, under which the

    changes were proposed.

    Exceptions/Modifications/Adaptations, as the case

    may be, as per the Notification

    Remarks

    15

    Chapter XII, section 188 (Related Party Transactions)

    Exception:

    Shall not apply.

    Total     relief    to             Private

    Companies.

    16

    Chapter XIII, section 196, sub-section (4) and sub-section

    (5)     (Appointment of MD, WTD or MGR), approval of

    Member, filing of Form etc.,.)

    Exception:

    Shall not apply.

    Exemption from obtaining of

    Members approval for the

    appointment, and filing of

    return on appointment with

    ROC.

    From the above, it can be seen that contents of the Draft notification Dt:24.06.2014, majorly form part of the exemption notification. The exemption notification brings a sigh of relief for many of the Private Companies.

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