EXEMPTIONS TO PRIVATE LIMITED COMPANIES
New Exemptions notified by the Ministry of Corporate Affairs of India on 5th June, 2015 brings some relief to the Private Companies.
Follwing are the exmeptions/modifications/relaxation in few sections of Companies Act, 2013, granted to the Private Companies
1. Relaxation in definition of “Related party” while determining related party transactions for the purpose 188.
Exemption in Section 2 (76)(viii) of Companies Act, 2013
Section 2 (76) deals with the definition of Related Party, now with the exemption of sub clause viii of Section 2 (76) the following shall not be considered as related party in determining the related party transactions for the purpose of Section *188 of the CA,2013
Thus transactions in between holding, subsidiary or associate company shall not be considered as related party transaction for the purpose of Section 188.
* (Section 188 talks about the disclosure of transactions entered into with the related parties. Thus if the prescribed transactions took place between the related parties, it required prior approval of the Board and necessary disclosures)
2. Exemption from the kinds of share capital & its voting rights as provided in section 43 & 47 of the Companies Act, 2013
Section 43 deals with kinds of Share Capital & section 47 deals with Voting rights of Shareholders.
As per the Exemption granted, the provisions related to Kinds of Share Capital like equity or Preference and voting rights of the shareholders as provided in section 43 & 47 of the Companies Act 2013 respectively shall, not be applicable to the private Companies where its is not provided in its Memorandum and articles of association. Thus provisions as per the MOA & AOA shall be followed, if provided.
3. Relaxation in time limit for dispatch of offer of further issue of Shares
As as per Section 62(1)(a)(i) ,the time limit to dispatch the order for further issue of Share Capital shall not be less than 15 days and not exceeding 30 days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined.
Insertion of provision in sub clause (i), of clause (a) of subsection 1 of section 62
Now a new provision has been inserted saying that in case 90% of the Shareholders give their consent in writing or electronic mode than a lesser time can apply, ie less than 15 days.
4.Chapter 4- Section 62(1)(b) - Further Issue of Share Capital- No requirement of Special Resolution
As per section 62(1)(b), in case further issue of Shares is being made to employees under a scheme of employees’ stock option, it shall be subject to special resolution passed by company and subject to such conditions as may be prescribed
With the exemption provided, requirement of special resolution is done away with. An ordinary resolution shall be enough.
5.Restrictions on purchase by company or giving of loans by it for purchase of its shares- Exemption to Private Companies fulfilling the prescribed conditions
Section 67 restricts Companies from purchasing its own shares or giving loan for the same.
With the Exemption granted the above restriction shall, not be applicable to the following 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 any body corporate is less than twice its paid up share capital or fifty crore rupees,whichever is lower;
(c) Such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
6. Relaxation on few clauses of section 73(2)
Section 73 relates to Prohibition on acceptance of deposits from public. And clauses a to f of section 73(2) deals with the conditions required to be fulfilled in case a company accepts deposits from its members.
With the exemption granted Clause (a) to (e) of section 73(2) shall not be applicable to Private Companies which accepts from its members monies not exceeding one hundred percent 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.
7. Relaxation related to Sections 101 to 107 and section 109
Section 101- Notice of Meeting
Section 102- Statement to be annexed to notice
Section 103-Quorum of meeting
Section 104-Chairman of Meeting
Section 106-Restriction on voting rights
Section 107-Voting by show of hands
Section 109- Demand for Poll
As per the exemption granted the above mentioned sections shall be applicable to private companiesunless otherwise specified in respective sections or the articles of the company provide otherwise. Which means that if the articles of association of Company provide for any rules relating to the above clauses then it shall apply according to the articles. And if nothing is provided in the articles or nothing otherwise provided in the respective section then the above sections shall apply.
8. Exemption from filing resolutions Section 117(3) (g)
Section 117(3)(g) talks about filing of certain resolutions which are passed in pursuance of sub-section (3) of section 179. Thus as per the exemption Private Companies are not required to file the following resolutions with the Registrar of Companies
(a) to make calls on shareholders in respect of money unpaid on their shares;
(b) to authorise buy-back of securities under section 68;
(c) to issue securities, including debentures, whether in or outside India;
(d) to borrow monies;
(e) to invest the funds of the company;
(f) to grant loans or give guarantee or provide security in respect of loans;
(g) to approve financial statement and the Board’s report;
(h) to diversify the business of the company;
(i) to approve amalgamation, merger or reconstruction;
(j) to take over a company or acquire a controlling or substantial stake in another
9. Modification in section 141(3)(g)
Section 141(3) lays out the list of persons who are not eligible to be appointed as auditors of the Company
Clause g of section 141(3) is modified as follows
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,"other than One Person Companies, dormant companies, small companies and private companies having paid-up Share capital less than one hundred crore rupee
Thus for calculating the number of companies (limited to 20) for determining the eligibility criteria of the auditor the following companies shall not be considered,
One Person Companies
Private Companies having Paid up share capital less than Rupees One hundred Crore
10. Exemption from section 160- Right of persons other than retiring directors to stand for directorship
This section shall not apply to Private Companies. Section 160 of the Act deals with the provisions relating to right of persons other than retiring directors to stand for directorship. The same has been made inapplicable to a private limited company.
11. Exemption from section 162 -Appointment of directors to be voted individually
This section shall not apply to Private Companies, Thus now a Private Company can appoint more than one directors in its general meeting by passing a single resolution.
12. Exemption from section 180- Restriction on the powers of board
This section shall not apply to Private Companies, thus now Private Companies are not required to pass special resolutions for the following matters as mentioned in section 180
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
13. Section 184(2) to apply with modification
As per section 184(2) 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
New insertion : The interested director may participate in such meeting after disclosure of his interest.
Thus an interested director can now participate matters related to his interest after giving a disclosure of his interest.
14. Exemption for applicability of Section 185- Loans to Directors
The provisions of section 185 relating to Loans, advances and guarantees to director shall not apply to the following Private Companies
In whose share capital no other body corporate has invested any money;
If the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower; and
Such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section
15. Exemption in 2nd proviso of subsection 1 of section 188
Section 188 talks about the disclosure of transactions entered into with the related parties. Thus if the prescribed transactions took place between the related parties, it required prior approval of the Board and necessary disclosures
According to the second proviso, before the exemption, the person who is a related party was not allowed to vote in the special resolution concerning his interest, but now private limited companies have been exempted from this proviso.
16. Exemption from Subsection 4 & 5 of section 196
Section 196 of the Act deals with the appointment of Managing Director, Whole Time Director or Manage
Sub-section (4) of section 196 provides for the approval of the appointment 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 Schedule-V
Section 5 provides where the appointment of such managerial personnel is not approved by the company at the General Meeting, any acts done by him before such approval shall not be deemed to be invalid.
Thus Private Companies are exempted from complying with the above provisions.