Exemption to Private Limited Companies in Purview of Companies Act 2013

In exercise of the powers conferred by clauses (a) and (b) of sub-section (1) of section 462 and in pursuance of sub-section (2) of section 462 of the Companies Act, 2013 (18 of 2013) (hereinafter referred to as the said Act), the Central Government, in the interest of public, hereby issue a notification dated 05th June, 2015 and 13th June, 2017 w.r.t Exempted Private Company from the compliance of following provision:

1. SECTION 2(40) FINANCIAL STATEMENT

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) may 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 2013) or the Companies Act, 1956 (1 of 1956) and recognized as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

2. SECTION 2(76)(VIII) RELATED PARTY

It shall not apply with respect to section 188 as the transactions in the Private Limited Companies are mostly closely held transactions. Thus, any transactions entered by a private limited company with its holding company, the subsidiary company, the associate company, or a fellow subsidiary company is not considered as related party transactions.

3. SECTION 43 KINDS OF SHARE CAPITAL AND SECTION 47 VOTING RIGHTS

Shall not apply where memorandum or articles of association of the private company so provides. Private company thus can have any kind of share capital in accordance with their articles. In short, it is free to issue any kind of shares subject to their charter documents providing for it.

4. SECTION 62(1)(A)(I) AND 62(2) RIGHT ISSUE

Shall apply with following modifications: -

In clause (a), in sub-clause (i), the following proviso shall be inserted, namely:

Provided that notwithstanding anything contained in this sub clause and sub-section (2) of this section, in case ninety per cent of the members of a private company have given their consent in writing or in electronic mode, the periods lesser than those specified in the said sub-clause or sub-section shall apply.

5. SECTION 62(1)(B) ESOP

For the words 'special resolution', the words 'ordinary resolution' shall be substituted.

Section 62(1)(b) provides that the share shall be offered to employees under a scheme of employees' stock option, subject to special resolution passed by company and subject to such conditions as may be prescribed. For a private company ordinary solution is enough.

6. SECTION 67 RESTRICTIONS ON PURCHASE BY COMPANY OR GIVING OF LOANS BY IT FOR PURCHASE OF ITS SHARES

Section 67 will not apply to private companies which fulfils the below mentioned conditions:

1. In whose share capital no other body corporate has invested any money.
2. if the borrowings of such a company from banks / financial institutions / anybody Corporate is less than twice its paid-up capital or Rs. 50 crs whichever is lower; and
3. Such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.

7. SECTION 73(2)(A) TO (E) TERMS AND CONDITIONS FOR DEPOSIT FROM MEMBERS

Shall not apply to a private company which fulfils the below mentioned conditions:

1. 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
2. Which is a start-up, for five years from the date of its incorporation; or
3. Which fulfils all the following conditions, namely: -

• Which is not an associate or a subsidiary company of any other company.
• If the borrowings of such a company from banks or financial institutions or anybody corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower; and
• 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.

8. SECTION 92(1)(G) ANNUAL RETURN (FORMMGT-7)

In case of Private Company – Clause (g) of Sub-Section (1) of Section 92 shall apply to private companies which are small company namely: -

"(g) "aggregate amount of remuneration drawn by directors;"

Small Company & OPC are required to provide details of aggregate amount of remuneration drawn by directors instead of providing details of remuneration of directors and KMP of the Company.

9. PROVISION TO SECTION 92(1) SIGNING OF ANNUAL RETURN

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.

10. SECTION 101 TO 107 AND SECTION 109

The provisions of above-mentioned sections shall apply to private companies unless otherwise specified in the sections or the Articles of the Company provide otherwise.

A Small Company & OPC shall hold only two board meetings in a year instead of fulfilling the requirement of four meetings in a year like other companies, i.e. A small company may hold one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.

11. SECTION 117(3)(G) FILLING OF FORM MGT-14 IN CASE OF RESOLUTION PASSED U/S 179(3)

Resolutions and agreements to be filed - A private company shall not be liable to file resolutions passed by the Board of Directors in a meeting in pursuance of section 179(3).

12. SECTION 143(3) REPORTING OF INTERNAL FINANCIAL CONTROLS IN FINANCIAL STATEMENTS BY AUDITOR

Section -143(3)(i) shall not apply to the following private companies:

1. Which is a one-person company or a small company; or
2. 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 anybody corporate at any point of time during the financial year less than rupees twenty-five crore.

13. SECTION 141(3)(G) ELIGIBILITY FOR APPOINTMENT AS AN AUDITOR

In case of private company – in clause (g) of sub-section 3 after the words twenty companies" the following words shall be inserted.

"Other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupee".

Section 143(3)(i) - Auditor's Report - Section 143(3)(i) provides that the Auditor's Report shall also state whether the company has adequate internal financial controls with reference to financial statements] in place and the operating effectiveness of such controls. This section shall not apply to a private company -

1. Which is a one-person company or a small company; or
2. Which has turnover less than Rs. 50 crores as per latest audited financial statement and which has aggregate borrowings from banks or financial institutions or anybody corporate at any point during the financial year less than Rs. 25 crores.

14. SECTION 149(4) APPOINTMENT OF INDEPENDENT DIRECTORS

Provisions of Section 149 (4) relating to appointment of one third of the total number of directors as independent directors only apply to listed company.

15. SECTION 160 RIGHT OF PERSONS OTHER THAN RETIRING DIRECTORS TO STAND FOR DIRECTORSHIP

Private Companies are exempt from complying with these provisions.

16. SECTION 162 APPOINTMENT OF DIRECTORS TO BE VOTED INDIVIDUALLY

Private Companies are exempt from complying with these provisions.

17. SECTION 173(5) MINIMUM NUMBER OF BOARD MEETING

For sub-section (5), the following sub-section shall be substituted, namely: -

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

18. SECTION 174(3) INTEREST DIRECTOR FOR THE PURPOSE OF QUORUM

Provision of the above-mentioned section shall apply with the exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.

19. SECTION 177 AUDIT COMMITTEE

The Private Limited Companies need not constitute an Audit Committee.

20. SECTION 180 RESTRICTIONS ON POWER OF THE BOARD

Private Companies are exempt from complying with the provisions of the above-mentioned section.

21. SECTION 184(2) DISCLOSURE OF INTEREST BY DIRECTOR

Section 184 (2) shall apply; with the exception that the interested director may participate in such meeting after disclosure of his interest.

22. SECTION 185 LOAN TO DIRECTORS

Section 185 shall not apply to a private company:

1. In whose share capital no other body corporate has invested any money;
2. If the borrowings of such a company from banks / financial institutions / anybody corporate is less than twice of its paid-up share capital or Rs. 50 crores, whichever is lower; and
3. Such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

23. SECOND PROVISO OF SECTION 188(1) VOTING BY RELATED PARTY

Second proviso to Sub-section (1) of Section 188 shall not apply. The permission for related parties voting is a relief cum exemption here to the private companies as it was not at many times possible in private companies as there are few members who are usually related to each other.

24. SECTION 196(4) AND (5) APPOINTMENT OF MANAGERIAL PERSONNEL

The provisions relating to the appointment of these managerial personnel through a Board meeting and then a General Meeting and in cases with the Central Government's approval shall not apply to private companies.

Conclusion

As the Private Limited Companies are mostly closely held companies and it does not have any detrimental effect in the interest of the public, many relaxations in the form of exemptions are provided vide notifications dated 05th June, 2015 and 13th June, 2017 that has resulted in significant benefits to Private Companies.