Exemptions to private limited companies under Co. Act, 2013

In light of continuous representations being given to the government by Chartered Accountants, Trade Associations and Industry, seeking relaxation in certain provisions of the The Companies Act, 2013 applied to Private Limited Companies - MCA has issued Notification dated 05-06-2015 granting relief with/ without exceptions, modifications and adaptation as noted below from the following provisions of the Companies Act 2013 (“the Act”) related to private companies other than subsidiary of public companies:-

S. No.

Section under which exemption is granted

Exception/ Modification/ Adaptation

Description & Impact

(1)

(2)

(3)

(4)

Section 2(76)
(viii)

Shall not apply with respect to section 188

Section 2(76) – Definition of Related Party with reference to a company

The transactions done between a private company and following companies noted below is out of the purview of Related Party Transactions (Note 1) referred to u/s 188:-

(a)Holding Company

(b)Subsidiary Company

(c)Associate Company

(d) Subsidiary of a holding company to which it is also a subsidiary.

Note – It is hereby clarified that this relief is not applicable to any other Related Parties mentioned u/s 2 (76) (i) to (vii) and 2 (76) (ix) – Refer Note 2 for List of Related Parties still covered by sec. 188.

Section 43 and Section 47

Shall not apply where the Memorandum or Articles of association of the private company so provides

Section 43 – Kinds of Share Capital

Section 47 – Voting Rights

If anything else is mentioned in the MOA & AOA of a private company, then provisions of MOA & AOA shall prevail over section 43 & 47.

Section 62 (1)(a)(i) and Section 62 (2)

Shall apply with following modifications:-

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

Provided that notwithstanding anything contained in this sub-clause and sub section (2) of this section, in case ninety percent 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.

Section 62 (1) (a) – Further issue of Share Capital (Right Issue)

It has been provided that in case if the 90% of the members of a private company have given their consent in writing or electronic mode - The minimum time limit can be reduced for following:

keeping right issue open for minimum fifteen days and
Dispatching of letter of offers at least three days before the opening of issue

Note – The time limit for above cannot be increased – they can only be reduced.

Section 62 (1) (b)

In clause (b), for the words "special resolution", the words "ordinary resolution" shall be substituted.

Section 62(1)(b) – Further issue of Share Capital (ESOPs)

Now a private company can offer shares to employees under a scheme of employees’ stock option with an Ordinary Resolution instead of a special resolution.

Section 67

Shall not apply to 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; and

(c) such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section

Section 67 – Restriction on Purchase by Company or giving of Loan by it for purchase of its shares

The provisions of Section 67 shall not apply to private companies subject to conditions mentioned in Column 3 at S. No. 5.

Section 73 (2) (a) to (e)

Shall not apply to a private company –

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 .

Section 73(2) Clause (a) to (e) – Procedure for Acceptance of deposits from its members

A private company can accept from its member’s deposit upto (Paid Up Share Capital + Free Reserves) without complying with the conditions of (a) issuance of Circular; (b) Filling of Circular with ROC; (c) Maintaining Deposit repayment reserve; (d) Provide Deposit Insurance etc. as prescribed under section 73 (2) (a) to (e).

Filling of details of acceptance of deposit with RO as per the procedure to be prescribed.

Sections 101 to 107 and 109

Shall apply unless otherwise specified in respective sections or the articles of the company provide otherwise

Section 101 - Notice of meeting (Content & Length)

Section 102 - Statement to be annexed to notice (Explanatory Statement)

Section 103 - Quorum for meetings

Section 104 - Chairman of meetings

Section 105 - Proxies

Section 106 - Restriction on voting rights.

Section 107 - Voting by show of hands

Section 109 - Demand for poll

In anything else is mentioned in the AOA of a private company, then the provisions of AOA shall prevail over sections 101 to 107 and 109.

Section 117(3)(g)

Shall not Apply

Section 117(3)(g) - Resolutions and agreements to be filed with ROC in form MGT – 14

Now there is NO NEED TO FILE FORM MGT-14 for the purposes of resolutions passed u/s 179(3) read with rule 8 of Companies (Meeting of Board & its power) Rules, 2014. Refer Note 3 for List of resolutions covered under 179(3).

141(3)(g)

Shall apply with the modification that the words "other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees" shall be inserted after the words "twenty companies".

Section 141(3)(g) - Eligibility, qualifications and disqualifications of auditors – (limit of 20 (Twenty) Companies)

The counting for appointment of auditor in twenty companies shall exclude :

(a) one person companies,

(b) dormant companies,

(d) private companies having paid-up share capital less than one hundred crore rupees.

Section 160

Shall Not Apply

Section 160 - Right of persons other than retiring directors to stand for directorship

The provisions of section 160 Read with Rule 13 of the Companies (Appointment and qualifications of directors ) Rules , 2014 relating to giving notice of fourteen days along with a deposit of Rs. 1 Lakh etc. for contesting for directorship shall not be applicable on private companies.

Section 162

Shall Not apply

Section 162 - Appointment of directors to be voted individually

At a general meeting of a private company, the motion for appointment of more than one director can be passed by a single resolution.

Section 180

Shall Not apply

Section 180 - Restrictions on powers of Board

Now there is no need for Private Companies to pass “Special Resolution” for approval of the activities mentioned u/s 180 (1). Refer Note 4 for list of activities covered u/s 180(1).

Section 184(2)

Shall apply with the exception that the interested director may participate in such meeting after disclosure of his interest

Section 184 - Disclosure of interest by Director

An interested director can now participate in the board meeting in which he is interested subject to a condition that he discloses his interest in such contract or arrangement.

Note – He cannot be counted in the Quorum as per Section 174 (3) explanation.

Section 185

Shall not apply to a private company –

(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 anybody corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

(c) such a company has no default in repayment of such borrowings subsisting at the time of making transactions under this section.

Section 185 - Loan to directors

Loan to director are allowed for Private Limited Companies.

The provisions of section 185 with regard to loans, advances and guarantees shall not apply to the companies fulfilling the criteria as specified Column 3 at S. No. 14 of this table.

Second proviso of Section 188 (1)

Shall Not Apply

Section 188 (1) proviso 2 – Voting on Resolution by Related party

In case of Private companies, a member even after being a related party, is allowed to vote on a special resolution to be passed u/s 188 in General Meeting.

Section 196 (4) and (5)

Shall Not Apply

Section 196 - Appointment of managing director, whole-time director or manager

Now there is no need to Pass Resolution in General Meeting for appointment of

Managerial Personnel and no need to file form MR-1.

Managerial Personnel can be appoint in Private limited Company without following:

1. Shareholder’s Ratification in not required;

2. Schedule V not applicable;

3. MR-1 not required to be filed; and

4. T&C of appointment, remuneration not mandatory to be mentioned in resolution.

-: NOTES FOR REFERENCE:-

Note 1 – Related Party Transaction (Contracts or Arrangements) covered u/s 188 of the Companies Act, 2013

(a) sale, purchase or supply of any goods or materials;

(b) selling or otherwise disposing of, or buying, property of any kind;

(c) leasing of property of any kind;

(d) availing or rendering of any services;

(e) appointment of any agent for purchase or sale of goods, materials, services or property;

(f) such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and

(g) underwriting the subscription of any securities or derivatives thereof, of the company.

Note 2 – List of Related Parties covered u/s 2 (76) (i) to (vii) and 2 (76) (ix) to which provisions of section 188 shall apply irrespective of private or public limited companies:-

(i) a director or his relative;

(ii) a key managerial personnel or his relative;

(iii) a firm, in which a director, manager or his relative is a partner;

(iv) a private company in which a director or manager is a member or director;

(v) a public company in which a director or manager is a director or holds along with his relatives, more than two per cent. of its paid-up share capital;

(vi) anybody corporate whose Board of Directors, managing director or manager is accustomed to act in accordance with the advice, directions or instructions of a director or manager;

(vii) any person on whose advice, directions or instructions a director or manager is accustomed to act: Provided that nothing in sub-clauses (vi) and (vii) shall apply to the advice, directions or instructions given in a professional capacity;

(viii) such other person as may be prescribed [i.e. Director (other than independent Director), KMP of holding company or their relative].

Note 3 – List of Board Resolutions u/s 179 (3) that require filling of MGT 14 with ROC

(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 company;

(k) any other matter which may be prescribed:

Note 4 – List of Activities where BOD can exercise the powers only with the consent of company through special resolution u/s 180(1):-

(a) 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.

Explanation.—For the purposes of this clause,—

(i) “undertaking” shall mean an undertaking in which the investment of the company exceeds twenty per cent. of its net worth as per the audited balance sheet of the preceding financial year or an undertaking which generates twenty per cent. of the total income of the company during the previous financial year;

(ii) the expression “substantially the whole of the undertaking” in any financial year shall mean twenty per cent. or more of the value of the undertaking as per the audited balance sheet of the preceding financial year;

(b) to invest otherwise in trust securities the amount of compensation received by it as a result of any merger or amalgamation;

(c) 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:

Provided that the acceptance by a banking company, in the ordinary course of its business, of deposits of money from the public, repayable on demand or otherwise, and withdrawable by cheque, draft, order or otherwise, shall not be deemed to be a borrowing of monies by the banking company within the meaning of this clause.