Exemption to Private Companies Ministry of Corporate Affairs through vide its Notification dated June 5th, 2015 exempted such class of Companies viz. Government Companies, Nidhi Companies, Section 8 Companies and Private Companies. The Stated notifications shall effective from the date of publication in official Gazette of India. The Exemption to Private Companies was gazetted on June 05th, 2015 and the Gazetted Copy was uploaded on MCA web portal on June 19th, 2015.

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S. 2(68): “private company” means a company having a minimum paid-up share capital of one lakh rupees or such higher paid-up share capital as may be prescribed, and which by its articles,— 1. restricts the right to transfer its

shares; 2. except in case of One Person

Company, limits the number of its members to two hundred: Provided that where two or more persons hold one or more shares in a company jointly, they shall, for the purposes of this clause, be treated as a single member: Provided further that, persons who are in the employment of the company; and persons who, having been formerly in the employment of the company, were members of the company while in that employment and have continued to be members after the employment ceased, shall not be included in the number of members; and;

3. prohibits any invitation to the public to subscribe for any securities of the company;

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Glance on Exemption

Liberalised Related Party Transactions

Section 43 & 47 shall not apply to

Private Company

Offer period for Right Issue offer by Private Company reduced viz-a-viz period for dispatch of offer

letter also reduced

Private Company can purchase its own share, directly or indirectly, subject to

certain conditions

No need to file certain Board Resolutions with the Registrar of Companies

Auditors can do more than 20 Audits

S. 160 not applicable to Private Company

Interested director of a Private Company can participate in the transaction wherein

he is interested upon disclosing his interest

The restriction on giving loans etc. to Directors shall not apply to certain classes

of Private Companies

Single resolution can be passed at General meeting of a Private

Company for appointment of more than One Director

S. 180 will not apply to Private

Company

Conditions for Inviting deposits from shareholders liberalised

A Private Company may now suitably modify its Articles of

Association w.r.t. General meeting provisions

No bar on managerial remuneration

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Liberalised Related Party Transactions

As per extent regulation, Private Company allows to enter into transaction/s with Holding, Subsidiary or Associate Company only after obtaining approval of the Board.

Provided that approval shall be obtain at the duly conveyed meeting of the Board (No Circular Resolution).

Provided further that, interested Director shall be debarred from participation in the transactions conducted at the Board meeting wherein he/she is interested.

If the transaction value of the proposed Contract / Arrangement exceeds certain threshold, as provided under the S. 188(1) read with Rule 15(3) of the Companies (Meeting of Board and Powers) Rule, 2015, then prior approval of Members through Ordinary resolution shall be obtain before entering into transactions. Provided that the interested member/s shall not vote on the resolution on the motion wherein he/she/it is interested.

What NEW ??? As per the Gazetted Notification of Ministry of Corporate Affairs dated June 5th, 2015, Private Companies are allowed to enter into transaction/s with Holding, Subsidiary or Associate Company without complying requirements enumerated under S. 188 of the CA, 2013.

However, Private Company still requires to comply with all requirements of S. 188 of the CA, 2013 except S. 188(1) for the transactions with Related Parties, as defined under sub-clause (i) to (viii) and (ix) of sub-section (76) of S. 2 of the CA, 2013.

Upon commencing the stringent provisions of S. 188 of CA, 2013, w.r.t. restrain votes of the members at the General meeting on the resolution wherein he is interested, Private Companies faces hurdles for entering into such related parties transactions. In order to overcome deadlock, MCA has exempted Private Companies from S. 188(1) and allowed members of the Private Company to vote on resolutions laid before the General Meeting wherein he/she/it is interested. Moreover, a Private Company need not require to get prior approval of the Board for transactions enumerated under 188(1).

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Section 43 & 47 shall not apply to Private Company if the Memorandum or Articles of Association so provides therefore.

Extent Section 43 provides that companies limited by shares can have two kinds of share capital viz. equity (including equity with differential voting rights) and preference share capital. Earlier under the CA, 1956, same thing was also provided under section 86 but pursuant to S. 90 of the CA, 1956 Private Company was exempted u/s. 86. S. 47 provides voting rights equity shareholders and preference shareholders. This provision is similar to section 87 of the earlier Companies Act, 1956. As cited above, section 87 was not applicable to private companies.

What NEW ??? Due to amendment, a Private Company may have only one kind of share capital say preference share capital or have different class viz. first preference shares, second preference shares, founder shares, Special shares etc.

Moreover, Private Company can issue equity shares with differential voting rights without compliance of conditions related thereto specified under the Companies (Share Capital and Debentures) Rules, 2014. Provided that, Memorandum or Articles of Association of such Private Company specifically exempt S. 43 and/or other class of Capital provided in that.

Due to amendment, a private company 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. However, S. 106(2) of the CA, 2013 provides that a Company cannot restrain voting rights of any members on any other grounds other than provided under sub-section (1) i.e. call or other sum presently payable on shares and not been paid. Hence, conclusion can be framed that a Private Company can issue shares with differential voting rights but cannot restrain any members from voting other than the grounds provided hereinabove.

Private Company still not allowed to restrain any members from Voting unless he/she/it has not paid call or other sum presently payable on shares.

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Right Issue Offer shall be given to existing equity shareholder in proportionate basis.

Right issue offer shall be open for Fifteen days and shall not be more than Thirty days from the date of offer.

Right issue offer letter shall be dispatched to eligible shareholders at least Three days before the opening of the issue.

Offer letter shall be dispatched though registered Post, Speed Post or through electronic mode.

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Offer period in Right Issue offer by Private Company reduced viz-a-viz period for dispatch of offer letter also reduced

As per S. 62(1)(a) of the CA, 2013, a Company can issue further shares to its existing equity shareholders in the proportion of their shareholding in the company. Provided that, an offer of right issue shall not be open for less than Fifteen days and it shall extend upto Thirty days from the date of offer. Such offer letter shall be dispatched to all eligible shareholders through registered post, speed post or through electronic mode provided that such offer shall be dispatched to eligible shareholders at least Three days before the opening of the issue.

What NEW ??? If 90% shareholders of a private Company agree in writing or through electronic mode then a Private Company can make its offer for period lesser than the period provided under Section 61(1)(a) or can dispatch offer letter before lesser than the period provided therefore under 62(2). In other circumstances, a Private Company has to comply with S. 62(1)(a) & 62(2). Note that, express authorisation shall be obtain from 90% shareholders in writing before the right issue offer. The Act is silent about the cumulative authorisation for all right issue offer by a Private Company thus it is advisable to obtain express authorisation of shareholders in each offer.

A Private Company can issue further shares to employees of the Company pursuant to Employee Stock Option scheme through passing of Ordinary Resolution (earlier it was Special Resolution) prior to the issue subject to compliance of Rule 12 of the Companies (Share Capital and Debentures) Rule, 2014.

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Private Company can purchase its own share, directly or indirectly, subject to certain conditions

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.

What NEW ??? Now, a Private company upon satisfaction of following three conditions can buy its own shares in addition to reduction of share capital or redemption of preference shares:

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

(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.

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Conditions for Inviting deposits from shareholders liberalised

Erstwhile, inviting unsecured loans from shareholders was not tantamount to Deposit under the CA, 1956 in the case of Private Company. However, w.e.f. 1st April, 2014, any borrowing from shareholders (except loan obtained from promoter in pursuance to stipulation made by the lending financial institution/s) amounts to Deposit in terms of the CA, 2013. A Company (public and private) are permitted to accept deposits from its members upto 25% of aggregate paid-up share capital and free reserves of the Company subject to provision of the Rules and the conditions mentioned at right side.

What NEW ??? Now, private companies are permitted to accept deposits from its members subject to provision of the Rules and they need not satisfy mentioned first five conditions 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.

Extent conditions for inviting deposits from

Shareholders company issues circular in form DPT-1 to its members

files form DPT-1 with the ROC within 30 days before the

date of its issue to members maintain 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

providing deposit insurance; certifying that the company

has not defaulted in repayment of deposits or

payment of interest thereon; and

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.

A Private Company can Invite Deposits from members’ upto 100% of paid-up capital and free reserves of the Company.

A private Company need not to comply above conditions while inviting deposits from its members.

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A Private Company may now suitably modify its Articles of Association w.r.t. General meeting provisions

Now the Private companies are 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

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No need to file certain Board Resolutions with the Registrar of Companies

Private companies are exempted from filing following Board Resolutions:

(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.

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Auditors can domore than 20 Audits Extent law restricts to an auditor for taking audit assignments of more than 20 Companies (Private & Public) per auditor. However, due to amendment, an auditor may take audit assignments of more than 20 Companies. For computing 20 Companies under S. 141(3)(g) following Companies are excluded;

(i) one person companies, (ii) dormant companies, (iii) small companies and (iv) private companies having paid-up share capital less than rupees one

hundred crore.

S. 160 not applicable to Private Company

Section 160 of Companies Act, 2013 is similar to section 257 of the earlier Companies Act, 1956. It gives right to any person (other than retiring director) to propose himself or any member can propose him as director of the company by sending requisite notice with deposit amount.

While provision of section 257 was not applicable to private companies, section 160 is applicable to all companies, including private companies.

Now, said section 160 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.

Single resolution can be passed at General meeting of a Private Company for appointment of more than One Director

Section 162 of Companies Act, 2013 is similar to section 263 of the earlier Companies Act, 1956 requiring separate resolutions to be passed at a general meeting for appointment of each directors, where more than one director is to be appointed.

While provision of section 263 was not applicable to private companies, section 162 is applicable to all companies, including private companies.

Now said section 162 is not applicable to private companies. Hence, private companies can now move a motion at its general meeting for appointment of two or more persons as directors of the company by a single resolution.

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S. 180 will not apply to Private Company

Section 180 of Companies Act, 2013 is similar to section 293 of the earlier Companies Act, 1956, wherein restriction laid on powers of Board and for that prior member’s approval is required for exercising certain powers.

While provision of section 293 was not applicable to private companies, section 180 is applicable to all companies, including private companies.

Now said section 180 is not applicable to private companies. Hence, Board of Directors of private companies can do following acts even without the consent of its members:

(a) to sell, lease or otherwise dispose of the whole or substantially the whole of the undertaking of the company,

(b) to invest compensation received on merger or amalgamation; (c) to borrow money in excess of aggregate of paid-up share capital and free

reserves; and (d) to remit, or give time for the repayment of, any debt due from a director.

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Interested director of a Private Company can participate in the transaction wherein he is interested upon disclosing his

interest Section 184(2) of Companies

Act, 2013 is similar to section

300 of the earlier Companies

Act, 1956, requiring director

who is interested in any

contract or arrangement

placed before the Board at its

meeting for approval, not to

participate therein.

While provision of section 300

was not applicable to private

companies, section 184(2) is

made applicable to all

companies, including private

companies.

Now it is provided that in

case of a private company,

interested director may

participate in the board

meeting, after disclosing his

interest.

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The restriction on giving loans etc. to Directors shall not apply to certain class of Private Companies

Extent regulation prohibits Companies (Private or Public) for advancing Loans (including represented by book debt) or providing guarantee or security in connection with the loans given to any of its directors or to any other person in whom the director is interested.

Erstwhile S. 295 of the CA, 1956 was applicable to Public Company and Public Companies allowed to advance Loans etc. to its Directors subject to prior approval of the Central Government.

Upon commencing the CA, 2013, complete restriction imposed on advancing loans, or providing guarantee or security in connection with loans given to Director or to the person in whom Director is interested.

What NEW ??? Now, private companies upon fulfilling following conditions can advance loan (including represented by book debt) to any of its directors or to any other person in which the director is interested. It can also give guarantee or provide any security in connection with any loan taken by him or such other person.

The conditions are:

(a) no other body corporate has invested any money in the share capital of private company; and

(b) the borrowings of such a company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or rupees fifty crore, whichever is lower; and

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

Person in whom Director is interested means:

any director of the lending company, or of a company

which is its holding company or any partner or relative of any

such director any firm in which any such

director or relative is a partner

any private company of which any such director is a

director or member any body corporate at a

general meeting of which not less than twenty-five

percent. of the total voting power may be exercised or

controlled by any such director, or by two or

more such directors, together any body corporate, the

Board of directors, managing director or

manager, whereof is accustomed to act in accordance with the

directions or instructions of the Board, or

of any director or directors, of the lending company

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No bar on managerial remuneration S. 196(4) of the CA, 2013 deals with appointment of managing director, whole-time director or manager (‘managerial personal’) and terms and conditions attached to their appointment.

As per extent law:

Remuneration of such managerial personal subject to S. 197 and Schedule V of the CA, 2013;

Terms and conditions of such appointment and remuneration payable be approved by the Board subject to approval of members at next general meeting and subject to approval of central government in certain cases;

What NEW ???

Private companies are now exempted from cited requirements. Thus, in case of private company, appointment of a managing director, whole-time director or manager and the terms and conditions of such appointment and remuneration payable need not be approved by the Board of Directors at its meeting and such appointment and remuneration payable which shall not require approval of members by a resolution at the next general meeting of the company and shall not be subject to section 197 of the Act and Schedule V thereto. Consequently, even approval of Central Government would not be required. However it is advisable to pass board resolution for remuneration and terms & conditions of appointment of such managerial personnel.

Private Company allows to pay remuneration to its managing director, whole-time director or manager as much as they can without any restrictions.

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