The Ministry of Corporate Affairs (MCA) has issued notification exempting Private Companies from several important provisions of the Companies Act 2013:
A. Exemptions to which all Private Companies are eligible-
Section 43 and 47: The MCA has stated that the provisions of these sections dealing with voting rights shall not apply to Private Companies where the MOA or AOA suggest otherwise. The Memorandum and Articles of the Private Company can override these sections. This has the following primary implications:
- Shares without voting rights can be issued;
- Preference shareholders could vote on all matters, subject to the terms of issue; and
- There can be additional classes of shares, other than Preference and Equity.
Section 62 (1)(a)(i) and 62 (2): In case of further issue of capital (rights issue) , offer to the current shareholders can now be made by way of a notice for any time period lesser than the prescribed 15-30 days, if 90% or more of the shareholders agree in writing or in electronic mode to the same effect.
Section 101 – 107 and 109: These provisions that govern procedural formalities as to:
- Notice of General Meetings (time of sending notice, specifications as to particulars and annexures to the notices);
- Quorum of the Meetings and provisions in default of the quorum;
- Election of chairman of the meetings – process etc.;
- Participation through proxy including the methodology for appointing proxy; and
- Voting methodology, shall henceforth be applicable subject to the manner contained in the provisions provided in the AOA of the Company.
Section 141 (3)(g): Earlier any person who was holding appointment as auditor of more than 20 companies was not eligible to be an auditor. Under these amendments, in calculating the aforesaid 20 companies, following companies are excluded:
- Small companies (where paid up capital is less than Rupees 50 Lakhs OR turnover is less than Rupees 2 crores); and
- Private companies with paid up share capital of less than Rupees 100 crores.
Section 180: Restrictions on powers of the board to act on the following matters have been removed. Accordingly, no shareholders’ approval is required on the following matters:
- Dispose of Substantial/whole of substantial undertaking;
- Borrow money exceeding aggregate of paid up capital and free reserves;
- Invest compensation received by merger/amalgamation in trust securities; and
- To remit/give time for repayment of any debt due from the director.
Section 184 (2): Earlier, no director was allowed to participate in any meeting where contract/arrangement is discussed in which the director is interested. Now, such directors can participate in these meetings subject to disclosure of their interest to the Board.
Section 188: The consent of the board for related party transaction with respect to certain matters is not required anymore.
Section 196 (4) and (5): The appointment, terms of appointment and remuneration of a whole-time director, Managing Director and/or a Manager no longer needs to be approved in the AGM following the appointment.
B. Exemptions to which only a certain class of Private Companies are eligible-
There are two classes of private companies for this purpose.
Class A Private companies are those – 1) Where no other body corporate has invested any money; 2) where borrowings of the company is less than twice its paid up share capital or 50 crore rupees, whichever is lower; and 3) the company is not in default in repayment of the borrowings at the time of making buy back
Class B Private companies are those – 1) Where no other body corporate has investment in the company; 2) Borrowing of the company is less than 2 times the paid up capital or 50crore whichever is lesser; 3) no default in repayment of borrowing subsisting at the time of transaction.
Section 67: The Private Companies of Class A can buy its own shares without consequent reduction of share capital affected under the Act.
Section 73: Private Companies that have accepted deposits from its members equivalent to 100% of the aggregate of paid up share capital of the company and free reserves and files such details of monies accepted with the RoC are waived from complying with certain requirements under the Act.
The conditions under Sec. 73 from which these companies are exempt include:
- Issuance of circular to members with statement of financial position;
- Filing of the aforesaid circular along with copy of the financial statement;
- Depositing a sum which shall not be less than 15% of the maturing deposits with schedule bank;
- Providing deposit insurance;
- Certifying that no default has been committed.
Section 185: Class B Private Companies can now provide loans to their directors.