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Exemptions available to
Private Companies -
Companies Act, 2013
-Vinod Kothari Corporate Law Group
28.06.2014 Vinod Kothari & Company
Practising Company Secretaries
1012 Krishna 224 AJC Bose Road Kolkata – 700017 Phone 033-22811276/ 22813742/ 22817715
E-mail – corplaw@vinodkothari.com
601-C, Neelkanth, 98 Marine Drive, Mumbai 400002 Phone 022-22817427 E-mail: bombay@vinodkothari.com
www.vinodkothari.com Email: vinod@vinodkothari.com
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2
Quick Overview of Act, 2013
There are lots of materials and articles on the Companies Act, 2013 here:
http://india-financing.com/component/content/article/281.html
Types of Companies
Types of Company
Classification of
company
No. of member
Liability
Nature of object
Access to capital market
Control
Private
Public
Small Company
Not small company
Multi person cos
OPC
Not for profit
For Profit
Unlimited
Limited
By shares
By guarantee
Associate
Joint Venture
Subsidiary
Holding
Public
Private
listed
unlisted
unlisted
listed Non convertible Preference share
NCDs
NCDs
Equity
5
Private Company
Private Companies
• Maximum number of members:
▫ Increased from 50 to 200 – except in case of OPC
• The clause in the former definition prohibiting private
companies:
▫ To invite or accept deposits from persons other than its members,
directors or their relatives
not incorporated in the new Act.
• Definition has been enforced
▫ However, that won’t have any substantive force.
• A private company may accept deposits
▫ From members in compliance of Sec 73(2)
Relatives of directors have been dropped from the exclusions in the
definition
7
Exemptions inapplicable under Act, 2013– 1/8
Section
under
Act, 1956
Particulars Whether
exemption
available
under Act,
2013?
Section under
Act, 2013 not
providing
Exemptions
Whether
exempted
under
proposed
notification by
MCA?
Scope of exemption
58A Prohibition on
acceptance of
deposits from
public
No 73(2) Yes Private companies having 50 or lesser
number of members can continue to accept
deposits from members up to the maximum
of the following :
• 25% of aggregate of paid up capital +
free reserves; or
• 100% of the paid up capital
81 Further issue
of Capital.
No 62 Yes • Private companies need to keep the rights
issue offer open for a period of atleast 7
days and maximum of 15 days within
which the existing shareholder as on the
date of the offer and in receipt of the
notice, shall be required to intimate his
acceptance.
• The issue of Employees Stock Option
Scheme by private companies will
require approval by the shareholders of
the company by passing an ordinary
resolution.
8
Exemptions inapplicable under Act, 2013– 2/8
Section
under
Act, 1956
Particulars Whether
exemption
available
under Act,
2013?
Section under
Act, 2013 not
providing
Exemptions
Whether
exempted
under
proposed
notification by
MCA?
Scope of exemption
90 (2) Section 85 to
89 ( share
capital and
voting rights)
shall not
apply.
No 43, 47 Yes • Section no longer applies.
• Private companies are eligible to create
and issue such other kind of share
capital and on such other terms as may
deem appropriate.
• The restrictions on new issues of share
capital and voting rights will no longer
apply to private companies.
170 Section 171 to
186 to apply
only in case
provisions are
expressly
made
applicable by
Company’s
articles.
No Sections 101 to
107 and
Section 109
Yes • Shall apply unless – otherwise specified
in respective sections or – unless articles
of the private company otherwise
provide.
9
Exemptions inapplicable under Act, 2013– 3/8 Section
under
Act,
1956
Particulars Whether
exemption
available under
Act, 2013?
Section of
Act, 2013
not
providing
Exemptions
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
204 Restriction on
appointment of firm
or body corporate to
office or place of
profit under a
company.
No express
provision under
Act, 2013
- - -
220 No person other than
a member were
entitled to inspect
profit and loss of a
private company
No express
provision under
Act, 2013
- - -
257 (2) Provisions for
appointment of a
person other than
retiring director, as
director
No 160 Yes • Section shall not apply
• The requirement of giving a special
notice for appointment or proposing a
person to be appointed as director by a
member, alongwith a deposit of Rs.
1,00,000/- to be done away with for
private companies.
10
Exemptions inapplicable under Act, 2013– 4/8
Section
under
Act,
1956
Particulars Whether
exemption
available
under Act,
2013?
Section of
Act, 2013
not
providing
Exemption
s
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
263
Appointment of
director to be voted
individually was not
applicable
No
162(1)
Yes
• Section shall not apply
• Now private companies can appoint
two or more directors at a general
meeting by a single resolution only.
264
Consent to act as
Director to be filed
with Registrar was
not needed
No
152 (5)
No
270
Director holding
qualification share
and filing the same
with Registrar
No express
provision under
Act, 2013
- - • -
11
Exemptions inapplicable under Act, 2013– 5/8
Section
under
Act,
1956
Particulars Whether
exemption
available under
Act, 2013?
Section of
Act, 2013
not
providing
Exemptions
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
275-279
Directorships held in
Private company
which is neither a
subsidiary nor a
holding of a public
company is not
included in the
ceiling of total
number of
directorships
No
165(1)
No
-
293
Restrictions on
powers of Board
No
180
Yes • Shall not apply to private companies
having 50 or less number of members
12
Exemptions inapplicable under Act, 2013– 6/8 Section
under
Act,
1956
Particulars Whether
exemption
available
under Act,
2013?
Section of Act, 2013
not providing
Exemptions
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
295
Loans to directors etc No
185 (1)
Yes
• Shall not apply to
Private companies -
(a) which have
borrowings from banks or
financial institutions or
any bodies corporate not
more than twice of their
paid up share capital or
Rs. 50 crore, whichever is
lower; and
(b) in whose share capital
no other body corporate
has invested any money 300
Interested director is not
prohibited from voting
or from participating in
any matter relating to
his interest
No
184(2)
No
-
13
Exemptions inapplicable under Act, 2013– 7/8 Section
under
Act,
1956
Particulars Whether
exemption
available
under Act,
2013?
Section of Act, 2013
not providing
Exemptions
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
303(1)
(a)
Entering date of birth
in register of
Directors
No
170 Read with Rule
17(1)(e) of the
Companies
(Appointment and
Qualification of
Directors)
Rules, 2014
No -
316
Number of companies
of which one person
may be appointed as
managing director.
No
203 (3)
Yes. • Provisions shall not
apply
317
Managing Directors
not to be appointed for
more than five years at
a time
No
196(2)
No MD/WTD/Manager
can be appointed for a
term exceeding five
years
No -
14
Exemptions inapplicable under Act, 2013– 8/8 Section
under
Act,
1956
Particulars Whether
exemption
available
under Act,
2013?
Section of Act, 2013
not providing
Exemptions
Whether
exempted
under
proposed
notification
by MCA?
Scope of exemption
349 &
350
Determination of net profits
No
197 (6) and (8) read
with198
No
372A
Inter corporate loans and
investments
No
186
No
386
Number of companies of
which one person may be
appointed as manager
No
203 Third proviso
No
409
No interference of
Company Law Board in
change of Board of
Directors
No express
provision
under Act,
2013
15
Additional exemptions proposed by
MCA • Chapter X, Clause (g) of sub-section (3) of section
141 ▫ Shall not apply in respect of appointment of auditors
by private companies. A person who is in full time employment elsewhere or a
person or a partner of a firm holding appointment as its auditor and holding appointment as auditor of more than twenty companies is capable of being appointed as auditor in a private company
• Chapter XII, section 188 ▫ Section shall not apply.
It may be noted here that the erstwhile section 297 of the 1956 Act, corresponding to sec. 188, did not exempt private companies.
16
Exemptions of Act, 1956 applicable under Act,
2013 to private companies
– 1/3
Exempted
sections under
Act, 1956
Particulars Whether
exemption
available under
Act, 2013?
Section under Act,
2013
77 (2) Not prohibited from giving financial assistance
for purchasing or subscribing to the shares of
that company or its holding company.
Yes 67(2)
198 Provisions of overall maximum managerial
remuneration payable were not applicable to
private company.
Yes 197 (1)
252 Private company needs to have minimum 2
directors
Yes 149 (1) (a)
252 (1) proviso Appointment of small shareholder directors Yes 151 (provided it is
not a listed
company)
255,256 Retirement of directors by rotation Yes 152(6)
17
Exemptions of Act, 1956 applicable under Act,
2013 to private companies – 2/3
Exempted
sections under
Act, 1956
Particulars Whether
exemption
available
under Act,
2013?
Section under Act, 2013
259 Increase in number of directors above
maximum permissible did not require CG
sanction
Yes 149 (Available to all
companies)
262
Filling of casual vacancies among directors was not applicable
Yes
161(4)
269
Appointment of managing or whole time director or manager was not required
Yes
203 read with
Rule 8 of the Companies
(Appointment and
Remuneration of
Managerial Personnel)
Rules, 2014. 274
Has power providing additional grounds for
disqualifications of directors has been given
Yes
164 (3)
18
Exemptions of Act, 1956 applicable under Act,
2013 to private companies – 3/3
Exempted sections
under Act, 1956
Particulars Whether
exemption
available
under Act,
2013?
Section under Act, 2013
283
Vacating the office of the director
special grounds may be provided
by Private company
Yes
167(4)
292A
Audit Committee needs to be constituted
Yes
177 read with Rules 6 of
The Companies(Meetings
of Board and its Powers),
Rules,2014 309,310,311
Increase in remuneration does not require CG approval
Yes
197 (4) read with 197 (1)
388(a)
Remuneration payable to Managers
Yes
197 (4) read with 197 (1)
19
20
Additional Privileges of Private Company
according to Companies Act 2013 – 1/2
Section under Act, 2013 Particulars
190(1) A contract of service of Managing director or Whole time
Director is not required to be kept at the registered office.
149(1) first proviso read with Rule 3 of
The Companies (Appointment and
Qualification of Directors), Rules,2014
It is not required to appoint a women director need not be
appointed to its composition of Board of Directors
149(4) read with Rule 4 of The
Companies(Appointment and
Qualification of Directors) Rules,2014.
It is not required to appoint independent director to its
composition of Board of Directors.
203(1) read with Rule 8 of The
Companies(Appointment and
Remuneration of Managerial Personnel)
Rules, 2014
It is not required to appoint key managerial personnel*
*Note: Vide MCA Circular G.S.R. 390(E) dated 9th June,2014 every private companies with a paid up share capital of five crore rupees or more shall have a whole-time company secretary(Key managerial Personnel)
21
Privileges of Small Company according to
Companies Act 2013 – 1/1
Section under Act, 2013 Brief of the
Section
Particulars
2(40) Financial
Statement
A small company need not include Cash Flow Statement as a part
of its financial statements.
92
(first proviso)
Annual
Return
The annual return of a Small Company can be signed by the
company secretary alone, or where there is no company secretary,
by a single director of the company.
173(5) Board
Meetings
A small company may hold only two board meetings in a year, i.e.
one Board Meeting in each half of the calendar year with a
minimum gap of ninety days between the two meetings.
Subsidiary of a Public Company
Subsidiary of a public company
• Proviso to Section 2(71):
▫ A company which is a subsidiary of a company, not being a private company
shall be deemed to be public company for the purposes of this Act
“It was incorporated as a private company and became subject to the provisions
applicable to a public company when the conditions of section 43A were satisfied”.
Needle Industries (India) Ltd. v. Needle Industries Newey (India) Holding Ltd.,
(1981) 51 Com Cases 743 : AIR 1981 SC 1298
Same principal applies here
Whether subject to only restrictions and vigilance as any other public company or
even privileges?
▫ Such companies will continue to remain:
Private by structure & Public for provisions of the Act
Eg. Section 185 restricts extending loan to a private company in which a director is a
member or director. This will not apply to a private company, which is subsidiary of a
public company.
23
Subsidiary of Foreign Company
Subsidiary of a foreign company • As per proviso to Section 2(71) - definition of public company
▫ A Company which is subsidiary of a company, not being a private company,
shall be deemed to be a public company for the purpose of this Act
• As per explanation (c) of Section 2(87) – Definition of Subsidiary company
▫ For the purpose for this clause, the expression “company” includes any
body corporate.
• Combined reading of the proviso and explanation:
▫ A subsidiary will be deemed to be a public company, if holding company is
NOT a private company
The holding company may even be a body corporate
• Private companies which are subsidiary of foreign companies will achieve
status of public company
▫ The exemption provided under Section 4(7) of Act, 1956 not longer appears
in Act, 2013
25
Small Company
When is it a Small Company?
Is it
a public
company?
Is Paid up
capital<=50 lakh
or prescribed
amount of <= 5
crore?
Is turnover
<=2 crore or
prescribed
amount of <= 20
crore?
No
Yes
No
No
Yes
Yes
No
Yes
Is it a holding/ subsidiary
company?
or
Is it a Section 8 company
or
Is it a company or body
corporate governed by any
special Act?
It is not a Small Company
It is a Small Company
27
Intent behind having Small Companies
• To enable such companies to achieve transparency at
a low cost through simplified requirements.
• The exemptions provided to such companies should
facilitate compliance by small companies in an easy
and cost effective manner.
▫ Should not incentivize concealment of true size or be a
barrier to growth
• Small companies should not suffer the consequences
of regulation designed to ensure balancing of
stakeholders interests of large widely held corporates.
28
Relation between Private, Small & OPC
Private Company
Small Company
One Person
Company
29
What are the privileges available to Small
companies?
• Signing of Annual Return: • by the Company Secretary, or where there is no Company secretary, by the Director
• Board Meetings • At least one Board Meeting in each half of a calendar year and the gap between two
Board meetings is not less than ninety days • Financial Statement • The financial statement with respect to Small Company may not include the cash
flow statement. • Appt/ Re-appt of Auditor • Bar on Term of appointment or re-appointment shall not be applicable to Small
Companies [Rule 5 of the Companies (Audit and Auditors) Rules, 2014] • Merger of two small companies • Fast Track merger process: No need to follow the provisions specified under Section
230 and 232
30
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