Important Amendments for Private & Unlisted … · Private Companies - Companies Act, 2013 ... 198 Provisions of overall maximum managerial remuneration payable were not ... under

Exemptions available to

Private Companies -

Companies Act, 2013

-Vinod Kothari Corporate Law Group

28.06.2014 Vinod Kothari & Company

Practising Company Secretaries

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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


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


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


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


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


under

Act,

1956

Particulars Whether

exemption

available

under 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


under

Act,

1956

Particulars Whether

exemption

available

under 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


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


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

Documents

Important Amendments for Private & Unlisted … · Private Companies - Companies Act, 2013 ... 198 Provisions of overall maximum managerial remuneration payable were not ... under