1012 Krishna 224 AJC Bose Road Kolkata 700017 Phone 033-22811276/ 22813742/ 22817715 E-mail corplaw@vinodkothari.com Exemptions available to Private Companies - Companies Act, 2013 Corporate Law Group 28.06.2014 Vinod Kothari & Company Practising Company Secretaries -Vinod Kothari 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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Quick Overview of Act, 2013 There are lots of materials and articles on the Companies Act, 2013 here: http://indiafinancing.com/component/content/article/281.html
Types of Companies
Types of Company 5 Classification of company No. of member Nature of object Public Private For Profit Not for profit Not small company Small Company OPC Multi person cos By shares Liability Limited By guarantee Holding Unlimited Control Access to capital market Subsidiary Joint Venture Associate Public Private listed unlisted listed unlisted NCDs Equity Non convertible Preference share NCDs
Private Company
7 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
8 Exemptions inapplicable Act, 2013 1/8 Section Act, 1956 58A Particulars Prohibition on acceptance of deposits from public 81 Further issue of Capital. exemption available Act, 2013? Section Act, 2013 not providing Exemptions exempted proposed notification by MCA? Scope of exemption 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 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.
9 Exemptions inapplicable Act, 2013 2/8 Section Act, 1956 Particulars 90 (2) Section 85 to 89 ( share capital and voting rights) shall not apply. 170 Section 171 to 186 to apply only in case provisions are expressly made applicable by Company s articles. exemption available Act, 2013? Section Act, 2013 not providing Exemptions exempted proposed notification by MCA? Scope of exemption 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. 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.
10 Section Act, 1956 Exemptions inapplicable Act, 2013 3/8 Particulars 204 Restriction on appointment of firm or body corporate to office or place of profit a company. 220 No person other than a member were entitled to inspect profit and loss of a private company exemption available Act, 2013? No express provision Act, 2013 No express provision Act, 2013 Section of Act, 2013 not providing Exemptions exempted proposed notification by MCA? - - - - - - Scope of exemption 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.
11 Exemptions inapplicable Act, 2013 4/8 Section Act, 1956 263 Particulars Appointment of director to be voted individually was not applicable exemption available Act, 2013? Section of Act, 2013 not providing Exemption s exempted proposed notification by MCA? No 162(1) Yes Scope of exemption 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 Act, 2013 - - -
12 Exemptions inapplicable Act, 2013 5/8 Section Act, 1956 275-279 293 Particulars 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 Restrictions on powers of Board exemption available Act, 2013? Section of Act, 2013 not providing Exemptions exempted proposed notification by MCA? No 165(1) No No 180 - Scope of exemption Yes Shall not apply to private companies having 50 or less number of members
13 Section Act, 1956 295 300 Exemptions inapplicable Act, 2013 6/8 Particulars Loans to directors etc Interested director is not prohibited from voting or from participating in any matter relating to his interest exemption available Act, 2013? Section of Act, 2013 not providing Exemptions No 185 (1) Yes exempted proposed notification by MCA? No 184(2) No Scope of exemption 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 -
14 Section Act, 1956 303(1) (a) Exemptions inapplicable Act, 2013 7/8 Particulars Entering date of birth in register of Directors exemption available Act, 2013? No Section of Act, 2013 not providing Exemptions 170 Read with Rule 17(1)(e) of the Companies (Appointment and Qualification of Directors) Rules, 2014 exempted proposed notification by MCA? No - Scope of exemption 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 -
15 Section Act, 1956 349 & 350 Exemptions inapplicable Act, 2013 8/8 Particulars Determination of net profits exemption available Act, 2013? No Section of Act, 2013 not providing Exemptions 197 (6) and (8) read with198 exempted proposed notification by MCA? No Scope of exemption 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 Act, 2013
16 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.
Exemptions of Act, 1956 applicable Act, 2013 to private companies 1/3 17 Exempted sections Act, 1956 Particulars exemption available Act, 2013? Section Act, 2013 77 (2) Not prohibited from giving financial assistance for purchasing or subscribing to the shares of that company or its holding company. 198 Provisions of overall maximum managerial remuneration payable were not applicable to private company. 252 Private company needs to have minimum 2 directors Yes 67(2) Yes 197 (1) 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)
Exemptions of Act, 1956 applicable Act, 2013 to private companies 2/3 18 Exempted sections Act, 1956 Particulars 259 Increase in number of directors above maximum permissible did not require CG sanction 262 Filling of casual vacancies among directors was not applicable 269 Appointment of managing or whole time director or manager was not required 274 Has power providing additional grounds for disqualifications of directors has been given exemption available Act, 2013? Section Act, 2013 Yes 149 (Available to all companies) Yes 161(4) Yes Yes 164 (3) 203 read with Rule 8 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
Exemptions of Act, 1956 applicable Act, 2013 to private companies 3/3 19 Exempted sections Act, 1956 283 292A Particulars Vacating the office of the director special grounds may be provided by Private company Audit Committee needs to be constituted exemption available Act, 2013? Yes 167(4) Yes Section Act, 2013 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)
20 Additional Privileges of Private Company according to Companies Act 2013 1/2 Section 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 It is not required to appoint a women director need not be The Companies (Appointment and appointed to its composition of Board of Directors Qualification of Directors), Rules,2014 149(4) read with Rule 4 of The Companies(Appointment and Qualification of Directors) Rules,2014. 203(1) read with Rule 8 of The Companies(Appointment and Remuneration of Managerial Personnel) Rules, 2014 It is not required to appoint independent director to its composition of Board of Directors. It is not required to appoint key managerial personnel* *Note: Vide MCA Circular G.S.R. 390(E) dated 9 th 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 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
23 Proviso to Section 2(71): Subsidiary of a public company 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 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.
Subsidiary of Foreign Company
25 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 Section 4(7) of Act, 1956 not longer appears in Act, 2013
Small Company
27 When is it a Small Company? Is it a public company? No It is a Small Company Yes No No Is Paid up capital<=50 lakh or prescribed amount of <= 5 crore? No Is turnover <=2 crore or prescribed amount of <= 20 crore? Yes 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? Yes It is not a Small Company
28 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.
29 Relation between Private, Small & OPC Private Company Small Company One Person Company
30 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 Section 230 and 232