News & Blog

Private Companies Exemptions under the Companies Act, 2013

News & Blog

Private Companies Exemptions under the Companies Act, 2013

The Ministry of Corporate Affairs has made provisions of exemptions that are being enjoyed by the Private Companies. These were notified by the MCA on 5th June 2015 and some more were added to the list in the notification presented on 13th June 2017. The exemptions are provided for bringing a more comfortable environment to continue business by such companies.

A few of such exemptions are concerning

  1. Voting rights
  2. Eligibility of auditors
  3. Qualification and disqualification of auditors
  4. Disclosure of related party transactions
  5. Filing board resolution
  6. Right for directorship (excluding retiring directors)
  7. Appointment of directors
  8. Power of the board
  9. Prohibition on receiving deposits from the public
  10. Issue of capital shares
  11. Giving loans
  12. Restriction on purchase of own shares

The government has notified these exemptions in the Gazette as G.S.R. 464 (E) and G.S.R 583 (E) in 2015 and 2017 respectively.

Some of the majorly enjoyed exemptions are

  1. Power of Board

In a general scenario as per the Companies Act the Board of Directors requires the consent of shareholders for transactions like sales, disposal or even lease. This shall be done by passing a special resolution at a General Meeting. The exemption enjoyed by the private companies they do not require any such consent. They can refrain from any delays caused by the long procedures prescribed in the Act and the board can directly deal with matters concerning section 180 (1).

  1. Appointment of senior management

In general conditions as per the Companies Act, the appointment f the top management in a company i.e. the Managing Director, whole-time Director or even the manager requires the consent of shareholders in a general meeting. In case of failure to complying with the rule, the company requires to procure this consent from the central government and file a return for the appointment to the Rock. The exemptions provided to the private companies help them act more freely on matters related to Section 196 (4) and section 196 (5) the appointment of top management becomes much easier, relaxed and flexible. No approvals are required under the exemption.

  1. Eligibility of Auditors

In general conditions, an auditor who is either in fulltime employment or is dealing with more than 20 companies shall not have eligibility to be appointed as an auditor for a new company. The exemptions provide the facility to private limited companies with paid-up share capital of a minimum of Rs 100 Cr to appoint an auditor irrespective of the 20 audit limit under section 141 (3)(g). They can retain their statutory auditors. The exemption is also applicable to auditing firms and gives them the opportunity to enhance professional expertise by reaching more private companies.

  1. Related party transactions

In general conditions as per the Companies Act, a company to make any related party transactions requires the consent of the shareholders via a special resolution or the board’s approval. The exemptions have made provisions for the private companies to make transactions with subsidiaries, holding companies, associate companies or fellow subsidiaries without being considered as a related party transaction.

  1. Public Deposits

As per section 73 of the act, companies are allowed to accept deposits from members. The exemption provides private companies to refrain from accepting deposits from members which are less than 100% of its paid-up share capital along with the free reserves. Along with this the deposit received from the relatives of directors of the company shall provide a declaration that the amount has not been made available from loans or deposits from any other source.

  1. Resolution and Agreements

In general conditions as per the company’s Act, the companies are required to submit copies of the Board’s resolutions passed concerning Section 179 (3) with the RoC. The exemption provides the private companies to be more flexible as they are free from any such filings. Along with this the resolutions made with reference to

  1. Calls on unpaid shares
  2. Security buys back authorization
  3. Company’s fund investment
  4. Guarantee for loans
  5. Granting of loans
  6. Issuance of securities and debentures
  7. Financial statement for approval diversification
  8. Acquisition of another company
  9. Any other matter with reference to Rule number 8 of Companies (meetings of boards and its powers) rules 2014

Are not required to be filed with the RoC.

  1. Exemptions for Directors

The exemptions defined for private companies in the companies act concerning Directors deals with

  1. Loans to directors

In general conditions, the companies are not allowed to issue loans to any director or any person in whom the director shows interest.

The exemptions permit the private companies to provide loans to Directors only when

  1. No corporate shareholder is there in the lending company
  2. Borrowing of such a company from any financial institutes is not more than two times of the paid-up share capital of Rs 50 cr. Whichever has a lesser value
  • The company has never defaulted in repayments
  1. Appointment of directors

In general, conditions, if an individual is volunteering for directorship he/she shall deposit Rs 1 lakh and give a notice of 14 days. The exemption provides freedom from such conditions for volunteering for directorship although the rights reserved b retiring directors remain as it is.

The genial impact of exemptions has proven to make a work environment for private companies more relaxed and comforting. They have ease in making decisions on finances, appointments, and powers.

FAQs

What are the exemptions provided to private companies concerning?

The private companies have an added privilege of exemptions from certain matters from the MCA. They are concerning

  • Voting rights
  • Eligibility of auditors
  • Qualification and disqualification of auditors
  • Disclosure of related party transactions
  • Filing board resolution
  • Right for directorship (excluding retiring directors)
  • Appointment of directors
  • Power of the board
  • Prohibition on receiving deposits from the public
  • Issue of capital shares
  • Giving loans
  • Restriction on purchase of own shares

What exemptions apply to private companies concerning the appointment of top management?

In general conditions as per the Companies Act, the appointment f the top management in a company i.e. the Managing Director, whole-time Director or even the manager requires the consent of shareholders in a general meeting. In case of failure to complying with the rule, the company requires to procure this consent from the central government and file a return for the appointment to the Rock. The exemptions provided to the private companies help them act more freely on matters related to Section 196 (4) and section 196 (5) the appointment of top management becomes much easier, relaxed and flexible. No approvals are required under the exemption.

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