The Ministry of Corporate Affairs exercised its powers under Section 462 and released a notification granting specific exemptions to private companies from the applicability of certain provisions of the 2013 Act. These exemptions will ease the regulatory requirements and compliances for a private company and would lead to more significant investments.
Exemptions To Private Companies
A. Related Party Transactions
The entities listed in Section 2(76)(viii) of the 2013 Act (i.e., the Group Companies) would not be regarded as related parties for Section 188. Consequently, private companies shall not be required to obtain the approval of the board or the shareholders to enter into a contract/ arrangement with a Group Company.
B. Loans To Directors And Other Interested Entities
One of the exemptions to private companies is that Section 185 will not apply to a private limited company if it satisfies the requirements as mentioned below-
- No other body corporate as the shareholder.
- The borrowings shall not exceed twice of the amount of paid-up share capital or INR 500 million whichever is lower; and
- No defaults in repayment of such borrowings at the time of making such transactions.
C. Restrictions Related To Purchase Of Own Shares
Other exemptions to private companies include exclusion from the applicability of provisions of Section 67. It should be noted that this is subject to various conditions. The company should not have anybody corporate shareholder, and the company borrowings from banks or financial institutions should not exceed twice the amount of paid-up share capital, or INR 500 million, whichever is lower. Further, there must be no subsisting defaults in repayment of such borrowings at the time of making the transactions.
D. Exemptions From Corporate Borrowings And Creation Of Charge On Assets Provisions
A private company is exempted from the applicability of provisions of Section 180 of the 2013 Act.
E. Shares With Differential Rights
Section 43 and Section 47 of the 2013 Act will not apply if the memorandum of association or the articles of association of such private company provides for the same.
Private companies are exempted from the requirements of Section 73(2) of the 2013 Act. Under Section 73(2) of the 2013 Act, the acceptance of deposits by a company from its members must be preceded by the members’ approval by way of ordinary resolution. There are some other mandatory requirements such as the issuance of circular and a statement showing the financial position of the company, creation of a deposit repayment reserve account, obtaining deposit insurance, a certificate from the directors that the company has not defaulted in repayment of deposits accepted etc.
One of the exemptions to private companies is from following Section 73(2) (a)-(e). Consequently, a private company is exempted from the above requirements provided that the amount of deposit accepted by the private company does not exceed 100% of the aggregate of paid-up capital and free reserves of the private company and the relevant filings with the Registrar of Companies has been made.
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G. Appointment Of Directors
A private company from the applicability of Sections 160 and 162 of the 2013 Act that lay down the procedure for the appointment of directors.
H. Filing Of Board Resolutions
According to Section 117(3)(g), the companies are required to file board resolution or any agreement with the Registrar of companies in pursuance of some issues contained under Section 179(3) of the Act. This is to make calls on shareholders in respect of money unpaid on their shares, authorising buy-back of securities under Section 68, issuance of securities, including debentures, whether inside or outside India and borrowing of funds etc. As per the notification of the government, Section 117(3)(g) shall not apply to the private companies.
I. Managerial Personnel
Private companies are exempted from the applicability of sub-sections (4) and (5) of Section 196 of the 2013 Act. Section 196(4) and 196(5) of the Act require the approval of the board at a meeting followed by support of members in the next general meeting for appointment of Managerial Personnel. The company is also expected to file the return on the selection of Managerial Personnel within 60 days from the appointment date.
J. Interested Directors
In private companies, an interested director may participate in the board meeting after disclosing his/her interest. However, such participation is subject to disclosures by the concerned director of his interest in the prescribed form.