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Companies Act, 2013: Relief For Private Companies!

Published on Tue, Jun 09,2015 | 19:59, Updated at Tue, Jun 09 at 19:59Source : Moneycontrol.com 

By: Sai Venkateshwaran – Partner and Head, Accounting Advisory Services, KPMG in India

The Ministry of Corporate Affairs has finally issued the long awaited notifications under Section 462 of the Companies Act 2013 (2013 Act) granting exemptions from the requirements of certain section of the 2013 Act to private companies, government companies, Nidhis and companies with charitable objects, etc.  Section 462 of the 2013 Act provides that the Central Government may in the public interest direct that any of the provisions of this Act shall not apply to such class or classes of companies or shall apply with such exceptions, modifications and adaptations as may be specified.  

Coming almost 14 months after the 2013 Act was largely operationalized, these notifications provide a great relief to all these classes of companies that have had to deal with the more onerous provisions of the 2013 Act.  

The exemptions applicable to private companies have been examined below.

Related Party Transactions
As per the amended provisions, certain provisions applicable to transactions with related parties have been simplified.  Every related party, including an interested party, can now vote at a shareholder meeting on resolutions to approve related party transactions.  Further, for the purpose of complying with the requirements of Section 188, the definition of related parties has been pruned down to exclude holding company, subsidiary, associates, joint ventures and fellow subsidiaries.  

However, this might require closer evaluation as some of these entities might get covered through other indirect relationships, such as common directorships, etc.  

Further, while seeking Board approval on transactions in which a director is interested, the concerned director can also participate in the discussion, after disclosure of his interest.  

Lastly a private company is exempt from the provisions of Section 185, relating to loans to directors, provided (i) it does not have any shareholders who are body corporates; (ii) its borrowings from banks or financial institutions or anybody-corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and (iii) it has no default in repayment of such borrowing subsisting at the time of entering into loan transaction covered by this section.  

Share Capital
Where memorandum and articles permit, a private company will have flexibility on its share capital structure, ie, it will not be restricted to having only equity and preference shares.  Further, there are also relaxations on the provisions relating to issue of shares differential voting rights.  Further, unlike in case of public companies, preference shareholders in private companies will not have a right to vote on all shareholder resolutions even when their dividends have not been paid for a period of two years.  The provisions for issues of ESOPs has also been simplified with only an ordinary resolution being required for private companies.  

Further, a private company can now purchase its own shares or provide loans for purchase of its share, provided (i) it does not have any shareholders who are body corporates; (ii) its borrowings from banks or financial institutions or anybody-corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and (iii) it has no default in repayment of such borrowing subsisting at the time of entering into such transaction.  

Fixed Deposits
The process for accepting fixed deposits has also been simplified for private companies, wherein for acceptances for an amount upto 100% of their paid up capital and free reserves, the company need not issue a circular with financial statements and credit rating, etc, and the company is also exempt from the requirement of maintaining a deposit repayment reserve account with a balance of atleast 15% of the amount of deposits maturing during that financial year and the following year.

Shareholder And Board Meetings
The requirements of the 2013 Act in section 101 to 107 and 109 relating to holding of shareholder meetings, including those on notice of meeting, statement to be annexed to the notice, quorum for meetings, chairman of meetings, proxies, restrictions on voting rights, voting by show of hands and demand for poll will not apply to a private company if the articles of association provide otherwise.

Further, the resolutions passed by the Board as per Section 179 (3) are not required to be filed with Registrar by a private company, thereby exempting private companies from having to file resolutions relating to sensitive and confidential decisions.  

There have been relaxation on the process for persons other than retiring directors to stand for directorship and on voting on directorships individually.  Further, the restrictions under section 180 on the powers of the board, which were exercisable only with the consent of the company by special resolution have also been removed for private companies.  

Auditor Appointments
For appointment of auditors by private companies, when determining the eligibility of the auditor and the applicable limit of 20 companies, only companies other than one person companies, dormant companies, small companies, and private companies having paid-up share capital less than one hundred crore rupees need to be considered.  However from the way the provisions are drafted it appears that no relief would be available to auditors who audit public companies.

 
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