Introduction
The introduction and commencement of Companies Act, 2013 from 1st April 2014 brought great impact and increase in the compliance requirement of Companies. Therefore, it’s difficult for the Private Company to continue and for people to incorporate new Companies But there has been an exemption granted by the government as on June 5, 2015, and made available to eligible Private limited companies as a means of reducing the "compliance pressure and promoting ease of doing business in India" being Startups
Exemption for Private Limited Companies Effective from "5th June 2015"
The implementation of the Companies Act, 2013 in a phased manner from 12th September 2013 brought about significant challenges for private limited companies. Numerous provisions applicable to listed public companies were also imposed on private companies, causing hardships for stakeholders. In response to the representations made by these stakeholders, the Ministry of Corporate Affairs (MCA) addressed these concerns by providing several exemptions through the Companies (Amendment) Act, 2015 and subsequent notification on 5th June 2015. While these exemptions were a step in the right direction, there remain certain areas where additional relief is deemed necessary for private limited companies. This white paper aims to outline the major exemptions available to private limited companies, as periodically issued by the MCA.
Relief for Private Limited Companies
The MCA recognized the challenges faced by private limited companies under the Companies Act, 2013 and took steps to alleviate their burdens. Through the Companies (Amendment) Act, 2015 and subsequent notification, the MCA provided crucial exemptions to private limited companies. These exemptions aim to streamline compliance requirements, reduce administrative burdens, and facilitate smoother operations for private companies. By understanding these exemptions, private limited companies can effectively navigate the regulatory landscape and capitalize on the benefits provided.
Covering Major Exemptions
This white paper serves as a comprehensive guide, detailing the major exemptions granted to private limited companies by the MCA. It highlights the key areas where private companies have been granted relief from stringent provisions, enabling them to focus on their core business activities. By staying informed about these exemptions, private limited companies can make informed decisions and optimize their operations within the regulatory framework.
To utilize this exemption, one needs to know the specific terms and conditions outlined in the exemption and ensure that the Company meets the eligibility criteria.
Definitions:
1.1 Private Company:
The term "private company" refers to a company with a minimum paid-up share capital [Omitted] as prescribed. A private company, as defined by its articles, (i) limits the right to transfer its shares, (ii) except in the case of a One Person Company, restricts the number of its members to two hundred. However, if two or more persons jointly hold one or more shares in a company, they will be treated as a single member. Furthermore, certain individuals, such as current or former employees of the company, are excluded from the member count. Finally, (iii) a private company prohibits any public invitation to subscribe for its securities.
1.2 Small Company:
The term "small company" refers to a company, excluding a public company, that meets the following criteria: (i) the paid-up share capital does not exceed 4 Crores rupees; and (ii) the turnover, as per its last profit and loss account, does not exceed 40 crore rupees.
However, certain exceptions apply, such as holding companies, subsidiary companies, companies registered under Section 8, or companies governed by special acts.(Covered under other than small Company)
1.3 Start-up Company:
A "start-up company" is a private company incorporated under the Companies Act, 2013 (18 of 2013) or the Companies Act, 1956 (1 of 1956) and recognized as a start-up.
Here are a few steps to help you utilize the exemption:
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Familiarize with the exemption: Read the notification or order issued by the government that details the exemption and the eligibility criteria.
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Determine Company's eligibility: Check if your Private limited Company meets the criteria outlined in the exemption, such as minimum paid-up capital, number of employees, etc.
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Compliance with other applicable laws: Note that the exemption may not cover all compliances and your Company may still be required to comply with other applicable laws and regulations.
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Keeping records: Maintain records of your Company's compliance with the exemption and any supporting documents, such as the notification or order, to demonstrate your eligibility for the exemption.
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Review regularly: It is important to regularly review your Company's eligibility for the exemption and ensure continued compliance with the terms and conditions.
Highlights of some Amendments:
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Capital requirement – No amount of minimum paid up capital requirement per the amendment of the CA 2013.
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Related party transaction – Per provisions of Section 188 of CA 2013 for certain transactions is not required to be complied with.
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Share Capital – Private companies can have any kind of share capital in accordance with the articles of association.
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Auditor – Per Section 141(3)(g) of the Companies Act of 2013, Private companies are allowed to retain the same statutory auditor.
The Private limited companies are required to have less compliance with regards to the provisions of the Companies Act, 2013 as listed below:
|
Sections applicable |
Description with amendment |
|
Section 2Related party |
Provision of section 2 (76) (vii) i.e., Holding, subsidiary or an associate Company or a subsidiary of holding Company to which it is also a subsidiary (fellow subsidiary) will not be considered as related party for the purpose of section 188. [Section 2(76)(viii)] |
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Section 3Formation of Company. |
Only two persons are required to form a Private Company. [Section 3(1)b] |
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A Private Company other than a Company registered under section 8 of the Act having paid up share capital of Rs 50 lakhs or less or average annual turnover during the relevant period is Rs 2 crore or less may convert itself into one person Company by passing a special resolution in the general meeting. [Section 3 read with rule no 7 of the Companies (Incorporation) Rules, 2014] |
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Section 39Allotment of securities by Company |
Requirement related to minimum subscription and minimum application money is not application |
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Section 43 Kinds of share capital |
Provisions of sec 43 shall not apply where memorandum or articles of association of a Private Company so provides. |
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Section 47Voting rights |
Provisions of sec 47 shall not apply where memorandum or articles of association of a Private Company so provides |
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Section 54Issue of sweat equity shares |
Not required to comply SEBI guidelines for issue of sweat equity shares |
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Section 62Further issue of share capital |
A Private Company is not required to comply with the provision with respect to the minimum time period to open an offer and dispatch of offer notice through registered post or speed post or through electronic mode if 90% of the members of a Private Company have given their consent in writing or in electronic mode. [Section 62 (1) (a) (i) & 2] |
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Section 62Further issue of share capital |
A Private Company can offer shares to employees under a scheme of employees’ stock option by passing ordinary resolution instead of a special resolution. [Section 62 (1) (b)] |
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Section 67Restrictions on purchase by Company or giving of loans by it for purchase of its shares. |
Provisions of Section 67 shall not be applicable to Private Companies:
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Section 68Power of Company to purchase its own securities |
Not required to comply SEBI guidelines for issue of sweat equity shares, file declaration of solvency and return of buy-back with SEBI |
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Section 73Prohibition on acceptance of deposits from public |
The provisions relating to acceptance of deposits shall not apply to a Private Company which accepts deposits from its members monies not exceeding 100%, of aggregate of the paid-up share capital and free reserves, and such Company shall file the details of monies so accepted to the Registrar in such manner as may be specified [Section 73(2) (a) to (e)] |
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Section 93Return to be filed with the Registrar in case promoter’s stake changes |
Not required to file return of changes in shareholding of promoter and top ten shareholders with the Registrar |
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Section 101Notice of meeting |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 102Statement to be annexed to notice |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 103Quorum for meetings |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 104Chairman of meetings |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 105Proxies |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 106Restriction on voting rights |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 107Voting by show of hands |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 108Voting through electronic means |
Not required to provide facilities to members to exercise their right to vote at general meetings by electronic means. [Section 108 read with rule 20(1) of the Companies (Management and Administration) Rules, 2014] |
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Section 109Demand for poll |
Shall apply unless otherwise specified in section or the Articles of the Company provide otherwise |
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Section 110Postal ballot |
Not required to pass mandatory business by way of postal ballot. [Section 110 read with Rule 22(16) of the Companies (Management and Administration) Rules, 2014] |
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Section 117Resolutions and agreements to be filed |
Board resolution passed u/s 179 (3) are not required to be filed with Registrar in MGT-14 [Section 117 (3) (g)] |
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Section 120Maintenance and Inspection of documents in electronic form |
Not required to maintain records in electronic format [Section 120 read with Rule no 27 (1) of the Companies (Management and Administration) Rules 2014] |
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Section 121Report on annual general meeting (AGM) |
Not required to file report on annual general meeting with Registrar |
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Section 134Financial Statement, Board's report, etc |
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Section 136Right of member to copies of audited financial statement |
Not required to place its financial statement including the consolidated financial statement along with all other documents required to be attached or annexed to, on its website, if any. |
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Section 149Company to have Board of directors (BOD) |
Not required to have a woman director on its Board. [Section 149 read with rule 3 of The Companies (Appointment and Qualification of Directors) Rules, 2014] |
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Not required to appoint an independent director on its Board. [Section 149 read with rule 4 of The Companies (Appointment and Qualification of Directors) Rules, 2014] |
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Required to have only two minimum directors. |
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Section 152Appointment of directors |
No requirement of retirement by rotation of directors at Annual General Meeting. |
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Section 160Right of persons other than retiring directors to stand for directorship |
Shall not apply |
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Section 161Appointment of additional director, alternate director and nominee director |
Not required to fill a casual vacancy in a meeting of its Board. |
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Section 162Appointment of directors to be voted individually |
Shall not apply |
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Section 164Disqualifications for appointment of director |
Can provide for additional grounds for disqualification of a director in its articles of association. |
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Section 167Vacation of office of director |
Can provide for additional grounds for vacation of office of a director in its articles of association .[Section 167(4)] |
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Section 177Audit committee |
Not required to constitute an audit committee. [Section 177 read with rule 6 of the Companies (Meeting of Board and its powers) Rules, 2014] |
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Section 178Nomination and remuneration committee and stakeholder’s relationship committee |
Not required to constitute a Nomination and remuneration committee. [Section 178 read with rule7 of the Companies (Meeting of Board and its powers) Rules, 2014] |
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Section 180Restrictions on powers of Board |
The Board of Directors can exercise the powers prescribed u/s 180 without passing a special resolution. |
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Section 184Disclosure of interest by director |
The Directors may participate at the meeting of the Board in which the contract or arrangement is discussed after disclosure of his interest. [Section 184 (2)] |
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Section 185Loan to Directors |
Shall not apply to a Private Company -
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Section 188Related party transactions |
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Section 190Contract of employment with managing or whole-time directors |
The provisions of this section shall not apply to a Private Company. |
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Section 196 Appointment of managing director whole-time director or manager (WTD/MD) |
Compliance of Schedule V along with approval of shareholders & Central Government is not required for appointment of managing director, manager and whole time director and no returns need to be filed with the Registrar for this purpose. [Section 196 (4) & (5)] |
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Section 197Overall maximum managerial remuneration and managerial remuneration in case of absence or inadequacy of profits |
[Section 197 read with Rule no 5(1) of the Companies (Appointment and payment of managerial remuneration) 2014] |
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Section 203Appointment of key managerial personnel (KMP) |
Not required to appoint key managerial personnel except Company Secretary. [Section 203 read with rule 8 & 8A of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014] |
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Section 204Secretarial Audit for bigger companies |
Not required to get a secretarial audit conducted. [Section 204 read with rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014] |
In India, many Start-ups are formed as Private limited companies, and it is evident that the government of India has enormous expectations of the startup community and is willing to make changes to support and accommodate them.
The exemptions provided by the MCA through the Companies (Amendment) Act, 2015 and subsequent notification dated 5th June 2015 have alleviated some of the challenges faced by private limited companies under the Companies Act, 2013. However, there is still scope for further exemptions to address the unique needs of private companies. This white paper aims to provide a comprehensive overview of the significant exemptions available to private limited companies, as issued by the MCA. By staying abreast of these exemptions, private limited companies can navigate the regulatory landscape with ease and focus on their growth and success.
Due Dates for Private Company Annual Compliance Calendar- Every Year after the Closure of the F.Y.-
| S. No. | Due Date of Meeting | Agenda/Event | Particulars | Forms | Due Date |
|---|---|---|---|---|---|
| 1 | 30th June | Filing of return of deposits | If there is any deposit in company | DPT-3 | 30th June |
| 2 | 30th September | Filing - Balance Sheet | Preparation, certification, and filing of AOC-4 | AOC-4 | 30th October |
| 3 | 30th September | Filing of Annual Return | Preparation of Annual Return, MGT-7/7A | MGT-7 | 30th November |
| 4 | 30th September | Filing of Auditor Appointment | Preparation and filing of ADT-1 | ADT-1 | 14th October |
Applicable Forms-
| S. No. | Particulars of Documents | ROC-Form | Time Period |
|---|---|---|---|
| 1 | Balance Sheet | AOC-4/AOC-4 CFS If any | Within 30 days of AGM |
| 2 | Profit & Loss Account and Cash Flow Statement (Only for other than Small Co.) | AOC-4 | Within 30 days of AGM |
| 3 | Details of Subsidiaries. Pursuant to first proviso to sub-section (3) of section 129 read with rule 5 of. Companies (Accounts) Rules, 2014 | AOC-1 | Within 30 days of AGM |
| 4 | Annual Return | MGT-7/ MGT-7A | Within 60 days of AGM |
| 5 | Appointment of Auditor | ADT-1 | Within 15 days of AGM |
Note: The due date for an OPC (One Person Company) to file its annual financial statements and annual return is within 180 days from the closure of the financial year.
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