The Ministry of Corporate Affairs (MCA) vide notification G.S.R. 464(E) dated 5th June, 2015 exempts private Companies from certain provisions of the Companies Act 2013. This notification was issued by exercising the powers conferred to the Central Government by clauses (a) and (b) of section 462(1) and in pursuance of section 462(2) of the Companies Act, 2013.
Actually, the provisions of section 462 of the Companies Act, 2013 gives power to the CG that it may by notification direct that any of the provisions of CA 2013 shall not apply to such class or classes of companies or shall apply to the class or classes of companies with such exceptions, modifications and adaptations as may be specified in the notification.
Exemptions to Private Companies
Definition of Related Party
For private companies, the definition of the term “related party” as provided in clause (76) of section 2 has been changed in relation to section 188 i.e. related party transactions.
Consequently, any contract or arrangement shall not be treated as related party transactions if such contract or arrangement is done between a private company with the:
1) Holding company of such private company; or
2) Subsidiary of such private company; or
3) Associate of such private company; or
4) A subsidiary of a holding company to which such private company is also a subsidiary.
Thus, there is no need to comply with the provisions of section 188 of CA 2013 for such transactions by any private company as such contract or arrangement shall not be treated as related party transactions. In other words, there is no need to receive the consent of Board of Directors of a private company by passing BR at BM for such transactions to comply with the provisions of section 188 of CA 2013.
Kinds of Share Capital
The provisions of section 43 of the Companies Act, 2013 shall not apply to a private company where memorandum or articles of association of the private company so provides.
That means the provisions related to kinds of share capital [Section 43 of CA 2013] shall not apply to a private company if and only if the memorandum or articles of association of such private company provides that this section shall not apply. Moreover, this section may be applicable with such modifications as provided in these documents. Consequently, a private company may have any kind of share capital in accordance with their articles.
As per section 43 of CA 2013, the share capital of a company limited by shares shall be of two kinds, namely (a) equity share capital (with voting rights or with differential rights) and (b) preference share capital.
Voting Rights
The provisions of section 47 of the Companies Act, 2013 shall not apply to a private company except when memorandum or articles of association of the private company so provides.
Accordingly, the provisions related to Voting Rights shall not apply to a private company where memorandum or articles of association of the private company provides that this section shall not apply to them. Thus, a private company may have shares with either voting rights or without voting rights or may have with differential rights as per their articles.
As per section 47 of CA 2013, every member of a company limited by shares and holding equity share capital therein, shall have a right to vote on every resolution placed before the company and his voting right on a poll shall be in proportion to his share in the paid-up equity share capital of the company.
Further issue of Share Capital
If at least 90% members of a private company gives their consent in writing or in electronic mode, the offer period for further issue of share may be less than the specified time limit i.e. Minimum 15 days and Maximum 30 days.
The offer for further issue of share of a private company shall be made to employees of such private company under a scheme of employees’ stock option by passing an Ordinary Resolution instead of Special Resolution.
Additionally, the notice for offering further issue of share of a private company may be dispatched to all the existing shareholders of such private company within less than the specified time limit i.e. 3 days before the opening of the issue.
Power to Purchase its own Shares
The provisions of section 67 i.e. restrictions on purchase by company or giving of loans by it for purchase of its shares shall not apply to a private company if:
1) No other body corporate has invested any money in the share capital of such private company;
2) If the borrowings of such private company from Banks or Financial Institutions or any Body Corporate is less than twice its paid up share capital or 50 crore rupees, whichever is lower; and
3) If such private company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.
Acceptance of deposits from public
The provisions of clauses (a) to (e) of sub-section (2) of section 73 of the Companies Act, 2013 shall not apply to a private company which accepts 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.
Notice of Meeting
The provision of section 101 shall apply to a private companies unless otherwise specified in that section or the articles of such companies provide otherwise.
That means, if a private company provides for the Notice of its General Meeting in the articles then the provision of section 101 of the Companies Act, 2013 shall not apply to such private company.
Statement to be annexed to notice
The provision of section 102 shall apply to a private companies unless otherwise specified in that section or the articles of such companies provide otherwise. That means, if a private company provides in its articles for the statement to be annexed to notice then the provision of section 102 of the Companies Act, 2013 shall not apply to such private company.
Quorum for meetings
If a private company provides in its articles for the statement to be annexed to notice then the provision of section 103 of the Companies Act, 2013 shall not apply to such private company.
Accordingly, the provision of section 103 shall apply to a private companies unless otherwise the articles of such companies provide otherwise.
As per clause (b) of sub-section (1) of section 103 of the Companies Act, 2013, if two members personally present shall be the quorum for a meeting of the company.
Chairman of meetings
The provision of section 104 shall apply to a private companies unless otherwise the articles of such companies provide otherwise.
Therefore, unless the articles of a private company otherwise provide, the members personally present at the meeting shall elect one of themselves to be the Chairman thereof on a show of hands.
Proxies
The provisions of section 105 shall apply to a private company unless otherwise specified in that section or the articles of the company provide otherwise.
In other words, the provisions of section 105 of the Companies Act, 2013 shall not apply to a private company if it is provided in the articles of the company.
As we know that any member of a company entitled to attend and vote at a meeting of the company shall be entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf.
Restriction on voting rights
The provisions of section 106 of the Companies Act, 2013 shall not apply to a private company if it is provided in the articles of the company.
In other words, the provisions of section 106 shall apply to a private company unless otherwise specified in that section or the articles of the company provide otherwise.
As per the provision of section 106 of the Companies Act, 2013, no member shall exercise any voting right in respect of any shares registered in his name on which any calls or other sums presently payable by him have not been paid, or in regard to which the company has exercised any right of lien.
Voting by show of hands
The provisions of section 107 shall apply to a private company unless otherwise specified in that section or the articles of the company provide otherwise.
In other words, the provisions of section 107 of the Companies Act, 2013 shall not apply to a private company if it is provided in the articles of the company.
Demand for poll
The provision of section 109 shall apply to a private companies unless otherwise specified in that section or the articles of such companies provide otherwise.
That means, if a private company provides in its articles for demand for a poll to be taken by the Chairman of the meeting on his own motion then the provision of section 109 of the Companies Act, 2013 shall not apply to such private company.
Resolutions and agreements to be filed
In accordance with the provision of section 117 (3) (g) of the Companies Act, 2013, a copy of every resolutions passed in pursuance of sub-section (3) of section 179 shall be filed with the Registrar within 30 days of the passing such resolution.
However, the resolutions passed by the Board of any private company as per the provisions of section 179 (3) are not required to be filed with Registrar by the private company as per Section 117.
Eligibility, qualifications and disqualifications of auditors
A person shall not be eligible for appointment as an auditor of a private company if he is in full time employment elsewhere or a person or a partner of a firm holding appointment as its auditor, if such persons or partner is at the date of such appointment or reappointment holding appointment as auditor of more than 20 companies other than one person companies, dormant companies, small companies and private companies having paid-up share capital less than 100 crore rupees.
That means the limit of 20 companies for appointment as an auditor in a private company shall not include:
a) One Person Companies (OPC);
b) Dormant Companies;
c) Small Companies; and
c) Private Companies having paid-up share capital less than 100 crore rupees.
Right of persons other than retiring directors to stand for directorship
As per the provisions of section 160 of the Companies Act, 2013, a person who is not a retiring director in terms of section 152 shall be eligible for appointment to the office of a director at any general meeting if he satisfy some conditions viz. sending 14 days’ notice and deposit 1 lakh rupees etc.
However, such provisions of section 160 relating to right of persons other than retiring directors to stand for directorship shall not be applicable for private companies.
Appointment of directors to be voted individually
With unanimous voting a proposal shall be agreed before the appointment of two or more directors by a single resolution as per section 162.
But, in case of a private company the provisions of section 162 of the Companies Act, 2013 related to the appointment of directors to be voted individually shall not be applicable.
Restrictions on powers of Board
The Board of Directors of a company shall exercise some specific powers viz. selling, leasing or disposing the undertaking of the company or investing other than in trust securities and borrow money etc. only with the consent of the company by a special resolution.
However, the provisions of section 180 of the Companies Act, 2013 related to the restrictions on powers of Board of directors shall not be applicable for a private company.
Disclosure of interest by director
As per the provisions of sub-section (2) of section 184 of CA 2013, every director of a company who is interested in a contract or arrangement shall disclose the nature of his concern or interest at the meeting of the Board and shall not participate in such meeting.
However, the interested directors of a private company may participate in such meeting after disclosure of his interest in accordance with the provisions of section 184 of the Companies Act, 2013.
Loan to directors
In compliance with the provisions of section 185 of CA 2013, no company shall advance any loan to any of its directors or to any other person in whom the director is interested or give any guarantee or provide any security in connection with any loan taken by him or such other person.
However, a private company may provide such loans or give such guarantees as mentioned in section 185 if:
1) Another body corporate has NOT invested any money in the share capital of such private company;
2) The borrowings of such private company from banks or financial institutions or any body corporate is less than twice of its paid up share capital or 50 crore rupees, whichever is lower; and
3) Such private company has no default in repayment of such borrowing subsisting at the time of making transactions under this section.
Related party transactions
In accordance with the second proviso of sub-section (1) of section 188 of the Companies Act, 2013, the member of the company shall NOT vote on resolution passed as per section 188(1), to approve any contract or arrangement which may be entered into by the company, if such member is a related party.
However, such provisions shall not apply to a private company and therefore the member of a private company can vote on such special resolution, to approve any contract or arrangement which may be entered into by the company, even if such member is a related party.
Appointment of managing director, whole-time director or manager
The provisions of sub-sections (4) and (5) of section 196 shall not be applicable for any private company.
Accordingly, there is no requirement that the terms and conditions for appointment of Managing Director (MD), Whole-time Director (WD) or Manager by a private company and remuneration payable shall be approved by the Board of Directors (BOD) at its meeting and by the Central Government (CG) in case such appointment is at variance to the conditions specified in Schedule V.
Note that CG also notified that the private companies, while complying with the all above mentioned exceptions, modifications and adaptations shall ensure that the interests of their shareholders are protected.
Such exceptions, modifications and adaptations to specific sections in relation to a private company has been made by CG in exercise of the powers conferred by clauses (a) and (b) of sub-section (1) of section 462 and in pursuance of sub-section (2) of said section of the Companies Act, 2013.