{"id":16478,"date":"2020-09-17T12:22:59","date_gmt":"2020-09-17T06:52:59","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=16478"},"modified":"2021-03-17T15:45:49","modified_gmt":"2021-03-17T10:15:49","slug":"exemptions-for-private-limited-companies-online","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/exemptions-for-private-limited-companies-online\/","title":{"rendered":"A Guide on Exemptions for Private Limited Companies"},"content":{"rendered":"\n<p class=\"has-drop-cap\">The Companies Act states that if you intend to establish a private limited company, you do not need availing the commencement certificate of the business. The Act further states that there is no need to arrange any board meeting or file a statutory file with the registrar of companies. Since <a href=\"https:\/\/corpbiz.io\/company-registration\"><strong>private limited companies<\/strong><\/a> have fewer resources, they do not need to procure paid-up capital to establish the business. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Overview on Advent of the Companies Act of 2013<\/h2>\n\n\n\n<p>The advent of the Companies Act of 2013 has\nbrought some break through changes for the private limited company. However,\nthis act had to remove plenty of exemptions from the previous act i.e.\nCompanies Act 1956. Although the previous act was supposed to provide solid\nground for private limited companies, it revolves around a few limitations. <\/p>\n\n\n\n<p>The article would explain the list of exemption offered by the modified act to the private limited companies. The exemptions which you would find in this article are based on the ground of a notification issued on 5\/6\/2015.&nbsp; The MCA (<em><strong>Ministry of Corporate Affairs<\/strong><\/em><sup><a href=\"http:\/\/www.mca.gov.in\/\"><em><strong>[1]<\/strong><\/em><\/a><\/sup>) has also made some significant changes in the incorporation rules 2014, which eventually come into effect on 1\/1\/2017. So without any further ado, let&#8217;s get on with the Exemptions for Private Limited Companies.<\/p>\n\n\n\n<div class=\"wp-block-image\"><figure class=\"aligncenter\"><img decoding=\"async\" width=\"727\" height=\"522\" src=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/09\/image-70.png\" alt=\"Overview on Advent of the Companies Act of 2013\" class=\"wp-image-16496\" srcset=\"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/09\/image-70.png 727w, https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2020\/09\/image-70-300x215.png 300w\" sizes=\"(max-width: 727px) 100vw, 727px\" \/><\/figure><\/div>\n\n\n\n<h2 class=\"wp-block-heading\">List of Exemptions for Private\nLimited Companies<\/h2>\n\n\n\n<p>Previously the privately-owned company was\nset up based on minimum paid-up capital i.e. 1, 00,000 Rs. But such a\nrequirement has now been withdrawn after the arrival of the aforesaid amendment\nin Companies Act, 2013. The amendment has slashed down this threshold limit to\nzero. The notification was issued under the central ministry\u2019s guidance, and it\ndemonstrates the revision of the given provisions.<\/p>\n\n\n\n<ul><li>Related party transactions<\/li><li>Public deposits<\/li><li>Share capital<\/li><li>Agreements and resolutions<\/li><li>Meeting Requirements<\/li><li>Senior Management Appointment <\/li><li>Directors<\/li><li>The auditor eligibility<\/li><li>Power of the board<\/li><\/ul>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/private-limited-company-incorporation-in-india\/\">Steps for Private Limited Company Incorporation In India<\/a><\/mark><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Related\nParty Transactions<\/h3>\n\n\n\n<p>According to the Companies Act of 2013,\ncompanies were under the obligation to raise the board&#8217;s approval regarding the\nrelated party transactions. The Act has undergone some changes concerning the\ndefinition of the term &#8220;Related party&#8221; cited in Clause 76 of Section\n2 has been amended in the context of Section 188 of the Company Act. Here the\nprivate company transaction with exempted entities and won\u2019t be deemed as \u201crelated\nparty transaction\u201d. <\/p>\n\n\n\n<p>Thus,\nany agreement between exempted entities and a private company won\u2019t lure the\npermission of BOD or shareholders. In short, the private company would no\nlonger have to ensure conformity with the provisions of Section 188 of CA 2013\nfor such transactions. <\/p>\n\n\n\n<p>It\u2019s\nimperative to note that although exempted entities are no longer included under\nthe definition of a \u2018related party,\u2019 the Director of the holding companies will\ncontinue to exist in the scope of related parties. Furthermore, private\ncompanies shall continue to abide by the compliances with respect to disclosure\nof the related party transactions. Additionally, the provisions cited under\nSection 188 with respect to limitations on the related party shareholders have\nbeen amended. Now the related parties are eligible to cast a vote at the\ngeneral meeting for a resolution to authenticate any agreements between related\nparties and the company. <\/p>\n\n\n\n<p>Such\nExemptions for Private Limited Companies would let the entities avert any\ntransaction routed into by a private company with its associate companies\nrelated to party transactions. The consent for related parties voting provides\nrelaxation to the privately owned firms having disinterested members. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Public\nDeposit <\/h3>\n\n\n\n<p>The\nCompanies Act of 2013 permits the companies to accept the deposit from its\nmember but under prescribed conditions of Section 73.The aforesaid amendment has relived such a burden from the private\nlimited company. It means that the entities would no longer have to comply with\nthe provision of Section 73 of the Act. Furthermore, these entities are\nrequired to file details of such deposit with the Registrar of the companies. <\/p>\n\n\n\n<p>Additionally,\nthe amendment also withdraws the provisions that avert the acceptance of\ndeposit from the director\u2019s relative. As of now, the private limited companies\nare eligible to accept deposits from such a person only if the fund is not\nraised via a credit scheme from the financial institutions. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Share\nCapital <\/h3>\n\n\n\n<p>Section\n43 of the Companies Act, 2013, facilitates the provision that permits the\ncompanies to use only two classes of shares i.e. equity shares and preference\nshare capital. Equity shares irrespective of differential rights to dividend,\nvoting was permitted which is subjected to conditions. Section 47 allowed the\nequity shareholder to cast a vote on all resolutions. Meanwhile, preference\nshareholders are permitted to cast a vote only on a resolution associated with\ntheir rights or the fate of the company. <\/p>\n\n\n\n<p>Such\nExemptions for Private Limited Companies advocates the non-applicability of the\nabove clauses if the MOA and AOA of the private limited company enclose the\nsame prerequisite. Thus the privately-owned firm can possess any class of share\ncapital as per their articles. <\/p>\n\n\n\n<p>The\nexemption would allow the private limited companies to render special classes\nof share to the investors and also help them to raise the capital. Some experts\neven claimed that such exemptions for the private limited companies would also\nease out the share\u2019s structuring process. Furthermore, it also aids in framing\nthe returns to foreign investors. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Meeting\nRequirement <\/h3>\n\n\n\n<p>The provisions for conducting the general\nmeetings for a private limited company weren\u2019t independently disclosed in the\nAct. However, the previous Act i.e. Companies Act, 1956 facilitates the\nprovisions that help the companies to arrange the general meetings on their own\nterm. In anyway, the Exemptions for Private Limited Companies under the\nnotification has overcome that constraint by allowing the company to use its\nown procedure related to the general meetings\u2019 arrangement. However, to avail\nsuch relaxation, the company needs to incorporate the provision in its AOA. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Power\nof Board <\/h3>\n\n\n\n<p>Section 180 (1) of the Company Act, 2013\nstates that the BOD of the company is required to raise the approval of the\nshareholders via special resolutions at the general meeting for particular\ntransactions such as lease, sale, compensation arise due to merger or the\namalgamation in securities. The BOD must also seek shareholder\u2019s approval in\nthe case procurement of funds exceeding the company\u2019s paid-up share capital. <\/p>\n\n\n\n<p>But, after the arrival of the notification\nmentioned above, the private limited companies have been isolated for such\nrequirement, which means that they are no longer have to abide by the provision\nof the Section above of the Act. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Hiring\nof the Senior Management <\/h3>\n\n\n\n<p>Section 196(4) of the Company Act, 2013,\nhiring of senior management cannot be done without the shareholder\u2019s consent.\nThe appointment should be in accordance with terms and conditions cited under Schedule\nV of the 2013 Act. <\/p>\n\n\n\n<p>If\nthe company fails to obliged by the aforesaid act then in such a case, the\ncompany was supposed to avail the government&#8217;s approval for such an\nappointment. As per Section 196(5) of the Act<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Agreements\nand Resolutions<\/h3>\n\n\n\n<p>As\nper Section 117 (3)(g) of the Companies Act, 2013, the privately-owned firm is\nrequired to file Board resolution\u2019s copy sanctioned for a specific matter with\nrespect to section 179(3) of the Act with the ROC (Registrar of Companies).\nAfter the advent of the notification, such constraints have been withdrawn from\nthe said Act.&nbsp; <\/p>\n\n\n\n<p>That\nmeans the privately-owned companies are no longer liable to file such\nresolution with ROC. As a result of that, the resolution associated with\nsecurity buyback authorization, making calls on the share (unpaid), approval of\nfinancial statement, granting of loans, merger or acquisition, or any other\nmatters concerning Rule 8&nbsp; doesn&#8217;t need\nto file with ROC. The privately-owned firms are now not liable to file MGT-14\nwith ROC on several provisions&nbsp; U\/s\n179(3) and rule 8 of the Companies Rules, 2014.<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Auditing\nEligibility<\/h3>\n\n\n\n<p>Section 114 (3)(g) of the Companies\nauditors\u2019 appointment in a private limited company states that an auditor\nserving full-time employment elsewhere or a person of a company holding\nappointment is not eligible to be employed as an auditor if he\/she holds 20\nappointment offers at the date of appointment. Such limitation was applied to\nthe partner, partnership-oriented companies, and auditing firms.&nbsp; These constraints have been withdrawn of the\nCompany Act after implementing the new provisions that were rolled out via\nnotification released in 2015. Now the companies are under no legal obligation\nto serve such an act. <\/p>\n\n\n\n<p>Companies having paid-up capital of less\nthan INR 100 Crore are eligible to appoint its auditor regardless of the limit\ndescribed above under Section 141(3)(g). Moreover, this would also permit the\ncompanies to retain their auditors as long as possible. <\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Directors<\/h3>\n\n\n\n<p><em>The exemption in such an area has been made on the following grounds. <\/em><\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Director Appointment <\/h4>\n\n\n\n<p>Section 160 of the act states that the\nperson who intends to hold a position of director is required to serve two\nweeks\u2019 notice and deposit Rs 1 lakh. However, the retiring directors need not\nfulfill such a requirement. The Act is modified by revamping this requirement,\nand a person can stand in for directorship without addressing the conditions\ndescribed above. However, the right of the retiring directors in this context\nremains unchanged. <\/p>\n\n\n\n<p>Section 162 of the Act illustrates that the\nappointment of the two or more directors must be done through independent\nvoting. The act also emphasizes that such an appointment should not be\naddressed via a single resolution. Such limitation under Section 162 has been\nwithdrawn from the said act, and now the companies are required to comply with less\ncompliance with respect to the directors\u2019 appointment. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Disclosure of the concern by director<\/h4>\n\n\n\n<p>Section 184(2) of the Act states that the\ncompany\u2019s director liable to share their nature of interest with whom a\ncontract is entered regardless of their nature of association with that\ncompany. Such directors are not permitted to attend board meetings discussing\nsuch arrangements or contracts. The provision seemed to be stringent in nature,\nespecially for the companies having more than one director. <\/p>\n\n\n\n<p>Such limitation has been laid down for such\ndirectors who are associated with body corporate in one way or another and hold\nmore than 2% shareholding of the same. The exemption rolled out via\nnotification fix this issue by permitting the interested director to attain the\nboard meeting after disclosing the interest. <\/p>\n\n\n\n<h4 class=\"wp-block-heading\">Loan to directors <\/h4>\n\n\n\n<p>According to the Sec. 185 of the Companies\nAct, 2013, the company is not permitted to disburse financial credit\/ loan to\nany of its directors or individual to which the director is willing to render\nfinancial aid. The Section also limits the company&#8217;s action to render any\nsecurity or guarantee in the context of the financial credit availed by the\ndirector or related parties. <\/p>\n\n\n\n<p>The notification for exemptions permitted\nprivate companies for granting such a loan which is subject to conditions\napplicable for purpose of exemption offered to the private limited companies\nfrom the provisions of Section 73 and is as follows:-<\/p>\n\n\n\n<ul><li>No other corporate body such as\nshareholder in lending company;<\/li><li>If any sort of borrowings of\nsuch a company from the financial institutions or Banks or anybody corporate is\nless than twice of its paid-up share capital or 50 Cr. rupees, whichever is\nlower in amount; <\/li><li>Such a company has no\ndefault\/void in the repayment of such borrowings evolving and subsisting at the\ntime of making transactions.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p>The private limited company is still regarded as the most profitable business model both in terms of reliability and compliance. The contribution of private limited companies in the country\u2019s development is unparalleled, and that\u2019s why the majority of the startups are more inclined toward this business model. The aforesaid exemptions for Private Limited Companies are likely to attract more startups in years to come and probably boost the rate of the development. The previous act has many limitations for private limited companies, and but with the release of the notification on 5\/6\/2015, everything seems to come on track.  <\/p>\n\n\n\n<p class=\"text-left\"><b>Read our article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/procedure-for-registration-of-private-limited-company-india\/\">Private Limited Company Registration Procedure in India<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>The Companies Act states that if you intend to establish a private limited company, you do not need availing the commencement certificate of the business. The Act further states that there is no need to arrange any board meeting or file a statutory file with the registrar of companies. Since private limited companies have fewer [&hellip;]<\/p>\n","protected":false},"author":22,"featured_media":16482,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[1,154],"tags":[1005],"acf":{"service_id":"1"},"authorName":"Pankaj Tyagi","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/01\/MicrosoftTeams-image-42.jpg","authorDescription":"Pankaj has a diverse experience of writing research papers, blog, and articles during his college time. Earlier, he was working as a tax consultant in a financial firm, but his interest in writing drives him to pursue a career in the writing field.","postViews":7978,"readingTime":7,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/16478"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/22"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=16478"}],"version-history":[{"count":12,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/16478\/revisions"}],"predecessor-version":[{"id":27638,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/16478\/revisions\/27638"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/16482"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=16478"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=16478"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=16478"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}