PROVISIONS
APPLICABLE TO PRIVATE LIMITED COMPANY
UNDER THE NEW COMPANIES ACT 2013:
A quick perusal of the Companies Bill 2013 shows that many exemptions
given to Private limited companies under Companies Act are withdrawn. . The
following provisions are applicable to Private limited companies under the new
Companies Bill 2013.
Maximum Number of members
There
is no change in the minimum number of member which is 2. The maximum number the
members in a private limited company are increased from 50 members to
200 members. (Clause 2 sub section
(68)).
Financial Year
for the Balance Sheet
Financial year of the balance sheet will be
31st march for all the companies.
For any relaxation approval from NCLT is
required. (Clause 2 sub section (41)).
Further
Issue of Shares
The exemption given to private limited
companies regarding further issue of shares is withdrawn. Further issue of
shares under section 81 applicable to both private
and public limited companies. Valuation of shares
shall be done based on the certificate issued by registered valuer
subject to such conditions as may be prescribed. (Clause 62)
Certification
for Annual Return
Annual Return must be certified by a Practicing company secretary and
requirement of compliance certificate by practicing company secretary is
dispensed with. The annual return should contain particulars like:
(a) The extract of the
annual return as provided under sub-section (3) of sec 92.
(b) Number of meetings of the Board.
(c) Directors’ Responsibility Statement;
(d)
A statement on declaration given by independent directors under sub-section.
And also PCS to certify
that all the provisions of the Companies Act has been complied with (Clause 92)
Number of days
of Notice of General Meetings.
For
private limited company as per the existing Companies Act is even seven days
notice is sufficient. This exemption is withdrawn. As per the New Provisions 21 clear days
notice has to be given to the shareholders and the notice can be given by
electronic mode also. (Clause 101).
Postal ballot
for passing the Resolutions
Till
now postal ballot is applicable only for listed companies. Postal ballot is
applicable to private limited companies also for certain transactions after
the amendment prescribed by the central government by
notification. (Clause 110).
Board Report to
give more details
The
Board report shall contain the following information (Clause 134(3)
(a) The extract of
the annual return
(b) Number of
meetings of the Board;
(c) Directors’
Responsibility Statement;
(d) a statement
on declaration given by independent directors
(e) Company’s
policy on directors’ appointment and remuneration
including criteria for determining qualifications, positive
attributes,
independence of a director and other matters if
required by
Section 178 provided under sub- section (3) of
section 178;
(f)
Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer
made—
(i)
by the auditor in his report; and
(ii) by the
company secretary in practice in his secretarial audit
report;
(g) Particulars
of loans, guarantee s or investments
(h) Particulars of contracts or
arrangements with related parties
referred to
in sub-section (1) of section 188 in the prescribed
form;
(i) The state of
the company’s affairs;
(j) The amounts,
if any, which it proposes to carry to any reserves;
(k) The amount,
if any, which it recommends should be paid by way
of dividend;
(l) Material changes and commitments, if any, affecting the financial position of the company which have occurred between
the end of the financial year of the
company to which the financial statements relate and the date of the report;
(m) The
conservation of energy, technology absorption, foreign
Exchange earnings
and outgo, in such manner as may be
prescribed;
(n) a statement
indicating development and implementation of a risk
management policy
for the company including identification
therein of elements of risk, if any, which in the opinion
of the
Board may threaten
the existence of the company;
(o) The details
about the policy developed and implemented by the
Company on corporate
social responsibility initiatives taken
during the
year;
(p) In case of a
listed company and every other public company
having such paid-up
share capital as may be prescribed, a
statement
indicating the manner in which formal annual
evaluation
has been made by the Board of its own performance
and that of
its committees and individual directors;
(q) Such other
matters as may be prescribed.
Corporate Social
Responsibility.
Every
company having net worth of rupees five hundred crore or more, turnover of
rupees one thousand crore or more or a net profit of rupees five crore or more
during any financial year shall constitute a Corporate Social Responsibility
(CSR) Committee of Board consisting of three or more directors, out of which at
least one director shall be an independent director and 2 per cent of the
average net profits of the immediately preceding three financial years should
be spent for CSR (Clause 135). Schedule
VII prescribes the activities to be included under Corporate Social
Responsibility which is given
below:
SCHEDULE VII
Activities which may be
included by companies in their Corporate Social
Responsibility Policies
Activities relating to:—
(i) Eradicating
extreme hunger and poverty;
(ii) Promotion of
education;
(iii) Promoting gender
equality and empowering women;
(iv) Reducing child
morality and improving maternal health;
(v) Combating human
immunodeficiency virus, acquired immune
deficiency syndrome,
malaria and other diseases;
(vi) Ensuring
environmental sustainability;
(vii) Employment enhancing
vocational skills;
(viii) Social business
projects;
(ix) Contribution to the
Prime Minister's National Relief Fund or any other
fund set up by the
Central Government or the State Governments for
socio-economic
development and relief and funds for the welfare of
the Scheduled Castes,
the Scheduled Tribes, other backward classes,
minorities and women; and
(x) such other matters as
may be prescribed.
Appointment of Auditors
A. An auditor will be
appointed in the first annual general meeting for a five-year term.
Thereafter, the auditor will be changed as per the members’ decisions.
b. Secondly, an audit firm
cannot be re-appointed for more than two five-year terms. (i.e. 10 years) For re-appointment purposes for the
individual auditor or audit firm, there has to be a gap of five years.
Moreover, for appointment or re-appointment purposes, there should be no common
partners between the new firm and old audit firm. Another interesting
clause is that members can resolve to ask the audit firm to rotate the audit
partner and team every year.
The company shall inform the
auditor concerned of his or its appointment, and also file a notice of such
appointment with the Register within fifteen days of the meeting in which the
auditor is appointed. Every
company shall comply with the requirements of this sub-section within three
years from the date of commencement of this Act. (Clause 139)
Appointment of Internal
Auditor
Such class or classes of companies as may be
prescribed shall be required to appoint an internal auditor, who shall either
be a Chartered Accountant or a Cost Accountant or such other professionals as
may be decided by the Board conduct internal audit of the functions and
activities of the company. (Clause 138).
Duties
of Directors
A. A director of a company shall act in
good faith in order to promote the object of the company.
B. A director of a company shall
exercise his duties with due care, skill and diligence.
C. A Director of a company shall not
assign his office and any assignments so
made shall be void.
D. If a director of the company contravenes
the provisions of this section such
director shall be punishable with fine which shall not be less than Rs.1,
00,000/- but which may extend to Rs.5, 00,000/- (Clause 166).
Borrowing Powers
The exemption given to private limited company for
borrowings under section.293 is withdrawn. Borrowing powers now require
approval by shareholders and applicable to both private and public limited
companies. (Clause180).
Loan and Investment
The exemption given to private
limited company under Section 372A regarding loan and investment is
withdrawn. Existing limit of 60% Paid up
capital and free reserves or 100% of free reserves applicable to both private
limited and public limited companies.(Exemption to private limited Company for
loan and investment under section372A is
removed now) (Clause 186).
Related party Transactions
Only with the
consent of the Board of Directors given by a resolution at a meeting of the Board and subject to such conditions as may be prescribed no company shall enter into any contract or arrangement with a
related party with respect to—
(a) Sale, purchase or supply of any goods or
materials;
(b)
Selling or otherwise disposing of, or
buying, property of any kind;
(c) Leasing of property
of any kind;
(d) Availing or rendering
of any services;
(e) Appointment of any agent for purchase or sale
of goods, materials,
services or product.
(f) Such related party's appointment
to any office or place of profit in the company, or its subsidiary
company or associate company.
No contract or arrangement, in the case of a
company having a paid-up share capital of not less than such amount, or
transactions not exceeding such sums, as may be prescribed, shall not be
entered into except with the prior approval of the company by a special
resolution. Further that no member of the company shall not vote on such special resolution to approve any contract or
arrangement which may be entered into by the company, if such member is a related
party. (Clause
188).
Loan to Directors
The
exemption given to the Private Limited Company under section 295 regarding loan
given to director of a private limited of company is withdrawn. Loan should not
be given to directors of any company including private limited company or to
any private company in which a director is a director or member (Clause 185).
Appointment of Key Managerial
Personnel
Appointment of Key Managerial Personnel – Every company
belonging to such class or description
of companies as may be prescribed shall have the following whole time Key
Managerial Personnel (Clause 203).
1.
Managing Director or
Chief Executive Officer or Manager and in
their absence
a Whole Time Director.
2. Company Secretary and;
3.
Chief Financial Officer.
Secretarial Audit Report
Every listed
company and company belonging to other class of companies as may be prescribed
shall annex with its Board’s report a secretarial audit report given by
Practicing Company Secretary in such form as may be prescribed. (Clause 204).
Director to stay in India for 182 days
Every company shall have at least one director
who has stayed in India for a total period of not less than one hundred and
eighty-two days in the previous calendar year. Every company existing on or
before the date of commencement of this Act shall, within one year from such commencement
or from the date of notification of the rules in this regard as may be
applicable, comply with the requirements of this provision (Clause 149(3)).
Board and Annual
General Meeting minutes
Hereafter the companies shall follow the Secretarial Standards while
making the minutes of Board and General Meeting. (Clause 118 (10))
Books of Accounts
The Books of Accounts may be kept
in electronic form also. (Clause 128)
Managing Director.
The exemption given to private limited company under section
269 for appointment of Managing Director is withdrawn. Provision relating to
the appointment of Managing Director is also applicable to the private limited
companies (Clause 196).
A comparison is made with respect to exemptions given in the
Companies Act, 1956 and new Companies Bill 2013. The following are the exemptions available to Private Limited
Companies in Companies Act 1956 and its status in New Companies Act 2013
S.No
|
Existing Section in
Companies Act, 1956.
|
Nature of
exemptions in the Companies Act, 1956.
|
Status in Companies
Act 2013
|
1.
|
Section 77(2)
|
Financial assistance can be
given for purchase of or subscribing for its own shares in its holding
company, Whereas not applicable to Public company
|
Clause 67 – Restrictions on purchase by Company or giving of
loans by it for purchase of its shares. Private limited company not
specifically mentioned in the clause. Hence exemption is available.
|
2.
|
Section 81(3)
|
Further shares can be issued
without passing special resolution or obtaining central government’s approval
and without offering the same necessarily to existing shareholders
|
Clause 62 – Further issue of shares now applicable to
Private limited Company also. Exemption
is withdrawn.
|
3.
|
Section 149(7)
|
Exemption from Certificate of Commencement of business
|
Clause 11 – Commencement of business declaration has to be
filed by Private Limited Company. Exemption
is withdrawn.
|
4.
|
Section 198(1)
|
No restriction on the payment of
Managerial Remuneration on net profits
|
Clause 197 – Overall maximum managerial remuneration
applicable to Public Company. For Private Limited Company this section is not
applicable. Exemption is withdrawn.
|
5.
|
Section 252(2)
|
Need not have more than two
directors
|
Clause 149 – Minimum two directors. There is no change in
the existing provisions. Exemption continues.
|
6.
|
Section 255(1)
|
A proportion of directors need
not retire every year
|
Clause 152 – The exemption continues but as per the AOA of
the Company.
|
7.
|
Section 257(2)
|
Statutory notice, etc., is not
required for a person to stand for election as a director
|
Clause 160 – Exemption
is withdrawn.
|
8.
|
Section 259
|
Central Government’s sanction is
not required to affect increase in the number of directors beyond 12 or the
number fixed by articles of association
|
Clause 149 – The Company to have Board of Directors.
Exemption given now to maximum of 15 Directors.
|
9.
|
Section 263(1)
|
In passing resolution for election of directors, all
directors can be appointed by a single resolution.
|
Clause
162 – Appointment of directors to be voted individually. Exemption is withdrawn. Single resolution for the appointment of
directors can be passed both by private and public company provided, a
proposal to move such a motion has first been agreed to at the meeting without
any vote
being cast against it.
|
10.
|
Section 264(3)
|
Consent to act as director need
not be filled with registrar
|
Clause 152 – Appointment of directors. Exemption removed.
Private Limited Companies also to file consent. Exemption is withdrawn.
|
11.
|
Section 269(2)
|
Central Government’s approval is
not required for appointment of managing or whole-time director or manager
|
Clause 196 – Exemption
is withdrawn. Applicable to Private Limited Companies
|
12.
|
Section 275 to 279
|
Restrictive provisions regarding
total number of directorships which any person may hold do not include
directorships held in private companies which are not subsidiary of public
company
|
Clause 165 – The maximum number of companies in which a
director can hold office is 20 companies. Out of this he can hold only up to
10 public companies. There is no restriction for private limited companies.
One can become director in 20 private limited companies. Exemption is withdrawn.
|
13.
|
Section 293(1)
|
Certain restrictions on powers
of board of directors do not apply
|
Clause 180 – Exemption
is withdrawn.
|
14.
|
Section 295(2)
|
Prohibition against loans to
directors does not apply
|
Clause 185 – Exemption
is withdrawn. Loan to directors applicable to private limited company
|
15.
|
Section 300(2)
|
Prohibition against
participation in board meetings by interested director does not apply
|
Clause 184 – Exemption
is withdrawn. Disclosure of directors interested applicable to private
limited company.
|
16.
|
Section 303(1)
|
Date of birth of director need
not be entered in the register of directors
|
Clause 170 – Register of directors and key managerial
personnel and their shareholding. Exemption
is withdrawn. Anybody can view the particulars of the directors through
their DIN numbers.
|
17.
|
Section 309(9)
|
There is no restriction on
remuneration payable to directors
|
Clause 197 – Overall maximum managerial remuneration
applicable to Public Company. For Private Limited Company this section is not
applicable. Exemption continues.
|
18.
|
Section 316(1)
|
No restriction on appointment of
managing director
|
Clause 203 – Appointment of Key Managerial Personnel. Exemption is withdrawn.
|
19.
|
Section 349
|
Provisions relating to method of
determination of net profits and ascertainment of depreciation do not apply
|
Clause 198 – Calculation of Profits. Exemption is withdrawn.
|
20.
|
Section 372(A)
|
No prohibition against purchase
of shares, etc., in other companies
|
Clause 186 – Exemption
is withdrawn. Applicable to Private Limited Companies
|
The following provisions which exempted private limited
companies have been deleted in the Companies Act, 2013.
S.No
|
Existing Section in
Companies Act, 1956.
|
Particulars
|
Status in Companies
Act 2013
|
1.
|
Section 70(3)
|
Statement in lieu of prospectus need not be delivered to
the registrar before allotting shares
|
No provisions exist
|
2.
|
Section 90(2)
|
Provisions as to kinds of share
capital (sec.85), further issue of share of capital(sec.86), voting
rights(sec 87), issue of shares with disproportionate rights (sec 88) and
termination of disproportionate excessive rights (sec 89)
|
No provision exist
|
3.
|
Section 165(10)
|
Exemption from Statutory Meeting and Statutory Report
|
No provision exist
|
4.
|
Section 170(1)
|
Articles of private company
having provisions relating to general meetings without being subject to the
provisions of sections 171 to 186
|
No provision exist
|
5.
|
Section 204(6)
|
Can appoint a firm or body
corporate to an office or place of profit under the company
|
No provision exist
|
6.
|
Section 266(5)
|
Restriction on appointment or advertisement of
directors as regards consent and qualification of shares does not apply.
|
No provision exist
|
7.
|
Section 268
|
No Central Government approval
to modify any provision relating to appointment of managing, whole-time or
non-rotational directors
|
No provision exist
|
8.
|
Section 273
|
No share qualification u/s 270
for Directors of a private company.
|
No provision exist
|
9.
|
Section 310
|
No Government approval for
change in restriction on remuneration to directors
|
No provision exist
|
10.
|
Section 311
|
No central government approval
for increase in the remuneration beyond specified limit of directors on an
appointment or reappointment
|
No provision exist
|
11.
|
Section 317(4)
|
No restriction on appointment of
managing director
|
No provision exist
|
12.
|
Section 350 & 355
|
Provisions relating to method of
determination of net profits and ascertainment of depreciation do not apply
|
No provision exist.
|
13.
|
Section 370(2)
|
No restriction on making loans
to other companies
|
No provision exist
|
14.
|
Section 388A
|
Provisions of sections 386 and
387, which restrict the number of companies of which a person can be
appointed as manger, remuneration of the manager, etc., and also provisions
of sections 269, 310,311,312 and 317, do not apply
|
No provision exist
|
15.
|
Section 409(3)
|
Central Government cannot
exercise its power to prevent change in board of directors which is likely to
affect the company prejudicially
|
No provision exist
|
16.
|
Section 416(1)
|
Person can enter into contract
on behalf of company as undisclosed principle and need not give intimation to
the other directors
|
No provision exist
|
In addition to the above Clause
190 of the Companies Bill 2013 regarding keeping of Contracts of employment
entered with whole time directors is not applicable to Private Limited
Companies.
Rules to clarify the clauses be to be published by MCA shortly:
The rules relating to annual
return, secretarial audit, Postal Ballot, Related Party Transactions, auditors,
etc will be notified by the Government shortly. Thereafter the clauses under
the new Companies Act will have more clarity.
Need
for Amendment of Articles of Association of private limited company:
Sec 171 to 186 sections which are
not applicable to Private Limited companies is now deleted in the Companies
Bill. Hence, after Companies Act, 2013,
comes into effect, it may require to
the article of association of Private Limited
by substituting the new set of article of association so that it will not
contain any contrary provision of the Companies
Act, 2013.
In view of the above the private
limited companies are to follow many provisions which are applicable now.
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