Exemption in Compliances to Private Companies

Exemption in Compliances to Private Companies - Jun 5, 2015. 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 CompaniesThe 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.
Note: Earlier, definition of “small companies” under the Companies Act, 2013 was revised by increasing their thresholds for paid up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”. This definition has, now, been further revised by increasing such thresholds for paid up Capital from “not exceeding Rs. 2 crore” to “not exceeding Rs. 4 crore” and turnover from “not exceeding Rs. 20 crore” to “not exceeding Rs. 40 crore”.
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:

Familiarize with the exemption: Read the notification or order issued by the government that details the exemption and the eligibility criteria.

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.

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.

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.

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:

Capital requirement – No amount of minimum paid up capital requirement per the amendment of the CA 2013.

Related party transaction – Per provisions of Section 188 of CA 2013 for certain transactions is not required to be complied with.

Share Capital – Private companies can have any kind of share capital in accordance with the articles of association.

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 2
Related 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)]

Section 3
Formation of Company.

Only two persons are required to form a Private Company. [Section 3(1)b]

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]

Section 39
Allotment of securities by Company

Requirement related to minimum subscription and minimum application money is not application

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.

Section 47
Voting rights

Provisions of sec 47 shall not apply where memorandum or articles of association of a Private Company so provides

Section 54
Issue of sweat equity shares

Not required to comply SEBI guidelines for issue of sweat equity shares

Section 62
Further 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]

Section 62
Further 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)]

Section 67
Restrictions 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:

in whose share capital no other body corporate has invested any money;

if the borrowings of such a Company from banks or financial institutions or anybody corporate is less than twice its paid up share capital or fifty crore rupees whichever is lower; and

such a Company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section.

Section 68
Power 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

Section 73
Prohibition 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)]

Section 93
Return 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

Section 101
Notice of meeting