MCA Exemption For Private Companies

The MCA has issued a draft notification dated 24/6/2014 inviting public comments thereon in respect of several proposals to give partial exemption to private companies from the rigorous compliance provisions of the Companies Act, 2013. The salient features of the draft proposals are :

1) Private companies are allowed to accept unsecured loans from their shareholders not exceeding 25% of the paid-up share capital and free reserves or 100% of free reserves, whichever is more, of course subject to disclosure requirements;

2) sections 101 to 107 and 109 regarding notice of general meeting, explanatory statement, quorum, chairman, proxies, etc. which were hitherto exempted for private companies are being restored;

3) The auditor limit of 20 companies is being removed for private companies, which means they can be appointed for as many private companies and the 20 company limit will be applicable only to public companies;

4) Section 160 regarding requirement of a notice proposing the nomination of a director in a general meeting alongwith fees thereof is being dispensed with;

5) Section 162 which is voting for appointment of directors individually is being done away with, which means more than one director can be appointed in one resolution in a private company;

6) section 180 the erstwhile section 293 – i.e. restrictions on the power of board of directors will not apply to private companies with less than 50 members;

7) Section 185 – loans to directors will not apply to private companies

(a) which have borrowings from banks or financial institutions or any bodies corporate not more than twice of their paid up share
capital or Rs. 50 crore, whichever is lower; and

(b) in whose share capital no other body corporate has invested any money”.

8) section 188 – related party transactions will not apply to private companies

9) section 203(3) is not made applicable to private companies – this sub-section provides for restricting the employment of a whole time key managerial personnel in more than one company except subsidiary companies.

Many of these proposals are not clear as yet so waiting for the final notification from the MCA. Please note that this is only a draft notification at the present stage and nothing in this draft notification shall apply unless the final notification is in place.