COMPANIES ACT 2013 – Private Companies- Draft Notification

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Comparative analysis of Companies act 1956 and Companies act 2013

COMPANIES ACT 2013 – PRIVATE COMPANIES – DRAFT NOTIFICATION

On perusal of the Companies Act 2013, many provisions applicable to the private companies were onerous for the smooth functioning of a company. The Draft Notification by the Ministry of Corporate Affairs dated 24-06-2014 is in the welcome direction of conducting business rather than getting entangled in compliances. Let’s have a look at the proposed changes in the notification applicable for private limited companies in India:

SN    Chapter/ Section number/ Sub-section(s) in the Companies Act, 2013 Exceptions/ Modifications /Adaptations
 1 Section 43 – Kinds of Share capital & Section 47 – Voting Rights Both whole sections shall not apply
 2 Section 62 (1) (a) – Rights offer to the existing shareholders shall be made by notice specifying the no. of shares offered and limiting the time not being less than 15 days and not exceeding 30 days from the date of offer within which the offer, if not accepted, shall be deemed declinedSection 62 (2) – The notice referred to above shall be despatched by RP or Speed Post or electronic mode to all existing shareholders atleast 3 days before the opening of issue Shall apply with the followingmodification:-Words ‘not being less than fifteen days and not exceeding thirty days’

shall be substituted with ‘not being less than seven days and not exceeding fifteen days’

 3 Section 62 (1) (b) – Further issue of shares under the Employee Stock Option Plan (ESOP) shall be subject to specialresolution passed by company and subject to such conditions as may be prescribed Shall apply except that instead of special resolution, ordinaryresolution would be required
 4 Section 73 (2) – Acceptance of Deposits from public Shall not apply to private companies having 50 or less number of members if they accept monies fromtheir members not exceeding 25% of aggregate of the paid up capital and free reserves or 100% of the paid up capital, whichever is more, and inform the details of such monies to the Registrar in the prescribed manner.
 5 Section 101- Notice for General MeetingSection 102- Statement to be annexed to noticeSection 103 – Quorum for meetings

Section 104 – Chairman of meetings

Section 105 – Proxies

Section 106 – Restriction on Voting Rights

Section 107 – Voting by show of hands

Section 109 – Demand for poll

All whole Shall apply unless– otherwise specified in respective sections or– unless articles of the private company otherwise provide.
 6 Section 141 (3) (g) – An auditor can be appointed by maximum 20 companies Shall not apply in respect of appointment of auditors by private companies.
 7 Section 160 – Right of persons other than retiring directors to stand for directorship. Shall not apply
 8 Section 162 – Appointment of 2 or more persons as directors of the company by a single resolution shall not be moved unlessa proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. Shall not apply
 9 Section 180 – Restrictions on powers of Shall not apply to private companies having 50 or less number of members
 10 Section 185 – no company shall, directly or indirectly, advance any loan, including any loan represented by a book debt, 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 Shall not apply to Privatecompanies –(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

 11 Section 188 – Related party transactions Shall not apply
 12 Section 196 (4) and (5) – Appointment and remuneration of managing director, whole-time director or manager. Shall not apply
 13 Section 203 (3) – Whole-time key managerial personnel (KMP) shall not hold office in more than one company except in its subsidiary company at the same time Shall not apply

 

The draft notification has been laid before both the Houses of Parliament and if notified will be of paramount importance to the private companies in India.

 

[box]About the author:

Pooja Gupta is a CA by qualification & IFRS author by choice with more than 16 yrs of professional experience. She is a fellow member of ICAI, a Company secretary and Law graduate. After graduating, she pursued Masters in Finance at the University of Frankfurt (Germany). She has worked with global entities in Europe ~ PwC, Standard Chartered Bank and Societe’ General and authored a book published by McGraw Hill on Financial Instruments Standards (IAS 32, IAS 39 and IFRS7) in order to help professionals understand the complex standards. The reward for putting in lot of overtime is the honour of being at the 1st position as CA Young Leader 2008 for demonstrating exceptional courage, excellence and thorough professionalism in India Inc! Was a member at the prestigious Accounting Standard Board (ASB) and CFO Committee of SEBI and elected as Regional Council member at ICAI. [/box]

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