Exemptions for Private Companies

Exemption to Private Companies
Ministry of Corporate Affairs through vide its Notification dated June 5th, 2015 exempted such
class of Companies viz. Government Companies, Nidhi Companies, Section 8 Companies and
Private Companies. The Stated notifications shall effective from the date of publication in
official Gazette of India. The Exemption to Private Companies was gazetted on June 05th,
2015 and the Gazetted Copy was uploaded on MCA web portal on June 19th, 2015.
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S. 2(68):
“private company” means a company
having a minimum paid-up share
capital of one lakh rupees or such
higher paid-up share capital as may be
prescribed, and which by its articles,—
1. restricts the right to transfer its
shares;
2. except in case of One Person
Company, limits the number of its
members to two hundred:
Provided that where two or more
persons hold one or more shares
in a company jointly, they shall,
for the purposes of this clause, be
treated as a single member:
Provided further that, persons
who are in the employment of the
company; and persons who,
having been formerly in the
employment of the company,
were members of the company
while in that employment and
have continued to be members
after the employment ceased,
shall not be included in the
number of members; and;
3. prohibits any invitation to the
public to subscribe for any
securities of the company;
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1
Glance
on Exemption
Liberalised Related Party Transactions
Section 43 & 47 shall not apply to
Private Company
Offer period for Right Issue offer
by Private Company reduced viz-
a-viz period for dispatch of offer
letter also reduced
Private Company can purchase its own
share, directly or indirectly, subject to
certain conditions
No need to file certain Board Resolutions
with the Registrar of Companies
Auditors can do more than 20 Audits
S. 160 not applicable to Private Company
Interested director of a Private Company
can participate in the transaction wherein
he is interested upon disclosing his
interest
The restriction on giving loans etc. to
Directors shall not apply to certain classes
of Private Companies
Single resolution can be passed at
General meeting of a Private
Company for appointment of more
than One Director
S. 180 will not apply to Private
Company
Conditions for Inviting deposits
from shareholders liberalised
A Private Company may now
suitably modify its Articles of
Association w.r.t. General meeting
provisions
No bar on managerial remuneration

2
Liberalised Related Party Transactions
As per extent regulation, Private Company allows to enter
into transaction/s with Holding, Subsidiary or Associate
Company only after obtaining approval of the Board.
Provided that approval shall be obtain at the duly
conveyed meeting of the Board (No Circular Resolution).
Provided further that, interested Director shall be
debarred from participation in the transactions conducted
at the Board meeting wherein he/she is interested.
If the transaction value of the proposed Contract /
Arrangement exceeds certain threshold, as provided under
the S. 188(1) read with Rule 15(3) of the Companies
(Meeting of Board and Powers) Rule, 2015, then prior
approval of Members through Ordinary resolution shall be
obtain before entering into transactions. Provided that the
interested member/s shall not vote on the resolution on
the motion wherein he/she/it is interested.
What NEW ???
As per the Gazetted Notification of Ministry of Corporate
Affairs dated June 5th, 2015, Private Companies are
allowed to enter into transaction/s with Holding,
Subsidiary or Associate Company without complying
requirements enumerated under S. 188 of the CA, 2013.
However, Private Company still requires to comply with all
requirements of S. 188 of the CA, 2013 except S. 188(1)
for the transactions with Related Parties, as defined under
sub-clause (i) to (viii) and (ix) of sub-section (76) of S. 2 of
the CA, 2013.
Upon commencing the stringent provisions of S. 188 of
CA, 2013, w.r.t. restrain votes of the members at the
General meeting on the resolution wherein he is
interested, Private Companies faces hurdles for entering
into such related parties transactions. In order to
overcome deadlock, MCA has exempted Private Companies
from S. 188(1) and allowed members of the Private
Company to vote on resolutions laid before the General
Meeting wherein he/she/it is interested. Moreover, a
Private Company need not require to get prior approval of
the Board for transactions enumerated under 188(1).

3
Section 43 & 47 shall not apply to Private Company if the
Memorandum or Articles of Association so provides therefore.
Extent Section 43 provides that companies
limited by shares can have two kinds of share
capital viz. equity (including equity with
differential voting rights) and preference
share capital.
Earlier under the CA, 1956, same thing
was also provided under section 86
but pursuant to S. 90 of the CA, 1956
Private Company was exempted
u/s. 86.
S. 47 provides voting rights
equity shareholders and preference shareholders. This provision is similar to
section 87 of the earlier Companies Act, 1956. As cited above, section 87 was
not applicable to private companies.
What NEW ???
Due to amendment, a Private Company may have only one kind of share
capital say preference share capital or have different class viz. first preference
shares, second preference shares, founder shares, Special shares etc.
Moreover, Private Company can issue equity
shares with differential voting rights without
compliance of conditions related thereto
specified under the Companies (Share Capital
and Debentures) Rules, 2014.
Provided that, Memorandum or Articles of
Association of such Private Company
specifically exempt S. 43 and/or other class of
Capital provided in that.
Due to amendment, a private company can determine voting rights of its equity
shareholders and preference shareholders in any manner it desires by
incorporating suitable provision in its memorandum or articles of association.
However, S. 106(2) of the CA, 2013 provides that a Company cannot restrain
voting rights of any members on any other grounds other than provided under
sub-section (1) i.e. call or other sum presently payable on shares and not been
paid. Hence, conclusion can be framed that a Private Company can issue
shares with differential voting rights but cannot restrain any members from
voting other than the grounds provided hereinabove.
Private Company still
not allowed to restrain
any members from
Voting unless
he/she/it has not
paid call or other sum
presently payable on
shares.

4
Right Issue Offer shall
be given to existing
equity shareholder in
proportionate basis.
Right issue offer shall
be open for Fifteen days
and shall not be more
than Thirty days from
the date of offer.
Right issue offer letter
shall be dispatched to
eligible shareholders at
least Three days before
the opening of the
issue.
Offer letter shall be
dispatched though
registered Post, Speed
Post or through
electronic mode.
1
2
3
4
Offer period in Right Issue offer by Private Company reduced
viz-a-viz period for dispatch of offer letter also reduced
As per S. 62(1)(a) of the CA, 2013, a Company can issue
further shares to its existing equity shareholders in the
proportion of their shareholding in the company.
Provided that, an offer of right issue shall not be open for
less than Fifteen days and it shall extend upto Thirty days
from the date of offer. Such offer letter shall be dispatched
to all eligible shareholders through registered post, speed
post or through electronic mode provided that such offer
shall be dispatched to eligible shareholders at least Three
days before the opening of the issue.
What NEW ???
If 90% shareholders of a private Company agree in writing
or through electronic mode then a Private Company can
make its offer for period lesser than the period provided
under Section 61(1)(a) or can dispatch offer letter before
lesser than the period provided therefore under 62(2).
In other circumstances, a Private Company has to comply
with S. 62(1)(a) & 62(2).
Note that, express authorisation shall be obtain from 90%
shareholders in writing before the right issue offer. The Act
is silent about the cumulative authorisation for all right
issue offer by a Private Company thus it is advisable to
obtain express authorisation of shareholders in each offer.
A Private Company can issue further shares to
employees of the Company pursuant to Employee
Stock Option scheme through passing of Ordinary
Resolution (earlier it was Special Resolution) prior to
the issue subject to compliance of Rule 12 of the
Companies (Share Capital and Debentures) Rule, 2014.

5
Private Company can purchase its own share, directly or
indirectly, subject to certain conditions
Section 67 restricts companies to buy its own
shares, except by way of reduction of share capital
or redemption of preference shares. Of course
companies can buy-back its shares as per
provisions of sections 68, 69 and 70.
What NEW ???
Now, a Private company upon satisfaction of
following three conditions can buy its own shares
in addition to reduction of share capital or
redemption of preference shares:
(a) body corporate (includes foreign company,
LLP) have not invested money in share
capital of the private company; and
(b) borrowings from banks or financial
institution or any body corporate is less
than twice the paid up share capital or Rs.
50 crore, whichever is lower; and
(c) such private company has not made default
in repayment of borrowings subsisting at the
time of purchase of its own shares.

6
Conditions for Inviting deposits from shareholders liberalised
Erstwhile, inviting unsecured loans from
shareholders was not tantamount to Deposit
under the CA, 1956 in the case of Private
Company. However, w.e.f. 1st April, 2014, any
borrowing from shareholders (except loan
obtained from promoter in pursuance to
stipulation made by the lending financial
institution/s) amounts to Deposit in terms of
the CA, 2013. A Company (public and private)
are permitted to accept deposits from its
members upto 25% of aggregate paid-up share
capital and free reserves of the Company
subject to provision of the Rules and the
conditions mentioned at right side.
What NEW ???
Now, private companies are permitted to accept
deposits from its members subject to provision
of the Rules and they need not satisfy
mentioned first five conditions if –
(a) amount of deposits from members does not
exceed aggregate of the paid-up share capital
and free reserves, and
(b) details of monies accepted as deposit from
members is filed with the ROC.
Extent conditions for
inviting deposits from
Shareholders
company issues circular in
form DPT-1 to its members
files form DPT-1 with the ROC
within 30 days before the
date of its issue to members
maintain liquid asset of 15%
of amount of deposit maturing
during the financial and the
financial year next following
and keeping it in a separate
bank account with a
scheduled bank to be called
as deposit repayment reserve
account
providing deposit insurance;
certifying that the company
has not defaulted in
repayment of deposits or
payment of interest thereon;
and
securing deposit accepted
from members by creating
charge over assets of the
company OR where no such
charge is created the deposit
shall be called “unsecured
deposits” and stated so in
every circular, form,
advertisement etc.
A Private Company can Invite
Deposits from members’ upto
100% of paid-up capital and free
reserves of the Company.
A private Company need not to
comply above conditions while
inviting deposits from its
members.
1 2

7
A Private Company may now suitably modify its Articles of
Association w.r.t. General meeting provisions
Now the Private companies are given option to adopt provisions stated below
or omit the same or provide their own regulations by suitably providing for
the same in their articles of association.
Section 101: Notice of general meetings
Section 102: Explanatory statement to be annexed to notice of
general meetings
Section 103: Quorum for general meetings
Section 104: Chairman of general meetings
Section 105: Proxies
Section 106: Restrictions on voting rights
Section 107: Voting by show of hands
Section 109: Demand for poll

8
No need to file certain Board Resolutions with the Registrar of
Companies
Private companies are exempted from filing
following Board Resolutions:
(1) to make calls on shareholders in respect of
money unpaid on their shares;
(2) to authorise buy-back of securities under
section 68;
(3) to issue securities, including debentures,
whether in or outside India;
(4) to borrow monies;
(5) to invest the funds of the company;
(6) to grant loans or give guarantee or
provide security in respect of loans;
(7) to approve financial statement and
the Board’s report;
(8) to diversify the business of the
company;
(9) to approve amalgamation,
merger or reconstruction;
(10)to take over a company or
acquire a controlling or
substantial stake in another
company;
(11)to make political
contributions;
(12)to appoint or remove key
managerial personnel
(KMP); and
(13)to appoint internal
auditors and
secretarial auditor.

9
Auditors can domore than 20 Audits
Extent law restricts to an auditor for taking audit assignments of more than
20 Companies (Private & Public) per auditor. However, due to amendment,
an auditor may take audit assignments of more than 20 Companies. For
computing 20 Companies under S. 141(3)(g) following Companies are
excluded;
(i) one person companies,
(ii) dormant companies,
(iii) small companies and
(iv) private companies having paid-up share capital less than rupees one
hundred crore.
S. 160 not applicable to Private Company
Section 160 of Companies Act, 2013 is similar to section 257 of the earlier
Companies Act, 1956. It gives right to any person (other than retiring
director) to propose himself or any member can propose him as director of
the company by sending requisite notice with deposit amount.
While provision of section 257 was not applicable to private companies,
section 160 is applicable to all companies, including private companies.
Now, said section 160 is not applicable to private companies. Thus, private
companies are free to include suitable provision in their articles of
association for eligibility of a person (other than retiring director) to be
appointed as director of the company.
Single resolution can be passed at General meeting of a
Private Company for appointment of more than One Director
Companies Act, 1956 requiring separate resolutions to be passed at a
general meeting for appointment of each directors, where more than one
director is to be appointed.
Now said section 162 is not applicable to private companies. Hence, private
companies can now move a motion at its general meeting for appointment of
two or more persons as directors of the company by a single resolution.

10
S. 180 will not apply to Private Company
Companies Act, 1956, wherein restriction laid on powers of Board and for
that prior member’s approval is required for exercising certain powers.
Now said section 180 is not applicable to private companies. Hence, Board
of Directors of private companies can do following acts even without the
consent of its members:
(a) to sell, lease or otherwise dispose of the whole or substantially the whole
of the undertaking of the company,
(b) to invest compensation received on merger or amalgamation;
(c) to borrow money in excess of aggregate of paid-up share capital and free
reserves; and
(d) to remit, or give time for the repayment of, any debt due from a director.

11
Interested director of a Private Company can participate in the
transaction wherein he is interested upon disclosing his
interest
Section 184(2) of Companies
Act, 2013 is similar to section
300 of the earlier Companies
Act, 1956, requiring director
who is interested in any
contract or arrangement
placed before the Board at its
meeting for approval, not to
participate therein.
While provision of section 300
was not applicable to private
companies, section 184(2) is
made applicable to all
companies, including private
companies.
Now it is provided that in
case of a private company,
interested director may
participate in the board
meeting, after disclosing his
interest.

12
The restriction on giving loans etc. to Directors shall not apply
to certain class of Private Companies
Extent regulation prohibits Companies (Private or Public) for advancing Loans
(including represented by book debt) or providing guarantee or security in
connection with the loans given to any of its directors or to any other person
in whom the director is interested.
Erstwhile S. 295 of the CA, 1956 was
applicable to Public Company and Public
Companies allowed to advance Loans etc. to
its Directors subject to prior approval of the
Central Government.
Upon commencing the CA, 2013, complete
restriction imposed on advancing loans, or
providing guarantee or security in connection
with loans given to Director or to the person in
whom Director is interested.
What NEW ???
Now, private companies upon fulfilling
following conditions can advance loan
(including represented by book debt) to any of
its directors or to any other person in which
the director is interested. It can also give
guarantee or provide any security in
connection with any loan taken by him or such
other person.
The conditions are:
(a) no other body corporate has invested any
money in the share capital of private
company; and
(b) the borrowings of such a company from
banks or financial institutions or any body
corporate is less than twice of its paid up
share capital or rupees fifty crore,
whichever is lower; and
(c) such a company has no default in repayment of such borrowings
subsisting at the time of making transactions.
Person in whom Director is
interested means:
any director of the lending
company, or of a company
which is its
holding company or any
partner or relative of any
such director
any firm in which any such
director or relative is a
partner
any private company of
which any such director is a
director or member
any body corporate at a
general meeting of which not
less than twenty-five
percent. of the total voting
power may be exercised or
controlled by any
such director, or by two or
more such directors, together
any body corporate, the
Board of directors, managing
director or
manager, whereof is
accustomed to act in
accordance with the
directions or
instructions of the Board, or
of any director or directors, of
the lending company

13
No bar on managerial remuneration
S. 196(4) of the CA, 2013 deals with appointment of managing director,
whole-time director or manager (‘managerial personal’) and terms and
conditions attached to their appointment.
As per extent law:
Remuneration of such managerial personal
subject to S. 197 and Schedule V of the CA,
2013;
Terms and conditions of such appointment and
remuneration payable be approved by the Board
subject to approval of members at next general
meeting and subject to approval of central
government in certain cases;
What NEW ???
Private companies are now exempted from cited
requirements. Thus, in case of private company,
appointment of a managing director, whole-time
director or manager and the terms and
conditions of such appointment and
remuneration payable need not be approved by
the Board of Directors at its meeting and such
appointment and remuneration payable which
shall not require approval of members by a
resolution at the next general meeting of the
company and shall not be subject to section 197
of the Act and Schedule V thereto.
Consequently, even approval of Central
Government would not be required. However
it is advisable to pass board resolution for
remuneration and terms & conditions of appointment
of such managerial personnel.
Private Company allows to pay remuneration to its managing
director, whole-time director or manager as much as they can without
any restrictions.

14
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