Analysis of Exemptions to Private Companies vide notification dated 13th June 2017

MCA vide notification dated 13th June 2017, amended the principle notification providing exemptions to Private Companies vide notification no. 464(E) dated 5th June, 2017.

The exceptions, modifications and adaptations provided under exemption notification dated 5th June 2015 and 13th June 2017, shall be applicable to a Private Company only if has not committed a default in filing its financial statements u/s 137 or annual return u/s 92 of the Companies Act, 2013  with the Registrar.

Following are the detailed analysis for the amendment and exemptions provided under the notification-

  1. Section 2(40) – Definition of Financial Statement

Earlier Provisions

Section 2(40) provides definition of Financial Statement which includes Cash Flow Statement.

As per the Proviso, the Financial Statement with respect to One Person Company, Small Company and Dormant Company, may not include the cash flow statement.

Revised Proviso

The financial statement, with respect to one person company, small company, dormant company private company (if such private company is a start-up) may not include the cash flow statement;

Explanation. – The term ‘start-up’ or “start-up company” means a private company incorporated under the Companies Act, 2013 or the Companies Act, 1956 and recognised as start-up in accordance with the notification issued by the Department of industrial Policy and Promotion, Ministry of Commerce and Industry.”

Conclusion

Apart from OPCs & Small Companies, Startup Companies are also exempted from mandatory requirement of preparation of Cash Flow Statements.

  1. Clauses (a) to (e) of Section 73(2)– Prohibition on Acceptance of Deposits from Public

Earlier Provisions

As per earlier exemption notification dated 5th June, 2015, Clauses (a) to (e) of Section 73 (2) shall not apply to a private company which accepts 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.

Revised exemption– 

Clauses (a) to (e) of Section 73 (2) shall not apply to a Private Company-

(A) which accepts from its members monies not exceeding 100 % of aggregate of the paid up share capital, free reserves and securities premium account; or

(B) which is a start-up, for 5 years from the date of its incorporation; or

(C) which fulfils all of the following conditions, namely:-

 

(a) which is not an associate or a subsidiary company of any other company;

(b) if 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 50 Cr. rupees, whichever is lower; and

(c) such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under this section:

 

Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.

 

Conclusion-

 

In addition to earlier exemptions granted to Private Companies accepting deposits from its members of an amount not exceeding 100 % of aggregate of the paid up share capital, free reserves and securities premium account, now startup companies for a period of 5 years and other Private Companies meeting the conditions as prescribed above are also allowed to accept deposits without complying with the requirement of 73(2) clauses (a) to (e) related to Deposit Circular, Deposit Repayment reserve account, Deposit Insurance etc.

 

  1. Clause (g) of Section 92(1) – Annual Return

Earlier Provisions

Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding-

(g) remuneration of directors and key managerial personnel

Exemption:-

For Private Companies which are small companies:-

Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding –

(g) aggregate amount of remuneration drawn by directors;

 

Conclusion:-

In MGT-7, for small Companies instead of remuneration of Directors and KMP, only aggregate remuneration drawn by Directors is required to be mentioned.

 

  1. Clause (g) of Section 92(1) – Annual Return

Earlier Provisions

Every company shall prepare Annual Return in Form MGT-7 containing the particulars as per Section 92(1) read with Rule 11 of the Companies (Management and Administration) Rules, 2014 on close of the financial year.

Provided that in relation to One Person Company and small company, the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

 

Revised Proviso:-

Provided that in relation to One Person Company, small company and private company (if such private company is a start-up), the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.”.

 

Conclusion:-

In addition to OPC and Small Companies, for start-up Companies also the Annual Return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.

 

  1. Clause (i) of Section 143(3)- Auditors Report

Earlier Provisions

The Auditor Report shall state whether the Company has adequate internal financial controls system in place and the operating effectiveness of such controls.

Exemption:-

Clause (i) of Section 143(3) shall not apply to a Private Company:-

(i) which is a one person company or a small company; or

(ii) which has turnover less than Rs. 50 crores as per latest audited financial statement or which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than Rs. 25 Cr.”

 Conclusion:-

In case of OPC, Small Companies or Company with turnover less than Rs. 50 Cr. Or aggregate borrowings less than Rs. 25 Cr., the Auditor is not required to report about the internal financial controls system in its Auditors Report

 

  1. Section 173(5)- Meetings of Board

Earlier Provisions

A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of section 173, if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.

Provided that nothing contained in this sub-section and in section 174 shall apply to One Person Company in which there is only one director on its Board of Directors.

 

Revised Section 173(5)

A One Person Company, small company, dormant company and a private company (if such private company is a start-up) shall be deemed to have complied with the provisions of this section if at least 1 meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than 90 days.

 

Provided that nothing contained in this sub-section and in section 174 shall apply to One person Company in which there is only 1 director on its Board of Directors.

 

Conclusion:-

 

Start Up Companies are exempted from mandatory requirements of holding 4 Board Meeting in a year. They need to hold minimum 1 meeting in each half of a calendar year and the gap between the two meeting should not be less than 90 days

 

  1. Section 174(3)- Quorum for Meeting of Board

Earlier Provisions

Where at any time the number of interested directors exceeds or is equal to two-thirds of the total strength of the Board of Directors, the number of directors who are not interested directors and present at the meeting, being not less than two, shall be the quorum during such time.

Explanation.—For the purposes of this sub-section, “interested director” means a director within the meaning of sub-section (2) of section 184.

Exemption:-

Section 174(3) shall not apply on Private Companies with an exception that the interested director may also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184.

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Swati Popli | Sr. Associate

CS Swati Popli, Associate eMinds Legal

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