It was the time when talks were doing the rounds that starting and maintaining private companies will take up the back seat owing to the numerous compliances and strict procedures. Limited Liability Partnerships were also being considered as the next big thing in the start-up sector. In such dramatic    (read: Chaotic) situation, the notification from MCA published on 24^th June, 2014, came as stroke of blissful breeze for the private limited companies. In this Article, we will list the Exemptions to the Private Limited Companies as per Recent MCA Notification.  List of sections from which the private companies are partially or wholly exempted and their tentative effects on the Companies:    

SECTION	Exemption/ Modification
Chapter IVSection 43- Kinds of Share CapitalSection 47-Voting Rights	Whole Exemption

  Effect : The Companies (Share Capital and Debenture Rule), 2014, states that for issuing shares with differential voting rights, private companies will have to comply with the Rule No. 4. This rule required the companies to obtain the authorization of the Articles of Association, passing of the Ordinary resolution in General Meetings, cap on maximum 26% of the total post-issue paid –up capital, etc.

SECTION	Exemption/ Modification
Chapter IVSection 62 (1) (a) & 62 (2)- Further Issue of Share Capital	Partial Exemption – 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”

  Effect: This provision applies to the time limit of renouncement of the right issues by the existing equity shareholders. This has been on the stricter side from the shareholder point of view. However, from the company point of view, this will tend to fast track the right renouncement process, and in turn the entire process of raising capital by way of rights issue.

SECTION	Exemption/ Modification
Chapter IVSection 62 (1) (b) – Further Issue of Share Capital	Partial Exemption– Requirement of Special Resolution instead of Ordinary Resolution.

  Effect: This provision pertained to the ESOP allotment to the employees of the private limited companies. The said issue was to be made by way of a special resolution. This requirement has been substituted with the one of passing of Ordinary Resolution. This has made the entire process much simpler. Ordinary resolution does not require a strict majority and hence this will make the execution of the scheme easy and compatible.

SECTION	Exemption/ Modification
Chapter VSection 73 (2) – Prohibition on Acceptance of Deposits from Public	Partial Exemption:Shall not Apply to Private Companies provided-It has less than 50 members and if it accepts money from their members not exceeding 25% of aggregate of the paid-up capital and free reserves or 100 % of the paid up capital, whichever is moreAND Which conforms to the ROC rules pertaining to information to the ROC in the prescribed manner.

  Effect: This is a big fish!! Especially for closely held private limited companies!! Loans from members used to be a primary source of funds for the private limited companies. This feature was tapped by the New Act in the strictest of manners. Companies were required to issue notices, create deposit insurance, intimating the ROC, etc. The said restrictions were widely debated and opposed by professional and also start-ups. This was on the grounds that it was likely to put a full-stop to internal sources of funding and was a huge obstacle for start-ups from remaining bootstrapped. Exemption in this regard will prove to be boon for the private limited companies.

SECTION	Exemption/ Modification
Chapter VII(Section 101-107 & 109)Section 101 – Notice of MeetingSection 102- Statement to be annexed to noticeSection 103- Quorum for meetingSection 104 – Chairman of Meeting Section 105 – Proxies Section 106 – Restriction on Voting Rights Section 107- Voting by show of hands Section 109- Demand for Poll	Partial Exemption:These exemptions shall apply unless otherwise provided in the respective sectionsORUnless Articles of Companies provide alternatives

  Effect: These provisions pertain to General Meeting for private limited companies, which are provided as exemption to private limited companies.

SECTION	Exemption/ Modification
Chapter XSection 141 (3) (g)- Eligibility, Qualifications, disqualifications of Auditor	Whole Exemption

  Effect: Big reason to rejoice for Chartered Accountants. Now, Chartered Accountants can be appointed as Auditor in any number of private limited companies. However, with big relaxation, comes big accountability. The Chartered Accountants, have a huge responsibility on their shoulders to maintain their standard of work and quality of services.

SECTION	Exemption/ Modification
Chapter XI( Section 160 & 162 )Section 160 – Right of persons other than retiring directors to stand for directorshipSection 162 – Appointment of directors to be voted individually	Whole Exemption

  Effect: Appointing two or more persons as Director by way of single resolution was prohibited as per Section 162 of Companies Act, 2013. Further there will be no need to furnish candidature of a person to appoint him as director in the General meeting. However, this restriction is proposed to be lifted as well. This will smoothen the secretarial compliances and ease out the process of appointing the directors.

SECTION	Exemption/ Modification
Chapter XIISection 180 – Restriction on Powers of Board	Whole ExemptionShall not apply to private companies having equal to or less than 50 members

  Effect: Section 180 hosted certain restrictions with respect to the Board of Directors of the Company in the form of borrowing money, investing, selling or leasing, subject to their obtaining approvals of the members by way of Special Resolution. Many times it becomes cumbersome to wait for the execution of the entire process of obtaining approvals from the members, especially at times of crucial decision-making. Hence, this exemption might prove to be of utmost importance for the private companies.

SECTION	Exemption/ Modification
Chapter XIISection 185 – Loans to Directors	Shall not apply to private companies-having borrowings from banks and financial institutions or any body corporate not more than twice of their paid-up capital or Rs. 50 crore, whichever is lowerAND-whose share capital is devoid of any investment by any other body corporate

Effect: Now private companies can advance loans to directors and related parties if the above conditions are satisfied. This is something that will provide for easy structuring of inter-corporate loans.

SECTION	Exemption/ Modification
Chapter XIISection 188 – Related Party Transaction	Whole Exemption

  Effect: Related Party Transactions have been the source of one of the most serious controversies and most rigorous contemplations. The provisions were highly restrictive like for example advances and loans to directors and related parties had to be executed by way of approvals from shareholders, etc.

SECTION	Exemption/ Modification
Chapter XIIISection 196 (4)Section 196 (5) – Appointment of MD, Whole time Director or Manager	Whole Exemption

  Effect: Rules pertaining to the appointment and remuneration of Key Managerial Personnel, pertaining to obtaining of CG approval are proposed to be done away with. This will pave the way for saving costs, time and compliance requirements for the private limited companies.  

SECTION	Exemption/ Modification
Chapter XIIISection 203 (3) – Appointment of Key Managerial Personnel (KMP)	Whole Exemption

  Effect: As per the above section, a KMP was not supposed to hold office in more than one company. This was on a stricter side. Also, this would have made it difficult for the private companies to avail the professional guidance of the KMPs. This exemption is likely to eradicate the said issue.   Hence, in all, we see that, it seems that sunny days are back for the private limited companies once the notifications get the final assent of both the houses. As of now, the MCA has invited public comments on the draft notice. We will keep you posted on any further Updation. Please click here to download the notification. For information on Company Registration, please  visit Company Registration in India