The Companies Act, 2013 has received extreme reactions from the Corporate Sector. Generally players are happy to finally get a well structured and stringent regulatory mechanism. However, there still exists confusion and ambiguity among the existing companies regarding its implementation. In this article, we will put forth the impact of the Companies Act, 2013 on private limited companies. Number of Members: The maximum numbers of members have been increased from 50 to 200. This will enable the private companies to increase its number of members without the risk of being public. This, in turn, will increase fund infusion and a broader equity base. Directorship: 

• A private company can now have a maximum of 15 directors, which can further be increased by passing a special resolution.
• Further, every company shall now have at least one resident director, who has stayed in India for at least a period of 182 days in the previous calendar year.
• Office of the director will become vacant if he remains absent for all the Board Meetings for a period of 12 months.
• Every proposed director shall provide his consent to act as such and such content has to be filed with the ROC within 30 days of appointment.

E-Governance: The books of accounts or other documents of the company can be maintained in electronic format. Contents of Financial Statements: Once upon a time, under Companies Act, 1956, financial statements used to comprise of Balance Sheet & Statement of Profit & Loss. Under the New Act, the financial statements will comprise of the following:

• Balance Sheet
• Statement of Profit & Loss
• Cash Flow Statement (except for One person Company and small companies)
• Statement of Changes in Equity
• Notes to Accounts

Thus, from now onwards, every company will have to include Cash Flow Statement as part of the financials. Further issue of shares: Unlike the previous Act, a private company can make further allotment of shares only by way of Private Placement/preferential allotment. Hence, the earlier exemption has been removed. Acceptance of Deposits from Relatives of Directors: By the virtue of the definition as per the old Act, the private companies could accept deposits/loans from relatives of directors. However, as per the New Act, a private company is prohibited to accept unsecured loans/deposits from relatives of directors. Appointment of Key Managerial Personnel: Even private companies will now have to appoint the following whole time KMPs:

• MD/CEO/Manager/Whole Time Director;
• Company Secretary; and
• CFO;

Provided they have paid up capital of Rs.  5 Crores or more. Loans to Directors: Private companies are barred from giving loans, advances or providing securities, guarantees to directors and other interested entities barring few exceptions. Consolidation of Accounts: All companies having subsidiaries, associates and joint ventures need to prepare consolidated accounts. Signing of Annual Return:  The annual return is required to be signed by a CS, if it is a small company. In case there is no CS, the same will be signed by one director. In case of private companies, other than small companies, the annual return is required to be signed by a CS and one director. The Annual Return should contain the following:

• The extract of Annual Return as provided under Section 92 (3);
• Number of meetings of Board;
• Director’s Responsibility Statement;

Provisions relating to notice of General Meetings: All the provisions as specified in the Act are applicable to the private companies. No exemption can be sought on the basis of the Articles of Association. Financial Year: Every company shall have a uniform Financial Year ending at 31^st March every year. Corporate Social Responsibility (CSR): Every company with a net worth of Rupees Five Hundred Crore or more, turnover of Rupees One Thousand Crore or more or net profit of Rupees Five Crore or more during any Financial Year shall constitute a CSR Committee and 2 % of the average net profits of the immediately preceding three FYs should be spent for CSR. Commencement of Business: Under the new Companies Act, 2013, even a private company cannot commence its business after obtaining the Certificate of Incorporation. The company has to file with the ROC a statement that the subscription money and minimum paid up capital has been duly brought in. CIN Number of Companies to be mentioned in the letter-heads & Invoices:  Every private limited company will have to mention its 21 digit CIN number in its letter-heads, invoices and other documents. Hence, if we analyze the provisions in detail, we will find that most of the exemptions of the private limited company have been withdrawn. On one hand, this has increased the compliance requirements for start-ups and made it more stringent and complicated to some extent. On the other hand, however, this will definitely instill a right spirit of discipline and vigilance in the business management. Please feel free to write to us at (info@taxmantra.com) or call us at ( +91 9038335433).  You can also check our tax and regulatory page for more on this.