Corporate Law Update : Exemptions of certain provisions of Companies Act, 2013 to Private / Section 8 / Government companies

Sr No.

Chapter/ Section of Companies Act, 2013

Existing provisions

Updated provisions

Chapter 1, Section 2(40)

“financial statement” in relation to a company, includes—

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement

The MCA notification exempts recognized start-up companies (incorporated as private company) from preparing cash flow statement as a part of its financial statements.

As per the notification, start-up companies are companies recognized as start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.

The existing provisions exempted only one person company, small company and dormant company from preparing cash flow statement as a part of its financial statements.

Chapter V- Section-73(2) clause (a) to (e)

Private Companies were permitted to accept deposits from their shareholders after complying with the procedure mentioned under Section 73(2) Clause (a)- (e).

Provisions of Section 73(2) clause (a-e) of the Act shall not apply to following private limited companies;

1. Which accept from its members monies not exceeding 100% percent of aggregate of the paid-up share capital, free reserves and Securities Premium account; OR
2. Which is a startup^[1], for five years from the date of its incorporation; OR
3. Which fulfill all the following conditions, namely: -

1. Which is not an associate or a subsidiary of any other Company;
2. If the borrowing of such a company from the banks or financial institutions or any body corporate is less than twice of its paid-up share capital or fifty crore rupees, whichever is lower; and
3. Such a company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits under the section

However, the companies referred in clause (1), (2) or (3) above, shall continue to file the details of monies accepted, to the Registrar of Companies in such manner as may be specified

Chapter VII- Section-92 (1)

In the case of One Person Company and Small Company^[2] the annual return has to be signed by the company secretary, or where there is no company secretary, by the director of the company.

Now, in addition to the One Person Company and Small Company, the Annual return of a ‘Startup Company’ can be signed by Director of Company provided there is no Company Secretary

Chapter VII- Section- 92(1) clause (g)

Every company shall prepare annual return in the prescribed form containing the particulars as they stood on the close of the financial year regarding—

1. …
2. …

7. remuneration of directors and key managerial personnel;

Vide this notification Clause (g) is modified as under only for a Small Company:

7. aggregate amount of remuneration drawn by directors

Chapter X, clause (i) of Section 143(3)

The auditor’s report shall also state—

…

(i) whether the company has adequate internal financial controls system in place and the operating effectiveness of such controls;

Compliance with this clause shall be exempt for a private company:

1. which is one person company or a small company

OR

2. which has turnover < Rs. 50 crore as per latest audited Financial Statements
382.  
3. which has borrowings from Banks / Financial institutions / any Body Corporate at any time during the Financial Year < Rs. 25 crore

Accordingly, the Auditor in its report shall not include a comment on adequacy and operating effectiveness of internal financial control system in respect of private companies within above threshold.

Chapter XII- Section-173 (5)

A One Person Company, Small company and Dormant company was deemed to have complied with the provisions of section 173 if at least one meeting of the Board of Directors was conducted in each half of a calendar year and the gap between the two meetings was not less than ninety days

Similar provision is now also applicable to a Start Up Company

Chapter XII- Section-174 (3)

Currently, 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 and present at the meeting, being not less than two, shall be counted to form the quorum for the said meeting.

Henceforth, in the case of private limited companies an interested director may also be counted towards quorum in such meeting provided he has made adequate disclosure of his interest pursuant to section 184

Sr No.

Chapter/ Section of Companies Act, 2013

Existing provisions

Updated provisions

1

Chapter XI, Clause (b) and first proviso to section 149(1)

Every company shall have a Board of Directors consisting of individuals as directors and shall have—

(a) a minimum number of three directors in the case of a public company, two directors in the case of a private company, and one director in the case of a One Person Company; and

(b) a maximum of fifteen directors:

Provided that a company may appoint more than fifteen directors after passing a special resolution.

As per the principal notification, Section 8 companies were exempted from compliance with section 149(1) in its entirety. However, as per the amended notification Section 8 companies are required to comply with clause (a) to Section 149(1) and are exempted only from compliance with clause (b) and first proviso to section 149(1).

Accordingly, Section 8 companies shall have Board of Directors with a minimum of 3 directors in case of public company, 2 directors in case of private company and 1 director in case of One Person Company without any limit on maximum number of directors.

2

Chapter XII,  section 186(7)

No loan shall be given under section 186 at a rate lower than the prevailing yield of one year, three year, five year or ten year Government Security closest to the tenor of the loan.

Additional proviso has been inserted:

Section 186(7) shall not be applicable to a company in which 26% or more of the paid-up share capital is held by the Central Government or one or more State Governments or both, in respect of loans provided by such company for funding Industrial Research and Development projects in furtherance objects as stated in its memorandum of association.

Sr No.

Chapter/ Section of Companies Act, 2013

Existing provisions

Updated provisions

1

Chapter VII,

section 96(2)

AGM shall be held either at registered office of the Company such other place as the Central Government may approve in this behalf

As per the revised notification, AGM shall be held either at registered office of the Company or at such other place within the city, town or village in which the registered office of the company is situated or such other place as the Central Government may approve in this behalf.

2

Chapter XI, section 152(6) and (7)

Sub sections (6) & (7) of section 152 shall not apply to -

1. a Government Company in which the entire paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
2. a subsidiary of a Government company, referred to in (a) above, in which the entire paid up share capital is held by that Government company.

Applicability of sub sections (6) & (7) of section 152 to Government companies have been amended as follows:

Sections 152(6) & 152(7) shall not apply to:

1. a Government company, which is not a listed company, in which not less than 51% of paid up share capital is held by the Central Government, or by any State Government or Governments or by the Central Government and one or more State Governments;
2. a subsidiary of a Government company as referred above.

3

Chapter XV, sections 230 to 232

For sections 230, 231 & 232 of Chapter XV- Compromise, Arrangements and Amalgamations, all the applications shall be made to Tribunal.

As per the amendment, for section 230, 231 & 232 of Chapter XV- Compromise, Arrangements and Amalgamations, all the applications shall be made to and relevant decisions shall be taken by the Central Government instead of Tribunal.