Below is the detailed analysis of the changes or insertions made in the principal notification in respect of exemptions provided to section 8 companies and private companies:

CHANGES BROUGHT IN THE PRINCIPAL NOTIFICATION DATED JUNE 5, 2015 AS REGARD TO APPLICABILITY OF THE PROVISIONS OF COMPANIES ACT, 2013 TO SECTION 8 COMPANIES

Section

Existing provision of the Act

Exceptions/ Modifications brought in by the Principal Notification dated June 5, 2015

Exceptions/ Modifications brought in the Principal Notification by way of further notification dated June 13, 2017

 

Impact

149(1) and first proviso: Number of Directors

 

 

It provides for the minimum number of directors depending on the nature of a company and restricts the maximum number of directors to 15. It further provides that after passing of special resolution, the maximum number of directors can be increased from 15.

 

In the principal notification, the Central Government has provided the exemption to section 8 companies from compliance of said sub-section and its proviso.

The Central Government has modified the exemption provided in the Principal Notification and has provided that section 149(1)(a) needs to be complied with by section 8 companies as well. 

 

The relaxation given to section 8 companies from having minimum number of directors has been withdrawn.

 

Every section 8 company is now required to have minimum 2 directors if it is a private company and minimum 3 directors on its board if it is a public company.

 

 

186(7): Loans and Investments

It provides that no loan shall be given under the said section at a rate of interest lower than the prevailing yield of one year, three year, five year or ten year government security closest to the tenor of the loan.

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The Central Government has inserted a proviso for section 8 companies which states that the provision pertaining to the rate of interest on the loan shall not apply to such section 8 companies in which 26% or more paid-up capital is held by the Central Government or one or more State Governments or both, in respect of the loans provided by such company for funding industrial research and development projects in furtherance of the objects as stated in memorandum.

 

The relaxation has been given only to such section 8 companies where loan has been given by them for funding industrial research and development projects of its objects from charging of rate of interest where Government holds 26% or more in the paid-up capital of such company.

RESTRICTION ON APPLICABILITY OF PRIVILEGES AS PROVIDED TO SECTION 8 COMPANIES BOTH IN THE PRINCIPAL NOTIFICATION AND SUBSEQUENT NOTIFICATION

 

The Central Government has inserted para 2A in the subsequent notification dated June 13, 2017 whereby it provides that the exemptions/ modifications given to section 8 companies both in the principal notification and subsequent notification will be only applicable to such section 8 companies which have not committed a default in filing of its financial statements or its annual returns.

 

 

CHANGES BROUGHT IN THE PRINCIPAL NOTIFICATION DATED JUNE 5, 2015 AS REGARD TO APPLICABILITY OF THE PROVISIONS OF COMPANIES ACT, 2013 TO PRIVATE COMPANIES

 

Section

Existing provision of the Act

Exceptions/ Modifications brought in by the Principal Notification dated June 5, 2015

Exceptions/ Modifications brought in the Principal Notification by way of further notification dated June 13, 2017

 

Impact

2(40): Financial Statement

It provides for the definition of the “financial statement”. The proviso to the said clause states that financial statement of one person company, small company and dormant company, may not include the cash flow statement.

 

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The proviso has been substituted and now it provides that financial statement of one person company, small company, dormant company and private company (if such a company is a start-up), may not include the cash flow statement.

 

It also states that the term “start-up company” means a private company incorporated under the Companies Act and recognized as a start-up in accordance with the notification issued by DIPP.

 

By substitution of new proviso, cash flow statements of a private companies which are start-ups are excluded from the definition of a financial statement in addition to one person company, small company and dormant company.

 

73(2) -clause (a) to (e) – Deposits

It lays down the conditions which needs to be complied with   for acceptance of deposits from the members of a company such as issuance of a circular, obtaining credit rating, filing of circular with Registrar, creation of deposit repayment reserve account, providing deposit insurance and non-commitment of default.

 

The Principal notification exempted private companies from compliance of clauses (a) to (e) of section 73(2) which accepts from its members monies not exceeding 100% of the paid-up share capital and free reserves and such company shall file the details on monies accepted to the Registrar.

The exemption has been substituted in the subsequent notification and it provides as under:

 

It states that the provisions of clauses (a) to (e) of section 73(2) shall not apply to a private company

 

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

 

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

 

(iii) which fulfills the following criteria: (a) which is not an associate or a subsidiary company of any other company; (b) the borrowings of such a company is less than twice of its paid-up capital or Rs. 50 crore, whichever is lower; and (c) which company has not defaulted in the repayment of such borrowings subsisting at the time of accepting deposits.

 

Provided such company shall file the details of monies so accepted to the Registrar.

 

By way of substituting the exemption given in the principal notification, the scope of the said exemption has been enlarged.

92(1) - clause (g): Annual Return

It states that annual return shall disclose remuneration of directors and key managerial personnel.

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The new insertion provides that it shall apply to private companies which are small companies to the extent that they are only required to disclose aggregate amount of remuneration drawn by directors.

 

Private Companies which are small companies do not need to disclosure the remuneration drawn by the key managerial personnel.

92(1) – proviso Annual Return

It states that annual return of one person company and small company shall be signed by the company secretary or where there is no company secretary, by a director.

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The new insertion provides that annual return of one person company, small company and a private company, if such a private company is a start-up shall be signed by the company secretary or where there is no company secretary, by a director.

The new insertion which has included private companies which are start-ups in addition to one person company and small companies. 

143(3) – clause (i)

The auditor report shall state that he has obtained all the information and explanations to the best of his knowledge and belief as necessary for the purpose of audit and if not then the details thereof and the effect of such information on the financial statements.

 

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The private companies which are one person company or small company are exempted from the compliance of said clause.

 

The private companies which have turnover of less than Rs. 50 crores as per latest audited financial statement or which have aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than Rs. 25 crores are exempted from the compliance of said clause.

 

 

173(5)

It provides that one person company, small company and dormant company shall convene one meeting of board in each half of a calendar year and the gap between two meetings should not be less than 90 days.

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The new insertion has included private company which are start-ups in addition to one person company, small company and dormant company for convening one meeting of board in each half of a calendar year and the gap between two meetings should not be less than 90 days.

 

Provided nothing will apply to such one person company where there is only one director.

 

The relaxation has been given to start-ups from convening minimum number of board meetings.

174(3)

It provides that where number of interested directors exceeds or is equal to 2/3rd of the total strength of the board, the number of disinterested directors present at the meeting being not less than 2 shall be the quorum for such meeting.

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The new insertion states that in case of a private company, interested director will also be counted for the purposes of quorum in such meeting where he has disclosed his interest in pursuance of section 184.

Now, inserted directors, as long as they have disclosed their interest, will be counted for the purposes of quorum.

 

RESTRICTION ON APPLICABILITY OF PRIVILEGES AS PROVIDED TO PRIVATE COMPANIES BOTH IN THE PRINCIPAL NOTIFICATION AND SUBSEQUENT NOTIFICATION

 

The Central Government has inserted para 2A in the subsequent notification dated June 13, 2017 whereby it provides that the exemptions/ modifications given to private companies both in the principal notification and subsequent notification will be only applicable to such private companies which have not committed a default in filing of its financial statements or its annual returns.

 

 

Check the following links: 

Exemption Private Companies

Exemption Section 8 Companies