Sunday, 9 July 2017

NOTE ON EXEMPTIONS TO PRIVATE COMPANIES

                               (As per MCA Notification dated 13-06-2017)




SECTION
POSITION BEFORE NOTIFICATION
POSITION AFTER NOTIFICATION
Chapter I Section 2 (40)
Earlier, only one person companies, small companies and dormant companies were exempted from including cash flow statement in their financial statements.
In addition to other classes of companies exempted under the Act, the notification exempts the private companies (if such private company is a start-up) from including the cash flow statements in its financial statements.

For the purposes of this document, start-up companies shall refer to the companies incorporated under the Companies Act, 2013 (“Act”) and recognized as a start up as per the notification issued by DIPP.

Chapter V
Section 73 (2) (a) to (e)
Vide notification dated June 05, 2015, private companies  accepting monies from its members not exceeding  100% of aggregate of paid up share capital and free reserves and filing the details of monies so received with the Registrar of Companies (“ROC”), were exempted from complying with the conditions listed in Section 73 (2) (a) to (e), listed below:

(a)      Issue of circular in the prescribed format;
(b)      Filing of circular in (a) above with the ROC;
(c)      Deposit of not less than 15% of the amount of deposits in a scheduled bank account;
(d)      Provision of deposit insurance;
(e)      Certification that the company has not committed any default in repayment of deposits;
(f)       Provision of security for due repayment of deposits and interest thereon.

The current notification substitutes the exemption provision in the notification dated June 05, 2015 with the current exemption provision which exempts the following classes of private companies from complying with the conditions listed in  Section 73 (2) (a) to (e) of the Act, provided that such companies file the details of monies so accepted with the ROC-

(A)   which accept monies from its members, not exceeding 100% percent 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 body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever is lower; and

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

Chapter VII section 92 (1) (g)
Every company is required to prepare an annual return in the prescribed format containing inter alia the details of remuneration of directors and key managerial personnel (“KMP”).
By means of this notification, private companies which are small companies are required to disclose only the aggregate amount of remuneration drawn by directors instead of the details of remuneration of directors and KMP, in its annual return.

Chapter VII section 92 (1)
The annual return of a one person company and a small company are required to be signed by the company secretary or where there is no company secretary, by the director of such companies.
Proviso (1) to section 92(1) of the Act has been substituted to the following effect:

In addition to one person company and small company, a private company which is a start-up would also be required to get its annual return signed by the company secretary or where there is no company secretary, by the director of such company.

Chapter X
Section 143 (3) (i)
Section 143(3)(i) requires the auditor to comment upon the presence, adequacy and effectiveness of the internal financial controls system in the company, in his report.
The provision contained in section 143(3)(i) will not apply to the following classes of private companies:

A.     one person or a small company; or

B.     which has turnover of less than rupees 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 rupees 25 crores.

Chapter XII
Section 173 (5)
One person companies, small companies and dormant companies are deemed to have complied with the provisions of section 173 of the Act, if it has held at least one meeting of the board of directors in each half of the calendar year and the gap between the two meetings is not less than 90 days.
Section 173(5) of the Act has been substituted to include a private company (if such private company is a start-up) within its scope. Accordingly, a start up private company will be deemed to have complied with the provisions of section 173 of the Act, if it has held at least one meeting of the board of directors in each half of the calendar year and the gap between the two meetings is not less than 90 days.

Chapter XII
Section 174 (3)

Earlier, as per section 174(3) of the Act, only the uninterested directors present at the meeting, were counted towards the quorum of the meeting.
Section 174(3) of the Act will apply to the private companies with the exception that the interested director would also be counted towards quorum in such meeting after disclosure of his interest pursuant to section 184 of the Act.



The exceptions, modifications and adaptations provided in the above table will be applicable to private companies which have not committed a default in filing its financial statements or the annual return with the ROC.

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