Exemptions to Private, Government, Section 8 Companies and Nidhis – Government issues notifications

The Ministry of Corporate Affairs, Government of India issued the final notifications under Section 462 of the Companies Act, 2013 (Act), which provide exemptions under various provisions of the Act to (i) Private Companies; (ii) Government Companies; (iii) Section 8 Companies and (iv) Nidhis.  The notifications are available at the Ministry’s website at www.mca.gov.in

mca exemption

For Private Companies, the exemptions relax the provisions for entering into related party transactions; provide a shorter period for offering securities to members through right offers; provide for approving issue of employee stock option plans through a simple majority and allow an easier procedure and flexibility in holding general meetings. Private companies have also been allowed to accept deposits from members without the requirement of offer circular and creation of deposit repayment reserve etc. Flexibility has also been provided in the types of share capital that can be issued by private companies. Exemption has been given from filing of board resolutions with the registry and giving of notice for standing for directorships. Requirement of mandatory consent of shareholders with regard to certain transactions relating to sale of undertaking, investments, borrowings etc has been omitted. Further, OPCs, dormant companies, small companies and private companies having paid up share capital less than Rs. 100 crore have been excluded for calculating the limit of 20 companies for audit by an auditor. Private companies not having any investment by any body corporate have been allowed to extend loans to directors etc subject to certain conditions relating to bank borrowings and default thereof. An interested director of a private company can now participate in the Board meeting after declaring his interest.

Government Companies have been exempted from the limits pertaining to managerial remuneration; restriction on maximum number of directorships and disqualification of directors in certain cases. The provisions in respect of Nomination and Remuneration Committee have also been relaxed in respect of their applicability to directors/managerial persons. The provisions relating to loans to directors; loans and investments by companies and related party transactions have been modified to provide flexibility to Government companies in complying with such provisions. The exemption for Government companies to retain the suffix “Limited” even if incorporated as private limited company, has been continued as per the exemption available under Companies Act, 1956. Modifications in the provisions relating to place of holding general meetings have also been made.  Provisions in respect of rotation of directors and right of persons to stand for directorship are exempted for wholly owned Government companies. The provisions in respect of forming opinion about integrity, expertise/experience of independent directors have been modified to provide flexibility to concerned Ministry/Department. For the Government companies engaged in producing defence equipment, the provisions of section 186 (loans and investments by companies) and Accounting Standard – 17 (Segment Reporting) shall not be applicable.

For Charitable Companies the provisions in respect of notice for general meeting have been modified to enable such companies to save time and resources in sending notices. The notice for general meeting and financial statements may be circulated at notice of 14 days instead of 21 days. The provisions in respect of appointment of independent directors (IDs) and Nomination and Remuneration Committee will not be applicable to such companies. The audit committees of such companies need not have Independent Directors. The restrictions on number of directorships have also been exempted for these companies. These companies are allowed to hold board meetings once in six months instead of four meetings in a year, as prescribed for other companies. These companies have been exempted from provisions requiring notice to be given for standing for directorship if their articles provide for election of directors by ballot. Flexibility from the provisions on passing of board resolutions in a board meeting only and on disclosure and participation in board meetings by an interested director have also been provided.

In case of Nidhis, provisions relating to serving of documents to members and payment of dividend have been modified to provide more flexibility to such companies. Provisions relating to private placement have been partially relaxed for such companies. These companies have also been exempted from the requirements of section 62 which relates to further issue of share capital.  The notice amount of Rs. 1 lakh provided under section 160 has been reduced to Rs. 10,000 for these companies. Provisions of section 185 in respect of loans to directors have been relaxed for these companies with the condition that loan is given to a director or his relative in his capacity as member and the disclosure is made in the accounts.

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