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• 21

• 2013

Provisions Applicable To Private Limited Company Under The New

Companies Bill 2013

Posted In Company Law | Articles | 1 Comment »

A quick perusal of the Companies Bill 2013 shows that

many exemptions given to Private limited companies under

Companies Act are withdrawn. . The following provisions

are applicable to Private limited companies under the new

Companies Bill 2013.

Maximum Number of members

There is no change in the minimum number of member

which is 2. The maximum number the members in a

private limited company are increased from 50 members

to 200 members. (Clause 2 sub section (68)).

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of 13Provisions Applicable To Private Limited Company Under The New Companies Bill 2013

22/08/2013http://taxguru.in/company-law/provisions-applicable-private-limited-company-companies...

Financial Year for the Balance Sheet

Financial year of the balance sheet will be 31st march

for all the companies.

For any relaxation approval from NCLT is required.

(Clause 2 sub section (41)).

Further Issue of Shares

The exemption given to private limited companies

regarding further issue of shares is withdrawn. Further

issue of shares under section 81 applicable to both private

and public limited companies. Valuation of shares shall

be done based on the certificate issued by registered valuer

subject to such conditions as may be prescribed. (Clause

62)

Certification for Annual Return

Annual Return must be certified by a Practicing company secretary and requirement of compliance

certificate by practicing company secretary is dispensed with. The annual return should contain particulars like:

(a) The extract of the annual return as provided under sub-section (3) of sec 92.

(b) Number of meetings of the Board.

(c) Directors’ Responsibility Statement;

(d) A statement on declaration given by independent directors under sub-section.

And also PCS to certify that all the provisions of the Companies Act has been complied with (Clause 92)

Number of days of Notice of General Meetings.

For private limited company as per the existing Companies Act is even seven days notice is sufficient. This

exemption is withdrawn. As per the New Provisions 21 clear days notice has to be given to the shareholders

and the notice can be given by electronic mode also. However the general meeting may be convened by giving

shorter notice if consent is given in writing or electronic mode by not less than ninety nine per cent of the

members entitled to vote at such meeting. (Clause 101).

Postal ballot for passing the Resolutions

Till now postal ballot is applicable only for listed companies. Postal ballot is applicable to private limited

companies also for certain transactions after the amendment prescribed by the central government by

notification. (Clause 110).

Board Report to give more details

The Board report shall contain the following information (Clause 134(3)) —

(a) The extract of the annual return

(b) Number of meetings of the Board;

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(c) Directors’ Responsibility Statement;

(d) a statement on declaration given by independent directors

(e) Company’s policy on directors’ appointment and remuneration including criteria for determining

qualifications, positive attributes, independence of a director and other matters if required by Section 178

provided under sub- section (3) of section 178;

(f) Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer

made—

(i) by the auditor in his report; and

(ii) by the company secretary in practice in his secretarial audit report;

(g) Particulars of loans, guarantee s or investments

(h) Particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in

the prescribed form;

(i) The state of the company’s affairs;

(j) The amounts, if any, which it proposes to carry to any reserves;

(k) The amount, if any, which it recommends should be paid by way of dividend;

(l) Material changes and commitments, if any, affecting the financial position of the company which have

occurred between the end of the financial year of the company to which the financial statements relate and the

date of the report;

(m) The conservation of energy, technology absorption, foreign Exchange earnings and outgo, in such manner as

may be prescribed;

(n) a statement indicating development and implementation of a risk management policy for the company

including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the

existence of the company;

(o) The details about the policy developed and implemented by the Company on corporate social responsibility

initiatives taken during the year;

(p) In case of a listed company and every other public company having such paid-up share capital as may be

prescribed, a statement indicating the manner in which formal annual evaluation has been made by the Board

of its own performance and that of its committees and individual directors;

(q) Such other matters as may be prescribed.

Corporate Social Responsibility.

Every company having net worth of rupees five hundred crore or more, turnover of rupees one thousand crore or

more or a net profit of rupees five crore or more during any financial year shall constitute a Corporate Social

Responsibility (CSR) Committee of Board consisting of three or more directors, out of which at least one

director shall be an independent director and 2 per cent of the average net profits of the immediately preceding

three financial years should be spent for CSR (Clause 135). Schedule VII prescribes the activities to be included

under Corporate Social Responsibility which is given below:



SCHEDULE VII

Activities which may be included by companies in their Corporate Social Responsibility Policies Activities

relating to:—

(i) Eradicating extreme hunger and poverty;

(ii) Promotion of education;

(iii) Promoting gender equality and empowering women;

(iv) Reducing child morality and improving maternal health;

(v) Combating human immunodeficiency virus, acquired immune deficiency syndrome, malaria and other diseases;

(vi) Ensuring environmental sustainability;

(vii) Employment enhancing vocational skills;

(viii) Social business projects;

(ix) Contribution to the Prime Minister’s National Relief Fund or any other fund set up by the Central

Government or the State Governments for socio-economic development and relief and funds for the welfare

of the Scheduled Castes, the Scheduled Tribes, other backward classes, minorities and women; and

(x) such other matters as may be prescribed.

Appointment of Auditors

A. An auditor will be appointed in the first annual general meeting for a five-year term. Thereafter, the auditor

will be changed as per the members’ decisions.

B. Secondly, an audit firm cannot be re-appointed for more than two five-year terms. (i.e. 10 years) For re-

appointment purposes for the individual auditor or audit firm, there has to be a gap of five years. Moreover, for

appointment or re-appointment purposes, there should be no common partners between the new firm and old

audit firm. Another interesting clause is that members can resolve to ask the audit firm to rotate the audit partner

and team every year.

The company shall inform the auditor concerned of his or its appointment, and also file a notice of such

appointment with the Register within fifteen days of the meeting in which the auditor is appointed. Every

company shall comply with the requirements of this sub-section within three years from the date of

commencement of this Act. (Clause 139)

Appointment of Internal Auditor

Such class or classes of companies as may be prescribed shall be required to appoint an internal auditor,

who shall either be a Chartered Accountant or a Cost Accountant or such other professionals as may be decided

by the Board conduct internal audit of the functions and activities of the company. (Clause 138).

Duties of Directors

1. A director of a company shall act in good faith in order to promote the object of the company.

2. A director of a company shall exercise his duties with due care, skill and diligence.

3. A Director of a company shall not assign his office and any assignments so made shall be void.

4. If a director of the company contravenes the provisions of this section such director shall be punishable

with fine which shall not be less than Rs.1, 00,000/- but which may extend to Rs.5, 00,000/- (Clause 166).



Borrowing Powers

The exemption given to private limited company for borrowings under section.293 is withdrawn. Borrowing

powers now require approval by shareholders and applicable to both private and public limited companies.

(Clause 180).

Loan and Investment

The exemption given to private limited company under Section 372A regarding loan and investment is

withdrawn. Existing limit of 60% Paid up capital and free reserves or 100% of free reserves applicable to both

private limited and public limited companies.(Exemption to private limited Company for loan and investment

under section372A is removed now) (Clause 186).

Related party Transactions

Only with the consent of the Board of Directors given by a resolution at a meeting of the Board and subject to

such conditions as may be prescribed no company shall enter into any contract or arrangement with a related

party with respect to—

(a) Sale, purchase or supply of any goods or materials;

(b) Selling or otherwise disposing of, or buying, property of any kind;

(c) Leasing of property of any kind;

(d) Availing or rendering of any services;

(e) Appointment of any agent for purchase or sale of goods, materials, services or product.

(f) Such related party’s appointment to any office or place of profit in the company, or its subsidiary company or

associate company.

No contract or arrangement, in the case of a company having a paid-up share capital of not less than such

amount, or transactions not exceeding such sums, as may be prescribed, shall not be entered into except with the

prior approval of the company by a special resolution. Further that no member of the company shall not vote on

such special resolution to approve any contract or arrangement which may be entered into by the company, if

such member is a related party. (Clause 188).

Loan to Directors

The exemption given to the Private Limited Company under section 295 regarding loan given to director of a

private limited of company is withdrawn. Loan should not be given to directors of any company including

private limited company or to any private company in which a director is a director or member (Clause 185).

Appointment of Key Managerial Personnel

Appointment of Key Managerial Personnel – Every company belonging to such class or description of

companies as may be prescribed shall have the following whole time Key Managerial Personnel (Clause 203).

1. Managing Director or Chief Executive Officer or Manager and in their absence a Whole Time Director.

2. Company Secretary and;

3. Chief Financial Officer.

Secretarial Audit Report



Every listed company and company belonging to other class of companies as may be prescribed shall annex

with its Board’s report a secretarial audit report given by Practicing Company Secretary in such form as may be

prescribed. (Clause 204).

Director to stay in India for 182 days

Every company shall have at least one director who has stayed in India for a total period of not less than one

hundred and eighty-two days in the previous calendar year. Every company existing on or before the date of

commencement of this Act shall, within one year from such commencement or from the date of notification of

the rules in this regard as may be applicable, comply with the requirements of this provision (Clause 149(3)).

Board and Annual General Meeting minutes

Hereafter the companies shall follow the Secretarial Standards while making the minutes of Board and

General Meeting. (Clause 118 (10))

Books of Accounts

The Books of Accounts may be kept in electronic form also. (Clause 128)

Managing Director.

The exemption given to private limited company under section 269 for appointment of Managing Director is

withdrawn. Provision relating to the appointment of Managing Director is also applicable to the private limited

companies (Clause 196).

In addition to the above Clause 190 of the Companies Bill 2013 regarding keeping of Contracts of employment

entered with wholetime directors is not applicable to Private Limited Companies.

Need for Amendment of Articles of Association of private limited company:

Sec 171 to 186 sections which are not applicable to Private Limited companies is now deleted in the

Companies Bill. Hence, after Companies Act, 2013, comes into effect, it may require to amend the article of

association of Private Limited by substituting the new set of article of association so that it will not contain any

contrary provision of the Companies Act, 2013.

A comparison is made with respect to exemptions given in the Companies Act, 1956 and new Companies Bill

2013. The following are the exemptions available to Private Limited Companies in Companies Act 1956 and its

status in New Companies Act 2013.

S.No Existing

Section in

Companies

Act, 1956.

Nature of exemptions in

the Companies Act, 1956.

Status in Companies Act

2013

1. Section 77(2) Financial assistance can be

given for purchase of or

subscribing for its own

shares in its holding

company, Whereas not

applicable to Public

company

Clause 67 – Restrictions on

purchase by Company or

giving of loans by it for

purchase of its shares.

Private limited company not

specifically mentioned in

the clause. Hence exemption

is available.

2. Section 81(3) Further shares can be issued

without passing special

resolution or obtaining

Clause 62 – Further issue of

shares now applicable to

Private limited Company



central government’s

approval and without

offering the same

necessarily to existing

shareholders

also. Exemption is

withdrawn.

3. Section 149(7) Exemption from Certificate

of Commencement of

business

Clause 11 – Commencement

of business declaration has

to be filed by Private

Limited Company.

Exemption is withdrawn.

4. Section 198(1) No restriction on the

payment of Managerial

Remuneration on net profits

Clause 197 – Overall

maximum managerial

remuneration applicable to

Public Company. For

Private Limited Company

this section is not

applicable. Exemption is

withdrawn.

5. Section 252(2) Need not have more than

two directors

Clause 149 – Minimum two

directors. There is no

change in the existing

provisions. Exemption

continues.

6. Section 255(1) A proportion of directors

need not retire every year

Clause 152 – The exemption

continues but as per the

AOA of the Company.

7. Section 257(2) Statutory notice, etc., is not

required for a person to

stand for election as a

director

Clause 160 – Exemption is

withdrawn.

8. Section 259 Central Government’s

sanction is not required to

affect increase in the

number of directors beyond

12 or the number fixed by

articles of association

Clause 149 – The Company

to have Board of Directors.

Exemption given now to

maximum of 15 Directors.

9. Section 263(1) In passing resolution for

election of directors, all

directors can be appointed

by a single resolution.

Clause 162 – Appointment

of directors to be voted

individually. Exemption is

withdrawn. Single

resolution for the

appointment of directors can

be passed both by private

and public company

provided, a proposal to

move such a motion has first

been agreed to at the

meeting without any

votebeing cast against it.

10. Section 264(3) Consent to act as director

need not be filled with

registrar


of directors. Exemption

removed. Private Limited

Companies also to file



consent. Exemption is

withdrawn.

11. Section 269(2) Central Government’s

approval is not required for

appointment of managing or

whole-time director or

manager


withdrawn. Applicable to

Private Limited Companies

12. Section 275 to

279

Restrictive provisions

regarding total number of

directorships which any

person may hold do not

include directorships held in

private companies which

are not subsidiary of public

company

Clause 165 – The maximum

number of companies in

which a director can hold

office is 20 companies. Out

of this he can hold only up

to 10 public companies.

There is no restriction for

private limited companies.

One can become director in

20 private limited

companies. Exemption is

withdrawn.

13. Section 293(1) Certain restrictions on

powers of board of directors

do not apply


withdrawn.

14. Section 295(2) Prohibition against loans to

directors does not apply


withdrawn. Loan to

directors applicable to

private limited company

15. Section 300(2) Prohibition against

participation in board

meetings by interested

director does not apply


withdrawn. Disclosure of

directors interested

applicable to private limited

company.

16. Section 303(1) Date of birth of director

need not be entered in the

register of directors

Clause 170 – Register of

directors and key

managerial personnel and

their shareholding.

Exemption is withdrawn.

Anybody can view the

particulars of the directors

through their DIN numbers.

17. Section 309(9) There is no restriction on

remuneration payable to

directors

Clause 197 – Overall

maximum managerial

remuneration applicable to

Public Company. For

Private Limited Company

this section is not

applicable. Exemption

continues.

18. Section 316(1) No restriction on

appointment of managing

director


of Key Managerial

Personnel. Exemption is

withdrawn.

19. Section 349 Provisions relating to

method of determination of



net profits and

ascertainment of

depreciation do not apply

Clause 198 – Calculation of

Profits. Exemption is

withdrawn.

20. Section 372(A) No prohibition against

purchase of shares, etc., in

other companies


withdrawn. Applicable to

Private Limited Companies

The following provisions which exempted private limited companies have been deleted in the Companies Act,

2013.

S.No Existing

Section in

Companies Act,

1956.

Particulars Status in Companies

Act 2013

1. Section 70(3) Statement in lieu of prospectus

need not be delivered to the

registrar before allotting shares

No provisions exist

2. Section 90(2) Provisions as to kinds of share

capital (sec.85), further issue of

share of capital(sec.86), voting

rights(sec 87), issue of shares

with disproportionate rights (sec

88) and termination of

disproportionate excessive rights

(sec 89)

No provision exist

3. Section 165(10) Exemption from Statutory

Meeting and Statutory Report

No provision exist

4. Section 170(1) Articles of private company

having provisions relating to

general meetings without being

subject to the provisions of

sections 171 to 186

No provision exist

5. Section 204(6) Can appoint a firm or body

corporate to an office or place of

profit under the company

No provision exist

6. Section 266(5) Restriction on appointment or

advertisement of directors as

regards consent and qualification

of shares does not apply.

No provision exist

7. Section 268 No Central Government approval

to modify any provision relating

to appointment of managing,

whole-time or non-rotational

directors

No provision exist

8. Section 273 No share qualification u/s 270 for

Directors of a private company.

No provision exist

9. Section 310 No Government approval for

change in restriction on

remuneration to directors

No provision exist

10. Section 311 No provision exist



Share

No central government approval

for increase in the remuneration

beyond specified limit of

directors on an appointment or

reappointment

11. Section 317(4) No restriction on appointment of

managing director

No provision exist

12. Section 350 &

355

Provisions relating to method of

determination of net profits and

ascertainment of depreciation do

not apply

No provision exist.

13. Section 370(2) No restriction on making loans to

other companies

No provision exist

14. Section 388A Provisions of sections 386 and

387, which restrict the number of

companies of which a person can

be appointed as manger,

remuneration of the manager,

etc., and also provisions of

sections 269, 310,311,312 and

317, do not apply

No provision exist

15. Section 409(3) Central Government cannot

exercise its power to prevent

change in board of directors

which is likely to affect the

company prejudicially

No provision exist

16. Section 416(1) Person can enter into contract on

behalf of company as undisclosed

principle and need not give

intimation to the other directors

No provision exist

Rules to clarify the clauses be to be published by MCA shortly:

The rules relating to annual return, secretarial audit, Postal Ballot, Related Party Transactions, auditors, etc will

be notified by the Government shortly. Thereafter the clauses under the new Companies Act will have more

clarity.

From the above, it is obvious that the exemption coat available to the private limited companies is now

removed by the Companies Bill 2013. Therefore, the private limited companies are required to follow many

provisions under Companies Act, 2013 which are applicable now.

—————————-

N. Sridharan

Practising Company Secretary

[email protected]

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Sandeep Kanoi+

One Response to “Provisions Applicable To Private Limited Company Under The New

Companies Bill 2013”

1. CS Sharadchandra Patil says:

August 21, 2013 at 7:53 PM

Sir,

A very informative article indeed!!

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