Introduction:
This note broadly
covers the main areas that have an impact on the functioning of the Private
Limited Companies. It outlines the immediate (major) actions that have to be
taken by a private limited company, to be compliant with the new provisions. It
also gives a comparative analysis on the position of a private limited company under
the previous Companies Act 1956 and the Companies Act 2013.
Although the Ministry has come
out with few proposed privileges as they are yet to be notified we’ll not bring
that in this note. However the proposed privileges are attached along with this
note for your information/ reference.
The immediate actions that have to be taken
up by Private Limited Companies:
1.
As you all know, pursuant to Sec 12(3)(c) of the Companies Act
2013 we’ll have to provide all the following information on all our letter
head, billheads, letter papers and notices and other official publications
Name of the Company, - Registered Office Address, - Corporate
Identification Number, - Telephone No, - Fax No. (if any), - e-mail address, -
Website address
Questions: what are covered
under official publications? Are internal circulars even covered under these???
2.
Disclosure of
Interest: The
disclosures have to be obtained in form DIR -8 and MBP 1. A Board resolution
has to be passed taking note of these disclosures and filed with the ROC within
30 days from the date of passing the resolution (form MGT 14).
Under
the CA 2013, private companies are free to include such other additional
disqualifications as may be laid down by them in addition to the ones said in
Sec 164 (1) and (2) of companies act 2013.
Note: if the
company has any independent director then obtain a declaration of independence
u/s 149(6) of the CA 2013.
A detailed write up
on the above is available in the below link: http://cusprofessionals.blogspot.in/2014/04/disclosure-of-interest-for-fy-2014-15.html
3.
Borrowings: Earlier there were no
restrictions on the borrowings of a Private Limited Company. However, currently
the company is to comply with the following requirements for borrowing in excess
of 100% of paid up capital and free reserves of the Company:
a.
A
prior board approval and shareholder’s approval is required.
b.
The
board resolution has to be filed with the ROC within 30 days from the date of
passing the resolution and
c.
The
special resolution has to be filed within 30 days with the ROC.
Note:
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The
resolutions should specify the maximum limit upto which the company can borrow.
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The loans
borrowed from directors, be it unsecured loans/ secured loans shall now be considered
for determining the limit of borrowings under Sec 180(1)(C).
4. Re- appointment of Managing Director: Normally in private
limited companies the managing director is a Non Rotational Director. However,
now there is a restriction on the periodicity of the managing director as
follows:
Sec 196 (2) No company shall appoint or re-appoint any
person as its managing director, whole-time director or manager for a term
exceeding five years at a time:
Provided that no re-appointment shall be made earlier than
one year before the expiry of his term.
Note: as a
continuous process MD has to be re-appointed during the 5th year for
him to continuously hold the position as a managing director.
Procedure:
a.
His
re-appointment has to be approved by the directors and the shareholders
b.
The
board resolution and the special resolution have to be filed with the ROC
within 30 days.
Therefore
ROC enjoys two filing fee for the same form MGT 14 being filed twice.(One for
BR and the other for Spl. Resolution) 
5. Deposits:
Deposit is defined to include any receipt of money
by way of deposit or loan or in any other form, but does not include such
amounts as may be prescribed.
Earlier
private limited companies were permitted to borrow from their shareholders also,
but now, that door is closed and they are permitted to accept loans or deposits only from Directors, if required.
Let
us talk a little bit more on this with regard to the gold saving schemes:
a.
Private
limited companies are not permitted to run these schemes if it is in non
compliance with the act.
b.
Meanwhile
it is said that the return on these schemes cannot be higher than the bank rate.
c. DPT 4 – Return of
deposits to be filed by August 31, 2014.
A
detailed write up is available in the below link:
6.
Related Party
Transaction: all
contracts including contracts on immovable property which were
excluded by the earlier act have been brought into the ambit of the Companies
act 2013.
Question: does it include the loans taken from the directors also?
If so, does it include even the unsecured loans.?
We have written a
detailed note on this. The link for the same is as follows:
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7.
Resident Director: All the companies
to appoint atleast one resident director
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8.
Compliance of
Secretarial Standards: The secretarial standards have to be complied with, with
regard to the minutes of Board and Annual General Meeting.
9. DIN: Section
158 – Obligation to indicate Director Identification Number
Every person or
company, while furnishing any return, information or particulars as are
required to be furnished under this Act, shall mention the Director
Identification Number in such return, information or particulars in case such
return, information or particulars relate to the director or contain any
reference of any director.
(for eg: while passing the resolution for
appointment or re-appointment of the director, while obtaining their
declarations as may be required and so on)
10. Corporate
Social Responsibility:
All those companies who fulfill the
following criteria have to comply with the formation for the CSR committee and
the policy to carry on such activities as specified under the CA 2013.
Net worth>=INR 500
Crores OR
Turnover>= INR 1000 Crores
OR
Net Profit >=INR 5 Crores
A detailed note in this regard is
available in the below link:
11. Appointment of Secretarial auditor, Internal
auditor and Cost auditor is also required, as may be applicable under the act.
12. A broader picture on Private Limited Companies and the
difference in status, between the CA 1956 and 2013 is made available here for
your ready reference.
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Companies
Act 1956
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Companies Act 2013
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Sec 3(1)(iii)
A Private Company needs to have Minimum paid-up capital
of Rs. 1 lakh as against Rs. 5 lakhs for Public Company.
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Sec 2 (68)
The only changes are the max no of members has
increased been from 50 to 200.
The concept of One Person Company has been included in
the definition of a Private Limited Company.
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Sec 12(1)
A Pvt. Co. can be formed by just two persons as against
minimum seven persons required for incorporation of a Public Company.
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Sec 3
The requirement remains the same.
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Sec 58A
Deposits taken by Pvt. Co. from its members are exempt
from the rigors of this section. As per the provisions of sec. 58A read with
rule 2(b) of the Companies (Acceptance of Deposits) Rules, 1975 — amount
received from its shareholders by a private company (provided the shareholder
concerned furnishes at the time of giving the money to the company, a
declaration that the amount is not being given out of funds borrowed or
accepted from others) is not included in the meaning of deposit. If the
depositor ceases to be a shareholder, the deposits made by him cease to
qualify for exemption from the date of such cessation
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Sec 73
Even as per the Companies Act 2013 the private limited
companies are prohibited from acceptance of deposits from the public.
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Sec 70(3)
A Pvt. Co. need not file Statement in lieu of
Prospectus with ROC.
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Not available
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Sec 77(2 & 3)
There was no prohibition on a Pvt. Co., which is not a
subsidiary of a public company, in providing financial assistance to anyone
for purchasing or subscribing for its own shares or of its holding company.
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Sec 67
This act removes the earlier prohibition and permits
the company to provide loans to the trustees to hold the shares in their name
for the benefit of the employees. However the employees can not be the trust
members.
This requires a special resolution.
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Sec 81
A Pvt. Co. can issue further shares in any manner; i.e.
rights shares to the existing shareholders need not be offered.
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Sec 62
This is applicable to a Pvt ltd co.
There is no restriction in issue of shares to the
existing share holders. (ie. Earlier it was said that shares can be issued
only after 2 yrs from the date of incorporation or 1 yr from the date of
first allotment whichever is earlier).
The offer period to be open for not less than 15 days
and not more than 30 days
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The right of appeal to the Company Law Board against
rejection of a transfer of shares is not available as long as the private
company is only enforcing the provisions of its articles in rejecting a
particular transfer. It appears from the new section 111(13) that a right of
appeal will be available where the rejection is outside the provisions of the
private company’s articles. The right of appeal is also available where there
is transmission by court sale or sale by other public authority [s. 111(11)]
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Sec 58 and 59
In case a company refuses to register the transfer of
shares without sufficient cause, then an appeal can be made to the Tribunal
within 30 days from the date of refusal. (pvt ltd co)
Earlier if two months had passed since the company has
refused to register the transfer then the CLB candirect the company to
register the transfer and then to make an appeal however the Tribunal does
not give any such directions.
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Procedures for obtaining certificate of commencement of
business do not apply to Pvt. Co.
A Pvt. Co. can commence its business as soon as the
certificate of incorporation is issued.
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Sec 11
The company shall not commence any business or borrow
any funds unless:
a.
A declaration has been made that the directors have
subscribed to the number of shares that they had agreed to be taken by them
and the paid up capital is not less than Rs. 1,00,000/- (pvt) and 5,00,000
(pub ltd. co)
b.
The company to file with the registrar a verification for
its registered office.
c.
The concept of Certificate of Commencement has been
removed.
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Pvt. Co. is not required to hold statutory meeting or
prepare any statutory report.
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Removed
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Exemption from AGM
related requirements :
The provisions of these sections relating to general
meetings, unless the provisions of any section are expressly made applicable
by the company’s articles, do not apply to such a private company to the
extent to which the company makes its own provisions by its articles.
Relaxation in the length of Notice for calling General Meeting, contents and
manner of Service of Notices, Explanatory Statements, Quorum for meeting,
Chairman of meeting, Restrictions of voting rights etc. to the extent to
which the company makes its own provisions by its articles..
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Sec 101, 102, 103, 104,
105, 107, 109, 106, 96, 170, 43, 47
These are now applicable.
a.
21 days clear notice
b.
Explanatory statement
c.
Quorum
d.
Appointment of Chairman
e.
Proxy - (For 50
people ?)
f.
Voting rights- if dividend has not been given to the
preference share holders for more than 2 yrs then they have a right to vote
at the meeting.
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Passing of resolution by Postal Ballot not relevant for
Pvt. Co.
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Sec 2(65), 110
Applicable
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Ceiling on overall managerial remuneration not
applicable to Pvt. Co. A private company, which is not subsidiary of a public
company, may remunerate those in management, by such higher percentage of
profits or in any manner as it may think fit.
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Sec 2(78), Sec 197
Applicable
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No restriction on appointment of any firm, body
corporate to office or place of profit.
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Removed
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The ceiling, on number of companies an auditor can
audit, does not include audit of Pvt. Cos.
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Sec 139, 142
Appointment of audit –
Period - 5 consecutive yrs
Reappointment – every yr
Firm being appointed – cannot be appointed for more
than 2 terms of 5 consecutive yrs.
Individual being appointed – cannot be appointed for
more than 1 term of 5 consecutive yrs.
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Minimum Directors for Pvt. Co. is 2 (two) against 3
(three) in case of Public Co. Requirement of Independent Directors or Small
Shareholders’ Directors not applicable to Pvt. Co.
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Sec 2(10), 149, 151
The maximum number of Directors has been increased to 20.
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A Pvt. Co. need not adopt the procedure relating to
appointment, retirement, re-appointment of directors etc. applicable to a
public company.
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Provisions of Sec
152 (Except (6) are appliable
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The provision requiring the giving of 14 days notice by
new candidates seeking election as directors and deposit of certain amount
(Rs. 500) are not mandatory for Pvt. Cos.
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Sec 160
This is applicable to all the companies and the amount
to be deposited is Rs. 1 Lac and it is subject to be refunded only when the
candidate is elected.
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Central Government approval for increasing number of
directors beyond the permissible maximum (presently 12) not required.
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Removed
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No requirement of filing consent by the directors to be
filed with the Registrar to act as a director.
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Sec 152
Is applicable to all the companies
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Central Government approval for amendment relating to
appointment/reappointment of a whole-time director/ director not liable to
retire by rotation.
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Sec 2(94), 203
Appointment of Key Managerial personnel. Applicable to
public companies, deemed public companies and such other companies.
Clarification to be provided in the rules
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The disqualification u/s. 274(1) clause (g) does not
include directorships of Pvt. Co..
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Sec 164
Any person who is a director of the defaulting company
is disqualified from being appointed as a Director.
From the wording it
appears as if it includes Directorships of Pvt Cos also
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The Directorships of Pvt. Cos. not to be considered for
the limit on no. of companies a person can be director.
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Under Sec 165, Number of Directorships in Public Cos/
Subsidiary of Public Cos limited to ten
and twenty in Pvt. Cos
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Provisions relating to formation of Audit Committee not
applicable.
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Sec 177
Applicable to listed company and all such other class
of companies (as prescribed).
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Restrictions on certain powers of Board of directors
regarding selling, leasing, remitting or giving time for payments of debts,
investing or borrowing moneys, or contributing to charities other than for
political purpose are not applicable to Pvt. Co.
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Sec 180
Applicable to all the Companies. Ordinary resolution is
to be passed
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Restriction on loans to directors/relatives etc. does
not apply to Pvt. Co.
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Sec 185
Applicable to all the companies. This section is to be
read in line with the inter corporate loans sec 186
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A private company which is not a subsidiary of a public
company, is free from restrictions on Payment of remuneration to the
directors or increase in their remuneration. The Procedures like filing Form
25C not required in case of Pvt. Co.
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Sec 197, Sec 311
Is applicable even to a private limited company which is a
subsidiary of a public company
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No restriction on period of appointment of managing
director/manager for more than 5 years at a time.
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Sec 203, 196
Managing
Director cannot by appointed for a period of more than 5 years ata strectch
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No restrictions on giving loans or guarantees to other
companies or on making investment in the shares of the other companies.
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Sec 2(43), 186
It is permitted Upto two layers of investment
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