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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Companies Act are withdrawn.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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Page 1 of 13Provisions Applicable To Private Limited Company Under The New Companies Bill 2013
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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regarding further issue of shares is withdrawn.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exemption is withdrawn.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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Page 2 of 13Provisions Applicable To Private Limited Company Under The New Companies Bill 2013
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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:
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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).
Page 4 of 13Provisions Applicable To Private Limited Company Under The New Companies Bill 2013
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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
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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
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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
Clause 152 – Appointment
of directors. Exemption
removed. Private Limited
Companies also to file
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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
Clause 196 – Exemption is
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
Clause 180 – Exemption is
withdrawn.
14. Section 295(2) Prohibition against loans to
directors does not apply
Clause 185 – Exemption is
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
Clause 184 – Exemption is
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
Clause 203 – Appointment
of Key Managerial
Personnel. Exemption is
withdrawn.
19. Section 349 Provisions relating to
method of determination of
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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
Clause 186 – Exemption is
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
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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
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Tags: new Companies Bill
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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