To ease the regulatory burden for private companies including those of small size, the government today proposed relaxing certain provisions of the new Companies Act for such entities.
The proposed relaxations include certain provisions relating to prohibition on acceptance of public deposits, share capital, voting rights, further issuance of shares, appointment of auditor and director, restriction on board powers, loans to directors, related party transactions, as also appointment of top management personnel.
Through a draft notification, the Corporate Affairs Ministry has proposed as many as 13 relaxations for private companies from the various provisions of the Companies Act which came into effect at the beginning of current fiscal.While the draft notification would be placed before each house of the Parliament, suggestions and comments are invited from the public till July 1, the Ministry said in a circular.
Among various proposals, it has been proposed that a private company be exempted from having a share capital of either equity share capital or preference share capital.The other exemption include the requirement of every shareholder of a company having a right to vote on every resolution placed before the company, and his voting right being in proportion to the shareholding.
With regard to further issue of share capital by a private company, it has been proposed that any such offer would need to be made through a notice during a time period 'not less than 7 days and not exceeding 15 days'. The existing provision has such a time period of not less than 15 days and not more than 30 days.
With regard to issue of shares to employees under an ESOP plan, it has been proposed that the same can be done through a 'special resolution' in case of private companies, as against a special resolution for others.It has also been proposed that certain rules on 'prohibition on acceptance of deposits from public' would not be applicable to small private companies.
Such companies would include those "having 50 or less number of members if they accept monies from their members not exceeding 25 per cent of the aggregate paid up capital and free reserves of 100 per cent of the paid up capital, whichever is more, and which inform the details of such monies to the Registrar in the prescribed manner".
Also, the provisions for meeting of shareholders with regard to notice, statement to be annexed with such a notice, quorum, appointment of chairman, proxies, voting restriction, voting by show of hands and demand for poll would not apply to a private company if its 'article of association' provides otherwise.
The Ministry of Corporate Affairs has also proposed thatcertain rules governing non-eligibility for appointment as an auditor would also not apply to a private company.
Under these rules, those not eligible to be appointed auditor of a company include a person in full time employment elsewhere. Besides, a person or a partner of a firm cannot be appointed auditor if such persons or partner at that time is serving as auditor of more than 20 companies.The private companies would also not be required to comply with provisions dealing with right of persons other than retiring directors to stand for directorship.
Besides, such companies have also been proposed to be exempted from the Companies Act provisions regarding individual voting for appointment of directors.
Another exemption has been proposed for private companies with 50 or less members, which deal with restrictions on powers of board. This provision states that the board of a company can exercise certain powers only with the consent of the company by a special resolution.These powers include sale, lease or otherwise dispose of the whole or substantially the whole of one or more undertakings of the company. Other such powers related to investments, high borrowings, and decisions on repayment of any debt due from a director.
The Ministry has also proposed to exempt certain private companies from the rules governing loans to directors. The exempted companies would include those having borrowings not more than twice their paid up capital or Rs 50 crore (whichever is less) from banks, financial institutions or corporate bodies.
This exemption has also been sought for private companies in whose share capital no other corporate body has invested any money.This rule restricts grant of loans by a company to its directors or other related parties in various circumstances.Besides, all private companies have been proposed to be exempted from the rules about 'related party transactions', appointment of managing director, whole-time director or manager, as also the appointment of key managerial personnel.
Such rules include those restricting appointment of a whole-time key managerial personnel who holds office in more than one company,except in a subsidiary company at the same time.