MCA favorably revisits exemption notification relating to private companies, by Trupti Upadhyay

Provided that the financial statement, with respect to

person company, small company, dormant company and

private company (if such private company is a start-up) not include the cash flow statement

Explanation. – For the purposes of this Act, the term ‘start-up’

or “start-up company” means a private company incorporated

under the Companies Act, 2013 (18 of 20’l3) or the Companies Act, 1956 (‘l of 1956) and recognised as start-up in accordance with the notification issued by the Department of lndustrial Policy and Promotion, Ministry of Commerce and Industry.”

(A) which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital, free reserves and securities premium account; or

(B) which is a start-up, for five years from the date of its

incorporation; or

(C) which fulfils all of the following conditions, namely:-

(a) which is not an associate or a subsidiary company of any other company;

(b) if the borrowings of such a company from banks or

Financial institutions or any body corporate is less than twice of its paid up share capital or fifty crore rupees, whichever

is lower; and

(c) such a company has not defaulted in the repayment of

such borrowings subsisting at the time of accepting deposits under this section:

Provided that the company referred to in clauses (A), (B) or (C) shall file the details of monies accepted to the Registrar in such manner as may be specified.”

The scope of exemption has been widen. Now, start-up company can avail the exemption for 1^st five years.

In addition to this, a  private company fulfilling all the following 3 conditions can also avail exemption-

(i)                 A private company shall not be an associate or a subsidiary company of any other company.

(ii)               If the borrowing of the private company from banks or financial institutions or any body corporate is less than:

·         2X of its paid share capital or,

·         Rs. 50 Crore;

whichever is lower.

(iii)             There is no default subsisting at the time of acceptance of deposit by private company.

The details of monies accepted by a private company shall be filed with the Registrar.

This is surely a welcome amendment.

It is interesting to note that Rule 2 (1) (c) (xvii) of Companies (Acceptance of Deposits) Rules, 2014 provides as under in case of start-up:

‘”deposit” includes any receipt of money by way of deposit or loan or in any other

form, by a company, but does not include –

xvii) an amount of twenty five lakh rupees or more received by a start-up company, by way of a convertible note (convertible into equity shares or repayable within a period not exceeding five years from the date of issue) in a single tranche, from a person.

Therefore, any amount received from members by start-up which is not in the nature of convertible note will be covered under aforesaid exemption for 5 years from the date of incorporation and compliance of Section 73 (2) (a) to (e) will not be required to be made.

namely:-

“(g)aggregate amount of remuneration drawn by directors;”

“92. (1) Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding—

(g) remuneration of directors and key managerial personnel;”

Section 203 (Appointment of KMP) of the Act, 2013 do not apply to private company. Therefore, in the Annual Return of private company disclosure of the aggregate amount of remuneration drawn by directors is only mentioned. MCA in its Amendment Notification has allowed private companies which are small companies to disclose aggregate amount of remuneration drawn by directors in its annual reports. The intention of allowing this kind of exemption is ambiguious in nature. When the private companies are not required to appoint KMPs how can they disclose the remuneration paid to KMPs in its Annual Report. The disclosure requirements of remuneration paid to directors in Annual Report of private company (whether or not a small company) shall remain same as it was before Amendment Notification. Therefore, in author’s view, such an exemption was not required to be granted.

Small company shall have the same meaning as defined under 2(85) of the Act, 2013.

Private companies, other than small companies, to provide details of remuneration drawn by directors and KMPs.

namely:-

Provided that in relation to One Person Company, small company and private company (if such private company is a start-up), the annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company.”

The benefit has now been extended to private companies that are start-up as well.

(i) which is a one person company or a small company; or

(ii) which has turnover less than rupees fifty crores as per

latest audited financial statement and which has aggregate borrowings from banks or financial institutions or any body corporate at any point of time during the financial year less than rupees twenty five crore.”.

Section 143 (3) (i) provides as under:

(i) whether the company has adequate internal financial controls system in

place and the operating effectiveness of such controls;

An auditor need not report the aforesaid for following class of private companies:

·         A one person company or small company; or

·         A company which has a turnover of less than rupees fifty crores as per latest audited financial statement; and

·         Aggregate borrowing of a private company at any point of time during the financial year is less than rupees twenty five crore.

It has been clarified vide MCA circular dated 25th July, 2017 that the FY from which the said exemption is applicable shall be 2016-17. The Audit Reports which may or may not have been prepared before the date of notification i.e. 13th June, 2017 shall qualify for this exemption subject to fulfillment of eligibility criteria.

(5) A One Person Company, small company, dormant company and a private company (if such private company is a

start-up) shall be deemed to have complied with the provisions

of this section if at least one meeting of the Board of Directors

has been conducted in each half of a calendar year and the

gap between the two meetings is not less than ninety days:

Provided that nothing contained in this sub-section and in section 174 shall apply to One person Company in which there is only one director on its Board of Directors.

It shall be regarded as sufficient compliance if the meetings are held once in a half year provided that the gap between two board meetings shall be atleast 90 days.

Corresponding clarity has been given for the purpose of ascertaining quorum. Therefore, in case of private companies, the interested director may also counted towards quorum in the Board Meeting after he has disclosed his interest pursuant to section 184.