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Sunday, August 9, 2015

Definition of Private Limited Company

 

This act has enhanced the number of members to 200 vs the earlier limit of 50.  The definition of a Private limited Company stands modified under the new Act. 

 

The definition under Sec 3(1) (iii) no longer includes restrictions of acceptance of deposits from the public.  Private Limited Companies can accept deposits from their members under a new Section 73 of the 2013 Act, subject to the terms and conditions stated therein.  There is no longer a concept of a "deemed public company" under this Act

 

Key Aspects – Private Limited Companies

 

Section

Contents

Remarks

1956 Act

1956 Act

Jun 5 notification

2(68)

Max number of members

200 as per the Act,

3(1)(iii)

 

50 was the upper limit for number of members

NA

2(41)

Uniform Financial Year

Uniform Financial Year – April to March is a must except for certain classes of companies which have holding / subsidiary abroad

No extension of accounting period to 15 months or 18 months

 

NA

 

 

 

 

210(4)

 

New Provision applicable to Private Limited Companies also

 

Extension of accounting period was permitted under the Act for 15 months and 18 months

 

2(4)

Cash Flow Statements

Cash Flow Statements Exempted for Small Companies, Dormant Companies and OPC's only.  Private Limited Companies not in the above categories have to prepare a Cash Flow Statement

NA

Previously exempted for private limited companies

NA

5

Entrenchment Provisions in AoA

Possible with consent of all members to provide for covenants which are more restrictive than the Act

NA

New Provision

NA

11

Commencement of Business

A private company cannot commence business without filing with ROC a declaration that the subscribers to the memorandum have brought in the share moneys has the relevant form for verification of registered office under Sec 12(2) has been provided.  INC 22 which is to be filed along with proof of residence in the said place

149

A private company can commence operations after incorporation and need not obtain certificate of commencement of business. The exemption has been withdrawn

NA

23

Private Placement

A private company may issue securities by way of rights issue or bonus issue in accordance with the provisions of this Act; or through private placement by complying with the provisions of sec 42.

NA

New Provision.  This can to be done to a group of persons not exceeding 200 in a financial year. This should be supported by an offer document and subject to completion of earlier allotments.  Allotment in 60 days through funds received in banking channels

 

43 - 47

Voting Rights

Voting rights in proportion to share holding, rights of preference share holders

87

Sec 90 exempted private companies from the below mentioned sections

 

85. TWO KINDS OF SHARE CAPITAL

86. NEW ISSUES OF SHARE CAPITAL TO BE ONLY OF TWO KINDS

87. VOTING RIGHTS

88. PROHIBITION OF ISSUE OF SHARES WITH DISPROPORTIONATE RIGHTS

89. TERMINATION OF DISPROPORTIONATELY EXCESSIVE VOTING RIGHTS IN EXISTING COMPANIES

 

Kinds of share capital and Voting rights proportionate to shares held  shall not apply where Memorandum or articles of association of the private company so provides.

 

62

Further Issue of Shares

A company can make further issue of capital through

Rights issue,

ESOP or

Private placement in accordance with provisions of section 42

Shares have to be valued by a registered valuer

 

81(3)

Private Limited Companies were exempted from provisions regarding further Issue of share capital and it was not required to be offered to existing shareholders.  This exemption has been withdrawn

 

 

 

Further issue of shares only by rights issue to existing share holders.  Now, with the consent of 90% of the members of a private company, rights issue can be kept open for a period lesser than 15 days and notice of the rights offer can be dispatched for a period lesser than 3 days before opening of the issue.

67

Financial Assistance for purchase of own shares

Applies to Private Companies

77

Did not apply to private limited companies

Shall not apply to Private companies -

 

(a)    in whose share capital no other body corporate has invested any money;

 

(b)   if the borrowings of such a company from banks or financial institutions or any body corporate is less than twice its paid up share capital or fifty crore rupees, whichever is lower and

 

(c)    such a company is not in default in repayment of such borrowings subsisting at the time of making transactions under this section

 

73(2)

Deposits from members

Private Limited companies can accept deposits from members only after a resolution in a general meeting and fulfilment of criteria such as credit rating, maintenance of deposit repayment reserve, deposit insurance ,

58

Private limited companies also have to ensure aspects stated herein which is an enhanced requirement

Shall not apply to a Private company which accepts from its members monies not exceeding one hundred per cent. of aggregate of the paid up share capital and free reserves, and such company shall file the details of monies so accepted to the Registrar in such manner as may be specified.

 

Deposit rules

Acceptance of deposit rules Advances unadjusted

Any amount received in course of business:

 

Advances for goods supply or provision of services

 

Advance received in connection with consideration for property under an agreement

 

Security deposit for performance of contract for supply of goods or services

 

Advance against long term projects for supply of capital goods (except those covered under (2))

 

Provided such advance is appropriated against supply of goods/serviceswithin 365 days from date of acceptance of such advance

 

Time limit shall not apply in subject matter of any legal proceeding

 

Provided such advance is adjusted against the property in accordance with the terms of agreement.

 

 

NA

Any amount received by way of security or as an advance from any purchasing agent, selling agent, or other agents in the course of or for the purposes of the business of the company or any advance received against orders for the supply of goods or properties or for the rendering of any service;

 

NA

Deposit rules

Acceptance of deposit rules

Share application money unadjusted

If any amount is received and held towards share application, and not allotted within 60 days, it shall be refunded to the applicant within 15 days. Else, such amount shall be treated as a deposit.

 

If these are treated as a deposit, then the provisions of the act as regards deposits will apply as also the penalties for non compliance

 

NA

New Provision

NA

Deposits Rules

Loans from directors relatives

Loans from directors' relatives / share holders are treated as deposits. 

 

Loans from directors are not treated as deposits provided there is a declaration that such loans are not from borrowings / deposits

NA

Loans from directors relatives was not a deposit under Sec 58 A rules

The previous Act had excluded loan from a director's relative from the purview of deposit.  This is no longer so under the new Act.   However the MCA has issued aGeneral Circular 5 / 2015 on March 30, 2015 the MCA has finally clarified that amounts received by Private Companies ( prior to April 1, 2014 )

 

·                     from Members, Directors or their relatives prior received prior to April 1, 2014 need not be treated as deposits

 

·                     provided that the same is disclosed in the notes to its financial statement for the financial year commencing on or after 1st  April, 2014 the figure of such amounts and the accounting head in which such amounts have been shown in the financial statement

 

However amounts received after that date or renewed after that date of April 1, 2014 will be treated as per the Companies Act 2013 provisions

 

101 to 107 and 109

·         Notice of meeting

·         Explanatory statement

·         Quorum for the meeting

·         Chairman of the meeting

·         Proxies

·         Restrictions on voting rights

·         Voting by show of hands 

·         Demand of poll 

Will be as stated in the Act for private limited Companies

171 to 186

171 to 186 applied only to public companies and private companies which were subsidiaries of public limited companies

Provisions relating to:

·         Notice of meeting

·         Explanatory statement

·         Quorum for the meeting

·         Chairman of the meeting

·         Proxies

·         Restrictions on voting rights

·         Voting by show of hands 

·         Demand of poll 

shall be governed as per the provisions of the AOA of the private company. In absence of provisions in the AOA, the provisions of 2013 Act will apply.

117

Filing of resolutions with the RoC

The following categories of resolutions shall be filed with the RoC

 

(a) special resolutions;

 

(b) resolutions which have been agreed to by all the members of a company, but

which, if not so agreed to, would not have been effective for their purpose unless they

had been passed as special resolutions;

 

 

(c)  any resolution of the Board of Directors of a company or agreement executed

by a company, relating to the appointment, re-appointment or renewal of the

appointment, or variation of the terms of appointment, of a managing director;

 

(d) resolutions or agreements which have been agreed to by any class of members

but which, if not so agreed to, would not have been effective for their purpose unless

they had been passed by a specified  majority or otherwise in some particular manner;

and all resolutions or agreements which effectively bind such class of  members though

not agreed to by all those members;

 

(e) resolutions passed by a company according consent to the exercise by its

Board of Directors of any of the powers under clause (a) and clause (c) of sub-section

(1) of section 180;  

 

(f) resolutions requiring a company to be wound up voluntarily passed in

pursuance of section 304;

 

(g) resolutions passed in pursuance of sub-section (3) of section 179; and

 

(h) any other resolution or agreement as may be prescribed and placed in the

public domain.

 

NA

NA

117 (3) (g) resolutions passed in pursuance of sub-section (3) of section 179 need not be filed with the ROC

 

The Board of Directors of a company shall exercise the following powers on behalf of the company by means of resolutions passed at meetings of the Board, namely:— ( Sec 179(3) )

 

(a) to make calls on shareholders in respect of money unpaid on their shares;

(b) to authorise buy-back of securities under section 68;

(c) to issue securities, including debentures, whether in or outside India;

(d) to borrow monies;

(e) to invest the funds of the company;

(f) to grant loans or give guarantee or provide security in respect of loans;

(g) to approve financial statement and the Board's  report;

(h) to diversify the business of the company;

(i) to approve amalgamation, merger or reconstruction;

(j) to take over a company or acquire a controlling or substantial stake in another company;

(k) any other matter which may be prescribed:

134

Board report on Statutory compliance

Directors Responsibility Statement on Statutory Compliance and ICOFR

NA

New Provision applicable to private companies also

NA

135

Corporate Social Responsibility

Applicable for companies whose total turnover is more than 1000 crores or net worth is 500 crores or more or net profits are more than 5 crores.

NA

New Provision applicable for private limited companies also

NA

138

Appointment of Internal Auditors

Private Companies whose turnover is more than Rs 200 crores or borrowings from banks/FI exceeds Rs 100 crores or more are required to appoint internal auditor.

NA

New Provision

NA

139

Audit rotation

Private limited companies with paid up share capital of more than 20 crores or public Borrowing from banks / FIs or Public deposits of more than Rs 50 crores shall not appoint an individual auditor for more than 1 term of 5 consecutive years or a firm for more than 2 terms of 5 consecutive years each

 

Excludes : Small Companies and OPC's only

 

NA

New Provision

 

 

 

NA

141(3)

(g)

Number of companies – Audit Limit

Disqualified if the person is an auditor in more than 20 companies.  The following companies are not included in the limit – Small, OPC, Dormant and private limited companies with less than Rs 100 Crs of paid up share capital

 

 

 

 

224(1)B

Private Companies were not included in the previous limit

20 company limit shall not apply to private limited companies unless they fall under the limits as specified. 

Shall apply the modification that the words "other than one person companies dormant companies, small companies and private companies having paid-up share capital less than one hundred crore rupees" shall be inserted after the words "twenty companies".

 

143(12)

Fraud reporting

In case the auditor has sufficient reason to believe that an offence involving fraud, is being or has been committed against the company by officers or employees of the company, he shall report the matter to the Central Government immediately but not later than sixty days of his knowledge and by following the prescribed procedure

 

NA

New Provisions applicable for private limited companies also.  Need to report to the government in Form ADT 4 – carries a large penalty for non compliance

Companies Amendment Bill 2014 proposes a two tier reporting to the BoD or to the Central Government

144

Auditors not to render certain services

An auditor appointed under this Act shall not render services directly or indirectly to the company or its holding company or subsidiary company like internal audits, book keeping, management services, actuarial services etc,.This is with effect from April 1, 2015

 

NA

New Provisions applicable for private limited companies also

NA

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CA..THOMAS K.GEORGE
MANAGING PARTNER,
THOMAS & ASSOCIATES,
CHARTERED ACCOUNTANTS,C
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