Exemptions Available To Private Limited Companies In India

Companies are one of the most prominent forms of business ventures in India. As per Statista, there are more than 1.26 million companies registered in India. The corporate entities or companies in the country are regulated with the Companies Act, 1956 which was upgraded to the Companies Act, 2013.

With the changing economic scenario globally, the Companies Act 1956, failed to keep up with the new corporate atmosphere. Thus, the Government of India reformed and renewed certain laws and formulated the Companies Act again in the year, 2013 and 2015.

The new law specifically granted authorization to private limited companies in India and differentiated them from the rest. This enhanced the prospects of growth of private limited companies. Post the implementation, private limited companies in India have been exempted from a certain set of rules from the act. This has proved beneficial to the companies throughout the country. Some of the principal changes or exemptions were-

1. The relationship between private limited companies and exempted entities:

The private company and exemption entity such as the subsidiary company, associates, or holding to the holding company will now be exclusive of the board of directors’ or shareholder’s approval. The outcome of this exemption is that related parties now have the right to vote at any general body meeting. They can now approve or disapprove the transactions within. The add-on being the similar interest of all the related parties in the proceedings.

2.The share capital of the company:

With the new reforms, the private company now has the right to issue any kind of shares if it has the capacity to produce the charter documents in regard to the same. Earlier, the company’s voting rights and capital decisions were concentrated on equity shareholders and preference shareholders. With the new act, now, it is easier for private limited companies in India to attract investments. It has also eased the structuring of taxes of the company. This exemption has also enabled private limited companies to construct returns and liquidation preferences of the company in regard to the foreign investing entities.

3. Public deposits:

Public companies and private limited companies had a province to accept deposits from any entity. After the Companies Act, 2013, the Private limited companies can now accept deposits exclusively from the shareholders.

4. Annual general body meetings:

The Companies Act, 1956 had procedures mentioned for the conduction of the annual general meeting of the company. However, it gave the company a right to follow it in its own way, to correct this anomaly, this act was reformed. The new amendments are mentioned in sections 101-109. Now companies have the flexibility to conduct meetings according to their will by simply amending their articles and other documents.

5. Agreements and resolutions:

Private limited companies in India after the amendment in the companies act are exempted from filing any resolutions or agreements with the registrar. The private limited companies are now exclusive in the following regard:-

1. Making calls on the company's unpaid shares
2. Security buyback authorization.
3. Issue of any type of securities
4. Granting loans.
5. Investment of Company’s funds
6. Security or guarantee for any loan.
7. Acquisition of any other company.
8. Diversification of Financial statement approval

In conclusion, the private companies are now exempted from filling the forms for the above-mentioned issues with the registrar. The benefit of the exemption is that now, the practice of public access to the private company’s meeting is now restricted and they are given some privacy.

6. Auditor eligibility:

An auditor was given permission to work with multiple companies with a maximum restriction of 20 companies to be eligible for employment with the private limited company. According to the new law, the limit of 20 companies is removed. Now an auditor can be appointed without the auditing limit on the auditor.

1. Dormant company
2. Small company
3. A private limited company with paid-up capital sum lower than Rs. 100 crores can now appoint any auditor. This has led to the expansion of auditing firms and has built a long–term partnership between the auditor and the private limited company.

7. New directors:

To be eligible to become one of the company’s directors, earlier, the member had to serve a 14 days notice period and submit a one-off deposit worth 1 lakh rupees to the company. However, currently, the private limited company directors are exempted from the notice period and deposit. This has eased the compliance of becoming a director of a private limited company in India.

8. Loans issued for directors:

Previously, the directors and the people favored by the director were restricted from issuing any kind of loan. It also controlled any form of guarantee or a security parallel to the loan acquired by the company or other parties. Currently, under section 73, the company can grant a loan in regard to the following conditions:

1. The lending company must be exclusive to any shareholder from the borrowing company.
2. The conditions of borrowing must be lesser than twice the paid-up capital or 50 crores whichever is lesser.
3. The company must not be a default repayment body at the time of handing out the loan to any director.

9. Powers with the board:

The directors of any private limited company had to seek approval of the stakeholders in a general board meeting through the special resolution of the following:

1. Transactions of sale and lease.
2. Investments via trust securities for any merger amalgamation.
3. Borrowing loan money more than the company’s paid-up shares and free revenue.

These are now exempted under the new act and the need for approval is now stopped. This has lead to easy operation and saved an enormous amount of time for the private limited companies.

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