SATISH AGGARWAL & ASSOCIATES CHARTERED ACCOUNTANTS

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1 Date 17 th June, 2015 Circular No. 9/2015 Exemption to Private Limited Companies as per notification issued by Ministry of Corporate Affairs dated The companies Act, 2013 contained many harsh provisions which were made applicable even to Private Limited Companies. A consistent demand has been made by Small and Medium Enterprises (SME) to reduce the rigours of amendments. The Ministry of Corporate Affairs vide its notification dated has allowed certain reliefs to Private Limited Companies. The major reliefs provided to the Private Limited Companies are as under: 1. Loan to directors and other related parties. As per the above notification, a Private Limited company which fulfills the below mentioned conditions can also give loans to its director and other related parties as specified under section 185 of the Companies Act, P age

2 In other words section 185 shall not apply to a Private Limited Company (a) In whose share capital no other body corporate is a shareholder. (b) If the borrowings of such a company from banks or financial institutions or any, body corporate is less than two times of its paid up capital or Rs 50 crores, whichever is lower. (c) If such a company has not defaulted in repayment of such borrowings subsisting at the time of making transactions under this section. The above Private Limited Companies can now grant loans/guarantee/security to below mentioned persons to whom advancing of loan was prohibited by the Companies Act, 2013: (a) (b) (c) (d) (e) (f) Director of the above company. Any director of the holding company of the above company. Any partner or relative of any such director (as mentioned in 1 and 2 above). Any firm in which any such director or relative is a partner. Any private Ltd company in which any such director is a director or member. To any body corporate in which not less than 25% of the total voting power is exercised or controlled by such director or two or more such directors. (g) To any body corporate, who s Board of Directors, Managing Director or Manager acts in accordance with the directions or instructions of the Board or any of the director/directors of the lending company. 2 P age

3 In other words, now Private Limited Companies can grant loans to any person including its director. However company before advancing any loan to any person(s), shall ensure the compliance of conditions specified under section 186 of the Companies Act, 2013 with respect to applicable rate of interest on such loans granted to individuals. IMPORTANT NOTE Before granting any loan to any above person, the company should ensure that the loan granted by the company to such person /entities do not come under the definition of Deemed Dividend as defined under section 2(22) (e) of the Income Tax Act, 1961, since the same is assessable to tax in the hands of individual for computation of his/her income tax liability. 2. Regarding: Acceptance of loan from shareholders A Private Limited company can accept deposits/ loans up to 100% of aggregate of its paid up capital and free reserves from its shareholders. There is no limit for acceptance of unsecured loan from director. However, such company shall file the details of monies so accepted with the Registrar in such manner as may be specified, in this regard. 3 P age

4 3. Related party transaction A Private Limited company can make specified transaction under section 188 with its holding company, subsidiary company associate company and subsidiary company of holding company to which the company also may be a subsidiary. Transactions with these parties shall not be termed as related party transactions. Detail of transactions specified u/s 188 are as under:- (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 property; (f) Such related party's appointment to any office or place of profit in the company, its subsidiary company or associate company; and (g) Underwriting the subscription of any securities or derivatives thereof, of the company: 4 P age

5 4. Procedure of appointment of a person as director other than retiring director: Various provisions of Section 160 like seeking a deposit of Rs. 1 Lakh, notice of candidature etc. shall not apply to a private company in case of appointment of a director in a general meeting of the company. 5. Regarding: Filing of MGT 14 The requirement of filing e-form MGT 14 for resolutions passed by the Board of Directors in exercise of its powers u/s. 179(3) is no longer applicable to Private Limited companies. The Resolutions specified under section 179(3) are as under: (a) To issue securities whether in India or outside India; (b) To grant Loans or give guarantee or provide security in respect of loans; (c) To approve financial statements and Director's Report ; (d) To diversify the business of company; (e) To approve amalgamation, merger or reconstruction of the company; (f) To take over a company or acquire a controlling or substantial stake in another in company ; (g) Any such matters as prescribed by the Central Government from time to time. 5 P age

6 6. Special Resolution Section 180 of the Companies Act is not applicable to a Private Limited Company. The provisions of section 180 enumerates the matters where a special resolution is required for implementing a decision. A private company is no longer required to seek member s approval by means of special resolutions for: (a) Selling, leasing or otherwise disposing whole or substantially the whole of undertaking of the company, (b) Investing in trust securities, the amount of compensation received by it as a result of any merger or amalgamation, (c) Borrowing money where the money to be borrowed exceeds the paid up capital and free reserves, (d) Remitting or giving time for repayment of any debt due from a director. We have tried to cover all the relaxations provided by the Ministry of Corporate Affairs vide its notification dated 5 th June, 2015 in simple language. If in case of any further information/clarification is required on the same please feel free to write to us at info@satishca.com or contact Mr. Dharender Kumar or Ms. Parul Aggarwal at our office landline numbers. Compiled by;- Team M/s Satish Aggarwal & Associates 6 P age