Relaxation in Companies Act, Breather to MSMEs

With the view to improve ease of doing business in the country, the government has relaxed norms for private companies including those pertaining to related party transactions, acceptance of deposits and auditor appointments.

Relaxing the norms for the four categories of companies – Private Companies;  Government Companies; Section 8 Companies; and Nidhis., the Ministry of Corporate Affairs has come out with notifications under section 462 of the Companies Act, 2013 (Act) that provide Exemptions under various provisions of the Act.

For Private Companies, the exemptions relax the provisions for entering into related party transactions; provide a shorter period for offering securities to members through right offers; provide for approving issue of employee stock option plans through a simple majority and allow an easier procedure and flexibility in holding general meetings.

Private companies have also been allowed to accept deposits from members without the requirement of offer circular and creation of deposit repayment reserve etc.

Flexibility has also been provided in the types of share capital that can be issued by private companies. Exemption has been given from filing of board resolutions with the registry and giving of notice for standing for directorships.

Requirement of mandatory consent of shareholders with regard to certain transactions relating to sale of undertaking, investments, borrowings etc has been omitted.

Further, OPCs, dormant companies, small companies and private companies having paid up share capital less than Rs. 100 crore have been excluded for calculating the limit of 20 companies for audit by an auditor.

Private companies not having any investment by anybody corporate have been allowed to extend loans to directors etc subject to certain conditions relating to bank borrowings and default thereof. An interested director of a private company can now participate in the Board meeting after declaring his interest.

With respect to government companies, the Ministry has made about 30 changes related to various requirements. These pertain to board evaluation, appointment of directors and conduct of annual general meetings (AGMs), among others.

Similarly, changes have been made for not-for-profit and Nidhi companies -- those which have been set up with the aim of cultivating thrift and savings habit amongst its members.