)
With industry demanding changes in some areas of the new Companies Act, the government on Tuesday proposed relaxing certain provisions for private companies.
A private company is one that restricts the right to transfer its shares and limits the number of its members to 50, excluding employees.
The proposed relaxations relate to prohibition on acceptance of public deposits, share capital, voting rights, further issuance of shares, appointment of auditor and director, restriction on board powers, loans to directors, related-party transactions and appointment of senior management personnel.
One of the proposals relates to exempting private companies from complying with the norms for related-party transactions. Under the new Act, norms for such transactions include the need of a nod from disinterested directors and shareholders. Usually, a few members of private firms are related to each other; it becomes difficult to secure a vote from disinterested directors.
For private companies, the corporate affairs ministry has proposed 13 relaxations from various provisions of the Companies Act, which came into effect from the beginning of this financial year. The ministry has invited suggestions and comment on the matter till July 1.
Another proposed exemption pertains to the requirement of every shareholder with a right to vote on every resolution placed before the company; a shareholder’s voting right is proportional to her/his stake.
The proposals seek to reduce the time of offer for further issue of share capital by a private company. It has been proposed any such offer will have to be made through a notice “not less than seven days and not exceeding 15 days”. The existing provision states “not less than 15 days and not more than 30 days”.
On issuing shares to employees under an Esop (employee stock ownership plan), it has been proposed this be done through an “ordinary resolution” in the case of private companies, against the existing requirement of a special resolution.
It has also been proposed certain rules on “prohibition on acceptance of deposits from public” not be applicable to small private companies. Such companies include those with “50 or less members, if they accept monies from their members not exceeding 25 per cent of the aggregate paid-up capital and free reserves of 100 per cent of the paid-up capital, whichever is more”. For this, the companies will have to state the details of such deposits to the Registrar of Companies, in the prescribed manner.
Also, provisions for shareholder meetings, with regard to notice, statement to be annexed with such a notice, quorum, appointment of chairman, proxies, voting restriction, voting by show of hands and demand for poll, will not apply to a private company if its ‘articles of association’ do not provide for these, it has been proposed.
Pawan K Vijay of Corporate Professionals Private, said, “Because of pressure from companies, it seems the government has invited comments, which could have been done through direct notification, too. The notification was supposed to have been released along with the rolling out of the new Companies Act. However, the new government is inviting comment only to avoid future complaints and taking into account feedback of stakeholders.”
Another expert said this was something the United Progressive Alliance government should have done when the new Companies Act came into force — providing clarity on what would govern public companies and private companies separately. “But it did not do it and, as a result, ambiguities came up. So, relaxing the norms will improve the business environment,” the expert said.
