Companies Act 2013 Not Providing Exemptions To Private Companies

1.    Section 293 of Companies Act 1956 provisions relating to Restrictions on Powers of Board mandate members approval in general meeting only for public companies and private companies which is subsidiary of public companies. It was not applicable to private companies. 

However, now corresponding new Section 180 of Companies Act 2013 relating to Restrictions on Powers of Board. (which has been made effective w.e.f  12.09.2013) has taken away such exemption from private companies.

2.    Section 295 of Companies Act 1956 relating to loans to directors did not apply to private companies. Even in case of public companies such transactions could be entered into at the most with the approval of the Central Government.

Now corresponding Section 185 of Companies Act 2013 which has become effective from 12.9.2013 does not provide for such exemption to private companies. It seems the new Act puts total ban on such transactions, excepting loans to MD/WTD as part of conditions of service extended to all employees or pursuant to scheme approved by members by special resolution.

3.    Presently Section 372A of Companies Act 1956 provisions relating to Inter-corporate loans and investments are not applicable to private companies.

However, now corresponding new Section 186 of Companies Act 2013 relating to Loan and investment by company. (which is yet to be made effective) has taken away such exemption from private companies.

4.    Presently Section 81 of Companies Act 1956 relating to further issue of shares are not applicable to private companies. Even public companies issuing further shares within initial specified period ( two years from incorporation or one year after first issue of shares, whichever is earlier) are free to issue shares to anyone and need not be to existing shareholders on proportionate basis.

However, now corresponding new Section 62 of Companies Act 2013 (which is yet to be made effective) has taken away such exemption from private companies. Further, even initial specified period as above has also been deleted. As a result now all companies, whether private or public, will have to follow prescribed procedure (Rules yet to be notified) for further issue of shares right from the date of incorporation.

          Compliances on the part of private companies will increase substantially.