Relief for Private Limited Companies, Further exemptions issued by MCA

Exemptions to Private Companies

Now, it is easy to incorporate a private company, because MCA grants some exemptions to Private Company.MCA issued notifications of exemptions to private company on June 5, 2015.The exemptions are as follows:

ü  Compliance Burden Reduced:

Filing of any of the 14 items of Board Resolutions in MGT 14 Waived for Private Companies

Now, there is no need to file Board Resolution with Registrar of Companies. Therefore, after incorporation Form MGT-14 is not required to be filed with Registrar of Company for passing Board Resolution. The resolution of the board will still be required. All that is exempted is the need to file a resolution with the Registrar. MGT 14 is required to be filed only in case of Special Resolution

ü  Participation of Interested Directors:

The directors of a private company must refrain from participating in a board meeting where a matter in which they are interested is to be discussed. The final notification thankfully retains the same with the condition that an interested director may participate only after disclosure of such person’s interest. Interested Director can now participate in agenda in which he is interested. He cannot be counted in Quorum

ü  Restriction on Powers of Board not Applicable in case you are a Private Limited Company:

The exercise of borrowing powers by private companies will not require any special resolution to be passed

ü  Loans by Private Companies:

Giving Loans to Sister Concerns is really difficult as per Companies Act 2013. There is a restriction on lending limit by Private Companies. It is important to note that earlier as per Companies Act 1956, there was no limit for lending to sister concerns or to those in which Directors have interest. Even banks find it difficult to treat Guarantees and collaterals from related parties.

A partial exemption has been given to Private Limited Companies giving loan to sister concerns on satisfying with the below mentioned conditions;

 1. Body Corporate should not be Shareholder in Private Limited Company which is lending loans to Related Entities

2. The lending company’s aggregate borrowings from other bodies corporate or banks or financial institutions is limited to lower of;

a. Twice of Net worth

b. Rs. 50 crores

 3.      No repayment default subsisting of such borrowings at time of giving loan

Can Give loans/ guarantee/security to Group Companies now.

ü  Deposits From Members:

Private Companies borrowing monies from members upto aggregate limit of paid-up share capital & free-reserves need not require to comply with conditions mentioned in section 73(2)(a) to (e). which shows If Such Company borrows money from member then no need to:

– Issue Circular -File circular with ROC

 -Maintain Deposit repayment reserve

-Provide deposit insurance.

However details of money so borrowed shall be filed with ROC in manner as may be specified.

ü  Limit on Company Audits:

The limit of 20 on company audits will now exclude all one person companies, dormant companies, small companies, and private companies having a paid up share capital of less than Rs. 100 crores.

ü  Right of Persons Other Than Retiring Directors to Stand for Directorship

ü  Appointment of Directors No Longer to be Voted Individually:

             More than 1 director can be appointed via single resolution

ü  Relaxation Withdrawn in Case of Related Party Transactions:

Does not include Holding, Subsidiary, Associate Company and sister concern(subsidiary of holding). Transactions entered with them and falling under section 188 does not require compliance of section 188. Note:- Although Holding company is excluded but Director(other than independent Director), KMP of holding company or their relative are still included in definition of Related Party. (Section 2(76)(ix).

 To know more, send us email at csnehaseth@gmail.com or call us at 9540074449

How to raise funds in a Private Limited Company

In a Company registered as per Companies Act, 2013, there are three methods through funds can be raised;
a. Deposits
b. Loans
c. Capital

Raising Capital in a company requires great attention. There can be further three sub points to raising capital in a Private Limited Company;
a. Private Placement
b. Rights Issue
c. Bonus Shares

Private Placement is actually issuing shares to select group of people may be existing shareholders, friends, family etc
For Private Placement, there are procedures defined as per Companies Act 2013. You can read the article given in the blog on Private Placement of Shares at
http://csnehasethassociates.blogspot.in/2015/05/private-placement-of-shares.html

Coming to RIGHTS ISSUE,

A rights issue is directly offered to all existing shareholders of  the Company in proportion to their current holding. The company also set a time limit for the shareholder to buy the shares. Companies pursue Rights Issue as an avenue to raise funds for various reasons, ranging from expansion or acquisitions to paying down debts.

Section 62 of Companies Act, 2013 contains provisions on “further issue of capital”, and enacts the principle of pre-emptive rights of shareholders of a company to subscribe to new shares of the company.

Provisions of Section 62 of Companies Act, 2013 are mandatory for all Private companies, public Companies, listed as well as unlisted companies.

RELEVANT PROVISIONS OF COMPANIES ACT-2013:

Sec 62 (1) Where at any time, a company having a share capital proposes to increase its subscribed capital by issue of further shares, such shares shall be offered :

(a) to persons who, at the date of the offer, are holders of equity shares of the company in proportion, as nearly as circumstances admit, to the paid-up share capital on those shares by sending a letter of offer subject to the following conditions, namely:—

(i)         the offer shall be made by notice specifying number of shares offered and limiting a time not being less than 15 days and not exceeding 30 days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

(ii)        unless the articles of the company otherwise provide, the offer aforesaid shall be deemed to include a right exercisable by the person concerned to renounce the shares offered to him or any of them in favour of any other person; and the notice referred to in clause (i) shall contain a statement of this right;

(iii)       after the expiry of the time specified in the notice aforesaid, or on receipt of earlier intimation from the person to whom such notice is given that he declines to accept the shares offered, the Board of Directors may dispose of them in such manner which is not dis-advantageous to the shareholders and the company;

PROCEDURE FOR ALLOTMENT OF SHARES ON RIGHT ISSUE BASIS :

• Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]
• 
  
• Convene a Board Meeting
• Pass a Board resolution for approving “Letter of offer”. The offer letter shall include right of renunciation also.
• Dispatch Letter of offer to all existing shareholders through registered post or speed post or through electronic mode at least three days before the opening of the issue.
• Receive acceptance, renunciations, rejection of rights from shareholders.
• Issue notice in writing to every Director at least seven days’ before convening the Board meeting. [Sec 173 (3)]
• Convene a Board Meeting
• Pass Board resolution for approving allotment and issue of shares.
• File with Registrar a return of allotment in E-Form PAS-3 within 30 days of allotment of shares.
• File E-form MGT 14 within 30 days of Issue of securities.

OTHER INFORMATION:

• There is no prescribed format for “Letter of offer” to be issued, in case of right issue of securities. Format of Letter of offer” prescribed in Section 42 Companies Act, 2013  and rule 14(1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 and not for Section 62.

• Letter of offer shall specify the number of shares offered and other information and limiting a time not being less than fifteen days and not exceeding thirty days from the date of the offer within which the offer, if not accepted, shall be deemed to have been declined;

• Attach with E-Form PAS-3 (i) Board Resolution for allotment and issue of share. (ii) Letter of offer (iii) List of Allottees

• List of Allottees attached with E-Form PAS-3 shall state the names, address, occupation, if any, of the shareholder and number of securities allotted to each of the allottees and the list shall be certified by the signatory of the Form PAS-3 as being complete and correct as per the records of the Company.

Please note that Rights Issue is desirable option if you are issuing shares at par even if you are issuing shares to new shareholders who may be relatives of existing Shareholders.

Right issue to existing share holders in the ratio (Total funds required/value of share = No of rights to be issued) . Thereupon work out the ratio in which the existing shareholders get their rights (Total new shares/existing shares). 

Now that  shareholders will subscribe & renounce the surplus in favour of their respective relatives as this process is less cumbersome compared to Private Placement. 

My Views: For rights issue no valuation is required, not required to open separate bank account, board approval is sufficient, issue price can be determined by the board. The option holder always have right to renounce their right options.

 This is no way a illegal methodology as all the outsiders are relatives to the shareholders, lets give them excess and they have option to renounce, upon which you bring them. This should work fine.

For formats for Rights Issue, please contact us at CS Neha Seth at csnehaseth@gmail.com

or call us at 9540074449