IMPACT OF COMPANIES ACT, 2013 ON PRIVATE COMPANIES

[dhanapal sreepathi]

Companies Act, 2013 has brought massive changes for private companies as barring a very few, all the exemptions which were available to private companies under the Companies Act, 1956 have been withdrawn in the Companies Act, 2013. In this article, we attempt to throw light on the impact of Companies Act, 2013 on private companies by means of comparison of the significant provisions relating to Private Companies under the Companies Act, 1956 and Companies Act, 2013 .

Comparison of provisions relating to private companies under CA, 1956 and CA, 2013

Basis of Comparison	Companies Act, 1956	Companies Act, 2013
Definition	Maximum number of members restricted to 50. Express clause in the definition was there “prohibits any invitation or acceptance of deposits from persons other than its members, directors or their Relatives” [Section 3(1)(iii)]	Maximum number of members restricted to 200 . No specific clause on prohibition of acceptance of deposits is there in the definition. [Section 2(68)]
Commencement of Business	Under Companies Act, 1956, a Private company can commence its operations immediately after incorporation. Only public companies have to seek certificate of commencement of business. (Section 149)	Under Companies Act, 2013, even a Private Company cannot commence its business or make any borrowings unless it files with ROC a statement that the subscription money and minimum paid up capital has been brought in. (Section 11)
Further issue of shares	Provisions relating to rights issue and Preferential allotment are not applicable to a private company. [Section 81 and 81(1A)]	A private company can make further allotment only by means of Rights Issue, ESOP or Private placement/preferential allotment and needs to comply with the all the provisions relating to these types of allotment. [Section  62]
Acceptance of Deposits from relatives of directors	A Private Company can accept deposits/loans from relatives of directors by virtue of exemption available in the definition of private company. [Section 3(1)(iii)]	A private company is prohibited to accept unsecured loans/deposits from relatives of directors. [Section 73 read with draft rules issued thereunder]
Shares with differential voting rights	Provisions relating to issue of shares with differential voting rights are not applicable to a private company [Section 86]	A private company has to comply with the provisions contained in Section 43 read with the rules issued there under to issue shares with differential voting rights. [Section 43]
Appointment of KMP	Under CA, 1956, irrespective of the capital, Private Companies are not mandated to appoint MD/WTD/Manager etc. except Whole Time Company Secretary in case of companies  having paid up capital of Rs. 5 Crores or more. [Section 269 & 383A]	All companies, including private companies, having paid up capital of Rs. 5 Crores or more are required to have the following whole time KMP: 1. MD/CEO/Manager/WTD; 2. Company Secretary; and 3. CFO [Section 203]
Loans to Directors	Restrictions relating to giving of loans, advances or providing securities, guarantees to directors and other interested entities are not applicable to a private company. [Section 295]	All companies, including private companies, are restricted from giving loans, advances or providing securities, guarantees to directors and other interested entities barring few exceptions. [Section 185]
Resident Director	No requirement to have director resident in India.	All companies, including private companies, must have atleast one director who has stayed in India for a minimum period of 182 days during the previous calendar year. [Section 149]
Consent to act as director	In case of private companies, consent to act as director is not mandatory to be filed with ROC. [Section 264]	A person appointed as a director shall not act as a director unless he gives his consent to hold the office as director and such consent has been filed with the Registrar within thirty days of his appointment [Section 152]
Appointment of 2 or more directors by single resolution	Provision relating to appointment of directors to be voted on individually is not applicable to a private company which is not a subsidiary of a public company. [Section 263]	At a general meeting of a company, a motion for the appointment of two or more persons as directors of the company by a single resolution shall not be moved unless a proposal to move such a motion has first been agreed to at the meeting without any vote being cast against it. [Section 162]
Limit on number of directorship	Private Companies are not counted for the purpose of determining the limit of 15 companies in which a person can act as a director at any given time. [Section 275]	A person can act as director in a maximum of 20 companies at any given point of time out of which not more than 10 should be public companies. [Section 165]
Corporate Social Responsibility	No requirement to spend on CSR activities.	All companies, including private companies, who are meeting eligibility criteria fixed in this regard, are required to constitute a CSR committee consisting of at least 3 directors  out of which atleast 1 must be independent director and spend at least 2 percent of average net profits on CSR activities. [Section 135]
Contents of Financial Statements	Balance Sheet Statement of Profit & Loss Cash flow Statement (applicable only to listed companies and companies having Turnover in excess of 50 crores or borrowings in excess of 10 crores) AS 3 and listing agreement	Balance Sheet Statement of Profit & Loss Cash Flow Statement (Except for OPC and Small Company) Statement of Changes in Equity Notes to accounts
Consolidation of Accounts	Consolidation is not mandated under the Companies Act, 1956 for any company. Listing agreement requires consolidation for listed companies having subsidiaries. (Clause 32 of Listing agreement and AS 21)	All companies having subsidiary (s) need to prepare consolidated accounts. Subsidiary includes associate and joint ventures. (Section 129)
Maximum term of auditor	Appointment of auditor happens on yearly basis at AGM. No limit on maximum number of years. (Section 224)	Appointment of auditor will be for 5 years term in each appointment subject to ratification every year in AGM. Individual auditor can serve maximum 5 years and Firm for maximum 10 years followed cooling off period of 5 years.  (Section 139)
Number of Companies an auditor can audit	For Private Companies, no limit is there as Section 224(1B) is not applicable to private companies.	20 Companies in total. Private companies cannot appoint a person as auditor if he is already auditor for 20 other companies.  (Section 141)
Signing of Annual Return	Director + CS/Manager If no CS/Manager, then MD + Director If no MD, then 2 directors (Section 161)	Private Company being a Small Company –CS, If no CS, then 1 Director Private Company, other than Small Company – CS + Director If no CS, then PCS + Director (Section 92)
Provisions regarding general meetings	Private companies can exempt themselves from the applicability of Sections 171 to 186 by mentioning so in its AOA. These sections deal with length of notice for General Meetings, explanatory statement etc.	All requirements regarding general meetings as specified in the Act are applicable to Private Companies. No exemption can be sought basis of AOA.
Authentication of financial statements  of the company	By two directors including Managing Director , if there is one and Company Secretary ,  if there is one (Section 215)	Chairperson, if he is authorized by board or 2 Directors out of which one shall be Managing Director The Chief Executive officer, if he is a Director of the company, The chief financial officer and the company secretary of the company, wherever they are appointed.        (Section 134)
Inter Corporate Investment/Loans/Guarantee	Provisions of Section 372A regarding Inter Corporate Investments/Loans/Guarantee are not applicable.	Except subsection (1) of Section 186, other provisions on Inter Corporate Investments/loans/Gurantees are applicable.
Signing of Director’s Report	By Chariman of the Board if he is authorized by board or by such number of directors of the board as are required to sign the balance sheet and the profit and loss account of the company by virtue of sub- sections (1) and (2) of section 215 (Section 217)	Chairperson, if he is authorized by board or 2 Directors out of which one shall be Managing Director or by the Director where there is one Director (Section 134)