The MCA has proposed as many as 13 relaxations for private companies, from various provisions of the Companies Act, including acceptance of public deposits, share capital, voting rights, further issuance of shares, appointment of auditor and directors, among others

To ease the regulatory burden for private companies including smaller firms, the Ministry of Corporate Affairs (MCA) on Tuesday proposed relaxing certain provisions of the new Companies Act for such entities.

The proposed relaxations include certain provisions relating 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, as also appointment of top management personnel.

Through a draft notification, the MCA has proposed as many as 13 relaxations for private companies from the various provisions of the Companies Act which came into effect at the beginning of the current fiscal.

While the draft notification would be placed before each house of the Parliament, suggestions and comments are invited from the public till 1st July, the Ministry said in a circular.

The statistics from MCA for 2011, put the number of companies registered in India at 11.63 lakh. About 24,682 or 2.12% out of these have paid up capital between Rs2-Rs5 crore and 23,589 or 2.02% have capital exceeding Rs5 crore, leaving a whopping 95.84% of the companies with capital below Rs5 crore or $1 million; this is far below global standards. In India, stock exchange listed companies constitute only a miniscule 0.6% of the total, leaving 99.4% to be individuals or private companies running businesses essentially with their own capital or borrowings.

Among various proposals, it has been proposed that a private company be exempted from having a share capital of either equity share capital or preference share capital.

The other exemption includes the requirement of every shareholder of a company being given a right to vote on every resolution placed before the company, and this voting right being in proportion to the shareholding.

With regard to further issue of share capital by a private company, it has been proposed that any such offer would need to be made through a notice during a time period 'not less than seven days and not exceeding 15 days'. The existing provision has a similar time period of not less than 15 days and not more than 30 days.

With regard to issue of shares to employees under an ESOP plan, it has been proposed that the same can be done through a 'special resolution' in case of private companies, as against a special resolution for others.

It has also been proposed that certain rules on 'prohibition of acceptance of deposits from public' would not be applicable to small private companies.

Such companies would include those, "having 50 or lesser members if they accept monies from their members not exceeding 25% of the aggregate paid up capital and free reserves of 100% of the paid up capital, whichever is more, and which inform the details of such monies to the Registrar in the prescribed manner".

Also, the provisions for meeting of shareholders 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 would not apply to a private company if its 'article of association' provides otherwise.