Tuesday, 17 January 2017

Exemptions Under the Companies Act 2013 To Companies Licensed u/s 8

Section 8 (Nonprofit) Companies are exempted from certain provisions of the Indian Companies Act, 2013 as per section 462 of Companies (Amendment) Act 2015. Since a number of new NPOs in India are now registering under this Act instead of the Trusts or the Societies Registration Act, the following information should be of interest and importance.
The Central Government vide notification G.S.R. 466(E) dated 05.06.2015 directs that certain provisions of the Companies Act (CA) 2013 shall not apply or shall apply with some exceptions, modifications and adaptations to a body to which a license is granted under the provisions of section 8 of CA 2013. 

  1. Definition of Company Secretary [Clause (24) of Section 2]: The definition of Company Secretary to be appointed to perform the functions of a company secretary shall not apply.
  2.  Definition of Private Company [Clause (68) of Section 2]: The requirement of having minimum paid-up share capital shall not apply.
  3. Definition of Public Company [Clause (71) of Section 2]: The requirement of having minimum paid-up share capital shall not apply.
  4. Time, Date and Place of AGM [Section 96(2)]: Every company other than a One-Person Company (OPC) is required to call Annual General Meeting (AGM) during business hours (i.e. between 9 a.m.  and 6 p.m.) on any day except National Holiday and shall be held either at the registered office or within the city/ town/ village in which the registered office of the company is situate. However, the Central Government exempts section 8 companies from the above requirements
  5. Notice Period for GM [Section 101(1)]: Companies licensed under section 8 may give notice for calling a general meeting just before 14 days instead of 21 days.
  6.  Minutes of Proceeding of General Meeting [Section 118]: The minutes may be recorded within 30 days of the conclusion of every meeting.
  7. Copy of Financial Statements [Section 136 (1)]: Companies  registered  with  charitable  objects  shall  send  a  copy  of  the  Financial  Statements,  including Consolidated Financial Statements (CFS), if any, Auditor’s Report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting to  every member  of the  company,  to  every  trustee for  the  debenture holder  of  any  debentures  issued  by  the company,  and  to  all  persons  other  than such  member  or  trustee,  being  the  person so  entitled,  not  less  than fourteen days (instead of twenty-one days) before the date of the meeting.
  8. Minimum and Maximum Number of Directors [Sec 149(1)]: A One-Person Company shall have minimum one director; a private company shall have minimum two directors and a public company shall have at least three directors. Additionally, a company may appoint maximum 15 directors. To increase number of directors from more than fifteen, the company must pass Special Resolution in General Meeting. Companies registered with charitable objects are free to appoint any number of directors and there is no need to pass special resolution for appointment of more than 15 directors.
  9. Independent Directors in Board [Section 149(4) to 149(12)]: Section  8  companies are  not  required  to  comply  with  the  provisions  relating  to  definition  of  independent directors, requirement of minimum number of Independent Directors, time limit for appoint and reappointment of an Independent Director, declaration of status by Independent Director, abide by Schedule IV, entitlement of stock option and remunerations, term of office of independent directors and retirement of directors by rotation etc.
  10. Data Bank of Independent Directors [Section 150]: The selection of an Independent Director may be made from the data bank maintained by a body, institute or association notified by the Central Government. Data bank contains names, addresses and qualifications of persons who are eligible and willing to act as independent directors in a company. However, companies licensed under the provisions of section 8 of companies act, 2013 need not comply with such requirements.
  11. Consent of Directors to Registrar [Section 152(5)]: Appointed directors have to give their consent to hold office as director and such consent has been filed within 30 days of appointment to registrar. However, the above provision shall not apply to companies registered u/s 8 of the CA 2013.   
  12. Right of persons to stand for Directorship [Section 160]: The appointment of directors except retiring directors in companies licensed u/s 8 of CA 2013 shall not require sending notice of 14 days along with deposit of 1 lakh rupees for being eligible for appointment to the office of a director at any general meeting.
  13. Number of Directorship [Section165(1)]: A person shall not hold office as a director in more than 20 companies and the maximum number of public companies in which a person can be appointed as a director shall not exceed 10. The above maximum limit for directorship is not applicable in case of companies registered under section 8 of the Companies Act, 2013.
  14. Minimum Number of Board Meetings [Section 173(1)]: Section 8 companies are required to hold at least one Board Meeting (BM) within every 6 calendar months i.e. two BM in one year instead of minimum four meetings of its Board of Directors every year. Additionally, there is no restrictions of time gap (i.e. 120 days) between two consecutive meetings of the Board.
  15. Quorum for Board Meeting [Section 174(1)]: The quorum for a meeting of the Board of Directors of section 8 companies shall be either 8 members or 25% of its total strength, whichever is less. However, the quorum for such board meeting shall not be less than two members.
  16. Independent Directors in Audit Committee [Section 177(2)]: There is no need to constitute Audit Committee with independent directors forming a majority.
  17. Nomination and Remuneration Committee [Section 178]: Companies registered u/s 8 are not required to constitute such committees.
  18. Powers of Board [Section 179(3)]: There is no need to pass a resolution at meetings of board by section 8 companies for borrowing monies, investing funds, granting loans and giving guarantee or providing security in respect of loan. The above matters may be decided by the board by circulation.
  19. Disclosure of interest by Directors [Section 184(2)]: Every director of section 8 (Non-Profit) Companies shall disclose the nature of his concern or interest at board meeting in case of related party transactions exceeding one lakh rupees and he shall not participate in such meeting.   
  20. Register of Contracts for Directors [Section 189]: If there are related party transactions exceeding one lakh rupees then every company registered with charitable objects shall keep registers giving separately the particulars of all contracts or arrangements to which section 184(2) or section 188 applies.   

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