India: Update On Companies Act, 2013 - Exemptions To Non-Profit Companies

The (Indian) Ministry of Corporate Affairs recently issued a notification dated 5 June, 2015 providing that various provisions of the Companies Act, 2013 ("Companies Act") will not apply or will apply with exceptions, modifications and adaptions to a body to which a licence is granted under the provisions of section 8 of the Companies Act i.e. companies with charitable objects, etc ("Non-Profit Companies"). These exceptions/modifications available to Non-Profit Companies have been set out below.

  1. The minimum paid up share capital requirement for a public and a private company will not be applicable to Non-Profit Companies.1
  2. The notice for general meeting and circulation of financial statements may be at the notice of 14 days instead of 21 days for Non-Profit Companies.2
  3. The requirement for holding meetings of the board of directors will apply to Non-Profit Companies only to the extent that the board of directors are required to hold at least one meeting within every six calendar months.3
  4. The quorum requirement for meeting of the board of directors to be one-third of its total strength or 2 directors, whichever is higher will be modified for Non-Profit Companies to be either 8 members or 25% of its total strength, whichever is less subject to a minimum of 2 members.4
  5. The requirement of minimum number of directors will not apply to Non-Profit Companies and therefore requirement of passing of special resolution to have more than prescribed number of directors will not be required.5
  6. The limit on the number of directorships6 a person can hold will not be applicable to directorships in Non-Profit Companies.
  7. Section 160 of the Companies Act on the right of persons other than retiring directors to stand for directorships will not apply to those Non-Profit Companies whose articles provide for election of directors by ballot.
  8. Disclosure of interest by a director in every contract or arrangement or proposed contract or arrangement as per section 184(2) of the Companies Act and register of contract or arrangement in which directors are interested to be kept by a company as per section 189 of the Companies Act will apply to Non-Profit Companies only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds INR 100,000.
  9. Provisions related to 'independent directors' will not be applicable to Non-Profit Companies. This includes provisions related to requirement of independent directors7; appointment of independent directors8; manner of selection of independent directors and maintenance of data bank of independent directors9.
  10. The requirement under section 177(2) of the Companies Act for an audit committee to have independent directors forming a majority will not be applicable to Non-Profit Companies.
  11. For Non-Profit Companies, a proviso will be inserted in relation to Annual General Meeting10 that the time, date and place of each annual general meeting are decided before-hand by the board of directors of the company having regard to the directions, if any, given in this regard by such company in its general meeting.
  12. Section 118 of the Companies Act for minutes of proceedings of general meeting, meeting of board of directors and other meeting and resolutions passed by postal ballot will not apply to Non-Profit Companies as a whole except that the minutes may be recorded within 30 days of the conclusion of every meeting in case of companies where the articles of association provide for confirmation of minutes by circulation.
  13. For Non-Profit Companies, matters referred to in Section 179(3)(d), (e) and (f) of the Companies Act which are 'to borrow monies'; 'to invest the funds of the company' and 'to grant loans or give guarantee or provide security in respect of loans' can be decided by the board of directors by circulation instead of a meeting.
  14. The requirement under section 178 of the Companies Act to constitute Nomination and Remuneration Committee and Stakeholders Relationship Committee will not be applicable to Non-Profit Companies.
  15. Definition of a 'company secretary' or 'secretary' under section 2(24) of the Companies Act will not be applicable to Non-Profit Companies.

These above mentioned relaxations for Non-Profit Companies is a positive change as these exemptions from corporate compliances may attract more such companies in India.

Footnotes

1 Section 2(68) and Section 2(71) of Companies Act.

2 Section 101(1) and Section 136(1) of Companies Act.

3 Section 173(1) of Companies Act.

4 Section 174(1) of Companies Act.

5 Section 149(1) and the first proviso to sub-section (1) of Companies Act.

6 Section 165(1) of Companies Act.

7 Section 149(4), (5), (6), (7), (8), (9), (10), (11), (12)(i) and (13) of Companies Act.

8 Proviso to Section 152(5) of Companies Act.

9 Section 150 of Companies Act.

10 Section 96(2) of Companies Act.

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