India: Exemptions For Private Limited Companies

The (Indian) Companies Act, 2013 (2013 Act) which replaced the (Indian) Companies Act, 1956 (1956 Act) brought significant changes for private limited companies. Under the 2013 Act, most of the exemptions which were available to private limited companies under the 1956 Act were withdrawn. As a result, private limited companies are subject to a number of additional compliance requirements. Several concerns on these aspects were raised by various stakeholders.

In response, the Indian Government had, in exercise of its inherent powers under the 2013 Act, introduced a draft notification before the Indian parliament in July, 2014 proposing to exempt the application of certain provisions to private limited companies. Upon receipt of approval from both the houses of the Indian Parliament, the Indian Government has now issued a notification dated 5 June, 2015 (Exemption Notification) in respect of these exemptions. The Exemption Notification will become law only upon publication in the official gazette.

We have briefly summarised the exemptions available to private limited companies under the Exemption Notification.

1) Related Party Transactions

Under the 2013 Act, related party transactions require board approval and in some instances shareholder approval by way of a special resolution. For this purpose, the definition of a 'related party' has now been modified for private limited companies. The definition no longer includes: (a) holding companies, (b) subsidiary companies, (c) associate companies; or (d) subsidiaries of holding companies of the private limited company (collectively the "Exempted Entities"). Therefore, transactions of a private company with Exempted Entities will not be considered to be a "related party transaction" and will not require compliance with the provisions of Section 188 of the 2013 Act.

In addition, Section 188 of the 2013 Act places some restrictions on shareholders who are 'related parties'. Such related parties are not permitted to vote at a general meeting of shareholders for a resolution to approve any contract or arrangement between the company and a related party. Pursuant to the Exemption Notification, this restriction will not apply to private limited companies.

2) Kinds of Share Capital

The 2013 Act only provides for 2 kinds of share capital (i.e. equity shares and preference shares). While shares with differential rights as to voting, dividend etc. were permitted, such permissions were subject to meeting certain conditions. These restrictions have now been removed for private limited companies. Private limited companies are free to issue any kind of shares subject to their charter documents (i.e. the memorandum and articles of association) providing for it. This relaxation will help private limited companies looking to raise capital and issue special classes of shares to investors.

3) Rights Issue Offer Period

Section 62 of the 2013 Act provides that:

(a) an offer of rights issue of shares shall be by notice to be despatched to the existing shareholders at least 3 days before the opening of the issue; and

(b) the offer is to be kept open for minimum of 15 days and maximum of 30 days.

This requirement has now been relaxed for private companies. The timelines specified above can be reduced if atleast 90% of the shareholders have given their consent in writing or in electronic mode.

4) Employee Stock Option Plan

Under the 2013 Act, an issue of shares to employees under an employee stock option plan required the passing of a special resolution. This requirement has been waived for private limited companies and private limited companies will now only require an ordinary resolution for such an issuance.

5) Deposits from Members

Under the 2013 Act, companies are permitted to accept deposits from its members subject to fulfilment of certain conditions. These conditions have been laid out in (a) Section 73 of the 2013 Act; and (b) the Companies (Acceptance of Deposit) Rules, 2014. These conditions shall not be applicable to private limited companies accepting deposits from members which are less than 100% of its paid up share capital and free reserves. However, such exempted private companies are required to file the details of such deposits from members with the Registrar of Companies (ROC).

6) Power to Purchase Own Securities

Section 67 of the 2013 Act restricts companies from buying its own shares or giving of loans for purchasing its shares. These will not apply to the private limited companies which meet the following criteria:

a) no body corporate which has invested in the share capital of the company;

b) the borrowings from banks, financial institutions or bodies corporate is less than (i) two times its paid up share capital; or (ii) INR 500 Million, whichever is lower; and

c) there are no defaults in the repayment of such borrowings subsisting at the time of the proposed transaction.

7) Loans to Directors

Under Section 185 of the Companies Act, 2013 (2013 Act), companies are not permitted to:

(a) advance loans to their directors or to any 'person' in whom/ which such directors are interested (Restricted Persons); or

(b) provide any guarantee or security in connection with any loan obtained by their directors or by a Restricted Person.

The provisions of Section 185 are not applicable to private limited companies which meet certain criteria. The criteria are the same as those applicable for the purpose of exemption to private limited companies from the provisions of Section 73 and which have been set out in point (6) above.

8) Filing of Board Resolutions

Currently, all companies are required to file with the ROC copies of all resolutions passed by its board of directors in respect of the matters set out in Section 179 (3) of the 2013 Act. Private limited companies have now been exempt from complying with this requirement.

9) Eligibility of Auditors

Section 141 (3) (g) restricts companies from engaging as auditor a person (including a partner of a partnership firm) who is an auditor of more than 20 companies. The Exemption Notification has modified this restriction. The appointment of a person as an auditor of (i) one person companies; (ii) dormant companies; (iii) small companies; and (iv) private limited companies having a paid up share capital of less than INR 1,000 Million, will not be taken into account for the purpose of determining the eligibility of an auditor under Section 141 (3) (g) of the 2013 Act.

10) Restriction on Board Powers

Section 180 of the 2013 Act lays down certain matters which cannot be transacted by the board of directors without obtaining the approval of shareholders at a general meeting by way of a special resolution. Pursuant to the Exemption Notification, these restrictions will no longer be applicable to private limited companies.

11) Disclosure of Directors' Interest

The 2013 Act requires directors of companies, who are interested in a contract or arrangement to disclose their interest at the board meeting in which such contract or arrangement is discussed. Further, the disclosing directors are not permitted to participate in such board meetings.

While the disclosure requirement continues to apply, the interested directors of private limited companies are now permitted to participate in such board meetings after the disclosure of interest has been made.

12) Appointment and Remuneration of Senior Management

Section 196 (4) and (5) of the 2013 Act deals with the appointment of managing directors, whole time directors and managers (Senior Management).

Section 196 (4) states that any appointment of the Senior Management by the board of directors shall be subject to the approval of shareholders at a general meeting. The companies appointing Senior Management are also required to comply with inter alia the terms and conditions set out in Schedule V of the 2013 Act. In case of failure to comply with the terms and conditions specified in Schedule V, the approval of the central government is required to be obtained by the relevant company. Each company appointing Senior Management shall also file a return of such appointment with the ROC in the prescribed format.

Section 195 (5) also clarifies that in the event the shareholders at a general meeting do not approve the appointment of the Senior Management by the board of directors, such non approval shall not result in the actions of the Senior Management prior to the general meeting becoming invalid.

Pursuant to the Exemption Notification, private limited companies are no longer required to comply with Section 196 (4) and (5) of the 2013 Act.

13) Governance and Administration Related Provisions

The Exemption Notification has exempted private limited companies from the provisions of:

(a) Section 101 (notice of meeting);

(b) Section 102 (statement to be annexed to notice);

(c) Section 103 (quorum for meetings);

(d) Section 104 (chairman of meetings);

(e) Section 105 (proxies);

(f) Section 106 (restriction on voting rights);

(g) Section 107 (voting by show of hands);

(h) Section 109 (demand for polls);

(i) Section 160 (retiring directors and their appointment as directors); and

(j) Section 162 (directors' appointment to be voted individually).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Seth Dua & Associates
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Seth Dua & Associates
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions