Appendix 22

EXEMPTIONS AND PRIVILEGES OF PRIVATE COMPANIES : LIST OF SECTIONS UNDER COMPANIES ACT, 1956, OF WHICH THE PROVISIONS DO NOT APPLY TO PRIVATE LIMITED COMPANIES (OTHER THAN THOSE WHICH ARE SUBSIDIARIES OF PUBLIC COMPANIES)

Exemption and Privileges of Private Companies not being Subsidiaries of Public Companies‑ The following list indicates the important provision of the Act relating to the exemptions and privileges available to a private company which is not a subsidiary of any company:

Section 70 : Statement in lieu of Prospectus,‑ Filing of Statement in lieu of Prospectus before allotment of shares is not required.

Section 77(2) : Financial Assistance.‑ A private company which is not subsidiary of a public company is not prohibited from giving financial assistance for purchase of or subscribing for shares in itself of its holding company.

Section 81 : Increase of Capital.‑ Restrictions envisaged under section 81 requiring allotment of shares on pre‑emptive basis to the existing shareholders are not applicable.

Sections 85 to 90 : Share Capital and Voting Rights.‑ The provisions of these sections providing that there should be only two kinds of share capital and that voting rights should be proportional to the capital paid‑up and prohibiting and terminating disproportionately excesssive voting rights are not made applicable to private company which is not subsidiary of a public company and such company may issue share capital of such kinds, in such forms and with such proportionate or disproportionate or other voting rights as it may think fit.

Section 111 (13) : No Appeal to CLB against rejection of transfer,‑ Unlike in the case of other companies, there is no right of appeal to the Company Law Board against the refusal by such private company to register a transfer or transmission of its shares except as regards transmission by Court sale or sale by other public authority.

Section 149 Commencement of Business,‑ A certificate for commencement of business is not necessary.

Section 165 Statutory meeting.‑ Holding of statutory meeting and filing of statutory report are not required.

Sections 170 to 186 : Provisions as to General Meetings‑ The provisions of these sections relating to General Meetings unless the provisions of any section are expressly made applicable, do not apply to such a private company to the extent to which the company makes its own provisions by its articles. In particular it is not bound by the 21 days' liengt of notice for General Meeting required by the section and may provide a shorter or longer period of notice for calling such meetings and may make its own regulations by its articles as regards the contents and manner of service of notice and persons on whom it is to be served, election of chairman, proxies, manner of taking votes, restrictions as regards exercise of voting rights by members who have not paid calls, etc., and the manner of exercising of voting rights, taking of polls, etc.

Section 192A : Passing of Resolutions by Postal Ballot.‑ Passing of resolutions by postal ballot relating to businesses notified by the Central Government cannot be done by a private company.

Section 198: Managerial Remuneration.‑ Private company is not controlled by the provisions of this section fixing overall maximum remuneration of 11 per cent of net profits for the management of a company and the limit of minimum managerial remuneration provided therein, in the event of no profits or inadequate profits. A private company which is not subsidiary of a public company may remunerate those in management of it by such higher percentage of profits or in any manner as it may think fit.

Section 204 : Appointment of firms or Body Corporate.‑ Such private company is not governed by the restrictions as to duration etc. imposed by this section as regards appointment of a firm or body corporate to any office or place of profit under it.

Section 220 : Restriction on disclosure of Profit and Loss Account.‑ The Profit and Loss Account of such company though filed with the Registrar are open for inspection to its members only and not to be disclosed to the public, unlike in the case of a private company which is a subsidiary of a public company, whose Balance‑Sheet, Profit and Loss Account and other financial particulars are open to the public.

Section 252 : Number of Directors.‑ A private company which is not a subsidiary of a public company need not have more than two directors.

Section 252(1) proviso : Appointment of Nominee Director by small shareholders.‑ A private company is not required to have a director elected by small shareholders.

Sections 255 and 256 : Rotational retirement of Directors.‑ The provisions relating to the appointment, retirement, re‑appointment, etc., of directors who are to retire by rotation and the procedure relating thereto are not applicable to a private company not being subsidiary of a public company.

Section 257 : Notice for election as director.‑ Nor the provisions requiring the giving of fourteen days notice by new candidates seeking election as directors and application.

Section 259 : Increasing Number of Directors.‑ Nor the provision requiring Central Government sanction for increasing the number of directors (by way of amendment of the articles or otherwise) beyond the maximum fixed in the existing articles.

Section 261 : Holding Place of Profit.‑ This section providing that certain persons connected with the managing agent or holding certain offices of profit are not to be appointed directors exc by sanction of a special resolution of the company, applies only to a public company and its subsidiaries.

Sections 262 to 264 : Filling of casual vacancies, voting and filing of consent.‑ The provisions relating to the manner of filling up casual vacancies among directors and the duration of the period of office of those so appointed, the provision requiring that the appointment of directors should be voted on individually and the requirement that the consent of each candidate for directorship should be filed with the Registrar do not apply to a private company, unless it is subsidiary of a public company.

Section 266 : Restriction on appointment or advertisement of Director.‑ Restriction on appointment or advertisement of directors as regards consent and qualification of shares do not apply to a private company.

Sections 268 and 269 :Appointment of Managing, Whole‑time Director.‑ The Central Government's approval is not required in the case of such company either for appointment of or for amending any provisions relating to the appointment or re‑appointment of a managing director or wholetime director of the company.

Sections 270 to 273 : Qualification Shares.‑ The provision of these sections requiring the holding of a share qualification by directors and fixing the time within which such qualification is to be acquired and the filing with the Registrar of a declaration of his share qualification by each director are also not applicable to a private company which is not subsidiary of a public company. (Section 273).

Section 274 : Special disqualification for appointment of directors‑ A private company which is not subsidiary of a public company may by its articles, provide special disqualifications for appointment of directors.

Sections 275 to 279 :Restriction on number of directorships.‑ The restrictive provisions as regards the total number of directorships which any person may hold do not include any directorship held in private companies which are not subsidiaries of public companies.

Section 283 : Vacation of office.‑ A private company, which is not a subsidiary of a public company, may by its Articles provide additional grounds for vacating the office of director.

Section 292A : Audit Committee,‑ A private company is not required to constitute a comniittee of Board known as "Audit Committee".

Section 293 : Restrictions on powers of directors.‑ The restrictions imposed by this section on the powers of the Board of Directors as regards selling, leasing, remitting or giving time for payments of debts, investing or borrowing moneys, or contributing to charities other than for political purposes do not extend to the Boards of private companies not being subsidiaries of public companies.

Section 295 : Loans to directors.‑ This section prohibiting loans to directors does apply to such companies.

Section 300 : Interested directors.‑ Nor does the provision prohibiting an interested director from participating or voting in Board proceedings relating to his concern or interest in any contract arrangement do not apply to private companies.

Section 303(1) : Date of Birth of Directors.‑ A private company which is not a subsidiary of a public company is required to enter the date of birth in the Register of Directors.

Sections 309, 310 and 311 : Remuneration of Managing, Whole‑time Director.‑ The provisions relating to the extent and manner of payment of remuneration to directors and the requirement that any increase in the remuneration of a director including a managing or whole‑time director and any amendment of any provision relating thereto must have for their validity the approval of the Central Government are confined only to public companies and private companies which are their subsidiaries. A private company which is not such subsidiary, is free from these restrictions.

Sections 316 and 317 : Number of Managing directorship, term of appointment.‑ The restriction as to the number of companies of which a person may be appointed managing director and prohibition of such appointment for more than five years at a time, do not extend to private companies unless they are subsidiaries of public companies.

Sections 349 and 350 : Determination of net profits for remuneration.‑ The provisions relating to the : (1) percentage of quantum of remuneration payable to a managing agent; (2) method of determination of net profits, for determining such percentage or quantum; (3) prohibition of payment of office allowance; (4) payment of additional remuneration; (5) time and manner of payment of remuneration are all not to apply to a private company which is not subsidiary of a public company. It is free to make its own provisions in respect of all these matters.

Section 372A : Intercorporate loans and investments.‑ The section does not apply to a private company which is not a subsidiary of a Public Company.

Sections 386 and 388 : Restrictions as to managers.‑ Provisions restricting the number of companies for which a person may be appointed manager and remuneration of manager and applying sections 269, 310, 311, 312 and 317 to a manager do not apply to private companies.

Section 409 : Power to prevent changes in Board‑ The special powers of interference given to the Central Government to prevent change in the Board of Directors of a company where in the opinion of such Government such change will be prejudicial to the interests of the company, are not extended to the case of a private company unless it is a subsidiary of public company.

Section 416 : Company an undisclosed principal.‑ Contracts entered into by an agent of private company, which is not a subsidiary of a public company, if entered into by him on behalf of the company as undisclosed principal, need not be recorded by a memorandum in writing.

The above advantages are, however, taken away in the case of private companies which are deemed to be or become public companies by reason of section 43‑A.

The following sections do not apply to all private companies, whether subsidiaries of public companies or not

Section 70.‑ Prohibition of allotment before registration of statement in lieu of Prospectus.

Section 81,‑ Provision as to the manner in which subscribed capital may be increased by issue of further shares.

Section 149.‑ Restrictions on commencement of business. A private company can commence business immediately on incorporation without obtaining certificate of commencement of business from the Registrar.

Section 165.‑ Provisions as to Statutory Meeting and Statutory Report.

Section 192A : Passing of Resolutions by Postal Ballot.‑ Passing of resolutions by postal ballot relating to businesses notified by the Central Government cannot be done by a private company.

Section 219.‑ Provisions as to right of a member to copies of Balance‑Sheet and Auditor's Report in relation to Balance‑Sheet laid before the company before the commencement of the Act.

Section 252(1) proviso : Appointment of Nominee Director by small shareholders.‑ A private company is not required to have a director elected by small shareholders.

Section 266.‑ Restrictions on appointment or advertisement of directors as regards consent and qualification shares.

Section 284.‑ Provisions for removal of directors in case of a director holding office for life on 1^st April 1952.

Section 292A : Audit Committee.‑ A private company is not required to constitute a committee of Board known as "Audit Committee".