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Exemptions to Private Companies

July 16, 2024 by Team Instabizfilings

Exemptions to Private Companies

Of the various commercial entities involved in the task of growth and development of a growing economy of the Indian Corporation world, the role played by private businesses cannot be overemphasized. Analysed as being in between publicly traded sole proprietorships and companies, they incorporate limited liability protection, concentrated ownership, and efficient organization structures. Since these entities are grievous, Companies Act of 2013 has laid down several relieving measures to private companies to perform optimally.

 

Definition of Private Company

 

A Private Limited Company is a type of business owned by a group of people, called shareholders. The key thing about this type of company is that it's not publicly traded on a stock exchange, which means the shares aren't available for anyone to buy and sell. This makes it a great fit for smaller businesses, family-run companies, and startups that want to keep things private and controlled.

 

A private limited company is a type of business owned by a small number of people, usually friends or family. It has some special features:

 

  • Limited Liability: If the business owes money, the owners only lose the money they put into the business. Their money and belongings are safe.

 

  • Separate Legal Entity: The company is seen as its person in the eyes of the law. It can own things, sign contracts, and be taken to court on its own.

 

  • Owners and Managers: The people who own the company are called shareholders. They choose managers, called directors, to run the company.

 

  • Number of Owners:  A private limited company can have between 2 and 200 owners.

 

  • Selling Shares: Owners can sell their shares (pieces of the company) but usually need permission from other owners to do so.

 

  • Long-Lasting: The company keeps going even if an owner or director leaves or passes away.

 

  • Rules and Reports: The company must follow certain rules and regularly send reports about its activities and finances to the government.

 

  • Getting Money: The company can get money by selling shares to private investors, like rich individuals or investment companies, but not to the general public.

 

  • Name: The company’s name will include "Private Limited" or "Pvt Ltd" to show its type.

 

  • Taxes: The company pays its taxes on the money it makes. Owners might also pay taxes on the money they get from the company.

 

This type of characteristics of private company is popular because it offers protection for the owner's assets and has a good mix of control and the ability to raise money.



Characteristics of Private Limited Company

 

  • Limited Liability:

 

  • Private Ownership:

 

  • Restricted Transferability of Shares:

 

  • Separate Legal Entity:

 

  • Perpetual Succession:

 

  • Flexible Capital Structure:

 

Overview of Exemptions of Private Company

 

Here is an overview of the exemptions available to private companies under the Directors Report Format – Companies Act, 2013 :

 

1. Relaxation in Board Meetings:

  • Private companies are required to hold only one board meeting in a calendar year, whereas public companies need to hold at least four board meetings.

  • The gap between two board meetings can be up to 90 days, whereas, for public companies, it is 120 days.

 

2. Relaxation in Annual General Meetings (AGMs):

  • Private companies are not required to hold an AGM every year, whereas public companies must hold an AGM annually.

  • Private companies can pass resolutions by circulation, whereas public companies need to hold an AGM to pass certain resolutions.

 

3. Share Capital and Allotment:

  • Private companies are not required to issue a prospectus or file a statement instead of a prospectus with the Registrar of Companies.

  • Private companies can allot shares within 60 days from the date of receipt of application money, whereas public companies need to allot shares within 30 days.

 

4. Loans and Investments:

 

5. Related Party Transactions:

 

6. Managerial Remuneration:

  • Private companies are relieved from the provisions regarding managerial remuneration whereas public companies are bound by these provisions.

 

7. Corporate Social Responsibility (CSR):

  • Both the provi- sions of the Companies Bill pertain to CSR, but while the applica- tion of these provisions is mandatory for public companies, it is not necessarily so for private companies.

 

8. Other Exemptions:

  • Private companies are allowed certain exemption in sections of appointment, audit and remuneration of key managerial personnel, formation of audit committee and nomination and remuneration committee.

These exemptions are meant to make it easy and effortless for these private companies to operate so as to advance their business.

 

Significance of Exemptions to Private Companies & Way Forward

  

  • Ease of Doing Business: Exemptions help shareholders in every private company including the companies with LLP registration to focus on operating the business without hassle of certain regulations that are cumbersome to follow.
  • Reduced Compliance Burden: Exemptions have the effect of lessening the scope of regulation on a private company and LLPs so that resources can be bestowed properly.
  • Increased Flexibility: Exemptions are more or less a boon for private companies and Limited Liability Partnerships because they enable agile decision making and do not slow the process down due to various extensive regulatory laws.They grant legal protection to;start-ups; small businesses; and Limited Liability Partnerships act to create a favourable condition for them to progress and compete in the market.h Limited Liability Partnership Registration, making it easier for them to operate and focus on their core business activities.
  • Reduced Compliance Burden: Exemptions reduce the regulatory burden on private companies and Limited Liability Partnerships, allowing them to allocate resources more efficiently and effectively.
  • Increased Flexibility: Exemptions provide private companies and Limited Liability Partnerships with the flexibility to adapt to changing business environments and make decisions quickly, without being bogged down by complex regulatory requirements.
  • Promoting Entrepreneurship: Exemptions encourage entrepreneurship and innovation by providing a conducive environment for startups, small businesses, and  Limited Liability Partnerships act to grow and thrive.
    Boost to Economic Growth: The rationale for exemptions lies in the encouragement of private companies and Limited Liability Partnerships, economic development, and emergence of job opportunities and higher competitiveness.

 

Way Forward:

 

  • Review and Refine Exemptions:
  • Simplify Compliance Requirements: 
  • Enhance Transparency and Accountability: 
  • Encourage Good Governance: 
  • Foster a Culture of Innovation: 
  • Monitor and Evaluate Exemptions: 
  • Strengthen Regulatory Framework: 

 

Disclaimer

 

The information provided in this blog is purely for general informational purposes only. While every effort has been made to ensure the accuracy, reliability and completeness of the content presented, we make no representations or warranties of any kind, express or implied, for the same. 

 

We expressly disclaim any and all liability for any loss, damage or injury arising from or in connection with the use of or reliance on this information. This includes, but is not limited to, any direct, indirect, incidental, consequential or punitive damage.


Further, we reserve the right to make changes to the content at any time without prior notice. For specific advice tailored to your situation, we request you to get in touch with us.


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