Ministry clears the air on status of private companies

Indian private companies that are subsidiaries of foreign parents have cause for cheer.

The Corporate Affairs Ministry (MCA) has made it clear that such Indian private companies will not be treated as public company for the purpose of compliance with the new company law.

This is a complete departure from the earlier regime under the erstwhile company law when such Indian private companies that were subsidiaries of a foreign parent could be deemed as a public company.

This latest MCA move spells good news for several international companies that are looking to set up presence in India.

“An Indian private company will now be treated as private company here even if its foreign parent company was a public company under the laws of its jurisdiction”, Lalit Kumar, Partner, J Sagar Associates, a law firm, told Business Line here.

This is a big relief for such Indian companies which will now entitle them to all the benefits and exemptions applicable to private companies, he said.

Aseem Chawla, Partner, MPC Legal, said the clarification issued by MCA makes it abundantly clear the status of the Indian company which are subsidiaries of a foreign public company.

This would further facilitate decision making process in so far as setting up private companies in India which would not be regarded as deemed public company, Chawla said.

BEING PRIVATE

Private companies are a preferred vehicle for incorporation in India given the compliance exemptions available to them.

With the corporate affairs ministry set to expand the number of exemptions, the balance will clearly tilt to private companies as against public companies from compliance perspective, say legal experts.

Meanwhile, a senior MCA official said at an Assocham event on Thursday that the new set of relaxations proposed for private companies will be finalised in the first week of July.

Srivats.kr@thehindu.co.in

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