Keeping its promise of making life easier for private companies, the Narendra Modi government has now exempted them from several provisions of the new company law enacted in 2013.

Besides providing exemptions, the Corporate Affairs Ministry has also provided relaxations, which will together make ‘private companies’ the preferred vehicle for incorporation in India.

In all, about 16 changes have been made in the new company law.

Significant among the changes is the move to exempt private companies from complying with the new company law provisions on related party transactions (RPTs).

The new law had wanted private companies to comply with detailed provisions on such transactions, including the stringent one of seeking nod from disinterested directors and shareholders.

Now, with the latest Ministry move, private companies will be freed from the hassle of getting the disinterested vote and it should bring cheer to them, say corporate experts.

Getting a disinterested vote is generally not possible in a private company situation where there are few members who are mostly related to one another, it was submitted.

Interestingly, the RPT provisions in the erstwhile company law (1956 Act) did not exempt private companies.

The relaxations were always in the offing, given that the draft of the proposed changes was released for public comments in June 2014 itself. The draft notification was placed in Parliament in July 2014 itself, but “unfortunately” the procedure in Parliament was long and the legal vetting also took time, official sources said.

“The content has been retained (what was at the draft stage) and only some drafting errors have been corrected”, a Ministry official said.

Another change that could spell good news for the audit fraternity is the exclusion of private companies (with paid up capital of upto ₹100 crore) from the audit cap norm.

Audit cap Audits of private companies (with paid up capital of ₹100 crore) will not be counted for deciding on the cap of 20 audits per partner.

“This meets the requirements of small and medium entities and will help in ease of doing business. It will help small and medium companies in engaging auditors as these entities will not get covered for audit cap norm”, Manoj Fadnis, President, Institute of Chartered Accountants of India (ICAI) told BusinessLine .

With the Ministry having expanded the number of exemptions, the balance has tilted towards private companies, as against public companies from a compliance perspective, say legal experts.

srivats.kr@thehindu.co.in

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