In ths blog post, Ankita Sharma, a student of National Law University, Assam, who is currently pursuing a Diploma in Entrepreneurship Administration and Business Laws from NUJS, Kolkata, writes about the exemptions available to private companies with respect to conducting meetings.

A private company is a company with private ownership, i.e., a company whose shares may not be offered to the public for sale and which operates under legal requirements less strict than those for a public company. In general, the shares of these businesses are less liquid, and the values are difficult to determine. Section 3(1) (iii) of the Companies Act, 1956 defines a private company as one which:

• Has a minimum paid-up share capital of Rs.1 Lakh or such higher capital as may be prescribed; and
• By its Articles Association:
• Restricts the right of transfer of its share;
• Limits the number of its members to 50 which will not include members who are employees of the company and members who are ex-employees of the company and were members while in such employment and who have continued to be members after ceasing to be employees;
• Prohibits any invitation to the public to subscribe for any shares or debentures of the company; and
• Prohibits any invitation or acceptance of deposits from persons other than its members, directors or their relatives.

The Companies Act 2013 introduced few changes in the definition for a private company, first the new requirement increases the limit of the number of members from 50 to 200 and secondly, the definition does not state that a company inviting or accepting deposits from persons other than its members, directors or their relatives cannot be a private company.[1]

Further, the 2013Act notified certain exemptions for private companies. One of such exemptions, which is the topic of discussion here, is the exemption to private companies with respect to conducting meetings. Some significant features relating to general meetings of members as provided under 2013 Act are summarized as under:

• Notice of general meeting and voting (Section 101, 102)

A notice of the general meeting has to be given before at least 21 clear days’ either in writing or by electronic mode and for calling a general meeting at a shorter notice, consent of at least 95% of the members entitled to vote is required for both Annual General Meeting and Extraordinary General Meeting. Further, the 2013 Act provides that the explanatory statement to be annexed to the notice of a general meeting also has to provide such information and facts that may enable members to understand the meaning, scope, and implications of the items of business to be transacted. A member may exercise his vote at a meeting by electronic means as prescribed. This measure is expected to enhance participation of members in proceedings of general meeting and enable them to exercise their rights without being present at the meeting.

• Quorum for general meeting (Section 103)

The presence of members in person will only be counted for the purpose of determining a quorum. To provide a Quorum for a private company, at least two members must be personally present.

• Proxy (Section 105)

Any member of a company who is entitled to attend and vote at a meeting of the company is entitled to appoint another person as a proxy to attend and vote at the meeting on his behalf. A person can be appointed as a proxy for a member or such number of members not exceeding 50 and for a such number of shares as may be prescribed. The provision will have to be kept in mind for shareholders who are not likely to be present personally for the meeting.

• Poll (Section 109)

The conditions for demanding a Poll at a general meeting on any resolution is made uniform for all companies having share capital.

However, these above provisions, i.e., Sections 101 to 107 and Section 109 of the Companies Act 2013 which deal with the requirements of convening and conducting of general meetings by all companies, such as service of notice of general meeting[2], explanatory statement[3], Quorum[4], chairperson of the meetings[5], appointment of proxies[6], restriction on voting rights[7], voting by show of hands[8] and demand for poll[9] shall not apply to a private company unless otherwise specified in the respective sections or the articles of a private company provided otherwise. The Article of Association can provide for lenient provisions in respect of the matters governed by Section 101 to 107 and 109. However, the Ministry of Corporate Affairs (MCA) in 2015 revised the Companies Act 2013 and notified that the provisions of Sections 101 to 107 and Section 109 of the 2013 Act should apply to a private company unless otherwise specified in the respective Sections or the Articles of a private company provide otherwise.

Further, the 1956 Act provides that a private company could lay down its procedure in respect of the conduct of its general meetings either by its Article of Association or by passing a resolution agreed to by all the members.[10] But this power was not available under the 2013 Act. However, the 2015 notification has restored this power and provided private companies with the flexibility to decide their procedure for conducting general meetings by incorporating the provisions in their Articles of Association.

Conclusion

Private companies have a vital role to play in the growth of the economy. Most of the start-ups are floated as private companies and therefore it is important that such companies are not pressured with cumbersome compliances. The Companies Act, manifestly one of the most important instruments of doing business in India, must occupy a key place in the Prime Minister’s goal of making India a good place to do business. In this context, the exemption notification for private companies is a much awaited one. With these exemptions, it is far expected that many companies would be able to carry on.

Footnotes:

[1] Section 2(68) of the Companies Act, 2013.

[2] Section 101 of the Companies Act, 2013

[3] Section 102 of the Companies Act, 2013

[4] Section 103 of the Companies Act, 2013

[5] Section 104 of the Companies Act, 2013

[6] Section 105 of the Companies Act, 2013

[7] Section 106 of the Companies Act, 2013

[8] Section 107 of the Companies Act, 2013

[9] Section 109 of the Companies Act, 2013

[10] Proviso to Section 166(2) of the Companies Act, 1956