Keeping up with its promise of making life easier for private companies, the Modi-led Government has now exempted such companies from several provisions of the new company law enacted in 2013.

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

In all, about 16 changes have been made to the provisions governing private companies in the new company law.

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

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

Now, with the latest MCA move, private companies will be freed from the hassle of getting disinterested vote and should definitely 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.

Why the delay?

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.

Audit cap

Another change that could spell some good news for the audit fraternity is the exclusion of private companies from the audit cap norm.

Audits of private companies would not be counted for deciding on the audit cap of 20 audits per partner.

With the corporate affairs ministry having expanded the number of exemptions, the balance has clearly tilted to private companies as against public companies from compliance perspective, say legal experts.

“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 such entities will not get covered for audit cap norm”, Manoj Fadnis, President, Institute of Chartered Accountants of India (ICAI) told Business Line.

The Corporate Affairs Ministry has also provided several exemptions to Government companies, nidhi companies as part of efforts to improve the ease of doing business in India.