Introduction

The Ministry of Corporate Affairs, on 5th June released notification granting various relaxations to private companies, Section 8 companies, Nidhi Companies and Government companies.

Section 8 companies of Companies Act, 2013 (Section 25 companies of Companies Act, 1956) are the companies which

1. have as their object the promotion of commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment and such other objects,
2. intend to apply their profits or income in promoting their objects and
3. intend to prohibit payment to dividends to their members.

Under the Companies Act, 1956 (“Old Act”), the Companies registered under the erstwhile Section 25 of the Old Act enjoyed non applicability of certain specific provisions of the Companies Act, 1956. However in the Companies Act, 2013 (“New Act”), these exemptions had stood withdrawn and these Companies were treated at par with other Public or Private Companies. The recent notification, has granted certain exemptions to Section 8 Companies.  This article will provide you with an overview of the exemptions granted, to Section 8 Companies, from the applicability of certain provisions of the New Act.

Changes in Definitions

1. Company Secretary
   • The definition of Company Secretary to be appointed by a company under Section 2(24) defines company secretary or secretary as a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980 who is appointed by a company to perform the functions of a company secretary under this Act.
   • The provision shall not apply to a Section 8 Company.
   • Hence, the company Secretary or secretary in relation to Section 8 Company need not be a company secretary as defined in clause (c) of sub-section (1) of section 2 of the Company Secretaries Act, 1980.
2. Minimum Paid-up capital
   • Definition of private company and public company:
     • Section 2(68) defines a private company as a company having a minimum paid-up share capital of Rs 1 lakh and which has certain restrictions in its articles with reference to transfer of shares, number of members and invitation to public to subscribe for its securities.
     • Section 2(71) defines a public company as a company which is not a private company and which has a minimum paid-up share capital of Rs 5 lakhs.
   • Now, the requirement of having minimum paid-up share capital shall not apply to Section 8 Companies, irrespective of whether the Section 8 company is a private or a public company.
   • Hence, a Section 8 company need not have a minimum paid-up share capital of Rs 1 lakh or Rs 5 lakhs, as may be applicable, resulting in reduction of cost of registration of such companies.

Annual General Meeting

1. Time, Date and Place of Annual General Meeting
   • As per Section 96(2), every company other than a One Person Company is required to call its Annual General Meeting (“AGM”) during business hours (between 9am and 6pm) on any day except National holiday and such meeting shall take place at the registered office of the company or within city, town or village in which the registered office is situated.
   • A proviso has been added to this section that the time, place and date of each AGM will be decided upon before-hand by the board of directors having regards to the directions, if any, given in this regard by the company in its general meeting.
   • Hence, the time, date and place of each AGM are decided upon before-hand by the board of directors, as per the directions, if any, given in this regard by the company in its general meeting.
2. Notice period for General Meeting
   • Section 101(1) requires that a general meeting of a company may be called by giving not less than clear 21 days’ notice.
   • Now, the words twenty one days have been substituted by the words “Fourteen days”.
   • Hence, General Meetings of a Section 8 Company can now be conducted with notice of 14 clear days instead of 21 days as prescribed earlier.
3. Time period for sending financial statements of the company
   • Section 136(1) states that a copy of the financial statements, including consolidated financial statements, if any, auditor’s report and every other document required by law to be annexed or attached to the financial statements, which are to be laid before a company in its general meeting, shall be sent to every member of the company, to every trustee for the debenture-holder of any debentures issued by the company, and to all persons other than such member or trustee, being the person so entitled, not less than twenty-one days before the date of the meeting.
   • Now, the words twenty one days have been substituted by the words “Fourteen days”.
   • Hence, a relaxation of 7 days has been granted to Section 8 companies for sending copies of their financial statements, auditor’s report, etc. to their members, debenture trustees, etc.
4. Minutes of proceedings of General Meeting
   • Section 118 requires a company to prepare and sign the minutes of the proceedings of every general meeting of shareholders or creditors within 30 days from the conclusion of such meeting. It requires the pages of such meetings to be consecutively numbered. It further details on what should and should not be included in the minutes and what shall be the punishment in case of tampering of such minutes.
   • A relaxation from Section 118 has been provided to Section 8 companies, except where the AOA of such company contains a provision for confirmation of minutes by circulation.
   • Hence, no provisions of Section 118 relating to minutes of proceedings of general meetings, Board meetings etc. shall apply to Section 8 companies except where its AOA contains a provision that minutes have to be confirmed by circulation. Then in such a case, the minutes will have to be recorded within 30 days.

Directors and Board Meetings

1. Minimum and maximum number of directors
   • Section 149(1) and its first proviso states that every company must have a Board of Directors and the minimum number of directors to be appointed by
     • a public company are 3,
     • a private company are 2 and
     • a one person company is 1.
   • It also states that the maximum number of directors that can be appointed by any company are 15. Also, if a company wants to appoint more than 15 directors, it can do so after passing a special resolution.
   • As per the notification, Section 149(1) and its first proviso shall not apply to a Section 8 company.
   • Hence, a Section 8 company can now appoint any number of directors. There is no requirement of minimum or no restriction of maximum number of directors that can be appointed by such companies. Also it need not pass a special resolution for appointing more than 15 directors.

2. Independent Directors
   • Provisions related to Independent Directors
     • Sub sections (4) to (13) of Section 149 contain provisions relating of definition of independent directors, minimum number of independent directors to be appointed, requirements to be fulfilled by an independent director, , their term on the Board, declarations to be made by them, their entitlement to stock options and remuneration, their liability and retirement.
     • Section 150 contains provisions regarding he manner of selection of independent directors and the maintenance of databank of independent directors.
     • The proviso to Section 152(5) requires that the explanatory statement for the appointment of an independent director must be annexed to the notice of the general meeting and such statement shall include a statement that in the opinion of the Board, the independent director fulfills the conditions specified for such an appointment.
   • As per the notification, sub-sections (4) to (11), 12(i) and (13) of Section 149, Section 150 and proviso to Section 152(5) shall not apply to Section 8 companies.
   • Hence, any of the provisions relating to requirement of having Independent Directors, their appointment, and manner of appointment etc. as contained in any of the Sections mentioned above shall not be applicable to Section 8 Companies.
3. Right of persons other than retiring directors to stand for directorship
   • As per Section 160, any person other than retiring director intending to stand for directorship had to
     • Leave at the registered office of the company, a notice in writing about his intention to stand for directorship, not less than 14 day before the meeting,
     • Pay a deposit of Rs 1 Lakh.
   • As per the notification, this section shall not apply to Section 8 companies whose articles provide for election of directors by ballot.
   • Hence, if the Articles of the company provide for the election of directors by ballot, then the provisions of Section 160 will not be applicable. In case, the company’s Articles do not provide for election of directors by ballot, Section 160 will continue to apply.
4. Number of Directorships
   • Section 165(1) restricts the number of directorships that can be held by a person. In case of private companies, the maximum number is 20 and its 10 in case of a public company.
   • This section shall not apply to Section 8 companies.
   • Hence, a person being a director in 20 companies can still be appointed as a director in a Section 8 company and he shall not be contravening the provisions of the Act.
5. Number of Board meetings
   • Section 173(1) requires every company to hold minimum 4 board meetings in a year such that no two meetings are more than 120 days apart.
   • Section 173(1) shall be applicable to Section 8 companies only to the extent that the Board meetings shall be held atleast once in every 6 calender months.
   • Hence, for Section 8 companies, the requirement to hold 4 board meetings in a year have been done away with and they may hold just one board meeting every 6 calender months and hence just 2 board meetings in a year.
6. Quorum of Board meetings
   • Section 174(1) requires a quorum of 1/3rd of the total strength of the Board or 2 directors, whichever is higher.
   • This section has been amended to change the quorum requirement for Section 8 companies as either 8 directors or 25% of the total strength, whichever is lower.
   • Also, a proviso has been added that in any case, the quorum shall not be less than 2 members.
7. Powers of the Board
   • Section 179(3) details the powers of the Board that can be exercised by it only by means of resolutions passed at the meetings of the Board.
   • Powers of the Board under clauses (d), (e) and (f) of Section 179(3) may be exercised by the Board of Section 8 companies by circulation instead of at a meeting.
   • Hence, now the directors may exercise the following powers by passing resolutions by circulation instead of at a meeting:
     • Borrow monies
     • Invest the funds of the company or
     • Grant loans or give guarantee or provide security in respect of loans

Committees of Board

1. Audit Committee
   • Section 177(2) states that the audit committee of a company shall consist of 3 directors and independent directors shall form a majority in such committee.
   • As per the notification, the words “with independent directors forming a majority” have been deleted.
   • Hence, the audit committee of a Section8 8 company need not have independent directors forming a majority.
2. Nomination and Remuneration Committee and Stakeholders’ Relationship Committee
   • As per the provisions of Section 178, every listed company and specified class of companies shall constitute a nomination and remuneration committee and a stakeholders’ relationship committee.
   • Section 178 shall not apply to Section 8 companies.
   • Hence, Section 8 companies are not required to form any of the above mentioned committees.

Related Party Transactions

1. Disclosure of interest by directors
   • Section 184(2) requires every director of a company to disclose its interest in a contract or arrangement at the meeting to the Board in which the contract or arrangement is discussed and that such interested director shall not participate in such meeting.
   • This section shall apply to Section 8 companies only with reference to transactions under section 188 exceeding Rs 1 lakh.
   • Hence, every director of Section 8 company shall disclose the nature of his concern or interest at a board meeting if the related party transaction exceeds Rs 1 lakh and he shall not participate in such a meeting.
2. Register of contracts or arrangements
   • Section 189 requires all companies to maintain one or more registers which gives separately the particulars of all contracts and arrangements in which directors are interested or of all related party transactions. Such register would be placed at the next meeting of the Board and signed by all the directors present at the meeting.
   • This section shall apply to Section 8 companies only with reference to transactions under section 188 exceeding Rs 1 lakh.
   • Hence, the details of transactions of Section 8 companies need to be entered in the register only when in case of related party contract or arrangement, where the value of transaction exceeds Rs. 1 lakh.