The Ministry of Corporate Affairs in its continuous effort to boost the startup ecosystem has made some operational and compliance relaxations for Startups, Section 8 Companies and Government Companies.

In its notification dated 13th June 2017, the MCA has made some amends to its initial notification under G.S.R. 464(E) dated the 5th June 2015 published in the Gazette of India, Extraordinary, Part-ll, Section 3, Subsection (i).

For the purpose of the following notification, the term ‘Start-up’ or ‘Start-up company’ means:

“A private company incorporated under the Companies Act, 2013 (18 of 2013) or the Companies Act, 1956 ( 1 of 1956) and recognised as start-up in accordance with the notification issued by the Department of lndustrial Policy and Promotion, Ministry of Commerce and Industry.”

a) The Startup incorporated/registered in India must be an entity as a Private Limited Company (under The Companies Act, 2013) or a Registered Partnership Firm (under The Indian Partnership Act, 1932) or Limited Liability Partnership (under The Limited Liability Partnership Act, 2008) and

b) up to seven years from the date of its incorporation/ registration; however, in the case of Startups in the biotechnology sector, the period shall be up to ten years from the date of its incorporation/ registration; and

c) if its turnover for any of the financial years since incorporation/ registration has not exceeded Rupees 25 crores.

Relaxations for Startups

Image Courtesy – Times of India

• Cash flow statement not required to be prepared by Start-up Private Companies.
• Annual Return for a Start-up Private Company shall be signed by the Company Secretary, or where there is no Company Secretary, by the Director of the Company.
• Start-up Private Companies are required to hold only 1 Board meeting in each half of the calendar year and the gap between 2 meetings not to be less than 90 days.
• Small companies are required to mention the aggregate amount of remuneration drawn by Directors.
• Disclosure of adequacy of internal financial control in Auditor’s Report exempted for OPC or a small company or which has a turnover less than Rs. 50 crores or having aggregate borrowings less than Rs. 25 crores during the financial year.

Further exemptions were issued for Section 8 companies and Government companies as well.

Relaxations for Section 8 Companies

For the purpose of the notification, a section 8 company is defined as:

“Section 8 company is a company registered under the Companies Act, 2013 for charitable or not-for-profit purposes. It pertains to an establishment ‘for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, protection of environment or any such other object’, provided the profits, if any, or other income is applied for promoting only the objects of the company and no dividend is paid to its members.”

The following are the exemptions that have been issued for Section 8 Companies as defined above –

• No limit on a maximum number of Directors and passing of special resolution no longer required.
• Loan can be given by a company in which 26% or more of the paid-up share capital is held by the Central Government or one or more State Governments or both, in respect of loans provided by such company for funding industrial R&D projects.

Relaxations for Government Companies

For the purpose of the notification, a Government company is defined as:

“A Government company is defined under Section 2(45) of the Companies Act, 2013 as any company in which not less than 51% of the paid-up share capital is held by the Central Government, or by any State Government or Governments, or partly by the Central Government and partly by one or more State Governments, and includes a company which is a subsidiary company of such a Government company.”

The following are the exemptions that have been issued for Government companies as defined above:

• AGM shall be held at the Registered Office of the Company or such other place within the city, town or village in which the registered office is situated or such other place as the Central Government may approve in this behalf.
• The retirement of Directors at AGM and filling up of casual vacancy of retiring Directors shall not apply to a Govt Company, not being listed, in which not less than 51% of paid-up share capital is held by Central Govt, or by any State Govt or by the Central Govt and one or more State Govt; and also to the subsidiary of a Govt company.
• Power to compromise or make arrangements with Creditors and Members and M&A of Companies has been conferred on Central Government.

Important Note: All the exceptions, modifications and adaptations provided to Private Companies, Section 8 Companies and Government Companies stand automatically be withdrawn if they fail to file their Financial Statements or Annual Return with the Registrar.

To know more about the above-mentioned relaxations for startups and other companies, talk to our experts at Integra Books today.

Blog Image Credits – SujanPatel