Section 462 of the Companies (Amendment) Act, 2015 empowers the Central Government to exempt class or classes of companies from the provisions of Companies Act (CA), 2013. Accordingly, certain provisions shall not apply or apply with some exceptions and modifications to companies registered u/s 8 (Non-Profit) of the Companies Act, 2013.
The Central Government vide notification G.S.R. 466(E) dated 05.06.2015 directs that certain provisions of the CA 2013 shall not apply or shall apply with some exceptions, modifications and adaptations to a body to which a license is granted under the provisions of section 8 of CA 2013.
The exemption granted to section 8 companies are related to the appointment of CS, minimum paid-up share capital required for private and public company, notice period for GM, right of members on audited financial statements, Directors appointment and meetings of board, disclosure of interest by directors, audit and remuneration committee, register of contracts in which directors are interested etc.
Definition of Company Secretary [Clause (24) of Section 2]:
The definition of Company Secretary to be appointed to perform the functions of a company secretary is given under clause (24) of section 2 of the Companies Act, 2013. However, the provisions shall not apply to companies registered with charitable objects u/s 8 of CA 2013.
Section 2(24) “company secretary” or “secretary” means 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.
Definition of Private Company [Clause (68) of Section 2]:
Private Company has been defined under clause (68) of section 2 of the Companies Act, 2013. However, the requirement of having minimum paid-up share capital shall not apply to section 8 (Non-Profit) companies.
Note that the definition of private company has been amended vide the Companies (Amendment) Act, 2015 with effect from 29th May, 2015.
Definition of Public Company [Clause (71) of Section 2]:
The definition of Public Company is provided under clause (71) of section 2 of the Companies Act, 2013. But, the requirement of having minimum paid-up share capital shall not apply to companies registered u/s 8 of CA 2013.
Section 2(71) “public company” means a company which—
(a) is not a private company;
(b) has a minimum paid-up share capital as may be prescribed;
Provided that a company which is a subsidiary of a company, not being a private company, shall be deemed to be public company for the purposes of this Act even where such subsidiary company continues to be a private company in its articles;
Note that amendment of section 2(71) has been made by the Companies (Amendment) Act, 2015 dated 25th May, 2015.
Exemptions to Non-profit Companies
Time, Date and Place of AGM [Section 96(2)]:
As we know that every company other than a One Person Company (OPC) shall require to call Annual General Meeting (AGM) during business hours (i.e. between 9 a.m. and 6 p.m.) on any day except National Holiday (declared by CG) and shall be held either at the registered office or within the city/ town/ village in which the registered office of the company is situate.
However, the Central Government exempts section 8 companies from the above requirements by inserting a new proviso after the first proviso and before the explanation in sub-section (2) of section 96 of CA 2013.
Accordingly, the time, date and place of each AGM are decided upon before-hand by the board of directors, if any, given in this regard by the company in its general meeting.
Notice Period for GM [Section 101(1)]:
Companies licensed under section 8 may give notice for calling a general meeting just before 14 days instead of 21 days as required under the provisions of sub-section (1) of section 101 of the Companies Act, 2013.
Minutes of Proceeding of General Meeting [Section 118]:
If the articles of association (AOA) of company registered u/s 8 provide for confirmation of minutes by circulation, the minutes may be recorded within 30 days of the conclusion of every meeting.
In other words, the whole provisions of section 118 shall not apply to section 8 companies except that minutes may be recorded within 30 days.
Copy of Financial Statements [Section 136(1)]:
Companies registered with charitable objects shall send a copy of the Financial Statements, including Consolidated Financial Statements (CFS), 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 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 fourteen days before the date of the meeting.
That means relaxation for 7 days (i.e. 14 days instead of 21 days) has been given to companies licensed under section 8 of the companies Act, 2013 for sending copy of the financial statements to its members and trustees etc.
Min. and Max. Number of Directors [Sec 149(1)]:
As we know that a One Person Company shall have minimum ONE director, a private company shall have minimum TWO directors and a public company shall have at least THREE directors as required in accordance with clause (a) of sub-section (1) of section 149 of the Companies Act, 2013.
Additionally, a company may appoint maximum 15 directors in compliance with clause (b) of sub-section (1) of section 149 of the Companies Act, 2013. To increase number of directors from more than fifteen, the company have to pass SR in GM.
However, section 8 companies are exempted from all above minimum and maximum requirements of directors in company. Hence, companies registered with charitable objects are free to appoint any number of directors and there is no need to pass special resolution for appointment of more than 15 directors.
Independent Directors in Board [Section 149(4) to 149(12)]:
Section 8 companies does not require to comply with the provisions relating to definition of independent directors, requirement of minimum number of Independent Directors, time limit for appoint and re-appointment of an Independent Director, declaration of status by Independent Director, abide by Schedule IV, entitlement of stock option and remunerations, term of office of independent directors and retirement of directors by rotation etc. as stated in sub-sections (4), (5), (6), (7), (8), (9), (10), (11), clause (i) of sub-section ( 12) and sub-section (13) of section 149 of CA 2013.
Data Bank of Independent Directors [Section 150]:
The selection of an Independent Director may be made from the data bank maintained by a body, institute or association by notified by the Central Government. Data bank contains names, addresses and qualifications of persons who are eligible and willing to act as independent directors in a company.
However, the companies licensed under the provisions of section 8 of companies act, 2013 shall not need to comply with such requirements.
Consent of Directors to Registrar [Section 152(5)]:
Appointed directors have to give his consent to hold office as director and such consent has been filed within 30 days of appointment to registrar. However, the above provision shall not apply to charitable purpose companies registered u/s 8 of the CA 2013.
Right of persons to stand for Directorship [Section 160]:
If article of section 8 companies provide for election of directors by ballot, the provisions of section 160 of CA 2013 shall not apply to such companies.
In other words, the appointment of directors except retiring directors in companies licensed u/s 8 of CA 2013 shall not require to send a notice of 14 days along with deposit of 1 lakh rupees for being eligible for appointment to the office of a director at any general meeting.
Number of Directorship [Section165(1)]:
As we know that a person shall not hold office as a director in more than 20 companies and the maximum number of public companies in which a person can be appointed as a director shall not exceed 10.
The above maximum limit for directorship is not applicable in case of companies registered under section 8 of the Companies Act, 2013.
Minimum Number of Board Meetings [Section 173(1)]:
Section 8 companies are required to hold at least one Board Meeting (BM) within every 6 calendar months i.e. two BM in one year instead of minimum four meetings of its Board of Directors every year. Additionally, there is no restrictions of time gap (i.e. 120 days) between two consecutive meetings of the Board.
Quorum for Board Meeting [Section 174(1)]:
The quorum for a meeting of the Board of Directors of section 8 companies shall be either 8 members or 25% of its total strength, whichever is less. However, the quorum for such board meeting shall not be less than two members i.e. the quorum for BM of companies licensed u/s 8 shall require at least 2 members.
Note that as per sub-section (1) of section 174 of the Companies Act, 2013, the quorum for a BM of a company shall be 1/3 of its total strength or 2 directors, whichever is higher.
Independent Directors in Audit Committee [Section 177(2)]:
There is no need to constitute Audit Committee with independent directors forming a majority in case of companies registered with charitable objects under section 8 of the Companies Act, 2013.
However, such companies shall have at least 3 directors to constitute Audit Committee in accordance with the provisions of sub-section (2) of section 177 of CA 2013.
Nomination and Remuneration Committee [Section 178]:
Every listed company and specified class of companies shall constitute the Nomination and Remuneration Committee in compliance with the provisions of section 178 of the Companies Act, 2013. However, the companies registered u/s 8 are not required to constitute such committees.
Powers of Board [Section 179(3)]:
There is no need to pass a resolution at meetings of board by section 8 companies for borrowing monies, investing funds, granting loans and giving guarantee or providing security in respect of loan. The above matters may be decided by the board by circulation.
Disclosure of interest by Directors [Section 184(2)]:
The provisions of sub-section (2) of section 184 of CA 2013 shall apply to section 8 companies only if the transaction with reference to section 188 on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees.
In other words, every director of section 8 (Non-Profit) Companies shall disclose the nature of his concern or interest at board meeting if the related party transactions exceeding one lakh rupees and he shall not participate in such meeting.
Register of Contracts for Directors [Section 189]:
Similar to the above relaxation granted u/s 184(2) of CA 2013, the provisions of section 189 shall also apply to section 8 companies only if the transaction with reference to section 188 (Related Party Transactions) on the basis of terms and conditions of the contract or arrangement exceeds one lakh rupees.
Accordingly, if the related party transactions exceeding one lakh rupees then every company registered with charitable objects shall keep registers giving separately the particulars of all contracts or arrangements to which section 184(2) or section 188 applies.