Companies Act 2013 is passing through trimming & grooming process. 2014 witnessed release of bunch of clarifications and circulars making teething adjustments in the legislation. Second Quarter of 2015 received most of it so far. Government has notified set of exemptions to class of companies from the applicability of provisions of the Act. It has came in the form of exceptions, modifications and adaptations for private companies, Charitable Companies and Government Companies.
Exemptions were overdue for Government and Charitable Companies since they belong to special class. However It seems that in order to address the industry pressure and to sink the government liberalization efforts and ease of doing business in India, private companies have also bestowed with life time reward.
On one hand there was a noble attempt made to identify unique segment of Companies as “small companies”. However it could not receive the required ornamental exemptions to flourish and groom. It is just remain as paper class of company.
Government resorted to traditional form of Private & Public classification to differentiate them from each other substantially. If we minutely study the exemptions for private companies, we will find that most exemptions were offered through Articles of Association. Companies will have to make contrary provisions in its Articles to avail exemptions. This makes position of Articles very unique.
Fundamentally articles remains as subordinate internal piece of legislation governing internal management & stakeholders relationship. However now it has changed dramatically and positioned to drive the exemptions for private companies. Not sure whether this will really protect the right of minority under the new act? Any amendment in articles requires the support of 76% shareholders. What would be the faith of remaining 24% if majority decides to make some draconian changes in the Articles? Any exemption set to operate on shareholders dictation may misfire. It has both good and bad sides.
Corporate governance, protections of stakeholders, disclosures & transparency are pivotal of new act. Articles if articulated property are now set to abolish these fundamentals. Unfortunately the act does not cast any duty on promoters or directors to maintain these pivotal intact and protect the fundamental principals. Government might have sensed this and hence the last para of notification dated 5th June 2015 states that private companies while adopting and operating exemptions have to keep shareholders interest protected. I am not sure whether this kind of advisory thorough notification has any legal sence and binding on the Companies. In order to protect these fundamentals there is a need to add those in basic law mandatory for each company to follow.
Traditionally we know that proxy has many restrictions in voting and speaking at the meeting. His presence wont be counted for the purpose of quorum or demand for poll can be made by specific shareholders etc. Now with these exemptions companies can provide in their articles that, EGM can held anywhere in the world, proxy can speak at the meeting and will be counted for the purpose of quorum, any shareholder can demand poll, voting will happen only by poll, there could be more restrictions on shareholder to exercise voting rights etc etc.
These type of provisions in the articles might be helpful to JV companies who can provide more flexibility to partners and facilitate compliances. However as stated above, fear of misfiring remains. But as of today it appears to be a game changer for private companies and joint ventures.
Professionals have to study the existing articles now and need to amend it keeping in mind the requirements of promoters and exemptions available. Provisions in the articles will prevail over the applicable secretarial standards also.
Lot of responsibilities on professional to drive this game changer.
Wish you Happy structuring.
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Really thoughtful
Dear Sir,
Its nicely written blog.
I just think that the position was same in Companies Act, 1956 as the wordings of Section 170 was also same. The exemption notification talks about the exemption only related Chapter VII if the Articles provide otherwise. All other exemptions are stand alone exemptions.
Devendra
The best article for Private limited companies as well as Professionals to rewrite the AOA.