On 13 June 2017, the Ministry of Corporate Affairs (MCA) issued a notification granting significant relaxations and exemptions to Private Limited Companies, expanding the scope of reliefs earlier provided under its 5 June 2015 notification. The intent was clear: to simplify compliance requirements, particularly for start-ups and smaller businesses, thereby promoting ease of doing business in India.
The notification recognised the unique challenges faced by private companies, especially start-ups in their formative years, and reduced obligations in areas like financial statement preparation, acceptance of deposits, auditor reporting, annual returns, and board procedures. For instance, start-ups were exempted from preparing cash flow statements, while certain private companies were relieved from stringent conditions on deposits from members. Similarly, smaller private companies were no longer required to disclose individual remuneration of directors, and auditors of certain companies were exempted from reporting on internal financial controls (ICFR).
These measures reduced compliance costs, cut down administrative burdens, and allowed entrepreneurs to focus more on business growth rather than procedural formalities. At the same time, safeguards were maintained — exemptions applied only if companies had not defaulted in filing financial statements or annual returns.
Overall, these amendments struck a balance between accountability and operational freedom, aligning with the government’s broader agenda of fostering entrepreneurship and strengthening India’s corporate governance framework.
Background
The Companies Act, 2013 brought with it a comprehensive framework for corporate governance and compliance, applicable across all classes of companies. However, it soon became apparent that imposing the same level of regulatory rigor on private companies — many of which are small or start-up ventures — was disproportionate and created hurdles for ease of doing business.
To address this, the MCA issued a notification on 5 June 2015 granting initial exemptions to private companies in areas such as related party transactions, loans to directors, and certain filing requirements. While this provided some relief, feedback from stakeholders indicated that further relaxations were needed, particularly for start-ups and companies with modest turnover and borrowings.
Responding to this, the MCA issued a second notification on 13 June 2017. This expanded the scope of exemptions by targeting specific pain points for private companies, including:
- Preparation of cash flow statements,
- Acceptance of deposits,
- Auditor reporting on ICFR,
- Disclosure requirements in annual returns,
- Frequency of board meetings, and
- Quorum rules for decision-making.
Importantly, these exemptions are conditional — they are available only if the company has not defaulted in filing financial statements or annual returns with the Registrar of Companies (RoC). This ensures that only compliant companies benefit from the relaxations.
Summary of relaxations/exemptions
Financial Statements
Previously, the exemption from preparing a cash flow statement was restricted to One Person Companies (OPCs), small companies, and dormant companies. This created an additional burden for start-up private companies, many of which lacked the resources or need for detailed cash flow reporting in their early years.
The 2017 notification extended this exemption to start-up private companies as well. This was a welcome move, recognising that start-ups should not be weighed down with the same level of reporting as larger corporates in their formative stages.
Acceptance of Deposits from Members
Private companies were earlier required to comply with the same conditions as public companies when accepting deposits from members. This included:
- Issuing a circular to members,
- Filing the circular with RoC,
- Creating a deposit repayment reserve,
- Obtaining deposit insurance, and
- Ensuring no default in repayments.
The 2017 notification provided targeted relief. Exemptions applied to:
- Private companies accepting monies from members up to 100% of paid-up share capital, free reserves, and securities premium.
- Start-up companies, for a period of five years from incorporation.
- Private companies that meet all of the following conditions:
- Not subsidiaries or associates of other companies.
- Borrowings are less than twice their paid-up share capital or ₹50 crore (whichever is lower).
- Have no default in repayment of borrowings.
These categories of private companies are exempted from the onerous deposit compliance requirements, though they must still file basic details of monies received with the RoC.
Remuneration to Directors and KMP
Earlier, companies were required to disclose the remuneration of directors and Key Managerial Personnel (KMP) individually in the annual return. For small private companies, this requirement was excessive and often unnecessary.
The 2017 amendment relaxed this by allowing small companies to disclose only the aggregate remuneration paid to directors. This strikes a balance between transparency and practicality.
Signing of Annual Return (Form MGT-7)
Under earlier provisions, OPCs and small companies could have their annual return signed by a director in cases where no company secretary was appointed. Start-up private companies, however, did not enjoy this relief.
The 2017 notification extended the exemption to start-up private companies, enabling them to avoid the additional cost of appointing a professional solely for signing the return.
Reporting on Internal Financial Controls (ICFR) by Auditors
Auditors were required to report on the adequacy and operating effectiveness of internal financial controls for all companies. For small private companies, this requirement imposed unnecessary compliance costs and administrative burdens.
The amendment exempted:
- OPCs,
- Small companies, and
- Private companies with turnover less than ₹50 crore and borrowings less than ₹25 crore.
This exemption reduced audit-related expenses and aligned reporting obligations with the size and scale of the company.
Meeting of Board of Directors
By default, all companies must hold at least four board meetings annually, with a maximum gap of 120 days between two meetings. OPCs, small, and dormant companies were already allowed to hold just two board meetings per year.
The 2017 notification extended this relaxation to start-up private companies as well. This eased the compliance load, especially for young businesses where the promoters themselves are often the directors.
Quorum for Board Meetings
Earlier, only non-interested directors were counted toward the quorum for board meetings. This sometimes created practical challenges in small private companies, where most directors had some interest in transactions due to close ownership structures.
The amendment now allows interested directors to be included in the quorum, provided they disclose their interest under Section 184 of the Companies Act. This change made board decision-making smoother and more practical for private companies.
M2K Remarks
The 2017 notification represented another step by the MCA toward ease of doing business. By recognising the unique needs of start-ups and small private entities, it provided them with much-needed breathing space to focus on their core business rather than spending disproportionate time and resources on compliance.
Key benefits of these relaxations include:
- Reduced compliance costs: Exemptions from ICFR audits, cash flow statements, and detailed director disclosures save significant costs.
- Simplified governance: Relaxed quorum and board meeting requirements make governance more practical in closely-held companies.
- Support for entrepreneurship: Start-ups, in particular, benefit from reduced regulatory burdens during their crucial early years.
At the same time, the MCA ensured that these relaxations are not misused. Companies that default on filing statutory returns cannot avail the exemptions. This safeguard maintains accountability while still encouraging compliance.
In essence, these amendments reflect a balanced approach — easing regulatory hurdles without compromising on transparency and governance. They form part of the government’s broader vision of building a more business-friendly corporate ecosystem in India.
