Key Exemptions & Privileges to Private Companies in India

Why do private companies in India enjoy easier compliance and more flexibility? The answer lies in the exemptions to private companies. These exemptions simplify several regulatory requirements, allowing entrepreneurs to focus on growth rather than paperwork.

When a business opts for Pvt Ltd company registration, these exemptions make a real difference. They reduce operational burdens, lower compliance costs, and provide flexibility in governance. This is one reason why India’s startup and MSME ecosystem is dominated by private limited companies; about 96% of all new companies are private limited companies.

These exemptions bring clear advantages, including:

• No minimum capital requirement
• Fewer board and meeting obligations
• Flexible and easy-to-manage share structure

These benefits make private limited companies an attractive structure for entrepreneurs. The exemptions give them freedom, control, and the space to grow without unnecessary pressure. 

In this blog, we will explain the key exemptions available to private companies, their business benefits, and how to lawfully claim and maintain them.

Key MCA Notifications Granting Exemptions to Private Companies

Private companies in India get relief through several MCA notifications under the Companies Act, 2013. These notifications do not create a separate category of “exempt private companies.” Instead, they relax or modify certain rules of the Act for eligible private companies, making private limited company compliance easier.

Recent Update: Dematerialization of Securities

The MCA issued Notification G.S.R. 131(E) on 12 February 2025, amending the Companies (Prospectus and Allotment of Securities) Rules, 2014. This gives unlisted private companies that were not “small companies” (as of 31 March 2023) more time to convert their shares into dematerialized (demat) form. The deadline was set to 30 June 2025. This allowed companies to plan their shareholding without rushing.

Key Points of the Notification:

• The dematerialization rule applies to unlisted private companies that are not “small companies.”
• Small companies and some other categories do not have to comply immediately.
• The MCA has provided phased timelines to help companies follow the rules in an organized way.

These points give companies time to plan and implement the changes smoothly without operational pressure. They also support:

• Faster decision-making
• Lower compliance costs
• Easier management of borrowing and finance
• Less paperwork and reporting

These changes are limited only to planning and converting shares to demat form. They do not reduce the need for board meetings, approvals, or governance requirements. 

Core Exemptions Available to Private Companies Under MCA Notifications

The table below highlights key sections of the Companies Act, 2013, and how they are treated for private companies under MCA notifications. It shows whether the sections do not apply, apply with modifications, or apply ordinarily.

Chapter / Section (Companies Act, 2013)	Private Company Impact
Section 43 & 47 (Share capital & voting rights)	Do not apply, subject to Articles of Association (AoA) provisions
Section 62 (Further issue of shares)	Apply with modifications
Section 141(3)(g) (Auditor appointment limits)	Apply with modifications
Section 196(4) & (5) (Appointment of MD/WTD/Manager)	Do not apply
Section 73(2)(a–e) (Acceptance of deposits)	Apply with modifications
Section 117(3)(g) (Board resolution filing)	Do not apply

These private company exemptions help reduce compliance complexity and costs. They are particularly useful for closely held or owner-managed businesses seeking flexibility.

Clause-Wise Explanation of MCA Exemptions  for Private Companies

Private companies benefit from several privileges and exemptions under MCA notifications. These cover areas such as capital structure, governance, deposits, audits, and director-related provisions. 

The sections below break down key chapters and clauses, explaining which provisions are exempt, how they affect operations, and practical examples for everyday business decisions.

1. Chapter I – Definitions & Section 2 Modifications

While MCA notifications do not broadly amend the definitions in Section 2, they clarify how certain provisions apply differently to private companies. These clarifications enable private companies to enjoy specific privileges and exemptions, provided they meet eligibility criteria.

Relaxation of Related-Party Transactions (Section 188): Certain transactions can now proceed without prior board approval. In some cases, shareholder approval is also not required, subject to prescribed conditions.

Practical impact: Private companies can enter into transactions with holding or subsidiary companies without strict approval or disclosure rules. This reduces procedural delays.

Example: A private holding company can provide a loan to its subsidiary without needing formal Section 188 approval.

2. Chapter IV — Capital and Membership (Sections 43, 47, 62, 67)

Section 43 and Section 47, which deal with share capital and voting rights, do not apply to private companies if their AoA provides otherwise. This allows flexibility in designing voting rights and share structures. 

This section applies with modifications, allowing simpler approval processes for issuing new shares to existing or new members.

Section 67 (restrictions on purchase of own shares) is exempt under certain strict conditions (no corporate shareholders, borrowings below thresholds). These include the absence of body corporate shareholders and borrowings remaining below prescribed thresholds.

Practical impact: Private firms can structure shares or raise capital faster with fewer formalities.

Example: Issuing shares with differential voting rights to founders and investors.

3. Chapter V — Acceptance of Deposits from Member (Section 73) 

Sections 73(2)(a)–(e) apply with modifications to private companies. Eligible companies can accept deposits from members up to 100% of paid-up capital and free reserves. This is subject to compliance with conditions and required filing with the Registrar.

Practical impact: Private companies can accept funds from members easily without complying with stringent public deposit rules.

Example: A family-run firm raising funds from existing shareholders without public deposit rules.

4. Chapter VII — General Meeting Procedures (Sections 101–107, 109)

Some provisions related to notice, quorum, and proxy requirements for general meetings can be relaxed for private companies. However, these exemptions do not reduce board meeting requirements, except where specifically allowed for One Person Companies (OPCs), small companies, or startups.

Practical impact: Faster decisions, simpler compliance.

Example: Quorum of 2 members allowed for small shareholder meetings.

5. Chapters X–XII — Other Governance Sections

• Sections 160, 141, 162, 180, and 184 are partially exempt. Audit committee and director approvals are easier. Related-party approvals are simplified.
• Section 185, private companies can provide loans to directors under relaxed conditions compared to public companies.
• Section 186 allows private companies greater flexibility in investments or lending by easing the usual limits.

Practical impact: Private firms can lend or invest without heavy compliance while gaining flexibility in financing, director arrangements, and internal approvals.

Example: Lending to a director within approved limits without special resolutions.

Note: Exemptions are section-specific and apply only if the company meets eligibility criteria. Some require no corporate shareholders, and limits on borrowings, shareholding, and filings must be maintained. Breaching these conditions can revoke exemption privileges.

How to Determine if Your Private Company Qualifies for Exemptions?

Private companies can claim various statutory exemptions, but only if they meet the prescribed conditions. Before relying on any exemption, companies should review the following eligibility checklist to confirm that they qualify:

1. Check AoA: Review your AoA carefully. Some exemptions, especially those relating to share capital, voting rights, internal approvals, and governance, apply only if your AoA explicitly allows them. For example, flexibility in share transfer, voting rights, or board approvals depends on the AoA provisions.
   
2. Calculate Borrowings vs Paid-up Capital: Determine total borrowings, including loans from banks, financial institutions, and directors. Compare it against paid-up capital and free reserves. Many exemptions are valid only if the company’s borrowings remain below prescribed thresholds (usually twice paid-up capital or ₹50 crore, whichever is lower).
   
3. Verify Equity Holdings: Confirm the shareholding structure. The presence of a body corporate shareholder does not remove all private company exemptions. However, it may affect eligibility for certain provisions, particularly under Sections 67, 185, and 186, which relate to loans, investments, and the purchase of own shares.
   
4. File Required Disclosures with ROC: If thresholds are exceeded (e.g., deposits from members), file the required forms and disclosures with the Registrar of Companies. Maintaining up-to-date filings is essential to retain the private company exemption benefits.
   
5. Maintain Proper Records: Keep documentation of shareholding, borrowings, board resolutions, and member approvals. This ensures transparency and proof of compliance if MCA audits or inspections occur.

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How to Properly Document and Lawfully Claim Private Company Exemptions?

Private companies may avail themselves of statutory exemptions. However, they must follow proper documentation and disclosure practices to remain fully compliant with the law. 

The key steps to do so are explained below:

1. Board Minutes and AoA Amendments

The board should clearly record its decision to rely on specific exemptions in the board meeting minutes. The minutes should mention the relevant provision of the Companies Act or the applicable MCA notification, such as the exemption under Section 185 for loans to directors.

Where necessary, the AoA should be amended to allow flexibility in areas such as share transfers, voting rights, or borrowing limits. Clear AoA provisions help confirm that the company qualifies for these exemptions.

2. Disclosures in Financial Statements and Board’s Reports

Although the Companies Act does not require separate disclosure for every exemption, good governance calls for transparency. Companies should state the exemptions used in the notes to accounts in the financial statements. For example, if relaxed rules under Section 73 apply, the company may briefly explain the limit and the reason.

The Board’s Report should also mention the exemptions claimed and confirm compliance with relevant MCA notifications. This improves transparency and reduces regulatory risk.

3. ROC Filing Implications

Some exemptions reduce or eliminate ROC requirements, while others require submission of prescribed forms to the Registrar of Companies (ROC). 

For example, the exemption for private companies to file MGT-14 applies in certain board resolutions or borrowing approvals. This is only for specific resolutions like loans or investments under Section 186, and not all board approvals.

Ensure all required forms, such as MGT-7 or SH-7, are filed within MCA timelines, generally 30 days of passing the resolution.

Practical Tip: Maintaining proper minutes, AoA wording, and disclosures ensures your company can lawfully claim exemption of private company benefits without penalties.

Conclusion

Exemptions and privileges for private companies in India offer significant relief from compliance, operational, and financial burdens. By properly documenting decisions, maintaining AoA provisions, and following ROC filing requirements, private firms can legally claim these benefits, enabling faster decision-making and lower costs.

For entrepreneurs and closely held businesses, understanding and using exemptions under Sections 185 and 186 helps ensure smoother operations while remaining compliant with MCA regulations. These exemptions allow private companies to focus on growth, innovation, and long-term success.

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