Exemptions Every Private Company explained: this guide covers what it means, who it applies to, the step-by-step process, documents required, fees, due dates and penalties in India — so you can stay compliant with confidence and avoid costly mistakes.
Private companies get a long list of relaxations that public companies don't. Some of them are worth real money.
Your board can borrow ₹10 crore against ₹1 crore of net worth without asking shareholders. Your promoter can vote on a resolution approving their own related-party transaction. Two interested directors can form a valid board quorum — which, in a two-person company, is the difference between being able to make decisions and not.
Then there's the condition attached to all of it. Miss one annual filing and you lose the entire set. Not one exemption. All of them.
Let's go through what you get, and what you have to do to keep it.
Private companies are exempt from Sections 43, 47, 67, 101–107, 160, 162 and 180, and get modified versions of 141, 173, 174, 184, 185 and 188. Every one of them is conditional on your AOC-4 and MGT-7A being filed on time.
Where these exemptions come from
Two places, and they behave differently.
Written into the Act itself. A private company needs only 2 members and 2 directors. It can put entrenchment clauses in its articles with unanimous member agreement. Small companies file an abridged annual return. Nobody can take these away.
Granted by government notification. This is the bulk of it. Section 462 lets the Central Government switch off — or rewrite — any provision of the Act for a class of companies. Two notifications, dated 5 June 2015 and 13 June 2017, do exactly that for private companies.
The 2017 one is where the condition got added.
Read this before you rely on anything below
The exemption notification says the relaxations apply only to a private company that has not defaulted in filing its financial statements (AOC-4) or its annual return (MGT-7A).
What that means in practice:
- File your AOC-4 a day late? You've lost every exemption, not just one.
- You then fall back to the full Act — Section 180 borrowing limits, full Section 185 loan prohibition, full Section 188 approval process, all of it.
- Board decisions taken during that gap were taken without the exemption you thought you had.
- Filing the pending return restores the exemptions going forward. It doesn't retrospectively fix what you already did.
So: before any big decision that relies on an exemption — a large loan, a director's loan, a related-party approval — check your filing status on the MCA portal. Takes two minutes.
What's switched off completely
For a compliant private company, these sections simply don't apply.
Section 180 — Board borrowing limits
This is the commercially biggest one.
Normally a board can't borrow beyond paid-up capital + free reserves + securities premium without a special resolution from shareholders. Nor can it sell substantially the whole business, or extend time on a debt owed by a director.
For a private company, none of that applies. Your board decides. No shareholder resolution needed.
Your bank will probably still ask for one. That's their documentation comfort, not the law. More on Section 180.
Sections 43 and 47 — Share classes and voting rights
The standard rule is equity or preference, one share one vote. Private companies can do whatever their memorandum or articles allow — differential voting rights, custom share classes, weighted voting on specific matters.
This is what makes founder-protective capital structures possible.
Sections 101–107 and 109 — General meeting rules
Notice periods, quorum, proxies, voting mechanics — all of it gives way if your articles say something different.
Read that condition carefully. If your articles are the unmodified standard template, the statutory rules still apply in full. The exemption only helps if you actually wrote something else into your articles.
Section 62 — Rights issue timing
A rights issue normally needs a 15–30 day offer window. A private company can do it faster if 90% of members consent in writing. Useful when you need money quickly and your cap table is cooperative.
Sections 160 and 162 — Appointing directors
No ₹1 lakh deposit for someone standing for directorship. And you can appoint several directors in a single resolution instead of voting on each separately.
Section 67 — Buying your own shares
The prohibition on financial assistance to buy your own shares lifts — but only if no body corporate holds any of your share capital, your borrowings are under the lower of 2× paid-up capital or ₹50 crore, and you're not in default on them.
What's rewritten rather than removed
Section 174 — Board quorum when directors are interested
Here's the problem this fixes.
Normally, if two-thirds or more of your directors are "interested" in a transaction, only the non-interested directors count towards quorum. In a two-director private company where both directors are on both sides of a deal, that leaves zero — so the board literally cannot meet to approve it.
For a private company, interested directors count towards quorum after disclosing their interest. Minimum two of them.
Without this, most closely held companies couldn't transact at all.
Section 184(2) — Can an interested director participate?
In a public company, an interested director must leave the room. In a private company, they can participate after disclosing their interest.
The disclosure still has to happen. The exclusion doesn't.
Section 188 — Related-party voting
Normally, a shareholder who is a related party cannot vote on the resolution approving their own transaction.
That bar doesn't apply to private companies.
Think about what that means. In most private companies the related party is the 70% promoter. Without this exemption, the resolution could never pass — the only people allowed to vote would be a small minority, or nobody.
Full guide to related-party transactions.
Section 185 — Loans to directors
The absolute prohibition on lending to directors lifts, but only if you satisfy all three conditions:
- No body corporate holds any of your share capital — and yes, an LLP counts as a body corporate
- Borrowings from banks, financial institutions or any body corporate are under 2× paid-up capital or ₹50 crore, whichever is lower
- No subsisting default on those borrowings
Condition 1 is unforgiving. One share held by an investor SPV, a holding company or an LLP and the exemption is gone entirely. That knocks out most funded startups. Details here.
Section 173(5) — Board meeting frequency
If you're a small company or OPC: two board meetings a year, one in each half of the calendar year, at least 90 days apart.
Everyone else: four a year, no more than 120 days between any two.
Worth noting — crossing the small-company threshold silently doubles your board meeting requirement.
Deposits: the relief that saves real money
Taking money from members normally means a circular to all members, filing it 30 days in advance, keeping 20% of next year's maturing deposits in a reserve account, and possibly a credit rating.
All of that is waived for a private company that fits any one of these:
- Takes from members not more than 100% of paid-up capital + free reserves + securities premium; or
- Is a DPIIT-recognised startup, for 10 years from incorporation; or
- Is not a subsidiary or associate of another company, has borrowings under the lower of 2× paid-up capital or ₹50 crore, and no subsisting default
You still have to file DPT-3 by 30 June. The relief is from the process, not the reporting.
Small company and startup bonuses
Small company — under ₹4 crore paid-up capital and ₹40 crore turnover, and not a holding company, subsidiary, Section 8 company or special-Act company.
You get: abridged annual return (MGT-7A), two board meetings, no cash flow statement, no auditor rotation, half penalties under Section 446B, an abridged Board's Report, and — importantly — exemption from the demat requirement.
DPIIT startup — deposits relief for 10 years, ESOPs to promoters and 10%+ directors (normally banned), convertible notes of ₹25 lakh+ excluded from deposit rules, and half penalties even if you've outgrown small-company status.
What you're NOT exempt from
People assume too much here. Private companies still must:
- Get audited every year, even with zero revenue
- Hold an AGM (only OPCs are excused)
- File AOC-4 and MGT-7A
- Comply with Section 186 — loan and investment limits are not relaxed at all
- Comply with Section 188 — only the voting bar lifts, not the approval requirement
- File BEN-2 for significant beneficial owners
- Do CSR if you cross ₹5 crore net profit
- Dematerialise shares once you're no longer a small company
Key takeaways
- Section 180 doesn't apply — your board can borrow beyond net worth without shareholder approval.
- Interested directors count towards quorum, and can participate after disclosure.
- Related-party shareholders can vote on their own transactions.
- Section 185 needs all three conditions — and any body corporate shareholder kills it.
- Every exemption dies the moment you're late on AOC-4 or MGT-7A.
- Section 186, audit, AGM and CSR are not exempted.
Read next
- Section 462 and the Exemption Notification
- Section 185: Loans to Directors
- Related Party Transactions (Section 188)
- Section 180: Board Borrowing Powers
- Small Company: Thresholds and Benefits
- Startup Relaxations Under Company Law
Disclaimer: Exemption notifications under Section 462 are amended from time to time and their conditions are read strictly. Position as on 4 September 2026. Check the current notification before relying on any exemption.