An exemption notification for private companies has been notified on 13th June 2016 by the Ministry of Corporate Affairs (New Notification). With these exemptions, it is expected that many Start Up companies would be able to carry on their businesses with ease.
A new concept for start-up companies has been introduced. As per the new notification a proviso is added in the old notification related to clause 40 of Section 2 of the Companies Act 2013.
Section 2 Clause 40 of the Companies Act 2013 defines the financial statement in relation to a Company which includes Cash Flow Statement. Now, pursuant to the current notification, a Startup Company is exempt from preparing a Cash Flow Statement under the Companies Act 2013.
The reason for this exemption is that, a start-up company is set up by taking funds from outsiders or investors or the government so there is no such Flow of Cash or Cash equivalents initially to prepare Cash Flow Statements. Further, a start-up Company will take time to receive such investments; therefore, to carry out business with ease various compliances have been simplified to save time and money of the start-up entrepreneurs.
Further, the startup companies are also not required to hold minimum number of four meetings of its board of directors in a year. As per the new notification, Sub section 5 of section 173 of the Companies Act has been substituted as one-person Company, Small Company, Dormant Company and private company (if such private company is a start-up) shall be deemed to have complied with the provisions of this section if at least one meeting of the board of directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days. For the purpose of Companies Act 2013, the term "startup" or "start-up company" means a private company incorporated under the Companies Act 2013 or Companies Act 1956 and recognized as a start-up in accordance with the notification issued by the Department of Industrial Policy and Promotion, Ministry of Commerce and Industry.
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