Small Company as Per Companies Act, 2013

Sonam Grover
Sonam Grover

Published on: Oct 19, 2022

Updated on: Nov 28, 2022

(21 Ratings)
723

IMPORTANCE

Right after being independent nation, India’s mission for revival and development was on the skilled shoulders of young, smart, and business-oriented citizens. From infrastructure to manufacturing to technology and development in various fields, small businesses are widely spread in India, acting as the backbone not only for growth of its local economy but the Indian economy as a whole. With Indian government phenomenal initiatives of “Make in India” and “Vocal for Local”, small businesses are only set to touch the sky shortly and reason being the government is changing the laws for ease of doing business and to provide a platform for growth of small businesses in India. In this respect the small company concept was introduced under the Companies Act for the people who are willing to invest at small scale

Reasons to Introduce Small Company

Under Companies Act, 2013, Small Companies are introduced to promote economic development and generate employment for society. These companies are not specifically registered but is simply a private company with less paid-up capital and less turnover. Due to smaller in size and different compliances as compare to large private companies or other public limited company listed under Companies Act, it is considered to be as Small Companies.

To promote start-up India scheme, the government introduced many initiatives benefiting small companies to operate under relatively lighter regulatory oversight considering the size in which they operate and also to enable compliances easily and cost-effectively. Also, to ensure that these small companies do not suffer the consequences of regulations designed to ensure the balancing of stakeholder’s interest of large, widely held entities.

DEFINITION OF SMALL COMPANY (SECTION 2 (85)) AND APPLICABILITY WITH EFFECT FROM 15-9-2022

Ministry of Corporate Affairs by amending the Companies (Specification of Definitions Details) Rules, 2014, by the Companies (Specification of Definitions Details) Amendment Rules, 2022 with effect from 15th September, 2022 the threshold limits for paid-up share capital and turnover have been changed and definition of Small Company is

“Small Company” means a company, other than a public company

  1. paid-up share capital of which does not exceed Rs. 4 Crores or such higher amount as may be prescribed which shall not be more than Rs. 10 Crores; and
  2. turnover of which as per its last profit and loss account for the immediately preceding financial year does not exceed Rs. 40 Crores or such higher amount as may be prescribed which shall not be more than Rs. 100 Crores:

Provided that nothing in this clause shall apply to

  • a holding company or a subsidiary company;
  • a company registered under section 8 or
  • a company or body corporate governed by any special Act.

Explanation to (A): a holding or a subsidiary company can never enjoy the privileges of a small company even though they may fulfill the paid up capital or turnover requirement of a small company.

SPECIAL PROVISIONS AND EXEMPTIONS AVAILABLE FOR A SMALL COMPANY

As mentioned before, the privileges/exemptions available to a small company are same as that available to a one-person company, but not all privileges available to a one-person company are available to a small company. For the sake of easy understanding and clarity, all the exemptions available to a small company are provided below:

  1. A Small company may not include Cash Flow Statement as part of its financial statement. (Section 2 (40))
  2. The Central Government may prescribe an abridged Board Report for the purpose of compliance with this section by Small company. (Section 134 (3A))
  3. The Annual Return of a Small company can be signed by the Company Secretary, or where there is no Company Secretary, by the Director of the Company. (Section 92 (k) (proviso)) Provided further that Central Government may prescribe abridged form of annual return for small companies
  4. A Small company may hold at least 1 meeting of the Board of Directors in each half of the calendar year and the gap between the 2 meetings is not less than 90 days. (Section 173 (5))
  5. Provision regarding mandatory rotation of auditor i.e. maximum term of the auditor is 5 years in case of an individual and 10 years in the case of firm (Section 139 (2)) is not applicable on Small companies. (Chapter 10 (Audit and Auditors) Rule 5)
  6. A Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A instead of MGT-7. (Section 92)

Key Points

LESSER PENALTIES FOR SMALL COMPANIES

The provisions under Section 446B of the Companies Act, 2013 clearly says that, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, Small company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of Rs. 2 Lakhs in case of a company and Rs. 1 Lakh in case of an officer who is in default or any other person, as the case may be

Also, if a One Person Company or a Small company fails to comply with the provisions of sub-section (5) of section 92, sub-section (2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be liable to a penalty which shall not be more than one-half of the penalty specified in such sections.

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