Small Company: Definition Under Companies Act 2013

Introduction

Small company are created under the Companies Act of 2013 to foster economic growth and create jobs for the general public. These businesses are merely private corporations with lower paid-up capital and lower turnover, they are not particularly registered. 

It is regarded as a small company because of its lower size and various compliances compared to other public limited companies listed under the Companies Act or large private companies.

Small Company: Definition

A small company is defined as any business, except public companies, with paid-up share capital of no more than Rs. 2 crore and turnover of no more than Rs. 20 crore as reported in the profit and loss account for the previous fiscal year.

The companies listed below will not be regarded as small businesses:

1. A company registered under section 8 of The Companies Act, 2013
2. A holding company or subsidiary company
3. A corporation or body corporate governed by any particular Act.

Unique options and Exemption Possible for a Small Company

As previously stated, a small company is entitled to the same rights and exemptions as a one-person business, however, not all of the privileges granted to a one-person business are also granted to a small business. To facilitate comprehension and lucidity, the following lists all of the exemptions that apply to small companies:

1. A small business’s financial statement may not include a cash flow statement. (Part II, Section 40)
2. Abridged Board Reports may be required by the Central Government in order for Small Businesses to comply with this clause. Part 134 (3A)
3. The Company Secretary or, in the absence of a Company Secretary, the Company Director, may sign the Small Business Annual Return. (Proviso of Section 92(k)) Furthermore, small businesses may be required to submit an abridged yearly return form by the Central Government.
4. A small business may have a minimum of one board meeting each half of the year, with a minimum of ninety days separating the two meetings. (Section 173(5))
5. The Section 139(2) provision pertaining to the mandatory rotation of auditors, which states that an auditor’s maximum tenure may be five years for an individual and ten years for a firm, does not apply to small businesses. 
6. Starting with the 2020–2021 fiscal year, a small company must submit an annual return using Form No. MGT-7A rather than MGT-7. (Part 92), Audit and Auditors, Chapter 10 Rule 5

What is Director Report and Annual Return in a Small Company ?

An abridged director report will also do for small businesses when the structure of the report is not as extensive. The Ministry has already established the format for abbreviated director reports for small businesses and one-person enterprises.

Advantages and Privileges for Small Company

Accelerated Process of Merger

Smaller organizations can merge more quickly since the process is less complicated and costly than that of larger companies.

Auditor Rotation is Not Applicable

After a term of five or ten years, every Private Limited firm with capital of more than Rs. 20 crore is required to rotate its auditor. Section 139(2) of the Companies Act 2013 states that a small business with less than 20 crore in capital will not be obliged to rotate its auditor.

Internal Financial Control Report Not Necessary

A small business is not required to include information about internal financial controls and the efficiency of its operations in its audit report.

Lower Fees

According to Section 403 of the Companies Act of 2013, small businesses also pay relatively less in filing fees and other associated costs.

Reduced Penalties

Reduced fines for small businesses under the Companies Act of 2013’s Section 446B. Small businesses that violate the terms of Section 92(5), Section 117(2), or Section 137(3), as well as any officers who fail to comply with these rules, will be subject to a fine that cannot exceed half of the fine mentioned in these sections.

The Companies (Specification of Definitions Details) Amendment Rules, 2022 were released by the Ministry of Corporate Affairs (MCA) on September 15, 2022. The Companies Act’s definition of small companies has been updated, with higher paid-up capital and turnover criteria.

The paid-up Capital and Turnover of the small company shall not exceed Rupees 4 Crores and Rupees 40 Crores, respectively. The definition was revised with the intention of making business simpler and relieving many organizations of their compliance obligations. 

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