As one of the several measures of Ministry of Corporate Affairs towards Ease of Doing Business in India and to promote entrepreneurship, the concept of Small companies was introduced via Companies Act, 2013 (‘Act’). The basic premise behind this concept is to free small businesses from the burden of various financial and reporting compliances and provide a conducive environment for the growth of small players.
As per the Act, a Small company is a Private Company with:
a. Paid up capital not exceeding 4 crores AND
b. Turnover not exceeding 40 crores
The holding and subsidiary companies along with Section 8 Companies have been excluded from the purview of Small Company. Therefore, such companies cannot enjoy the benefits and relaxations provided to Small Companies with less revenue and manpower.
Since Small Companies are Private companies, there is no need for a separate registration under the law to obtain the status of Small Company.
Exemptions/Benefits available to Small Companies under Companies Act, 2013:
- No need of preparation of Cash Flow statements as part of Financial Statements
- Filing of Abridged Annual Return in place of detailed one
- No requirement to rotate Statutory Auditor’s every 5 years
- Holding minimum 2 Board meetings during a year in place of 4 meetings
- Free from mandatory requirement of converting its shares in dematerialised form
- No requirement to get the Annual Return signed by a Company Secretary in Practice; it can be signed by Company’s Company Secretary or Director
- One-half of the penalties for non-compliance as compared to other companies
The status of Small Company depends on the paid up capital and turnover of the Company as per the immediately preceding Financial Year, therefore, it can change as the Company starts growing. As soon as the amount of its paid up capital or turnover crosses the above-mentioned limits, the Company loses the perks and would have to comply with all the applicable provisions under the Act.
In conclusion, Small Companies are a boon for small business owners with less compliances under law. Though, Small Companies should keep a track of their paid up capital and turnover amounts at the end of each financial year in order to comply with the law.