Gamut of Privileges to a Small Company
Before the amendment, the definition of a small company, as per Section 2(85) of the Companies Act 2013, was,
‘‘small company’’ means a company, other than a public company,—
(i) paid-up share capital (both equity and preference) of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or
(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
Now Ministry of Corporate Affairs (MCA) has amended the Companies (Specification of definition Details) Rules, 2014 w.e.f. 1st April 2021 to give effect to higher monetary limits for a private company to be considered as a small company. The limit of maximum Paid-up capital has been increased from Rs. 50 Lakh to Rs. 2 Crores and the maximum turnover limit has been increased from Rs. 2 Crores to Rs. 20 Crores to be a small company.
So from 1st April 2021, a small company would be one which satisfies both the below mentioned conditions for the immediately preceding year:
i. Paid-up capital is upto Rs. 2 Crores, and
ii. Turnover is upto Rs. 20 Crores
However, an important point to note here is that these changes are effective from 1st April 2021 and nothing of these shall apply up till Financial Year 20-21. That is to say, the company will have to abide by all the compliances (like preparation of cash flow statement, issue of audit report, and filing of annual forms with ROC) just like a normal company i.e. other than a small company for Financial Year 2020-21
Following companies have still been excluded from being a small company:
- Listed Company
- Public Unlisted company
- Section 8 Company
- Holding Company
- Subsidiary Company
- Company or Body Corporate governed by any special act
- Private Company whose Paid up capital exceeds Rs 2 crores
- Private Company whose Turnover for the immediately preceding year exceeds 20 crores
What does this change mean for companies?
This minute change in definition would enable more businesses functioning under the constitution of a company to fall under this definition and enjoy a number of privileges and exemptions provided to such companies to further enhance ease of doing business.
An example in a tabular form would make things a little more clear:
| Bxe Pvt Ltd | Paid up capital | Turnover | Whether a small company? |
| F.Y 20-21 | 1Cr. | 10Cr. | No |
| F.Y 21-22 | 1Cr. | 10Cr. | Yes |
Benefits/Exemptions for a Small Company:
A small company can enjoy the following benefits:-
- No requirement to prepare cash flow statement u/s 2(40) of the Companies Act, 2013.
- No IndAS applicability to small companies.
- Abridged Annual report in New Form MGT-7A instead of a detailed annual report in Form MGT-7.
- Only aggregate amount of remuneration required to be shown in annual report instead of providing details of remuneration of directors.
- Only 2 Board meetings are required to be held in a calendar year having a minimum gap of 90 days between the two meetings.
- Fast track merger of two small companies without applying to the National Company Law Tribunal(NCLT)- Registrar of Companies and Official Liquidator may give objections or suggestions if any to the Regional director within 30 days of the receipt of the scheme, pursuant to which Regional director office shall approve the scheme.
- Reduced filing fees with Registrar of Companies (ROC) to small companies as compared to other companies, pursuant to Section 403 read with Rule 12 of the Companies (Registration of Offices and Fees) Rules, 2014.
- No requirement of reporting of adequacy and operating effectiveness of Internal Financial Controls (IFC) in the Auditors Report of a small company.
- CARO 2016/2020 is not applicable on a Small Company
- Small company is not counted in the limit of 20 audits per auditor as per Notification dated 5th June 2015
- Exemption from mandatory rotation of auditors which is mandatory for other companies after a term of 5 consecutive years in case of an individual auditor and two consecutive terms of 5 years in case of an firm.
- Lesser penalties in case of a default – As per Section 446B, where a small company defaults in filing MGT-7A(Annual Return), or MGT-14(Resolutions and agreements), or AOC-4(Financial statement), then such a company or officer in default shall be fined not more than ½ (50%) of the minimum or maximum fine or imprisonment or both, as the case may be .
- No requirement of pre-certification by Professionals for filing of Forms with ROC including Annual Return.
- Exemptions for Board’s Report: – Certain matters to be included in Board’s Report mentioned in Rule 8 of companies (Accounts) Rules, 2014 do not apply for small company. Further the Central Government may prescribe an abridged Board’s report, for the purpose of compliance u/s 134(4A) by small company.
Matters included in Board’s Report of a Small Company
Following are the matters included in Board’s Report of a Small Company, based on the standalone financial statement of the company, which shall be in abridged form and contain the following:
a. Web address if any, where annual return referred to in Section 92 of the Companies Act has been placed
b. Number of meetings of the Board
c. Directors Responsibility Statement under Section 134
d. Details in respect of frauds reported by auditors under Section 143(12), other than those reportable to the Central Government
e. The state of the Company’s Affairs
f. The financial summary
g. Material changes from the date of closure of the financial year in the nature of the business and their effect on financial position
h. Details of directors who were appointed/resigned during the year
i. Particulars of the contracts/arrangements with related parties referred to in Section 188 of the Companies Act 2013.
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The author can be reached at jainrashi2008@gmail.com for any further assistance.
DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of firm. Neither the author nor firm and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
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