Small Companies & Form MGT 7A

Compliance is a major part of life of a Professional. Compliance of applicable Laws and rules help better corporate governance and better discipline among corporate and professionals. Compliance of law particularly Companies Act, 2013 depend upon nature and size of company. Companies may be categorized as small companies, Public Companies, Listed entities. The purpose of this Article is to discuss about Small Companies, latest amended definition of Small Company with effect from 1^st April, 2021 onwards.

Let us understand meaning of company in simple terms:

Meaning of Company :

Company is an Artificial Person, having common seal and Perpetual succession subject to closure/liquidation or winding up of a company by Promoters/Directors of the company.

Meaning of Small Company under Companies Act, 2013 as amended shall read as follows :

Pursuant to the amendment in the Companies (Specification of Definitions Details) Rules, 2014, a new clause (t) has been inserted in the Rule 2, in sub-rule (1), after clause (s), as under:-

“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”

• • Paid Up Share Capital is Less than Rupees Two Crores as at 31^st March, 2021. (Earlier Limit : Rs. 50 Laks) OR   (Maximum Limit Rs. Ten Crores)
  • Turnover of Company shall be Less than Rupees Twenty Crores  as at 31^st March, 2021. (Earlier Limit : Rs. 2 Crores) (Maximum Limit Rs. 100 Crores)

Provided that nothing in Section 2(85) of the Companies Act, 2013  shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under Section 8 Company

(C) a company or body corporate governed by any special Act;

(D) a Public Company

For above four companies which are not small companies, Form MGT 7 required to be filed, digitally signed by any one Director and a Practicing Company Secretary.

Small company as per Section 2 (85) of the act means a company : Definition applicable before 31/03/2021) : Old definition of Small Company reads as follows :

• other than a public company (Purely Private Limited Company)
• paid-up share capital 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 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.
• Note that a Company may be a Small Company in One Financial year and may not be small company in another financial year  based on criteria mentioned above.

Following Examples will make it clear the definition of a Small Company :

Example 1 : If the Paid Up Share Capital of the company is Rs. 15 Lakhs and Turnover of a Company is Rs. 15 Crores as on 31^st March, 2021, then considering the amended definition, this company is a Small Company. (Form MGT7A need to be filed, digitally signed by Director Only) ).

Example 2 :  If the Paid Up Share Capital of the company is Rs. One Crores and Turnover of a Company is Rs. 25 Crores as on 31^st March, 2021, then considering the  amended definition, this company is not  a Small Company. (Form MGT7 need to be filed, digitally signed by Director and a Practising Company Secretary).

Example 3 :  If the Paid Up Share Capital of the company is Rs. Three Crores and Turnover of a Company is Rs. 15 Crores as on 31^st March, 2021, then considering the  amended definition, this company is not  a Small Company. (Form MGT7 need to be filed, digitally signed by Director and a Practising Company Secretary).

Example 3 :  If the Paid Up Share Capital of the company is Rs. Three Crores and Turnover of a Company is Rs. 35 Crores as on 31^st March, 2021, then considering the  amended definition, this company is not  a Small Company. (Form MGT7 need to be filed, digitally signed by Director and a Practising Company Secretary).

From the above, it can be concluded that only in case of First example, the company will be treated as small company and in other three examples, the company is not a small company within the meaning of amended definition of Small Company with effect from 1^st April, 2021.

Advantages to a Small Companies are as follows :

• • Meetings of the Board of Directors: A small company may hold only two board meetings in a year instead of fulfilling the requirement of four meeting for other companies. It has to make sure that at least one Board Meeting is held in each half of the calendar year and the gap between them is not less than ninety days.
  • Financial Statement: Preparation or including cash flow statement as a part of its financial statement is not necessary for the small
  • Signing of Annual Return: Annual Return of the company can be signed by the Company Secretary, or where in small company if there is no company secretary, by a single director of the company. Form MGT 7 A introduced
  • Mandatory rotation of auditors as per Section 139(2) of the Companies Act, 2013: Small companies are exempted from the requirement from mandatory rotation of statutory auditor as per Section 139(2) of the Act, 2013 (read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014).
  • Internal Financial Controls: A small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
  • Lesser penalties for Small Companies under Section 446B of the Companies Act, 2013 : If a small company fails to obey with the provisions of section 92(5), section 117(2) or section 137(3), such company and officer in default of such company shall be punishable with fine or imprisonment or both, as the case may be, which shall not be more than one-half of the fine or imprisonment or fine and imprisonment, as the case may be, of the minimum or maximum fine or imprisonment or fine and imprisonment, as the case may be, specified in such sections.
  • Fast Track Merger of Small Companies is easy and require less time and approvals.
  • Less Compliance and less cost

Now, we will move head towards Compliance Part for small companies  which shall be as follows :

By the amendment in the Companies (Management and Administration) Rules, 2014, sub-rule (1) of Rule 11 has been substituted for –

“(1) Every company shall file its annual return in Form No. MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No. MGT-7A.”With effect from 1^st April,2021 onwards.

Form MGT 7A is yet to be uploaded on website www.mca.gov.in

It can be concluded that compliance vary depending upon nature and type of company. Professionals need to consider amendments and comply with applicable provisions of law in letter and spirit.

****

Disclaimer : The Views expressed in this Article are based upon prevailing facts and  Law  as on date and views expressed are purely personal in nature. Readers are advised to seek expert opinion before arriving at a decision. You may reach me at csdeepakamrutkar@gmail.com.