SHORT SUMMARY:
In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (“CA, 2013”), the Central Government, vide Notification GSR 700(E) dated 15th September 2022 has amended the Companies (Specification of Definitions Details) Rules, 2014 which shall come into force on the 15th September, 2022. Earlier MCA has made amendment in definition of Small Company w.e.f. 01st April 2021.
It seems that MCA frequently amending the definition of Small Company to provide many advantages to Corporates. This move of MCA is expected to lighten the compliance burden of about 400,000 companies in India. The move is likely to get more companies under the ‘small’ category and benefit them in terms of the compliance requirements. As due to this move, many Companies will get exemptions of so many compliances of Companies Act, 2013. This move would benefit Start-ups in India. Therefore, we can state that the decision to amend the definition of small company is a pragmatic and growth-oriented step of the government.
Small Company:
“Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner.
LIMITES TO IDENTIFY SMALL COMPANY:
The concept is furnished by the Companies Act, 2013 that defines a Small Company-
I. Meaning of Small Company – AS ON 01.04.2014:
Small companies mean a company, other than a public company which has: –
- Paid up share capital of not more than 50 lakhs rupees and
- Turnover of which as per its last profit and loss account does not exceed 2 crore rupees.
2. Meaning of Small Company – AS ON 01.04.2021:
Small companies mean a company, other than a public company which has: –
- Paid up share capital of not more than 2 Crore rupees and
- Turnover of which as per its last profit and loss account does not exceed 20 crore rupees.
3. Meaning of Small Company – AS ON 15.09.2022: New Definition
Small companies mean a company, other than a public company which has: –
- Paid up share capital of not more than 4 Crore rupees and
- Turnover of which as per its last profit and loss account does not exceed 40 crores rupees.
A Small company demands no form to transform itself into a non-small Company-
A small company is not mandated to file any form to convert itself into a non-small company. Until the Company is under the eligible bracket of a small company definition, it will continue to be a small company.
When the Company crosses the limits given in the definition, the Company will spontaneously be converted to a non-small company.
Individual traits of a Small Company
- Inferior profitability and earnings:
- Finite Employees:
- Smaller Market Area
- Fewer locations:
- Fewer locations
Advantage of a Small Company to Corporates
A. Fewer Mandatory Board Meetings:
Every Small Company shall hold a minimum number of Two meetings of its Board of Directors every year in such way that the Minimum gap between the two meetings should not be Less than 90 (Ninety) days. {Section 173}
In Case of Non-Small Company, it is required to hold four Board Meetings in a year.
B. No CARO needed:
As per provisions of the Companies Act, 2013, Small Companies are not mandated attach CARO Report along with Auditors Report. Therefore, Auditors of small Company no need to prepare CARO.
Quick Bite: If Turnover of Company was Rs. 35 Crore as on 31.03.2022. Whether such Companies Needs to prepare CARO report along with Auditor Report for FY 2021.22.
C. No Cash Flow Statement needed:
As per provisions of the Companies Act, 2013, Small Companies are not mandated to frame the Cash Flow Statement as part of Financial Statement.
D. E-forms Certifications:
As per the provisions of the Act, there is no necessity of certification of the the e-forms of a Small Company from Professional (CA/CS/ADV).
E. Abridge Directors report:
MCA, by amendment in the Companies Act, 2013, has introduced the abridged format of the Directors’ Report for a Small Company.
There will be less disclosures in the Director’s Report of a Small Company with the introduction of the Abridge Director’s Report. Directors Report of Small Company shall be prepared as per Rule 8A of Section 134 of Companies Act, 2013. In other words, Directors Report of Small Companies are not required to give disclosures as mentioned in Section 134(3).
In case any one want format of Directors Report of Small Company you can request for same on whatsapp no 8130757966.
F. No IFC Reporting:
A Small Company is not required to report the Internal Financial controls and the operating effectiveness of the company in its Audit Report.
G. Lesser Penalties {446B):
Notwithstanding anything contained in this Act, if a penalty is payable for non-compliance of any of the provisions of this Act by a small 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 two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be.
H. Rotation of Auditor {139(2)):
Provisions of Section 139(2) concerning to rotation of auditor are not applicable on a Small Company. There is no obligation on a Small Company to change the auditor by rotation.
An auditor firm or individual auditor can obtain charge as auditor in small Company ever after 5 years or 10 years of appointment as well.
Key Take Away about Small Company:
- Only a Private Company can be classified as a Small Company.
- If a Company doesn’t cross the mentioned limits, yet, such a Company is a holding Company or a Subsidiary Company of any other Company, then such a Company cannot be regarded as a Small Company.
- A Public Company cannot be a Small Company.
- A Section 8 Company cannot be a Small Company.
CONCLUSION:
The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies.
In recent times, the government has taken various measures, including Decriminalisation of various provisions under the Companies law, to further improve the ease of doing business in the country.
Author – CS Divesh Goyal, GOYAL DIVESH & ASSOCIATES Company Secretary in Practice from Delhi and can be contacted at [email protected]).
Author Bio
You have left question mark , Is recent amendments of Small company definition is applicable for the FY 2021-22
NO. upto FY: 2021-22 small companies Paid up share capital of not more than 2 Crore rupees and Turnover does not exceed Rs.20 crore. After amendment in 15-Sep-2022, now small company means Paid up not more than Rs.4 crore and turnover does not exceed Rs.40 crore and this 15-Sep-2022 amendment applicable for FY: 2022-23 onwards.
Sir,
As MCA annual return form MGT-7A; got updated on 20th September, 2022; do the filing needs to be done as per old criteria or new criteria?
There is substantial variation with regard to definition of a small company. Foremost is that if it is subsidiary of even another private company then it is not a small company. In another case net worth of the company is considered instead of paid up capital. Applicability of Accounting standards define ‘ Small medium company’ ( SMC) instead of Small company. CARO exemption is allowed only if all the 3 criteria of turnover, paid up capital and borrowings, while, IFRC and Cash Flow exemptions require different criteria. For ease of business there should be unambiguous definitions. The definition of small company has been changed three times since 2014. Companies Act not even 10 years old is being frequently tinkered through Rules etc. without any substantial improvement. All this must be avoided.