NEW VS OLD DEFINITION OF SMALL COMPANY

As the annual filing season is coming along the way, it is pertinent to have a clear understanding about the applicability of definition of small company. For that matter, let’s have a look at some of the important points of consideration.

– In the Union Budget 2021, Hon’ble FM Smt. Nirmala Sitharaman ji proposed to revise the definition of small company under the Companies Act, 2013 (the Act), with a view to facilitate ease of doing business and reducing compliance burden thereof.

– Accordingly, the MCA notified a new set of Rules, Companies (Specification of Definitions Details) Amendment Rules, 2021 to amend the existing Companies (Specification of Definitions Details) Rules, 2014 (the Rules) vide Notification No. G.S.R. 92(E). dated, 1st February, 2021.

– With this amendment, a new clause (t) was inserted in Rule 2(1), to provide for amendment in the definition of small company.

Is your Company a Small Company for F.Y. 2020-21?

The clause reads as follows:

“(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.”

– However, the definition under section 2(85) of the Act, is itself not amended by the Ministry.

– The amendment rules were set to come into force w.e.f. 1st April, 2021.

Existing Definition:

Section 2(85): small company means a company, other than a public company—

(i) 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 ten crore rupees and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred 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;

Amended Definition:

Keeping in view the insertion of clause (t) in Rule 2(1) of the Rules, it can be said that, for the purpose of bringing into effect the amended provisions, the definition under section 2(85) read along with the Rules shall be referred to, in the following manner:

small company means a company, other than a public company—

(i) paid-up share capital of which does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees and

(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred 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;

Criteria Old New
Paid-up share capital 50 lakhs 2 crores
Turnover 2 crores 20 crores

Form MGT-7A: It is also pertinent to note that w.e.f. F.Y. 2020-21, OPC and Small Companies shall file annual return in form MGT-7A instead of form MGT-7 (Notification no. G.S.R. 159(E). dtd. 05th March, 2021).

CONCLUSION

After considering the afore-mentioned points in general and date of applicability of the amended provisions in particular, it can be concluded that the amended definition is applicable from F.Y. 2021-22 onwards and it will have no impact on the filings which pertain to F.Y. ended 31st March, 2021. That is to say, for the purpose of filings which pertain to the F.Y. 2020-21, the old definition of small company shall be applicable for all matters.

Disclaimer: The author is based in Jabalpur and is a Practicing Company Secretary dealing in Corporate, Legal & Taxation services. The information contained in this write up, as provided by the author, is to provide a general guidance to the intended user. The information should not be used as a substitute for specific consultations. Author recommends that professional advice is sought before taking any action on specific issues.

The author can also be reached at [email protected]

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2 Comments

    1. CS Tanveer Singh Saluja says:

      Rightly mentioned Khyati ji.
      But the subject matter of this article is not whether MGT-7A is required to be filed for preceding years or not. This article is regarding the definition of small company and I have quoted the provision of MGT-7A just for reference and in accordance with what is mentioned in Notification no. G.S.R. 159(E). dtd. 05th March, 2021.
      I have already written an article on the point which you’re trying raise here. You may have a look at it by following this link: https://taxguru.in/company-law/form-mgt-7-form-mgt-7a-file.html?amp/&_gl=1*1wgbjdw*_ga*YW1wLVhSQ0R6a2FHNnpJLXp0eXJ3SHhWaldsTjFNbUM3VkY5VHdBTUktN2h0T253WnRuWkRJem9BWEpLam5oZHprZEQ.

      Best Regards.

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