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. As per the Companies (Specification of definition details) Amendment Rules, 2022, the limit of paid-up capital and turnover for the ‘Small Company’ has been increased to Rs. four crores (earlier Rs. two crores) and Rs. forty crores (earlier Rs. twenty crores) respectively. Pursuant to the said amendment in the Companies (Specification of Definitions Details) Rules, 2014, existing clause (t) has been substituted in the Rule 2, in sub-rule (1), 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 four crores and rupees forty crores respectively.”
Earlier, the Hon’ble Finance Minister had proposed to revise the definition of small companies in Union Budget 2021 by enhancing the paid-up capital base from the existing limit of Rs 50 lakh to Rs. 2 crores. The move is likely to get more companies under the ‘small’ category and benefit them in terms of the compliance requirements. While the capital base limit is proposed to be increased to Rs 2 crores, the turnover threshold is also proposed to be enhanced from Rs 2 crores to Rs 20 crores. Pursuant to the last 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.”
As mentioned above, the definition has, now, been further revised by increasing such thresholds for paid-up capital from ‘not exceeding Rs 2 crores’ to ‘not exceeding Rs 4 crores’ and turnover from ‘not exceeding Rs 20 crores’ to ‘not exceeding Rs 40 crores’,”
Before aforesaid both amendments i.e. before insertion of new clause (t) and substitution of clause (t), the limit of paid up capital and turnover of the small company is identified by the definition of small company prescribed under Section 2(85) of CA, 2013 which reads as under-
“(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;”
According to Section 2(85) of CA, 2013, Small Company means the company which satisfies the following conditions: –
- It has paid up share capital of not more than 50 lakhs or such higher amount as may be prescribed which shall not be more than 10 crores; and
- It has annual turnover of not more than 2 crores or such higher amount as may be prescribed which shall not be more than 100 crores.
Please note that Section 2(85) gives the power to the Government to prescribe such higher amount which shall not be more than Rs. 10 crores in case of paid-up capital and not more than Rs. 100 crores in case of turnover. By using said power, the Government has prescribed higher limit by inserting/substituting clause (t). Now, as per the clause (t) paid up capital and turnover of the small company shall not exceed rupees four crores and rupees forty crores respectively.
To become a Small Company, a Private Company requires to full fill both of conditions prescribed above. Further, a Company is not a Small Company if:-
1. It is a Public Company;
2. It is a Holding of another company.
3. The Company is a subsidiary of another company.
4. The Company is a Section 8 Company.
5. It is a Company governed by any Special Act.
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