Privileges & Exemptions to Small Companies under Companies Act, 2013

Introduction

Section 2(85) of the Companies Act, 2013 defines small company. A company (other than public company) will be considered small if;

a) Paid-up share capital doesn’t exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees[1] and

b) 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 [2]one hundred crore rupees

Intent behind carving of Small Companies

The reason behind classification of small companies is:

a. to allow such small companies to operate under relatively lighter regulatory oversight considering the size in which they operate;

b. to facilitate compliance by small companies in an easy and cost effective manner. However, the same should not incentivize concealment of true size or be a barrier to growth.

c. to ensure small companies do not suffer the consequences of regulation designed to ensure balancing of stakeholders’ interests of large, widely held entities.

Privileges and Exemptions to Small Companies

The Ministry of Corporate Affairs (“MCA”) through its notification dated 5 June 2015[3] provided various exemptions to private companies[4]. Further, MCA vide its notification dated 13 June 2017[5] provided additional exemptions to private companies[6]. The tabular statement shows privileges and exemptions available to a small company

Particulars	Exemption
Signing of Annual Return	Annual Return of the Small Company can be signed by the company secretary alone, or where there is no company secretary, by a single director of the company
Meetings of the Board	A small company may hold only two board meetings in a year i.e one Board Meeting in each half of the calendar year and the gap between the two meetings is not less than ninety days
Financial Statement	A Small company need not include cash flow statement as part of its financial statement
Annual return	Small companies are required to provide details of aggregate amount of remuneration drawn by directors instead of providing details of remuneration of directors and key managerial personnel of the company.
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 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	An Auditor of small companies are 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 446 B of the Companies Act, 2013[7]	If a small company fails to comply with the provisions of sub-section(5) of section 92, sub-section(2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, 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.

Particulars

Exemption

Signing of Annual Return

Annual Return of the Small Company can be signed by the company secretary alone, or where there is no company secretary, by a single director of the company

Meetings of the Board

A small company may hold only two board meetings in a year i.e one Board Meeting in each half of the calendar year and the gap between the two meetings is not less than ninety days

Financial Statement

A Small company need not include cash flow statement as part of its financial statement

Annual return

Small companies are required to provide details of aggregate amount of remuneration drawn by directors instead of providing details of remuneration of directors and key managerial personnel of the company.

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 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

An Auditor of small companies are 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 446 B of the Companies Act, 2013[7]

If a small company fails to comply with the provisions of sub-section(5) of section 92, sub-section(2) of section 117 or sub-section (3) of section 137, such company and officer in default of such company shall be punishable with fine or imprisonment or fine and imprisonment, 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.

[4] http://vinodkothari.com/blog/faqs-on-exemption-to-private-companies//

[6] http://vinodkothari.com/blog/mca-favorably-revisits-exemption-notification-relating-to-private-companies/