Relaxation for Small Companies & One Person Company

Relaxation for Small Companies and One Person Company as per Union Budget 2021

The Union Budget 2021 has proposed 2 major changes in companies Act First one is relaxes threshold for Small Companies and 2^nd one is allows NRIs to form One Person Company.

A. Change in definition of small companies

As per the new definition

Small companies means a company, other than a public company which have :-

• 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.

As per the Old definition

‘‘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 five crore rupees; or

(ii) 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:

KEY POINTS OF CHANGES

1. Threshold increased to Paid up capital from 50 lakh to 2 crore rupees and

2. Annual turnover also been raised from 2 crore to 20 crore rupees.

Its is beneficiary to more than 2 lakh companies in compliance required.

Privileges for small companies

Companies Act 2013 provides certain benefits to the Small companies which includes:-

• Every company is required to hold 4 Board Meeting in a year. While a Small Company needs to hold only 2 Board meetings in a calendar year i.e. one board meeting in each half of the calendar year. However the gap between the two board meetings should not be less than 90 days.
• In case of Small Company, the Annual Return can be signed by Company Secretary alone or if there is no CS, by a single Director only.
• A Small company does not require to maintain a Cash flow statement as a part of its Financial Statements.
• Every company needs to change its auditor by rotation according to Section 139(2)of Companies Act 2013. However small company need not comply this section and hence is exempt from the requirement of this section.
• A Small Company does not require to report in its Audit Report regarding Internal Financial controls and the operating effectiveness of the company.
• In case of Small Company, Companies Act prescribes lesser penalties as compared to every other company.
  

B. NRIs allowed to form One Person Company

The Annual Budget 2021 proposes to allow the NRIs to form One Person Company (OPC). Earlier the NRIs were exempted from forming One Person Company. However, they were allowed to become directors of an Indian company. Only resident Individual persons could start the One Person Company (OPC) in India. This new proposal would undoubtedly benefit many NRIs.

As Per union budget proposed changes one person company :-

1. “Non-resident individuals with entrepreneurial potential are now enabled to set up One Person Companies (OPC) with no paid up capital and turnover restrictions, reducing registration timeline from 182 days to120 days. Earlier only Indian resident citizens were permitted to set up OPCs

2. Removed the restriction of paid up capital and average annual turnover

As per old provision of one person company

As per Section 2(62) of the Companies Act defines a one-person company as a company that has only one person as to its member.

1. By the rules only Indian Resident can avail of “One Person Company” benefit and the word “ One person company “ shall be a part of the name of company as per section 12(3) of the Act.

2. The paid up capital of the OPC cannot exceed 50 lakhs and its average annual turnover cannot exceed 2 crores.

3. A person can incorporate a maximum of 5 OPCs. (Rule 2.1(2))

Companies Act provides certain benefits to the one person companies like –

1. No need to hold annual meetings,

2. No independent directors required

3. More remunerations to directors compared to other companies etc.