OVERVIEW
‘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;
(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—
(i) a holding company or a subsidiary company;
(ii) a company registered under section 8; or
(iii) a company or body corporate governed by any special Act;
The above said definition of Small Company is as per Sub Section 85 of Section 2 before the insertion of clause (t) in the Companies Rule (Specification of Definitions Details) Rules, 2014,:
Pursuant to the amendment in the Companies Rule (Specification of Definitions Details) Rules, 2014 vide notification dated 01st February 2021 issued by Ministry of Corporate Affairs (MCA), a new clause (t) has been inserted in the Rule 2, in sub-rule (1), after clause (s), as under:-
“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.”
Accordingly, the definition of Small company is read as per amended is mentioned hereunder:
“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;
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty Crores 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—
(i) a holding company or a subsidiary company;
(ii) a company registered under section 8; or
(iii) a company or body corporate governed by any special Act;
Benefits/privileges of Small Companies under the Companies act, 2013:
HOLDING OF BOARD MEETINGS: As per sub section 5 of Section 173 (meeting of board):
“A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days:
As per the provisions of Section 173, every company is required to hold a minimum number of four Board Meeting every year.
- HENCE: A Small Company can hold only two Board meetings in a calendar year i.e. one board meeting in each half of the calendar year. However, the gap between two board meetings should not be less than 90 days. So, the Board is not required to conduct four board meetings in a year in case of small company.
ANNUAL RETURN: According to rule 11 of Companies (Management and Administration) Amendment Rules, 2021.
“Every company shall file its annual return in Form No.MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A.”
- HENCE: The small companies shall file form MGT-7A instead of MGT-7 from the F.Y. 2020-21 onwards and the small Company’s Annual return shall be signed by only one director and no need to certify by the practicing company secretary.
- However, the small company also has to attach the list of directors along with the list of shareholders in MGT-7A.
FINANCIAL STATEMENT: According to sub section 40 of section 2:
“financial statement” in relation to a company, includes—
(i) a balance sheet as at the end of the financial year;
(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;
(iii) cash flow statement for the financial year;
(iv) a statement of changes in equity, if applicable; and
(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):
Provided that the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement”
- HENCE: A Small company need not require maintaining a Cash flow statement as a part of its Financial Statements. So, while filing of financials with Registrar of Companies, there is no need to attach the CASH Flow Statements along with the Financial Statements.
ABRIDGED DIRECTOR’S REPORT
As per Rule 8A of Companies (Accounts) Rules, 2014, there are specified Matters to be included in Board’s Report for One Person Company and Small Company.
- HENCE: The Matters to be included in Board’s Report are mentioned in Rule -8 of companies (Accounts) Rules, 2014 does not apply for small company. Format of abridged director’s report is appended for information purpose only.
APPOINTMENT OF AUDITOR – RETIRE BY ROTATION
As per rule 5 of the companies (Audit and Auditors) rules 2014:
“For the purposes of sub-section (2) of section 139, the class of companies shall mean the specified classes of companies excluding one person companies and small companies”
- HENCE: A small company, shall never be required to rotate its auditor according to Section 139(2) of Companies Act 2013.
- However, Section 139(2) of the Company Act 2013, which mandates the rotation of statutory auditors every 5 years (individual auditors) and every 10 years (firm of auditors).
NO CERTIFICATION BY THE PROFESSIONAL ON E FORMS
The companies are required to file the various E Forms pertaining to filing of Balance Sheets, Appointment or resignation of directors/KMP, Allotment of securities and various other event based e forms.
- HENCE: The small companies may not be required to get the E Forms certified from the Practicing Professionals.
PENALTIES
According to Section 446B “Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up company or Producer 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.”
- HENCE: If, a small company fails to comply with the provisions of the companies act, such company and officer in default of such company 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.
Conclusion: As per the various privileges provided for a small company, the small companies can work more efficiently with minimized legal compliances saving the time and cost both.
- However, it is to be noted that a company which is eligible to be known as a small company in one particular year might not be eligible to have the status of a small company in the subsequent year.
- This status is determined on the basis of the details mentioned in the Annual return of the company which is uploaded annually at the end of every financial year. If a company loses its small company status, the privileges associated with it are automatically also withdrawn.
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Format of Abridged Director’s Report as per Rule 8A of Companies (Accounts) Rules, 2014, Matters to be included in Board’s Report for One Person Company and Small Company
The Members,
Your directors have pleasure in presenting their ……………. Annual Report on the business and operations of the Company and the accounts for the Year ended March 31st, 2021
Mandatory matters to be included
1. Web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed.
2. Number of meetings of the Board of Directors:
The board met ….. times during the financial year.
3. Directors’ Responsibility Statements required under section 134(3)(c) of the Companies Act, 2013:
The Directors confirm that:
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the company at the end of the financial year and of the profit and loss of the company for that period;
(c) the Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities;
(d) the Directors had prepared the annual accounts on a going concern basis; and
(e) the Directors, in the case of a listed company, had laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively.
4. Details in respect of frauds reported by auditors under sub section (12) of section 143 other than those which are reportable to the central Government
5. explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report;
6. State of company’s affairs
7. Financials summary or highlights:
| Particulars | For the year ended on 31st March ……. (In Rs.) | For the year ended on 31st March….. (In Rs.) |
| Operating revenue | ||
| Total Expenditure before Depreciation and Finance Costs | ||
| Add: Dividend and other Income | ||
| Less: Finance Costs | ||
| Profit/(Loss) before Depreciation and Tax | ||
| Less: Depreciation and Amortization Expense | ||
| Profit/(Loss) before Tax | ||
| Less: Provision for Current/Deferred Taxes | ||
| Less: Prior Years’ Tax Adjustments | ||
| Add: Minimum Alternate Tax credit entitlement | ||
| Profit/(Loss) after Tax |
8. material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company
9. The details of directors who were appointed or have resigned during the year
10. the details or significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future.
11. Particulars of contracts or arrangements with related parties:
The Report of the Board shall contain the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2.
Other matters to be included as per applicability
12. Disclosure under the sexual harassment of Women at workplace –
Disclosure to be given as per The Sexual Harassment of women at work place (Prevention, Prohibition and Redressal) Act 2013
13. Secretarial standard and its compliance
As per clause 9 (Disclosure) of SS -1, The Report of the Board of Directors shall include a statement on compliances of applicable Secretarial Standards
14. Statutory Auditors
Details of statutory auditors to be given like date of AGM/EGM in which the statutory auditors were appointment, name of the auditor, registration number, term of appointment etc.
Acknowledgements:
We thank the co-operations and support given by the shareholders, the company’s bankers and various government authorities during the year for their support and look forward to their continued support in the future.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
…………………….. PRIVATE LIMITED
DIRECTOR
……………………………
DIN: ………………
DIRECTOR
……………………
DIN: ………………….
Place: ……………….
Date: …………….
Place: ……………….
Date: …………….
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DISCLAIMER: The views expressed are strictly of the author. The contents of this article are solely for informational purpose. It does not constitute professional advice or recommendation of author. Neither the author and its affiliates accepts any liabilities for any loss or damage of any kind arising out of any information in this article nor for any actions taken in reliance thereon.
Author Bio
Great Article…very helpful….the best part is that u gave section reference to your every observation as corroborative evidence. well done