The Hon’ble Finance Minister Mrs. Nirmala Sitharaman had presented the Union Budget 2021 on 1st February, 2021. The Hon’ble Finance Minister Mrs. Nirmala Sitharaman had proposed to revise the definition of small companies 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.
Therefore, in exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013, the Central Government, vide Notification GSR 92(E) dated 01st February, 2021 has amended the Companies (Specification of Definitions Details) Rules, 2014 which shall come into force on the 1st day of April, 2021.
Pursuant to the 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.”
Before aforesaid amendment i.e., before insertion of new 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 Companies Act, 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;”
What companies can claim to be the Small Company?
According to the definition given above, the companies which fulfils the following provisions can be featured as the small company:
Some of the major exemptions are granted to small company in companies act, 2013.
1. Board meetings
As per the provision of Section 173 (5) of Companies Act, 2013: –
Small company shall be deemed to have complied with the provisions of section 173, 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.
2. Financial Statements and Annual returns
3. Internal Financial Control: –
Auditor’s reports do not have to report about the adequacy of internal controls and their operational effectiveness in their reports.
4. Auditor Rotation
The other benefit or exemption is that it is not necessary for small companies to follow the condition laid in Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every five years (individual auditors) and every 10 years (firm of auditors).
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