CS S. Dhanapal
Introduction
The concept of “Small Company” has been introduced for the first time by the Companies Act, 2013. The Act identifies some companies as small companies based on their capital and turnover position for the purpose of providing certain relief/exemptions to these companies. Most of the exemptions provided to a small company are same as that provided to a one person company. The Act also provides for a simplified scheme of arrangement between two small companies, without requiring the approval of Tribunal, i.e. with the approval of Central Governement (Regional Director).
Definition
Section 2(85) defines a Small Company as –
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‘‘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: Provided that nothing in this Section 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; |
For qualifying as a small company, it is enough if either the capital is less than rupees fifty lakhs or turnover is less than rupees twenty crores. It is sufficient if either one of the requirement is met without meeting the other requirement. However, these limits may be raised but not exceeding rupees five crores in case of capital and rupees twenty crores in case of turnover.
Further, as per the definition of a small company, holding and subsidiary companies are specifically excluded from the concept of small company. Thus even though both the holding company and subsidiary company may fulfill the capital or turnover requirement of a small company, they will still fall outside the purview of small company and accordingly the benefits which are available to a small company cannot be applied to a company which is holding or subsidiary company.
In other words, a holding or a subsidiary company can never enjoy the privileges of a small company even though they may fulfill the capital or turnover requirement of a small company.
Similarly, a company may classify as a small company in a particular year but may become ineligible in the next year and may become eligible again in the subsequent year.
Section 129(3) mandates that a company which has one or more subsidiary companies must prepare consolidated financial statements in addition to standalone statement. However, companies which have subsidiary companies, i.e. holding companies are outside the purview of small companies. It appears from the above that the requirement of consolidation of financial statements will not arise for small companies. But, explanation provided under sub-Section 3 of Section 129 cointains that for the purpose of consolidation, the word “subsidiary” shall include associate company and joint venture. Thus, a small company which has any associate company or joint venture will still be required to prepare consolidated financial statements. This meaning of “subsidiary” is only for the limited purpose of Section 129(3) and not for the purpose of determining whether a company is a small company or not.
Salient Features:
- Only a private company can be classified as a small company.
- Holding company, subsidiary company, charitable company and company governed by any Special Act cannot be classified as a small company.
- For a small company, either the paid up capital should not exceed Rupees fifty lakhs or the turnover as per last statement of profit & loss should not exceed rupees two crores.
- The status of a company as “Small Company” may change from year to year. Thus the benefits which are available during a particular year may stand withdrawn in the next year and become available again in the subsequent year.
Special Provisions and Exemptions available to a Small Company
As mentioned before, the privileges/exemptions available to a small company are same as that available to a one person company, but not all privileges available to a one person company are available to a small company. For the sake of easy understanding and clarity, all the exemptions available to a small company are provided below.
The annual return of a Small Company can be signed by the company secretary alone, or where there is no company secretary, by a single director of the company.
A small company may hold only two board meetings in a year, i.e. one Board Meeting in each half of the calender year with a minimum gap of ninety days between the two meetings.
A small company need not include Cash Flow Statement as part of its financial statement.
Provision regarding mandatory rotation of auditor/maximum term of auditor being 5 years in case of an individual and 10 years in case of a firm of auditors is not applicable to an OPC.
Read more about small company as per company act
(Written by S.Dhanapal, Senior Partner, S Dhanapal & Associates, A firm of Practising Company Secretaries, Chennai.)
How a sinlgle director can sign financial statements?
Plz explain
Sir, I have a doubt….
Small company can’t be a holding or subsidiary of other types of companies….
whether small company can hold any other small company ?
Dear sir, Notification dated 13th February, 2015 the ‘MCA’ the definition of small company was amended as follows in section 2, in clause (85), in sub-clause (i), for the word “or” occurring at the end, the word “and” shall
be substituted.Please consider that also
Perfect answer for all question relating to this topic. Thankyou.
50 lakhs are the present limit and 5 cr. is the limit upto which government can increase the present limit.
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 ( is it last year turnover/current year turnover)
Now the word “or” is replaced with “AND” in sec2(85)(1)
Sir,
Higher Limit … who will set the Higher Limit? Management in Board Meeting or the companies Act will define it later on?
In provisions for meetings to be held by small companies, each meeting in half calendar year means 1 meeting from april to june, another meeting from July to December n third meeting from January to march with gap of90 days
…is it correct?
please guide
tell me the concept does not exceed 50 lakhs or high and y the 5crores is again given, what is the difference in small company
Whether a company which had authorised capital of Rs. 200000 is considered as small company, if it wants to increase its authorised capital from Rs. 200000 to 1200000?
Sir,
My question is
1) Whether a producer company can be registered as a small company if the no of members are below 50??
2) Whether all the provisions of small co such as holding only two board meetings & signing by one director will be applicable to Producer co???
Dear Sir,
Late me know one thing
If i and my friend are director in 3 Company.
and none of three company dont hold the share of each other.
turnover and paid share capital of all the co. below threshold limits.
can we catagiries all the company as small company.????
what is the meaning of associate company.
My company is eligible and i am looking to get status of small company, how to proceed??? like how to apply???
Comment on Mr Dhanpal’s article.
1. He mentioned the criteria of Small Companies, as per Sec-2(85)of CA, 2013, either the paid up capital not exceeding 50 lac or TO not exceeding 2 crore.
2. At the second phase, when he clarified the same, he wrote: “it is enough if either the capital is less than rupees fifty lakhs or turnover is less than rupees twenty crores”
3. Here he made 2 mistakes. a) First one, he should have written two crores in stead of twenty crore.
b) Second one, he wrote less than…. less than does not mean equal to, where as sec 2 (85) defines… does not exceed.. it means … may be equal to… so perception of explanation is wrong.
Dear Sir,
I am forming a private company in which i have used the word “Industries” in the name of the company. Please tell me that what amount of authorised capital i have to keep and I want to know do i cover in the ambit of Small Companies
in the write up you hasve stated either 50 lakh share capital or 20 cr turnover. the definition states 2 cr turnover. so the turnover limit should be 2 cr and not 20 cr. Am i correct?
you have stated that either paid up capital of less than 50 lakhs or turnover les thaan 20 cr. the difinaiton says 2 cr. Can you clarify?
Good write up, keep us updated.
CA.Subhash Chandra Podder, FCA
Kolkata
002/02/2014
Information to keep update in the profession is good
Sir,
Can you explain the simplified scheme of arrangement between two small companies
Very very informative and current one. Whether annual report of company can be signed by only CS or CA can also do the same.
It is not clear that the following provision is also applicable to a small company.
Provision regarding mandatory rotation of auditor/maximum term of auditor being 5 years in case of an individual and 10 years in case of a firm of auditors is not applicable to an OPC.