Small Company as per Companies Act 2013

Small Company Under Companies Act, 2013: Definition, Benefits, and Compliance

The Companies Act, 2013 has introduced the concept of a "Small Company" to encourage entrepreneurship by providing regulatory relief and fostering the growth of small businesses in India. Understanding the definition, benefits, and compliance requirements for a Small Company is crucial for entrepreneurs to take full advantage of these provisions.

What is a Small Company?

Under Section 2(85) of the Companies Act, 2013, a Small Company is defined as a company other than a public company that satisfies the following conditions:

1. Paid-up Share Capital: Does not exceed ₹4 crore or a higher amount as prescribed, not exceeding ₹10 crore.
2. Turnover: Does not exceed ₹40 crore or a higher amount as prescribed, not exceeding ₹100 crore during the immediately preceding financial year.

Exclusions:

The following companies cannot be classified as Small Companies, even if they meet the above criteria:

• Holding or subsidiary companies.
• Companies registered under Section 8 (not-for-profit organizations).
• Companies governed by special Acts (e.g., banking or insurance companies).

 

Benefits of Being a Small Company

Small Companies enjoy several relaxations to reduce their compliance burden, allowing them to focus on growth and profitability. Here are the key benefits:

1. Simplified Financial Reporting

• Preparation of a Cash Flow Statement is not mandatory.
• Limited disclosures in the Board’s Report.

2. Relaxation in Board Meetings

• A Small Company is required to conduct only two Board Meetings annually, with a minimum gap of 90 days between them.

3. Lower Penalties

• Penalties for non-compliance are relatively lower compared to other companies.

4. Exemptions in Auditor Rotation

• Small Companies are not mandated to rotate auditors as prescribed for larger companies.

5. Reduced Filing Requirements

• Lesser compliance paperwork compared to other companies, reducing operational costs.

Compliance Requirements for Small Companies

Although Small Companies enjoy several exemptions, they must adhere to certain basic compliance requirements:

1. Annual Filing

• Filing of Form AOC-4 (financial statements) and MGT-7A (annual return for Small Companies) is mandatory.

2. Board Meetings

• Conduct at least two Board Meetings in a financial year, ensuring compliance with the prescribed time gap.

3. Maintenance of Statutory Registers

• Small Companies must maintain statutory registers like Register of Members, Register of Charges, etc.

4. Auditing

• Appointment of an auditor is mandatory to audit financial statements and ensure compliance with applicable laws.

5. Adherence to MCA Notifications

• Regular updates and compliance with notifications issued by the Ministry of Corporate Affairs (MCA) are necessary.

 

Recent Updates on Small Companies

The government periodically revises the thresholds for defining Small Companies to include more businesses under this category. The most recent updates include:

• The paid-up capital limit was raised from ₹2 crore to ₹4 crore.
• The turnover threshold was increased from ₹20 crore to ₹40 crore.

These changes reflect the government’s intent to provide relief to a larger number of small businesses and startups.

 

Conclusion

One important step in creating a business-friendly climate in India is the designation of a small company under the Companies Act, 2013. By availing the benefits and complying with minimal regulations, Small Companies can focus on scaling their operations efficiently. Entrepreneurs should remain informed about the latest updates and ensure proper compliance to make the most of this advantageous framework.

If you’re a business owner or planning to start a company, exploring the Small Company status could be a game-changer for your entrepreneurial journey.

FAQs

1. Can a Small Company convert into a Public Company?

Yes, a Small Company can convert into a Public Company by following the procedures outlined in the Companies Act, 2013.

2. Is tax compliance different for Small Companies?

No, Small Companies are subject to the same tax regulations as other companies in India.

3. How can I check if my company qualifies as a Small Company?

Verify your company’s paid-up capital and turnover for the previous financial year and ensure it meets the prescribed thresholds under Section 2(85).