Small Company means as Companies Act, 2013


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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  and the turnover threshold of Rs 2 crores respectively.

Therefore, as per the latest amendment in Companies Act, 2013 the definition of Small Company is as follows:

  • paid up share capital of not more than 50 lakhs or such higher amount as may be prescribed which shall not be more than 10 crores; AND
  • annual turnover of not more than 2 crores or such higher amount as may be prescribed which shall not be more than 100 crores.

here to become a small company both the conditions are required to be fulfilled.

Exceptions to Small Company:

  • Section 8 company
  • Public Company
  • Holding & Subsidiary Company
  • Companies governed by Special Acts

Benefits to Small Companies:

  • 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
  • Not required to maintain Cashflow statements
  • Auditors need not require to rotation as per Section 139(6) of Companies Act, 2013.
  • Preparation of Abridged Directors Report.
  • Need not require reporting of Internal Financial Controls.
  • The Small Company shall file its Annual Return in Form MGT-7A instead of MGT-7
  • Annual Return can be signed by Company Secretary alone or if there is no CS, by a single Director only.
  • Lesser Penalties.

Further, the small company can also register itself under the MSME Act and claim benefits thereunder.

Conclusion:

A small company is not specifically registered as a Small Company. Therefore, a private limited company may be called a small company immediately after its incorporation, subject to conditions provided above. The promoters and directors are generally unaware of the eligibility status of Small Company and the benefits being given to them. Hence, it is necessary for them to be aware of such provisions to claim the beneficial position.

However, 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 Thus, the benefits which are available during a particular year may stand withdrawn in the next year and become available again in the subsequent year if the criteria are met.


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