Background
Small companies are generally engaged in small businesses operating as private limited companies. They have lower revenue as compared to medium and large companies. Also, their operations and sales are confined to a limited area or a single location instead of several branches. They have a tiny market area and serve small sections of the community or society, for example a convenience shop of a rural township. They onboard a small team of employees than large companies. Based on the lower investment and turnover, the Companies Act, 2013 differentiates a private company as a small company. To benefit such small companies, to provide ease of doing business and reduce the compliance burden, the amended definition is provided under section 2(85) of the Act effective 1st April 2021.
Revised Definition of Small Company:
The Act now defines a small company as a company that is not a public company and has:
- A paid-up share capital equal to or below Rs.2 crore or such a higher amount specified not exceeding more than Rs.10 crores.
- A turnover equal to or below Rs.20 crore or such a higher amount specified not exceeding more than Rs.100 crore.
However, the concept of small companies does not apply to the following companies:
- A holding or a subsidiary company.
- A company registered under section 8.
- A body corporate or company governed by any special act.
Old Definition Vs. New Definition
The amendment to the definition of a small company enhanced the maximum limit of paid-up capital and turnover, so that more companies could be covered within the ambit of a small company, making them eligible to get the benefits of a small company provided under the Act.
| Particulars | Old Criteria | New Criteria |
| Paid-up share capital | Maximum paid-up share capital of Rs.50 lakh | Maximum paid-up share capital of Rs.2 crore |
| Turnover | Maximum turnover of Rs.2 crore | Maximum turnover of Rs.20 crore |
Relaxations Under the Act for a Small Company Over a Private Limited Company that is not a Small Company:
Board Meetings
Small companies don’t have a wide range of business so it’s not required for small companies to hold 4 board meetings in year, small companies may hold only 2 board meetings in a calendar year, i.e., one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings – section 173(5).
Rotation of Company Auditors
It is not necessary for small companies to follow the condition laid in section 139(2) of the Companies Act 2013, which mandates the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).
Board’s Report
Matters to be included in Board’s Report mentioned in Rule -8 of companies (Accounts) Rules, 2014 not apply for small company.
Annual Return
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.
Remuneration Details in Annual Return
As per section 92 of companies Act, 2013 private companies are required to give a detail of remuneration of directors and key managerial personnel, but in small companies only “aggregate amount of remuneration drawn by directors is required in annual return.
Cash Flow Statement
A small company needs not to include Cash Flow Statement as part of its financial statement.
Audit Report (Internal Financial controls)
Small companies are not required to give report on internal financial controls with reference to financial statements and the operating effectiveness of such controls in audit report.
Penalties
If a small company fails to comply with the provisions of section 92(5), section 117(2) or section 137(3), 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 sections.
Small Companies are a backbone of our economy and play a significant role in generating profits and boosting employment. With this amendment start-ups would also be benefiting. It is also anticipated that this would augment investments from NRIs while incentivising more unorganised sector players to conduct their businesses through a legally set up entity. If you are a Private Limited Company, it definitely would be advantageous to check whether you fall under the definition of “Small Company” under the Companies Act 2013.
