Small Companies – Big Benefits
Contributed By: Pooja Jain
Email ids: pooja@simplybiz.in
Introduction
Small Companies are the backbone of the Indian economy. In a country like India which is in its developing stage, Small Companies play a very vital role in the creation of more employment opportunities and in the growth of the economy. The concept was introduced to protect small Companies with fewer revenues, from stringent compliances applicable to other big Companies having ample resources and revenue.
The Central Government has vide Notification G.S.R. 700(E) dated 15th September 2022 amended the Companies (Specification of Definitions Details) Rules, 2014 amending the definition of “SMALL COMPANIES” in order to Improve business facilitation and reduce the compliance burden for “small businesses”.
Definition
As per section 2(85) of the Companies Act 2013 and Rule 2(1)(t) of the Companies (Specification of Definition Details) Rules 2014
“Small Companies” means a Company, Other than a Public Company, having,
- paid-up share capital of which does not exceed 4 crores, or such higher amount as may be prescribed which shall not be more than ten crore rupees; and
- turnover of which as per profit and loss account for the immediately preceding financial year does not exceed Forty Crores 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 holding Company or a subsidiary Company.
- a Company registered under section 8; or
- a Company or body corporate governed by any special Act.
Benefits
The main reason for bringing into the picture the concept of “Small Companies”, was to provide them with certain relaxations with regard to the stringent compliances applicable to other big companies. Some of those benefits are as listed below:
- Board Meeting
Under section 173 of the Companies Act 2013 every Company is required to conduct at least 4 Board meetings in every calendar year. Small companies are provided relaxation in this regard, as they need to have one Board Meeting in each half of the calendar year with a minimum gap of 90 days. In simple terms, small companies only need to have 2 Board meetings during a year.
- Fees for Incorporation
The fees to be paid on the incorporation of a Small Company is much less as compared to the fees to be paid on the incorporation of a large or medium size Companies.
- Annual Return
The Annual returns of the Company need not be certified by a Professional if the company is a Small Company. The same can be signed by a Company secretary if there is any or a director of the Company.
- Form MGT-7A
Small Companies need to file their Annual Return in form MGT-7A instead of form MGT-7 which is applicable to other large and medium companies. Form MGT-7A can be said to be a simpler version of Form MGT-7.
- Professional Certification
As per Rule 8 (12) of Companies (The Registration offices and fees) Rules, 2014, there are various E-forms to be filed with ROC that needs professional certification by a Practicing Company Secretary, Practicing Chartered Accountant, or Practicing Cost accountant. The same does not apply in the case of a small company.
- No requirement of Cash Flow Statement
Unlike other companies, a Small Company is free from the requirement of having a Cash flow statement as a part of its financial statement.
- Rotation of Auditor
The provision of section 139 (2) of the Companies Act 2013, which talks about the mandatory rotation of auditors is not applicable to a Small Company.
- Board Report Matter
Small Companies need not mention in the Board’s report matters as stated in Rule 8 of the Companies (Accounts) Rules, 2014. Instead, they shall include the information outlined in Rule 8A Companies (Accounts) Rules, 2014.
- Adequacy of Internal Financial Control
Auditors of Small Companies need not report on the adequacy of the Internal Financial Control in Auditor’s report.
- Fast Track Merger
Mergers between two small Companies, two startup Companies, one startup, and one small company, and a holding company and its wholly-owned subsidiary company can be done through Fast track mode. This type of merger does not require the approval of NCLT.
- Lesser Fee and Penalties:
In comparison fee charged for filing forms to ROC, it also offers lower fee to small Companies.
Conclusion
It is much needed and necessary step to provide relief to small Companies from the complex provisions that were designed and drafted from the point of view of large or medium-sized Companies. Moreover, by increasing the limits for being a Small Company, the government has made way for many companies to worry less and work more towards the accomplishment of their goal, which in the end would benefit the Indian Economy.
The eligible status of the Small Companies and the advantages being provided to them are frequently unknown to the promoters and directors. So, for them to claim the advantageous position, they must be aware of such provisions.
The thing which needs to keep in mind is that a small Company’s status can change each year depending on its paid-up capital and turnover limits. Once you cross these limits a small Company will lose its status as a small Company. Again in the subsequent year if you regain those parameters, again you will be classified as a Small Company. Hence, it’s a continuous exercise of checking your Company’s thresholds with those mentioned in the Act/rules.
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