Companies Act Exemptions for every Small Company

Last Updated at: November 04, 2019
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Companies Act exemption for every small company

Usually, there are laws that pertain to companies. But the small companies are defined by the Company Amendment Act 2017. If you are confused, then you should know that the paid-up share capital of a small company doesn’t surpass Rs. 50 lakh or a higher amount that doesn’t exceed Rs. 10 crore. Here, you will get to know about this act.

Small companies as defined by the Ministry of Corporate Affairs in the Company Amendment Act 2017 means:

Browse the articles below for more free information and guidance on government registrations, tax, compliance, patent filing process and more.

 

Any company other than a public company whose paid-up share capital does not exceed 50 lakhs rupees or any such higher amount as may be prescribed which shall not be more than 10 crore rupees.

Or turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crores or any such prescribed amount up to 100 crore rupees as described under the Section 2(85) of the act.

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Some companies are also excluded from the list of small companies if the following criteria are present such as:

  1. A holding company or a subsidiary company
  2. A company registered under Section 8
  3. A company or corporate body covered by any Special Act

The stature of a company as a small company is variable. A company considered to be small in a certain year can become a normal company the next year with all the provisions withdrawn and once again become a small company the succeeding year with the benefits being available again.

The intent of distinguishing small companies

There are many benefits granted to small companies but there are three major intents behind classifying them separately. Firstly, considering the size in which they operate, small companies get to function under lighter regulatory oversight. Secondly, they could be offered lesser and cost-effective compliances when comparing with larger companies. Thirdly, small companies should not be caught in the stringent regulations for the maintenance of stakeholders interests meant for the wider ranging companies.

Special legal provisions

Small companies are also provided with a small set-up between two small companies that can function without the interference of a tribunal but rather with just the approval of Central Government (Regional Director) as mentioned in the Companies Act,2013.

Exemptions:

According to the Companies Act, there are certain relaxations applicable to small companies. These are usually common to all of them. Some of the exemptions are listed below:

  1. Financial record requirements: Small companies are not required to add their Cash Flow Statement in their financial records.

  2. Considerations for annual records: The annual records must contain information regarding the aggregate amount of remuneration drawn by directors and these annual records can be signed by the company secretary alone or in case of absence of a secretary, a single director can also take charge; whereas the other companies will have to get their records signed by both the secretary and the director.

  3. Restrictions on the number of board meetings: A small company is to only have two board meeting per year i.e., one meeting in each half of the calendar year. It is also required that the meetings be held with a least 90 days of gap between the two. However, in case of a non-small company, there have to be four meetings held per year.

  4. Rotation of company auditors: It is not necessary for small companies to follow the condition laid in Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every five years (individual auditors) and every 10 years (firm of auditors).

  5. Exceptions in auditor’s reports: Auditor’s reports do not have to report about the adequacy of internal controls and their operational effectiveness in their reports. 

  6. Reduction in penalties: The non-compliance of any company with the provisions of Section 92(5), Section 117(2) and Section 137(3) of the Company Act shall be punished with imprisonment or fine or both depending on the veracity of the offence. But small companies are exempted from the punishment or often given lesser penalties under Section 446 B of the Companies Act 2013.

Other notable conditions

  • Audit exemption takes effect from the beginning of the next financial year after the establishment of the company.
  • A company that has corporate stakeholders but also fulfills the eligibility criteria to become a small company can be entitled to small company audit exemption.
  • Foreign companies are mostly not entitled to the audit exemption except for Singapore-based companies.
  • Even though a company qualifies as a small company but the group to which it belongs doesn’t satisfy the conditions, the company cannot be entitled to avail small company audit exemption.

From here, you would have got to know that the Company Amendment Act has certain relaxations towards small companies. Well, some of these include considerations for annual records, financial record requirements, rotation of company auditors, limitations on the number of hosted board meetings, etc. There are many other conditions as well and you will under the same from here.

Companies Act Exemptions for every Small Company

13523

Usually, there are laws that pertain to companies. But the small companies are defined by the Company Amendment Act 2017. If you are confused, then you should know that the paid-up share capital of a small company doesn’t surpass Rs. 50 lakh or a higher amount that doesn’t exceed Rs. 10 crore. Here, you will get to know about this act.

Small companies as defined by the Ministry of Corporate Affairs in the Company Amendment Act 2017 means:

Browse the articles below for more free information and guidance on government registrations, tax, compliance, patent filing process and more.

 

Any company other than a public company whose paid-up share capital does not exceed 50 lakhs rupees or any such higher amount as may be prescribed which shall not be more than 10 crore rupees.

Or turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 2 crores or any such prescribed amount up to 100 crore rupees as described under the Section 2(85) of the act.

Register your Company today

Some companies are also excluded from the list of small companies if the following criteria are present such as:

  1. A holding company or a subsidiary company
  2. A company registered under Section 8
  3. A company or corporate body covered by any Special Act

The stature of a company as a small company is variable. A company considered to be small in a certain year can become a normal company the next year with all the provisions withdrawn and once again become a small company the succeeding year with the benefits being available again.

The intent of distinguishing small companies

There are many benefits granted to small companies but there are three major intents behind classifying them separately. Firstly, considering the size in which they operate, small companies get to function under lighter regulatory oversight. Secondly, they could be offered lesser and cost-effective compliances when comparing with larger companies. Thirdly, small companies should not be caught in the stringent regulations for the maintenance of stakeholders interests meant for the wider ranging companies.

Special legal provisions

Small companies are also provided with a small set-up between two small companies that can function without the interference of a tribunal but rather with just the approval of Central Government (Regional Director) as mentioned in the Companies Act,2013.

Exemptions:

According to the Companies Act, there are certain relaxations applicable to small companies. These are usually common to all of them. Some of the exemptions are listed below:

  1. Financial record requirements: Small companies are not required to add their Cash Flow Statement in their financial records.

  2. Considerations for annual records: The annual records must contain information regarding the aggregate amount of remuneration drawn by directors and these annual records can be signed by the company secretary alone or in case of absence of a secretary, a single director can also take charge; whereas the other companies will have to get their records signed by both the secretary and the director.

  3. Restrictions on the number of board meetings: A small company is to only have two board meeting per year i.e., one meeting in each half of the calendar year. It is also required that the meetings be held with a least 90 days of gap between the two. However, in case of a non-small company, there have to be four meetings held per year.

  4. Rotation of company auditors: It is not necessary for small companies to follow the condition laid in Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every five years (individual auditors) and every 10 years (firm of auditors).

  5. Exceptions in auditor’s reports: Auditor’s reports do not have to report about the adequacy of internal controls and their operational effectiveness in their reports. 

  6. Reduction in penalties: The non-compliance of any company with the provisions of Section 92(5), Section 117(2) and Section 137(3) of the Company Act shall be punished with imprisonment or fine or both depending on the veracity of the offence. But small companies are exempted from the punishment or often given lesser penalties under Section 446 B of the Companies Act 2013.

Other notable conditions

  • Audit exemption takes effect from the beginning of the next financial year after the establishment of the company.
  • A company that has corporate stakeholders but also fulfills the eligibility criteria to become a small company can be entitled to small company audit exemption.
  • Foreign companies are mostly not entitled to the audit exemption except for Singapore-based companies.
  • Even though a company qualifies as a small company but the group to which it belongs doesn’t satisfy the conditions, the company cannot be entitled to avail small company audit exemption.

From here, you would have got to know that the Company Amendment Act has certain relaxations towards small companies. Well, some of these include considerations for annual records, financial record requirements, rotation of company auditors, limitations on the number of hosted board meetings, etc. There are many other conditions as well and you will under the same from here.

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