According to the Companies Act, 2013, a small company is not a public company. It has paid-up share capital less than or equal to ₹2 crores or the higher amount specified but not higher than ₹10 crores
According to the new threshold and definition, a small company is one that has ₹2 crores or less in paid-up capital, and its turnover is less than or equal to ₹20 crores. This amended, new definition of a small company comes under Section 2(85) of the Companies Act, 2013. Prior to this amendment, the threshold stood at less than or equal to ₹50 lacs in paid-up capital and less than or equal to ₹2 crore turnover.
Advantages for Small Companies
Under the Companies Act, 2013, the small companies concept was introduced to give further advantage to these small businesses that were functioning as private limited companies. A small company definition earns less revenue on an annual basis when compared with companies of regular size. In India, which is a very key role is played by small companies that generate profits and provide a boost to employment.
Under the Companies Act, there is no separate procedure for small companies for obtaining registration. Its registration happens under the head of a private limited company. It is important to note that under the Companies Act, there is a differentiation of a private company as being a company on the basis of its lower turnover as well as lower investment.
Furthermore, a it has several advantages compared with other companies regarding requirements for compliance. For example, it is required of a small company that it holds just two board meetings in any given fiscal year, while for other companies, this figure is a minimum of four board meetings in any given fiscal year.
A small company has extremely simpler governance, and legal regime for its maintenance and operations and various compliance requirements are waved off for it.
Another advantage for small companies is that it is not required to keep a statement of their cash flow. Also, its annual return is allowed to be signed by a single director or a company secretary.
Another advantage of a it is that it is not required to rotate its auditors. Nevertheless, any private limited company that has not been categorized as a small company has to necessarily rotate its auditors every five to ten years as required by the Companies Act.
Small companies have a great advantage over the various charges and fees. Under the Companies Act, there are lower and fewer penalties for a the company than for other public and private companies. A small company definition has to incur the expense of a lower fee for the filing forms with the ROC in comparison to that incurred by other types of companies.
The Companies Act exempts small companies from filing directors’ reports. All that a company has to file is an abridged directors’ report. The abridged version of the directors’ report will be much less vast than the directors’ report itself. So, a small company can omit several clauses that form part of the directors’ report. Furthermore, the annual returns of a the company need to be filed via Form MGT-7A, an abridged and shortened version of Form MGT-7. Form MGT-7 is the form that large and medium companies use for filing their annual returns.
Another advantage of it is that, it must not prepare a report on its Annual General Meeting.
It is important to understand that a small company’s status can change from one year to the next. This is because of the change in its turnover and paid-up capital limits. Suppose a company goes beyond the new definition’s threshold for either turnover or paid-up capital. In that case, the benefits available during a financial year will no longer be provided to it in the following year. The company will no longer hold a small company status. It will now be treated the same way all other private limited company that are not small are treated.
Companies not Considered Small Companies
Not all companies can be put under the category of the company due to various reasons. Some such categories of companies are listed below.
- A subsidiary company or a holding
- Any company that has been registered under section 8 of the Companies Act
- A body corporate/company that is being governed by some special act
The majority of the startups in India fall under the category of small companies. This is due to their not having a paid-up capital of over ₹10 crore and an annual sales turnover that is higher than ₹20 crore.
Characteristics of a Small Company
The following features can identify small companies.
- Low revenue and profitability
Small companies will certainly have much lower revenue than large-scale and even medium companies. It’s revenue is highly dependent on the business it is conducting and its ability for revenue generation. It is important to note that lower revenue does not imply low profitability.
- Low employee strength
The company will have low paid-up capital as well as low turnover. So, it will maintain fewer employees than the number that medium and large companies engage. At times, a single person is seen t be managing the entire small company.
- Very limited area of operation
Generally, a it serves smaller sections of society/community in such forms as rural township convenience stores. So, it has a limited market area for its business operations.
- Single location
Mostly, a the company operates in a limited area rather than having several branches. The company will not be spread across several nations or even beyond the boundary of its own state of operation. So, for a small company definition, the sales are restricted to just one area.
Conclusion
It provides entrepreneurship, employment and jobs and has been made easy to run by its various advantages over medium and large companies. According to the Companies Act, small companies are not public companies. Their paid-up share capital is not higher than ₹2 crores or some higher specified amount that is not more than ₹10 crore.
Also, Read:
