Small Company as per Companies Act 2013

The idea of a small company was first introduced in the Companies Act 2013, with the aim of providing certain advantages to small businesses which operate as Private Limited Companies. Small businesses are the backbone of any economy to boost the economy of the country and also to increase the employment opportunities for the youths.

Thus, the classification of ‘Small Company’ in the Companies Act, 2013, goes a long way in the promotion of small businesses in India.

Here is a brief on the characteristics of a small company as per the Companies Act, 2013.

The definition of Small Company as per the Companies Act, 2013

As per Section 2(85) of the Companies Act, 2013, a Small Company is defined in the following way:

Small company means a company other than a public company and should fulfil the following criteria:

• Paid-up share capital of which does not exceed 50 Lakh Rupees or anything higher than that as may be prescribed will not be more than five crore rupees, and
• Turnover of last profit and loss statement should not exceed 2 Crore Rupees or such higher amount as may be prescribed which shall not be more than 20 Crore Rupees.

Most start-ups are usually Small Company

Since most of the startups usually, have a paid-up capital of less than Rs. 50 lakhs and an annual sales turnover of below 200 lakhs, they are classified under the category of ‘Small Company’.

Facilities for Small Company

A Private Limited Company can be classified as a small company as per the fulfilling of the conditions that are discussed above in this write-up. Small companies enjoy numerous benefits under the Companies Act, 2013, and are subject to lesser compliance formalities.

Some of the Significant advantages enjoyed by a Small Company are as discussed below:

1. Filing Annual Return

• The annual return of a private limited company classified as a small company can be signed by a Director or Secretary of the company.
• The annual return of a private limited company which is not categorised a small company must be signed by the Director AND the Company Secretary.

2. Board Meeting

• A small company can conduct two Board Meetings in a financial year.
• A Private Limited Company which is not categorised as a small company has to hold 4 Board Meetings in a financial period mandatorily.

3. Cash Flow Statement

• A Private Limited Company which is categorised as a small company is not required to prepare a cash flow statement as part of their financial statement.
• A Private Limited Company which is not categorised as a small company has to mandatorily prepare cash flow statement as part of their financial statement.

4. Rotating Auditors

• Private limited companies which are categorised as small companies are not required to rotate auditors.
• Private Limited Companies which are not categorised as a small company are mandatorily required to switch auditors every 5 or 10 years as per the clause of the Act.