Small Company under Companies Act

Any private company having a paid-up capital of not more than 50 lacks and its annual turnover does not exceed more than two crores, then it can be introduced as a small company under companies act, 2013.

What is Small Company?

Under companies act, 2013 small companies are introduced to promote economic development and generate employment. Small companies are known as small companies because of their size and also they have no same level compliance as other large private company or other public limited company listed under companies act.

What are the salient features of a Small Company?

1. Having paid up share capital not exceeding 50 lacks or any higher amount as prescribed. The prescribed amount for a paid-up share capital has a limit of 5 crores and cannot exceed beyond that.
2. The annual turnover as per the last profit and loss account shall not exceed two crores or higher as prescribed. The highest prescribed limit cannot exceed 20 crores.
3. Such condition shall not define a small company in cases like:
4. a holding company or a subsidiary company;
5. a company registered under Section 8
6. any company or a corporate body governed by any special Act
7. only a private company can be classified as a small company
8. The status of a small company changes every year. Thus the benefits which are prevailed during that very year may stand withdrawn for the next year and become available again in the subsequent year.

What are the benefits of a Small Company?

1. All private companies have to file their annual returns duly signed by the director and company secretary whereas companies defined as small companies can have their returns signed either by a director or a company secretary
2. Private companies need to hold at least four board meetings in a financial year while a small company only needs to hold two board meetings a year
3. A small company is exempted from showing their financial records or any cash flow
4. A small company does not need to rotate their auditors while a private company needs to rotate their auditor every 5 or 10 years as prescribed.
5. Any merger or acquisition carried by a small company can be done without paying court fees
6. Audit exemption for a small company takes effect from the beginning of the next financial year after the establishment of the company
7. The non-compliance of any company shall be punished with imprisonment or fine or both depending on the veracity of the offence. However, small companies are exempted from punishment and are often given lesser penalties.

Why small company?

To promote start-up India scheme, the government introduced many initiatives for the MSME sector benefiting small companies to operate under relatively lighter regulatory oversight considering the size in which they operate and also to enable compliances easily and cost-effectively. Also to ensure that these small companies do not suffer the consequences of regulations designed to ensure the balancing of stakeholder’s interest of large, widely held entities.