The Companies Act, 2013, prescribes different class of companies to be constituted under this act, one of them is a “small company” under Section 2(85) of the said act. It is not specifically registered with a specific name but is simply a private company with less amount of investment and less turnover. In a developing country like India, such companies play a vital role in nation building.

The definition of small company was amended by the Finance Bill, 2021 on 01.02.2021 by the Finance Minister Nirmala Sitharaman.

“Small Company” {Old definition}
It means a company, other than a public company having: –

• Paid up share capital of which does not exceed 50 lakhs rupees or such higher amount as may be prescribed.
• Turnover of which as per its last profit and loss account does not exceed 2 crore rupees or such higher amount as may be prescribed.

 
Provided that nothing in this clause shall apply to:-

• A holding company or a subsidiary company
• A company registered under section 8
• A company or a body corporate governed by any special act.

 
“Small Company” {New definition}
It means a company, other than a public company having: –

• Paid up share capital of which does not exceed 2 crore rupees or such higher amount as may be prescribed
• Turnover of which as per its last profit and loss account does not exceed 20 crore rupees or such higher amount as may be prescribed.

 
Provided that nothing in this clause shall apply to:-

• A holding company or a subsidiary company
• A company registered under section 8
• A company or a body corporate governed by any special act.

The sole difference between old and new definition is the paid up share capital and turnover limit. The threshold limit of paid up share capital has been increased from 50 lakhs to 2 crores rupees and that of turnover has been increased from 2 crores to 20 crore rupees. Hon’ble finance minister Nirmala Sitharaman stated in her budget 2021 speech that this move will benefit more than 2 lakhs companies in easing their compliance requirements. Government’s main objective is to promote ease of doing business for its citizens.

The companies act 2013, provides certain benefits to the small companies which includes:

• Every company is required to hold 4 board meetings in a year, whereas a small company needs to hold only 2 board meetings in a calendar year i.e one board meeting shall be held in each half of a calendar year provided the gap between the two board meetings should not be less than 90 days.
• Every company is required to file their annual return in the particular financial year duly authenticated by the director & the company secretary or where there is no company secretary, by a company secretary in practice. However, in case of one person companies & small companies the annual return shall be authenticated by company secretary or where there is no company secretary, by the director of the company.
• Financial statements of a company consist of:
1. Balance sheet
2. Profit and loss account
3. Cash flow statement
4. Notes to accounts alias summary of significant accounting policies and other explanatory information.

 
However, a small company does not require to maintain cash flow statement as a part of its financial statement.

Why Being a Small Company is so Special?
With the threshold limits going up, there are some additional benefits to small companies regarding compliance requirements. Bigger the entity, bigger their responsibilities and bigger their compliance requirements, which leads to affecting their work efficiency, increased cost of working and a huge workforce management government’s main objective is to promote Aatma Nirbhar Bharat as proposed by Hon’ble Prime Minister for easing out the compliance requirement for new start-ups. This would encourage new entrepreneurs to establish their own business resulting in nation building.

Special Benefits Regarding Compliance Requirements for Small Companies.

• A small company does not require to report in its audit report regarding internal financial controls and the operating effectiveness of the company.
• Every company needs to change its auditor by rotation according to section 139(2) of Companies Act, 2013. However, small company need not comply this section and hence is exempt from the requirement of this section.
• Reporting under companies audit report order (CARO 2020) is not mandatory for small companies.
• The companies act,2013 provides for internal audit under section 138 for certain class of companies, except small companies. However, the said company can voluntary opt for internal audit.
• Section 141(3)(g) of the Companies Act, 2013 states that an individual auditor or a partnership firm shall hold a maximum of audit of 20 entities at a time
  For example: –
  If a partnership firm has 3 partners then, total limit shall be 20 *3 = 60 audits. However, while counting the limit of 20, small companies shall not be considered.

Written by
SUFAL BHARDWAJ
Articled Clerk