The Central Government has vide Notification GSR 92(E) dated 01st February 2021 amended the Companies (Specification of Definitions Details) Rules, 2014 which has come into force on the 1st day of April 2021. As a result of the amendment, the definition of Small Company has been revised with an intention to bring in more companies under the ambit of ‘small’ category and benefit them in terms of reduced compliance requirements.

In pursuant to Sec 2(85) of the Companies Act, 2013 (‘Act”) read with Rule 2 of Companies (Specification of Definitions Details) Rules, 2014, a small company means a company, other than a public company,

• The paid-up share capital of which does not exceed two crore rupees, or such higher amount as may be prescribed which shall not be more than ten crore rupees: and
• The turnover of which as per profit and loss account for the immediately preceding financial year does not exceed twenty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;

Before aforesaid amendment, the limit of paid-up capital and turnover of the small company was restricted to fifty lakhs rupees and two crore rupees respectively.

Major exemptions available to Small Company under Companies Act 2013

• Board meeting (Section 173)

Small company shall be deemed to have complied with the provisions of section 173, if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.

• Cash flow statement (Section 92)

Small Company has many benefits with regard to preparation of Financial Statements and Annual Reports. Under the provisions of Section 2(40), the Financial Statements include cash flow statement but for Small Company, it has been specifically excluded.

• Certification by professionals

Following are the forms that is not required for pre-certification by Chartered Accountant or Company Secretaries or Cost Accountants in whole time practice is not required as per Rule 8(12) of the Companies (The Registration Offices and Fees) Rules, 2014.

INC-21, INC-22, INC-28, PAS-3, SH-7, CHG-1, CHG-4, CHG-9, MGT- 14,            DIR-6, DIR-12, MR-1, MR-2, MSC-1, MSC-3, MSC-4, GNL-3, ADT-1, AOC-4, NDH-1, NDH-2, NDH-3, GNL-1, DPT-3, MGT-10.

• Fees to be paid to Registrar on incorporation

In order to lessen the burden on Small Companies, the fees that has to be paid during incorporation of Small Company is reduced to nearly half when compared to other large entities.

• Signing of Financial Statements

The signing of Annual Return can be done by a single director, in case if there is no Company Secretary.

• Disclosures in Annual Report

Provisions regarding disclosures of details of remuneration drawn by Directors are not required for Small Company. Only aggregate amount of remuneration drawn by Directors can be mentioned instead of providing all the details.

• Rotation of Auditors

The other benefit or exemption is that it is not necessary for small companies to follow the condition laid in Section 139(2) of the Companies Act, 2013, which mandates the rotation of auditors every five years (individual auditors) and every 10 years (firm of auditors).

• Exemptions in Auditors Report

Auditors do not have to report on adequacy of Internal Controls and their operational effectiveness in the Auditor’s Report.

• Amalgamation (Section 233)

Special provisions have been made in the Act for merger of two or more small companies or between a holding company and its wholly owned subsidiary company or between two or more start-ups or one or more start-up with one or more Small Company. This provides for liberal methodology for amalgamation without going to the Tribunal, if the Registrar and the Official Liquidator has no objection or suggestions to the scheme. In such a case, the Central Government shall register the scheme and issue a confirmation thereof.

Although, such merger would require approval of ROC, Official liquidator, members holding at least 90% of total number of shares and majority of creditors representing 9/10th in value the creditors or class of creditors of respective companies indicated in a meeting convened by the Company by giving a notice of twenty-one days along with the scheme to its creditors for the purpose, or otherwise approved in writing.

• Reduced penalties (Section 446B)

If a Small Company fails to comply with the provisions of Companies Act, 2013, such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections

Conclusion:

As most of the sections and provisions of Companies Act are drafted from the perspective of larger organisation, it has become a burden for small companies both financially as well as operationally to comply with various provisions of the Act. Hence, through the latest amendment, the Government has widened the bracket so that most of the Companies may worry less about compliances and concentrate more of their core business activity.

Disclaimer:

The entire contents of this document have been developed based on relevant information and are purely for private circulation. Though the authors have made utmost efforts to provide authentic information, however, the authors expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and consequences of anything done or omitted to be done by any such person in reliance upon the contents of this document.

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