Small Company is the new concept introduced under Companies Act, 2013 to give certain advantages to small businesses in India.
To start with the concept of small Company let us first see it definition under the Act.
Section 2 (85) of the Companies Act, 2013 defines Small Company as:
‘Small Company’’ means a company, other than a public company
- a) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; and*
b) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees.
Provided that nothing in this Section 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.
From the definition above, it is clear that a Public Company cannot be categorised as a Small Company. Thus, Small Company is nothing but a type of Private Company. Further, A Private Company will be called a small Company, if its paid up share capital does not exceed Rs. 50 Lakhs and turnover of which as per its last profit and loss account does not exceed Rs. 2 Crores. The word ‘and‘ used in the definition above means that when both the conditions are fulfilled then only a Private Company will become a Small Company.
The word ‘and’ in the definition above have been inserted vide Ministry of Corporate Affairs Order Dated 13th February, 2015 . Earlier the word ‘or’ was being used.
The proviso to the definition above also states that the Section is not applicable to Holding subsidiary companies, section -8 Companies or companies or body corporate governed by any special Act.
It means, that a holding or subsidiary company will never be able to take the advantages of Small Company even if it fulfils the conditions stated above.
There are many privileges given to Small Company under the Act. Some of them are:
- They are not required to prepare Cash Flow Statement as a part of Financial Statement.
- Rotation of Auditor is not applicable on Small Companies.
- Annual return to be signed by a Company Secretary, and if no CS is there, then by one of its Director.
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Disclaimer: The entire content of this document have been prepared as per the information existing at the time of the preparation. The blog is based on author’s personal views and the author does not take any responsibility of the same.