What Constitutes a Small Company?
Under the Companies Act, 2013, a ‘Small Company’ is defined as a private company that:
- Paid-up Share Capital: Does not exceed ₹4 crore.
- Turnover: Does not exceed ₹40 crore as per the latest profit and loss account.
Note: The following entities are excluded from this definition:
- Public companies.
- Holding or subsidiary companies.
- Companies registered under Section 8.
- Companies governed by any special Act.
Evolution of the Definition
The definition of a small company has evolved to accommodate the growing business landscape:
- Pre-2021: Paid-up capital ≤ ₹50 lakh; Turnover ≤ ₹2 crore.
- 2021 Amendment: Paid-up capital ≤ ₹2 crore; Turnover ≤ ₹20 crore.
- 2022 Amendment: Paid-up capital ≤ ₹4 crore; Turnover ≤ ₹40 crore.
These changes aim to extend benefits to a broader range of small businesses.
Advantages of Being a Small Company
Small companies enjoy several exemptions and simplified compliance requirements:
- Board Meetings: Required to hold only two board meetings annually, with a minimum gap of 90 days between them.
- Financial Statements: Exempted from preparing cash flow statements.
- Annual Return: Can file an abridged annual return in Form MGT-7A.
- Auditor Rotation: Not mandated to rotate auditors.
- Director’s Report: Can submit an abridged director’s report.
- Internal Financial Controls: Auditors are not required to report on the adequacy of internal financial controls.
Compliance Requirements for Small Companies
Despite the relaxations, small companies must adhere to certain compliance norms:
- Board Meetings: At least two meetings per year.
- Statutory Registers: Maintenance of mandatory registers, including those for directors and shareholdings.
- Annual Filings:
- Form AOC-4: Filing of financial statements.
- Form MGT-7A: Filing of the abridged annual return.
- Director Disclosures: Submission of interest disclosures in Form MBP-1.
- Auditor Appointment: Mandatory appointment of an auditor for financial statement audits.
Frequently Asked Questions (FAQs)
Q1: Can a public company be classified as a small company?
A1: No, only private companies meeting the specified criteria can be classified as small companies.
Q2: Are small companies exempt from all compliance requirements?
A2: No, while they enjoy certain exemptions, small companies must still comply with essential filings and maintain statutory records.
Q3: Is there a separate registration process for small companies?
A3: No, companies register as private limited companies. The classification as a small company is based on financial thresholds.
Q4: Do small companies need to prepare cash flow statements?
A4: No, small companies are exempted from preparing cash flow statements.
Q5: What forms are used for annual filings by small companies?
A5: Small companies use Form AOC-4 for financial statements and Form MGT-7A for the abridged annual return.
