A small company is a company of which paid-up share capital and turnover does not exceed rupees four crores and rupees forty crores respectively.
The term small company has been defined under section 2(85) of the Companies Act, 2013 as below-
‘(85) “small company” means a company, other than a public company,-
i) 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 ten crore rupees; and
ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees:
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The Central Government amended the aforesaid limits for turnover and paid-up share capital by inserting Clause (t) in sub-Rule (1) of Rule 2 of Companies (Specification of Definitions Details) Rules, 2014 effective 01.04.2021. [Notification No-G.S.R. 92(E). dtd 01.02.2021]
After the said amendment, rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014 reads as below-
“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”
Therefore, w.e.f. 01.04.2021 a company was treated as small company if its paid up share capital does not exceed Rs 2 crores and its turnover as per profit and loss account for the immediately preceding financial year does not exceed Rs 20 crores.
The Central Government further made amendment in clause (t) supra by the Companies (Specification of
definitions details) Amendment Rules, 2022 effective 15.09.2022. [Notification No- G.S.R. 700(E) dated 15.09.2022]
After the said amendment, rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014 reads as below:-
“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees four crore and rupees forty crore respectively.”
However, as per proviso to section 2(85) of the Companies Act, 2013, the following companies would not be treated as a small company-
- A holding company or a subsidiary company.
- A company registered under section 8 of the Companies Act, 2013.
- A company or body corporate governed by any special Act.
Accordingly, w.e.f. 15.09.2022 a small company would be a private company, paid up share capital of which does not exceed 4 crore rupees and turnover of which as per profit and loss account for the immediately preceding financial year does not exceed 40 crore rupees.
Small companies have the following exemptions/privileges-
- The financial statement of a small company may not include cash flow statement. [Section 2(40)]
- The Annual Return shall be signed by the company secretary, or where there is no company secretary, by the director of the company. [Proviso to 92(1)]
- At least one meeting of the Board of Directors has to be conducted in each half of a calendar year and the gap between the two meetings should not be not less than ninety days. [Section 173(5)]
- A small company has to file abridged form of annual return (MGT 7A).
- A small company can prepare abridged Board Report.