Small company
For the first time in India, the concept of Small company was introduced in the Companies Act, 2013. This is a new step towards the de-regulation of entities through providing some exemptions, privileges and liberation with lesser compliances burden on the entities which are smaller in size and operations.
The MCA for the Ease of doing Business has revised the definition of Small companies by increasing their threshold limits for paid up capital from “not exceeding Rs. 50 Lakhs” to “not exceeding Rs. 2 Crore” and turnover from “not exceeding Rs. 2 Crore” to “not exceeding Rs. 20 Crore”.
Thus, the definition of small company under Section 2(85) read with Rule 2(1)(t) of the Companies (Specification of definitions Details) Rules, 2014 with effect from 1st April, 2021 is hereunder:
“Small company” means a company, other than a public company, —
(i) paid-up share capital of which does not exceed two crores 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 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.
The Companies Act 2013, enacted by the Indian Parliament, has revolutionized the way in which small companies are incorporated and managed in India. With the implementation of the Act, the process of setting up and managing a small business has become easier and more streamlined. The Act has also introduced several measures to ensure compliance with the law and to provide protection to the stakeholders of a small company, including shareholders, creditors, and employees. In this article, we will discuss the various provisions related to the formation and management of a small company under the Companies Act 2013.
Advantages of a Small company
A private limited company that can be classified as a small company enjoys a number of benefits under the Companies Act, 2013 and lesser compliance formalities. Some of the advantages enjoyed are:
(1) Filing of annual return
The annual return of a private limited company classified as a small company, can be signed by a company secretary, or where there is no company secretary, by a Director of that company.
(2) Board’s Report
As per Section 134(3A) of the Companies Act, 2013, the Central Government has prescribed an abridged form of Board’s report for a small company. Rule 8A of the Companies (Accounts) Rules, 2014 has been notified for small companies which includes the following disclosures:
(a) the web address, if any, where annual return referred to in sub-section (3) of section 92 has been placed;
(b) number of meetings of the Board;
(c) Directors’ Responsibility Statement as referred to in sub-section (5) of section 134;
(d) details in respect of frauds reported by auditors under sub-section (12) of section 143 other than those which are reportable to the Central Government;
(e) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report;
(f) the state of the company’s affairs;
(g) the particulars of contracts or arrangements with related parties referred to in sub-section (1) of section 188 in the Form AOC-2.
(h) the financial summary or highlights;
(i) material changes from the date of closure of the financial year in the nature of business and their effect on the financial position of the company;
(j) the details of directors who were appointed or have resigned during the year;
(k) the details of significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future;
As per Notification Dated 13th June, 2017, in case of small company Section 143(3)(i) shall not apply which says that the Auditor’s Report shall state whether the company has adequate internal financial controls with reference to financial statements in place and the operating effectiveness of such controls.
(3) Board Meeting
It is sufficient for a small company to conduct only two Board Meetings in a calendar year, one in every half calendar year with a gap of not less than 90 days between these two meetings.
(4) Cash Flow Statement
A private limited company classified as a small company need not prepare cash flow statement as a part of the financial statements.
(5) Rotation of Auditors
(a) Private limited company classified as a small company are not required to rotate their statutory
Auditors.
(b) Private limited company not classified as a small company must rotate their Auditors every 5 or 10 years as per the provisions of the Act, if these companies falls within the prescribed category such as their paid up share capital is more than Rs.50 Crores more or these are having public borrowings from financial institutions, banks or public deposits of Rs. 50 Crores or more.
Further, as per the definition of a small company, holding and subsidiary companies are specifically excluded from the concept of small company.
Thus, even though both the holding company and subsidiary company may fulfil the capital or turnover requirement of a small company, they will still fall outside the purview of small company and accordingly, the benefits which are available to a small company cannot be applied to a company which is holding or subsidiary company.
In other words, a holding or a subsidiary company can never enjoy the privileges of a small company even though they may fulfil the capital or turnover requirement of a small company.
Similarly, a company may be classified as a small company in a particular year but may become ineligible in the next year and may become eligible again in the subsequent year.
The privileges/exemptions available to a small company are same as that available to a one person company,but not all privileges available to a one person company are available to a small company.
So also, a company registered under Section 8 of the Companies Act, 2013 is also specifically excluded from the definition of small company. Hence, any company registered under Section 8 of the Companies Act, 2013 would not be small company though it may be a private company
Further, Section 233 of the Companies Act, 2013 was notified with effect from December 15, 2016 and the Companies (Compromises, Arrangements and Amalgamations) Rules came into effect from the said date. Section 233 deals with fast track mergers. Two or more small companies are permitted to undertake fast track merger under section 233 of the Act. Such merger would require approval of Registrar of Companies having jurisdiction over the company, the Official liquidator, members holding at least 90% of total number of shares and majority of creditors representing 9/10th in value of 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.
Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, has allowed scheme of merger or amalgamation under section 233 of the Companies Act, 2013 (fast track mergers through relatively simpler procedure) between any of the following class of companies, namely:-
(i) two or more start-up companies; or
(ii) one or more start-up company with one or more small company.
(6) Reduced Penalties for non-compliance
If penalty is payable for non-compliance of any of the provisions of this Act by a small company or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a company and one lakh rupees in case of an officer who is in default or any other person, as the case may be. This provision has overriding effect on any other contradictory provisions of the Act.
Understanding the Companies Act 2013: A Guide for Small Businesses
Small businesses are essential to the vitality of the economy. As such, it is important for business owners to understand the Companies Act 2013, which provides the framework for the formation, registration, and governance of companies in India. The Companies Act 2013 is divided into 29 chapters and 470 sections. It contains the rules governing the formation, registration, and governance of companies in India. It is applicable to all companies registered in India, regardless of their size. The Act requires companies to register with the Registrar of Companies, who is responsible for maintaining a register of all companies registered in India. Companies must provide the Registrar with certain information, including the name of the company, the address of its registered office, the names of its directors and officers, and the number of shares it has issued. Companies must also comply with various filing requirements and submit annual returns to the Registrar. The Act also sets out the requirements for the formation of a company. These include obtaining a digital signature certificate, filing the Memorandum and articles of Association with the Registrar, and obtaining a Certificate of Incorporation. The Act also sets out the various forms of corporate governance, including the appointment of directors and officers, the holding of Board and general meetings, the preparation of financial statements, and the rules governing the distribution of dividends. Companies are also required to comply with various laws and regulations, such as the Prevention of Money Laundering Act and the Companies Act
1.
Finally, the Act sets out the rules governing the dissolution and winding up of companies, as well as the rights and obligations of shareholders. By understanding the Companies Act 2013, small business owners can ensure that their companies are properly registered and comply with all legal requirements. This will help to ensure the long-term success and growth of their businesses.
The Benefits of Incorporating Your Small Business Under the Companies Act 2013
Incorporating a small business under the Companies Act 2013 ensures a host of legal benefits for business owners. These benefits include limited liability, easy transferability of ownership, and improved credibility. When a business is incorporated, the owners are protected from personal liability for the actions of the company. This means that the owner’s personal assets, such as their home or car, cannot be seized to pay off debts of the company. This protection is an invaluable asset to business owners who are looking to protect their personal finances from the risks associated with business ownership. Incorporating a business also makes it easier for ownership to be transferred. When a business is incorporated, shares in the company can be bought and sold, allowing for the easy transfer of ownership. This makes it easier for business owners to transition their business to the next generation or to new owners without the need for complicated legal arrangements. Finally, incorporating a business gives it greater credibility with the public. Incorporated businesses are seen as more reliable and trustworthy, making them more attractive to potential customers, investors, and creditors. This improved credibility can lead to increased profits and new opportunities for the business. Incorporating a small business under the Companies Act 2013 is a smart decision for business owners who are looking to protect their personal assets, facilitate the transfer of ownership, and increase the credibility of their business. The benefits of incorporation far outweigh the costs, making it an attractive option for any small business owner.
Making the Most of the Tax Benefits of the Companies Act 2013 for Small Companies
The Companies Act 2013 (the Act) provides a range of tax benefits for small companies that can significantly reduce the amount of tax that they have to pay. With careful planning and implementation, small companies can make the most of these benefits and maximize their savings. The first tax benefit provided by the Act is the lower rate of tax for small companies. The Act permits small companies to enjoy a lower rate of corporate tax, provided they meet certain criteria. This includes having a turnover of less than Rs. 50 crore, and an aggregate paid up share capital not exceeding Rs. 10 crore. If a company meets these criteria, it can enjoy a reduced corporate tax rate of 25%, as opposed to the usual rate of 30%. The Act also provides for tax deductions on certain expenses. Small companies can claim deductions for maintenance expenditure, including employee costs such as salaries, wages, and bonuses. They can also claim deductions for interest and dividends paid, as well as for rent and other expenses. These deductions can significantly reduce the amount of tax that a small company has to pay. The Act also provides for tax exemptions for certain types of income. This includes income from long-term capital gains, income from foreign sources, as well as income from certain sources such as agricultural income and income from the sale of certain assets. Small companies can take advantage of these exemptions to reduce their tax liability. Finally, the Act provides for a range of other tax benefits for small companies. These include the ability to claim deductions for depreciation, and the ability to carry forward losses. Small companies can also claim tax credits for research and development expenses, and losses incurred on the sale of assets. By taking advantage of the various tax benefits available under the Act, small companies can significantly reduce their tax liability. With careful planning and implementation, small companies can make the most of these benefits and maximize their savings.
An Introduction to the New Regulatory Requirements for Small Companies Under the Companies Act 2013
The Companies Act 2013 is the new legislation that has been introduced to regulate companies in India. It replaces the previous Companies Act 1956 and brings significant changes to the regulations governing small companies in India. The Companies Act 2013 defines small companies as companies that have a paid-up share capital of less than fifty lakh rupees or such higher amount as may be prescribed. Small companies are subject to fewer compliance requirements than larger companies. This is in line with the Government’s goal of encouraging small businesses to grow and flourish. Under the Companies Act 2013, all small companies must file their annual financial statements, annual returns and other forms with the Registrar of Companies. They must also appoint an independent auditor to audit and report on their financial statements. The financial statements must be true and fair, and must comply with the Generally Accepted Accounting Principles (GAAP). Small companies must also ensure that they comply with all the other legal requirements of the Companies Act
1. These include filing of the Memorandum and articles of Association, maintaining proper books of accounts and records, and filing of documents and returns with the Registrar of Companies. Small companies must also ensure that they comply with the Companies Act 2013 provisions relating to directors, shareholders, employees, directors’ remuneration and the appointment of auditors. Small companies must also comply with the new reporting requirements under the Companies Act
2. These include the preparation of consolidated financial statements, filing of a director’s report, and filing of a corporate social responsibility (CSR) report. The Companies Act 2013 also requires small companies to file a tax audit report and to submit their financial statements to the relevant regulatory authority. By adhering to the regulatory requirements under the Companies Act 2013, small companies can ensure that they are compliant with the applicable laws and regulations. This will help them to protect their interests and to ensure that their operations are conducted in a fair and transparent manner.
How the Companies Act 2013 Affects Small Businesses in India
The Companies Act 2013 is a comprehensive legislation enacted by the Indian government to govern the formation, registration, operation, and closure of companies in India. It is the primary source of company law in India, and it affects virtually all aspects of company operations in India. For small businesses, the Companies Act 2013 has several significant implications. Firstly, the Act has increased the threshold for filing documents with the Registrar of Companies (RoC) for small businesses. For example, small companies with paid-up capital of up to Rs 50 lakhs, and turnover of up to Rs 2 crore, are allowed to file abbreviated balance sheets and profit and loss accounts. This has reduced the compliance burden for small businesses and allowed them to focus their resources on their operations. Additionally, the Companies Act 2013 has introduced the concept of “One Person Companies”, which allows a single individual to start and run a company as a separate legal entity. This has made it easier for entrepreneurs to set up their own businesses and has enabled them to access capital and other resources more easily. Furthermore, the Companies Act 2013 has also relaxed the rules on mergers and acquisitions, allowing small businesses to combine their resources and enter into strategic partnerships. This has enabled small businesses to expand their operations and enter new markets. Finally, the Companies Act 2013 has also introduced several measures to protect small investors. These measures include an increased responsibility of directors to act in the interests of the company and its shareholders, as well as improved procedures for investors to seek redress in case of grievances. This has helped small businesses to raise capital from investors with greater confidence, as investors know that their interests will be adequately protected. In conclusion, the Companies Act 2013 has had a major impact on small businesses in India, by making it easier for them to set up and operate their businesses, and providing them with greater protection from investors.
Exploring the Challenges of Compliance with the Companies Act 2013 for Small Companies
The Companies Act 2013 is a critical piece of legislation that governs the operations of all companies in India. It has significant implications for small companies, as it introduces a range of new compliance requirements that can be difficult to meet. This article will explore the challenges of compliance with the Companies Act 2013 for small companies. The most significant challenge of compliance with the Companies Act 2013 for small companies is the increased level of paperwork and reporting that is required. Small companies must now submit a range of information to the Registrar of Companies (RoC), including financial statements, returns and other documents. This can be a significant administrative burden, particularly for small companies that do not have access to accounting software or the resources to outsource this work. Another challenge of compliance with the Companies Act 2013 for small companies relates to corporate governance. The Act requires companies to abide by a range of corporate governance principles, such as holding regular Board meetings, appointing independent directors and maintaining detailed records. These requirements are especially difficult for small companies to meet, as they often lack the resources or expertise to do so. Finally, there is the challenge of understanding and interpreting the Companies Act
1. The Act is complex and difficult to understand, and small companies may not have the resources to hire legal counsel to help them interpret and comply with the legislation. This can lead to significant penalties for non-compliance, so it is essential that small companies take the time to understand the Companies Act 2013 and ensure that they are in compliance. In conclusion, compliance with the Companies Act 2013 presents a range of challenges for small companies. These include increased paperwork and reporting requirements, corporate governance obligations and the difficulty of understanding and interpreting the legislation. Small companies must therefore take the time to understand the Act and ensure that they are in compliance in order to avoid costly penalties.
Using the Companies Act 2013 to Protect Your Small Business from Legal and Financial Risk
As an owner of a small business, it is your responsibility to ensure the legal and financial security of your enterprise. The Companies Act 2013 is a comprehensive set of laws that can be used to protect your small business from legal and financial risk. First and foremost, the Companies Act 2013 requires all businesses to register with the Registrar of Companies. This is done to ensure that all businesses are accountable and compliant with the Indian legal system. By registering with the Registrar of Companies, your business will receive protection from creditors and other legal entities. The Companies Act 2013 also outlines the responsibilities of directors and shareholders in a company. Directors are responsible for the management of the company and must act in the best interests of the shareholders. Furthermore, they must perform their duties in compliance with the Companies Act 2013 as well as other applicable regulations. The Companies Act 2013 also provides protection to small businesses from fraudulent activities. This includes protection from insider trading, money laundering, and other illegal activities. The Act also provides a framework for dispute resolution in case of any disputes between shareholders or directors. The Companies Act 2013 also outlines regulations regarding the transfer of shares and the issuing of securities. It is important that these regulations are followed to ensure that the ownership of the business remains with the rightful shareholders and that the rights of the shareholders are not compromised. Finally, the Companies Act 2013 also provides protection from financial risk. This includes protection from insolvency and bankruptcy, as well as protection from mismanagement of funds. In conclusion, the Companies Act 2013 is a comprehensive legal framework that can be used to protect your small business from legal and financial risk. By registering with the Registrar of Companies, following the regulations outlined in the Act, and maintaining compliance with other applicable regulations, you can ensure that your business is protected from any legal and financial risk.
The Companies Act 2013 provides several important rules and regulations to help small companies operate in an efficient and compliant manner. These regulations ensure that small companies are able to conduct their operations in a fair and transparent manner, and that any disputes that may arise are resolved quickly and fairly. Small companies can benefit from the protection and security provided by the Companies Act 2013, which helps to protect their interests. Furthermore, the rules and regulations provide necessary guidance to help small companies prevent and resolve potential disputes. Therefore, the Companies Act 2013 is an important resource for small companies to ensure they are complying with the law and conducting their operations in an ethical and responsible manner.