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INTRODUCTION:
It’s rightly said Small businesses are vital to the success of the economy. Not only as they provide the success stories of the future, but also because they meet local, they serve the requirement of larger business. The concept of “Small Company” has been introduced for the first time by the Companies Act, 2013. The Act identifies some companies as small companies based on their capital and turnover position for the purpose of providing certain relief/exemptions to these companies.
Small Companies are well placed to build personal relationships with customers, employees, and suppliers. With a small Company you know who you are dealing with; you can 'put a face' to the person you are in contact with. Person-to-person interaction is as important as ever in building strong relationships. Small Companies are well positioned to introduce and develop new ideas. Due to the small scale of operation, small Companies have lower overhead costs as compare to companies other than small company.
Small company tag is much beneficial to small entrepreneurs aiming at to rotate business at a quite fare level and operate within the limits specified under Section 2(85) of Companies Act 2013.
Small Company Definition as per Companies Act 2013
“Small company’’ means a company, other than a public company,-
- 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
- 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 clause shall apply to—
A) holding company or a subsidiary company;
B) company registered under section 8; or
C) company or body corporate governed by any special Act;
As per Companies Act, 2013 a company may be treated as a ‘small company’ if it meets either of the conditions (1) or (2) provided above. However, most companies were being classified as small company since they meet criteria one but exceeded the monetary limit in respect of second criteria excessively. Therefore, in an effort to curb too many from being classified as a small company, the Ministry of Corporate Affairs changed “OR” at the end of condition 1 to “AND”. The update to definition was published in The Gazette of India on February, 13, 2015. Updated Small Company Definition. Hence, a small company is now defined as above.
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Advantages of Small Company
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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 Annual Return
 The annual return of a private limited company classified as a small company, can be signed by a Company Secretary or by a Director of the private limited company.
The annual return of a private limited company NOT classified as a small company must be signed by a Director AND a Company Secretary.
2. Board Meeting
 It is sufficient for a small company to conduct only two Board Meetings in a financial year.
Private limited company NOT classified as a small company are required to conduct four Board Meetings in a financial year.
3. Cash Flow Statement
 A private limited company classified as a small company need NOT prepare cash flow statement as a part of the financial statement.
Private limited company NOT classified as a small company MUST prepare cash flow statement as a part of the financial statement.
4. Rotation of Auditors
 Private limited company classified as a small company are NOT required to rotate Auditors.
Private limited company NOT classified as a small company MUST rotate Auditors every 5 or 10 years as per the Act.
ANNUAL COMPLIANCES FOR SMALL COMPANY:
| S.NO. |
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SECTIONS & RULES |
FORMS |
PARTICULARS OF COMPLIANCES |
| 1. |
Receipt of
MBP-1 |
184(1) |
Form
MBP- 1 |
Every Director of the Company in First Meeting of the Board of Director in each Financial Year shall disclose his interest in
other entities. |
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Every Director is required to submit with the Company a fresh MBP-1, whenever there is change in his interest from the earlier given MBP-1. |
| 2. |
Receipt of DIR-8 |
164(2), 143(3)(g) |
Form DIR - 8 |
Every Director of the Company in each Financial Year will file with the Company disclosure of non-disqualification. |
| 3. |
E- Forms
Filing
Requirements |
92 |
E-form:
MGT-7 |
Annual Return: Every Small Company will file its Annual Return within 60 days of holding of Annual General Meeting. Annual Return will be for the period 1st April to 31st
March. |
| 4. |
137 |
E-form:
AOC-4 |
Financial Statement: Company is required to file its Balance Sheet along with Statement of
Profit and Loss Account and Directors’ Report in this form. |
Attachment:
Balance Sheet, Statement of Profit & Loss Account, Directors’ Report, Auditors’ Report and Notice of AGM. |
| 5. |
Directors’
Report |
134 |
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Directors’ Report shall be prepared by mention of all the information required for Small Company under Section
134. |
| It should be signed by the “Chairperson” authorized by the Board, where he is not so authorized by at least 2 Directors. |
| 6. |
Circulation
of Financial
Statement
&other
relevant Documents |
136 |
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Company will send to the members of the Company approved Financial Statement, Directors’ Report and Auditors’ Report at least 21 clear days before the Annual General Meeting.
(Except in case of AGM is called on Shorter Notice) |
| 7. |
Notice of
AGM |
101 & SSII |
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Every Notice of Annual General Meeting will be prepared as per Section 101 of Companies Act 2013 and Secretarial Standard – II. |
| 8. |
Sending of
Notice of
AGM |
101 & SS |
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Notice of Annual General Meeting will be sent to following:
- All Directors,
- Members,
- Statutory Auditor.
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| 9. |
Board
Meetings |
173 &
SS-I |
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Every Company shall hold a minimum number of Two Meetings of its Board of Directors every year in such a manner that Minimum gap between both the meetings not less than 90 (Ninety) days. |
| 10. |
Appointment
of Auditor |
139 |
E-form
ADT-1 |
Auditor will be appointed for the 5 (Five) year and form ADT-1 will be filed for 5-year appointment. |
| After that every year in AGM, Shareholder will ratify the Auditor but there is no need to file ADT-1. |
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Above mentioned 10 (Ten) Compliances are mandatory yearly compliances. Except above 10 (Ten), there may be event-based compliances for the Small Company.
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(Author – CA YOGESH BANGIA, member of Institute of Chartered Accountants of India (ICAI)
Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. The observations of the author are personal view and the authors do not take responsibility of the same and this cannot be quoted before any authority without the written.
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[B.COM, CA]
Mob.: 9811182494
Email:cayogeshbangia@gmail.com
Twitter: @BangiaFca
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