Amendment in Small Company-

Small Company as Amended dated 15.09.2022

SHORT SUMMARY:

In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (“CA, 2013”), the Central Government, vide Notification GSR 700(E) dated 15th September 2022 has amended the Companies (Specification of Definitions Details) Rules, 2014 which shall come into force on the 15th September, 2022. Earlier MCA has made amendment in definition of Small Company w.e.f. 01st April 2021.

It seems that MCA frequently amending the definition of Small Company to provide many advantages to Corporates. This move of MCA is expected to lighten the compliance burden of about 400,000 companies in India. The move is likely to get more companies under the ‘small’ category and benefit them in terms of the compliance requirements. As due to this move, many Companies will get exemptions of so many compliances of Companies Act, 2013. This move would benefit Start- ups in India. Therefore, we can state that the decision to amend the definition of small company is a pragmatic and growth-oriented step of the government.

Small Company:

“Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner”.

LIMITES TO IDENTIFY SMALL COMPANY:

The concept is furnished by the Companies Act, 2013 that defines a Small Company-

Amendments	Till 31^st March, 2021	1st April 2021 Till 14^th September, 2022	15^th September 2022 onwards
Paid-up share Capital	Maximum paid-up share capital can be Rs. 50 Lakhs	Maximum Paid-up share Capital is increased to Rs.2 Crores	Maximum Paid-up share capital is increased to Rs. 4 Crores
Turnover (in the immediately preceding financial year)	Maximum turnover for qualifying as a small Company was Rs. 2 Crores	Maximum turnover for qualifying as a small Company is increased to Rs. 20 Crores	Maximum turnover for qualifying as a small Company is increased to Rs. 40 Crores

A Small company demands no form to transform itself into a non-small Company

A small company is not mandated to file any form to convert itself into a non-small company. Until the Company is under the eligible bracket of a small company definition, it will continue to be a small company.

When the Company crosses the limits given in the definition, the Company will spontaneously be converted to a non-small company.

Advantage of a Small Company to Corporates

1. Fewer Mandatory Board Meetings:

Every Small Company shall hold a minimum number of Two meetings of its Board of Directors every year in such way that the Minimum gap between the two meetings should not be Less than 90 (Ninety) days. {Section 173}

In Case of Non-Small Company, it is required to hold four Board Meetings in a year.

2. No CARO needed:

As per provisions of the Companies Act, 2013, Small Companies are not mandated attach CARO Report along with Auditors Report. Therefore, Auditors of small Company no need to prepare CARO.

3. No Cash Flow Statement needed:

As per provisions of the Companies Act, 2013, Small Companies are not mandated to frame the Cash Flow Statement as part of Financial Statement.

4. E-forms Certifications:

As per the provisions of the Act, there is no necessity of certification of the e-forms of a Small Company from Professional (CA/CS/ADV).

5. Abridge Directors report:

MCA, by amendment in the Companies Act, 2013, has introduced the abridged format of the Directors’ Report for a Small Company.

There will be less disclosures in the Director’s Report of a Small Company with the introduction of the Abridge Director’s Report. Directors Report of Small Company shall be prepared as per Rule 8A of Companies Act, 2013.

In other words, Directors Report of Small Companies are not required to give disclosures as mentioned in Section 134(3).

6. No IFC Reporting:

A Small Company is not required to report the Internal Financial controls and the operating effectiveness of the company in its Audit Report.

7. Lesser Penalties (Section 446B):

Notwithstanding anything contained in this Act, if a 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.

8. Rotation of Auditor (Section139(2)):

Provisions of Section 139(2) concerning to rotation of auditor are not applicable on a Small Company. There is no obligation on a Small Company to change the auditor by rotation.

An auditor firm or individual auditor can obtain charge as auditor in small Company ever after 5 years or 10 years of appointment as well.

Key Take Away about Small Company:

CONCLUSION:

The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies.

In recent times, the government has taken various measures, including decriminalization of various provisions under the company’s law, to further improve the ease of doing business in the country.

Disclaimer: The entire contents of this document have been prepared based on relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness, and reliability of the information provided, I assume no responsibility, therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not professional advice and is subject to change without notice. I assume no responsibility for the consequences of the use of such information.