Small Company : A New Concept Under The Companies Act 2013

Meaning & Definition - (Amendment thereto)

The definition of the "Small Company" is specified in clause 85 of the section 2 of the Companies Act 2013.

Accordingly a ‘‘small company’’ means a company, other than a public company, —
  • paid-up share capital of which does not exceed Rs. 5 lakh 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 Rs. 2 crore 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; 
  • a company registered under section 8; or 
  • a company or body corporate governed by any special Act;
Amendment to definition : By an order namely the Companies (Removal of Difficulties) Order, 2015 (published in the official gazette on 13th February, 2015), the definition of the Small Company undergone a minor modification, though it had a significant impact on the number of companies who were falling under the Small company purview.

Amendment was for substitution of the word “or” (occurring at the end of the definition) with the word “and”, which made it mandatory for the companies to satisfy the limits prescribed for both the paid up capital and turnover as mentioned herein above.

Benefits/Relaxations to Small Companies

  1. Financial Statement (Cash Flow Statement) - A small company is not required to include the cash flow statement in its year end financial statements, which are circulated to shareholders and filed with ROC/Income Tax Dept.
  2. Number of Board Meetings - A small company is only required to hold minimum 2 board meetings in a year as against the requirement of min. 4 board meetings for public/private companies.
  3. Annual Return Filing - The annual return to be filed with ROC can be signed either by a Company Secretary or by any Director of the company.
  4. Rotation of Auditors - The provisions regarding rotation of auditors are not applicable to small companies.

P.S. A private limited company can only be a small company if satisfies the prescribed conditions. A public limited company can not be a small company under any circumstances.