small company as per companies act
Simplifying the Small Company Definition under the Indian Companies Act
Introduction:
Small companies play a crucial role in the Indian economy, driving innovation, generating employment, and contributing to economic growth. To support and protect these businesses, the Companies Act provides certain relaxations and exemptions. In this article, we will explore the definition of a small company as per the Companies Act in India, highlighting the benefits and provisions specifically designed to promote their growth and development.
Understanding the Small Company Definition:
Under the Companies Act, 2013, a small company is defined as a privately-held company that meets certain criteria related to its paid-up share capital, turnover, and net worth. The Act aims to provide a simplified regulatory regime for small companies, easing compliance burdens and reducing costs.
Key Criteria for a Small Company:
1. Paid-up Share Capital: A small company is one in which the paid-up share capital does not exceed ?50 lakh or such higher amount, up to ?2 crore, as may be prescribed.
2. Turnover: The turnover of a small company should not exceed ?2 crore or such higher amount, up to ?20 crore, as may be prescribed. This criterion ensures that businesses within a certain revenue range are eligible for the small company status.
3. Net Worth: The net worth of a small company should not exceed ?1 crore or such higher amount, up to ?100 crore, as may be prescribed. Net worth includes equity share capital, free reserves, and securities premium account, among others. This criterion ensures that companies with relatively lower net worth can avail themselves of the benefits accorded to small companies.
Benefits & Exemptions for Small Companies:
1. Financial Statements: Small companies are exempted from the requirement of including cash flow statements in their financial statements. This reduces the financial reporting burden and associated costs.
2. Board Meetings: The Companies Act allows small companies to hold only two board meetings in a year, with a minimum gap of 90 days between them. This relaxation facilitates faster decision-making and reduces administrative costs.
3. Directors’ Report: Unlike other companies, small companies are not required to provide detailed information on their Directors’ Report. They can furnish a simplified report with limited information, further streamlining compliance obligations.
4. Related Party Transactions: Small companies can avail themselves of certain exemptions related to related party transactions. They are excluded from obtaining shareholders’ approval and can enter into contracts with related parties without strict compliance with the provisions under the Act, subject to certain conditions.
5. Compliance Requirements: Small companies have simplified compliance requirements, reducing the paperwork and procedural formalities involved. They face fewer disclosure and reporting obligations, allowing them to focus on their core operations.
Promoting Growth of Small Companies:
Recognizing the vital role played by small companies, the Indian government has implemented several initiatives to promote their growth and development. These include:
1. Start-up India Scheme: Launched in 2016, this initiative offers numerous benefits and incentives to small companies in terms of taxation, funding, and regulatory support. It aims to foster a favorable environment for start-ups and encourage innovation and entrepreneurship.
2. Make in India Campaign: This campaign encourages small companies to manufacture their products within India, promoting local production and reducing dependence on imports. It provides various incentives, such as tax benefits and infrastructure support, to boost manufacturing initiatives.
Conclusion:
Small companies hold immense potential for the Indian economy, and the Companies Act recognizes their significance by providing the necessary relaxations and exemptions. By simplifying compliance requirements and reducing administrative burdens, these measures enable small companies to focus on their growth and development. With the continued support of the government and favorable initiatives, small companies will continue to play an integral role in driving India’s economic progress.,
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small company as per companies act
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