Company Law

Relaxations for Small Companies in Budget 2021

Delivering the Union Budget 2021-22, Finance Minister Nirmala Sitharaman, on Monday, proposed changes in the definition of small companies under the Companies Act.

Definitions:

Old Definition: As per the Old definition

‘‘Small Company’’ means a company, other than a public company, —

(i) 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

(ii) 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:

New Definition: As per the new definition

Small companies mean a company, other than a public company which have: –

  • Paid-up share capital of not more than 2 crore rupees and
  • Turnover of which as per its last profit and loss account does not exceed 20 crore rupees.

IMPACT ON DEFINITION:

‘‘Small Company’’ means a company, other than a public company, —

Que: Whether a small company needs to file any form to convert into a non-small Company?

There is no need to file any form or company any process to convert a small company into a non-small Company. Once a company falls in limits given under the definition of a small Company it shall be considered a Small Company, if a company crosses the limits given in the definition shall be considered a non-small company itself.

Important Note:

  1. Only a Private Company can be classified as a Small Company.
  2. If a Company doesn’t cross the above-mentioned limits, however, such a Company is a holding Company or a Subsidiary Company of any other Company then such a Company cannot be considered as a Small Company.
  • A Public Company cannot be a Small Company.
  1. A Section 8 Company cannot be a Small Company
  2. For a Small Company, both the conditions are needed to be fulfilled i.e the paid-up capital should not exceed Rs. 2 Crore or the turnover as per the last statement of profit & loss should not exceed Rs. 20 Crore. If any of the given limits crossed at any point of time then such a Company shall be out of the preview of a Small Company.

The status of a company as a “Small Company” may change from year to year. Thus, the benefits which are available during a particular year may stand withdrawn in the next year and become available again in the subsequent year.

The benefit to becoming a Small Company:

Lessor No. of Mandatory Board Meetings: 

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

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

Also read: MCA 21 Version 3.0: Key Features

No Requirement of Cash Flow Statement

As per provisions of the Companies Act, 2013, Small Companies are not required to prepare a Cash Flow Statement.

Certification of e-forms: 

As per provisions of the Act, any e-form of a Small Company is not required to get certified by a Professional (CA/CS/ADV).

e-forms of non-small Company can be a file with ROC only with the Digital Signature of Directors.

Abridge Director’s report: 

There is a lot of differences b/w of Directors Report of Small Company or Non-Small Company. By amendment in the Companies Act, 2013, MCA has introduced the abridged format of the Directors’ Report for a Small Company.

Abridge report means, director report of a Small Company shall require to give fewer disclosures than a non-small Company.

No IFC Reporting: 

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

Lessor Penalties {446B): 

Notwithstanding anything contained in this Act, if the 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.

Rotation of Auditor {139(2)):

Provisions of Section 139(2) relating to rotation of auditor are not applicable to Small Company.

This means, in a small company, it is not required to mandatory change the auditor by rotation.  An auditor firm or individual auditor can get an appointment as an auditor in a small Company ever after 10 years or 5 years of appointment also.

ANNUAL COMPLIANCE CALENDAR FOR SMALL COMPANY:

Month April May June
Compliance
  • Obtaining MBP-1
  • Obtaining of DIR-8
  • Filing of MSME-1 (30.04)
  • The holding of the First Meeting of the Board of Directors for the quarter
  • Filing of DPT-3 with the ROC (30.06)
Month July August September
Compliance Filing of FLA with RBI. If having foreign liability or assets
  • Holding of the Second Meeting of the Board of Directors.
  • Preparation/ Adoption of the Financial statement
  • Adoption Auditors’ Report
  • Preparation/ Adoption of the Directors’ Report
  • Obtaining MBP-1, in case of any change.
  • Circulation of the Financial Statement and notice of AGM to the Shareholders, Directors, Auditor, etc.
  • The holding of the Annual General Meeting
  • Filing of DIR-3 KYC (30.09)
Month October November December
Compliance
  • Filing of AOC-4 (29.10)
  • Filing of MSME-1 (30.10)
  • Filing of MGT-7 with ROC   (29.11)
  • Holding of Third Meeting of Board of Directors.
  • Obtaining MBP-1, in case of any change.
Month January February March
Compliance    
  • Holding of the Fourth Meeting of the Board of Directors.
  • Obtaining MBP-1, in case of any change.

Disclaimer: The entire contents of this document have been prepared based on the 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.

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CS Divesh Goyal

CS Divesh Goyal is a Fellow member of ICSI, Practicing Company Secretary, and Steering Voice in the Corporate World. He is a Prop. at Goyal Divesh & Associates, Company Secretaries. He is a competent professional having enrich 6 years post qualification experience as Company Secretary with expertise in Corporate Law, FEMA, IBC, SEBI, RBI. He has written more than 600 editorials on Companies Act, 2013 to keep at pace with the latest changes and critically analyse the implications of various provisions of the Companies Act, 2013, Insolvency & Bankruptcy Code, 2016, FEMA, RBI, SEBI etc. He is a vibrant, sought after, and spellbinding speaker and has delivered more than 200 sessions on various aspects of Company Law at ICSI, ICAI, and online platforms. Apart from his passion for his work he also believes in elevating his profession and for that dream

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