Introduction to Small Companies
Small companies are pivotal to India’s economic landscape, providing innovation, employment, and growth in various sectors. These entities are defined by their size and scope, offering unique benefits and flexibility compared to larger corporations.
Criteria for Being a Small Company in India
A small company in India is characterized under Section 2(85)Â of the Companies Act, 2013. The criteria include:
- Paid-up Capital: Should not exceed Rs. 4 crore, with a potential increase to Rs. 10 crore as specified.
- Turnover: The annual turnover from the previous financial year should not surpass Rs. 40 crore, with a possible extension to Rs. 100 crore.
These criteria help determine the eligibility of companies to enjoy the benefits designated for small-scale operations.
What Does Not Qualify as a Small Company
Not all business entities qualify as small companies. Exclusions include:
- Holding and Subsidiary Companies: Entities that control other companies or are controlled by another company.
- Section 8 Companies: Companies formed for promoting commerce, art, science, sports, education, research, social welfare, religion, charity, or other similar objectives.
- Companies Governed by Special Acts: Companies that are subject to different regulations due to their specific nature or the industry they operate in.
Understanding these exclusions is crucial for businesses aiming to leverage the advantages of being classified as a small company.
Benefits:
The choice to operate as a small company comes with several appealing benefits, such as:
- Reduced Regulatory Scrutiny: Small companies are required to hold only two board meetings per year and face fewer regulatory inspections and audits.
- Management Flexibility: They enjoy greater leeway in making quick management decisions, crucial for responding to market changes.
- Financial Incentives: Potential eligibility for tax benefits and easier access to financial support like loans and venture capital.
- Operational Advantages: Lower penalties and simplified procedures for regulatory filings help maintain operational efficiency.
Exemptions Granted to Small Companies
To foster the growth of small companies, the Indian government provides several exemptions & some key exemptions are as follows:
- Board Meetings: Only two are required annually, as opposed to four for larger companies.
- Auditor Rotation: Small companies are exempt from the mandatory rotation of auditors.
- Filing Requirements: Simplified annual returns that can be signed by just one director, reducing administrative burdens.
- Lower Fees and Penalties: Significantly reduced fees for submissions to the Registrar of Companies (ROC), easing financial burdens.
Conclusion
The strategic support from the Indian government underscores their commitment to nurturing small businesses. By understanding and utilizing these provisions, small companies can leverage substantial benefits, contributing robustly to India’s economic strength.
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Disclaimer
This article, published on April 27, 2024, offers a basic understanding of small companies as per the Companies Act 2013 and is not intended as legal advice. For precise and current information, consulting with a professional is recommended. The author and the publisher disclaim responsibility for any errors or omissions.
Prepared by
Mr. Smruti Ranjan Sahoo,
B.Com, LL.B.
