ENHANCEMENT OF THRESHOLDS TO BE CONSIDERED AS A SMALL COMPANY – Eshwars
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ENHANCEMENT OF THRESHOLDS TO BE CONSIDERED AS A SMALL COMPANY

Authored by Praveen & Adit

Brief background:

The Ministry of Corporate Affairs (‘MCA”), had in Companies Act, 2013 (“ the Act”), recognised that certain companies below a specified threshold of paid-up capital and turnover, be considered as small companies and exempted or provided relaxation to such small companies from certain requirements under the Act.

The threshold which was provided earlier was that any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or boby corporate governed by any special act) which has a paid-up capital of Rs. 50 lacs or less and turnover of Rs. 2 Crores or less will be considered as a small company.

Enhanced thresholds:

However the Government has now increased these threshold limits. Now, any private limited company (other than a Company which is a holding or a subsidiary company, section 8 company or a company or body corporate governed by any special act) which has a paid-up capital of Rs. 2 Crores or less and turnover of Rs. 20 Crores or less will be considered as a small company.

Hence with these enhanced threshold limits, many private limited companies will come within the ambit of a small company and can enjoy the benefits/relaxations available to small companies under the Act.

BENEFITS/RELAXATIONS AVAILABLE TO SMALL COMPANIES:

S. No. Category Compliance requirements for Companies other than Small Companies Benefits for small companies
(1) BOARD RELATED
(a) Board Meetings At least 4 board meetings are required to be held in a calendar year ·       Small Companies may hold only 2 board meetings in a calendar year i.e. one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.
(2) DISCLOSURES RELATED
(a) Disclosures in Board’s report Elaborate disclosures are required to be made in the Board’s report Abridged form of board’s report with lesser disclosures has been specified for small companies.
(b) Cash Flow Statement Cash flow statement is required to be prepared as part of annual financial statements The small companies are exempted from drawing up a cash flow statement.
(3) CERTIFICATION RELATED
  Professional’s certification on returns to be filed with RoC The returns required to be filed with the Registrar of Companies are required to be certified by a practising professional The returns are not required to be certified by a practising professional
(4) PENALTIES RELATED
  Lesser penalties for Small Companies under the Companies Act, 2013 The Companies Act, 2013 provides for penalty on a Company or an officer in default for non-compliance of any of the provisions of Companies Act, 2013. A small company or its officer in default, in case of non-compliance, will be liable to a penalty of less than one half of the penalty specified in respective sections under the Act.

 

However, the penalty is capped at Rs. 2 lakhs for the small company and Rs. 1 lakh for an officer in default.

(5) AUDITOR’S REPORT RELATED
  Reporting on internal financial controls with reference to financial statements Auditors of Companies are, in its audit report, required to report on internal financial controls with reference to financial statements and the operating effectiveness of such controls. The auditors of small companies are not required to report on the internal financial controls.

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