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Benefits of Small Companies

BENEFITS FOR SMALL COMPANIES: Before filing of annual return of any company we should know some key points like:

  • what the status of our company
  • what benefits/Exemptions available for our company

In The Union Budget 2021, Finance Minister Nirmala Sitharaman had proposed a major change in the Companies Act, which is related to the Status of Small companies, which is being determined by their capital and turnover.

Definition of Small Company:

As per section 2 (85) of Companies Act, 2013

“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 *ten crore rupees and**

(ii) Turnover of which *** [as per profit and loss account for the immediately preceding financial year] does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than **** [one hundred crore rupees]

AFTER change as per budget.

Section 2(85) small company’ means a company, other than a public company,-

  • paid-up share capital of which does not exceed Two Crore rupees or such higher amount as may be prescribed which shall not be more than *[ten crore rupees]; [and] **
  • turnover of which * * * [as per profit and loss account for the immediately preceding financial year] does not exceed Twenty Crore rupees or such higher amount as may be prescribed which shall not be more than * [one hundred crore rupees]:

Provided that nothing in this clause shall apply to-

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act;


1. Holding of Board Meetings

Every company is required to hold 4 Board Meeting in a year. While a Small Company can hold only 2 Board meetings in a calendar year i.e. one board meeting in each half of the calendar year. However the gap between the two board meetings should not be less than 90 days. So in case of Small Companies, the Board is not required to conduct 4 meetings in a year as it is applicable in case of companies other than small and OPC companies

2. Signing of an Annual Return

BENEFITS FOR SMALL COMPANIES: In case of Small Company, the Annual Return can be signed by Company Secretary alone or if there is no CS, by a single Director only.

3. Cash Flow Statements not required

A Small company does not require to maintain a Cash flow statement as a part of its Financial Statements. So while filing of Balance Sheet with Registrar of Companies, companies shall not be required to attach the CASH Flow Statements along with the Financial Statements   

4. Abridged Director Report and Annual Return

For small companies, the format of director report is not vast rather an abridged Director Report shall also be sufficient. The format has already been prescribed by the Ministry for abridged Director Reports for Small Companies and One Persons Companies. Please Note That Matters to be included in Board’s Report mention in Rule -8 of companies (Accounts) Rules, 2014 not apply for small company.

5. Fast Track Merger Process

The merger process between small companies is less cumbersome and less expensive and hence, on a fast track basis as compared to the other one

6. No Auditor Retire

BENEFITS FOR SMALL COMPANIES: By Rotation Every Private Limited company having a capital more than Rs. 20 crore is required to rotate its auditor after a term of 5 years. But being a small company, having capital less than 20 crore, shall never be required to rotate its auditor according to Section 139(2)of Companies Act 2013. Please Note that Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).

7. Need not to have Internal Financial Control Report

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

8. Lesser Fees

BENEFITS FOR SMALL COMPANIES: Fees for filings and other formalities u/s. 403 of the Companies Act, 2013 is also comparatively lower for the small companies.

9. Lesser Penalties

Lesser penalties for Small Companies under Section 446B of the Companies Act, 2013: – If a small company fails to comply with the provisions of section 92(5), section 117(2) or section 137(3), such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections.

10. No Certification by the Professional on E Forms

The companies are required to file the various E Forms pertaining to filing of Balance Sheets, Annual Returns, and various other event based e forms. If we look from the corporate point of view, the companies shall not be required to get the E Forms being certified from the Practicing Professionals.

Note : But is it always being advisable that the e forms must be get the checked from Professionals, though not require certification since, the corporates, its owners, its directors or the employees may not be aware about the various provisions which goes on changing year by year. Hence, the verification from Professionals may reduce the chances of errors and avoidance of various penalties and the additional fees.

Conclusion : It is to be noted that a company which is eligible to be known as a small company in one particular year might not be eligible to have the status of a small company in the subsequent year. This status is determined on the basis of the Annual return which is filed after the end of every financial year. If the company is no longer a small company; along with the change in status, the benefits which are accorded to a small company are also withdrawn.

CS Deepa Sharma

Author is a associate member of the Institute of Company Secretaries of India (ICSI) and apart from that she holds LLB degree and Master in Commerce degree from Rajasthan University. She is having over 5 years of experience as a Practicing Company Secretary. She is well versed with all the matters related to Company Law and ROC matters, RERA , statutory reporting, Compliance Report and Corporate Governance. She is having good exposure in maintaining secretarial records as prescribed under Companies Act, 2013.

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