Companies Act Section 2(85) Small Company

Small Company Section 2 (85)

A Small Company under the Companies Act, 2013, is defined based on the following criteria:  

1. Paid-up Capital: 

A company whose paid-up share capital does not exceed fifty lakh rupees (Rs. 50,00,000) or such higher amount as may be prescribed, which shall not be more than ten crore rupees (Rs. 10,00,00,000).  

2. Turnover: 

A company whose turnover does not exceed two crore rupees (Rs. 2,00,00,000) or such higher amount as may be prescribed, which shall not be more than one hundred crore rupees (Rs. 100,00,00,000).

Key Aspects:

1. Exemptions and Relaxations: 

Small Companies enjoy certain exemptions and relaxations from compliance requirements under the Companies Act, 2013. These include:

Financial Statements: Preparation of simplified financial statements as per Schedule III of the Act.

Board Meetings: Fewer board meetings are required compared to larger companies.

Annual Returns: Simplified requirements for filing annual returns with the Registrar of Companies (RoC).

2. Corporate Governance: 

Despite exemptions, Small Companies are required to adhere to basic corporate governance norms to ensure transparency and accountability in their operations.

3. Definition Updates: 

The thresholds for determining what constitutes a Small Company (in terms of paid-up capital and turnover) may be revised periodically through notifications issued by the Ministry of Corporate Affairs (MCA).

Importance:

Promotion of Entrepreneurship: 

Recognizing Small Companies encourages entrepreneurship by reducing regulatory burden and compliance costs, thereby facilitating ease of doing business.  

Compliance Simplification: 

Exemptions from certain compliance requirements enable Small Companies to focus more on business operations and growth rather than administrative burdens.

Investor Protection: 

While enjoying relaxations, Small Companies are still required to maintain transparency in their financial reporting and operations, ensuring investor confidence.