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Small Company {Section 2(85) of The Companies Act, 2013}
July 7, 2022 / Others

Small Company {Section 2(85) of The Companies Act, 2013}

Definition:
Small Company means a company, other than a public company,
• Paid-up share capital of which does not exceed Rs. 2 Crore; and
• Turnover of which as per profit and loss account for the immediately preceding financial year does not exceed Rs. 20 Crore.
Following companies shall not be considered as Small Company:
• A Holding company or a Subsidiary company;
• A Company registered under section 8 of The Companies Act, 2013;
• A Company or Body Corporate governed by any special Act.

Benefits/ Privileges for Small Companies:
Holding of Board Meetings
Every company is required to hold 4 Board Meetings 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.

Signing of Annual Return
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.

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

Reporting under CARO not Applicable
The reporting requirements laid down under the Companies (Auditor’s Report) Order, 2020 for matters to be included in an auditor’s report do not apply to a small company.

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.

Fast Track Merger Process
The merger process between small companies is less cumbersome and less expensive and hence, done on a fast-track basis as compared to the other one.

Rotation of Auditor not Applicable
Every Private Limited company having a capital more than Rs. 20 crore is required to rotate its auditor after a term of 5/ 10 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.

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.

Lesser Fees
Fees for filings and other formalities u/s. 403 of the Companies Act, 2013 is also comparatively lower for the small companies.

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.

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