Definition of Small Company and few relaxations as per Companies Act 2013

Companies Act 2013 has introduced a new concept known as small company. Small company as per the Companies Act 2013 is defined with reference to the paid up share capital or the turnover as per the last profit and loss account of a private limited company.

Because of the size, small companies are considered and they are not required the same level of compliance as  large public and private limited companies are required under the Company Law.

Small company is defined under section 2(85) of Companies Act, 2013. As per this section Small Company means a company, other than a public company,-

• Paid up share capital of which does not exceed 50 lakhs rupees or such higher amount as may be prescribed which shall not be more than 5 crore rupees; or
• Turnover of which as per its last profit and loss accounts does not exceed 2 crore rupees or such higher amount as may be prescribed which shall not be more than 20 crore rupees:

Provided nothing in this clause shall apply to –

• A holding company or a subsidiary company;
• A company registered under section 8; or
• A company or body corporate governed by any special Act;

From the above definition it’s clear that only private limited companies can be considered as small companies after considering the paid up capital and turnover limits.

It again specifies that holding companies, subsidiary companies, companies incorporated for charitable purposes and a company or body corporate governed by any special act will not be a small company.

Relaxation to small company as per Companies Act 2013

Here are certain relaxations that are applicable to a small company as per Companies Act 2013. As per the definition, these relaxations will not be applicable to a public limited, holding and/or subsidiaries, incorporated for charitable purpose under section 8 or companies or body corporate governed by any special Act.

• Financial statement as defined under section 2(40) of companies Act 2013, includes cash flow statement for the financial year. However, this section specifically excludes requirement of cash flow statements for Small companies, One Person Company and Dormant Company. Due to this reason, Small companies are not required to prepare and file cash flow statement along with other documents like balance sheet and PL accounts.
• Small companies are required to have at least one meeting of the board of directors in each half of a calendar year and the gap between these two meetings can not be less than 90 days.
• Merger and amalgamation of small companies can be done without the requirement of court fees.