Small Company India Section 2(85) Companies Act 2013

Section 2(85) deals with the Small Company under the Companies Act. The following article is an clear cut explanation of Small Company, Definition of Small Company in India under the Companies Act 2013. Also Read our earlier posts on Director Appointment and Retirement of Directors by RotationSmall Shareholders Director. Small Company is one of the important concepts to be noted duly and read carefully.

Small Company Committee

As recommended by the Dr. JJ Irani Committee, the concept of small companies has been introduced in the Companies, Act, 2013. The recommendation of the Irani committee in this regard was as under:

“The Committee sees no reason why small companies should suffer the consequences of regulation that may be designed to ensure balancing of interests of stakeholders of large, widely held corporates. Company law should enable simplified decision making procedures by relieving such companies from select statutory internal administrative procedures. Such companies should also be subjected to reduced financial reporting and audit requirements and simplified capital maintenance regimes. Essentially the regime for small companies should enable them to achieve transparency at a low cost through simplified requirements. Such a framework may be applied to small companies through exemptions, consolidated in the form of a Schedule to the Act.”

Small company is a new form of private company under the Companies Act, 2013. A classification of a private company into a small company is based on its size i.e. paid up capital and turnover. In other words, such companies are small sized private companies.

Small Company Section 2(85)

As per section 2(85) ‘‘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 five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Exception to Provisions of a Small Company Section 2(85)

  1. a holding company or a subsidiary company;
  2. a company registered under section 8; or
  3. a company or body corporate governed by any special Act;
Section                                                           Nature of exemptions/privileges
2(40) The financial statement, with respect to Small Company may not include the cash flow statement;
67(2) Financial assistance can be given for purchase of or subscribing to its own shares or shares in its holding company
92(1) The annual return shall be signed by the company secretary, or where there is no company secretary, by the director of the company. In other words it need not be signed by the company secretary in practice.
121(1) Need not prepare a report on Annual General Meeting
134(3)(p) Need not prepare a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of its committees and individual directors;
149(1) Small company need not have more than two directors in its Board.
149(4) Need not appoint Independent directors on its Board
152(6) A proportion of directors need not to retire every year.
164(3) Additional grounds for disqualification for appointment as a director may be specified in the articles.
165(1) Restrictive provisions regarding total number of directorships which a person may hold in a public company do not include directorships held in small company which are neither holding nor subsidiary company of a public company.
167(4) Additional grounds for vacation of office of a director may be provided in the Articles.
173 (5) It is required to hold at least one meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings should not be less than ninety days.
190(4) The provisions relating to contract of employment with managing or whole-time directors do not apply to a Small Company
197(1) Total managerial remuneration payable by a small company, to its directors, including managing director and whole-time director, and its manager in respect of any financial year may exceed eleven per cent. of the net profits

 

CG Notification on Small Company

As per section 462 (1), the Central Government may in public interest, by notification, direct that any of the provisions of this Act, shall not apply to such class or classes of companies; or shall apply to the class or classes of companies with such exceptions, modifications and adaptations as may be specified in the notification.

Therefore, the Central Government may grant further privileges/exemptions to small companies by issuing a notification.