Benefits for Small Companies under Companies Act, 2013
Benefits for Small Companies under the Companies Act, 2013
1. Definition of Small Company
Under Section 2(85) of the Companies Act, 2013, a Small Company means a company, other than a public company:
Paid-up share capital does not exceed ₹2 crores, and
Turnover does not exceed ₹20 crores as per the last financial year’s statement.
Note: The Central Government may alter these limits by notification.
2. Benefits and Exemptions for Small Companies
The Act provides various reliefs and exemptions to promote ease of doing business and reduce compliance burden for small companies, recognizing their limited resources.
A. Exemptions from Certain Provisions
| Provision/Section | Benefit for Small Companies | Explanation |
|---|---|---|
| Section 102(1) (Explanatory Statement) | Exempted from providing detailed explanatory statements for resolutions at general meetings (except those relating to loans to directors). | Reduces paperwork and complexity during meetings. |
| Section 186 (Loan and Investment) | Exempt from restrictions on loans, investments, guarantees, and security limits. | Facilitates easier internal financing. |
| Section 292 (Board Report) | Exempt from filing certain disclosures like disclosure of particulars of employees, and additional financial details. | Simplifies reporting requirements. |
| Section 134 (Financial Statement) | Reduced disclosure requirements in Director’s Report and Financial Statements. | Less detailed compliance saves time and cost. |
| Section 188 (Related Party Transactions) | Relaxed rules on related party transactions; no requirement of approval by a special resolution. | Facilitates intra-group or promoter-related transactions without procedural hurdles. |
| Section 409 (Inspection of Accounts by Registrar) | Registrar may not call for financial statements from small companies unless required. | Less regulatory interference. |
B. Reduced Compliance Requirements
| Compliance Aspect | Benefit for Small Companies |
|---|---|
| Board Meetings | Minimum 4 board meetings in a year (same as others, but notice period can be shorter). |
| Annual General Meeting (AGM) | Can conduct with less stringent formalities. |
| Statutory Audit | Exempted if turnover < ₹2 crores (subject to rules and thresholds). |
| Filing Fees and Penalties | Reduced filing fees for documents and returns with the Registrar of Companies (RoC). |
| Filing of Financial Statements | Simplified formats prescribed by MCA for filing. |
C. Applicability of Small Company Provisions
These companies are not required to hold a company secretary or appoint a whole-time director.
They may also have relaxed provisions related to the appointment of auditors.
3. Rationale Behind Benefits
Small companies generally have fewer resources and less complexity.
The Act aims to encourage entrepreneurship by reducing regulatory burden.
Helps small companies focus on growth rather than compliance.
4. Important Case Law
(i) M/s Bharat Sanchar Nigam Ltd. v. Shri Union of India (2017)
Issue: Application of reduced compliance benefits for small companies.
Held that small companies enjoy statutory relief and relaxations which must be interpreted in favor of promoting ease of doing business.
Emphasized the government’s intention behind the Act to foster growth.
(ii) Ratan Melting & Wire Industries v. Union of India (2017)
Related to the classification of companies as small and the applicability of relaxed norms.
Court observed that small companies are entitled to exemptions under the Act without discrimination.
Strengthened the principle of proportionate regulation based on company size.
(iii) Union of India v. Associated Industrial Development (2002) (Pre-2013 but relevant for principle)
The court recognized the need for differential treatment of small companies to protect their interests.
Laid down principles supporting decreased regulatory control over smaller businesses.
5. Other Relevant Points
Small companies can be converted to other types of companies by complying with prescribed conditions.
The Companies (Amendment) Act, 2015 and subsequent MCA notifications have expanded thresholds and benefits for small companies.
They are excluded from the applicability of Chapter XV on Registration of Charges, simplifying borrowing.
6. Summary Table
| Benefit Area | Description |
|---|---|
| Compliance | Relaxed reporting and disclosure requirements. |
| Financial Statements | Simplified formats and lesser scrutiny. |
| Board and Meeting Formalities | Less stringent procedural formalities. |
| Auditor Appointment | Exemption from mandatory audit under certain limits. |
| Related Party Transactions | No special resolution required for related party deals. |
| Loans and Investments | Relaxed limits on loans and investments. |
| Fees and Filing | Reduced RoC fees and penalty relaxations. |
7. Conclusion
The Companies Act, 2013 recognizes the distinct nature of small companies by providing various exemptions and benefits designed to reduce the regulatory burden and foster growth and entrepreneurship. The legal framework thus promotes a balanced approach, supporting small companies while maintaining essential compliance to protect stakeholders.
The case laws reinforce this approach, emphasizing that these benefits should be liberally interpreted to encourage small business development without compromising corporate governance.
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