The List of Perks of Being a Small Company to Avail the Exemptions to Small Companies
India is a developing nation that is growing exponentially every year. To help the economic market of a country get the recognition on a global level, the government of India has modified the company act that allows the small-scale industries and start-up companies to grow and develop at a high pace. The regulating body has given exemptions to small companies so that people develop themselves as an employee generator. It also becomes advantageous to register a company in India. The Ministry of Corporate Affairs has released an amendment of the Corporate Act 2013. These changes in the law have been made to ensure that small companies get some extra privileges. Also, it is to expand the business and generate better revenue. Businesses that come under the category of small companies can enjoy the benefits of not following specific provisions through the exemptions of small companies.
It is not required for you to register a new company in India to get the title of a small company. Exemptions to small companies are applicable if it is already registered and follow the below-mentioned criteria.
Its paid capital and turnover defines a small company. However, it must meet the following conditions as stated below. If you are a shareholder or a director of the company, then you need to learn if you belong to a small company category and also about these exemptions.
The Company Act, 2013 Has Defined a Small Company as a Private Entity if:
- The money received by the company from the shareholders by trading its shares should not be more than INR 50,00,000. Either it is not a prescribed higher amount should not be above INR 10 crores.
- Turnover of the company according to the profit and loss incurred for the next FY should not be more than INR 2 crore or a prescribed higher amount should not be above100 crore INR.
Individual Small Companies Do Not Apply to the Exemption if It is:
- Holding or a subsidiary company
- Enlisted under section 8
- Regulated by any particular Act
A Small Company is Not Always the Same All the Time – if You Grow, You Lose the Exemptions Perks
The status of being a small company may vary from one financial year to another fiscal year. It is highly possible that a small company gets converted to a typical company in the next financial year and does not qualify for all these exemptions. Again, it may become a small company in the next fiscal year, and the company can yet avail all these benefits. These variations tend to take place when a small company exceeds the given limitations mentioned above.
The small companies are put into a particular category by the government of India. So they can get the leverage of expanding their business without getting into the stringent compliance and provisions that large companies tend to follow. Moreover, the financial budget of a small company is quite less as compared to medium-sized or large-sized companies. Hence these exemptions to small companies are made to make their operations cost-effective. Not only just that but the small companies do not have to spend a lot of money to maintain the interest of their stakeholders.
Through such exemptions to small companies, the government tries to encourage people to register a company and make it big.
Exemptions to a Small Company
The following benefits will help the companies to concentrate on the company’s growth and develop instead of worrying about compliance and regulations. It allows them to focus on management and administration work.
- Small companies need to arrange two board meetings in a financial year. These board meetings should be held at a minimum gap of 3 months. Whereas, large companies are required to keep for board meetings four times every financial year.
- A small company does not need to include its cash flow declaration in the year-end record.
- They have the privilege to submit the final figure of the remuneration taken by the director of the company. These statements can be signed by the secretary of the company or any one of the directors. However, large companies should provide the breakdown of remuneration given to the directors. Then, those statements need to be signed by both the secretary as well as the director of the company.
- Section 139(2) under the Company Act 2013 is not made mandatory for small companies to follow. It means that small companies need not have to rotate the auditors.
- It is not essential for or the auditor’s report of small companies to contain the information regarding the sufficiency of internal financial control and the effectiveness of operating the business.
- Sections 92(5), 117(2) and 137(3) under the Company Act, 2013 are mandatory for all the companies to be obeyed precisely. Otherwise, there is a provision of imprisonment and penalty. However, the small companies are not included in the punishment though they might have to pay a certain amount of money as a penalty.
The excellent conditions are formulated especially for large companies. So they can manage and administer the operations efficiently and effectively. Since small companies run small-scale operations, therefore, it will not be possible for these companies to follow all these conditions. That is why there is a provision of exemptions to small companies. Lastly, it can be seen that a private company can be considered as a small company during the time of its establishment if it fulfils the criteria mentioned above. These companies are not recognized. Hence, the director or the owner of this company might not be aware of the status of the benefits provided as a small company. It becomes essential for small companies to check the company status and be aware of the exemptions that have been given to the companies. So they can work smoothly to grow and develop.
If you are looking to get assistance for business registration in India, you can reach to the 3E Accounting firm. We provide the best business solution to companies in India. Our team of experts have in-depth knowledge about the business world. They can help you understand all the exemptions to small companies.