A small company is defined as a privately owned corporation, partnership, or sole proprietorship that has fewer employees and less annual revenue than a corporation or regular-sized business. Small companies increase employment opportunities and are considered the backbone of the economy. The characteristics of a small company are:
What is a small company?
1) Lower Revenue and Profitability
2) Small team of employees
3) Limited Area
In accordance with the changes proposed by our Union Finance Minister Nirmala Sitharaman, The Ministry of Corporate Affairs has notified amendments in the Companies act 2013.
To provide benefit to more than 2 lakh small companies that are incorporated in India, MCA has notified a change in the definition of a small company and has increased the limit of paid share capital and annual turnover from Rs 50 lakhs and Rs 2 crore to Rs 4 crore and Rs 40 crores respectively.
Below is the new amended definition of a small company
Small company means a company, other than a public company,
a) whose paid-up capital does not exceed ₹ 50 lakhs or such higher amount as may be prescribed which shall not be more than ₹10 crores; and
b) whose turnover as per profit and loss account for the immediately preceding financial year does not exceed ₹2 Crores or such higher amount as may be prescribed which shall not be more than ₹100 crores.
Exception: This section shall not apply to
(i) A holding company or a subsidiary company
(ii) A company registered under section 8; or
(iii) A company or body corporate governed by any Special Act.
What amount has been prescribed?
As per the Companies (Specification of Definitions Details) Rules, 2014, for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed ₹4 crores and ₹40 crores respectively.
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.
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