Small Companies and Their Benefits Under Companies Act, 2013
- Rohit
- Jan 3
- 3 min read
Introduction
The Companies Act, 2013 introduces the concept of a Small Company to encourage entrepreneurship and reduce the compliance burden on smaller businesses. By offering various exemptions and simplified procedures, the Act supports ease of doing business and ensures that small enterprises can operate efficiently without excessive regulatory strain.
Definition of a Small Company
According to Section 2(85) of the Companies Act, 2013, a small company is a company other than a public company that satisfies both of the following conditions:
Paid-up Share Capital must not exceed ₹10 crore
Turnover must not exceed ₹100 crore as per the latest profit and loss account
Benefits and Exemptions
The Companies Act provides multiple relaxations for small companies to promote operational ease and reduce administrative burden. Below are the key benefits:
1. Simplified Annual Return — Section 92(1)
Every company must prepare and file an annual return containing key information such as registration details, shareholding, business activities, and directors/KMP details.
For small companies, the annual return can be signed by:
The CS (Company Secretary), or
If no CS is appointed — any one director
For other companies, signatures of both CS and a director are mandatory.
Benefit:
✔ Reduced professional cost
✔ Easier compliance using Form MGT-7A (shorter format)
2. Simplified Board’s Report — Section 134(3)
Section 134 requires a Board’s Report to accompany financial statements detailing the company’s performance, disclosures, and compliance aspects.
Small companies can issue a simplified Board's Report as per Rule 8A of the Companies (Accounts) Rules, 2014, which requires fewer disclosures compared to other companies.
Benefit:
✔ Less paperwork
✔ Fewer statutory disclosures
✔ Quicker preparation and filing
3. No Cash Flow Statement Required — Section 2(40)
A financial statement typically includes a balance sheet, profit and loss account, cash flow statement, and related notes. However, small companies are exempt from preparing a cash flow statement.
Benefit:
✔ Simplified accounting
✔ Reduced audit complexity
4. Reduced Number of Board Meetings — Section 173(5)
Small companies are required to hold at least one meeting of the Board of Directors in each half of a calendar year and the gap between these 2 meetings is not less than 90 days. (Other companies must conduct at least four meetings yearly.)
Benefit:
✔ Lower administrative workload
✔ Less coordination and scheduling effort
5. Lesser Penalties — Section 446B
For certain faults, small companies enjoy reduced penalties:
Penalty is 50% of the normal amount
Maximum limits:
₹2 lakh for the company
₹1 lakh for an officer in default
Benefit:
✔ Financial relief and protection
✔ Fewer compliance-related burdens for entrepreneurs
6. No Mandatory Auditor Rotation — Section 139(2)
Mandatory auditor rotation after 5 years (individuals) or 10 years (audit firms) does not apply to small companies.
Benefit:
✔ Continuity in audit
✔ Lower audit costs
7. No Mandatory Reporting on Internal Financial Controls (IFC)
Auditors are not required to report on internal financial controls over financial reporting for small companies.
Benefit:
✔ Reduced audit burden
✔ Cost-effective compliance
Companies Not Considered Small Companies
The following entities cannot be classified as small companies:
Public companies
Holding or subsidiary companies of public companies
Section 8 (Non-profit) companies
Companies governed by special Acts, such as SBI or LIC
Conclusion
The Companies Act, 2013 significantly eases the compliance burden on small companies through exemptions related to reporting, auditing, meeting requirements, and penalties. These measures encourage entrepreneurship, reduce operational costs, and help small businesses focus on growth and innovation.
Small companies thus benefit from a flexible regulatory environment, making them a crucial part of India’s economic ecosystem.
Comments