Small businesses are real back bone of the economy. It contributes in the generation of profit as well as employment to many. The concept of small companies is given by the companies act 2013. The classification of small companies has a long route to enhance the small business in India.
According to the companies act 2013 under section 2(85), a small company is:
“(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 ten crore rupees; and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees.
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;”
other than a public one who is having paid-up capital of not more than Rs.50,00,000 or such higher amount as may be prescribed which shall not be more than five crore rupees.
Other than a public one whose turnover is as its last profit and loss account not more than Rs. 2 crore or such higher amount as may be prescribed which shall not be more than RS. 20 crore.
The Finance Act 2021 has brought down a very important amendment, which is as follows.
Pursuant to the amendment in the Companies (Specification of Definitions Details) Rules, 2014, a new clause (t) has been inserted in the Rule 2, in sub-rule (1), after clause (s), as under:-
“(t) 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 rupees two crores and rupees twenty crores respectively.”
There are certain characteristics of it are given below:
Low profitability and revenue: Generally, a small company has less revenue as compared to the large one. It is depending on the type of business how much it is able to generate revenue. But lower revenue does not consider as lower profitability.
Fewer Employees: it basically onboard a small team of employees than others. Sometimes, small companies are handled by a single person or a single team.
Smaller Market Area: small companies are made to serve the smaller sections of the society or community like convenience shop in a rural township. So, they have a small area for operating business activities.
Sole proprietorship/partnership and taxes: the corporate structure of working does not suit small-scale working organizations. Despite, small business has the priority to establish sole proprietorships, partnerships and limited liability companies. It provides them the strong sense of managerial control to the office owners with minimum hassle and expenditure of company registration. It’s owner is liable to report business income and expenses on their personal tax returns. As small companies do not file their own taxes.
Fewer locations: it is found in a limited area instead of several branches. The hands of the small scale companies are not grasped by other countries and states. Its sales are just confined to a single area. Besides, it is much easier and feasible if it is controlled by the home itself.
What are the advantages ?
Every business structure has some merits and demerits of its own. It too has some advantages under companies act 2013 which are given below:
Board Meetings: Two meetings in a financial is just sufficient for a it. Any private limited company which is not considered as the small one shall conduct four board meetings in a financial year.
Annual Return: The annual return filing can be signed by a CS or a director of the small company. Any private limited company which is not considered as a small company shall sign its annual return filing by a director and a company secretary both.
Cash flow statement: Any private limited company comes under the category of a small company shall not maintain a cash flow statement as a part of the financial statement. On the contrary, any private limited one does not come under the category of it then it is mandatory to prepare a Cash flow statement as a part of the financial statement.
Auditors Rotation: Any private limited company falls in a small company’s category do not require to rotate auditors. But private limited company not classified as it, must rotate auditors every 5 to 10 years as prescribed under the companies act 2013.