Small Companies under Companies Act 2013: Its Benefits/ Privileges

There had been several changes in the budget over the years and the small companies have been facilitated as well as thrown under the truck several times. Every year the Union Budget has been a major concern for the shareholders as well as the founders. The final or the existing Union Budget have been somewhat left the small companies in a disadvantageous position. There had been an increased emphasis on the status of the company by determining its turnover and capital formation. Likewise, there had been several norms and some of them, in a nutshell, can be stated as follows:

1. Increase in Threshold limit from 50 lakhs to 2 crore rupees.

2. Increase in turnover from 2 crores to 20 crores.

These two norms have primarily given rise to several small businesses or companies there themselves. The amount of threshold limit is too high for several growing companies.

The corporates should also understand the benefits of a small company it can acquire by being one.

Taking this aside the companies should see to the fact that the threshold amount of that particular company should not exceed two crores and should also see to the fact that small companies should limit their capital formation should not exceed twenty crores. However, it should be noted that nothing of this clause should be applied to a company that is:

1. A subsidiary or a holding company

2. A company that is registered and functioning under section 8

3. Any company or corporation that is governed by the Special Act.

Keeping these in mind we are to look into the privileges or benefits that are to give to the small company.

All the benefits that are enjoyed by the small companies can be assorted as follows:

1. Holding Of Board Meeting: Every company has to hold 4 board meetings and when it comes to small companies they are required to hold up to 2 board meetings and there has to be a gap of not less than 90 days. These are subjected to in a year.

2. Signing of an Annual Return- there is a privilege that small companies are allowed to sign their annual return by their Director only. This is not the case with the other big firms and can be allowed only for small companies.

3. Cash Flow Statements not Required- The small companies do not generally require the cash flow statement. This is very important for the big firms whereas in the case of the small firms it is not necessary to produce the cash flow statement while they are producing their balance sheet.

4. Abridged Director Report and Annual Return- there is no need to put out a vast and elaborate director report for the small companies which is very necessary for the big firms. These are some of the flexibilities that have been awarded by the Union Ministry to the small firms which big firms have to be very conscious about.

5. Fast Track Merger Process- the process of merging in a small company is not so hectic as compared to the big firms and hence they are merged on a fast track basis.

6. No Auditor Retire by Rotation- Mandate has it been that the director is required to retire after every five years because of the rotation and change in director however this process is not applicable for the small companies and the small companies can continue with their director as long as they want. This is under the rule of Section 139(2) of the Constitution.

7. Need not to Have Internal Financial Control Report- all the operation-related information is stuffed within this particular internal Financial Control. Being a small firm small companies don't need to keep such records.

8. Lesser Fees- For smaller companies, the fees to fill formalities are much less than those of large companies.

9. Lesser Penalties- All sorts of penalties and legal issues in a small company are much lesser than those of a large company, the Company law in a large company is much more strict and the laws should be made strict in a bid firm. Whereas there are certain flexibilities when it comes to small companies and company-related issues.

10. No certification by the Professional on E Forms- the balance sheet, annual returns, and other financial documents of the company in other cases needs to be ratified by their CA however this is not the case with the small companies.

Thus from the above list, we can understand that a lot of flexibility has been provided by the Ministry of Finance to the small companies. This is done to promote the spirit of entrepreneurship. The main motto of this reform is to bring in more youth and transform into one global community slowly and steadily. The Economy of any developing nation lies in the hands of the youth and thus it is the masterstroke played by the Government of India or rather the budget crafters to make this budget fulfilling for the small companies.

However, it should be understood that the threshold value is limited to a minimum of 2 crores which means that any company which has started its business will have to face a longer period to transform his/her company into a big company. In the meantime due to lack of inventory and other situations they may die because a small company will never have that strength and power that a big company will be able to sustain.

Another valid point has been that the growth of a company is not something that will always have a positive effect neither is it a constant theme. In some years it may be positive while in others it may be a negative one and these effects the companies on a large scale. Since the generalization of a big or small company depends upon the annual returns hence it should be noted that the big or small company status is annual and it changes every year.

However, a big company suddenly changing to a small company is a rare incident and is not natural. If such a thing happens that means that the per capita income and the National Income are suffering a huge setback. A small company giving out a minimal annual return is also very dangerous because several small ancillary companies are dependent upon those big companies which will be killed or may die eventually due to lack of revenue. Therefore, bringing in the youth of the country to this scenario is very essential.

All these privileges that have been stated are nothing but to attract more and more entrepreneurs in this realm and gradually shifting the mass to the tertiary sector and a country whose major workforce operates in the tertiary sector can be termed as a developed country. So, this is a masterstroke by the Government of India to try and shift the mass to a tertiary or service based sector.

However, it should be noted that these things take time and are not so easy to fetch. Hence, as the years pass by if the system remains clean then it is plausible as well as possible that India will be the newly developed country. That is what BRICS believes in and hence India is following all foreign assistance to combat the problems faced by them.

Prakash K Prakash is a Chartered Accountants firm who is registered under Rules 190 of the Chartered Accountant Act and is operating from New Delhi. They offer a host of services like Company Law Services, Tax consultancy, Incorporation Services, Financial & Corporate Advisory, Accounting & Auditing Services and similar services.