1. How Small Company Definition changed over the time?
The concept of small company was introduced under Section 2(85) of the Companies Act was further amended to reduce compliance burden on small companies. The Ministry of Corporate Affairs (MCA) revised the definition of "Small Company" to facilitate Ease of doing business and reduce compliance burden as the small companies contribute to growth and employment in significant manner.
2. Benefits of being a "Small Company"
Being a small company will help the companies in reducing their compliance burden and they can increase their focus on developing the business instead of compliance. Below are the some of the benefits of small company
1. Number of Board Meetings
Every company is required to hold 4 board meetings in a year. But in case of small companies, 2 board meetings per year are sufficient. The time gap between 2 board meetings should not be less than 90 days.
2. Cash Flow Statements
Generally Financial statements includes cash flow statements also. But Small Companies are exempted from preparing Cash Flow Statements.
3. Mandatory rotation of Auditor not required
Auditor needs to be rotated (changed) for every 5 years for the companies other than small companies. Small Companies are exempted from rotating Auditor for every 5 years. They can continue the same auditor
4. Reporting of Internal Controls
An Auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
5. Certification not required
Annual returns of the small companies can be signed by the director of the company instead of practicing professionals
6. Abridged Annual Return
Small companies can prepare director report in abridged (shorter format). MGT 7A has been prescribed by MCA towards Annual return by Small Companies / OPC
7. Lesser penalties for small companies
While this is subjective, Govt of India committed to provide the relief for small companies to file their compliances and close if needed. While such benefits available for DIPP accredited Startups, the latest announcement is a big relief to founders, MDs and entrepreneur.
The definition of small company is specific to each company and the company status might change depending on the turnover and paid-up capital of every year. Hence the companies needs to determine the status every year.
