The Hon’ble Money Priest Mrs. Nirmala Sitharaman had introduced the Association Spending plan 2021 on first February, 2021. The Hon’ble Minister of Finance, Mrs. Nirmala Sitharaman, had proposed expanding the amount of paid-up capital from the current limit of Rs. 50 lakh to Rs. $2 million. The move is probably going to get more organizations under the ‘little’ class and advantage them concerning the consistence prerequisites. It is proposed to raise the turnover threshold from Rs 2 crores to Rs 20 crores in addition to raising the capital base limit to Rs 2 crores.

As a result, the Companies (Specification of Definitions Details) Rules, 2014 have been amended by the Central Government in accordance with the powers granted by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (“CA, 2013”), which will take effect on April 1, 2021.

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.”

The definition of a small company in Section 2(85) of the California Corporation Act of 2013 reads as follows prior to the aforementioned amendment, also known as prior to the insertion of new clause (t)-

“(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;”  

According to Section 2(85) of CA, 2013, Small Company means the company which satisfies the following conditions: – 

It has paid up share capital of not more than 50 lakhs or such higher amount as may be prescribed which shall not be more than 10 crores; and 

It has annual turnover of not more than 2 crores or such higher amount as may be prescribed which shall not be more than 100 crores. 

To become a Small Company, a Private Company requires to full fill both of conditions prescribed above. Further, a Company is not a Small Company if:- 

1. It is a Public Company;
2. It is a Holding of another company. 
3. The company is a subsidiary of another company. 
4. The company is a Section 8 Company. 
5. It is a company governed by any Special Act.

As referenced over that before the alteration in the Organizations (Determination of Definitions Subtleties) Rules, 2014 for example prior to addition of new proviso (t), the constraint of settled up capital and turnover of the little organization is distinguished by the meaning of little organization recommended under segment 2(85) of the CA, 2013 which are Rs. 50 lakh and Rs. 2 crores separately. This indicates that a private company with paid-up capital exceeding Rs. 50 million or more than Rs. 2 crores, the private company will no longer fall under the definition of a small business. In addition, Section 2(85) grants the government the authority to prescribe a higher amount that is not exceeding Rs. 10 crores with no more than Rs in paid-up capital 100 crores if there should be an occurrence of turnover.

The Government has increased the limit by inserting a new clause (t) using the aforementioned power. Now, according to clause (t), the small company’s paid-up capital and revenue cannot exceed two crores and twenty crores, respectively.

FAQs

What is a small company under the Companies Act 2013?

The Companies Act 2013 has introduced the concept of small companies on the basis of paid up share capital and turnover. MCA (Ministry of corporate affairs) amend the definition of small company and amend the rule 2 (1) ( t) of Companies (Specification of Definition Details Rule 2014) wide it’s notification on 15th September ‘2022.

Why did MCA change the definition of a small company?

The purpose behind the revised definition was to provide ease of doing business and reduce the compliance burden for many companies. Accordingly, the Ministry of Corporate Affairs (MCA) notified the Companies (Specification of Definitions Details) Amendment Rules, 2022, to amend the old definition of a small company.

What is the new definition of a small company?

The new definition is effective from 15 September 2022. The new amended definition of a small company is provided under Section 2 (85) of the Companies Act, 2013.