Exemptions in Company Act for Small Companies in India

Introduction

India is a fast-growing nation. The government modified the Company Act, helping small businesses and startups grow quickly. Special exemptions for small companies encourage more job creation and business development. This article shall help you know about the various exemptions which small companies enjoy.

What is a Small Company?

The idea of a small company is new in India and was introduced in the Companies Act 2013.A Small Company under the Companies Act 2013 is a private company with a paid-up capital of up to ₹4 crore and turnover up to ₹40 crore.

Features of a Small Company (Companies Act 2013)

• A Small Company can only be a private company.
• It cannot be a public company, holding/subsidiary company, Section 8 (charitable) company, or one governed by a special law.
• Lower penalties apply for non-compliance.
• Status may change yearly based on paid-up capital and turnover. If limits are crossed, benefits are lost but can be regained later.

Exemptions and benefits for Small Companies Under the Companies Act, 2013

1. Board Meetings (Section 173)

Small companies meet compliance if they hold at least one Board meeting in each half of the year with a minimum 90-day gap between meetings.

2. Cash Flow Statement (Section 92)

Unlike other companies, small companies don’t need to prepare a cash flow statement as part of their financial reports.

3. No Pre-Certification for Certain Forms

Small companies don’t need certification from a CA, CS, or Cost Accountant for forms like INC-21, INC-22, PAS-3, DIR-12, ADT-1, AOC-4, and others.

4. Lower Incorporation Fees

To support small businesses, the company registration fee is nearly half compared to larger companies.

5. Signing of Financial Statements

If there is no Company Secretary, the Annual Return can be signed by a single director.

6. Simplified Disclosures in Annual Reports

Instead of detailed director remuneration reports, only the total amount paid needs to be disclosed.

7. No Mandatory Auditor Rotation

Small companies don’t need to change auditors every 5 or 10 years, unlike larger firms.

8. Exemptions in Auditor’s Report

Auditors are not required to assess the adequacy and effectiveness of internal controls.

9. Easy Mergers (Section 233)

Mergers between small companies, startups, or holding and subsidiary companies don’t need Tribunal approval if the Registrar and Official Liquidator raise no objections.

10. Reduced Penalties (Section 446B)

If a small company violates the Companies Act, it faces only half the standard penalty compared to larger firms.

Special Legal Provisions for Small Companies

Small private limited companies can merge with another small company without a judges’s approval. Instead, they only need approval from the Central Government (Regional Director) as per the Companies Act, 2013.

However, a small company cannot qualify for exemptions if:

• It is a holding or subsidiary company
• It is a Section 8 (charitable) company
• It is Governed by a special law

Conclusion

The Companies Act 2013 introduced small companies to support small businesses in India. With fewer compliances and simpler governance, they can focus on growth instead of legal formalities. Though not given a special name, their status under the Act offers many benefits for emerging businesses.

Suggested Read :

Benefits of Udyam Registration

OPC Turnover Limit for Small Businesses

Essential nil return filings for small businesses

ROC Registration for Small Business

Types of business licenses and permits

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