What is the small company definition?
A small company is a company, other than a public company, whose paid-up share capital does not exceed ₹4 crore and whose turnover does not exceed ₹40 crore. Both limits apply. The ₹2 crore and ₹20 crore figures from Budget 2021 are the earlier prescribed amounts, not the current ones.
What are the current limits?
Section 2(85) lets the government prescribe the amounts, up to a ceiling of ₹10 crore of paid-up capital and ₹100 crore of turnover. The ceiling is the most that may be prescribed. It is not the test a company uses today.
The company is not a small company, even inside the rupee limits, if it is any of these:
- a public company
- a holding company or a subsidiary
- a section 8 company
- a company or body corporate governed by a special Act
Turnover is the figure in the profit and loss account for the immediately preceding financial year. Paid-up capital is tested as well. One limit without the other is not enough.
What did Budget 2021 change?
Before 1 April 2021 the prescribed limits were ₹50 lakh of paid-up capital and ₹2 crore of turnover. From 1 April 2021 they were ₹2 crore and ₹20 crore. The notification of 15 September 2022 raised them to ₹4 crore and ₹40 crore. A page written for the 2021 figures understates who qualifies now.
Which lighter rules still apply?
These follow from the status. They are the same rules as on the annual compliances page.
- One board meeting in each half of the calendar year, with at least 90 days between them, instead of four meetings.
- Form MGT-7A. The annual return is signed by the company secretary, or, where there is no company secretary, by a director. The practising-company-secretary certification that other companies need is not required for this return.
- No cash-flow statement. Section 2(40) leaves a small company, a one person company, and a dormant company out of that statement.
- An abridged board report under Rule 8A of the Accounts Rules. The longer list in Rule 8 does not apply.
- A merger between two or more small companies can use the fast-track route in section 233. That route still needs the Regional Director. It is not an informal agreement.
- Section 446B cuts a penalty to not more than half of the penalty in the Act, capped at ₹2 lakh for the company and ₹1 lakh for an officer in default. The cap covers a small company, a one person company, a start-up, and a producer company. It is not limited to three sections.
- The fee rules prescribe a lower filing fee for a small company on several forms. This page does not quote a fee.
Auditor rotation under section 139(2) is aimed at listed companies and at private companies with paid-up capital of ₹50 crore or more, or borrowings or public deposits of ₹50 crore or more. A small company’s paid-up capital is at most ₹4 crore, so the capital line is not met. The borrowing line can still be met. The appointment itself is on the auditor page.
When is the status lost?
In the year the paid-up capital or the preceding year’s turnover crosses the limit, or the company becomes a holding or a subsidiary. The annual return reports the fact. It does not create the status. The lighter board calendar and MGT-7A stop applying once the company is no longer small.
Frequently asked questions
Four questions cover the 2021 figures, a public company, auditor rotation, and section 446B.
Are the 2021 limits of ₹2 crore and ₹20 crore still in force?
No. Those were the prescribed limits from 1 April 2021. From 15 September 2022 the prescribed limits are ₹4 crore of paid-up capital and ₹40 crore of turnover.
Can a public company be a small company?
No. Section 2(85) applies only to a company other than a public company. A holding company, a subsidiary, a section 8 company, and a company governed by a special Act are also outside it.
Does a small company always skip auditor rotation?
Paid-up capital of a small company is below the ₹50 crore private-company line in the rotation rules. Borrowings from banks or public financial institutions, or public deposits, of ₹50 crore or more can still bring section 139(2) in.
Is the lower penalty only for the annual return, resolutions, and financial statements?
No. Section 446B now applies across the Act for a small company, a one person company, a start-up, and a producer company. The penalty is not more than half of the specified penalty, and it is capped.
Sources
The definition is section 2(85). The current rupee limits were prescribed on 15 September 2022.