What Is A Small Company In Companies Act 2013

The concept of a small company got introduced in the companies act 2013. Here’s all you need to know about small companies as per the companies act 2013.

Small companies are not registered with the specific name but are simply private companies with less investment and turnover than big companies.

In a developing country like ours, the small company plays a significant role in developing the country. Let’s get into depth and understand what is a small company in the companies act 2013.

What is a small company?

A small company or small business, similar to any other company, is a private limited company, partnership, or sole proprietorship with one significant difference of low investment and turnover and few employees.

A small company makes less revenue as compared to big or regular-sized companies. The importance of the small company in our country is to contribute to generating profit to boost employment. Hence small companies are considered to be the backbone of the Indian economy.

The small company under companies act 2013

As per the companies act 2013, a small company is a company that satisfies the below-mentioned conditions:

• The company has a paid-up share capital of a maximum of 50 lakhs or such a higher amount as may get prescribed which shall not be more than ten crores.
• The company has an annual turnover of 2 crores or a higher amount as may be prescribed which cannot exceed 100 crores.

A private company must fulfil both conditions mentioned above to qualify as a small company as per the companies act 2013

Characteristics of a small company

There are specific characteristics of a small company defined in the companies act 2013, which includes:

• Fewer employees

A small company on board is a small team of employees than other companies. Sometimes, a small company gets handled by a single team or even a single person.

• Low profitability and revenue

Compared to large companies, a small company has less revenue. The revenue depends on the type of business and its capacity to generate revenue; however, lower revenue does not mean lower company profitability.

• Fewer locations

Generally, a small company is found in a limited area instead of several branches spread across the state or country. Unlike large companies, small companies do not get backing from other countries and states. The sales of such companies get confined to a single area. It makes it much easier to control and run the company by itself.

• Smaller market area

Small companies serve the smaller section of the society or community. For example, running or serving a convenience shop in a rural township. Hence, small companies have a smaller market area for conducting business activities.

• Sole proprietorship/partnerships

Small companies do not follow the corporate structure of working as it does not work for them. However, small businesses prioritise establishing their business as a proprietorship, partnership, or limited liability company.

It provides the owner of a small company a strong sense of managerial control with limited hassle and expenditure of its registration. The company owner is liable to report business income and expenses on their tax returns. Unlike large companies, a small company does not file taxes on its name.

Advantages of a small company

Every type of company or business structure has some advantages and disadvantages. Small companies too have some advantages under the companies act 2013, which are as below:

• Annual return

The annual return filing of a small company can get signed by a company secretary or a director of the small company. Any company that is not considered a small company as per the companies act 2013 has to sign its annual return filing by both director and a CS.

• Board meetings

Two meetings in a financial year are just sufficient for a small company. Any private limited company other than a small company has to conduct four board meetings in a financial year.

• Auditors rotation

A small company is not required to rotate auditors, unlike other private limited companies that have to rotate auditors every 5 to 10 years.

Visit GetlegalIndia.com to know more about Types of companies in India and their formation under Companies act 2013

To conclude –

Incorporating a small company is ideal for the business owner who wishes to make their business public while having limited liability. Companies act 2013 has provided numerous benefits intending to support small companies. So, if you are thinking of incorporating your business as a small company, head on to getlegalindia.com and get the help needed without any delays.