INTRODUCTION:
The Hon’ble Finance Minister Mrs. Nirmala Sitharaman presented the Union Budget 2021 on February 1, 2021. The Budget leads the way for various amendments in the Companies Act, 2013, one of them being the proposal for change in the definition of Small Person Company (SPC) as mentioned in the Companies Act, 2013 (“Act”).
This is expected to benefit more companies in terms of lesser compliances, lesser filing fees, and lesser penalties (in the event of any defaults).
REVISED DEFINITION OF SMALL PERSON COMPANY (SPC)
Companies (Specification of Definitions Details) Amendment Rules, 2021, has modified the definition of Small Person Company (SPC) as provided in Section 2(85) of The said definition shall come with effect from April 1, 2021.
The definition under the Act for SPC has now been revised by increasing their thresholds:
- for Paid-up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” &
- turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”
As per proviso to Section 2(85) of the Act, the following are not covered under the definition of SPC:
- a holding company or a subsidiary company;
- a company registered under section 8; or
- a company or body corporate governed by any special Act;
FEW REASONS BEHIND THE CONCEPT OF CLASSIFICATION OF SPC UNDER THE ACT
The reason behind the classification of small companies is:
- to allow such SPCto operate under relatively under lesser compliance and regulatory norms considering the size in which they operate;
- to facilitate compliance by small companies in an easy and cost-effective manner;
- SPC’s represent the Entrepreneurial aspirations & Innovation capabilities and contribute to employment and GDP in a very substantial manner. Hence, their focus should not shift to being overburdened with the regulatory procedures rather than their core functionalities and business.
EXEMPTIONS AND BENEFITS GRANTED TO SPC UNDER THE ACT AND RELEVANT APPLICABLE RULES:
- Board Meetings: –Small companies don’t have a wide range of business so it’s not required for small companies to hold 4 board meetings in a year, small companies may hold only 2 board meetings in a calendar year, i.e. one Board Meeting in each half of the calendar year with a minimum gap of ninety days between the two meetings.
- Rotation of company auditors: –It is not necessary for small companies to follow the condition laid in Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).
- Exemptions for Board’s Report: –Matters to be included in Board’s Report mention in Rule -8 of companies (Accounts) Rules, 2014 not apply for a small company.
- Annual Return: –Annual Return of a Small Company can be signed by the company secretary alone, or where there is no company secretary, by a single director of the company.
- Remuneration details in Annual Return : – As per section 92 of companies Act, 2013 private companies are require to give a details of remuneration of directors and key managerial personnel , but insmall companies only “aggregate amount of remuneration drawn by directors” is required in annual return.
- Cash Flow Statement: –A small company need not include Cash Flow Statement as part of its financial statement.
- Exemptions for Audit Report: –small companies are not required to give reports on internal financial controls with reference to financial statements and the operating effectiveness of such controls in an audit report.
- Lesser penalties for Small Companies under Section 446B of the Companies Act, 2013: – If a small company fails to comply with the provisions of section 92(5), section 117(2) or section 137(3), such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections.
For queries, you may connect on secretarial@rmpsco.com
Published on: April 9, 2021