In exercise of the powers conferred by sub-sections (1) and (2) of Section 469 of the Companies Act, 2013 (“CA, 2013”), the Central Government, vide Notification GSR 92(E) dated 01st February, 2021 has amended the Companies (Specification of Definitions Details) Rules, 2014 which shall come into force on the 1st day of April, 2021.
The Ministry of Corporate Affairs (MCA) has notified the aforesaid amendment in accordance with the changes proposed by the Hon’ble Finance Minister in Union Budget 2021. The Hon’ble Finance Minister had proposed to revise the definition of small companies by enhancing the paid-up capital base from the existing limit of Rs 50 lakh to Rs. 2 crores. The move is likely to get more companies under the ‘small’ category and benefit them in terms of the compliance requirements. While the capital base limit is proposed to be increased to Rs 2 crores, the turnover threshold is also proposed to be enhanced from Rs 2 crores to Rs 20 crores.
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.”
Before aforesaid amendment i.e. before insertion of new clause (t), the limit of paid up capital and turnover of the small company is identified by the definition of small company prescribed under Section 2(85) of CA, 2013 which reads as under-
“(85) “small company” means a company, other than a public company-
- 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
- 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
Provided that nothing in this clause shall apply to—
- a holding company or a subsidiary company;
- a company registered under section 8; or
- 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:-
- It is a Public Company;
- It is a Holding of another
- The Company is a subsidiary of another
- The Company is a Section 8
- It is a Company governed by any Special
As mentioned above that before the amendment in the Companies (Specification of Definitions Details) Rules, 2014 i.e. before insertion of new clause (t), the limit of paid up capital and turnover of the small company is identified by the definition of small company prescribed under section 2(85) of the CA, 2013 which are Rs. 50 lakh and Rs. 2 crores respectively. It means if a private company is having paid up capital more than Rs. 50 lakh or turnover more than Rs. 2 crores, then said private company shall be out from the purview of the definition of small company. Further, this Section 2(85) gives the power to the Government to prescribe such higher amount which shall not be more than Rs. 10 crores in case of paid-up capital and not more than Rs. 100 crores in case of turnover.
By using aforesaid power, the Government has prescribed higher limit by inserting new clause (t). Now, as per the clause (t) paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.
Remark: Amended definition of Small Company is applicable from Financial Year 2021-22 onwards, therefore, Financial Year 2020-21, we have to verify the company with old definition of small company.
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