The thought of the small company was started in the Companies Act 2013 to furnish specific benefits for small businesses that are functioning as private limited companies. Small companies are the supporters of the country’s economy.
What is a Small Company?
Small companies are said to be private limited companies, partnerships, or sole proprietorships that have only a few employees. It poses less yearly revenue with respect to the normal firms. Small companies are very precious for the country as they help in boosting employment as well as the economy of the country. This discussion leads to the explanation of the small business framework and its characteristics along with its advantages.
As per the companies act 2013 beneath section 2(85) a small company is illustrated as:
- There should be a paid-up share capital of at least Rs.4 crore, or if a higher amount is specified, it should not exceed Rs.10 crores.
- The turnover is less than or equal to Rs.40 crores or such a higher amount specified not exceeding Rs.100 crores.
There are however some companies that do not fall within the category of small businesses:
- It can be a holding company or a subsidiary
- Section 8 companies
- Generally, a company or corporation is governed by a special act
A startup in India is generally considered to be small if its paid-up capital does not exceed Rs. 10 crores and annual sales turnover does not exceed Rs. 20 crores.
Important Characteristics of a Small Company
For better details and information, we have compiled some features and characteristics of the small company as per the MCA compliance in the Companies Act:
Lower Revenue and Profit Profitability and Revenue
In basic terms, a small firm poses lower revenue with respect to the bigger one. It just relies on the kind of business and how much it is enabled to generate revenue. However, less revenue will not be acknowledged as lower profitability.
Employees Counting
The company poses only a small team of employees with respect to the other corporates. In some ways, small firms are managed through a single individual or a single team.
Capture a Small Area of the Market
The small firms are built to provide the smaller sections of the society or the community such as the convenience shop in the rural township, thus they pose a small space to practice the operations of their business.
Sole Proprietorship/Partnership and Taxes
The business framework of the working is not favourable for smaller companies. Even small companies have the preference to make sole proprietorships, partnerships, and limited liability companies. It furnishes them with the stronger judgment of handling the company owners with the lesser hurdles along with the lower cost of the registration of the company. The owner of the small company is subjected to provide the business income along with the expenses on their personal tax returns. As the smaller firms do not furnish their own taxes.
Limited Locations
These types of companies are found in limited space rather than various branches. The small-scale companies are not associated with the other countries and the states. Its sales are limited to a single area. Apart from that, it is simple and likely if it is regulated by the owner’s house.
Major Benefits of a Small Company
Every business framework has its advantages and disadvantages. Small companies also take part in the Companies Act 2013 that are mentioned below:
4 Board Meetings:
The two meetings in the fiscal are enough for the small companies. There is any private limited company that is not acknowledged as the small company will perform the 4 board meetings in the fiscal year.
Annual Return Compliance
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The annual return filing will be signed through the CS or a director of the small company. There is any private limited company that is not recognized as a small company that will sign its yearly return filing via a director and a company secretary.
Cash Flow Statement
A private limited company that comes under the category of a small company will not maintain the flow of cash statements as a portion of the fiscal statement. On the other side, any private limited does not count beneath the segment of it it is essential to make a cash flow statement as a portion of the financial statement
Auditors Rotation
There is no rotating auditor needed for the private limited company which comes beneath the small company. However, the private limited company that does not come under the same should rotate auditors every 5 to 10 years as prescribed in the Companies Act 2013.
CASH FLOW STATEMENT