In September 2022 the Government had amended the definition of Small Company by increasing their maximum threshold limit for payment of capital from INR 20 million to 40 million and turnover from INR 200 million to 400 million. Due to this now more and more companies would be covered under the ambit of small companies and their compliance burden would be reduced to a great extent. If as per the above definition if you are a small company then you enjoy certain advantages which have been discussed in this write up.
Benefits of being a small company:
1.Exemption from requirement of the preparation of cash flow statements:-
If yours is a small company then you are not required to maintain a cash flow statement as a part of the financial statements.
2. Exemption from requirement of holding minimum 4 board meetings in a year:- Normally a company is required to hold a minimum of 4 board meetings in a year and the gap between two meeting should not exceed 120 days. However if yours is a small company you can hold a minimum of two board meetings in year.
3. Exemption from applicability of Caro 2020:-
CARO 2020 is applicable on all reports issued by Statutory Auditors on accounts of company audited by them during a year. But if you are a Small Company then you are exempted from the requirement of CARO 2020.
4. Exemption from certification of annual return by a company secretary in practice:- Companies are required to get their Annual Return certified by a company secretary in practice, however if yours is a small company the return can be signed by a company secretary or if there is no company secretary then by a director of the company.
5. Exemption from reporting on the adequacy of internal financial controls and its operating effectiveness in the auditor’s report:-
As per Companies Act, auditors of all companies are required to report whether the company has an adequate internal financial control system in place. If you are a Small Company then you are exempted from the requirement of reporting on the same.
6. Exemption from the requirement of mandatory rotation of auditors:- Companies Act provides for mandatory rotation of statutory auditors for listed as well as certain prescribed classes of Companies, here also if you have a Small Company then it is exempted from the requirement of mandatory rotation of auditors.
7. Filing of annual return in form MGT- 7A
Small companies are required to file their annual return in Form MGT- 7A whereas other companies are required to file their annual return in MGT- 7. MGT -7A is less detailed and requires lesser information as compared to MGT- 7. On this score also you gain as a Small Company.
8. Lesser filing fee
Filing forms under the Companies Act is comparatively lower for the Small companies.
9. Lesser penalties for small companies in case of defaults
Small companies are imposed with lesser penalties in case of any violation as compared to listed and other companies.
Conclusion
Hence in this article you have found the advantages that you as a Small Company derive while conducting the business which entails lesser costs and saves time as well. Do you also plan to start your Small Company in case you do not have one already ?
Complete text of the Notification of amendment in the definition of “small companies” can be checked here
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The author is a practicing Chartered Accountant, Senior Partner in Kohli Chitkara & Co. LLP and can be contacted at [email protected]. Any comments or queries are welcome.
DISCLAIMER
The information provided in this article is for general informational purposes only. All efforts have been made to provide accurate information in this document, however it should not be perceived as a professional or legal advice. Reader should consult a professional before making any decision based upon this document. Under no circumstance author or the publisher shall have any liability to you for any loss or damage of any kind incurred as a result of the use of this information.
