Special Exemptions and Privileges Available to Small Companies under the Companies Act, 2013
Introduction
Every successful business begins with a vision but sustaining that vision requires a regulatory framework that supports growth rather than hinders it. Recognizing this reality, the Companies Act, 2013 offers a simplified compliance framework for small companies, allowing entrepreneurs to focus more on growing their businesses and less on navigating regulatory hurdles. These special exemptions and privileges strike a balance between ensuring corporate accountability and promoting ease of doing business, making the corporate journey more manageable for smaller enterprises.
Meaning of Small Company
Under Section 2(85) of the Companies Act, 2013, a “small company” is defined as any company, other than a public company, that satisfies both of the following criteria
Paid-up Share Capital: Does not exceed ₹10 crore.
Turnover: For the immediately preceding financial year does not exceed ₹100 crore
Mandatory Exclusions
Even if a company meets the capital and turnover thresholds above, it cannot be classified as a small company if it is:
- A Public Company
- A Holding Company or a Subsidiary Company
- A Company registered under Section 8 (Non-profit organizations)
- A company or body corporate governed by any Special Act
Major Privileges and Exemptions Available to Small Companies
- Only Two Board Meetings in a Year
As per Section 173(5) of the Companies Act, 2013, A Small Company is required to hold only one Board Meeting in each half of the calendar year, with a minimum gap of 90 days between the meetings.
- Cash Flow Statement Not Mandatory
As per Section 2(40) of the Companies Act, 2013, Financial Statements of a Small Company are not required to include a Cash Flow Statement.
- Abridged Board’s Report
As per Section 134 of the Companies Act, 2013 read with Rule 8A of the Companies (Accounts) Rules, 2014, Small Companies are permitted to prepare an abridged Board’s Report instead of a detailed report.
- Lesser Penalty for Non-Compliance
As per Section 446B of the Companies Act, 2013, Notwithstanding anything contained in this Act, if penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, small company, start-up or Producer Company, or by any of its officer in default, or any other person in respect of such company, then such company, its officer in default or any other person, as the case may be, shall be liable to a penalty which shall not be more than one-half of the penalty specified in such provisions subject to a maximum of two lakh rupees in case of a and one lakh rupees in case of an or any other person, as the case may be.
- Annual Return in Simplified Form
As per Section 92 of the Companies Act, 2013, Small Companies are required to file their Annual Return in Form MGT-7A instead of Form MGT-7.
- No Mandatory Rotation of Auditors
As per Section 139(2) of the Companies Act, 2013, The provisions relating to mandatory rotation of auditors are not applicable to Small Companies.
7. Exemption From Dematerialization of Securities
Rule 9B of the Companies (Prospectus and Allotment of Securities) Rules, 2014, mandates that every private company, other than a small company, shall issue and hold its securities only in dematerialized form and facilitate dematerialization.
Accordingly, small companies are expressly exempt from the mandatory dematerialization requirements under Rule 9B.
- Fast Track Merger
As per Section 233 of the Companies Act, 2013, A merger between two or more small companies or a holding company and its wholly owned subsidiary or such other class or classes of Companies as may be prescribed may be carried out under the fast-track merger process without following the more elaborate merger procedure applicable to other companies.
- No Mandatory Independent Directors Requirement
Small companies are not required to appoint independent directors as the only the listed company and the public companies which are covered under the prescribed limits are required to appoint independent director.
- Exemption from Appointment of Key Managerial Personnel (KMP)
As per Section 203 of the Companies Act, 2013, Small companies are not required to appoint Whole-Time Key Managerial Personnel such as:
- Managing Director, or CEO or Manager and in their absence, a Whole-Time Director
- Company Secretary; and
- Chief Financial Officer
- No Mandatory Compliance with Managerial Remuneration Limits
As per Section 197 of the Companies Act, 2013, Small companies are generally outside the strict framework of managerial remuneration restrictions applicable to public companies.
- No Mandatory Requirement of Women Director
Unlike certain classes of companies, small companies are not required to appoint a woman director under Section 149(1).
- Exemption from Corporate Governance Committees
Small companies are not required to constitute:
- Audit Committee
- Nomination and Remuneration Committee
- Risk Management Committee
Conclusion
The Companies Act, 2013 recognizes the unique challenges faced by small companies and provides them with several exemptions and procedural relaxations to promote ease of doing business. These benefits reduce compliance costs, simplify governance, and enable businesses to focus on growth while ensuring essential legal compliance. However, companies must regularly assess their eligibility for small company status, as these privileges are available only so long as they continue to satisfy the prescribed criteria.
For any further query or consultations, please connect with us:
J. K. Gupta & Associates
(Company Secretaries & Insolvency Professionals)
Email: cs@jkgupta.com; Mobile: 9953887741
Delhi || Noida