19 February 2015

Small Companies

Centre tightens definition of 'small company'


The Corporate Affairs Ministry has tightened the definition of a 'small company' in the new company law, to prevent misuse of the privileges available to this category.

The new company law enacted in 2013 had introduced this new category.

Under the earlier definition, a small company was one that met one of two criteria: paid-up share capital not exceeding Rs. 50 lakh or turnover not exceeding Rs. 2 crore. 

The main difficulty was that companies that met the first criterion but exceeded the monetary limit in respect of the second criterion were also getting classified as a 'small company'.

Now, a company will have to clear both the tests — paid-up capital as well as turnover norm — to qualify as a 'small company'.

Consequently, it is likely that several entities that were previously classified as small companies will cease to be categorised as such, said Sai Venkateswaran, Partner and Head of Accounting Advisory Services at KPMG in India, in a conversation with BusinessLine .

Those companies that lose the 'small company' tag need to comply with all the general requirements applicable to companies, he said.

Lalit Kumar, Partner, J Sagar Associates, a law firm, opined that the change in the definition of a 'small company' should have come through an amendment Bill in Parliament and not through a removal of difficulty order, as was the case now.

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