Small company under Companies Act 2013

Small company under Companies Act 2013

Subject: Economy

Context:

The Corporate Affairs Ministry (MCA) has relaxed the paid up capital threshold for small companies, facilitating further Ease of Doing Business and reduced compliance burden for such companies.

Concept:

Definition of small company as per Companies Act 2013:

The following company shall not qualify as a small company: 

• A holding company or a subsidiary company.
• A company registered under Section 8 of the Act.
• A company or body corporate governed by any special act.

Benefits:

This will allow more companies  to avail benefits available to a small company under the Companies Act, 2013:

• No need to prepare a Cash flow statement as part of a financial statement.
• Where other companies require providing details of remuneration to directors and key managerial personnel, small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in its Annual Return.
• Mandatory rotation of the auditor is not required.
• An Auditor of small companies is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
• Hold only two board meetings in a year.
• Annual Return of the company can be signed by the Company Secretary, or where there is no company secretary, by a single director of the company.
• Lesser penalties for Small Companies.
• Lesser filing fees for Small Companies.
• Types of share capital:
  • Authorised Capital: Authorised capital is referred to as the amount that a company is entitled to issue as per the limits set by its Memorandum of Association.
    • The authorised capital can also be referred to as the normal or registered capital and it can be increased or decreased as per the rules laid down in the Companies Act.
  • Issued Capital: Issued capital is referred to as that part of the authorised capital that is issued to the public for subscription which includes shares allotted to the vendors and the signatories of the company’s memorandum.
  • Subscribed Capital: It is referred to as that part of the issued capital that is actually subscribed by the public.
    • The issued capital and subscribed capital becomes equal when the shares issued for public subscription are subscribed fully by the public.
  • Called up Capital: It is referred to as that part of the subscribed capital for which the company has asked shareholders to pay. The company can decide to ask the shareholders to pay in full or just a part of the face value of the shares.
  • Paid up Capital: It is referred to as that part of the called up capital that is actually been paid by the shareholders.
    • Called up capital and paid up capital will be equal when all the shareholders have paid the call amount. In an event of non-payment of a called up amount by shareholders, it is referred to as calls in arrears.
  • Uncalled Capital: It is that part of the subscribed capital that hasn’t yet been called upon by the company. The company reserves the right to collect this amount when there is a requirement for funds.
  • Reserve Capital: It is that part of the uncalled capital that a company may keep as a reserve which is only used in the event of winding up of a company. The creditors have the access to such capital in case the company is winding up.