The Corporate Affairs Ministry has tightened the definition of a ‘small company’ in the new company law so as to prevent misuse of the privileges available for this category.
The new company law enacted in 2013 had introduced a new category of ‘small company’.
Under the earlier definition, a company was considered a small company if it met either one of the two criteria – i.e. whose paid-up share capital did not exceed ₹ 50 lakhs or whose turnover did not exceed ₹ 2 crore.
The main difficulty was that companies which met one of the criteria but exceeded the monetary limit in respect of the second criteria excessively were also getting classified as a ‘small company’.
Post the latest change, a company would 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 companies that were previously classified as small companies would now cease to be categorised as such, Sai Venkateswaran, Partner and Head of Accounting Advisory Services, KPMG in India, told Business Line.
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, said the change in definition of ‘small company’ should have come through an amendment bill in Parliament and not through a removal of difficulty order, as was the case now.