Compliance requirements applicable on Small Companies under the Companies Act, 2013

Small Companies defined as a company with a paid-up capital of INR 2 crore or less, and turnover of INR 20 crore or less. Small companies enjoy various advantages over other companies in compliance matters. Let’s see what are the compliance requirements applicable on Small companies:

1. Disclosures by a Director of his Interest:

Section & Rules:  Section 184(1)& Rule 9(1)of Companies(Meetings ofBoard and itsPowers) Rules,2014.

Applicable Form:  Form MBP-1

Particulars:  Every director shall at the first meeting of the Board in which he participates as a director and

thereafter at the first meeting in every financial year or whenever there is any change in the disclosures already made, then at the first Board meeting held after such change, disclose his concern or interest in other entities which shall include the shareholding.

Such notices shall be kept at the registered office and be preserved for a period of eight years from the end of the financial year to which it relates in the custody of the company secretary of the company or any other person authorized by the Board. 

2.  Disqualification of Directors : 

Section & Rules:  Section 164(2) & 143(3)(g) & Rule 14(1) of Companies (Appointment and Qualification of Directors)Rules, 2014

Applicable Form:  Form DIR-8

Particulars:  

No person who is or has been a director of a company which—

(a) has not filed financial statements/ annual returns for any continuous period of 3 financial years; or

(b) has failed to repay the deposits accepted by it or  pay interest thereon or to redeem any debentures on the due date or pay interest due thereon or pay any dividend declared and such failure to pay or redeem continues for one year or more, shall be eligible to be re-appointed as a director of that company or appointed in other company for a period of five years from the date on which the said company fails to do so.

Every director shall inform to the company concerned about his disqualification under subsection (2) of section 164, if any, before he is appointed or re- appointed.  

3.  Annual Return:   

Section & Rules:  Section 92(4) & (1) & Rule 11 (1) of Companies (Management And administration) Rules, 2014

Applicable Form:  E-form MGT- 7A

Particulars:  

Every Company shall file its Annual Return within 60 days of holding of AGM or where no AGM is held in any year within 60 days from the date on which the AGM should have been held together with the statement specifying the reasons for not holding the AGM with such fees as may be prescribed. The Central Government may prescribe abridged form of annual return for small company.

Annual Return of every Small Company shall be signed by the company secretary, or where there is no

company secretary, by the director of the company.

Small Company shall file annual return from the financial year 2020-2021 onwards in Form No.MGT-7A.

4.  Placing of the annual return on website 

Section & Rules:  Section 92(3) & 134(3)(a) & Rule 12(1) of the Companies (Management and Administration) Rules, 2014.

Applicable Form:  E-form MGT- 7A

Particulars:  

Every company is required to place a copy of annual return on its website and the web link where annual return has been placed will be required to be mentioned in the Board’s Report.

Section 92 (3) shall not apply in case of Specified IFSC Private Company – vide Notification No. G.S.R. 9 (E) Dated 4th January, 2017.

5. Financial Statement  

Section & Rules:  Section 137 & Rule 12(1) of Companies (Accounts) Rules, 2014

Applicable Form:  E-form AOC- 4 & E-form AOC- 4 CFS

Particulars:    

Company is required to file its financial statements, including consolidated financial statement along with all the documents required to be or attached to such financial statements, duly adopted at the AGM of the company with the Registrar within 30 days of the date of AGM or in case financial statements are adopted in the adjourned AGM, within 30 days of the date of adjourned AGM.

If annual general meeting is not held for any year, the financial statements along with the documents required to be attached under sub-section (1) of section 137 duly signed along with the statement of facts and reasons for not holding the annual general meeting shall be with the Registrar within 30 days of the last date before which the annual general meeting should have been held.

6. Board’s Report 

Section & Rules:  Section 134 & Rule 8 of the Companies (Accounts) Rules, 2014

Applicable Form:  NA

Particulars:    

Board’s Report shall be prepared mentioning all the information required to be included in it for Small Company under Section 134. It should be signed by the “Chairperson” authorized by the Board, where he is not so authorized by at least two Directors one of whom shall be a managing director or by the director where there is one director.

7. Circulation of Financial Statement & other

Section & Rules:  Section 136

Applicable Form:  NA

Particulars:    

Company shall send to all the members of the Company, all trustees for the debenture holders and to all persons being the persons so entitled, a copy of approved Financial Statements (including consolidated Financial Statements, if any auditor’s report and every other document required by law to be annexed/

attached to the financial statements) at least 21 clear days before the Annual General Meeting.

(Shorter Notice pursuant to section 101(1).

In case of private company which is a small company, Section 101 shall apply, unless otherwise specified in respective sections or the articles of the company provide otherwise.

8.   Notice of AGM

Section & Rules : Section 101 & Rule 18 of the Companies (Management and Administration) Rules, 2014 &

SS- 2

Particulars:     Every Notice of Annual General Meeting shall be prepared as perSection 101 of Companies Act, 2013 and Secretarial Standard – 2.

9.    Sending of Notice of AGM

Section & Rules :  Section 101 & SS – 2

Particulars:     Notice of Annual General Meeting shall be sent to all the Directors, Members, Auditors, legal representative of any deceased member and the assignee of an insolvent member.

10.  Board Meetings

Section & Rules :  Section 173 (5) & SS-1

Particulars:     Every Small Company shall hold at least one (1) meeting of the Board of Directors in each half of a calendar year and the gap between the two meetings shall not be less than 90 days.

11. Notice of Board Meeting

Section & Rules: Section 173 (3) & SS-1

Particulars: A meeting of the Board shall be called by giving not less than 7 days’ notice in writing to every director at his address registered with the company and such notice shall be sent by hand delivery or by post or by electronic means.

However, meeting of the Board may be called at shorter notice to transact urgent business.

12.  Appointment of Auditor

Section & Rules : Section 139(1) & Rule 4(2) of the Companies (Audit and Auditors) Rules, 2014.

Form : E-form ADT-1

Particulars: Auditor shall be appointed for 5 years in the AGM. The company shall inform the auditor concerned of his or its appointment, and also file a notice of such appointment with the Registrar within

15 days of the meeting in

13. Register of Members

Section & Rules : Section 88 & Rule 3 of the Companies (Management and Administration) Rules, 2014.

Form MGT.1 &

Form MGT.2

Company shall keep & maintain the following mandatory Registers:

• Register of Members,

• Register of debenture-holders,

• Register of any other security holders.

Benefits/ Privileges for small companies

1.  Lesser Penalties

 Lesser penalties for Small Companies under Section 446B of the Companies Act, 2013: – If a small company fails to comply with the provisions of section 92(5), section 117(2) or section 137(3), such company and officer in default of such company shall be liable to a penalty which shall not be more than one half of the penalty specified in such sections.  

2. Lesser Fees

Fees for filings and other formalities u/s. 403 of the Companies Act, 2013 is also comparatively lower for the small companies.

3 . No Certification by the Professional on E Forms

The companies are required to file the various E Forms pertaining to filing of Balance Sheets, Annual Returns, and various other event based e forms. If we look from the corporate point of view, the companies shall not be required to get the E Forms being certified from the Practicing Professionals.

 4. Holding of Board Meetings:

A Small Company can hold only 2 Board meetings in a calendar year i.e. one board meeting in each half of the calendar year. However the gap between the two board meetings should not be less than 90 days. So in case of Small Companies, the Board is not required to conduct 4 meetings in a year as it is applicable in case of companies other than small and OPC companies

5. Signing of an Annual Return:

In case of Small Company, the Annual Return can be signed by Company Secretary alone or if there is no CS, by a single Director only.

6. Cash Flow Statements :

 A Small company does not require to maintain a Cash flow statement as a part of its Financial Statements. So while filing of Balance Sheet with Registrar of Companies, companies shall not be required to attach the CASH Flow Statements along with the Financial Statements

7. Abridged Director Report and Annual Return

For small companies, the format of director report is not vast rather an abridged Director Report shall also be sufficient. The format has already been prescribed by the Ministry for abridged Director Reports for Small Companies and One Persons Companies. Matters to be included in Board’s Report mention in Rule -8 of companies (Accounts) Rules, 2014 not apply for small company.

8. Fast Track Merger Process

The merger process between small companies is less cumbersome and less expensive and hence, on a fast track basis as compared to the other one

9. No Auditor Retire By Rotation

Every Private Limited company having a capital more than Rs. 20 crore is required to rotate its auditor after a term of 5 years. But being a small company, having capital less than 20 crore, shall never be required to rotate its auditor according to Section 139(2) of Companies Act 2013. Please Note that Section 139(2) of the Company Act 2013, which mandates the rotation of auditors every 5 years (individual auditors) and every 10 years (firm of auditors).

 10. Need not to have Internal Financial Control Report

A Small Company does not require to report in its Audit Report regarding Internal Financial controls and the operating effectiveness of the company.

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