Change in Definition of Small Company (Removal of Difficulty Order 2015)

Ministry of Corporate Affairs issued another “the Companies (Removal of Difficulties) Order, 2015” in exercise of the powers conferred by sub-section (1) of section 470 of the Companies Act, 2013 to remove the difficulties form (a) Definition of Small Companies under Section 2(85) and (b) for that purpose also inserted forth item in sub – section (11) of Section 186.

 original definition of small company is:

“Small Company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; or

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act.

Now, the amended definition shall  be:

“Small Company” means a company, other than a public company,—

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than five crore rupees; AND

(ii) turnover of which as per its last profit and loss account does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than twenty crore rupees:

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under section 8; or

(C) a company or body corporate governed by any special Act.

Earlier, there was following problem as mentioned by Ministry: A company may be treated as a ‘small company’ if it meets either of the conditions provided therein thereby making the second limit unrestricted or inconsequential. Difficulties have arisen in this regard as companies which, though, meet one of the criteria but exceed the monetary limit in respect of second criteria excessively are also getting classified as ‘small companies’.

After this change in definition, a small company need to satisfy all of the following criteria:

1. Other than a public company,
2. Paid up capital does not exceed fifty lakh rupees (or higher amount prescribed),
3. Turnover does not exceed two crore rupees (or higher amount prescribed)
4. Not a holding or subsidiary company of any company (including a private of public company)
5. Not a company registered under Section 8 of this Act,
6. Not a company or body corporate governed by any special Act.