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Companies Act- Section 2(85) -Small Company

Definition of Small Company

Section 2 Sub section (85) ‘‘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;

My review on 2(85)
This is a new step towards the de-regulation of entities which are smaller in size and operations. Even though it is a welcome move to de regulate(rather less regulate) certain companies certain areas are ambiguous.

  1. All public Companies are excluded from the scope of the definition. Hence all public companies are required to have all compliance required for a Big sized company.
  2. The paid up capital limit fixed as on date for demarcating a small company is Rs. 50 lakhs. But the section is clear that at any point of time the same can be enhanced to Rs. 5 Crs by issuing a notification
  3. The Turn over limit fixed as on the date for demarcating a small company is Rs 2 Cr per annum but the same can be enhanced to rs. 20 Cr by a notification.
  4. The extra room kept for enhancing the limit is a welcome move but at the same time a company which matches any of the said 2 conditions will fall with in the ambit of the said section. For ex:- A company having a paid up capital of Rs. 49 Lakhs and turn over of Rs. 100 cr will remain as a Small Company. Likewise a company having 100Cr Capital and Rs. 1.99 Cr turnover will also remain as a Small Company . It is better to cure that defect by replacing the word " OR" with "AND" in the said section.