Reducing Compliance Burden – Widening of Small Companies Definition - MMJC

1. Introduction:

The Companies Act, 2013 has categorized certain companies into smaller companies based on their paid-up capital and turnover thresholds, so as to give various relaxations from compliance. These thresholds have now been widened to accommodate more companies under the ‘small company’ bracket.

2. Amendment:

On 15^th September 2022 Ministry of Corporate Affairs (“MCA”) vide its notification amended the Companies (Specification of definition details) Rules, 2014 thereby amending the definition of a small company. For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, i.e., the categorization of ‘small company’ the same has been changed.

The effective date of notification is 15^th September 2022 i.e., the limits are widened with immediate effect. Many private companies shall fall under the small companies due to these enlarged thresholds, thereby encouraging ease of compliance and ease of doing business for small entrepreneurs.

3. Some practical queries:

Some practical queries which may arise while interpreting this notification are as follows: –

Whether companies will fall under the definition of small company w.e.f. 15th September 2022 (but were not covered in this definition as on 31st March 2022) can avail benefits like filing form MGT-7A (Annual return prescribed for a small company which requires lesser disclosures) or preparing abridged board report for F.Y 2021-22, i.e., with lesser disclosures (in case Board report’s is yet to be approved by their Board of Directors as on  15^th September 2022)?

The MCA has revised the version of Form MGT-7A i.e. Annual Return form prescribed for small companies. The Forms version is updated to capture new criteria specified for classifying a company as small company as stated above. Further, an updated version of the form mandates such newly classified small companies to file Form MGT-7A only. If such companies try to fill Form MGT-7 (since they were not small companies as on 31st March 2022), then Form MGT-7 gives an error message and prompts to file Form MGT-7A. Therefore, it appears that, all the benefits available to small company to such newly classified companies can be availed w.e.f 15th September 2022 and therefore such companies can also avail other benefits too, such as preparing abridged board report for F.Y. 2021-22 in case it is not approved before 15th September 2022.

Further, whether such Companies can take benefit of holding lesser no. of board meetings as prescribed in Section 173 in case of small companies during the year 2022 can be another question to contemplate?

Each company is required to hold at least 4 board meetings every year, such that gap between 2 board meetings does not exceed 120 days. However, for small companies, there is an exemption that they may hold one meeting in each half of a calendar year and the gap between two meetings should not be less than 90 days.

Now in case of such companies who were not covered under the definition of ‘small company’ earlier but covered under this definition post 15^th September 2022, if they have already held one or more board meeting between 1^st January to 30^th June 2022 and one board meeting between 1^st July to 15 ^th September 2022, then is it fine if they do not hold any further board meeting in 2022? What shall be the view if the gap between two board meetings already conducted is less than 90 days?

4. Conclusion:

There can be many such practical queries in availing the relaxations available for small companies. Hence, these queries will have to be looked into on a case-to-case basis and accordingly, an appropriate view may be taken in the overall interest of the company and stakeholders.