{"id":6127,"date":"2022-07-12T01:20:48","date_gmt":"2022-07-12T01:20:48","guid":{"rendered":"https:\/\/www.kanakkupillai.com\/new-learn?p=6127"},"modified":"2026-01-29T15:08:53","modified_gmt":"2026-01-29T09:38:53","slug":"small-company-meaning-and-explanation-under-companies-act-2013","status":"publish","type":"post","link":"https:\/\/www.kanakkupillai.com\/learn\/small-company-meaning-and-explanation-under-companies-act-2013\/","title":{"rendered":"What is a Small Company? \u2013 Meaning and Explanation Under Companies Act, 2013"},"content":{"rendered":"

What is a Small Company in India?\u00a0<\/strong><\/h2>\n

A\u00a0small company<\/strong><\/a>\u00a0is one of the biggest boons to the economy,\u00a0often existing in the form of\u00a0private limited companies<\/strong><\/a>,\u00a0partnership firms<\/strong><\/a>, or\u00a0sole proprietorship<\/strong><\/a> entities, which typically have only a few employees and a lower turnover or profitability<\/span>. It contributes to the process of generating profit, thereby boosting employment and serving as the backbone of the economy.<\/p>\n

As per the new definition and threshold limits, companies with a paid-up capital of INR 2 crore or less, and a turnover of INR 20 crore or less are defined as small companies.
\nSection 2(85) \u2013 Small Company under Companies Act, 2013<\/strong>. The Companies Act of 2013 introduced a new concept of \u2018small company\u2019. It\u2019s simply a Private Company with less capital and turnover size.<\/p>\n

New Definition of a Small Company<\/strong><\/h2>\n

Under the Companies Act 2013<\/strong>, section 2(85) defines the word small company and states the same as a company other than a public company, which has:
\n(i) Paid-up share capital not exceeding INR 50,00,000 or such higher amount as may be prescribed by the Government which shall not be more than INR 10 Crore, and<\/span>
\n(ii) Turnover which does not exceed INR 2 Crore or such higher amount which may be prescribed by the Government, but shall not be more than INR 100 Crores, as per the profit and loss account pertaining to the immediately preceding financial year.<\/p>\n

The Central Government vide Notification GSR 92(E) dated 01st<\/sup> February 2021 amended the Companies (Specification of Definitions Details) Rules, 2014 which came into force on 1st<\/sup> April 2021, by adding a new clause (t) in Rule 2(1);
\n\u201c(t) For sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid-up capital and turnover of the small company shall not exceed rupees two crores (INR 2 Crore) and rupees twenty crores (INR 20 Crore) respectively.\u201d<\/p>\n

So, as per this amendment to the Rules made by the Central Government:
\n(i) the paid-up share capital of a small company shall not exceed INR 2 Crore, and
\n(ii) The turnover of the small company shall not exceed INR 20 Crore during the immediately preceding financial year.<\/p>\n

Along with the above-stated conditions pertaining to the paid-up share capital and turnover, for becoming a small company the following shall also be considered. A company shall not be regarded as a small company if it is:
\n(i) a public company<\/strong><\/a>,
\n(ii) a holding company or a subsidiary company,
\n(iii) a company registered<\/span><\/span><\/strong><\/a><\/span> under section 8 of the Companies Act,
\n(iv) a company or body corporate governed by any special act.<\/p>\n

<\/h3>\n

Comparison of the old and new definitions of a small business<\/h3>\n

The definition of a small corporation was expanded to include higher paid-up capital and increased turnover. To enable more enterprises to qualify as small companies under the Companies Act 2013, restrictions were raised. Below, we\u2019ve provided a comparison of the old and new definitions of a small business.<\/p>\n\n\n\n\n\n
Particulars<\/strong><\/td>\nOld Definition\u00a0<\/strong><\/td>\nNew Definition\u00a0<\/strong><\/td>\n<\/tr>\n
Paid-up share capital<\/strong><\/td>\nMaximum paid-up share capital of Rs 2 lakh<\/td>\nMaximum paid-up share capital of Rs 4 crore<\/td>\n<\/tr>\n
Turnover<\/strong><\/td>\nMaximum turnover of Rs 20 crore<\/td>\nMaximum turnover of Rs 40 crore<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n

<\/h3>\n

Characteristics of a Small Company<\/strong><\/h3>\n

Some of the major characteristics of a small company can be understood as follows:<\/p>\n

1. Low profitability and revenue:<\/strong><\/h4>\n

Generally, a small company earns revenue and profit at a lower rate when compared with large or multinational entities. This mainly depends on the type of business they are involved in. But a lower revenue can never be considered as having lower profitability as for this type of business, the profit margin might be<\/span> higher<\/p>\n

2. Fewer employees:<\/strong><\/h4>\n

Compared to a large company with multiple branches or business places, small companies<\/strong><\/a> will be having only a small human resource team with one person or a single team managing the business as it is small and easy to handle.<\/p>\n

3. Smaller market area:<\/strong><\/h4>\n

Small companies often serve a small market area or a specific segment of society, such as a convenience store or department store operating in rural townships. They have a small area for operating a business. They do not have to handle business outside of their state or country, as the activities are confined to a single location.<\/span><\/p>\n