I. Introduction

The Hon’ble Finance Minister, Srimati Nirmala Sitharaman, on 1st February 2021, introduced the Union Budget 2021-22. She addressed the nation through a speech referring to the proposals on company matters that would facilitate the Ease of Doing Business in India. In accordance with this, the Ministry of Corporate Affairs further notified amendments to the relevant provisions of the Companies Act 2013 and Rules made thereunder. Below, are the detailed breakdown of the amendments relating to Small Companies and One Person Companies, and also what new horizons have these changes opened to.

II. Small Company:

1. The Amendment:

Earlier, as per section 2(85) of the Companies Act 2013, for a company to be called a Small Company, the threshold limits were as follows-

And;

But after the recent amendment that was brought via the Union Budget 2021, the older threshold limits with respect to a Small Company were increased to-

 And;

The said amendment would however be made applicable from 1st April 2021. Provided nothing in the above-mentioned amendment shall apply to the following-

• a) A Holding Company or a Subsidiary Company;
• b) A company registered under section 8; or
• c) A company or a Body Corporate governed under any special act.

2. Aftermath:

Nirmala Sitharaman, through her speech in the Parliament, addressed that- “this threshold limit increase is going to benefit more than 200,000 companies to reprieve of the COVID impact”.. This decision seems similar to a move made last year with respect to revising the limits for companies to qualify for MSME. That was yet another step made by the government towards ease of Doing Business.

3. How does this Benefit:

This amendment brought with it several transactional benefits, exemptions, and compliance reliefs for companies.

Below listed are some of such benefits, exemptions, and reliefs a company should look for: –

• Board Meetings:
  • A Small Company doesn’t usually have a wide range of business activities. They generally operate on small scales. Because of this, a Small Company is not required to hold 4 Board Meetings in a year.
  • They may choose to hold only 2 Board Meetings in a year i.e., one Board Meeting in each half of the calendar year with a minimum gap of 90 days between 2 meetings.
•  Rotation of company Auditors:
  • It is not necessary for Small Companies to abide by section 139(2) of the Companies Act 2013, which stipulates the rotation of auditors every 5 years (individual auditor) and every 10 years (firm of auditors).
•  Exemption for Board Report: Annual Return:
  • Matters to be included in the Board Report mentioned in Rule 8 of Companies (Accounts) Rules, 2014, do not apply to Small Companies. Hence, they are exempted from mentioning the same in their report.
  • The Annual Return of a Small Company can be signed by the Company Secretary alone or in a case where there is no Company Secretary, a Director of the company can sign it.
•  Remuneration details in the Annual Return:
  • As per section 92 of the Companies Act 2013, private companies are required to give details of the remuneration of Directors and Key Managerial Personnel.
  • But in the case of a Small Company, ‘only the aggregate amount of remuneration drawn by directors’ is required in the Annual Return.
• Cash Flow Statement:
  • A Small Company is exempted from including a Cash Flow Statement as a part of its Financial Statement.
•  Exemptions for Audit Reports:
  • Small Companies are not required to give reports on Internal Financial Controls with reference to Financial Statements and the operating effectiveness of such controls in the Audit Report.
•  Lesser penalties for Small Companies u/s 446B of the Companies Act, 2013:
  • If a Small Company is failing to comply with the provisions of section 92(5), section 117(2), or section 137(3), then such company and the officer in default of such company shall be liable to pay a penalty which shall not be more than half of the penalty specified in such sections.

III. One person company

1. The Amendment:

The amendments relating to Residential Status stipulate that;

• The person incorporating an OPC and the Nominee may or may not be a resident of India.
• Earlier, it was mandated through a condition by the Companies Act 2013, that any person incorporating an OPC must compulsorily be a resident of India which has now been removed.
• The term Resident in India here means a person who has stayed in India for more than or equal to 120 days during the immediately preceding Financial Year.

The amendments relating to the Conversion Procedure stipulate that;

• The prohibition of Voluntary Conversion for the first 2 years after incorporating has now been removed.
• Post this amendment, there now stands no threshold limits for the compulsory conversion of OPC into a private or a public company.
• Earlier, for an OPC to compulsorily convert itself into a Private or a public company, it had to breach the threshold limits of 50 lacs and 2 crores for paid-up share capital and the average annual turnover of the last 3 years respectively. Thus, Form INC-5 has also been removed.
• A private company converting to OPC need not maintain any threshold limits now.

2. Aftermath:

The amendments have brought with it a lot of motivation to grow without a barrier on paid-up share capital or turnover limits. It would also help in boosting and inculcating foreign technology and capital by the elimination of the earlier residential status requirements. A lot of companies will now have to deal with lesser compliances and enjoy more autonomy than before.

3. How does this benefit:

This amendment too brought with it several transactional benefits, exemptions, and compliance reliefs for companies.

Below listed are some of such benefits, exemptions, and reliefs a company should look for: –

• No Annual General Meeting Requirements:
  • One Person Company is not required to hold any Annual General Meeting or Extraordinary General Meetings.
  • Only the resolutions signed by the directors and entered into the minutes book is sufficient instead of holding AGM or EGM.
• Lesser Board Meetings:
  • An OPC may hold only 2 Board Meetings in a calendar year that is, one in each half of the calendar year with a minimum gap of 90 days between the 2 meetings.
• Benefits under Tax Law:
  • Benefits of presumptive taxation are available subject to the income tax act and MAT provisions are applicable as well.
  • Any remuneration paid to the director will be allowed as a deduction as per the Income Tax Act.
• Other Government Benefits:
  • An OPC can avail all the advantages of a small-scale industry such as lower interest rates on loans, easy funding from the bank without a deposit, benefits in foreign trade policy, etc.

IV. Conclusion

This initiative of amending the threshold limits of Small Companies and altering the Residential and Conversion related frameworks of the One Person Company will surely benefit a lot of companies in terms of various exemptions, transactional benefits, and compliance reliefs to recover from the abnormal state that they were into, due to COVID. These amendments also seek to attract a lot of foreign technologies and investments for the growth of the economy. Not only this, but it will also help in boosting the government’s Ease of Doing Business Index to a large extent. Further, the amendments will also help in reducing the effective burden on Startups and encourage them to flourish in the years to come.

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V. References:

1. Mohit Agarwal, Youtube, (03.02.21) https://www.youtube.com/watch?v=hrvZGkNvgJQ
2. CS Poonam Verma, taxguru.in, (02.02.21) https://taxguru.in/company-law/relaxation-sma ll-companies-person-company.html
3. Ministry of Corporate Affairs, Companies Act 2013, http://ebook.mca.gov.in/default.aspx
4. Suprita Anupam, inc24.in, (01.02.21) https://inc42.com/infocus/union-budget-2021/union -budget-2021-fm-proposes-new-definition-of-small-companies-to-incorporate-more-start ups/
   

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