Small companies will now get a say in the corporate sector. The new Companies Bill, 2008 will for the first time define what makes a small enterprise. The bill is up for approval in the coming parliament session.
A small company shall be defined as a company which satisfies three conditions—it should not have a paid-up share capital and a turn-over beyond a specified limit, the company should not be regulated by any sectoral regulator and it should not hold any subsidiary company.
According to the first condition, the company should not have a paid-up share capital and a turnover beyond a specified limit. The limit is to be notified later on by the central government. According to Micro, Small and Medium Enterprises Development Act, 2006, a small enterprise is one having an investment of more than Rs 25 lakh but less than Rs 5 crore if it is dealing in the production of goods whereas if the enterprise is dealing in the rendering of services then the investment in equipment should be more than ten lakh rupees but should not exceed the limit of two crore.
As per the second condition for a small enterprise in the new Companies Bill, the company is not to be regulated by any sectoral regulator, which means that those companies that are governed by a sectoral regulator cannot be classified as small companies.
Banking companies, which are regulated by Reserve Bank of India (RBI), telecom companies, which are governed by Telecom Regulatory Authority of India (Trai) and electric companies by electricity act do not classify under the provision for the small companies in the new Companies Bill.
Jawahar Sircar, additional secretary and development commissioner, ministry of micro, small and medium enterprises (MSMEs) said, “Only a small form of micro, small and medium enterprises in India are in the form of companies, partnerships and lending institutions.
The ministry of MSME has been advocating as a matter of policy lesser thresholds and lowering the compliance cost in order to encourage more and more micro and small enterprises to corporatise. This step has been taken so that the small enterprises would be able to access more finance and graduate upwards.” According to third condition in the new Company’s Bill, the enterprise that is having other subsidiaries does not classify as a small company and hence will not be able to enjoy the privilege of certain exemptions. Besides, there are simplified procedures for mergers and amalgamations of small companies. Rajan Gupta, Partner of India’s leading corporate firm, Fox Mandal Little said, “It is a welcoming step to create a class of small companies and to provide for simpler compliance regime for them. It will also help the entrepreneurs in organizing their businesses in better form and will provide more certainty with regard to a definite code of regulations for smaller businesses.”
The concept of “small companies” is being introduced in the new Companies Bill to allow lower levels of compliance to medium and small size companies. The new bill proposes to exempt small companies from certain provisions of the company’s act. Those exemptions will be notified by the central government separately.
Source : The Financial Express
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