The biggest resistance to converting one’s small business into a formal structure in India – be it a partnership, LLP or a company is the actual as well as perceived burden of compliances that come with it. Formalising a business has so many advantages, but entrepreneurs are always worried about the time, money and energy involved in so many compliances, paperwork, having to engage professionals to deal with all this and last but not the least, penalties and consequences of non-compliance.
To overcome this apprehension and stigma, the Central government has been constantly taking measures at different levels to support the startup and small companies’ ecosystem. Now, it has accordingly brought in the next wave of changes in threshold criteria for small companies to support startup ecosystem.
As per the latest amendments, threshold criteria for compliance purposes has been enhanced to 4 crores INR (paid up capital) and 40 crores INR (turnover) respectively to qualify as a small company. The prime intent is to bring more companies into this bracket of small companies and to simplify/reduce their compliance burden.
Another reason for latest revisions is infusion of paid up capital into many small companies beyond permitted limit as this caused the fall out of many companies from bracket of “small companies” due to enhanced paid up capital and as a reason many companies did not enjoy benefits provided to small companies.
There are multiple compliance advantages (listed below) for small companies:
a) Board meetings: Two board meetings in a given financial year is sufficient, unlike for others are required to conduct 4 board meetings.
b) Annual returns: Small companies can file abridged annual returns with a signature of secretary or a director of the company
c) Auditor rotation: No rotation of auditors for every five years is required.
d) Financial reports: No requirement of inclusion of cash flow statements in financial reports.
e) No Signature requirement: Small companies can file most of statutory filings or documents without signature of practicing professional such as a chartered accountant
f) Penalty: Less penalty for non-compliance
History of revisions to threshold criteria for small companies:
a) New thresholds – Paid up capital (4 crores INR) and turnover (40 crores INR)
b) Thresholds from April 1, 2021 and until now- Paid up capital (2 crores INR) and turnover (20 crores INR)
c) Initial thresholds until March 31, 2021 – Paid up capital (1 crore INR) and turnover (10 crores INR)
The core intent of central government is to support entrepreneurial journey of many young and dedicated and law-abiding entrepreneurs by providing various financial and compliance incentives to small companies and start-ups.
It is evident that many companies covered under the latest threshold criteria will definitely benefit from compliance benefits offered to small companies to ease compliance burden on such companies.
Source : The Economic Times
