Small business is the private limited companies, partnerships or sole proprietorships having few employees. It has less annual revenue as compared to the regular- sized companies. The importance of Small businesses is to contribute in the process of generating profit to boost up employment. Hence, it is the backbone of the Economy. The concept of small companies is given by the companies act 2013. The classification of small companies has a long route to enhance the small business in India. This article is based on the elaboration of a small company and its characteristics with advantages:
According to the companies act 2013 under section 2(85), a small company is:
- other than a public company who is having paid-up capital of not more than Rs.50,00,000 or such higher amount as may be prescribed which shall not be more than five crore rupees.
- Other than a public company whose turnover is as its last profit and loss account not more than Rs. 2 crore or such higher amount as may be prescribed which shall not be more than RS. 20 crore.
Also written that it shall not be applicable in the case of a Holding company, a company registered under section 8, company or body corporate governed by any special Act.
What are the characteristics of a Small Company
There are certain characteristics of a small company which are given below:
- Low profitability and revenue: Generally, a small company has less revenue as compared to the large company. It is depending on the type of business how much it is able to generate revenue. But lower revenue does not consider as lower profitability.
- Fewer Employees: it basically onboard a small team of employees than others. Sometimes, small companies are handled by a single person or a single team.
- Smaller Market Area: small companies are made to serve the smaller sections of the society or community like convenience shop in a rural township. So, they have a small area for operating business activities.
- Sole proprietorship/partnership and taxes: the corporate structure of working does not suit small-scale working organizations. Despite, small business has the priority to establish sole proprietorships, partnerships and limited liability companies. It provides them the strong sense of managerial control to the office owners with minimum hassle and expenditure of company registration. The company owner is liable to report business income and expenses on their personal tax returns. As small companies do not file their own taxes.
- Fewer locations: it is found in a limited area instead of several branches. The hands of the small scale companies are not grasped by other countries and states. Its sales are just confined to a single area. Besides, it is much easier and feasible if it is controlled by the home itself without placing any company.
What are the advantages of Small Company
Every company has some merits and demerits of its own. Small Company too has some advantages under companies act 2013 which are given below:
- Board Meetings: Two meetings in a financial is just sufficient for a small company. Any private limited company which is not considered as the small company shall conduct four board meetings in a financial year.
- Annual Return: The annual return filing can be signed by a company secretary or a director of the small company. Any private limited company which is not considered as a small company shall sign its annual return filing by a director and a company secretary both.
- Cash flow statement: Any private limited company comes under the category of a small company shall not maintain a cash flow statement as a part of the financial statement. On the contrary, any private limited company does not come under the category of a small company then it is mandatory to prepare a Cash flow statement as a part of the financial statement.
- Auditors Rotation: Any private limited company falls in a small company’s category do not require to rotate auditors. But private limited company not classified as a small company must rotate auditors every 5 to 10 years as prescribed under the companies act 2013.
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