1. No need to prepare Cash Flow Statement as a part of Financial Statements
As per the proviso to section 2(40) of the Companies Act, 2013 which deals with definition of “Financial Statement”,
“the financial statement, with respect to One Person Company, Small Company and dormant company, may not include the cash flow statement”
Hence, a Small Company is not required to prepare Cash Flow Statement as a part of its Financial Statements.
2. Exemption to CARO 2020 Reporting
The Ministry of Corporate Affairs (MCA) issued Companies (Auditor’s Report) Order, 2020 (CARO 2020) applicable for each report issued by auditors of specified class of companies under section 143 of the Companies Act, 2013 for financial year commencing on or after 1st April, 2021.
The Order provides that it shall not apply to:
(i) a banking company;
(ii) an insurance company;
(iii) a company licensed to operate u/s 8 of the Companies Act;
(iv) a One-Person Company as defined in Sec. 2(62) of the Companies Act and a Small Company as defined in Sec. 2(85) of the Companies Act; and
(v) a private limited company, not being a subsidiary or holding of a public company,
- having a Paid-up capital & Reserves & Surplus not more than Rs. 1 crore as on the balance sheet date, and
- which does not have total borrowings exceeding Rs. 1 crore from any bank or financial institution at any point of time during the financial year, and
- which does not have a total revenue as disclosed in Schedule III to the Companies Act, 2013 (including revenue from discontinuing operations) exceeding Rs. 10 crore during the financial year as per the financial statements.
3. Mandatory rotation of auditor not required
As per section 139(2) of the Companies Act, 2013, which deals with the mandatory rotation every 5 years (individual auditors) and every 10 years (firm of auditors), in case of certain prescribed classes of companies, this rotation requirement is not applicable in case of Small Companies and One person companies.
4. An Auditor of a Small Company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the Auditor’s Report.
As per provisions of Section 143(3)(i) of companies Act, 2013, the Auditor Report shall state whether the Company has adequate internal financial controls system in place and comment on the operating effectiveness of such controls.
MCA vide its notification dated 13th June 2017 provide exemption from Internal Financial Controls to prescribed classes of private companies which includes a one person Company (OPC) or a Small Company, provided it has not committed a default in filing its financial statements under section 137 of the said Act or annual return under section 92 of the said Act with the ROC.
5. Holding of only two board meetings in a year
As per Section 173 of the Companies Act, 2013, which deals with meetings of Board-
“A One Person Company, small company and dormant company shall be deemed to have complied with the provisions of this section if at least one meeting of the Board of Directors has been conducted in each half of a calendar year and the gap between the two meetings is not less than ninety days.”
6. Advantage of preparing and filing an abridged annual return
By the amendment w.e.f. 5th March 2021, in the Companies (Management and Administration) Rules, 2014, sub-rule (1) of Rule 11 has been substituted for –
“(1) Every company shall file its annual return in Form No. MGT-7 except One Person Company (OPC) and Small Company. One Person Company and Small Company shall file annual return from the financial year 2020-2021 onwards in Form No. MGT-7A.”
One of the key highlights of Form MGT-7A is that Details of directors and KMP i.e., the composition of the board of directors, details of directors and KMP are not required in the abridged form.
Also, where other companies require providing details of remuneration to directors and key managerial personnel, small companies are required to provide details of the only aggregate amount of remuneration drawn by directors in their annual return.
7. Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company
What this essentially means is that in Form MGT-7A, there is no mandatory requirement of pre-certification of Company Secretary. Instead, a self-certification of directors would be sufficient.
8. Lesser penalties for small companies
As per Section 446B of the Companies Act, 2013, f penalty is payable for non-compliance of any of the provisions of this Act by a One Person Company, Small Company, start-up company or Producer Company, or by any of its officer in default, or any other person in respect of such company,
then such company, its officer in default or any other person, shall be liable to a-
- penalty which shall not be more than one-half of the penalty specified in such provisions –
- subject to a maximum of two lakh rupees in case of a company and
- one lakh rupees in case of an officer who is in default or any other person.