## Small Company [Section 2(85)]

### Definition

'Small Company' means a company, other than a public company:

1. Whose paid-up share capital does NOT exceed ₹4 crore (or such higher amount as may be prescribed, not exceeding ₹10 crore); AND

2. Whose turnover as per profit and loss account for the immediately preceding financial year does NOT exceed ₹40 crore (or such higher amount as may be prescribed, not exceeding ₹100 crore).

Both conditions must be satisfied cumulatively.

### Companies Excluded from being a Small Company

The following companies cannot be classified as Small Companies, regardless of their size:

1. A Public Company;

2. A Holding Company or a Subsidiary Company;

3. A company registered under Section 8 (companies for charitable objects);

4. A company or body corporate governed by any Special Act.

### Why is Classification Important?

Small companies enjoy several relaxations and exemptions in compliance — such as reduced board meeting frequency, abridged annual return, no requirement of cash flow statement, etc.

Worked example

### Example 1

Q. A private company has paid-up capital of ₹3 crore and turnover of ₹35 crore in the preceding financial year. Is it a small company?

A. Both conditions are satisfied — paid-up capital ≤ ₹4 crore and turnover ≤ ₹40 crore. As it is a private company (and not falling within the excluded categories), it qualifies as a Small Company under Section 2(85).

### Example 2

Q. A private company has paid-up capital ₹2 crore and turnover ₹30 crore, but is a wholly-owned subsidiary of a holding company. Is it a Small Company?

A. No. A subsidiary company is specifically excluded from the definition of a Small Company, irrespective of capital or turnover thresholds being met.

⚠️ Common exam mistakes

Applying the 'OR' test between paid-up capital and turnover — the test is cumulative ('AND').
Ignoring the express exclusion of holding/subsidiary companies, Section 8 companies and companies under a Special Act.
Quoting outdated thresholds (₹50 lakh/₹2 crore from the original Act) — current limits are ₹4 crore / ₹40 crore.
Treating public companies as eligible — they are categorically excluded.

Bare-Act text Section 2(85) · Companies Act, 2013 · click to expand

'Small company' means a company, other than a public company, — (i) paid-up share capital of which does not exceed four crore rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees; and (ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed forty crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees: Provided that nothing in this clause shall apply to — (A) a holding company or a subsidiary company; (B) a company registered under section 8; or (C) a company or body corporate governed by any special Act.

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