More than 200,000 companies will have reduced compliance burden following a change in the definition of small companies announced in the Union Budget 2021-22 in terms of fewer compliances, and lower filing fees and penalties.
The budget has raised the threshold of paid-up capital for small companies from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to Rs 20 crore.
Companies falling under this definition would not have to prepare cash flows as part of financial statements and would need to hold only two board meetings a year.
While other companies must provide details of remuneration to directors and key managerial personnel, small companies have to give details of the only aggregate amount of remuneration drawn by directors in their annual returns. Mandatory rotation of auditors would also not be required.
The Annual Return of a small company can be signed by the company secretary, or in his absence, by a single director of the company.
MCA would also bring the bill to decriminalise the Limited Liability Partnership (LLP) Act, 2008 during the Budget session of the parliament.
The corporate affairs ministry is also proposing to create a class of LLP called as “Small LLP”, in line with the concept of Small Companies. Such Small LLPs would have fewer compliances, lower fee or additional fee and lower penalties in the event of default. “Thus, lower cost of compliance would incentivise unincorporated micro and small partnerships to convert into the organised structure of an LLP and derive its benefits,” the senior official said.
LLPs are also proposed to be allowed to raise capital through issue of fully secured Non-Convertible Debentures (NCDs) as an alternative to equity participation from investors who are regulated by Sebi or RBI. “This will help deepen the Debt Market and enhance the capitalization of LLPs,” the senior government official said.
In all, 12 offences are proposed to be decriminalised and one provision (Section 73) entailing criminal liability is proposed to be omitted. The 12 decriminalised offences would then get shifted to internal adjudication mechanism to help in de-clogging the criminal courts from routine cases, the senior official said.
Besides in order to incentivize the incorporation of one person companies (OPC), the budget has withdrawn any restrictions on paid up capital and turnover, allowing their conversion into any other type of company at any time and reduced the residency limit for an Indian citizen to set up an OPC from 182 days to 120 days.
“The move would benefit startups and innovators in the country, especially those who are supplying products and services on e-commerce platforms, and in order to bring in more unincorporated businesses into the organized corporate sector,” a senior government official said.
Government has also allowed non resident Indians to incorporate OPCs in India.
To ensure faster resolution of cases, the budget has also announced that the national company law tribunal framework will be strengthened, e-Courts system would be implemented and alternate methods of debt resolution along with a special framework for micro medium and small enterprises will be introduced.
Corporate affairs ministry would also be launching data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0. “This will have additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management,” the finance minister said during her budget speech.