Small companies will now get a say in the corporate sector. The new Companies Bill, 2008 will for the first time define what makes a small enterprise. The bill is up for approval in the coming parliament session.
A small company shall be defined as a company which satisfies three conditions—it should not have a paid-up share capital and a turn-over beyond a specified limit, the company should not be regulated by any sectoral regulator and it should not hold any subsidiary company.
According to the first condition, the company should not have a paid-up share capital and a turnover beyond a specified limit. The limit is to be notified later on by the central government. According to Micro, Small and Medium Enterprises Development Act, 2006, a small enterprise is one having an investment of more than Rs 25 lakh but less than Rs 5 crore if it is dealing in the production of goods whereas if the enterprise is dealing in the rendering of services then the investment in equipment should be more than ten lakh rupees but should not exceed the limit of two crore.
As per the second condition for a small enterprise in the new Companies Bill, the company is not to be regulated by any sectoral regulator, which means that those companies that are governed by a sectoral regulator cannot be classified as small companies.
Banking companies, which are regulated by Reserve Bank of India (RBI), telecom companies, which are governed by Telecom Regulatory Authority of India (Trai) and electric companies by electricity act do not classify under the provision for the small companies in the new Companies Bill.
