New Definition of Small and medium companies (SMC)

Ministry of corporate affairs (MCA) has expanded the definition of small and medium sized companies (SMCs).

Highlights

  • As per expanded definition, Small & Medium Companies is an unlisted company, a bank, an insurance or a financial institution with sales up to Rs 250 crore and borrowings up to Rs 50 crore.
  • Earlier limit for sales was Rs 50 crore and for borrowings was Rs 10 crore.
  • Now, SMCs are permitted to avail number of exemptions under Company (Accounting Standards) Rules 2021. It will reduce complexity of regulatory filings for smaller firms.

Which companies are classified as SMCs?

  • Banks, insurance companies, financial institutions, and listed companies cannot be classified as SMCs.
  • Any holding company or subsidiary of company which is not an SMC cannot be classified as SMC.

Exemptions available to SMCs

  • They are completely exempted from filing cash flow statements and providing segmental break up of their financial performance.
  • They can avail partial reporting exemptions in areas like reporting on employee benefits obligations. For instance, on pensions.
  • They are exempted from providing detailed analysis of benefit obligations to employees.
  • They are also exempted from reporting diluted earnings per share in their filings.

Significance of the move

This move will promote ease of doing business for firms which are included under definition of SMC.

Small and medium-sized enterprises (SMEs)

SMEs are businesses whose personnel numbers are kept below certain limits. SMEs sometimes outnumber big companies by wide margin and employ more people. For instance, Australian SMEs accounts for 98% of all Australian businesses, produce one-third of GDP and employ 4.7 million people. SMEs are also responsible for driving innovation and competition across different sectors.

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