IIntroduction

The concept of a “Small Company” was introduced under the Companies Act, 2013, to reduce the compliance burden on businesses with limited scale. This classification allows eligible companies to benefit from simplified regulatory requirements while enjoying corporate advantages. Similarly, the One Person Company (OPC) was also introduced to support individual entrepreneurs with a formal corporate structure. Both OPCs and small companies share common objectives such as ease of doing business, compliance relief, and promotion of entrepreneurship. This article explains the definition of a small company and explores its link with the OPC structure in India.

Definition of a Small Company

As per Section 2(85) of the Companies Act, 2013, a small company is defined as a private company that meets both of the following criteria:

1. Its paid-up share capital does not exceed ₹4 crore
   
2. Its turnover does not exceed ₹40 crore as per the latest profit and loss account
   However, this definition is subject to revision through government notifications, and the thresholds may change over time. Importantly, certain companies are excluded from being classified as small companies, even if they meet the financial limits.
   

Exclusions from Small Company Status

The Companies Act explicitly excludes certain entities from being considered small companies. These include:

• Public companies
  
• Holding and subsidiary companies
  
• Companies registered under Section 8 (non-profit companies)
  
• One Person Companies (OPCs)
  This means that even if an OPC meets the financial thresholds, it cannot be classified as a small company under law.
  

Purpose of Classifying Small Companies

The primary aim of defining and identifying small companies is to offer reduced compliance requirements such as simplified annual returns, lesser penalties, and relaxed board meeting norms. The government uses this classification to encourage formalization of small businesses without overwhelming them with regulatory obligations.

Compliance Benefits for Small Companies

Small companies enjoy several relaxations including:

• Exemption from cash flow statement in financials
  
• Simplified board meeting requirements
  
• Lesser penalties for default
  
• Simplified filing forms like MGT-7A
  These benefits are designed to reduce the cost and administrative burden of operating a small private company.
  

Compliance Benefits for OPCs

Although OPCs are not classified as small companies, they also enjoy similar compliance benefits such as:

• Exemption from holding annual general meetings (AGMs)
  
• Fewer board meeting requirements if only one director is present
  
• Simplified annual return filing using Form MGT-7A
  
• Relaxed auditor rotation requirements
  Hence, while OPCs are excluded from the legal definition of small companies, they receive parallel compliance relief under separate provisions of the Companies Act.
  

Overlap in Objectives

The objectives behind both OPC and small company structures are closely aligned. Both are intended to support small-scale enterprises, promote ease of doing business, and encourage entrepreneurship. They cater to different categories: OPCs to individual business owners and small companies to privately held businesses with limited financial size.

Legal Distinction Between OPC and Small Company

The key difference lies in the legal classification. An OPC is a specific type of company structure meant for a single person. A small company, on the other hand, is a status based on financial thresholds applicable to certain private limited companies. Thus, even though both may be small in operation, the law treats them under separate legal categories.

Possibility of Conversion

An OPC can voluntarily convert into a private limited company after two years or mandatorily if it exceeds certain thresholds (₹50 lakh paid-up capital or ₹2 crore turnover). Once converted, if the company meets the small company limits, it can qualify as a small company, thereby availing additional compliance benefits that were earlier unavailable as an OPC.

Conclusion

While a One Person Company and a small company share similar intentions in fostering entrepreneurship and offering compliance relief, they remain legally distinct under the Companies Act, 2013. An OPC, by definition, is excluded from being treated as a small company, even if its financials fall within the prescribed limits. However, both benefit from simplified compliance frameworks tailored to their size and structure. Understanding the distinction and overlap between these two concepts helps entrepreneurs choose the most suitable business form and plan future transitions effectively.

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