Threshold Limits Under the Companies Act, 2013

Threshold Limits Under the Companies Act, 2013

Under the Companies Act 2013 of India, companies must adhere to several threshold limits to maintain compliance. These limits include the following:

  • Minimum Paid-up Capital: For a private company, the minimum paid-up capital is Rs. 100,000, and for a public company, it is Rs. 500,000.
  • Maximum number of members in a private company: A private company can have a maximum of 200 members, while a public company can have unlimited members.
  • The threshold for holding an Annual General Meeting (AGM): Companies with a paid-up capital of up to Rs. 10 Lakhs are not required to hold AGMs, while companies with a paid-up capital of more than Rs. 10 Lakhs are required to hold AGMs.
  • The threshold for appointing Independent Directors: Companies with a paid-up capital of Rs. either a turnover of Rs. 10 crores or more. 100 Crores or more are required to appoint at least one Independent Director.
  • The threshold for conducting a secretarial audit: All companies whose paid-up capital is Rs. 20 Crores or more or turnover is Rs. 200 Crores or more are required to conduct a secretarial audit every financial year.

These are some of the main threshold limits under the Companies Act of 2013, but companies must also adhere to many other limits and requirements.

What are Threshold Limits Under The Companies Act 2013?

Threshold limits under the Companies Act 2013 refer to the minimum and maximum values or limits that companies must adhere to maintain compliance with the law. 

These limits apply to various aspects of a company's operations, such as the minimum paid-up capital, the maximum number of members in a private company, the threshold for holding an Annual General Meeting (AGM), the threshold for appointing Independent Directors, and the threshold for conducting a secretarial audit. 

By adhering to these threshold limits, companies can ensure that they are operating in compliance with the regulations outlined in the Companies Act 2013 and can avoid penalties or other legal repercussions.

It is important to note that these limits may change over time, as per amendment in the act and Companies are expected to be up to date with these changes.

What is the company threshold limit?

A company threshold limit is a financial or operational benchmark established by a company or regulatory bodies to help determine when certain actions must be taken or certain restrictions are imposed on the company. 

These limits may be set for a variety of financial metrics, such as revenue, profit, or debt levels, or operational metrics, such as employee headcount or production levels.

It can also refer to a certain limit for filing or disclosure requirements; for instance, if a company has revenue under a certain threshold, it doesn't have to file or disclose certain information.

The Act defines different classes of companies based on their paid-up capital and turnover. These classes are-

  • One-Person Company (OPC) - An OPC is a private company with only one member. The paid-up capital threshold for an OPC is Rs. 1,00,000.
  • Small Company - A company that has a paid-up capital of not more than Rs. 50 lakhs or a turnover of not more than Rs. 2 crores is considered a small company.
  • Private Company - A company that has a paid-up capital of more than Rs. 50 lakhs or a turnover of more than Rs. 2 crores is considered a private company.
  • Public Company - A company that is not private is considered a public company.

How Threshold Limits Under The Companies Act 2013 works

Threshold limits under the Companies Act 2013 of India are used to provide relief to small and medium-sized companies by exempting or relaxing compliance requirements for certain provisions of the Act. 

The specific threshold limits and the provisions they apply to vary depending on the specific provision.

For example, under Section 135 of the Act, companies are required to undertake Corporate Social Responsibility (CSR) activities if they meet certain financial thresholds, such as having a net worth of INR 500 crore (approximately $67 million) or more or a turnover of INR 1,000 crore (approximately $134 million) or more. 

Companies that do not meet these thresholds are not required to undertake CSR activities.

Similarly, Section 186 of the Act limits companies' ability to lend money, invest in other companies, or provide guarantees or securities. 

These limits apply to companies that have a paid-up share capital of INR 100 crore (approximately $13.4 million) or more.

Other threshold limits apply to different provisions of the Act, such as the requirement to appoint a woman director or to conduct secretarial audits. 

These limits are set to provide relief to small and medium-sized companies so they can focus on their core business activities rather than being bogged down by compliance requirements.

It's important to note that these threshold limits are subject to change by the Government via notification in the Official Gazette based on the needs and circumstances. 

Companies should keep themselves updated with the changes in regulations and compliance accordingly.

Types of Threshold limits under the Companies Act

Several types of threshold limits are used in the Act, including:

  • Financial Thresholds: These limits are based on the financial condition of a company, such as its turnover, net worth, or paid-up capital. For example, the threshold limit for mandatory Corporate Social Responsibility (CSR) activities is based on a company's net worth or turnover.
  • Shareholding Thresholds: These limits are based on the percentage of shares held by a particular shareholder or group of shareholders. For example, the threshold limit for making a related party transaction is based on the percentage of shares the related party holds.
  • Time-based Thresholds: These limits are based on the length of time a company has been in existence. For example, the threshold limit for appointing independent directors is based on the length of time a company has been listed on a stock exchange.
  • Turnover-based Thresholds: These limits are based on the turnover of the company. For example, the threshold limit for mandatory secretarial audits is based on the turnover of the company.
  • Employee-based Thresholds: These limits are based on the company's number of employees. For example, the threshold limit for maintaining the register of employees under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, is based on the company's number of employees.

It's important to note that these threshold limits are subject to change by the Government via notification in the Official Gazette based on the needs and circumstances. 

Companies should keep themselves updated with the changes in regulations and compliance accordingly.

Benefits of Threshold Limits Under The Companies Act, 2013

The Companies Act 2013 of India, lays out certain threshold limits for various provisions to provide relief to small and medium-sized companies. 

These threshold limits provide exemption or relaxation in compliance requirements for companies that fall below certain thresholds in terms of their turnover, paid-up capital, or other financial indicators. 

Some of the benefits of these threshold limits include the following:

  • Reduced Compliance Burden: Companies that fall below the threshold limits are not required to comply with certain provisions of the Act, which can save them time and resources.
  • Cost Savings: Companies that fall below the threshold limits may also save money on compliance-related expenses such as accounting and legal fees.
  • Encourages Entrepreneurship: The threshold limits can encourage entrepreneurs to start and run small and medium-sized companies by reducing their regulatory burden.
  • Greater Efficiency: By exempting small and medium-sized companies from certain provisions of the Act, the government can allow these companies to focus on their core business activities and can help to promote the growth of these companies.
  • Improved Governance: By providing exemptions or relaxed compliance requirements for small and medium-sized companies, the threshold limits also help to improve corporate governance by reducing the potential for fraud and mismanagement.

Disadvantages of Threshold Limits Under The Companies Act, 2013

While threshold limits under the Companies Act 2013 can provide many benefits for small and medium-sized companies, there are also some potential drawbacks to these limits. These include:

  • Lack of Uniformity: Different companies may be exempt from different provisions of the Act based on their size, leading to a lack of uniformity in compliance requirements across different companies.
  • Compliance Costs: Companies that are just above the threshold limit may face significantly higher compliance costs than those that are just below the limit, which may create a disadvantage.
  • The incentive to Misreport: Some companies may try to misreport their size or financials to fall below the threshold limits, which can create an incentive for fraud.
  • Reduced Transparency: Companies that are exempt from certain provisions of the Act may also be exempt from disclosing certain information, which can reduce transparency in the marketplace.
  • Reduced Governance: By not complying with the certain provision of the Act, companies might compromise the internal control and governance mechanism, which may affect the overall governance and integrity of the company.
  • Less Accountability: The companies that fall below the threshold limits may not be held as accountable as those above threshold limits, which can create an imbalance in the market.

Provisions of Threshold

The provisions of the Act that establish threshold restrictions relate to the following: submission of an annual return by a company secretary with proper certification, the corporate social responsibility committee, internal audits, the appointment and reappointment of auditors, the nomination and remuneration committee, the vigil mechanism, key management personnel, a full-time company secretary, secretarial audits, and the filing of balance sheets and profit and loss accounts.

The provisions and threshold limits you've listed are all part of the Companies Act in India.

  • Duly Certified Annual Return by a Company Secretary in practice applies to all companies.
  • Corporate Social Responsibility Committee and Nomination and Remuneration Committee are mandatory for companies that meet certain specified thresholds of net worth, turnover or net profit.
  • Internal Auditor and Appointment & reappointment of Auditor apply to companies with a certain threshold of turnover or net worth.
  • Women directors and Independent Directors are mandatory for a certain class of companies that meet specified thresholds of net worth, turnover or net profit.
  • Auditors Committee, Vigil Mechanism and Key Managerial Personnel, Whole-time Company Secretary apply to all companies,
  • Secretarial Audit and Filing of Balance Sheet and Profit and Loss Account in Extensible Business Reporting Language (XBRL) Mode applies to companies that meet certain specified thresholds of turnover, net worth, or net profit.

These provisions and threshold limits are established to ensure that companies are held accountable to certain standards of governance, disclosure, and social responsibility and to provide a way for the government to oversee and regulate the operations of companies to protect shareholders and other stakeholders.

Read more,

Detailed Procedure for Striking-off a Company under Companies Act 2013

Procedure for Private Placement of securities under Companies Act 2013

If you hold a public limited company, then you must comply with all these requirements of the Companies Act, 2013

Conclusion

In conclusion, the threshold limits under the Companies Act 2013 are intended to provide a balance between compliance and ease of doing business for companies in India by taking into account the size, paid-up capital, and turnover of a company. 

These limits determine the compliance and reporting requirements a company must adhere to and are intended to reduce the burden on small and medium-sized enterprises while ensuring that larger companies are accountable and transparent.

FAQs Related to Threshold Limit Under The Companies Act, 2013

1. What is the threshold limit for a company to do a related party transaction?

The threshold limit for a company to do a related party transaction is 10% of the company's net worth, as per Section 188 of the Companies Act 2013.

2. What is the threshold limit for a company to conduct a board meeting?

A company is required to conduct a board meeting at least once every three months, and not more than four months should elapse between two consecutive meetings as per section 173 of the Companies Act, 2013.

3. What is the threshold limit for a company to conduct an Extraordinary General Meeting (EGM)?

As per section 100 of the Companies Act 2013, An Extraordinary General Meeting (EGM) can be conducted by a company if it receives a requisition from at least 5% of the total number of members of the company or at least 100 members of the company (whichever is less), or by the Board of Directors on its own accord.

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