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CA Intermediate · Corporate and Other Laws · Preliminary

Meridian Traders Pvt Ltd has 6 shareholders. Its articles restrict transfer of shares, and it has never invited the public to subscribe to its securities. The board proposes to make it a 'small company' under the Companies Act, 2013. Which one of the following conditions must be met for it to qualify as a small company?

A small company must be a private company, not a holding or subsidiary company, not a section 8 company and not governed by a special Act, and its paid-up capital and turnover must both stay within the prescribed limits. A subsidiary therefore cannot qualify.

  1. AIt must be a public company with paid-up capital not exceeding the prescribed limit
  2. BIt must be a private company, not a holding or subsidiary company, not registered under section 8, with paid-up capital and turnover not exceeding the prescribed limitsCorrect
  3. CIt must be a one person company with turnover above the prescribed limit
  4. DIt must be a private company, which may be a subsidiary of a public company, provided its turnover is within the prescribed limit

Explanation

A small company must be a company other than a public company. It must not be a holding or subsidiary company, must not be a section 8 company, and must not be governed by a special Act. Its paid-up capital and turnover must both be within the prescribed limits. Option D is wrong because a subsidiary cannot be a small company.

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