Chapter:- Preliminary 1
Solution to Question -1
(i) According to section 2(85) of the Companies Act, 2013, small company means a company, other than a
public company, having (a) paid-up share capital not exceeding four crore rupees or such higher amount as may
be prescribed which
shall not be more than ten crore rupees; and
(b) turnover as per profit and loss account for the immediately preceding financial year not exceeding forty
crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore
rupees:
Provided that nothing in this clause shall apply to a holding company or a subsidiary company.
Also, according to section 2(87), subsidiary company, in relation to any other company (that is to say the
holding company), means a company in which the holding company exercises or controls more than one-half
of the total voting power either at its own or together with one or more of its subsidiary companies. In the
given question, Nice Software Limited (a public company) holds 2,00,000 equity shares of Smart Solutions
Private Limited (having paid up share capital of 5,00,000 equity shares @ ₹ 10 totaling ₹ 50 lakhs). Hence,
Smart Solutions Private Limited is not a subsidiary of Nice Software Limited and hence it is a private
company and not a deemed public company. Further, the paid up share capital (₹ 50 lakhs) and turnover (₹ 2
crores) is within the limit as prescribed under section 2(87), hence, Smart Solutions Private Limited can be
categorised as a small company.
(i) According to section 2 (40), Financial statement in relation to a company, includes
(a) a balance sheet as at the end of the financial year;
(b) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income
and expenditure account for the financial year;
(c) cash flow statement for the financial year;
(d) a statement of changes in equity, if applicable; and
(e) any explanatory note annexed to, or forming part of, any document referred to in points
(a) to (d):
Provided that the financial statement, with respect to One Person Company, small company and dormant
company, may not include the cash flow statement.
Smart Solutions Private Limited being a small company is exempted from filing a cash flow statement as a
part of its financial statements. Thus, Smart Solutions Private Limited has not defaulted in filing its financial
statements with ROC.
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