Distinguish between 'Small company' and 'inactive company'.

Distinction between 'Small Company' and 'Inactive Company' Basis of Distinction Small Company Inactive Company Legal Provision Defined under Section 2(85) of the Companies Act, 2013. Defined under Explanation to Section 455(1) of the Companies Act, 2013. Primary Characteristic Based on financial thresholds (paid-up capital and turnover) and exclusion criteria. It is a classification based on size. Based on operational status (not carrying on business, no significant accounting transactions, non-filing of returns). It is a classification based on activity level. Definition Criteria A company (other than a public company) whose: Paid-up share capital does not exceed ₹50 lakh (or such higher amount not exceeding ₹5 crore); AND Turnover as per its last profit and loss account does not exceed ₹2 crore (or such higher amount not exceeding ₹20 crore). A company which has: Not been carrying on any business or operation; OR Not made any significant accounting transaction during the last two financial years; OR Not filed financial statements and annual returns during the last two financial years. Exclusions The definition does not apply to: A holding company or a subsidiary company; A company registered under Section 8 (non-profit company); or A company or body corporate governed by any special Act. No specific exclusions based on company type, but rather on its operational status. Purpose of Classification To provide certain relaxations, exemptions, and privileges under the Companies Act, 2013, to reduce compliance burden for smaller entities. To allow companies that are not operational to obtain 'dormant company' status, thereby reducing their compliance burden while retaining their corporate identity. Operational Status Can be fully operational and active, meeting all compliance requirements, but within the specified financial limits. By definition, it is not carrying on active business or operations. Consequence/Benefit Enjoys various privileges and exemptions (e.g., simpler annual return, fewer board meetings, no need for cash flow statement). Can apply to the Registrar for obtaining the status of a 'dormant company' under Section 455, which reduces compliance requirements.