Definition of a Small Company in Companies Act 2006
The Companies Act 2006 (CA 2006) defines a small company as a company that meets certain qualitative and quantitative criteria.
Qualitative Factors
A company cannot qualify as a small company if it is:
Key Facts
- Qualitative factors: Public companies and certain financial services companies cannot qualify as small companies.
- Size thresholds: A company needs to meet specific size thresholds for turnover, balance sheet total, and the average number of employees to qualify as a small company.
- Turnover: The maximum turnover for a small company is £10.2 million.
- Balance sheet total: The maximum balance sheet total for a small company is £5.1 million.
- Average number of employees: A small company should have an average of fewer than 50 employees.
Important facts related to the topic:
- Small companies and micro-entities have special provisions available under the Companies Act 2006 for preparing and filing their annual accounts and reports.
- Medium-sized companies also have some special provisions available when preparing their annual accounts and reports, such as requirements for the strategic report and directors’ report.
- Large companies that do not meet the criteria for micro-entities, small, or medium-sized companies are required to prepare and file full accounts.
- A public company
- A company that is subject to certain financial services regulations
Quantitative Factors
To qualify as a small company, a company must meet the following size thresholds:
- Turnover: Not more than £10.2 million
- Balance sheet total: Not more than £5.1 million
- Average number of employees: Fewer than 50
The turnover and balance sheet total figures are based on the company’s most recent financial year. The average number of employees is based on the average number of employees employed by the company during the financial year.
Implications of Small Company Status
Small companies benefit from a number of exemptions and simplifications under the CA 2006. These include:
- Reduced financial reporting requirements
- Simplified accounting procedures
- Exemption from the requirement to appoint an auditor
Conclusion
The definition of a small company in the CA 2006 is based on a combination of qualitative and quantitative factors. Companies that meet the criteria for small company status benefit from a number of exemptions and simplifications under the Act.
Sources
- ICAEW: Size of a company
- LexisNexis: The small companies regime
- Legislation.gov.uk: The Small Companies (Micro-Entities’ Accounts) Regulations 2013
FAQs
What is the definition of a small company under the Companies Act 2006?
A small company is a company that meets certain qualitative and quantitative criteria.
What are the qualitative factors that determine whether a company is a small company?
A company cannot qualify as a small company if it is a public company or a company that is subject to certain financial services regulations.
What are the quantitative factors that determine whether a company is a small company?
To qualify as a small company, a company must have a turnover of not more than £10.2 million, a balance sheet total of not more than £5.1 million, and an average number of employees of fewer than 50.
What are the benefits of being a small company under the Companies Act 2006?
Small companies benefit from a number of exemptions and simplifications, including reduced financial reporting requirements, simplified accounting procedures, and exemption from the requirement to appoint an auditor.
What are the implications of not meeting the definition of a small company?
Companies that do not meet the definition of a small company are subject to more stringent financial reporting requirements and other regulations.
How can a company determine if it meets the definition of a small company?
A company can determine if it meets the definition of a small company by comparing its turnover, balance sheet total, and average number of employees to the thresholds set out in the Companies Act 2006.
What should a company do if it no longer meets the definition of a small company?
If a company no longer meets the definition of a small company, it must comply with the more stringent financial reporting requirements and other regulations that apply to larger companies.