written by | April 21, 2022

What is a Small Company - Definition, Criteria, Examples

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Table of Content


In India, small businesses hold a unique place in the industrialised society due to their capacity to hire workers and generate jobs. Let us discover more about it in depth.

Did you know? 

The MSME sector contributes about 29% of the country’s GDP.

Definition of Small Company

Small companies provide services or are retailing activities such as supermarkets, pharmaceutical stores, merchants, bakeries, and smaller production units. Small companies are self-owned enterprises that involve less cash, fewer employees, and little or no equipment. These enterprises are well-suited to operating on a small level to satisfy a local area while also profiting the proprietors.

According to the latest definition, a “small company‘‘ means a company with –

  1. Paid-up share capital of fewer than ₹2 crores; or
  2. Turnover of fewer than ₹20 crores.

Criteria

  • Low Profitability and Revenue: Usually, a smaller firm has much fewer earnings than a large one. The amount of income generated by a firm depends on its nature. However, lesser sales don’t imply poorer profits.
  • Fewer Employees: It essentially on boards a smaller group of workers than some others. Smaller businesses are often managed by a single individual or a specific team.
  • Smaller Market Area: Small businesses, such as grocery stores, open in a remote municipality to provide service to the small segments of society or locality. As a result, they only have a little space to do trade.
  • Sole Proprietorship/Partnership and Taxes: The corporate system is unsuitable for small-scale workplace organisations. Regardless, small businesses should prioritise the formation of single proprietors, collaborations, and limited private corporations. It gives the business proprietors a great sense of effective management with the least fuss and expense associated with the business formation. The proprietor has to record business revenue and costs on tax filings because small businesses don't file their taxes.
  • Fewer Locations: It resides in a small region rather than multiple branches. It is considerably simpler and more realistic to manage fewer locations.

Also Read: A Guide on Company Registration Process

Examples of Small Company

A few examples of small companies are as follows:

Food Services

Everyone requires food for their survival. It is a thriving industry, and you wouldn't require a costly degree to start. Eateries provide opportunities, such as running an outlet or cooking for events. You might require different permissions, but it’s simple to get started.

Food delivery services are not for everybody. Bakeries, cafés, and eateries are some of the most difficult types of enterprises to run in the middle of the pandemic. New solutions such as frictionless delivery services can become a secure method to get through the epidemic and help people.

Personal Trainers

Fitness training has exploded in popularity and for valid purposes. Contemporary society encourages individuals to appear their best, where private and professional instructors come into existence. Although anybody may coach in theory, many instructors have certifications and work experience.

The challenge is creating a niche and persuading potential customers to use your services. Nevertheless, the harder you work, and the more you advertise yourself, the more famous you may become. Several instructors specialise in certain categories of clientele, such as athletes or older folks who want to keep active.

Most learning has become online within the past few years, with at-residence fitness becoming a good substitute for gyms. Use it to your benefit and promote your solutions to people all over the globe, not just locally. It may broaden your clientele to include people from all over the world, and you can also offer private training classes virtually.

Local Auto Repairs

Several folks like getting their hands filthy and cannot spend a week without doing something relating to repair. Fast fixes are always in-demand, and if your costs are reasonable and your expertise is sound, your reputation may quickly grow through word-of-mouth. If you enjoy working with automobiles, you should consider opening a local repair shop. Most individuals avoid taking their automobiles to a manufacturer for servicing because the services are expensive.

Structure of a Small Company

In reality, the managerial structure sets up a company hierarchy to perk up the performance and profitability of commercial enterprises. Because diverse smaller companies function in various ways, there is no single size fit. All the approaches for an organisational structure have their pros and cons. 

Some of the organisational structures are

Functional Organizational Structure

Whenever you create a functional organisational chart, you create a pyramid depending on every worker's job responsibility. Staff working towards that shared objective are a group with each other in a functional organisational structure. For instance, everything in your advertising staff can be grouped. Although if your tiny organisation just has three or four marketing personnel, you might arrange it so that one individual is in control, like the VP of marketing. Workers are more focused since they realise they are operating towards a similar objective, thanks to the functional organisation.

Divisional Organizational Structure

Divisional organisational configurations decentralise the functional organisational chart since workers' duties inside your company are split by item or area instead of functionality. For instance, you can divide India into four sections: northern, eastern, southern, and western. Eventually, each section can possess personnel, equipping every location with an expert in each field. When your company provides a variety of items, you may also divide jobs depending on the item under a divisional organisational arrangement.

Matrix Organizational Structure

Matrix organisational structures integrate both functional and divisional organisational arrangement traits. The matrix organisational configuration functions very much like a group, and every group does have a leader rather than departmental leaders. Matrix organisational charts bring together people who work on a task yet have multiple positions within your organisation. The matrix organisational structure is perhaps the most decentralised, leading to staff confusion regarding who is in control. The matrix organisational structure is ideal when your company works on a global scale or services many geographical areas.

Also Read: Difference Between Company vs Partnership Firm vs LLP

Changing Organizational Structures

Several small business entrepreneurs begin by experimentation. You might begin the company with simply you and an operator till you understand enough about the various functions people must play inside the corporation. It is not unusual for a small firm to begin with one organisational arrangement and then move to the next as it expands. For instance, when your company begins by simply serving the town in which it runs but subsequently covers the entire state, in this case, you might begin with one layout and then shift to the next to better accommodate the demands of your company and its consumers.

Conclusion

Small companies help to improve and grow societies. Businesses devise strategies for connecting assets and development, policy frameworks, economic circumstances, and current politics that vary from one place to another. They should devise methods that will eventually overcome key socioeconomic difficulties, therefore improving the lives in the area where they have the company.
Follow Khatabook for the latest updates, news blogs, and articles related to micro, small and medium businesses (MSMEs), business tips, income tax, GST, salary, and accounting.

FAQs

Q: Is there a limit to the number of workers a small firm can have?

Ans:

The optimum number of workers for a smaller firm is 500 for most organisations. However, there is no one measure that determines the number of workers. The highest amount of staff one can hire in a small firm varies according to the sector, income, and legislative framework.

Q: What are some common small-scale companies or businesses?

Ans:

  • Accounting services
  • Legal firms
  • Cleaning services
  • Real estate services
  • Mobile grooming
  • Veterinary services and many more

Q: What is the distinction between a large and a small company?

Ans:

The scope, finance, regulatory form, and administration of a small firm differ from a large corporation's.

Q: What distinguishes small companies from large corporations?

Ans:

A smaller company may outperform a large one with its flexibility and versatility. Smaller firms have more personal ties with their clients. It implies they could provide better customer services, implement quick product/service enhancements, and adjust to market shifts more quickly than bigger competitors.

Q: What causes small companies to fail?

Ans:

Small firms typically fail due to common faults such as mishandled wealth flow, uninspired, inadequate employee training, a flawed company concept, or a bad advertising and selling plan.

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The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.
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Disclaimer :
The information, product and services provided on this website are provided on an “as is” and “as available” basis without any warranty or representation, express or implied. Khatabook Blogs are meant purely for educational discussion of financial products and services. Khatabook does not make a guarantee that the service will meet your requirements, or that it will be uninterrupted, timely and secure, and that errors, if any, will be corrected. The material and information contained herein is for general information purposes only. Consult a professional before relying on the information to make any legal, financial or business decisions. Use this information strictly at your own risk. Khatabook will not be liable for any false, inaccurate or incomplete information present on the website. Although every effort is made to ensure that the information contained in this website is updated, relevant and accurate, Khatabook makes no guarantees about the completeness, reliability, accuracy, suitability or availability with respect to the website or the information, product, services or related graphics contained on the website for any purpose. Khatabook will not be liable for the website being temporarily unavailable, due to any technical issues or otherwise, beyond its control and for any loss or damage suffered as a result of the use of or access to, or inability to use or access to this website whatsoever.