Ficci seeks separate law to cover SMEs

New Delhi, Jan 30 | Updated: Jan 31 2005, 05:30am hrs
There is an urgent need to unshackle small and medium enterprises (SMEs) from as many as 3,365 corporate laws applicable to them, according to the Federation of Indian Chambers of Commerce and Industry (Ficci). The apex industry body has proposed a separate legislation for governance of small and private limited companies, with minimal regulations.

Ficci has mooted the idea to the JJ Irani Committee, which is reviewing the concept paper on amendment to Companies Act.

Asking for a separate chapter on SMEs in the Companies Act, it said that a distinction should be made between companies listed on the stock exchanges and those which are unlisted.

Listed companies have lesser public impact than the unlisted ones.

Ficci believes that 100% unlisted companies should be treated at par with private companies.

There should be a three-fold classification: private companies which are largely self-governing; public unlisted companies with lesser government regulations; and public listed companies with greater flexibility in their operations than before, but with stricter compliance norms.

Small private companies are limited companies that do not normally have access to funds of the wider investing public.

So, they must be granted more freedom under the law, says Ficci. SMEs have dynamic entrepreneurial talent and react to opportunities faster than many large corporate entities.

Citing the case of UK where small and medium-sized enterprises are subject to lesser regulations in matters of accounting and disclosure requirements as compared to large ones, Ficci said there should not be an obligation on Indian SMEs to submit a copy of profit and loss account as well as directors report. SMEs in UK are also exempted from auditing requirements if their turnover is below 3,50,000 pounds and balance sheet total does not exceed 1.4 million pounds.

They are exempted from audit unless 10% of shareholders insist for it.

In conclusion, the report asks for lesser requirements in terms of filing documents, maintenance of statutory register and records.

Ficci recommended that exemptions should be such that they urge family-owned concerns to graduate to companies status, rather than sole proprietorship and partnerships.

These recommendations have also been submitted to the Naresh Chandra Committee Report.

SMEs account for 40% of the manufacturing output in India and contribute for 35% of its exports.