Micro Small And Medium Enterprises Development Act 2006

Small and medium enterprises or SMEs, also called small and medium-sized enterprises and small and medium-sized businesses or small and medium businesses or SMBs, are companies whose headcount or turnover falls below certain limits.

The abbreviation SME occurs commonly in the European Union and in international organizations, such as the World Bank, the United Nations and the WTO. The term small and medium-sized businesses or SMBs is predominantly used in the USA.

EU Member States traditionally had their own definition of what constitutes an SME, for example the traditional definition in Germany had a limit of 500 employees, while, for example, in Belgium it could have been 100. But now the EU has started to standardize the concept. Its current definition categorizes companies with fewer than 50 employees as "small", and those with fewer than 250 as "medium". By contrast, in the United States, when small business is defined by the number of employees, it often refers to those with less than 100 employees, while medium-sized business often refers to those with less than 500 employees. However, the most widely used American definition of micro-business by the number of employees is the same of that of European Union: less than 10 employees.

DEFINITIONS

1. As laid down in “Companies (Accounting Standards) Rules, 2006”
Sec 2(f)
“Small and Medium Sized Company” (SMC) means, a company-
(i) whose equity or debt securities are not listed or are not in the process of listing on any stock exchange, whether in India or outside India;
(ii) Which is not a bank, financial institution or an insurance company;
(iii) Whose turnover (excluding other income) does not exceed rupees fifty crore in the immediately preceding accounting year;
(iv) Which does not have borrowings (including public deposits) in excess of rupees ten crore at any time during the immediately preceding accounting year; and
(v) Which is not a holding or subsidiary company of a company which is not a small and medium-sized company

Explanation: For the purposes of clause (f), a company shall qualify as a Small and Medium Sized Company, if the conditions mentioned therein are satisfied as at the end of the relevant accounting period.

Accordingly, certain instructions are prescribed for SMC and following Accounting standards are not applicable to them

Accounting Standard – 3 ‘Cash Flow Statement’
Accounting Standard – 17 ‘Segment Reporting’

The following Accounting standards will apply in part for SMC’s

Accounting Standard – 15 ‘Employee Benefits’
Accounting Standard – 19 ‘Leases’
Accounting Standard – 20 ‘Earning Per Share’
Accounting Standard – 28 ‘Impairment of Assets’

2. As in the International Financial Reporting Standard for Small and Medium-sized Entities (IFRS for SMEs)
The IFRS for SMEs is intended for use by small and medium-sized entities (SMEs) which are entities that:
(a) Do not have public accountability; and
(b) Publish general purpose financial statements for external users. Examples of external users include owners who are not involved in managing the business, existing and potential creditors, and credit rating agencies.

An entity has public accountability if:
(a) it files, or it is in the process of filing, its financial statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market; or
(b) It holds assets in a fiduciary capacity for a broad group of outsiders, such as a bank, insurance entity, securities broker/dealer, pension fund, mutual fund or investment banking entity.
If a publicly accountable entity uses this [draft] standard, its financial statements shall not be described as conforming to the IFRS for SMEs—even if national law or regulation permits or requires this [draft] standard to be used by publicly accountable entities.

3. Classification as laid down in Sec 7 (1) of the Micro, Small and Medium Enterprises Development Act, 2006.
(a) in the case of the enterprises engaged in the manufacture or production of goods pertaining to any industry specified in the first schedule to the Industries (Development and Regulation) Act, 1951, as
(i) a micro enterprise, where the investment in plant and machinery does not exceed twenty five lakh rupees;
(ii) a small enterprise, where the investment in plant and machinery is more than twenty five lakh rupees but does not exceed five crore rupees; or
(iii) a medium enterprise, where the investment in plant and machinery is more than five crore rupees but does not exceed ten crore rupees;
(b) in the case of the enterprises engaged in providing or rendering of services, as
(i) a micro enterprise, where the investment in equipment does not exceed ten lakh rupees;
(ii) a small enterprise, where the investment in equipment is more than ten lakh rupees but does not exceed two crore rupees; or
(iii) a medium enterprise, where the investment in equipment is more than two crore rupees but does not exceed five crore rupees

Micro, Small and Medium Enterprises Development Act, 2006

The Micro, Small and Medium Enterprises Development Bill 2005, having been passed by both the houses of Parliament, received the assent of the President on 16th June 2006. It came on the Statute Book as the Micro, Small and Medium Enterprises Development Act, 2006 (27 of 2006) and come into force from 02nd Oct, 2006. The MSMED Act, 2006 provides for facilitating the promotion and development and enhancing the competitiveness of Micro, Small and Medium Enterprises and for matters connected therewith. Under this Act, a National Board for Micro, Small and Medium Enterprises has been established

Professional opportunities
Chartered Accountants can explore opportunities in this area including formation, Registration, taxation and foreign direct investment. They can help large scale enterprises form systems to ensure that they comply with the deadlines for payment of any goods or services supplied by MSMEs. Also there are opportunities in counseling of MSMEs for the rights and benefits available to them.

Related Websites

http://msme.gov.in/
http://www.smenetwork.net/
http://smetimes.tradeindia.com/smetimes/index.html
http://www.fisme.org.in/
http://www.laghu-udyog.com
http://www.smera.in/ - rating agency
http://www.nmcc.nic.in/ - national manufacturing competitiveness council

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