Small enterprises big on new firm registrations

New Delhi: Small businesses have dominated the registration of new companies across sectors in November, indicates data released by the ministry of corporate affairs in its latest monthly update.

The average paid-up capital, or share subscription paid by investors, was just ₹1 lakh for farm-sector registrations, ₹27 lakh for new manufacturing units and ₹4.2 lakh on average for services firms, indicating the small size of the new firms.

More than 13,300 firms were formed in November, the shares of which were sold to investors for ₹1,232 crore, showed the ministry’s data.

Industry representatives say while the expansion of the corporate sector is typically characterized by growth in small businesses, there are certain practices by large corporations that tend to skew the data. “Growth in small businesses is good for India’s efforts to become a developed economy. However, it has also been observed that several large corporations set up small companies to secure their interests in terms of compliance of timely payments to their small business clients,” said Chandrakant Salunkhe, president of SME Chamber of India.

As per the MSME Development Act, a business that has procured goods or services from a micro, small and medium enterprise (MSME) and has outstanding payment for more than 45 days, must disclose it to the Registrar of Companies in a half-yearly return.

Industry observers say that starting smaller subsidiaries to engage with MSMEs allows large companies to sidestep this disclosure requirement in their own names.

Small companies have dominated registrations in other recent months, too. In the current financial year, May witnessed the most registrations with over 17,000 companies attracting initial investment of ₹3,204 crore, followed by 13,995 companies in September attracting ₹1,868 crore.

In the April to November period of the current financial year, over 122,300 companies were registered with a total paid-up capital of just ₹12,988 crore, showing an average share subscription of about ₹11 lakh.

Paid-up capital indicates the investments already pooled in by share subscribers. Authorized capital of these companies, on the other hand, would be much more, in order to give them flexibility for future expansion. However, that data is not readily available.

Official data also showed that community, personal and social services, trading and business services together accounted for more than half of all companies incorporated in November, while manufacturing accounted for 14% of all new registrations.

Maharashtra accounted for 17% of new company registrations, followed by Uttar Pradesh with 11%, and Delhi and Karnataka with 9% each.

Over 840 one-person companies were formed in November, while 14,178 limited liability partnerships were formed in the September quarter. At the end of November, there are over 1.64 million active companies in the country.

SME Chamber’s Salunkhe said that the Chamber would be making representations to various political parties about protecting the interests of small businesses in terms of a favourable regulatory and tax regime. As per official estimates, there are over 60 million unincorporated non-agriculture micro, small and medium enterprises (MSMEs) in the country.