Corp Affairs Min Revises Definition of "Small Companies"

The ministry has revised small companies' paid up capital and turnover thresholds to INR 4 crore and INR 40 crore respectively.

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In order to qualify as "small companies", business entities must have a paid up capital of less than or equal to INR 4 crore and a turnover of less than or equal to INR 40 crore, according to a new notification by the Ministry of Corporate Affairs (MCA).


The ministry has revised the rules regarding small companies' paid up capital and turnover, which were less than or equal to INR 2 crore and INR 20 crore respectively prior to the latest notification.

Earlier, the definition of "small companies" under the Companies Act, 2013, had been revised by increasing their thresholds for paid-up capital from "not exceeding INR 50 lakh" to "not exceeding INR 2 crore" and turnover from "not exceeding INR 2 crore" to "not exceeding INR 20 crore".

MCA has taken several measures in the recent past towards enabling the ease of living and doing business for corporates, said the ministry, citing the decriminalisation of various provisions of the Companies Act, 2013, and the LLP Act, 2008. These were aimed at extending fast track mergers to startups and incentivising incorporation of One Person Companies (OPCs), among other things.

"Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner. The Government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies," said MCA.

According to the ministry, reducing the compliance burden on companies through the latest revision in laws has a number of benefits, such as eliminating the need to prepare cash flow statements as part of financial statements and to have a mandatory rotation of auditors. Also, an auditor of a small company is not required to report on the adequacy of the internal financial controls and the company's operating effectiveness.

Further, on account of the new rules, companies categorised as "small" would be able to prepare and file abridged annual returns, with the company secretary or a director of the company being permitted to sign the annual return. What's more, small companies are required to hold only two board meetings in a year and face fewer penalties.