Centre Revises Small Company Definition To Ease Compliance Burden

The Ministry of Corporate Affairs (MCA) has revised the paid-up capital and threshold limit of small companies defined under the Companies Act 2013. Initially, the MCA amended the definition of small companies by increasing their limit of paid-up capital from Rs.50 lakh to Rs.2 crore and turnover from Rs.2 crore to Rs.20 crore.

The MCA has now further revised the definition of small companies and increased the limit of paid-up capital from Rs.2 crore to Rs.4 crore and turnover from Rs.20 crore to Rs.40 crore. Thus, any company with a paid-up capital not exceeding Rs.4 crore and turnover not exceeding Rs.40 crore will be considered a small company and enjoy the ease of compliance provided to small companies under the Companies Act, 2013.  

The move to revise the definition of a small company is part of the government’s proactive measures towards ease of doing business and living for the corporates. According to the MCA, small companies represent the innovation capabilities and entrepreneurial aspirations of lakhs of citizens and contribute to employment and growth in a significant manner.

The MCA stated in its official statement that the government is committed to taking measures that create a conducive business environment for law-abiding companies, including reducing the compliance burden for companies.

The benefits provided to small companies under the Companies Act are as follows:

• No preparation of cash flow statement as a part of the financial statement
• Preparing and filing an abridged annual return
• No requirement for mandatory rotation of auditor
• An auditor is not required to report on the adequacy of the internal financial controls and their operating effectiveness in the auditor’s report
• Conducting only two board meetings per year
• The company secretary can sign the company annual return, or a director can sign the return where there is no company secretary
• Advantages of lesser penalties

Revising the definition of a small company will allow more companies to come under the category of a small company. It will reduce the compliance burden of many companies and improve the ease of doing business in the country.

For any clarifications/feedback on the topic, please contact the writer at mayashree.acharya@clear.in