Revision in the definition of small company
In a move to ease the compliance burden on smaller businesses, the Ministry of Corporate Affairs (MCA) has recently updated the definition of a “small company” through Notification No. G.S.R. 700(E) dated 15th September 2022.
This amendment revises the thresholds for paid-up capital and turnover, making it easier for more companies to qualify for the benefits reserved for small businesses.
Section 2(85) of the Companies Act 2013
“small company” means a company, other than a public company,—
(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed which shall not be more than ten crore rupees ; or and
(ii) turnover of which as per profit and loss account for the immediately preceding financial year does not exceed two crore rupees or such higher amount as may be prescribed which shall not be more than one hundred crore rupees :
Provided that nothing in this clause shall apply to—
(A) a holding company or a subsidiary company;
(B) a company registered under section 8; or
(C) a company or body corporate governed by any special Act;
MCA through Notification No. G.S.R. 700(E) prescribed the following thresholds:
What Are the New Thresholds ?
Under the new rules, a company will now be considered a small company if it meets both the following criteria:
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- Paid-up capital: Up to ₹4 crore (previously ₹2 crore) &
- Turnover: Up to ₹40 crore (previously ₹20 crore)
Who Is Not a Small Company?
A company cannot be classified as a small company if:
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- It is a public company. (even though turnover and capital is below above threshold)
- It is a subsidiary or holding company of a public company.
- Its paid-up capital exceeds Rs. 4 crores or turnover exceeds Rs. 40 crores in the preceding financial year.
- a company registered under section 8;
- a company or body corporate governed by any special Act;
Small companies enjoy certain exemptions such as :
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- small companies not required to prepare cash flow statements,
- small companies can prepare annual report in abridged form i.e. MGT-7A
- only 2 board meetings needs to conduct in a calendar year
- various E-forms can be signed by the directors only and no need o professionals certification.
- reduced penalties under the Company Act 2013
- Auditors not require to report on internal control over financial reporting etc.
- CARO reporting is not applicable to small companies.
- Small companies benefit from reduced government fees for filings and potentially lower penalties for non-compliance, as per MCA notifications.
