MCA revises threshold for paid up capital of “small companies”

Latest revision to facilitate Ease of Doing Business further and reduce compliance burden on “small companies”

The Ministry of Corporate Affairs (MCA) has taken several measures in the recent past towards ease of doing business and ease of living for the corporates.  These included decriminalisation of various provisions of the Companies Act, 2013 & the LLP Act, 2008, extending fast track mergers to start ups, incentivising incorporation of One Person Companies (OPCs) etc. Earlier, definition of “small companies” under the Companies Act, 2013 was revised by increasing their thresholds for paid up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”. This definition has, now, been further revised by increasing such thresholds for paid up Capital from “not exceeding Rs. 2 crore” to “not exceeding Rs. 4 crore” and turnover from “not exceeding Rs. 20 crore” to “not exceeding Rs. 40 crore”.

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.

Some of the benefits of reduction in compliance burden as a result of the revised definition for small companies are as under:

• No need to prepare cash flow statement as part of financial statement.
• Advantage of preparing and filing an Abridged Annual Return.
• Mandatory rotation of auditor not required.
• An Auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.
• Holding of only two board meetings in a year.
• Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company.
• Lesser penalties for small companies.

The relevant notification issued by the Ministry of Corporate Affairs is available on the Ministry’s website at the following link:

https://www.mca.gov.in/bin/dms/getdocument?mds=tiMs9IFJ8xuPm%252B%252Foxc6fUw%253D%253D&type=open

Click to see the notification: Small Companies Notification

Threshold increase for small companies expands eligibility for compliance relaxations and reduced filing and audit obligations. Revision raises the small company eligibility thresholds by increasing paid up capital and turnover limits to broaden the class eligible for reduced compliance. Eligible small companies are exempted from preparing a cash flow statement, may file an abridged annual return, are not subject to mandatory auditor rotation, do not require auditor reporting on internal financial controls, may hold only two board meetings annually, may have the annual return signed by the company secretary or a director, and face reduced penalties.