Govt revises definition of small companies; increases paid up capital threshold from Rs 2 cr to Rs 4 cr

The government has redefined small companies to increase the threshold for paid up capital and turnover. The Ministry of Corporate Affairs (MCA) said that these measures were taken to facilitate the ease of doing business.

The ministry said in a notification, “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”.

The government has also decriminalised various provision of the Companies Act 2013, and the LLP Act 2008, extended fast track mergers to startups as well as incentivised the incorporation of One Person Companies (OPCs).

“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,” it said.

In order to reduce compliance burden the benefits the revised definition would bring include removing the need for preparing cash flow statements as part of the financial statement, approval to prepare and file an abridged annual return, non-requirement of mandatory rotation of auditors, non-requirement of auditor of a small company to report on the adequacy of the internal financial controls and its operating effectiveness, holding of only two board meetings a year, signing of the annual return of the company by the company secretary or director of the company, and lesser penalties for small companies.

Also read: Amazon India is working closely with govt-backed e-platform ONDC, says company's top exec