As part of the ‘ease of doing business’ initiative, MCA has revised/increased the ‘paid-up capital’ and ‘turnover’ thresholds applicable in the case of ‘small companies’ under the Companies Act, 2013, to reduce compliance burden for a greater number of companies to be treated as ‘small companies’.
The paid-up capital threshold has been raised from Rs 2 crore to Rs 4 crore, and the turnover threshold has been raised from Rs 20 crore to Rs 40 crore, effectively increasing the number of small businesses significantly.
Previously, the definition of “small companies” under the Companies Act, 2013 was revised by raising these thresholds: the paid-up capital threshold was raised from Rs 50 lakh to Rs 2 crore, and the turnover threshold was raised from Rs 2 crore to Rs 20 crore.
MCA has recently taken several initiatives/measures to improve the ease of doing business for corporates, such as decriminalising various provisions of the Companies Act, 2013/LLP Act, 2008, extending fast track mergers to start-ups, incentivizing the incorporation of One Person Companies (OPCs), and so on.
Thousands of small businesses contribute significantly to the growth of the Indian economy and the creation of jobs. As a result, the government is making ongoing efforts through initiatives/measures that create a more conducive business environment for law-abiding small businesses by reducing their compliance burden, allowing them to focus more on their core business.
It may be noted that small companies are eligible for certain benefits/ relaxations, in the form of reduced compliance burden, some of which are listed hereunder:
i) No need to prepare cash flow statement by small companies, forming part of financial statement,
ii) Advantage of preparing and filing an Abridged Annual Return,
iii) Mandatory rotation of auditor not required,
iv) 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,
v) Holding of only two board meetings in a year,
vi) 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,
vii) Lesser penalties for small companies, etc.
Given that the ‘paid up capital’ and ‘turnover’ thresholds applicable to ‘small companies’ under the Companies Act, 2013 have been further revised/increased, more companies will be able to enjoy relief from certain compliance burdens.
For the purpose of revising the definition of ‘small companies’, the MCA has recently issued Notification dt. 15/09/2022 on Companies (Specification of definition details) Amendment Rules, 2022. Earlier also MCA had issued similar Notification dt. 01/02/2021, whereby Paid-up Capital/ Turnover thresholds applicable for Small Companies were revised/ increased.