MCA Relaxes Small Company Thresholds: Unlocks Compliance Benefits

 The Ministry of Corporate Affairs has recently expanded the eligibility thresholds for classification as a ‘small company’ under the Companies Act, 2013. A company will now qualify as a small company if its paid-up capital does not exceed ₹10 crore and its annual turnover in the preceding financial year does not exceed ₹100 crore.

This relaxation enables a larger number of companies to avail themselves of the benefits accorded to ‘small companies’, resulting in a more streamlined, cost-efficient, and growth-oriented compliance framework under the corporate law.

The key benefits available to ‘small’ companies includes:

• Simplified financial reporting: Small companies are exempt from preparing cash flow statements, and auditors are not required to report on internal financial controls, reducing annual reporting and audit efforts.
• Ease in annual filings: In the absence of a company secretary, the annual return can be signed by a single director. Penalties are capped and comparatively lower than those applicable to other companies.
• Reduced ROC fees: A separate, lower fee structure helps companies save on filing costs, particularly those with higher authorised capital or frequent filings.
• No mandatory dematerialisation: Small companies are not required to dematerialise their securities, avoiding related compliance and administrative burdens.
• Faster restructuring routes: More companies can now utilise the fast-track merger mechanism, enabling quicker approvals and lower costs for corporate reorganisation.
• Lower governance requirements: Only two board meetings per year are mandatory, offering operational flexibility without compromising governance oversight.
• Exemption from CARO 2020: Audit disclosures under the Companies (Auditor’s Report) Order, 2020 (CARO 2020) do not apply, simplifying the audit process.

However, it is noteworthy that the small-company benefits are not available if the small company falls under the following specified categories:

• A public company;
• A holding company or a subsidiary company (even if it meets the financial thresholds)
• A company registered under Section 8 (i.e. a non-profit / not-for-profit company)
• A company governed by a special Act.

Overall, the expanded thresholds foster a more supportive environment for emerging and growing businesses. Companies nearing or within these new limits may reassess their status and explore the available compliance benefits.