Govt Revises Definition Of Small Companies, Doubles Their Thresholds For Paid Up Capital And Turnover

The government has revised the definition of small companies by increasing their threshold for paid up capital and turnover.

The definition of small companies was earlier revised under the Companies Act, 2013 by increasing their limit for paid-up capital from Rs 50 lakh to Rs 2 crore and turnover from Rs 2 crore to 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 Ministry of Corporate Affairs said in a release on Friday (16 September).

This significant move is part of the government's 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, the ministry said.

According to the ministry, 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," the ministry said.

Benefits of the revised definition for small companies

1. No need to prepare cash flow statement as part of financial statement.

2. Advantage of preparing and filing an Abridged Annual Return.

3. Mandatory rotation of auditor not required.

4. 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.

5. Holding of only two board meetings in a year.

6. 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.

7. Lesser penalties for small companies.