MCA Broadens the Scope of “Small Company”

The Ministry of Corporate Affairs (MCA) has introduced a notable change to the definition of a “Small Company” under the Companies Act, 2013. Through the Companies (Specification of Definition Details) Amendment Rules, 2025 effective 1 December 2025, the financial thresholds used to identify such companies have been substantially enhanced. This revision is intended to meaningfully reduce compliance obligations for a wider segment of India’s corporate sector and support the Government’s broader objective of simplifying the business environment.

Expanded Financial Thresholds

Under the amended framework, the upper limits for both paid-up share capital and turnover have been considerably increased. A company can now qualify as a Small Company if its paid-up capital does not exceed INR 10 crore and its turnover in the preceding financial year does not exceed INR 100 crore. This marks a steep jump from the earlier ceilings of INR 4 crore (paid-up capital) and INR 40 crore (turnover). As a result, many medium-sized private companies that previously fell outside the definition may now be covered.

Companies That Remain Excluded

Not all entities are eligible to avail the revised status. Certain categories continue to remain outside the Small Company classification, irrespective of their capital structure or turnover. These include public companies, holding and subsidiary companies, Section 8 companies, and companies or bodies corporate that are governed by specific sectoral legislation such as those in banking or insurance.

Key Compliance Advantages

1) The practical benefit of falling within the Small Company framework lies in the extensive compliance relaxations available under the Companies Act, 2013. Companies that qualify are exempt from several procedural and financial reporting requirements. For instance, they are not mandatorily required to dematerialize their share capital and may continue to hold shares in physical form. Their board governance requirements are lighter, with only two board meetings required in a financial year, one in each half, compared to the four meetings expected of other companies. Financial reporting obligations are also simplified. Small Companies need not prepare a cash flow statement as part of their financial statements, and they are not subject to mandatory auditor rotation. Further, auditors are not required to furnish a report on the adequacy and operational effectiveness of Internal Financial Controls, which significantly reduces audit complexity and costs.

2) Annual compliance is eased as well. Eligible entities may file the simplified annual return (Form MGT-7A), where no company secretary is appointed, may be signed by a single director. An abridged director’s report with fewer statutory disclosures also applies. Penalties for certain defaults are comparatively lower. In many instances, the amounts payable by Small Companies are reduced to fifty per cent of the penalty levied on other companies, subject to overall caps on the quantum applicable to the company and its officers.

3) In terms of corporate restructuring, qualifying entities may also utilize the “fast-track merger” route, allowing mergers without the need for National Company Law Tribunal (NCLT) approval, thereby substantially compressing timelines and procedural complexities.

This expansion of the Small Company definition represents a significant compliance windfall. Numerous private companies that previously bore extensive regulatory burdens may now experience a material reduction in administrative costs, statutory filings, and governance-related obligations. The financial and operational savings arising from simplified reporting, reduced audit requirements, and lower penalties will enable management teams to redirect time and resources toward core business and strategic growth.