In a significant move for India’s corporate landscape, the Ministry of Corporate Affairs (MCA) has again expanded the definition of a “Small Company” under the Companies Act, 2013. The revised thresholds — ₹10 crore paid-up capital and ₹100 crore turnover — mark a major step toward reducing compliance burdens for the country’s rapidly growing private companies.
This update brings thousands of companies under a lighter and simpler regulatory regime. Below is a comprehensive breakdown of the change, along with the key statutory relaxations it introduces.
Revised Definition of a Small Company (2025)
A company now qualifies as a Small Company if it meets both of the following criteria:
• Paid-up Capital ≤ ₹10 Crore
• Turnover (preceding FY) ≤ ₹100 Crore
These thresholds represent a substantial increase from the earlier limits of ₹4 crore and ₹40 crore.
Impact of the Change: Full Compliance Relief Explained
Below is a list of the compliance relaxations available to Small Companies under the Companies Act, along with the relevant rule references and their practical implications.
1. Lower Compliance Burden
• Only Two Board Meetings Per Year
(Section 173)
Small Companies are required to hold only two Board Meetings annually, with a minimum gap of 90-day between them.
• No Mandatory Cash Flow Statement
(Section 2(40))
Small Companies are not required to prepare a Cash Flow Statement as part of their financial statements.
• Abridged Board’s Report
(Rule 8A of Companies (Accounts) Rules, 2014)
Small Companies can prepare a significantly shorter Board’s Report.
Not required to include matters such as CSR disclosures, risk management policy, formal board evaluation, detailed governance reports, IFC reporting, remuneration disclosures under Section 197(12), secretarial audit report, and similar detailed requirements.
2. Simplified Annual Filings
Filing of Form MGT-7A (Instead of MGT-7)
Small Companies can file the abridged annual return, MGT-7A.
Key advantages:
• Reduced shareholding and debt-related disclosures
• No requirement to report detailed indebtedness
• PCS certification not required (unless turnover > ₹20 crore)
• Lower penalties for filing errors
3. Reduced Penalties
50% Lower Penalties for Non-Compliances (Section 446B)
Small Companies are eligible for an automatic 50% reduction in penalties for several defaults, including:
• Late filing of the Annual Return
• Late filing of Financial Statements
• Certain directors’ defaults
Cap on Penalties for Directors
Maximum penalties applicable to directors of Small Companies are lower and capped, offering added protection to promoter-led businesses.
4. Less Stringent Corporate Governance Requirements
No Mandatory Auditor Rotation
(Section 139(2))
Small Companies are not required to rotate auditors after 5/10 years.
Exemption from Internal Financial Controls (IFC) Reporting
(Section 143(3)(i))
Auditors are not required to report on Internal Financial Controls for Small Companies.
Other noteworthy relaxations:
• No requirement to appoint an Internal Auditor (Section 138)
• No mandatory Nomination & Remuneration Committee
• Fewer disclosures in the Annual Return
• Exemption from maintaining complex statutory registers unless specifically applicable
The revised Small Company definition offers significant relief for India’s business ecosystem. With higher thresholds of ₹10 crore paid-up capital and ₹100 crore turnover, numerous growing enterprises can now benefit from simplified governance, lighter reporting, and reduced penalties. Business owners, accountants, payroll processors, and consultants should re-evaluate company classification and update compliance practices accordingly for FY 2025–26 and beyond. This change not only eases the regulatory burden but also creates an opportunity for businesses to focus more on growth, innovation, and long-term success.