Summary: The Ministry of Corporate Affairs (MCA) has revised the definition of a “small company” under Section 2(85) of the Companies Act, 2013, significantly raising the financial thresholds for eligibility. As of 1 December 2025, a small company is a non-public entity with paid-up capital up to ₹10 crores and annual turnover up to ₹100 crores, provided it is not a holding/subsidiary company, Section 8 company, or governed by a special statute. The amendments aim to reduce compliance burdens by allowing fewer board meetings, simplified annual return and board report filings, exemption from cash flow statements, and relaxed auditor requirements. However, mandatory compliance obligations—including financial statements, statutory filings, board resolutions, and adherence to other laws—remain. Strategically, the changes enable cost-effective capital raising, facilitate operational focus, and support restructuring, mergers, and growth planning. Overall, the revision provides regulatory relief to small and medium enterprises, promoting ease of doing business while ensuring continued governance and compliance.
In this article, let us explore the change and its implications for small and medium enterprises:
The Revised Framework:
Under Section 2(85) of the Companies Act, a “small company” is a non-public company (i.e. not a public company), which meets certain financial thresholds. As of 1 December 2025, the thresholds have been significantly raised via the Companies (Specification of Definition Details) Amendment Rules, 2025.
Paid-up share capital: ceiling increased to ₹ 10 crores (previously ₹ 4 crores under 2022 amendment)
Annual turnover: ceiling increased to ₹ 100 crores (previously ₹ 40 crores)
A company must satisfy both criteria (capital and turnover) to qualify as a “small company.”
Importantly, certain entities remain excluded from this classification even if they meet the financial thresholds:
- Holding companies and subsidiary companies
- Companies registered under Section 8 of the Act (i.e. non-profit / charitable companies)
- Companies governed by a special Act or body corporate under a special statute
This expanded ambit underlines the Government’s push for ease of doing business and aims to provide regulatory relief to a wider array of small and medium enterprises.
Some of the key benefits: Lighter Procedural and Compliance Burden
- Reduced Board-meeting requirements: A small company is required to hold just two board meetings per financial year (versus four for larger private companies).
- Simplified Annual Return & Board Report formalities: The annual return can be signed by the Company Secretary — or, in absence of CS, by a director.
- Exemption from preparing Cash Flow Statement: Financial statements need not include a cash flow statement — easing the burden on accounting and audit.
- Relaxation on auditor-related requirements: Provisions like mandatory auditor rotation under Section 139(2) do not apply.
- Possibility of abridged filings: The Central Government may prescribe abridged Board Report and abridged financial statements for small companies.
Not a Blanket Exemption:
While the relaxations are welcome, they do not amount to blanket exemption. Small companies must remain vigilant about certain mandatory compliances and governance requirements under the Companies Act. Some of these key obligations include:
- Annual Return & Statutory Filings: Even though format may be abridged (e.g. Form MGT-7A instead of MGT-7), annual return and necessary filings with the Registrar of Companies (RoC) must be filed within prescribed timelines. This includes directors’ information, shareholding pattern, etc.
- Maintenance of Financial Statements & Compliance with Accounting Standards: While cash flow statement might be exempted, full financial statements along with profit & loss account and balance sheet need to be prepared as per applicable accounting norms and must be filed with RoC.
- Board and Shareholders’ Decisions/Resolutions: Matters which require board or shareholders’ resolutions must still be conducted in compliance with relevant provisions (quorum, notice period, minutes, etc.).
- Applicability of Other Laws: Classification as a small company under the Companies Act does not exempt the entity from other laws — e.g. taxation laws (income tax, GST if applicable), labour laws, contract laws, regulatory laws. As a practitioner in tax and regulatory litigation, one is well aware that compliance under company law is only one dimension.
- Statutory Disclosures & Record Keeping: Registers (like directors and key managerial personnel, share transfer, charge, etc.), bookkeeping, audit trail — these remain fundamental, even for small companies.
Strategic Implications:
This shift carries important strategic implications for founders, investors, management, and advisors alike.
- Cost-Effective Structuring: For start-ups and early-stage companies, the revised thresholds allow for raising more capital (up to ₹ 10 crores) without triggering the heavier compliance load for larger private companies. This is particularly relevant for businesses in growth phase or scaling up operations.
- Planning for Growth: As turnover approaches the upper threshold (₹ 100 crores), companies should plan ahead — consider when the “small company” status will cease, and prepare for full compliance regime of larger private companies (or even public companies, if conversion contemplated).
- Mergers / Restructuring & Exit Planning: The relaxed framework may encourage small companies to experiment with restructuring, joint ventures or amalgamations — provided they remain within the criteria. For advisors and legal professionals, this expands the scope of small-company–friendly corporate restructuring.
Concluding Thoughts
The decision of the MCA to raise the thresholds defining a “small company” marks a welcome step toward reducing regulatory burden and promoting ease of doing business in India. For many private enterprises — start-ups, emerging businesses, family-owned companies — this opens the door to growth, capital infusion, and operational focus.
In case you have any concern and queries or need any support under Compliances and Approvals in India, you may like to contact us.
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Abhinarayan Mishra, FCA, FCS; Managing Partner, KPAM & Associates, Chartered Accountants, Dwarka, New Delhi; +9910744992, ca.abhimishra@gmail.com
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