Summary: Clause 18 of the Corporate Laws (Amendment) Bill, 2026 proposes to amend Section 2(85) of the Companies Act, 2013 by increasing the maximum prescribed paid-up share capital threshold for a “small company” from ₹10 crore to ₹20 crore and the turnover threshold from ₹100 crore to ₹200 crore. The proposed amendment follows the MCA’s 1 December 2025 amendment increasing the limits to ₹10 crore and ₹100 crore. If enacted, more private companies may qualify as small companies and become eligible for applicable compliance relaxations, including simplified annual return and Board’s Report requirements, exemption from preparation of a cash-flow statement where applicable, reduced compliance and reporting requirements, the reduced penalty regime under Section 446B where applicable, and other specified relaxations. The exclusions under Section 2(85) would continue to apply to holding companies, subsidiary companies, Section 8 companies, and companies or bodies corporate governed by a special Act, irrespective of their financial thresholds. The proposed limits represent a progression from ₹4 crore/₹40 crore to ₹10 crore/₹100 crore and then ₹20 crore/₹200 crore.

Proposed Amendment to the Definition of Small Company under the Companies Act, 2013

The proposed amendment in Clause 18 of the Corporate Laws (Amendment) Bill, 2026 seeks to revise the financial thresholds prescribed under Section 2(85) of the Companies Act, 2013, which defines a “Small Company.”

Existing Small Company Definition under Section 2(85) of Companies Act, 2013

Section 2(85) of the Companies Act, 2013 defines a “small company” as a company, other than a public company, —

(i) paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed, which shall not be more than ten crore rupees; and

(ii) turnover of which, as per the profit and loss account for the immediately preceding financial year, does not exceed two crore rupees or such higher amount as may be prescribed, which shall not be more than one hundred crore rupees.

Provided that nothing in this clause shall apply to—

(A) a holding company or a subsidiary company;

(B) a company registered under Section 8; or

(C) a company or body corporate governed by any special Act.

Current Small Company Limits under Companies Act, 2013

Present Prescribed Limits

Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014 provides that for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of Section 2 of the Act, the paid-up share capital and turnover of a small company shall not exceed rupees ten crore and rupees one hundred crore respectively.

Accordingly, at present, a company shall be treated as a small company if:

• its paid-up share capital does not exceed ₹10 crore; and
• its turnover does not exceed ₹100 crore,

subject to the exclusions provided under Section 2(85) of the Companies Act, 2013.

Accordingly, at present, a private company can qualify as a small company if both financial conditions are satisfied, subject to the statutory exclusions under Section 2(85).

Proposed Small Company Limits under Corporate Laws (Amendment) Bill, 2026

Proposed Amendment under Corporate Laws (Amendment) Bill, 2026

Clause 18 of the Corporate Laws (Amendment) Bill, 2026 proposes to amend Section 2(85) by increasing the financial limits as follows:

• The maximum paid-up share capital threshold is proposed to be increased from ₹10 crore to ₹20 crore.
• The maximum turnover threshold is proposed to be increased from ₹100 crore to ₹200 crore.

Impact of Proposed Increase in Small Company Limits

Impact of the Proposed Amendment

If enacted, the proposed amendment would bring a much larger number of private companies within the definition of “small company”.

Such companies may become eligible for various compliance relaxations available under the Companies Act, 2013, depending upon the specific provision and applicable rules.

These include, among others:

• simplified annual return requirements;
• exemption from preparation of a cash-flow statement in the financial statements, where applicable;
• reduced compliance and reporting requirements;
• simplified Board’s Report requirements;
• benefit of the reduced penalty regime under Section 446B, where applicable;
• relaxation from mandatory auditor rotation in cases where the relevant provisions apply; and
• other procedural and regulatory relaxations available specifically to small companies.

However, classification as a small company does not mean that the company is exempt from all statutory compliances. The company must continue to comply with all provisions that remain applicable to it.

Holding and Subsidiary Companies Excluded from Small Company Definition

Important Point: Holding and Subsidiary Companies Remain Excluded

The increase in the financial thresholds does not remove the statutory exclusions contained in the proviso to Section 2(85). Therefore, a holding company or subsidiary company cannot become a “small company” merely because its paid-up capital and turnover fall within the prescribed financial limits.

Example: Subsidiary Company Not Eligible as Small Company

Example: Suppose ABC Private Limited is a subsidiary company of XYZ Limited. ABC Private Limited has—

• paid-up share capital of ₹1 crore; and
• turnover of ₹5 crore.

Although the company is within the prescribed limits of ₹10 crore paid-up capital and ₹100 crore turnover, it will still not qualify as a “small company” because it is a subsidiary company.

Example: Holding Company Not Eligible as Small Company

Similarly, if PQR Private Limited is a holding company having paid-up share capital of ₹2 crore and turnover of ₹8 crore, it will also not be treated as a small company due to the specific exclusion under Section 2(85) of the Companies Act, 2013.

The same principle applies to Section 8 companies and companies or bodies corporate governed by a special Act.

Earlier Revised Small Company Definition under Companies Act, 2013

Earlier revised definition of a “Small Company”

The definition of a “Small Company” under Section 2(85) of the Companies Act, 2013 has been revised by increasing the prescribed thresholds of paid-up share capital and turnover.

MCA vide Notification dated 01.12.2025, namely the Companies (Specification of Definitions Details) Amendment Rules, 2025, has amended Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014. Pursuant to the amendment, Rule 2(1)(t) now provides that for the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of Section 2 of the Companies Act, 2013, the paid-up share capital and turnover of a small company shall not exceed rupees ten crore and rupees one hundred crore respectively.

Evolution of Small Company Limits under Companies Act, 2013

The evolution of the thresholds may be summarised as follows:

2025 Amendment Increased Small Company Limits to ₹10 Crore and ₹100 Crore

The 2025 amendment is particularly significant because it had already increased the prescribed limits from ₹4 crore/₹40 crore to ₹10 crore/₹100 crore with effect from 1 December 2025.

2026 Proposal Further Expands the Small Company Regime

The 2026 proposal therefore represents a further substantial expansion of the category.

Accordingly, a greater number of private companies will now qualify as “small companies” and become eligible for various compliance relaxations and lesser regulatory requirements available under the Companies Act, 2013.

Entities Excluded from Small Company Definition

However, it is pertinent to note that the following entities shall continue to remain excluded from the definition of a small company irrespective of their paid-up capital or turnover:

• holding companies;
• subsidiary companies;
• companies registered under Section 8; and
• companies or bodies corporate governed by any special Act.

Practical Significance of Proposed Small Company Limits

Practical Significance

The proposed amendment is important because the concept of a “small company” is gradually moving away from being restricted to very small private companies.

The proposed ₹20 crore paid-up capital and ₹200 crore turnover thresholds would allow substantially larger private companies to obtain the regulatory benefits associated with small-company status.

Policy Objectives of Proposed Small Company Amendment

The policy objective appears to be to:

• reduce the cost of corporate compliance;
• facilitate ease of doing business;
• reduce disproportionate regulatory burdens on growing enterprises;
• encourage entrepreneurship and expansion; and
• allow growing private companies to remain within a simplified compliance framework for a longer period.

Conclusion: Proposed Small Company Limits of ₹20 Crore and ₹200 Crore

The proposed amendment under Clause 18 of the Corporate Laws (Amendment) Bill, 2026 is therefore a major proposed expansion of the “Small Company” regime.

The progression can be understood simply as:

₹4 crore / ₹40 crore → ₹10 crore / ₹100 crore → proposed ₹20 crore / ₹200 crore

However, the financial thresholds are only one part of the definition. Holding companies, subsidiary companies, Section 8 companies and companies/body corporates governed by a special Act continue to remain excluded, irrespective of their paid-up share capital or turnover.

Accordingly, if the proposed amendment is enacted, a private company having paid-up capital up to ₹20 crore and turnover up to ₹200 crore may qualify as a small company, provided it satisfies all other conditions of Section 2(85) and does not fall within any of the specified exclusions.

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