On the heels of budget proposals to encourage formation of ‘small company’ and ‘one person company’, the Ministry of Corporate Affairs has come up with an abridged version of annual return for such companies.

This move is seen as yet another effort by the government to ensure ease of doing business for companies and attract foreign investments. It will go a long way to lighten the compliance burden of several lakhs of companies.

Besides revising the definition of a small company in the recent budget, it had also allowed NRIs to incorporate one person company. These changes are to come into effect from April 1. As per the amendment effected for definition of small company, the government has now stipulated that the paid-up capital cannot exceed ₹2 crore and turnover ₹ 20 crore.

Prior to this change, the definition was based on thresholds defined by the Companies Act which mentioned a maximum paid up capital of ₹50 lakh and turnover of ₹ 2 crore in the immediate preceding fiscal.

Increasing corporatisation

Reacting to the latest MCA move, Aseem Chawla, Managing Partner, ASC Legal, said: “In the backdrop of the impetus provided by the budget incentivising organisation of One Person Company and bringing more unincorporated businesses into One Person Company and anticipating more formation of such OPCs; Rules have been amended in providing differentiated and simpler compliances. The aim is to promote corporatisation of the ecosystem and bring more businesses in organised mainstream of ecosystem.”

Manu Varghese, Partner (General Corporate) , White and Brief, Advocates and Solicitors, said the new rules is a part of the Government’s ease of business initiative. Another bonus for companies is the doing away with filing of an extract of annual return along with the board report. Further, explanations under Rule 20 relating to e-voting which existed in the 2014 rules, but were inadvertently removed in the 2016 rules, have now been reinstated for clarity.

Published on March 8, 2021