The Corporate Affairs Ministry (MCA) has relaxed the paid up capital threshold for small companies, facilitating further Ease of Doing Business and reduced compliance burden for such companies.

Under the revised definition, the threshold for paid up capital for small companies would be “not exceeding ₹4 crore” and turnover threshold being “not exceeding ₹40 crore”. Prior to the latest change, the threshold for paid up capital was “not exceeding ₹2 crore” and turnover “not exceeding ₹40 crore”.

With this latest relaxation, the benefits small companies could derive include dispensing with cash flow statement as part of the financial statement; filing an abridged annual return; no mandatory rotation of auditor; no need to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report; holding of only two board meetings in a year; annual returns can be signed by the company secretary, or where there is no company secretary, by a director of the company, and lesser penalties.

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Experts’ take

Reacting to this, Archana Bhutani , Partner, Deloitte India, said, “This is a significant move aligned with the Government’s objective of promoting ease of doing business for small companies by reducing their compliance burden. The increase of limit is also reflective of how the size of companies has evolved over time. The revision will enable a larger number of companies to avail the benefits of the relaxation from compliance requirements under the Act.”

Manendra Singh, Associate Partner, Economic Laws Practice, said: “In another move towards ease of doing business, the government has expanded the scope of small companies under Companies Act, 2013. As a result of which, a larger set of companies would fall within such category. Notably, small companies are allowed various relaxations in terms of compliances (such as lesser penalties, exemptions from cash flow statement), and that consequently reduces the cost and expenses of such early stage companies. Now, with the amendment, both paid-up capital and turnover thresholds have been increased. Those companies whose paid-up capital does not exceed ₹4 crore and turnover does not exceed ₹40 crore , will qualify as small companies and hence avail the benefits available to them. Earlier these limits were ₹2 crore and ₹20 crore , for paid-up capital and turnover, respectively.”

Navin Kumar, Partner, Cyril Amarchand Mangaldas, said, ““The increase in limits of paid-up share capital and turnover to Rs. 4 crores and Rs. 40 crores, respectively, in relation to Small Companies is a welcome step. This will allow more companies (including start-ups) to avail benefits available to a small company under the Companies Act, 2013. This amendment is a facilitative step towards the Ease of Doing Business and will ease the compliance burden of all such small / start-up companies for holding minimum number of board meetings, preparation of financial statements, mergers between small companies, lesser penalty for non-compliance, etc.”

“In view of India being the third largest ecosystem for Startups as per Indian Economic Survey, 2022, such facilitative steps, though incremental, will have a positive effect on the Indian Startup ecosystem and will help it grow further. This is also in line with the Startup India Initiative of Government of India.”

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