Govt revises definition of small cos; reduced compliance burden for firms

The latest decision by the corporate affairs ministry, which is implementing companies law, has again revised the definition of small companies and is aimed at further improving ease of doing business

The government has revised the paid-up capital and turnover thresholds for small companies that will help reduce the compliance burden on more entities.

The latest decision by the corporate affairs ministry, which is implementing the companies law, has again revised the definition of small companies and is aimed at further improving the ease of doing business.

With the amendments to certain rules, the threshold for small companies' paid-up capital has been increased to "not exceeding Rs 4 crore" from "not exceeding Rs 2 crore".

Similarly, the turnover threshold has been revised to "not exceeding Rs 40 crore" from "not exceeding Rs 20 crore", the ministry said in a release on Friday.

The revisions will allow more entities to come under the category of small companies.

According to the ministry, small companies are exempted from the requirement to prepare cash flow statement as part of financial statement and can file an abridged annual return.

They will not be required to have the mandatory rotation of auditors.

An auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor's report, and such companies need to hold only two board meetings in a year, the release said.

Other advantages are that there are lesser penalties for small companies and annual returns of such entities can be signed by the company secretary, or where there is no company secretary, by a director of the company.

"Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner.

"The government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies," the release said.

Navin Kumar, Partner at Cyril Amarchand Mangaldas, said the increase in limits of paid-up capital and turnover will allow more companies, including startups, to avail the benefits available to a small company under the Companies Act, 2013.

"This amendment is a facilitative step towards the ease of doing business... such facilitative steps, though incremental, will have a positive effect on the Indian startup ecosystem and will help it grow further," he noted.

In recent times, the government has taken various measures, including decriminalisation of various provisions under the companies law, to further improve the ease of doing business in the country.