MCA changes definition of ‘Small Companies’, raises threshold for paid-up Capital from Rs. 50 lakhs to Rs. 2 cr. [Read Notification]

The Ministry of Corporate Affairs has notified announcing the change of definition of ‘small company’. The change was proposed by Finance Minister Nirmala Sitharaman while presenting the Union Budget on Monday wherein the paid-up capital increased to ₹2 cr and turnover increased to ₹20 cr. The changes will come into effect from April 1, 2021.

The notification reads, “ . . . . . 2. In the Companies (Specification of Definitions Details) Rules, 2014,  in rule 2, in sub-rule (1), after clause (s), the following clause shall be inserted, namely:-

“(t) For the purposes of sub-clause (i) and sub-clause (ii) of clause (85) of section 2 of the Act, paid up capital and turnover of the small company shall not exceed rupees two crores and rupees twenty crores respectively.”.

The Companies Act 2013 provides certain benefits to the Small companies which includes:-

• Small Company needs to hold only 2 Board meetings in a calendar year i.e. one board meeting in each half of the calendar year.
• In the case of a Small Company, the Annual Return can be signed by Company Secretary alone or if there is no CS, by a single Director only.
• A small company does not require to maintain a Cash flow statement as a part of its Financial Statements.
• A Small company is exempt from the requirement of this section. change its auditor by rotation according to Section 139(2) of Companies Act 2013.
• A Small Company does not require to report in its Audit Report regarding Internal Financial controls and the operating effectiveness of the company.
• In the case of a Small Company, the Companies Act prescribes lesser penalties.

With the new notified change in definition more companies can now enjoy these benefits improving the ease of doing business for these companies.

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