MCA’s 2025 Notification Unlocks Compliance Relief for India’s Expanding Corporate Base

The Ministry of Corporate Affairs ( MCA ) has notified the Companies (Specification of Definition Details) Amendment Rules, 2025, revising the financial thresholds that define a “small company” under section 2(85) of the Companies Act, 2013.

The amendment, published in the Gazette ofIndia on December 1, 2025, raises the ceiling for both paid-up capital and turnover, thereby expanding the scope of companies eligible for compliance relaxations.

Characteristics of a Small Company

Low profitability

Smaller companies seem to have lower revenue when compared with larger and medium-scale companies. However, lower revenue doesn't mean that the company has fewer profits.

Less number of Employees

The number of employees is lower than that in large companies as they have less paid-up capital and lower turnover compared with others. They appoint a very small group of people for the management of the company. Sometimes the whole company might be managed by one person.

Smaller Market Area

As the smaller companies work within their limited resources, they do not establish themselves in multiple branches. Their businesses are mostly confined to Rural townships.

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The New Definition: What Has Changed?

As per the amended Rule 2(1)(t) of the Companies (Specification of Definition Details) Rules, 2014, a company will now qualify as a “small company” if:

• Its paid-up capital does not exceed ₹10 crore, and
• Its turnover does not exceed ₹100 crore.

This marks a substantial increase from the previous thresholds, which stood at:

• Paid-up capital not exceeding ₹4 crore, and
• Turnover not exceeding ₹40 crore.

The revised limits are applicable from the date of publication in the Official Gazette and are expected to bring thousands of additional companies under the small company category.

Comparative Snapshot: Old vs New Definition

Criteria	Earlier Threshold (Pre 2025)	Revised Threshold (Dec 2025 Notification)
Paid-Up Capital	Up to 4cr	Up to 10cr
Turnover	Up to 40cr	Up to 100cr

This increase in turnover and capital thresholds reflects the government’s intent to align regulatory classifications with the evolving scale of Indian businesses, especially in the MSME and startup sectors.

Key Compliance Relaxations for Small Companies

The benefits of being classified as a small company are manifold. Here’s a comparative overview of the major relaxations:

Compliance Area	Small Companies	Other Companies
Board Meetings	Minimum 2 per year (≤ 90 days gap)	Minimum 4 per year (≤ 120 days gap)
CARO Applicability	Not applicable	Mandatory for statutory audit
Annual Return Certification	No CS certification required (Form MGT-7A)	CS certification mandatory (Form MGT-7)
Auditor Rotation	Not applicable	Mandatory
Dematerialisation of Shares	Not mandatory	Mandatory for prescribed classes
Penalty Provisions (Section 446B)	Lesser penalties for non-compliance	Standard penalties apply

These relaxations significantly reduce the cost and complexity of compliance for small companies, making them more agile and resource-efficient.

Why the Redefinition Matters

The classification of a company as “small” under the Companies Act is not merely semantic; it carries tangible compliance benefits. Small companies enjoy a simplified regulatory framework, reduced filing requirements, and exemptions from certain statutory obligations. By expanding the definition, the MCA aims to reduce the compliance burden on a wider base of enterprises, thereby fostering entrepreneurship and operational efficiency.

Impact on Indian Businesses

The revised definition is expected to benefit a wide spectrum of companies, particularly:

• Startups and early-stage ventures that operate with modest capital but high growth potential.
• Family-owned businesses and closely held private companies prefer lean governance structures.
• MSMEs are transitioning into formal corporate structures but are wary of regulatory overhead.

According to industry estimates, the new thresholds could bring over 1 lakh additional companies under the small company umbrella, unlocking compliance savings and administrative flexibility.

Policy Rationale and Legislative Context

The amendment is rooted in Section 2(85) of the Companies Act, 2013, which empowers the government to prescribe financial limits for defining a small company. The latest revision follows a series of incremental relaxations introduced over the years, including the 2021 and 2022 amendments that gradually raised the thresholds.

This 2025 update represents the most important leap yet, aligning with the government’s broader agenda of “Minimum Government, Maximum Governance.” It also complements initiatives like the MCA21 portal, which digitises corporate filings, and the Startup India programme, which encourages innovation through regulatory support.

Compliance Strategy for Companies

Companies that newly qualify as small under the revised definition should consider the following steps:

1. Reassess classification: Review financials to confirm eligibility under the new thresholds.
2. Update statutory filings: Ensure MCA records reflect the revised status for future filings.
3. Leverage exemptions: Switch to simplified forms (e.g., MGT-7A), reduce board meeting frequency, and evaluate audit applicability.
4. Consult professionals: Engage company secretaries or legal advisors to realign compliance calendars and governance protocols.

Caveats and Exclusions

It’s important to note that certain companies, even if they meet the financial criteria, are excluded from the small company classification. These include:

• Public companies
• Holding or subsidiary companies
• Companies registered under Section 8 (non-profits)
• Companies governed by special statutes

Thus, eligibility is not automatic and must be assessed holistically.

Industry Reaction

The move has been widely welcomed by industry bodies and professionals. CA Akhil Pachori, a prominent voice in corporate compliance, highlighted the practical benefits in a recent post: “Small companies enjoy reduced compliance burden and fewer meetings. No CARO and auditor rotation requirements significantly ease statutory audit compliance.”

Legal experts also note that the amendment will improve compliance rates by reducing procedural fatigue and allowing companies to focus on core business activities.

The December 2025 notification is a pivotal moment in India’s corporate regulatory landscape. By expanding the definition of small companies, the MCA has not only acknowledged the changing dynamics of Indian enterprise but also confirmed its commitment to ease of doing business.

For thousands of companies, this change translates into fewer filings, lower costs, and more time to focus on growth. As India continues to nurture its entrepreneurial ecosystem, such reforms will play a crucial role in balancing governance with agility.

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