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The Ministry of Corporate Affairs, Government of India ("MCA") has issued a recent circular which came into force on December 1, 2025 and which has widened the definition of a 'small company' under the Companies Act, 2013 (the "Act"). A copy of the MCA Circular dated December 1, 2025, is attached for your reference.
Background
Under the provisions of the Act, a "small company" is identified based on prescribed financial thresholds relating to paid-up share capital and turnover along with other conditions.
Revised threshold limits
The latest MCA circular has enhanced the eligibility limits in relation to the paid-up share capital and turnover for classification as a small company. The new thresholds are as follows:
- Paid-up Capital: Increased to INR 100 million (USD 1,108,000 approx.) (from INR 40 million (USD 443,000 approx.))
- Turnover: Increased to INR 1 billion (USD 11,080,000 approx.) (from INR 400 million (USD 4,430,000 approx.))
What this means for companies
The aim of such amendment is to foster ease of doing business and support the growth of emerging businesses.
Entities falling within these revised upper limits will now be eligible to be treated as 'small companies' under the Act and would be able to enjoy the compliance relaxations made available (such as simplified reporting requirements, waiver of the requirement to do an annual tax audit, lower filing fees, less frequency of board meetings, exemption from the requirement to compulsory demat shares, etc.)
However, it is worth noting that just because a private limited company's paid-up capital and turnover are below the increased thresholds, it does not necessarily mean that such a private limited company would be a 'small company' under the Act. In certain scenarios where the private limited company in question is a wholly owned subsidiary of another company (including a company incorporated outside India) or where such a private limited company is itself the holding company of another company or is a company registered under Section 8 of the Act or is a body corporate governed by any special statute (such as for example, the Banking Regulation Act, 1949) detailed under the Act, even if a company's share capital and turnover do not cross the increased thresholds, such a company would not be a 'small company'.
Conclusion
The MCA's enhancement of the small company thresholds is a welcome step toward easing compliance requirements for a broader segment of businesses. Companies should evaluate their current financial position to determine whether they may now fall within the revised limits and If it would be possible to make such a classification, it's advisable to also check the company's articles of association to see if any consequential amendments need to be made to ensure the compliance relaxations can be fully utilised.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
