Centre revises threshold for paid up capital of small companies

Source: The post is based on the article “Centre revises threshold for paid up capital of small companies” published in PIB on 16th September 2022.

What is the News?

The Ministry of Corporate Affairs has revised the threshold for paid up capital of “small companies”. 

What is a Small Company?

Small businesses are corporations, partnerships, or sole proprietorships which have fewer employees and/or less annual revenue than a regular-sized business or corporation. 

The Companies Act 2021 defines the rules and provisions regarding a Small Company.

Which companies can be classified as Small Company?

The Ministry of Corporate Affairs has notified an amendment in the Companies (Specification of Definitions Details) Rules, 2014 that came into force on 1st April 2021. 

According to it, the definition of “Small Companies” under the Companies Act,2013 was revised by increasing their thresholds for paid-up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”.

Now the definition has been revised again.

According to the latest revision, the definition of ‘Small Companies’ has further been revised by increasing the thresholds for paid-up Capital from “not exceeding Rs 2 crore” to “not exceeding Rs 4 crore”. Furthermore, the turnover has increased from “not exceeding Rs 20 crore” to “not exceeding Rs 40 crore”.

What are the benefits of small companies in terms of compliance? 

The small companies have the following advantages in terms of compliance: 1) No need to prepare a cash flow statement as part of a financial statement, 2) Mandatory rotation of the auditor is not required, 3) Holding only two board meetings in a year unlike other companies which are required to hold four such meetings in the same period, 4) Annual Return of the company can be signed by the company secretary and 5) Lesser penalties for small companies.

What are the other measures taken towards ease of doing business?

The Ministry of Corporate Affairs(MCA) has taken several measures toward ease of doing business and ease of living for the corporates. These measures include decriminalization of various provisions of the Companies Act, 2013 & the LLP Act, 2008, extending fast-track mergers to start-ups, incentivizing incorporation of One Person Companies (OPCs) and more.