India Revises Paid-Up Capital Threshold for Small Companies, Eases Compliance Burden

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India has made changes to the paid-up capital and turnover thresholds for an entity to be legally identified as a ‘small company’, thereby extending the benefits of a lower compliance burden for more businesses. Such firms form the backbone of the Indian economy and are critical to the government’s efforts to boost job creation and facilitate entrepreneurship in the country. 

India has doubled the threshold of paid-up capital and turnover for ‘small companies’ in a move to lower the compliance burden for a wider net of entities.

The Ministry of Corporate Affairs (MCA) notified the changes on September 15 via the Companies (Specification of definition details) Amendment Rules, 2022.

Now the threshold for paid-up capital of small companies has been increased to INR 40 million while the turnover limit has been raised to INR 400 million. Previously, the Companies Act, 2013 had increased the threshold for such firms from ‘not exceeding INR 5 million’ to ‘not exceeding INR 20 million’ in paid-up capital and from ‘not exceeding INR 20 million’ to ‘not exceeding INR 200 million’ in turnover.

How the revised thresholds will ease doing business in India

The higher thresholds for paid-up capital and turnover requirements for small companies immediately extends the benefits of this category to a much bigger number of enterprises. Legally, small companies have the advantage of a lower compliance burden.

The central government is also keen on facilitating growth in employment by easing business compliances for a larger number of enterprises, hence the latest amendment.

The government has steadily been implementing reforms to create a conducive business environment. These include decriminalization of various provisions of the Companies Act, 2013 and the LLP Act, 2008, extending fast track mergers of start-ups, incentivizing the incorporation of One Person Companies (OPCs), etc.

How the new threshold limits impact compliance 

The changes to the paid-up capital and turnover thresholds for a company to be labelled as a small company will result in them accessing the following benefits:

  • No need to prepare cash flow statement as part of the company financial statement.
  • Advantage of preparing and filing an Abridged Annual Return.
  • Mandatory rotation of auditor is not required.
  • An auditor of a small company is not required to report on the adequacy of the company’s internal financial controls and its operating effectiveness in the auditor’s report.
  • Requirement of holding just two board meetings in a year.
  • Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company.
  • There are lesser penalties for small companies.

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