“Small Company” under the Companies Act, 2013: Important Recent Exemptions

Context:

The Ministry of Corporate Affairs (“MCA”) has reshaped the compliance framework for certain privately held companies by expanding the financial thresholds that determine which entities qualify as a “small company” under Section 2(85) of the Companies Act, 2013, as amended (the “Companies Act”).

The construct of ‘small company’ under the Companies Act is aimed at ‘ease of doing business’ by subjecting companies of a certain size to a less stringent regulatory framework and reduced statutory compliance.

Recent amendment to the definition of ‘small company’:

With effect from December 1, 2025[1], a small company is now a company whose (i) paid-up capital does not exceed ₹10 crore (increased from ₹4 crore); and (ii) turnover does not exceed ₹100 crore (increased from ₹40 crore) in the immediately preceding financial year as per the profit and loss statement.

Exclusions to a ‘small company’:

The proviso to Section 2(85) of the Companies Act stipulates that a company shall not qualify as a ‘small company’ regardless of the thresholds mentioned above if it falls in any of the below exclusions:

• public companies;

• holding companies or subsidiary companies;

• Section 8 companies; and

• companies or body corporates governed by special acts.

This structure seems to ensure that large entities with public interest remain subject to stringent compliance norms. 

The benefits of being a ‘small company’:

One of the key advantages of the small company status is in the preparation of financial statements – a small company is not required to include a cash flow statement as part of its financial statements. This exemption significantly reduces the accounting effort required in the annual reporting cycle.

The preparation and filing of the annual return also become considerably simpler. Under Section 92(1) read with Rule 11(1) of the Companies (Management and Administration) Rules, 2014, a small company  is permitted to file Form MGT-7A - an abridged annual return, which can be signed either by the company secretary or, in the absence of one, by a director without the requirement of certification by a practicing company secretary otherwise mandated under the proviso to Section 92(1) of the Companies Act.

Further, relief appears in the preparation of the directors’ report. Section 134(3A) of the Companies Act permits a small company to issue a simplified directors’ report, dispensing with several detailed disclosures (such as disclosures regarding conservation of technology, technology absorption, and foreign exchange earnings) otherwise mandated for larger entities.

A small company is expressly exempt from the mandatory requirement of auditor rotation stipulated under Section 139(2) of the Companies Act. 

Another benefit for a small company is that while other companies must hold a minimum of four board meetings annually with a gap of at most 120 days between two meetings, a small company is only required to hold one board meeting in each half of a calendar year.

The gap between these two meetings must be not less than 90 days.

A small company also benefits from a lower fee structure for filing of forms and applications. These concessions are facilitated through the Companies (Registration Offices and Fees) Rules, 2014 framed under Section 403 of the Companies Act and the power to exempt under Section 459(2) of the Companies Act, with specific reduced rates detailed in the said Rules. Compliance norms for small companies in respect of authentication of documents are also reduced by not mandating e-forms to be pre-certified by practicing professionals in terms of Rule 8 of the Companies (Registration Offices and Fees) Rules, 2014.

Even in terms of consequences for non-compliance with the provisions of the Companies Act, the legislative framework is more forgiving. Section 446B of the Companies Act provides that a small company is subject to reduced penalties – the penalty applicable to small companies is broadly 50% of the amount otherwise payable by large entities subject to the prescribed monetary caps. This creates a compliant but less punitive environment for entities where defaults are often procedural lapses.

Finally, from a restructuring standpoint, the Companies Act reserves the fast-track merger route under Section 233 for certain categories of companies, including mergers between two or more small companies. This route bypasses the National Company Law Tribunal process and enables a quicker, more cost-effective consolidation framework for small companies.

Conclusion:

The revised thresholds for defining a small company represent more than a numerical adjustment – they reflect a policy decision to ease business for smaller companies.

Used judiciously in conscious structuring of group entities, this amendment can be a tool to optimising compliance. 

[1] Pursuant to the Companies (Specification of Definition Details) Amendment Rules, 2025 notified by the MCA amending Rule 2(1)(t) of the Companies (Specification of Definitions Details) Rules, 2014.

This note does not constitute legal advice and is not intended to create an attorney-client relationship.

For any questions and/or clarifications regarding the subject matter, please contact:

Srishti Ojha (Partner) at srishti.ojha@veristlaw.com,

Nayan Jain (Partner) at nayan.jain@veristlaw.com, or 

Alister Sequeira (Principal Associate) at alister.sequeira@veristlaw.com