On 1 February 2021, the Hon'ble Finance Minister presented the Union Budget 2021-22. The budget speech referred to certain proposals on company matters to facilitate ease of doing business. In furtherance to that, the Ministry of Corporate Affairs notified amendments to the relevant provisions of the Companies Act, 2013 and rules (CA 2013) made thereunder.
We list the gist of amendments made to CA 2013 in pursuance of budgetary announcements:
Provision |
Amendment |
Change in definition of 'small company' |
An amendment is made to the Companies (Specification and Definitions Details) Rules, 2014, whereby the threshold limit of paid-up capital and turnover to qualify as a 'small company' has been increased. Accordingly, a company that has:
Earlier, 'small company' was defined as a company other than a public company having paid-up share capital not exceeding INR 5 million and turnover not exceeding INR 20 million. |
Changes to One Person Company (OPC) framework |
Following amendments are made to the Companies (Incorporation) Rules, 2014:
|
Merger or amalgamation of start-up companies |
Rule 25 of the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016, has been amended to provide that a scheme of merger or amalgamation under section 233 of CA 2013 may be entered into between:
Further, a start-up company is defined as a company incorporated
under CA 2013 or previous company law and recognized as such in
accordance with notification number G.S.R. 127 (E), dated 19
February 2019, issued by the Department for Promotion of Industry
and Internal Trade. |
Our Comments
Small company status offers relaxation from various provisions of CA 2013 and eases compliance burden on them. As mentioned in the budget speech, the increase in the threshold limit for a small company is likely to benefit 200,000 companies. Changes to the OPC regulatory framework offers motivation to grow without any restriction of paid-up capital and turnover, augmenting foreign capital and technology. Recognition of start-up company as a class of company for the purpose of fast track merger allows start-up option to explore restructuring without necessarily going to the National Company Law Tribunal (NCLT) for sanction. Overall, the thrust of budget on company matters was on facilitating ease of doing business. In that direction, it proposes to decriminalize the provisions of the Limited Liability Partnership Act 2008, strengthening of NLCT framework, and launching data analytics, artificial intelligence, machine learning driven MCA21 Version 3.0 with additional modules for e-scrutiny, e-Adjudication, e-Consultation and Compliance Management.
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.