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Overview:
The Ministry of Corporate Affairs ("MCA") has, vide notification dated 1 December 2025, notified the Companies (Specification of definition details) Amendment Rules, 2025 ("Amendment Rules"), substantially revising the thresholds for determining a "Small Company" under Section 2(85) of the Companies Act, 2013. The Amendment Rules have come into force with immediate effect from 1 December 2025, and significantly expand the ambit of companies eligible for the relaxed compliance regime applicable to Small Companies.
Changes to the Definition of "Small Company"
| Existing Definition | Revised Definition | |
|---|---|---|
| Paid-Up Share Capital | Not exceeding Rs. 4 crores | Not exceeding Rs. 40 crores |
| Turnover of the Company | Not exceeding Rs. 10 crores | Not exceeding Rs. 100 crores |
The revised thresholds, however, will not apply to the following categories of companies:
- A holding company or subsidiary company; or
- A company registered under Section 8; or
- A company or body corporate governed by any special Act
Purpose of the Revision
The relaxation of thresholds is intended to substantially widen the ambit of companies falling within the Small Company regime, thereby reducing regulatory and procedural burden on private enterprises. The amendment aligns with the government's stated objective of improving the ease of doing business, promoting MSME growth, and enabling simplified governance, reduced filings and lower penalties for eligible companies.
Key Compliance Relaxations Available to Small Companies
Companies qualifying under the revised definition are entitled to substantial statutory exemptions including:
- Conducting two board meetings per year instead of four;
- Exemption from preparing Cash Flow Statements;
- Exemption from mandatory auditor rotation;
- Eligibility to file the abridged Form MGT-7A;
- Non-applicability of CARO and IFC Reporting;
- Exemption from mandatory dematerialisation of shares;
- Eligibility for reduced penalties under Section 446B
Ambiguities in Compliance Requisites for FY 2024-25
The enforcement of the present notification coincides with the extended annual filing cycle for FY 2024-25, thereby giving rise to ambiguities. These include:
- Whether the status of any entity as a "small company" is to be determined as on 31March 2025 or as on the date of filing post the amendment;
- Whether the newly qualified entities are eligible to the abridged Form MGT-7A instead of MGT-7 for FR 2024-25;
- Whether the newly qualified companies are eligible to avail exemptions from filing cash flow statements under Section 2(49) and auditor rotation under Section 139(2)
MHCO Comment:
The expansion of the definition of "Small Company" represents a significant deregulatory reform with immediate compliance and cost implications for several private companies, particularly those setting up a company in India. While the amendment meaningfully advances the objective of easing regulatory burden and fostering business growth, timely regulatory clarification will be essential to address the transitional and interpretational uncertainties arising from the timing of the amendment and to ensure consistent and uniform implementation.
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.
