In a significant move towards Ease of Doing Business, the Ministry of Corporate Affairs (MCA) has revised the definition of a "Small Company" under the Companies Act, 2013, effective December 2025. The amendment significantly enhances the financial thresholds, enabling a larger number of privately held companies to qualify as small companies and avail themselves of a simplified regulatory and compliance framework.

Objective of the Small Company Framework

The concept of a Small Company under the Act is intended to support growing businesses by reducing the regulatory load placed on smaller private enterprises. Specifically, it aims to:

• Reduce compliance burden for entities with limited scale
• Provide exemptions from extensive governance requirements
• Simplify reporting, audit, and disclosure obligations
• Allow businesses to grow sustainably before transitioning to higher regulatory oversight

Key Exemptions and Benefits Available to Small Companies

Qualifying as a small company unlocks a wide range of compliance relaxations under the Companies Act, 2013:

Board & Governance

• Minimum two board meetings per year instead of four
• Exemption from constitution of Board Committees
• Exemption from Performance Evaluation of Directors
• Exemption from appointment of Independent Directors and a Woman Director
• Vigil Mechanism not mandatory

Audit & Financial Reporting

• No Internal Financial Control (IFC) reporting by Auditors
• Exemption from CARO, 2020 regular auditor's report shall suffice
• Exemption from mandatory Auditor Rotation every 5 years
• Exemption from Secretarial Audit and Internal Audit
• Cash flow statement not required as part of financial statements

Filings & Compliance

• Exemption from certification of Annual Return by a Practising Professional
• Simplified Annual Return via Form MGT-7A with abridged Director's Report
• No mandatory dematerialisation of shares
• Lower filing fees, reduced penalties, and access to the Fast-Track Merger Route

Revised Eligibility Thresholds Old vs. New

To qualify as a Small Company, a company must satisfy both of the following criteria simultaneously:

Who is Excluded?

The following companies are excluded from the Small Company classification regardless of their paid-up share capital and turnover. These exclusions remain unchanged under the new amendment:

• Holding companies
• Subsidiary companies
• Section 8 companies
• Companies governed under special Acts (Banking, Insurance, Electricity, etc.)
• Public companies

What is a Small Company?

The Companies Act introduced the concept of a Small Company to provide compliance relief and operational flexibility to smaller businesses operating as private limited companies. Compared to larger organisations, small companies typically have lower capital investment and turnover. In a developing economy like India, such companies play an important role in promoting entrepreneurship, generating employment, and supporting overall economic growth.

There is no separate incorporation process for a small company under the Act. It is incorporated in the same manner as a private limited company. However, based on prescribed limits relating to paid-up share capital and turnover, certain eligible private companies are classified as small companies and can avail various compliance and procedural relaxations under the Act.

Frequently Asked Questions (FAQs)