Companies Act Rules Amended To Expand Small Company Definition

New Delhi, Dec 23 (KNN) The Ministry of Corporate Affairs has notified amendments to the Companies (Specification of Definition Details) Rules, 2014, raising the financial thresholds for classification as a ‘small company’ under the Companies Act, 2013. 

The amendment has been issued under Sections 469(1) and 469(2) of the Companies Act, 2013, and is aimed at expanding the scope of companies eligible for simplified compliance requirements.

Revised Financial Limits

Under the amended rules, the definition of a small company under Section 2(85) of the Act has been revised. 

The company must be a Private Limited Company. The paid-up share capital threshold has been increased to not more than Rs 10 crore from the earlier limit of Rs 4 crore, while the turnover ceiling has been raised to not more than Rs 100 crore from Rs 40 crore.

Companies excluded from the definition are holding or subsidiary company, Section 8 companies i.e. those for promoting arts, science, charity etc, a company governed by any special Act. 

Compliance and Governance Benefits

With the enhanced thresholds, a larger number of companies will now qualify as small companies and become eligible for several regulatory relaxations. 

Small companies are permitted to hold a minimum of two board meetings annually with a gap of at least 90 days, compared to four meetings required for other companies.

They are also exempt from mandatory auditor rotation, which otherwise applies after five years for individual auditors and ten years for audit firms. This exemption is expected to reduce compliance costs and administrative burden for eligible companies.

Simplified Reporting and Lower Penalties

Small companies are allowed to prepare simplified financial statements and are exempt from the requirement to prepare a cash flow statement. In addition, under Section 446B of the Companies Act, small companies are subject to lower penalties for certain non-compliance provisions, offering further regulatory relief.

Dematerialisation Exemption

The amendment also expands the pool of companies eligible for exemption from mandatory share dematerialisation. Companies qualifying as small companies are not required to compulsorily dematerialise shares, helping reduce procedural requirements and associated costs.

(KNN Bureau)