According to a notification from the Ministry of Corporate Affairs (MCA), any business with a paid up capital of up to ₹4 crore and a turnover of up to ₹40 crore would be considered a small business.
This is the second revision in just 18 months – the limit was raised to ₹2 crore and ₹20 crore, respectively, on April 1. Small companies are not required to include cash flow statements in their financial reports, only need to hold two board meetings per year compared to at least four for others, and do not have to rotate listeners every five years. They may file abbreviated annual returns and these may be signed by the company secretary or a director of the company. Most small business statutory documents do not need to be signed by a practicing professional such as a chartered accountant.
Experts said the earlier increase in 2021 did not benefit many companies because the thresholds were very low, especially the paid-up capital criteria.
On top of that, in the post-Covid rush, several small startups received funding from private equity and other investors, increasing their paid-up capital even though their business was still small, pushing them out of the small business category. .
Forgiving compliance regime
The doubled limit should allow a much larger number of businesses to be considered small businesses for light compliance.
“The government’s idea appears to increase the number of small businesses by 10-20% and the higher thresholds will allow more startups to benefit from the lenient regime,” said Sanket Jain, partner at Pioneer Legal.
These measures are part of the Centre’s efforts to facilitate the compliance regime for businesses. Last year the government decriminalized several breaches of the Companies Act, providing a more lenient regime.
“There are several exemptions for small businesses under the Companies Act – most importantly, lower penalties for non-compliance,” said Gaurav Pingle, incumbent company secretary.
“Due to increased monetary limits to define a small business, the pre-certification requirement for practicing professionals for certain forms will be reduced for these businesses. Instead, self-certification would be sufficient.”
This move is intended to help create a better business environment.
“Small businesses represent the entrepreneurial aspirations and innovative capacities of thousands of citizens and contribute significantly to growth and jobs,” the MCA said in a press release. “The government has always been committed to taking measures that create a more conducive business environment for law-abiding businesses, including reducing the compliance burden for such businesses.”