MCA Expands Financial Thresholds For Small Companies

I.INTRODUCTION
The Ministry of Corporate Affairs (“MCA”) through its notification dated 1st December 2025 (“Notification”) has amended the Companies (Specification of Definition Details) Amendment Rules, 2025 (“Rules”) to further expand the benefits available to start-ups, micro-small and medium enterprises (“MSME”) and other growing private businesses. The changes brought by the said Notification have come into force from the date of its publication in the official gazette.

II.AMENDMENT
Previously, the threshold to classify a company as a ‘Small Company’ was a paid-up capital of INR 4,00,00,000/- (Indian Rupees Four Crores Only) and turn-over of INR 40,00,00,000/- (Indian Rupees Forty Crores Only). However, the MCA has further revised the aforesaid thresholds to having a paid-up capital of INR 10,00,00,000/- (Indian Rupees Ten Crores Only) and turn-over of INR 100,00,00,000/- (Indian Rupees One Hundred Crores Only).

III.KEY IMPLICATIONS AND STRATEGIC TAKE AWAYS
Considering the recent amendment, companies that qualify as a ‘Small Company’ under the Companies Act, 2013 (“Companies Act”) shall have substantial reliefs, enabling the management of such companies to focus on economic growth rather than regulatory burdens:

1. Relaxation from compliance burden – Companies qualifying under the new limits will now enjoy the following compliance exemptions:

• Fewer Board Meetings: Section 173(5) of the Companies Act allows small companies to hold only 2 (Two) board meetings in a given year instead of 4 (Four), which lowers administrative effort and logistical expenses.
• Simplified Annual Return: Under Section 92(1) of the Companies Act, the introduction of the Simplified Annual Return (Form MGT-7A) reduces the quantum of time spent on compliance and helps reduce the cost of professional fees. Additionally, the exemption from preparing a ‘Cash Flow Statement’ under Section 134(1) of the Companies Act eliminates a time-intensive reporting requirement, relaxing the preparation of annual financial statements easier.
• Relaxed Statutory Auditor Rotation: The exemption from auditor rotation requirements under Section 139(2) of the Companies Act read with Rule 5 of the Companies (Audit and Auditors) Rules, 2014 enhances continuity by allowing a small company to retain the same auditor over time, reducing disruptions and avoiding the additional cost of familiarising a new audit firm with the operations of the company. Additionally, the Abridged Director’s Report permitted under Section 134(3) of the Companies Act streamlines the reporting requirement compared to large sized entities.
• Reduction of Penalties: The penalties for certain non-compliances under the Companies Act are mostly reduced to half.

2. More Startups and Growth-Stage Firms Included – Considering the ever-growing market, various companies crossed the earliest threshold of INR 40,00,00,000/- (Indian Rupees Forty Crores Only) turnover limit but still operated like an MSMEs. Pursuant to this Notification, such companies shall again fall under the bracket of a ‘Small Company’ regime if they yet fall under the prescribed thresholds.

3. Exclusions of certain entities – The benefit of this Notification shall not extend to the following:

• Holding Company of a Subsidiary Company of any other company;
• A company registered under Section 8 of the Companies Act; and
• A specific form of company such as a banking-company.

IV. ANALYSIS
This Notification marks a significant step towards enhancing the growth of private companies by increasing the thresholds. By way of this Notification, the MCA has enabled private companies under the aforesaid thresholds to operate smoothly and prioritize their economic growth rather than focusing on strict compliance/ regulations. The companies falling under this ambit must proactively:

• Re-examine their status under Section 2(85) of the Companies Act;
• Reassess reporting requirements for the upcoming financial year; and
• Align board processes and filings with the ‘Small Company’ compliance route.