Govt revises threshold for paid up capital of small companies

The Ministry of Corporate Affairs (MCA) has further revised the definition of small companies under the Companies Act, 2013 by increasing their threshold for paid up capital from “not exceeding ₹2 crore” to “not exceeding ₹4 crore” and turnover from “not exceeding ₹20 crore” to “not exceeding ₹40 crore”.

The move aims to facilitate ease of doing business further and reduce compliance burden on small companies.

Small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner, the ministry says, adding that the government has always been committed to taking measures which create a more conducive business environment for law-abiding companies, including reduction of compliance burden on such companies.

The government says some of the benefits of reduction in compliance burden as a result of the revised definition for small companies are as following:

• No need to prepare cash flow statement as part of financial statement.

• Advantage of preparing and filing an abridged annual return.

• Mandatory rotation of auditor not required.

• An Auditor of a small company is not required to report on the adequacy of the internal financial controls and its operating effectiveness in the auditor’s report.

• Holding of only two board meetings in a year.

• Annual Return of the company can be signed by the company secretary, or where there is no company secretary, by a director of the company.

• Lesser penalties for small companies.

The Ministry of Corporate Affairs has taken several measures in the recent past towards ease of doing business and ease of living for the corporates. These included decriminalisation of various provisions of the Companies Act, 2013 & the LLP Act, 2008, extending fast track mergers to start ups, incentivising incorporation of One Person Companies (OPCs) etc.

Meanwhile, the ministry registered more than 1.67 lakh company incorporations during the financial year 2021-22 as compared with 1.55 lakh companies in the previous fiscal. The increase is significant considering that the number of companies incorporated during FY21 were the highest in any of the previous years.

The incorporations during FY22 are 8% more than the incorporations during FY21. While MCA had registered 1.24 lakh companies during FY19 and 1.22 lakh companies in 2019-20 respectively, it had registered 1.55 lakh companies during FY21.

During 2021-22, the states having the highest number of registrations were Maharashtra (31,107 companies) followed by Uttar Pradesh (16,969 companies) Delhi (16,323 companies) Karnataka (13,403 companies) and Tamil Nadu (11,020 companies).

On the basis of sectors, the maximum number of companies were incorporated in the business services (44,168 companies), followed by manufacturing (34,640 companies) community, personal and social services (23,416 companies), and agriculture and allied activities (13,387 companies).