MCA Supercharges Small Companies with Massive Compliance Relief

Snapshot: Big Relief for Small Companies (Quick 15-Line Summary)

The Ministry of Corporate Affairs (MCA) has notified a major change to the definition of a Small Company under Section 2(85) of the Companies Act, 2013 through the Companies (Specification of Definition Details) Amendment Rules, 2025 (Notification G.S.R. 880(E) dated 1 December 2025).

Under the new rules:

• Paid-up capital limit has been increased from ₹4 Crore to ₹10 Crore
  
• Turnover limit has been increased from ₹40 Crore to ₹100 Crore
  
• These are the maximum limits permitted under Section 2(85)
  

Why it matters:

• Thousands of additional companies will now qualify as Small Companies
  
• This means:
  
  • Only two Board Meetings a year (Section 173)
    
  • No Cash Flow Statement required (Section 134)
    
  • No mandatory auditor rotation (Section 139)
    
  • Simplified Annual Return in Form MGT-7A (Sections 92 and 137)
    
  • Lesser penalties under Section 446B
    

Net effect: a big compliance holiday for growing MSMEs and closely-held companies, allowing promoters to focus on growth instead of paperwork, while nudging India further up the Ease of Doing Business (EODB) curve.

What Has Changed: Old vs New Small Company Limits

The notification G.S.R. 880(E), dated 1 December 2025 amends Rule 2(1)(t) of the Companies (Specification of Definition Details) Rules, 2014, which in turn defines “Small Company” under Section 2(85) of the Companies Act, 2013.

This is the third major revision to the definition of a Small Company since 2013, and clearly signals the government’s focus on MSME-friendly compliance norms.

Small Company Criteria – Evolution of Limits

Section 2(85) allows the Central Government to prescribe higher amounts up to a ceiling of ₹10 Crore paid-up capital and ₹100 Crore turnover. With this amendment, the MCA has now fully utilised the available headroom.

Key Compliance Relaxations for Small Companies

The real benefit of falling within the Small Company definition lies in the lighter compliance framework under the Companies Act, 2013.

A wider pool of companies will now enjoy the following relaxations:

Section 134 – Financial Statements

• Small Companies are not required to include a Cash Flow Statement as part of their financial statements.
  
• This simplifies preparation and audit of financial statements.
  

Sections 92 and 137 – Annual Return and Filing

• Small Companies can file a simplified Annual Return in Form MGT-7A instead of Form MGT-7.
  
• Filing and compliance become faster, with reduced disclosure complexity.
  

Section 139 – Appointment and Rotation of Auditors

• Small Companies are exempt from mandatory auditor rotation.
  
• Promoters can continue with the same audit firm without having to change auditors after prescribed terms.
  

Section 173 – Board Meetings

• Only two Board Meetings in a calendar year are required (one in each half-year).
  
• Other companies must hold at least four Board Meetings annually.
  

Section 446B – Lesser Penalties

• Small Companies enjoy reduced penalties, generally half of the penalties applicable to other companies for the same non-compliance.
  
• This significantly lowers the risk cost of minor procedural defaults.
  

Together, these provisions amount to a substantial compliance and cost reduction for Small Companies.

Positive Economic Impact: Who Wins from the New Small Company Definition?

This expansion of the Small Company threshold has multi-layered economic effects across sectors.

MSMEs and Startups

Example:
A growing manufacturing company with ₹8 Crore paid-up capital and ₹75 Crore turnover previously fell outside the Small Company umbrella. Now, it qualifies.

Impact:

• Reduced compliance cost & time:
  
  • Fewer Board Meetings
    
  • No Cash Flow Statement
    
  • No mandatory auditor rotation
    
• The saved cost and bandwidth can be redeployed towards:
  
  • R&D and product innovation
    
  • Hiring and capability building
    
  • Market and export expansion
    

Result: A direct boost to growth, competitiveness and formalisation in the MSME and startup ecosystem.

Financial Sector – Banks and NBFCs

For banks and NBFCs dealing with MSME borrowers, the new definition may lead to:

• More businesses being incentivised to incorporate and remain compliant to enjoy Small Company benefits
  
• A larger formal pool of borrowers, improving credit assessment
  
• Better risk visibility compared to lending to completely informal entities
  

This can strengthen MSME lending, improve portfolio quality and support credit-driven growth.

Regulatory Environment – MCA and RoC

For the MCA and Registrar of Companies (RoC):

• Regulatory focus can shift more sharply towards larger, systemically important companies
  
• Less granular scrutiny is required for Small Companies, as the compliance expectations themselves are lower
  
• This aligns with the government’s Ease of Doing Business (EODB) agenda by:
  
  • Reducing friction for small and mid-sized businesses
    
  • Allowing regulators to use resources more strategically
    

Challenges and Trade-Offs: Who Loses or Needs to Be Careful?

While the move is largely positive, it also raises some governance and economic trade-offs.

Auditing and Professional Services Sector

Example:
A mid-sized audit firm that depended heavily on companies with turnover between ₹40 Crore and ₹100 Crore benefitted from mandatory auditor rotation.

Post-amendment:

• Many of these companies will now be Small Companies
  
• They are exempt from auditor rotation under Section 139
  
• This may lead to:
  
  • Reduced audit mandates
    
  • Lower revenue opportunities for CA firms and company secretaries focused on mid-market compliance
    

Professional firms may need to pivot towards advisory, virtual CFO, governance and transaction support to rebalance their revenue mix.

Corporate Governance and Transparency

From a stakeholder perspective (creditors, minority shareholders, analysts):

• Companies with turnover up to ₹100 Crore can now avoid presenting a Cash Flow Statement
  
• For a creditor of a company with ₹90 Crore turnover, this may mean:
  
  • Less granular visibility into liquidity and cash movements
    
  • Slightly lower transparency in financial reporting
    

While the compliance burden is reduced, there is a governance trade-off for a significantly larger number of entities.

Data Integrity and Policy Analysis

For economic policymakers and researchers:

• Increased use of simplified Annual Return (Form MGT-7A)
  
• Absence of Cash Flow Statements for a broader base of companies
  

This may cause:

• Minor data gaps in corporate sector analysis
  
• Reduced granularity for those studying corporate savings, investment patterns, or sector health
  

It’s a classic policy balance between ease of doing business and depth of available data.

What Should Promoters, CAs and Company Secretaries Do Now?

If you are a promoter, CFO, Chartered Accountant or Company Secretary, this is the ideal time to:

• Re-assess your company’s status under Section 2(85) using the new thresholds
  
• Check if group entities or subsidiaries now qualify as Small Companies
  
• Recalibrate your compliance calendar, especially for:
  
  • Board Meetings
    
  • Financial statement formats
    
  • Auditor appointment and rotation planning
    
  • Annual Return filing formats
    

You should also communicate these changes to lenders, investors and key stakeholders, highlighting:

• Lower compliance cost
  
• Faster closing timelines for financial statements and annual filings
  
• The continued commitment to good governance, even with relaxations
  

Stay Ahead of MCA Changes with VIDUR

Tracking evolving thresholds, penalties and exemptions across the Companies Act, MCA notifications, SEBI, FEMA, IBC and tax laws is now a full-time job.

That’s where VIDUR – the AI Assistant for Corporate, Tax & Regulatory Laws helps you stay ahead:

• Get section-wise explanations for provisions like Section 2(85), Sections 134, 137, 139, 173, 446B and 92
  
• Ask practical questions like:
  
  • “Does my company with ₹9 Crore paid-up capital and ₹85 Crore turnover qualify as a Small Company after G.S.R. 880(E), 2025?”
    
  • “What compliances change once a company becomes a Small Company?”
    
• Generate client-ready notes explaining:
  
  • Old vs new limits
    
  • Impact on board processes, audit, disclosures and penalties
    

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