The Ministry of Corporate Affairs (MCA) has notified the Companies (Specification of Definition Details) Amendment Rules, 2025 through G.S.R. 880(E) dated 1 December 2025. This amendment marks a significant reform in India’s corporate regulatory framework by expanding the financial thresholds that determine whether a company qualifies as a Small Company under Section 2(85) of the Companies Act, 2013.
The Amendment substitutes clause (t) of Rule 2(1) of the 2014 Rules.
According to the new definition:
A Small Company is a company whose—
Paid-up Share Capital does not exceed ₹10 crores, and
Turnover does not exceed ₹100 crores.
This expansion gives more companies access to lesser compliance burdens and simplified governance.
2. Evolution of the Definition of “Small Company” (2013–2025)
2013 (Original Act)
Paid-up capital ≤ ₹50 lakhs
Turnover ≤ ₹2 crores
2014 Rules
Same as the Act.
2021 Amendment
Paid-up capital ≤ ₹2 crores
Turnover ≤ ₹20 crores
2022 Amendment
Paid-up capital ≤ ₹4 crores
Turnover ≤ ₹40 crores
2025 Amendment (Current)
Paid-up capital limit increased to ₹10 crores
Turnover limit increased to ₹100 crores
This is the largest upward revision so far and is aligned with the Government’s objective of creating a Vikasit Bharat by promoting ease of doing business for startups, MSMEs, and new-age companies.
3. Key Changes Introduced Through the 2025 Amendment
✔ Enhanced Eligibility Thresholds
The amendment broadens the eligibility for “Small Company” classification, enabling thousands of additional companies—particularly in manufacturing, services, and technology—to benefit.
✔ Reduces Regulatory Compliance Load
Companies meeting the revised thresholds can shift to simplified governance norms.
✔ Supports Growth of MSMEs
The change reflects the Government’s intent to ease financial and documentary obligations for the backbone of the Indian economy.
4. Benefits of Being Classified as a Small Company
Small Companies enjoy several compliance relaxations, including:
1. Lesser Financial Reporting Burden
No cash flow statement required in financial statements.
Board Report in a simplified format.
2. Reduced Penalties
Lesser penalties for most non-compliances under the Act.
3. Exemption from Mandatory Internal Audit
Unless specifically required by sectoral regulators.
4. Relaxation in Board Meetings
Only two board meetings per year (instead of four).
5. Faster Decision-Making
Fewer statutory obligations → quicker internal processes.
6. Lower Cost of Compliance
Reduced secretarial, legal, and audit expenses.
7. Opportunity for MSMEs to Formalize
Encourages micro and small firms to enter the corporate structure.
5. Which Companies Are Excluded from Being Classified as Small Companies?
Even if they meet the financial limits, the following cannot be considered Small Companies under Section 2(85):
Excluded Categories
Public companies
Holding companies
Subsidiary companies
Companies registered under Section 8 (Not-for-profit companies)
Companies governed by special Acts (e.g., insurance, banking, electricity companies)
Any class of companies notified by the Government
These exclusions ensure that only genuinely small and independent businesses avail the benefit.
6. Why the Change Matters
1. Boost to Startup Ecosystem
Higher limits mean more early-stage and scaling companies get compliance relief.
2. Eases Cost Burden
Legal compliance is costly for smaller entities—this measure directly reduces overhead.
3. Promotes Formal Business Growth
Encourages businesses to incorporate and grow without regulatory fear.
4. Aligns with Economic Expansion Goals
India’s goal of reaching a high-income economy requires easing business operations.
Conclusion
The Companies (Specification of Definition Details) Amendment Rules, 2025 represent a progressive step toward simplifying India’s corporate compliance regime. By raising the financial thresholds for Small Companies to ₹10 crore paid-up capital and ₹100 crore turnover, the Government has empowered a larger base of businesses to operate with reduced regulatory stress.
This reform strengthens India’s MSME ecosystem, encourages entrepreneurship, and aligns with the broader objective of building a resilient, growth-oriented, and Vikasit Bharat.
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