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Wednesday, February 21, 2024

Govt doubles paid-up capital, turnover limits for ‘small companies’


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New Delhi: In a bid to reduce compliance burden and improve Ease of Doing Business (EoDB) for entrepreneurs, the government has raised the thresholds of paid-up capital and turnover for ‘small companies’.

Accordingly, the threshold of paid up capital has been increased upto Rs 4 crore and turnover upto 40 crore for small companies doubling the previous limits.

The definition of “small companies” under the Companies Act, 2013 was earlier revised by increasing their thresholds for paid up capital from “not exceeding Rs 50 lakh” to “not exceeding Rs 2 crore” and turnover from “not exceeding Rs 2 crore” to “not exceeding Rs 20 crore”.

“This definition has, now, been further revised by increasing such thresholds for paid up Capital from ‘not exceeding Rs. 2 crore’ to ‘not exceeding Rs. 4 crore’ and turnover from ‘not exceeding Rs. 20 crore’ to ‘not exceeding Rs. 40 crore’,” said Ministry of Corporate Affairs (MCA) in a press release on Friday.

The MCA noted that small companies represent the entrepreneurial aspirations and innovation capabilities of lakhs of citizens and contribute to growth and employment in a significant manner.

The change in definition of small companies is expected to reduce compliance burden as such firms would not be required to prepare cash flow statement as part of financial statement.

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

While there are lesser penalties for small companies, the revised criteria would provide them advantage of preparing and filing an abridged Annual Return. They would need to hold only two board meetings in a year.

The government has taken several measures in the recent past towards ease of doing business and ease of living for the corporates.

These include decriminalisation of various provisions of the Companies Act, 2013 and the LLP Act, 2008, extending fast track mergers to start ups, incentivising incorporation of One Person Companies (OPCs) etc.

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